Alaska Air Group reported a $321 million operating loss during the first quarter as it seeks to reduce costs during the coronavirus downturn, which is a far cry from the same period in 2019 when the carrier generated $25 million in operating profit.
The parent company of Alaska Airlines and Horizon Air in an earnings call on 5 May said that it burned through $400 million during March when the USA began to issue shelter-in-place orders and close public gatherings. Its cash spend to continue operations reduced to $260 million in April, and Alaska aims to reduce its monthly spending to $200 million by June.
This was the airline’s first quarterly loss in a decade, Alaska chief executive Brad Tilden said during the call.
“There is no doubt that our second-quarter loss will be much higher,” Tilden says.
Operating revenue dropped 14% year-over-year from $1.87 billion in 2019 to $1.6 billion during the first quarter as passengers began to cancel flights and stop booking trips amid the increasing spread of coronavirus. Revenue per available seat mile (RASM) dropped by 12% year-over-year, while cost per available seat mile excluding fuel (CASM ex-fuel) rose by 2%.
Alaska as of 4 May had $2.9 billion in liquidity, which includes the $992 million in payroll support provided by the federal CARES Act. The Seattle-based company agreed with the US treasury department that $267 million of those funds will be provided in the form of a loan that must be repaid. The payroll aid covers 70% of the parent company’s budgeted payroll and benefits costs through 30 September.
“We’re going to be aggressive on the fundraising side” Tilden says, but hopes the airline will not accumulate extreme debt while raising additional capital.
The carrier plans to apply for an additional $1.1 billion in CARES Act loans to support short-term liquidity and expects more guidance from the treasury department and the US Department of Transportation about conditions it would need to follow.
Alaska views its fleet as an asset in seeking more capital. Alaska Airlines has 166 Boeing 737 type aircraft, 10 Airbus A321neo aircraft, 51 A320s and 10 A319s, according to Cirium fleets data. Horizon has 34 De Havilland Canada Dash 8 turboprops and 30 Embraer E175s.
To reduce costs, Alaska has reduced capacity by 80% for April and May, grounding 156 aircraft, more than half of its 237-aircraft fleet. Discussions on lease deferrals also started in the second week of March, Alaska chief financial officer Shane Tackett says. The carrier has been able to “secure lease deferrals with all but two of our lessors”, with plans to repay deferrals within 12 months.
In response to a question about possibly abandoning its order for 32 Boeing 737 Max aircraft, Tackett says the airline is still considering its fleet options.
Serving the largest state by landmass and the closest to the Arctic, Alaska provides air bridges and cargo deliveries to remote communities. This responsibility became more urgent after the regional airlines of Alaska-based Ravn Air Group on 5 April suspended all operations and filed for Chapter 11 bankruptcy protection to obtain debtor in possession funding while applying for CARES Act funding.
Despite reducing capacity to 20% for April and May, Alaska Air Group is coordinating with the state government and the Alaska Air Carriers Association to ensure communities stay connected.