Alaska Air Group reports GAAP net income of $236 million for the third quarter

Alaska Air Group (Alaska Airlines, Hawaiian Airlines and Horizon Air) today reported financial results for the third quarter ending September 30, 2024.

Air Group closed out a strong third quarter, generating GAAP pretax margins of 10.7% and earnings per share (EPS) of $1.84. On an adjusted basis, our pretax margin of 13.0% will lead the industry. Given Air Group’s completed acquisition of Hawaiian Airlines on September 18, 2024, quarterly financial statements include approximately 13 days of Hawaiian Airlines results.

“There has been no better time to be part of Alaska Air Group. By bringing together Alaska and Hawaiian’s remarkable service, expansive networks, distinct cultures, and shared values, we are creating a resilient airline that can meet the challenge of competing in a rapidly shifting industry,” said CEO Ben Minicucci. “We have the resources and flexibility to navigate challenges, embrace new opportunities, and write the next chapter for our company. Our industry leading margins and strong operational performance are proof points that we are making the right investments to differentiate ourselves from our domestic-focused peers. Today’s results reinforce we are on the right path for the future.”

Quarter in Review:

We are excited to host our Investor Day on December 10^th, where we will share more detail about our vision as a combined company, including higher synergy estimates driven by the combination, discuss our strategy to expand margins and generate free cash flow, and provide 2025 guidance. Given the proximity of third quarter earnings to our Investor Day, we announced on October 21^st that we would not hold an earnings conference call this quarter. While we expect to resume regular quarterly earnings calls again in January 2025, this quarter we are providing additional narrative on our third quarter performance, including discussion of Air Group trends excluding Hawaiian Airlines within our earnings release today.

Air Group’s consolidated results reported in the third quarter of 2024 include 13 days of Hawaiian Airlines results, while prior comparable periods exclude any Hawaiian results. Except where noted below, the following discussion of Air Group’s third quarter performance reflect legacy-Alaska performance, excluding Hawaiian for the 13 days it was part of the combined company.   

Income and EPS:

Today we reported GAAP net income of $236 million, or $1.84 earnings per share for the third quarter of 2024. Excluding special items and mark-to-market fuel hedge accounting adjustments, we reported net income of $289 million, or $2.25 earnings per share, significantly exceeding our original guidance for the quarter of $1.40 to $1.60 and coming in at the high end of our revised guidance published on September 12^th. Our adjusted pretax margin of 13.0% led industry peers for the 2^nd consecutive quarter and continues to demonstrate the strength of our business model. We have built a solid foundation of robust earnings and operating cash flow generation that we’re excited to continue building on through the combination of both Alaska and Hawaiian Airlines, as we realize substantial synergies amidst a strong demand environment and constructive industry backdrop.

Revenue:

During the quarter, Alaska saw unit revenues inflect positive in August, with strength in booking trends continuing into the fourth quarter. We’ve seen improvement across the Alaska network, in particular in the Pacific Northwest and Latin America regions. Corporate demand showed renewed strength in September and into October, which drove meaningful yield improvements on close-in bookings. Managed corporate revenue grew 9% year-over-year in the third quarter with double digit growth from the technology and professional services industries. Premium revenue performance also remained strong this quarter, continuing to outperform main cabin, with first and premium class revenue up 10% and 8% year-over-year respectively on 5% year-over-year growth in premium seat capacity. Unit revenues are expected to continue their positive trajectory, from up low-single digits in the third quarter to up mid-single digits in the fourth quarter.

“The opportunities for this newly combined global airline are clear, and we are poised to be the airline that connects the West Coast to the world with an experience rooted in care and performance,” said CCO Andrew Harrison. “We are investing in our commercial engine to compete more effectively with the larger carriers, increase loyalty among our guests and realize synergies from both our commercial and cargo businesses. These investments include re-imagined lounge and onboard offerings designed to meet the needs of our most loyal guests, optimized route networks that get people to more places in less time, a seamless booking to boarding experience, and more.”

Operationally, Alaska delivered a reliable performance for our guests during their peak summer travel plans, not only flying our largest ever summer schedule, but doing so with a 99.2% completion rate. Growth this year has been impacted by delayed aircraft deliveries, which we expect to continue due to the ongoing strike at Boeing. Further aircraft delivery delays are expected to limit capacity growth in the final quarter of 2024 relative to our prior resource planning expectations earlier in the year.

Costs:

Costs performed as expected and were in line with our prior guidance, although unit costs remain pressured from lower capacity due to delivery delays. We remain resourced for higher capacity and are experiencing the lowest attrition rates across the company since 2019. One-third of our second half 2024 unit cost increases on a year-over-year basis are directly related to relative overstaffing given originally higher planned flying volumes, as well as the natural pressure that lower capacity puts on our fixed cost base which is about half of total costs. We expect this pressure to be transitory and to return to optimized resource levels relative to our capacity throughout 2025. Despite this, productivity for the quarter improved 4.6% year-over-year. 

Our expected profit sharing payouts increased materially in the quarter, primarily driven by lower fuel prices and improving revenue trends, offset by a reduction in expected wage expense from our tentative agreement with our flight attendants which did not ratify during the quarter.

