Alaska Air Group, Inc. has recently encountered a decline in its share prices, particularly noted on Thursday, as the airline was compelled to refine its earnings projections for the full year following the negotiations of a tentative labor agreement with its flight attendants. This development has resulted in a rather pessimistic profit outlook for the upcoming third quarter.
In a filing with the Securities and Exchange Commission late Wednesday, Alaska Air disclosed that it anticipates earnings to range between $3.50 and $4.50 per share for 2024. This is a revision from their earlier April forecast which had suggested earnings per share (EPS) in the range of $3.25 to $5.25.
Market analysts, as gauged by Capital IQ, are projecting generally accepted accounting principles (GAAP) and normalized EPS to reflect values of $4.40 and $4.35, respectively. Early trading indicated a 1.3% decrease in the stock value, underscoring investor apprehension. The airline has adjusted its capacity growth forecast, now expecting an annual increase of less than 2.5%, a downgrade from its previous outlook of under 3%.
This revised projection appears to stem from lower-than-anticipated aircraft deliveries from Boeing, a situation that was clarified during a second-quarter earnings briefing. Alaska Air's management articulated that their fiscal year guidance now encompasses the economic ramifications of the newly forged tentative agreement with flight attendants, alongside a cooling domestic revenue environment.
In a pivotal move earlier in July, the airline consented to a 32% average pay hike for its flight attendants through a three-year agreement reached with the Association of Flight Attendants. Looking ahead, Alaska Air forecasts per-share earnings to land between $1.40 and $1.60 for the ongoing quarter, which positions it unfavorably against the current market expectations of GAAP and normalized EPS at $2.19 and $2.06, respectively.
Chief Financial Officer Shane Tackett has also communicated to Reuters that this labor agreement is projected to bear a negative impact on the September-quarter profit, estimated at $0.50 per share. Voting on the tentative agreement is slated to conclude mid-August. As the filing delineated, revenue per available seat mile—an essential metric utilized for comparing the efficiency of different airlines—is anticipated to remain flat or possibly show slight improvement year over year in the third quarter.
In the designated period, capacity is expected to experience growth between 2% and 3%. In a closer examination of the figures for the quarter ending in June, Alaska Air reported a decline in adjusted EPS, which fell to $2.55 compared to $3 the previous year; however, it did surpass the analysts’ projections which were set at $2.38.
Operational revenue saw a modest growth of 2%, climbing to nearly $2.9 billion, albeit it lagged behind the analysts’ expectations which had forecasted $2.94 billion. Furthermore, passenger revenue demonstrated a year-over-year increase of 2%, reaching $2.65 billion, with mileage plan and cargo revenue also showing modest growths of 2% and 3%, respectively.
On the other hand, total operating expenses rose to $2.58 billion from $2.5 billion, showing the operational pressures the airline is under. Current Share Price: $39.04, Change: -$0.99, Percent Change: -2.47..