Alaska Air Group Beats on Q3 Earnings, Misses on Revenues

Alaska Air Group, Inc. (ALK) reported impressive third-quarter 2014 financial numbers. The company reported earnings of $1.47 per share, surpassing the Zacks Consensus Estimate of $1.41.

Quarterly revenues declined 5.9% year over year to $1,465 million and missed the Zacks Consensus Estimate of $1,470 million. On a year-over-year basis, Passenger revenue increased 7%.

Operating Statistics

Airline traffic, measured in revenue passenger miles, moved up 8.1% year over year to 7,994 million in the third quarter. Capacity or available seat miles increased 8.1% to 9,582 million, while load factor (percentage of seats filled with passengers) declined 50 basis points year over year to 86%. Passenger revenue per available seat mile (PRASM) decreased 1.1% year over year to 13.03 cents.

Operating Expenses & Operating Income

In the third quarter, adjusted operating income fell 33% to $316 million from the last-year quarter. Total adjusted operating expenses increased 6% year over year to $1,149 million owing to increased variable incentive pay, contract service expenses and hedging loss. Fuel price (economic) accounted for $3.15 per gallon, down from $3.24 in the year-ago quarter. Consolidated unit cost or cost per available seat mile (CASM) excluding fuel and special items, fell 3.6% year over year to 7.87 cents.

Liquidity

At the end of the third quarter, Alaska Air Group had $1,343 million in cash and marketable securities, up from $1,330 million as of Dec 31, 2013. The company had long-term debt of $710 million, representing a debt-to-capitalization ratio of 31%.

For the 12-month period ended Sep 30, 2014, the company generated operating cash flow of $1 billion and free cash flow of $321 million. Alaska Air Group repurchased 3.4 million shares for approximately $159 million and paid a dividend of 12.5 cents per share.

Peer Releases

Delta Air Lines Inc. (DAL) reported third-quarter 2014 adjusted earnings of $1.20 per share, beating the Zacks Consensus Estimate of $1.18, while Southwest Airline Co.’s (LUV) earnings of 55 cents also steered ahead of our estimate of 53 cents. United Continental Holdings Inc. (UAL) posted a profit of $2.75 per share, higher than the Zacks Consensus Estimate of $2.70.

Alaska Air Group currently holds a Zacks Rank #2, implying a Buy rating.