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Dec. 5, 2021

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Alaska Air turns its first unaided profit since 2019, but pilot unrest builds

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Unlike most major U.S. carriers, Alaska Air Group, parent company of Alaska Airlines and regional carrier Horizon Air, made a third-quarter profit, spurring management on Thursday to confidently reiterate aggressive growth plans that should see it hire about 3,000 people next year and more beyond.

Even as the Alaska Airlines pilots union called a news conference the same day to complain of stalled contract talks and unhappiness in the pilot ranks, executives spoke of plans to pay cash for dozens of new Boeing 737 MAX jets and to resume returning cash to shareholders next year.

The quarterly profit of $194 million, or $1.53 per share, was the first unsupported by government grants since the end of 2019 and the onset of the COVID-19 pandemic.

A year ago in the same quarter Alaska reported a deep net loss of $431 million, or $3.49 per share.

On Thursday’s earnings teleconference with Wall Street analysts, CEO Ben Minicucci said the return to profitability “marks an inflection point on our path to recovery.”

“Despite the transient choppiness we’re experiencing from the delta variant, our plan is to return to our pre-COVID size no later than next summer, and then to grow from there,” he said.

The majority of Alaska employees have by now returned from extended leave, so that the airline group now has more than 20,300 working employees, compared with 16,000 a year ago and 22,500 pre-pandemic.

In an interview Thursday, Chief Financial Officer Shane Tackett said the airline plans to hire “something like 3,000 net new people next year” and so will exceed its pre-pandemic size.

And he said that with Alaska’s plans for substantial fleet growth — taking delivery of 63 new Boeing 737 MAXs in the next two years — the airline’s employee count should grow “pretty aggressively” from there.

Despite upward pressure on wages for ramp workers and other entry-level jobs, a looming pilot contract that will increase salaries, and spiking fuel prices, Tackett said on the earnings teleconference that Alaska is in solid financial shape.

It plans to pay $1.5 billion in cash next year to take delivery of the Boeing MAXs and “north of that” for airplane deliveries the following year.

Tackett said the company expects to resume returning cash to shareholders in the form of dividends or buybacks “towards the end of next year.”

Minus support, airlines struggle

Data released Thursday shows Alaska carried 9.8 million passengers in the third quarter, more than two-and-a-half times the 3.6 million it had in the same period last year. In pre-pandemic 2019, it carried 12.6 million that quarter.

Total third-quarter revenue was nearly $2 billion — still down from $2.4 billion in the same quarter of 2019.

Since the trough in business last year, Alaska has been adding planes back into its fleet. Yet the third-quarter fleet capacity, measured as 11.6 million available seat miles, remains significantly lower than the 2019 figure of 17.5 million. (Available seat miles, the standard industry measure of an airline’s fleet size, is the number of seats available multiplied by the number of miles flown.)

Before the pandemic, in the third quarter of 2019, Alaska made a profit of $322 million, or $2.60 per share.

Alaska recorded a profit in the second quarter this year, but only because it received $664 million in government grants and loans through the Payroll Support Program. Without that, and other onetime items, it would have lost $38 million.

Unlike the other major U.S. airlines, Alaska received no further PSP support during the third quarter. Excluding the benefit of that government support, only Delta among the other majors managed a third-quarter profit.

Excluding $1.3 billion in government support, Delta reported a net profit of $216 million, a 2.6% pre-tax profit margin compared to Alaska’s 12% pre-tax margin.

In contrast, excluding government support and one-time adjustments in the third quarter, Southwest reported a net loss of $135 million, American Airlines a net loss of $641 million, and United a net loss of $349 million.

Alaska’s return to profit from operations came despite a moderate decline in bookings in August and September as COVID-19 case counts rose around the country. Planes were 88% full in July but only 72% full in September.

Minicucci said the financial results and the planned 737 MAX deliveries “position us for significant growth as demand comes back, which we expect will be in the back half of 2022.”

Pilots unhappy

The promising financial results spurred the pilots union Thursday to call for the company to make concessions and agree to a new labor contract.

Negotiations on the pilot contract, which became amendable in April 2020, have been ongoing since a year before that, and recently stalled completely.

The pilots want work rules in line with those at other major airlines that allow more flexibility in scheduling their flights and also provide job security by imposing so-called “scope clause” restrictions on who can fly the airline’s larger jets.

Unrest among the pilots over management’s refusal to move on those issues has been building. The union, the Air Line Pilots Association, is unhappy that management this month kicked the contract negotiations out to the National Mediation Board.

Capt. Will McQuillen, chairman of ALPA’s Alaska Airlines unit, said the NMB process typically takes two years and may be even slower because of COVID-19 travel restrictions.

“If Alaska wants to attract the pilots it needs to execute its growth plan, it’s going to have to address the better work rules and job security,” McQuillen said Thursday.

The major U.S. airlines are seeking to hire about 8,000 pilots in 2022.

Tackett in the interview said management accepts that a new contract will have to improve the basic work rules and will cost the company more, yet is leery of making excessive commitments during the “very choppy recovery.”

“We don’t want to make mistakes as we set ourselves up under a new contract that won’t bode well for the business or pilots long term,” Tackett said.

And Tackett said Alaska continues to attract pilots.

“We are filling pilot classes today,” he said. “We’ve got more applicants than we’ve got slots.”

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