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Alaska Air (ALK) Up 17.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Alaska Air Group (ALK - Free Report) . Shares have added about 17.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Alaska Air due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Alaska Air's Q3 Loss Wider Than Expected

Alaska Air, incurred a loss of $3.23 per share (excluding 26 cents from non-recurring items) in the third quarter of 2020, wider than the Zacks Consensus Estimate of a loss of $2.86. However, in the year-ago quarter, the company delivered earnings of $2.63 when air-travel demand was strong. The September-quarter’s underperformance can be attributed to the advent of the coronavirus, which dramatically changed the scenario for the airlines.

Revenues at Alaska Air came in at $701 million, surpassing the Zacks Consensus Estimate of $680.3 million. The top line, however, declined 70.7% year over year. Passenger revenues — contributing 81.6% to the top line — were down 74% on a year-over-year basis due to weak travel demand

Other Details

Consolidated traffic, measured in revenue passenger miles, fell 74.6% year over year in the reported quarter. Consolidated capacity (measured in available seat miles) dropped 55.1%. Load factor (percentage of seats occupied by passengers) deteriorated 37.3 points to 48.5% as traffic plunged more than the amount of capacity contraction.

Total revenue per available seat mile (RASM: a key measure of unit revenues) slumped 34.8% year over year to 8.9 cents in the reported quarter on a consolidated basis. Meanwhile, yield inched up 1.9% to 14.99 cents.

In the third quarter, total operating expenses (on a reported basis) were down 35% year over year to $1,272 million. Consolidated fuel price (economic) was $1.32 per gallon, down 38% year over year. With most of the fleet remaining grounded/under-utilized, fuel gallons consumed were down 57.4%. Consolidated cost per available seat mile excluding fuel and special items surged more than 66% to 14 cents, mainly due to the capacity cuts.

Liquidity

At the end of the third quarter, the company had $3,759 million in cash and marketable securities compared with $1,521 million at the end of 2019.

The company exited the third quarter with long-term debt of $2,672 million compared with $1,264 million at the end of 2019. Inclusive of operating leases, debt-to-capitalization ratio was 59% compared with 41% at the end of December 2019.

Alaska Air Q1 Loss Narrower Than Expected
Alaska Air incurred a loss of 82 cents per share (excluding $1.05 from non-recurring items) in the first quarter of 2020, narrower than the Zacks Consensus Estimate of a loss of $1.27. In the year-ago quarter, the company reported earnings of 17 cents. The downturn is due to unprecedented drop in air travel demand in the wake of the coronavirus outbreak.
Having started in February, the downfall aggravated in March, with cancellations exceeding bookings. Demand is around 90% below the normal level.
Revenues came in at $1,636 million, missing the Zacks Consensus Estimate of $1,691.1 million. The top line also declined approximately 13% year over year. Passenger revenues — contributing 90.5% to the top line — were down 14% on a year-over-year basis.

Operating Statistics
Consolidated traffic, measured in revenue passenger miles, declined 14.4% year over year in the reported quarter. Capacity (measured in available seat miles) dropped 1.3%. Load factor (percentage of seats occupied by passengers) deteriorated 1,070 basis points to 69.6% as traffic declined more than the amount of capacity contraction.
 
Total revenue per available seat mile (RASM: a key measure of unit revenues) fell 11.7% year over year to 10.69 cents in the quarter under discussion. Meanwhile, yield inched up 0.9% to 13.9 cents.
Operating Expenses & Income
In the first quarter, total operating expenses (on a reported basis) were up 6% year over year to $1,957 million, with expenses on wages and benefits increasing 10%. Fuel price (economic) was $1.93 per gallon, down 9.4% year over year.
The company reported operating loss of $321 million in the first quarter against operating income of $25 million in the year-ago quarter. Consolidated cost per available seat mile — excluding fuel and special items — inched up 1.8% to 9.22 cents.
Liquidity
At the end of the first quarter, this Seattle, WA-based company had $2,125 million in cash and marketable securities compared with $1,521 million at the end of 2019.
The company exited the quarter with long-term debt of $1,203 million compared with $1,264 million at the end of 2019. Adjusted debt-to-capitalization ratio was 48% compared with 41% at the end of December 2019.




Airline traffic, measured in revenue passenger miles, rose 44.2% year over year to 13,554 million in the reported quarter. Capacity or available seat miles increased 41.1% to 15,612 million. Load factor (percentage of seats filled by passengers) increased 190 basis points to 86.8% owing to traffic growth outpacing capacity expansion.
Passenger revenue per available seat mile (PRASM: a key measure of unit revenues) increased 1.3% year over year to 11.57 cents. While total revenue per available seat mile (RASM) declined 0.4% to 13.46 cents in the reported quarter, yield declined 0.8% to 13.33 cents.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -35.12% due to these changes.

VGM Scores

Currently, Alaska Air has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Alaska Air has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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