Alaska Air Group on Thursday reported another multimillion-dollar loss due to the coronavirus pandemic and conceded that the bleeding of cash will continue into next year. Yet the airline’s leaders said they are weighing a sizable order for Boeing’s 737 MAX.

Executives of the Seattle-based company said on a conference call that each successive month is bringing more flights, carrying more passengers, but that they won’t be able to reverse the cash outflow until Alaska can fill its planes more by unblocking the middle seats — which it now plans to do early in 2021.

Still, Alaska Air CEO Brad Tilden expressed confidence in the airline’s financial position, with $3.7 billion in cash on hand and an additional $1.8 billion available from unused loans agreed to with the U.S. government.

“We are better positioned than any other airline to survive this storm,” Tilden said.

Alaska has pending orders for 32 MAX-9s, with options for 37 more. 

An additional order for the MAX, which the Federal Aviation Administration (FAA) is expected to unground next month, is being considered to replace Airbus aircraft in Alaska’s fleet.

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Alaska inherited 71 aircraft in the Airbus A320 family — smaller A319s, A320s and larger A321s — in its 2016 acquisition of Virgin America. This year it parked 20 of those aircraft permanently.

Chief Financial Officer Shane Tackett said management is “very anxious to be able to get out of some of these pretty onerous leases on the A320s.”

To achieve that, Nat Pieper, senior vice president of fleet, said Alaska is talking with Boeing and Airbus and airplane lessors. He joked that he has become “very popular” with those companies.

“We love all of our airplanes. But the A319s and A320s are uneconomic relative to others,” Pieper said. “It’s a logical time as we are resizing our fleet, getting it to best match demand, to really figure out how do we get the best economic aircraft on the field.”

Though it appears an odd time to invest new capital, CEO Tilden said that moving to more fuel-efficient airplanes could provide a good return on the investment and that the planes would be leased, avoiding a big upfront expense.

Boeing is offering airlines big discounts to get the MAX back in favor. Pieper said Alaska is waiting for “the right set of opportunistic chances” to pull the trigger on such an order.

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Airline industry bleeding cash

Alaska Air, the parent company of Alaska Airlines and regional subsidiary Horizon Air, reported a third-quarter net loss of $431 million, or $3.49 per share.

A year ago, it made a profit of $322 million or $2.60 per share in the third quarter.

The red ink was deeper than its second-quarter net loss of $214 million or $1.73 per share, mainly due to just over $440 million in charges related to employee furloughs and one-time write-offs.

Despite a partial recovery from impact of the coronavirus pandemic, domestic air travel remains less than half the level of a year ago, and U.S. airlines are bleeding money.

Alaska’s revenue from passengers during the quarter was down 74% year-on-year. In September, its total revenue was down 66% compared to last year.

The number of passengers flown last month was 68% lower than September 2019 and the airline’s active fleet capacity was half of what it was a year earlier. Even so, on average planes were flying only 47% full.

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All the major U.S. airlines are seeing huge losses.

American Airlines on Thursday reported a quarterly loss of $2.4 billion, with passenger revenue down 92% year-over-year.

Southwest lost $1.2 billion, with passenger revenue down 72% year-over-year.

Delta Air Lines, Alaska’s biggest rival at Seattle-Tacoma International Airport, last week reported a massive net loss of $5.4 billion, with passenger revenue down 83% year-over-year.

And United Airlines reported last week a net loss of $1.8 billion, with passenger revenue down 84% year-over-year.

Alaska’s $431 million net quarterly loss was reduced by an injection of $398 million in government cash from the Payroll Support Program.

At the same time, the loss was increased by two factors: A one-time accounting write-off of $121 million for the early retirement of 10 Airbus A320 aircraft inherited from the acquisition of Virgin America and a $322 million charge for costs related to layoffs.

Burning through $4 million a day

Last month, the U.S. government finalized its loan agreement with Alaska under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, increasing its total loan amount to $1.9 billion.

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During the quarter, excluding the impact of CARES funds and loans, Alaska consumed $399 million in cash, or an average of $4 million per day — meaning it spent that much more than it took in.

