kingair1
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An ongoing journey
Record quarter for Air Group, but headwinds blowing stronger
July 21, 2011
Second quarter bottom line: $89.6 million profit
Alaska Air Group earned a record $89.6 million profit during the second three months of 2011, after taxes and adjusting for fuel hedges and fleet transition costs at Horizon Air. This represents the fifth record quarterly profit in a row and is $5.6 million more than Air Group earned during the second quarter of 2010, even though fuel costs rose almost $106 million.
The results equate to an 11.5 percent return on invested capital over the past 12 months — exceeding the company’s 10 percent goal.
The outlook for the rest of the year remains uncertain, though, mostly due to volatile oil prices and a sluggish U.S. economy. Although advance bookings are strong and fares stable, Alaska is closely monitoring passenger demand for signs of weakness.
“We can’t control the economy and the price of fuel. But, as a team, we can control our network and capacity, our approach to non-ticket revenues, our frequent flier program, our operational performance, our productivity and overhead, and our customer service,” CEO Bill Ayer said. “The measures we have taken over the past several years have been instrumental in our success and are building a platform for a future of sustained profitability and appropriate growth.”
Why we made money in the second quarter
• More people are flying: Alaska Airlines flew 4.5 million passengers — 8.7 percent more than the second quarter last year. Passenger traffic at Horizon fell 3.2 percent, however, as the airline shrank its fleet and schedule and reduced unprofitable flights.
• Fuller planes: Load factors broke records in April, May and June, with Alaska averaging 85 percent for the quarter, up 2 points from a year ago despite additional flying to Hawaii and Mexico. Alaska’s mainline load factors have broken records for 11 consecutive quarters.
• Revenues take off: More flying and more passengers, plus a jump in the average ticket price, boosted Air Group revenues 14 percent to $1.1 billion. This is the first time in company history second quarter revenues have topped $1 billion.
• But fuel soars, too: Even after saving $16.5 million from its hedge contracts, Air Group spent $285.2 million on fuel — or 56 percent more than last year. Much of the increase was passed on to customers through higher fares, but there is concern that more expensive air travel will drive people away at some point. Air Group continues to hedge half of its consumption and receives money back on its contracts that come due this year whenever oil costs more than $97 a barrel.
• Costs still falling: Thanks to high productivity, low overhead and more available seat miles, Alaska’s mainline unit costs continued to decline. Excluding fuel, flying one passenger one mile fell to 7.44 cents compared with 7.79 cents last year.
• Horizon transformation: The carrier earned an adjusted pretax profit of $7.4 million and exceeded its operational capacity purchase agreement (CPA) targets with Alaska in May and June (the targets include on-time performance, flight completions, customer satisfaction and baggage handling). Horizon subleased its last nine CRJ-700 regional jets to SkyWest Airlines, finalizing the transition to an all-Q400 fleet. SkyWest is now flying five of those aircraft in Alaska colors between Seattle/Portland and five California markets under a CPA.
Other second quarter highlights
• On time nearly all the time: Alaska continued to lead the nation’s 10 largest airlines in on-time performance for the 12 months ending May 31. For the quarter, 90.5 percent of Alaska’s flights arrived within 15 minutes of their scheduled time. Horizon’s on-time rate was up sharply to 87.1 percent, 10 points higher than the first quarter. In June, Alaska and Horizon ranked second and third behind Hawaiian among all domestic airlines with on-time performance of 91.4 percent and 88.1 percent, respectively.
• Pumping up our financial muscle: Air Group ended the quarter with $1.2 billion in cash, even after paying cash for the three 737-800s and eight Q400s it’s taking delivery of in 2011 and prepaying nearly $52 million in debt during the first half of the year. The company also launched a program to buy back another $50 million of its stock.
Record quarter for Air Group, but headwinds blowing stronger
July 21, 2011
Second quarter bottom line: $89.6 million profit
Alaska Air Group earned a record $89.6 million profit during the second three months of 2011, after taxes and adjusting for fuel hedges and fleet transition costs at Horizon Air. This represents the fifth record quarterly profit in a row and is $5.6 million more than Air Group earned during the second quarter of 2010, even though fuel costs rose almost $106 million.
The results equate to an 11.5 percent return on invested capital over the past 12 months — exceeding the company’s 10 percent goal.
The outlook for the rest of the year remains uncertain, though, mostly due to volatile oil prices and a sluggish U.S. economy. Although advance bookings are strong and fares stable, Alaska is closely monitoring passenger demand for signs of weakness.
“We can’t control the economy and the price of fuel. But, as a team, we can control our network and capacity, our approach to non-ticket revenues, our frequent flier program, our operational performance, our productivity and overhead, and our customer service,” CEO Bill Ayer said. “The measures we have taken over the past several years have been instrumental in our success and are building a platform for a future of sustained profitability and appropriate growth.”
Why we made money in the second quarter
• More people are flying: Alaska Airlines flew 4.5 million passengers — 8.7 percent more than the second quarter last year. Passenger traffic at Horizon fell 3.2 percent, however, as the airline shrank its fleet and schedule and reduced unprofitable flights.
• Fuller planes: Load factors broke records in April, May and June, with Alaska averaging 85 percent for the quarter, up 2 points from a year ago despite additional flying to Hawaii and Mexico. Alaska’s mainline load factors have broken records for 11 consecutive quarters.
• Revenues take off: More flying and more passengers, plus a jump in the average ticket price, boosted Air Group revenues 14 percent to $1.1 billion. This is the first time in company history second quarter revenues have topped $1 billion.
• But fuel soars, too: Even after saving $16.5 million from its hedge contracts, Air Group spent $285.2 million on fuel — or 56 percent more than last year. Much of the increase was passed on to customers through higher fares, but there is concern that more expensive air travel will drive people away at some point. Air Group continues to hedge half of its consumption and receives money back on its contracts that come due this year whenever oil costs more than $97 a barrel.
• Costs still falling: Thanks to high productivity, low overhead and more available seat miles, Alaska’s mainline unit costs continued to decline. Excluding fuel, flying one passenger one mile fell to 7.44 cents compared with 7.79 cents last year.
• Horizon transformation: The carrier earned an adjusted pretax profit of $7.4 million and exceeded its operational capacity purchase agreement (CPA) targets with Alaska in May and June (the targets include on-time performance, flight completions, customer satisfaction and baggage handling). Horizon subleased its last nine CRJ-700 regional jets to SkyWest Airlines, finalizing the transition to an all-Q400 fleet. SkyWest is now flying five of those aircraft in Alaska colors between Seattle/Portland and five California markets under a CPA.
Other second quarter highlights
• On time nearly all the time: Alaska continued to lead the nation’s 10 largest airlines in on-time performance for the 12 months ending May 31. For the quarter, 90.5 percent of Alaska’s flights arrived within 15 minutes of their scheduled time. Horizon’s on-time rate was up sharply to 87.1 percent, 10 points higher than the first quarter. In June, Alaska and Horizon ranked second and third behind Hawaiian among all domestic airlines with on-time performance of 91.4 percent and 88.1 percent, respectively.
• Pumping up our financial muscle: Air Group ended the quarter with $1.2 billion in cash, even after paying cash for the three 737-800s and eight Q400s it’s taking delivery of in 2011 and prepaying nearly $52 million in debt during the first half of the year. The company also launched a program to buy back another $50 million of its stock.
