Alaska Air Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Comparisons are with the three months ended March 31, 2023, unless otherwise noted. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context and results
Alaska Air Group operates Alaska Airlines and Horizon Air, along with related businesses. Management reported record first-quarter revenue despite disruption from Flight 1282 and the grounding of Boeing 737-9 aircraft. The quarter remains seasonally weak, and the company cautions that Q1 results are not necessarily indicative of full-year performance.
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $2.232 billion | $2.196 billion |
| Operating loss | $166 million | $186 million |
| Net loss | $132 million | $142 million |
| Diluted loss per share | $1.05 | $1.11 |
| Cash from operating activities | $292 million | $222 million |
| Adjusted loss before tax, non-GAAP | $157 million; 7.0% margin | $115 million; 5.2% margin |
Passenger revenue increased 1% to $2.004 billion; Mileage Plan other revenue increased 6% to $164 million; cargo and other revenue increased 10% to $64 million. Operating expenses rose 1% to $2.398 billion. Economic fuel cost per gallon declined 10% to $3.08, while non-fuel operating expenses excluding special items rose 9%. CASMex, a company-defined non-GAAP unit-cost measure, increased 11% to 11.60 cents.
Operating statistics included a 1.5-point increase in load factor to 81.4%, 3% growth in passenger revenue per available seat mile (PRASM), and 4% growth in revenue per available seat mile (RASM). Capacity declined 2%; traffic was essentially unchanged.
Liquidity, debt and capital resources
Cash and marketable securities totaled $2.278 billion at March 31, up from $1.791 billion at December 31, 2023. Cash and cash equivalents were $885 million; ending cash, cash equivalents and restricted cash were $913 million. Operating cash flow was $292 million. Investing activities provided $318 million, including Boeing compensation and proceeds from aircraft sales; financing activities used $5 million.
Total debt was $2.565 billion, including $301 million current, and long-term debt net of current portion was $2.264 billion. Debt-to-capitalization, including operating and finance leases, was 47%, within management’s 40%–50% target range. Adjusted net debt was $1.543 billion and adjusted net debt to trailing-twelve-month EBITDAR was 1.1x. The company reported $550 million of available credit lines and stated it was compliant with the $500 million minimum unrestricted cash and marketable securities covenant.
First-quarter share repurchases totaled $21 million. Shareholders’ equity declined to $3.977 billion from $4.113 billion at year-end.
Material changes and unusual items
- Flight 1282 and the 737-9 grounding affected first-quarter results by an estimated $162 million: approximately $150 million of lost revenue and the remainder in incremental costs. Boeing paid $162 million in cash during the quarter; the company recorded compensation as a reduction in the cost basis of certain aircraft, not as operating revenue. Boeing subsequently issued $61 million in supplier credit memos for future purchases.
- Lower fuel expense, down $100 million year over year, and higher revenue helped improve the GAAP pretax loss to $178 million from $199 million. The adjusted pretax loss nevertheless widened to $157 million from $115 million, reflecting higher operating costs and the grounding’s impact.
- Non-fuel cost increases included wages and benefits, up 11%, and depreciation and amortization, up 21%. Wage growth reflected labor agreements; other increases included passenger remuneration and crew hotel costs tied to the grounding.
- Special items included $26 million of fleet-transition costs and $8 million of Hawaiian acquisition integration costs. The prior-year quarter included $51 million of labor and other special items. Fuel-hedge mark-to-market adjustments were a $13 million loss in Q1 2024 versus a $20 million gain in Q1 2023.
Outlook, risks and contingencies
Management’s guidance: Q2 2024 capacity growth of 5%–7%, economic fuel cost of $3.00–$3.20 per gallon, and EPS of $2.20–$2.40. For full-year 2024, it expects capacity growth below 3%, EPS of $3.25–$5.25, and capital expenditures of $1.2–$1.3 billion. EPS guidance assumes an approximately 25% full-year tax rate. Capital expenditure expectations were reduced from the previously indicated $1.4–$1.5 billion, primarily reflecting aircraft delivery delays.
The proposed acquisition of Hawaiian Holdings is valued at approximately $1.0 billion in cash, or $18 per share, plus assumed debt and lease obligations. It remains subject to regulatory and other approvals. The DOJ issued a Second Request; the parties agreed not to close before 90 days after both certify substantial compliance, absent earlier DOJ clearance. A private antitrust lawsuit filed April 15, 2024 seeks to block the transaction or require divestitures. The company expects to fund the transaction with cash and marketable securities, new debt and other liquidity sources.
Boeing delivery delays remain a risk, including 737-10 deliveries shifted from 2025 to 2026 pending certification; management expects other delays may occur. Labor costs and negotiations also warrant attention: technicians ratified a new five-year agreement, Alaska flight-attendant negotiations are mediated, and Horizon has negotiations underway with several groups. Other stated risks include fuel-price volatility, competition, labor availability, safety and security events, economic conditions, supply-chain disruption and seasonal demand variation.
The Virgin trademark dispute remains unresolved. A UK commercial court ruling adopted Virgin Group’s interpretation of the license; Alaska has appealed. The disclosed possible contractual liability ranges from $10 million to $160 million, and Alaska has also brought a separate breach claim. Management says routine litigation is not expected to result in material liability. The company also disclosed future aircraft-related commitments of $5.097 billion and other capacity-purchase and obligations of $1.588 billion; these are contractual commitments, not current debt balances.
Important facts for investors to verify
- Whether Boeing compensation and supplier credits adequately offset the grounding’s economic impact, and how any further disruption affects revenue, costs and aircraft values.
- Progress and timing of Hawaiian acquisition regulatory review, the private antitrust suit, financing plans, and any additional integration costs or assumed obligations.
- Whether the 2024 EPS, capacity and capital expenditure guidance remains achievable amid Boeing delivery delays, labor costs and fuel-price changes.
- Liquidity and covenant headroom, including the distinction between cash and marketable securities, restricted cash, and available credit facilities.
- Developments in the Virgin trademark appeal and the potential range and timing of any liability.