Balance Sheet and Capex:

Turning to our balance sheet, we ended the quarter with total liquidity of $3.4 billion, inclusive of approximately $850 million in undrawn lines of credit which were upsized following the closing of the Hawaiian acquisition. Subsequent to quarter end, we raised $2.0 billion in Term Loan B and Bond debt collateralized by Alaska’s Mileage Plan program. The bond offering garnered investor interest of greater than 7x our issued amount, and we achieved the tightest spreads seen on similar debt within the industry outside of the pandemic, a testament to the strength of our loyalty collateral and our balance sheet. Approximately $1.4 billion was used to repay higher-yielding debt assumed in the merger, which we expect to result in annual interest cost savings of approximately $30 millionover the next twelve months. Following the loyalty financing and debt repayments in October, our debt to capitalization and net leverage sit today at 58% and 2.4x respectively, still among the strongest balance sheets in the industry.

For capital expenditures, we continue to plan to incur approximately $1.2 to $1.3 billion in 2024. This amount assumes we pay for 18 737 Max aircraft this year, subject to Boeing delivery ability.

Hawaiian Airlines Trends:

Although we only recently completed the acquisition of Hawaiian Airlines, we are encouraged by the continued improvement in the Hawaiian network. Following significant losses incurred in the fourth quarter of 2023, Hawaiian’s EBITDAR turned positive in the second quarter and pretax results are expected to approach break even in the fourth quarter. The improvement is expected to be driven by both revenues and costs. North America PRASM inflected positive during the third quarter and we expect will be up mid-single digits year-over-year in the fourth quarter, while International PRASM is gradually improving from down double digits toward flat year-over-year in the fourth quarter of 2024. Neighbor Island results are also showing material year-over-year improvements. Several temporary cost headwinds that have challenged Hawaiian’s performance have mostly passed, with the impact of the A321 GTF engine-driven groundings fully resolved and the majority of the A330 Amazon freighter and 787 new fleet startup related costs completed.

Integration:

With a proven playbook from our integration of Virgin America, we are prepared and excited to begin in earnest to bring the operating platforms of Alaska and Hawaiian together, while we maintain the legacy and value of both brands, each of which have been built over 90 years respectively. We plan to achieve three significant integration milestones in the next 18 months – the launch of a single loyalty platform, receipt of a single operating certificate, and integration of our passenger service system. We will also soon begin working with our labor-represented workgroups to start the joint collective bargain process.

We are on track to finish the year strong and expect to be among the top 3 pretax margin producers in the industry for the full year, inclusive of Hawaiian’s results from the date of acquisition closing. There is much to be excited about for our airlines as we move ahead and begin unlocking the multiples of potential we can accomplish as a combined company. 

Fourth Quarter 2024 Guidance:

For the fourth quarter, we expect the following results, inclusive of Hawaiian. Expectations for the fourth quarter are compared to pro forma historical results, as if the acquisition had occurred on January 1, 2023. Pro forma historical results were included with this Form 8-K. Full year 2024 EPS is expected finish above the midpoint of our previous guidance of $3.50 to $4.50 per share, inclusive of Hawaiian’s results.

Financial Results and Updates:

• Reported net income for the third quarter of 2024 under Generally Accepted Accounting Principles (“GAAP”) of $236 million, or $1.84 per share, compared to net income of $139 million, or $1.08 per share, for the third quarter of 2023.
• Reported net income for the third quarter of 2024, excluding special items and mark-to-market fuel hedge accounting adjustments, of $289 million, or $2.25 per share, compared to net income of $237 million, or $1.83 per share, for the third quarter of 2023
• Subsequent to quarter end, Air Group completed $2 billion in financing, backed by the Company’s Mileage Plan program. Approximately $1.4 billion was used in October to refinance certain debt acquired with Hawaiian Airlines, which is expected to result in interest cost savings of approximately $30 million over the next twelve months.
• Repurchased 367,705 shares of common stock for approximately $14 million in the third quarter, bringing total repurchases to $63 million for the nine months ended September 30, 2024.
• Generated $318 million in operating cash flow for the third quarter.
• Held $2.5 billion in unrestricted cash and marketable securities as of September 30, 2024.
• Consolidated and upsized the Company’s existing revolving credit facilities to $850 million in support of our overall liquidity target.

Operational Updates: 

• Alaska received two 737-9 aircraft and one 737-8 aircraft during the quarter, bringing the totals within the airline’s fleet to 72 737-9s and five 737-8s. Hawaiian received its fourth A330-300 freighter from Amazon.
• Completed Starlink installation on Hawaiian’s 24 A330 aircraft, offering high-speed Wi-Fi free of charge to guests onboard.
• Partnered with Portland International Airport for the opening of its renovated terminal, leveraging new technology to help guests travel through the lobby quickly.
• Launched Stays by Alaska Vacations with Expedia Group, a new platform offering exclusive deals on over 900,000 hotels and vacation rental properties, providing Mileage Plan members the ability to earn and redeem miles on reservations.
• Announced partnership with James Beard award-winning chef Brandon Jew to offer an exclusive First Class dining experience for guests on flights between San Francisco and New York JFK.

Sustainability Updates:

• Announced investment in JetZero, a company developing a blended-wing body aircraft designed to provide up to 50% less fuel burn, reflecting Alaska’s commitment to its goal of net zero carbon emissions by 2040.
• In collaboration with UP.Labs, launched Odysee, an innovative startup that leverages AI and computing power to optimize Air Group’s scheduling and management of operational logistics.

The following table reconciles the company’s reported GAAP net income per share (EPS) for the three and nine months ended September 30, 2024 and 2023 to adjusted amounts.

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.