Alaska Air suffers another big quarterly loss, but has stopped the cash bleed

The parent company of Alaska Airlines on Thursday reported a net loss of $131 million in the first quarter of 2021, though the red ink would have been much greater without government grants. Yet the financial results offered a ray of hope that an airline recovery is in sight.

New CEO Ben Minicucci said in a teleconference call with Wall Street analysts that March was the first month since the pandemic paralyzed air travel that Alaska Air Group took in more cash than it spent as people began to book summer air travel.

Minicucci said that while the quarterly financials still came in “far below normal levels,” last month “marked an inflection point during this pandemic, and it appears that we have turned the corner.”

Alaska’s managing director of investor relations, Emily Halverson, said the company “went from burning approximately $4 million a day last quarter to cash generation of approximately $1 million a day in March.”

Minicucci said that “as momentum in vaccines has picked up and travel restrictions have eased, there has been a strong return of leisure demand.” Future bookings for early summer are now at roughly 80% of pre-COVID-19 levels.

“We plan to return to 100% no later than summer of 2022,” he said.

Alaska’s planes were on average 42% full in January, rising to 49% in February and 62% in March. The airline expects to get close to 70% full this month.

Advance ticket bookings stepped up in March to approximately 70% of 2019 levels. Chief Commercial Officer Andrew Harrison said on the call that average fares in summer for peak flights “are actually higher than 2019.”

Minicucci forecast that Alaska will approach the break-even point between losses and profit in the second quarter “and we anticipate turning to profitability in Q3.”

Part of that optimism is based on the expectation that flights in and out of California, which represented about half of Alaska’s traffic pre-COVID-19, will pick up briskly after the lockdown there eases. California currently aims to fully reopen businesses on June 15.

“California remains largely closed today,” Minicucci said. “Seeing the state reopen will be a powerful near-term enabler for our path back.”

Harrison conceded that “international travel is basically next to nothing,” while air travel for business remains “severely depressed.”

However, he added, a longtime issue that had handicapped Alaska in winning corporate accounts — the lack of a tight alliance with other airlines to offer full U.S. and international network coverage — is now resolved with its joining the oneworld alliance and its partnership with American Airlines.

He said surveys of corporate customers suggest that business travel “will ramp to about 50% of normal levels by the end of this year.”

Still in the red, but heading to black

For now, the ink in the account books is still red.

The COVID-19 pandemic reduced revenue for the first quarter by 57.5% compared to last year while raising the cost of carrying each passenger by 18.5%.

The net loss of $131 million, or $1.05 per share, would have been much greater but for government Payroll Support Program funding of $411 million to cover wages.

In the first quarter of last year, the net loss was $232 million, or $1.89 per share. However, that was without any government support, the first installment of which was agreed upon only in April 2020.

The airline generated $167 million in operating cash flow in the first three months of 2021, including the PSP funding, bolstered by the improved advance bookings in March.

Without the government support, Alaska would have burned through $244 million during the quarter, averaging a cash burn of $2.7 million per day.

By slashing spending and capacity to get though the crisis, Alaska reduced the cash burn each quarter, from $5.5 million a day last summer down to $4.3 million per day and then $3.7 million per day in the previous two quarters.

In the months ahead, Minicucci said, “Our primary focus is on rebuilding our business to pre-COVID levels and returning to profitable growth.”

In the second half of this year, management aims to start bringing down the airline’s $1.6 billion in net debt.

Minicucci said Alaska will adapt and accelerate its fleet capacity plans if it sees either a faster-than-expected recovery or competitive threats from other airlines.

Other airlines burning cash, too

Every airline in the world is struggling with the losses from the COVID-19 pandemic.

On Thursday, Southwest Airlines also reported its first-quarter numbers, and thanks to government support, it managed to eke out a net profit of $116 million — the first U.S. airline to do so in a year.

Without the $1.2 billion Southwest received from the extended Payroll Support Program, that would have been a $1 billion net loss.

Southwest’s average cash burn excluding the government support averaged approximately $13 million per day in the quarter and came down to about $9 million per day in March.

American Airlines, also reporting Thursday, recorded a net loss of $1.3 billion, despite receiving $2.2 billion from the Payroll Support Program, and an average cash burn of $27 million per day.

Last week, Delta Air Lines reported a $1.5 billion loss in the quarter after a $1.2 billion benefit from the Payroll Support Program and an average cash burn of $11 million per day.

This week, United reported a $1.4 billion loss in the quarter after a $2.6 billion benefit from the Payroll Support Program and an average cash burn of $9 million per day.

So far this year, Alaska has received $546 million from the U.S. Treasury through a combination of grants and loans, and anticipates another payment of $80 million in late April.

The government will provide an additional $584 million in incremental payroll support funding under a third round of the PSP.

Growing the fleet with Boeing’s MAX

Alaska is also looking to the airports it services for financial relief.

Chief Financial Officer Shane Tackett said that since airports received additional funding under the American Rescue Plan Act, the airline is asking them to use some of that money to offset airline costs.

Tackett specifically mentioned an issue at Seattle-Tacoma International Airport specifically, where he said the sunsetting of a lease provision that gave airlines a share of concession revenues will cost the airline $30 million.

However, Alaska already has relief on one typically high-cost item: It will have to pay very little cash for the dozen new Boeing jets it’s taking this year.

Alaska took delivery of four 737-9 MAX aircraft in the quarter. Although those are currently grounded due to an electrical issue in the cockpit, Minicucci said he expects that problem to be resolved “in the next week or two.”

Alaska will take eight more MAXs this year. Nat Pieper, Alaska’s senior vice president of fleet, said the company will pay Boeing “very little, if any, cash” for these deliveries because of the advance payments already made on all the planes on order.

Next year, Alaska plans to bring an additional 31 MAX 9s into its fleet, which will require paying Boeing about $1.3 billion, or $42 million per jet, Pieper said.

CFO Tackett said Alaska over the next few years needs to replace 60 aircraft with MAXs to get back to its pre-COVID-19 fleet size of 235 mainline jets, and then will add 10 to 12 jets each year afterward to maintain planned growth.