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Alaska Airlines' Capacity Cuts to Widen Due to Corona Crisis

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Alaska Air Group’s ALK subsidiary Alaska Airlines will now reduce capacity by at least 10% in April and 15% in May as coronavirus concerns are on the rise. Previously, on Mar 10, management stated that it expects to trim capacity by approximately 3% in May. Ever since, passenger demand has persistently declined with significant increase in cancellations and extremely low new bookings.

Further, the airline will keep track of the demand status and if needed, will continue to lower capacity on a rolling 15-day basis. The carrier is also looking for additional borrowing of approximately $500 million.

Cost-Cutting Measures

Amid the downturn, the airline focuses on preserving cash by suspending at least $300 million of its capital spending, primarily by delaying pre-delivery aircraft payments and a few non-aircraft capital projects. The carrier will also suspend share repurchases. Moreover, it is freezing hiring, except for crucial front-line and management roles, and also offering employees unpaid leaves of absence for 30, 60 and 90-day time frames. Since Mar 7, the base salaries of the company’s CEO Brad Tilden and president Ben Minicucci have been reduced to zero.

Similar measures were taken by Delta Air Lines DAL and United Airlines (UAL - Free Report) in the past.

Shares of Alaska Airlines have plunged 49.6% since the beginning of February due to the demand slump caused by coronavirus.


Zacks Rank & Key Pick

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