The markets reacted positively to Alaska Air Group’s fourth quarter and full year 2016 earnings results, the first since its acquisition of Virgin America.
Alaska Air Group says it will decide by late March whether to keep the distinct livery and identity of its recent multibillion-dollar acquisition, Virgin America.
Alaska Chief Executive Brad Tilden said Wednesday the fate of the Virgin America brand will be announced before the company’s March 29 investor day.
But the combined company is already making progress with integrating its operations, Tilden said.
“We are well on our way, with benefits like reciprocal mileage and easy booking of Virgin America flights on alaskaair.com already available,” Tilden said on a conference call after the company reported its year-end earnings.
Most Read Business Stories
- Boeing abandons its failed fuselage robots on the 777X, handing the job back to machinists WATCH
- Inside the world's largest Starbucks, opening Friday in Chicago VIEW
- Here's a $10,000 offer to leave the Bay Area
- Motorola Razr flip is back as a pocket-size smartphone with a folding screen
- New questions raised on safety of both Boeing 737 MAX and 787 Dreamliner
Alaska currently pays the Virgin Group a royalty of 0.7 percent of the Virgin America unit’s revenue for using the name. But the brand has a strong following among its loyal passengers, and Alaska is intent on keeping as many of those as possible.
Costs associated with the acquisition, which was completed in December, brought an $81 million hit to earnings. Alaska still managed a fourth-quarter profit of $114 million or $0.92 per share, compared to $191 million or $1.51 per share a year earlier, it announced Wednesday.
Alaska said the lower taxes resulting from those acquisition costs reduced the net impact on its bottom line to $66 million.
Those expected costs were factored in by investors, who reacted positively to the results and to a 9 percent increase in the quarterly dividend to $0.30 per share.
Alaska shares ended trading up $3.10 or 3.3 percent at $97.20, after notching a new all-time high above $98 during the day.
Tilden said harmonization of operating procedures at the Alaska Airlines and Virgin America units is on track for the Federal Aviation Administration to grant a single operating certificate in about a year.
And he predicted passengers will see a single, seamless service by the second half of 2018.
The acquisition closed just two weeks before year’s end but costs accumulated through the year after Alaska’s announcement of the merger deal in April. The airline booked $22 million in acquisition costs the previous quarter.
For the full year, Alaska’s profit was $814 million or $6.54 per share, down from $848 million or $6.56 per share for 2015.
Alaska Air Group’s profit margin for the year was 13.7 percent, compared to just 7.5 percent in the fourth quarter.
Taking out the acquisition costs and some smaller special items to provide an operational comparison, Alaska Air said the adjusted profits for 2016 would have been $193 million or $1.56, versus an adjusted profit the previous year of $186 million or $1.46 per share.
Alaska executives said it continues to expand its capacity. It will take 18 more Embraer E175 regional jets this year, and 12 new Boeing 737-900ERs.
It will retire its remaining 10 older 737-400s by year end.
However, as management wrestles with the question of what to do with its newly acquired mixed mainline fleet of Airbus and Boeing planes, it will not take all 10 of the Airbus A321neos that Virgin had scheduled to lease over the next two years, Chief Financial Officer Brandon Pedersen said.
“We are working with the lessor on an arrangement,” Pedersen said.
Virgin is Airbus’ worldwide launch customer for the A321neo, a large, single-aisle jet configured with 185 seats. Ben Minicucci, chief executive of the Virgin America unit, said he plans for that aircraft to fly to Hawaii or on transcontinental routes.
CEO Tilden said the slowdown in taking the Airbus A321s will allow more time to decide how to handle the mixed fleet, a process that he said will take another six to nine months.