Despite a tough final month in 2021 when both the pandemic and the weather wreaked havoc with airline operations, Alaska Air Group announced Thursday that it eked out a fourth-quarter net profit of $18 million, or 14 cents a share.
That compared to a net loss of $447 million, or $3.60 per share, in the same quarter of 2020.
Alaska Air Chief Executive Ben Minicucci told Wall Street analysts that with the coronavirus case surge from the omicron variant set to subside, the airline expects to return to strong growth by midyear and plans to hire about 3,000 people in 2022.
“We do believe the virus will move to endemic status and that demand will ultimately stabilize,” he said. “We expect to be profitable for the month of March and for the remainder of the year. We remain committed to return to pre-COVID capacity by the summer and plan to grow from there.”
From Dec. 26 to Jan. 12, Alaska Airlines canceled 1,670 flights.
Minicucci blamed “the combination of severe snow, multiple consecutive days of subfreezing temperatures in our Pacific Northwest hubs, and staffing disruptions caused by the omicron variant” for what became “one of the most challenging holiday travel periods we have ever experienced.”
He said that resulted in a $70 million hit to fourth quarter profits: $25 million in extra costs including paying overtime and wage premiums and remunerating passengers for canceled flights, as well as $45 million in lost revenue.
“Clearly, this was a tough way to end a year that otherwise had progress worth celebrating,” Minicucci said. “Even with this outsize impact, Alaska was profitable in the fourth quarter and strongly led the industry in pretax performance over the second half of 2021.”
For the full year, Alaska reported a net profit of $478 million, or $3.77 per share. However, this profit was possible during the pandemic because of the federal Payroll Support Program that provided $914 million to the airline in the first half of 2021.
Without that support and other one-time items, Alaska would have reported a net loss of $256 million for the year.
On Jan. 6, responding to the staff shortage from sick calls related to COVID-19 and a drop in air travel demand as omicron surged, the airline reduced its flight schedule by 10%. A week later, it cut the flight schedule a further 5% through the end of January.
Minicucci said Thursday the airline has stabilized since then and is ready for significantly better times ahead as the threat from omicron ebbs.
Alaska Chief Commercial Officer Andrew Harrison said on the earnings teleconference call the omicron wave of infections had reduced revenue from January and February ticket bookings by an estimated $160 million.
But demand has already begun to recover for March bookings.
“We do anticipate that when omicron moves behind us … we’re going to start to see the spring and beyond booking come back to life,” Harrison said.
However, certain business-travel sectors are still very depressed. Harrison said business travel by the large tech companies remains down 70% to 90% compared with 2019. “They are not traveling,” he said.
Heading back to “all-Boeing”
Minicucci said that most of the expected growth will come in the second half of the year when available seat capacity could be up by as much as 10% over 2019 pre-COVID levels.
Alaska plans to take delivery this year of 32 Boeing 737 MAX 9s while phasing out its smaller Airbus A320s, all of which will be gone by the end of next year.
Alaska Chief Financial Officer Shane Tackett said the airline will also eventually dispose of its 10 larger Airbus A321 jets and revert to being an all-Boeing carrier.
The A321s are leased through 2030.
“In a perfect world, we wouldn’t hold them that long,” Tackett said. “I wouldn’t be shocked if we held them for a while, and I wouldn’t be shocked if we were able to find a place for them to go.”
In Seattle, the airline is already above pre-COVID capacity. California demand is recovering more slowly.
The planned growth will come with substantial costs: salaries and training for new hires, paying cash for the Boeing jets, and paying off the leases on the Airbus jets.
Tackett said retiring the Airbus A320 planes will cost up to $275 million over the next two years.
And he said Alaska had to spend an extra $7 million in the fourth quarter to raise entry-level wages for some work groups in the tight labor market. That “may end up being permanent,” he said.
Tackett declined to comment on ongoing contract talks with the Alaska Airlines pilots union, which have reached an impasse that has caused mounting frustration in the pilot ranks.
Capt. Will McQuillen, chairman of the Alaska Airlines unit of the Air Line Pilots Association, said Thursday negotiations with management “have stagnated over issues that will be critical if Alaska wants to attract and retain pilots.”
“We are experiencing a marked increase in pilot attrition,” McQuillen added.
Heavy losses among major U.S. airlines
Alaska joins Southwest as the only major U.S. airlines reporting a profit for the fourth quarter.
On Thursday, Southwest said it made a fourth-quarter profit of $68 million.
For the full year, Southwest reported a profit of $977 million. However, without $2.96 billion from the federal PSP and other one-time items, that would have been a $1.3 billion loss.
Earlier this month, Delta reported a fourth-quarter loss of $395 million, United a loss of $646 million and American a loss of $931 million.
For the full year of 2021, including federal PSP funding, Delta reported a profit of $398 million, while United and American each reported a net loss of $2 billion.
Alaska also announced Thursday that employees will receive 6.25% of annual pay as a bonus in their Feb. 4 paychecks.
The company said that works out to $3,000 pretax for an employee making $48,000 per year.
That annual performance bonus, which is awarded based not only on financial targets but on safety and sustainability goals, is in addition to monthly operational performance bonuses, which paid about $1,000 per person pretax in 2021.
5G problematic for Horizon
Alaska reported operating revenue of $1.9 billion in the fourth quarter, up from $808 million a year ago and down only 15% from 2019 pre-COVID levels.
Operating revenue for all of 2021 was $6.2 billion, which is 70% of 2019 revenue pre-COVID.
Excluding PSP funding, Alaska in 2021 generated $138 million in cash flow from operations.
Executives also mentioned the problems Alaska Air’s regional carrier Horizon Air is having with the deployment of 5G cell service at Paine Field in Everett.
Potential 5G signal interference with instruments on Horizon’s Embraer E175 jets has caused multiple flight cancellations in low-visibility weather over the past few days, which Alaska CCO Harrison admitted “has been a massive issue for Paine Field.”
Yet Horizon President Joe Sprague said, “We’re working through that with the FAA and we hope to get a resolution of that soon.”
Minicucci added that Horizon currently has 12 scheduled departures per day from Paine Field but expects to get back to the full complement of 18 departures per day by the summer.