After the pandemic paralyzed the airline system in March, Alaska took steps to slow this cash burn by parking planes and reducing employment mainly through voluntary furloughs.

Since then, Alaska steadily reduced the initial cash burn each month through June, when the cash outflow was reduced to $4 million a day, down from $5.5 million a day in May. Thursday’s results show the rate of cash burn has flattened.

In May, CEO Tilden had set a goal of reaching zero cash burn by year’s end. Thursday, CFO Tackett conceded that “we do not expect to hit our target by December” and projected an increase in cash burn over the next few months.

He said return of air travel demand has been slower than projected and also that blocking of the middle seats — now extended through Jan. 6 — has capped passenger loads at a level just below what’s needed to break even on cash.

For the next three to six months, he said, given planned increases in airplane deployments and debt payments, cash burn will be in the region of $450 million to $470 million per month.

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He said more progress on reducing the cash burn “will require further recovery of demand and likely the removal of middle seat blocks.”

Tackett said Alaska has burned through approximately $1 billion since the onset of the coronavirus pandemic, offset by $750 million from the government’s Payroll Support Program (PSP), which expired at the end of September. He said that support needs to be extended to avoid the destruction of industry finances and hope of economic recovery and growth.

With the expiration of PSP, layoffs have begun throughout the airline industry.

Alaska has so far avoided mass layoffs because 720 employees volunteered for early outs or early retirements, and 4,468 others took voluntary leave.

That has reduced layoffs at Alaska to just over 300 people, not counting more than 200 flight attendants who were laid off for just a month and will return to work in November.

However, Alaska President Ben Minicucci reiterated the projection that next summer Alaska will be a 20% smaller airline in terms of fleet capacity compared to its pre-COVID size.

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In June, Minicucci said that will mean cutting about 3,000 jobs out of the 23,000-strong pre-COVID workforce.

Thursday, Alaska spokesperson Bobbie Egan updated that projection, saying that by next summer the airline’s active workforce, which today stands at about 22,000, will “likely be between 19,000 and 20,000.”

“It would be our hope that our extended leave programs would reduce or eliminate the need for furloughs,” Egan added. “If they are not able to, then furloughs would be on the table.”

Flight safety and carbon emissions reductions

Almost overnight in March, Alaska had to cut flights from the normal level of 1,300 per day to about 350. Tilden said that’s now back up to 760 daily flights and will soon reach 840.

Of Alaska’s total fleet of 329 aircraft, 177 were parked and put into storage at one point, but 110 of those have now been brought back into service.

On the teleconference call Thursday, Minicucci said the major driver of air travel recovery will be whether passengers believe flying is safe.

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He cited studies on the safety of flying during the pandemic indicating that the risk of contracting the coronavirus on an airplane “is extremely low compared to typical daily activities.”

“It is safe to fly,” Minicucci concluded. “Those who are not considered high risk can be confident to return to air travel.”

Last week, Hawaii lifted quarantine restrictions on travelers with a negative coronavirus test and Minicucci said that has led to strong bookings for travel to the islands.

In a message to employees Thursday, Tilden told them Alaska will bring its flight schedules back “at a level that will be somewhat aggressive given demand,” because “we want to secure Alaska’s position for the future.”

Separately on Thursday, Alaska announced an agreement with Microsoft in which the software giant commits to purchase sustainable aviation fuel to cover its employee business travel on flights from Seattle to San Francisco, Los Angeles and San Jose, California.

The sustainable fuel is typically blended with regular fuel. The fuel for the Microsoft agreement, produced mostly in California from renewable materials such as used cooking oil, will be provided by Dutch company SkyNRG.

This amounts to a subsidy by Microsoft of sustainable fuels, which remain two to three times more expensive than regular jet fuel.

Correction: Due to an editing error, a previous version of this story incorrectly referenced CEO Tilden’s message to employees about flight schedules coming back “at a level that will be somewhat aggressive given demand.” Tilden was referring to Alaska’s schedule generally, not specifically to its Hawaii flights.