Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alaska Air Group Inc (ALK, Financial) reported a record $2.9 billion in revenue for Q2 2024, the highest quarterly result in its history.
- The company achieved a 15.8% adjusted pretax margin, likely leading the industry in profitability.
- A tentative agreement with flight attendants includes a 32% increase in compensation, reflecting a commitment to employee welfare.
- Operational excellence was demonstrated with a 99.5% completion rate each month of the quarter.
- The company is making significant investments in premium seating, which is expected to drive revenue growth.
Negative Points
- The company is facing a $223 million impact from flight 1282 and a fleet grounding incident earlier in the year.
- There is a noted pressure on unit costs, expected to be in the high single digits for the back half of the year.
- The domestic fare environment has moderated, impacting revenue expectations.
- Capacity growth for the full year is expected to be less than 2.5%, lower than initially configured.
- The company is adjusting its full-year EPS guidance downward by $0.25 due to the flight attendant deal and the current domestic environment.
Q & A Highlights
Q: With Virgin you disclosed you were speaking with Justice and remedy used were being bantered about. I'm trying to square that against what you said in the prepared remarks regarding the August 5 date. It sounds as if you are not yet having constructive discussions rather, you're at a wait-and-see mode just as the market is to hear back from just as by then. Is that how I should incorporate Ben's opening remarks?
A: Yes, Jamie. Look, we went through the entire process with the DOJ and all the documents and discussions have occurred were in the home stretch here in two weeks, and we're waiting to see what DOJ comes back to us with. So we made our case and we feel pretty strong about our case on being a pro-consumer and pro-competitive. So we'll wait the DOJ's decision and go from there. (Benito Minicucci, CEO)
Q: On a yield basis, what's your paid premium class? Not first class, but premium class paid premium to traditional or average economy yields? I know it's a metric you don't usually disclose. I'm estimating it to move below 15% to 20% range. Just trying to find out, if I'm close with that forecast.
A: Yes, Jamie, I think you are off the top of my head. I can tell the entire cap. Ben is around 40% and about half of those have paid versus not. So I think you're on that sort of where we sit at that. So it's a good 40% for the cabin over the Main kempen and it's been very encouraging. (Andrew Harrison, EVP & CCO)
Q: Overall competitive capacity in your markets, what was that growth in 2Q? And how do you see that evolving in 3Q and perhaps for 4Q?
A: Duane, it was elevated as you're aware and as in my prepared remarks, an area like Alaska, long haul industry's capacity was up over 20%, which is a 12% of our network. But as you look through all of our hubs, looking forward and certainly September, October seats sort of flat to very low single digits up. So very much a significant reduction in the overall trajectory of growth that we see today. (Andrew Harrison, EVP & CCO)
Q: On the cost side, if you just look like Q2 to Q3, you're guiding to a good 10%, 11% increase, just an absolute cost ex fuel with capacity only up five and or it's like almost $200 million. Help us bridge that (inaudible) how much is pilot, I'm sorry flight attendant. How much is the other factors? And does that new level of costs day, does that start to come down again as you go out to fourth quarter next year?
A: In terms of like the proportionality, I think labor is going to be a third or so of the increase just on a percentage basis with the bulk of that being the flight attendant contract. We do have another -- much more modest snap up with our pilots that will occur in September again. Very different in magnitude than last year. But the last rate adjustment we have in the current contract. The rest is really like there's some 15 timing things we had a significant credit on the airport cost side in the first half of the year that hit June. And as I noted in my prepared remarks, you've got new rates coming in them with airports enjoy one. And so we've got a slightly lower base in Q2 that rolls over to Q3 main into similar there's some shifts from Q2 to Q3. (Benito Minicucci, CEO)
Q: When I just look at current schedules, it looks like you guys reaccelerate in Q4. Is that just a placeholder and you think that gets revised down for Q4 closer to flat and for you like you are in September and then any early thoughts about how to think about capacity in '25?
A: Just on the Scott, on the capacity on, as you heard in our prepared remarks, the year will be sort of sub 2.5%. What I'm expecting is that Q4 on a year-over-year basis will actually be a little lower than Q3 is what I'm saying. (Andrew Harrison, EVP & CCO)
Q: Given kind of the delivery delays. Is it fair to say that next year we'll continue to remain below sort of your medium to longer term targets of kind of mid-single digit growth?
A: Yes, hi Andrew, good morning. I think that's a fair way to look at it. I think we're going to -- we really want the 10, and I think that certification is extending to the right. That's really what the bulk of our forward order book is now positioned as is a MAX10 and I think there's a lot of opportunity for us to continue to work and further optimize the network. And so I think it's fair that we would likely be below as we sit here today, looking out our longer term sort of growth target in 2025. (Shane R. Tackett, CFO & EVP of Finance)
Q: How much revenue does that account for and is it primarily corporate that hasn't recovered or leisure? And then how are we -- how are you thinking about the recovery cadence from here?
A: My comments were specifically to business travel. And I think we have the network post COVID positioned very well in California. And as you look at our growth, certainly in the Bay Area has been very moderate just because we're not going to get ahead of the demand curve there. And again, in Los Angeles, we've been focusing more on some of these are Latin and high leisure markets, which have generating revenue done quite well for us. But again, we are on a low growth cadence here for the next little bit and what we will be doing is spending a lot of time, there's sort of no autopilot here on network. We will be managing this dynamically through this year and into next year to ensure that we've got the airplanes in the right markets to maximize our revenues and to accommodate where our guess actually want to fly. (Andrew Harrison, EVP & CCO)
Q: Where is that incremental customer coming from? Is that converting from Main Cabin? Is that coming from oneworld partner airlines? Is that coming from other legacy carriers, who's that incremental customer?
A: I think it's sort of all of the above. And I think we are being going to tell a lot more of a story around our premium product in general, both First Class and Premium Class. Our international partners can sell into that. And we've just seen, as I shared earlier, just a row real appetite and demand for that Premium Class Cabin. I think as you look at the industry and you look at the lower end of fares, we meet those very well with
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
