Alaska Air Group, Inc. (NYSE:ALK) announced $3.00 earnings per share (EPS) for the second quarter of 2023, exceeding the Consensus Estimate of $2.70 and increasing 37% year over year.

The company’s operating sales of $2,838 million are above the Consensus Estimate of $2,780.5 million. The top line increased 7% year on year, with passenger revenues accounting for 91.5% of the top line and growing 7% due to ongoing improvement in air travel demand.

In the reported quarter, passenger revenues reached $2,598 million. Cargo and other revenues totaling $70 million increased by 8% year on year. Other revenue from mileage plans declined 3% to $170 million.

Total revenue per available seat mile (an important metric of unit revenue) dropped 3% year on year to 16.54 cents. The yield fell 1% to 17.40 cents.

Consolidated traffic (measured in revenue passenger miles) increased 9% to 14.93 billion, reflecting an increase in air travel demand. To meet the increasing demand, capacity (as measured by average seat miles) increased by 10% to 17.16 billion. In the second quarter of 2023, the consolidated load factor (the percentage of seats filled by passengers) fell 1.1 percentage points to 87%.

Total operational expenses (on a reported basis) increased 1% year on year in the second quarter to $2,501 million.

The cost of a gallon of gasoline has dropped 27% to $2.76. Year over year, consolidated operating costs per available seat mile (excluding fuel and special items) increased by 2% to 10.15 cents. Our forecast shows a 1.5% year-over-year increase to 10.06 cents.

Liquidity

Alaska Air had $2,442 million in cash and marketable securities as of June 30, 2023, compared to $2,429 million at the end of March 2023.

ALK ended the second quarter of 2023 with long-term debt (net of current component) of $1,889 million, up from $1,795 million at the end of March 2023. The debt-to-capitalization ratio was 48%, unchanged from the previous quarter.

In the second quarter, ALK generated $610 million in cash from operations.

In the first quarter of 2023, ALK resumed its share repurchase program, purchasing 413,554 shares for $18 million. ALK repurchased 871,987 shares for about $39 million in the second quarter of 2023.

Outlook

Alaska Air forecasts capacity to increase by 10-13% in the third quarter of 2023 compared to the previous year. Year over year, the cost per available seat mile, excluding fuel and extra items, is predicted to fall by 0-2%. Total revenue is expected to increase by 0-3% year on year. ALK anticipates an economic gasoline cost per gallon in the $2.70-$2.80 range. The adjusted pre-tax margin is expected to range between 14% and 16%.

ALK expects EPS to reach between $5.50 and $7.50 in 2023. The Zacks Consensus Estimate of $6.56 is within the range provided.

The adjusted pre-tax margin will be between 9% and 12%. In 2023, the business expects to buy back at least $100 million in shares.

Alaska Air estimates capacity to increase 11-13% from the previous year’s stated level in 2023. Year over year, the cost per available seat mile, excluding fuel and extra items, is predicted to fall by 1-3%. Total revenue is expected to increase by 8-10% year on year.

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