Alaska Air Recent Revenue Analysis

Alaska Air Group (NYSE:ALK) recently released its Q4’22 and FY22 results, which are generally positive.

Shares of the airline are up 1.21% in the past five days and even more so with a 22.96% gain in the past month. However, the company has not been doing very well over the past year as it is currently down 4.26%.

Let’s take a look at what the company announced.

Alaska Air Q4’22 Results

  • Operating revenue of $2,479 million increased from $1,889 million last year.
  • Net income of $22 million, an increase of $4 million over the prior year.
  • Passenger revenue increased 32%, mileage plan revenue increased 22%, and freight revenue increased 5%.

Another highlight of Alaska Air’s results was its announcement that it would resume buying back shares in the market beginning early this year. The company’s announcement specified a range of $75 million to $100 million in stock. These redemptions are intended to help counter the effects of dilution and inflation for investors.

Another effort was Alaska Air’s focus on deleveraging. The company has remained on its long-term debt repayment plan since 2020. Long-term debt fell from $2.672 billion in September 2020 to $1.883 billion last quarter. Total debt payments fell to $385 for FY22, and its debt-to-capitalization ratio currently stands at 49%.

What else did Alaska Air announce?

Despite paying off its debt, a significant portion of its total current assets fell from $3,930 million in FY22 to $3,040 million in FY21, with its cash balance falling from $2,646 million to $2,079 million over the same period. The reduction in cash could be seen as a positive although it is still moderately leveraged, as it has significantly reduced its overall interest burden.

Looking more closely at its balance sheet, its total current and non-current liabilities increased further from FY22 to FY22 despite the repayment of this debt. Total current liabilities increased from $3,991 million to $4,512 million, while non-current liabilities increased from $3,986 million to $4,070 million.

To summarize Alaska Air’s current leverage, its leverage ratio (D/E) sits at a healthy 0.49. This is impressive, considering that airlines are capital intensive. For example, United Airlines (NASDAQ: UAL) D/E is 4.5 at the time of writing, even at the lower scale of its peer companies.

So this suggests a significant strength in the company. It may also explain why the company plans to hire 3,500 workers in 2023 and has consistently exceeded analysts’ estimates for eight straight quarters.

What’s next for Alaska Air?

Alaska Air will seek to modernize its aircraft fleet this year. Much of the aviation industry is hoping to benefit from Boeing’s (NYSE: BA) retirement of its widebody 747s and upgrading them to newer, more fuel-efficient models such as the 737 MAX.

The new 737s could help breathe new life into the margins of the airlines that use them. A company estimate put the cost savings at around $100 million, or about 250 million pounds of jet fuel per year, assuming a fleet of 100 aircraft.

Alaska Air aims to receive these planes between 2024 and 2027. This comes as the company retires its Airbus A320s and plans to retire its existing fleet of Q400s.

Then there is the recession everyone has been talking about in the financial markets since last year. Despite the risks, certain scenarios make airline stocks like Alaska Air a doable choice during an economic downturn.

The aviation industry can be a sector worth investing in during a recession, as it has a relatively low correlation with other sectors. The industry is also relatively resilient to macroeconomic downturns. Airlines can adjust their supply and demand to meet changing customer needs.

Additionally, the aviation industry offers a variety of investment opportunities, such as buying shares in airlines, purchasing aircraft, and providing other services such as maintenance and repair.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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