Higher revenues but even higher operating expenses hurt Alaska Airlines in the first quarter of 2023. The airline reported a Q1 net loss almost on par with that of 2022, but then revenues and costs were lower. Salary costs and fuel are the main reasons why expenses soared year on year. Higher expenses hurt Alaska Airlines in Q1.
The $-142 million net loss compares to $-143 million in the same period last year. Revenues were better this year at $2.196 billion versus $1.681 billion, with passenger revenues contributing $1.984 billion (2022: $1.511 billion) and the Mileage Plus loyalty program and other revenues by $154 million ($112 million). Cargo revenues were flat at $58 million. By comparison, here are the numbers for the full year and Q4 of 2022.
At 9.9 million passengers carried at a 79.9 percent load factor in Q1, the numbers were back to pre-pandemic levels. Also different: capacity increased from Q4 FY22 to Q1 FY23 when normally they do decline. Alaska attributes this to upgauging of the fleet to higher-capacity aircraft and to higher aircraft utilization.
Operating expenses
Total operating expenses were up by 27 percent to $2.382 billion from $1.883 billion. Fuel costs increased 92 percent to $665 million, but wages and benefits were up by nineteen percent to $703 million and landing fees by ten percent to $152 million. The operating loss was $-186 million compared to $-202 million in Q1 2022. Net cash flow from operating activities was $222 million versus $287 million last year.
Alaska anticipated higher labor costs in January when it warned of the effects of inflation, new contracts as well as costs related to the re-training of pilots that used to fly the Airbus A320 fleet and are now transitioning to the Boeing MAX. “We doubled pilot training throughput compared to the same period in 2022, aided by a 75 percent increase in qualified flight instructors and an investment in two 737 full-flight simulators. Three additional 737 full-flight simulator deliveries are expected later this year,” Alaska says in the earnings release.
Roadmap to profitability is on track
Although the losses were higher than expected, CEO Ben Minicucci says that Alaska Airlines that the roadmap to profitable growth is on track. Full-year capacity should increase by eight to ten percent over 2022 and by six to nine percent higher in Q2 when revenues are expected to be up by 2.5 to 5.5 percent. Unit revenues will likely decelerate modestly in the second half of the year as capacity, but this is in line with flat full-year Revenues per available seat mile (RASM). Minicucci said that Alaska is adequately staffed and is expecting a strong summer.
On the cost side, Alaska anticipates a one to three percent increase in costs per available seat mile (CASM) excluding fuel. “First and second-quarter unit cost performance versus 2022 reflects headwinds from labor deals that were implemented late in 2022, a new power-by-the-hour engine agreement in 2023, and higher variable performance-based pay, offset partially by tailwinds from lease return costs recorded in early 2022,” the carrier says. “Second half unit costs are set to improve as we complete pilot transition training and lap the impact of labor agreements. We expect full-year 2023 unit costs to be down one to three percent versus 2022.”
The Adjusted pre-tax margin for the quarter should be between fourteen and seventeen percent, with a full-year margin guided between nine and twelve percent. The airline ended March with $2.4 billion in unrestricted cash and marketable securities and $1.7 billion in long-term debt.
Alaska took delivery of six Boeing MAX 9s during the quarter, bringing the MAX fleet to 43 aircraft. The airline announced an order for 52 MAX aircraft last October. The airline expects no or only limited impact on deliveries: as the MAX 9 is exempt from the latest tailfin manufacturing issue, deliveries should continue according to schedule except for other unforeseen supply chain issues. Alaska hopes to have phased out all Airbus A320neo aircraft no later than October and is in discussions with lessors and financial institutions to accelerate the phasing out. The airline inherited the aircraft when it acquired Virgin America.
Active as a journalist since 1987, with a background in newspapers, magazines, and a regional news station, Richard has been covering commercial aviation on a freelance basis since late 2016.
Richard is contributing to AirInsight since December 2018. He also writes for Airliner World, Aviation News, Piloot & Vliegtuig, and Luchtvaartnieuws Magazine. Twitter: @rschuur_aero.
