Alaska Air Group loses $214M in 2Q; major layoffs likely

  • An Alaska Airlines Boeing 737-800 painted takes off from Seattle-Tacoma International Airport in Seattle. (Photo/Ted S. Warren/AP)

Alaska Air Group Inc. absorbed a loss of $214 million in the first full quarter of the coronavirus pandemic and the airline company could be forced to shed up to 7,000 jobs in the coming months if the country’s overall condition does not improve soon, executives said Thursday.

Brad Tilden, CEO of the Seattle-based parent to Alaska Airlines and regional carrier Horizon Air said during an earnings call with investors that the $214 million second quarter loss balloons to a $439 million loss when federal CARES Act payroll support funding is removed from the equation and called the numbers “sobering.”

“It’s the largest quarterly loss in our history and it’s obviously not a sustainable result,” Tilden said, noting the company’s airlines operated at capacity levels about 75 percent less than last year during the quarter. 

Alaska Air Group netted a $262 million profit in the second quarter of 2019.

The company lost $232 million in the first quarter before it and other major airlines were able to substantively respond to broad travel restrictions and economic shutdowns imposed by states and local governments in March as the coronavirus gained a hold across the country.

Since then, Air Group has managed to reduce its cash burn from approximately $400 million per month at the end of March to about $120 million in June, according to the quarterly report. The company has also more than $3 billion in cash reserves — including about $1 billion in CARES Act funding — since March by pulling on multiple financing levers, according to Chief Financial Officer Shane Tackett.

Air Group currently has about $3.7 billion in cash on-hand with the ability to add to that total by leveraging its unencumbered aircraft and other assets to add liquidity, Tackett said.

Most recently Alaska Airlines announced July 2 it had secured $1.2 billion in private loans by using 61 of its owned aircraft as collateral. Air Group is also in discussions with the Treasury Department about utilizing its popular mileage plan program as collateral for more than $1 billion in additional loans, Tackett said. 

The company has signed a nonbinding letter of interest with Treasury and anticipates government officials will make a final decision on the financing in the next eight weeks, he said.

Air Group stock mostly held steady in the hours immediately following the earnings call; it closed trading Thursday at $36.67 per share. The company’s stock traded in the $60 to $70 per share range for months prior to a pandemic-induced slide that started in late February.

On the operating side, Alaska and Horizon’s combined revenues totaled just $421 million in the second quarter, an 82 percent drop from a year ago. The airlines collected just more than $2 billion in operating revenue in the first half of the year, compared to approximately $4.1 billion in the first six months of 2019.

Alaska flew just 905,000 revenue passengers during the quarter, a drop of more than 90 percent year-over-year. Passenger traffic is down 55 percent so far in 2020.

Overall operating expenses were down 63 percent year-over-year to $709 million and company executives continue to stress a strong desire to reach cash breakeven by year’s end but also believe it will take at least two years for the industry to return to 2019 activity levels. 

Tilden said Alaska’s low-cost operating structure and strong market control should help the airline rebound as quickly as anyone in the industry but the long-term outlook means major domestic carrier will almost certainly have to shrink significantly before it can begin growing again.

Tackett said Alaska might have to shed up to 7,000 of the airline’s roughly 23,000 workers by the fourth quarter but no specific timeline for the layoffs has been announced. Tackett emphasized that executives are searching for ways to limit the scale of involuntary furloughs.

The airline has about 1,800 employees across the state of Alaska.

More than 30 percent of employees have already taken a voluntary leave of absence that will continue to be offered through the end of the year, he said, and incentives are being offered for frontline workers and pilots to retire or otherwise leave the company.

About 300 management positions will be cut on Oct. 1 as well, according to Tackett. 

“It goes without saying that these (job cut) decisions have regrettable and meaningful impacts on employees that have invested their careers here,” he said. “While extraordinarily difficult, these actions are necessary given the realities of our business going forward.”

Air Group leaders said they want to return the company to its pre-pandemic cost structure even if it means a smaller company for the foreseeable future.

“There’s no doubt in our minds that we will have to be very aggressive in restructuring the company to ultimately get back into a growth trajectory and pay down this debt we’ve taken on,” Tackett said further.

Air Group held a debt-to capitalization ratio of 51 percent at the end of the quarter, up from 41 percent to start the year.  The executive team has long preached that a conservative balance sheet has helped Alaska Airlines grow steadily over the past decade-plus in the highly volatile industry.

Company executives took steep pay cuts in late March, ranging from a 100 percent cut for Tilden, a 50 percent pay reduction for Horizon President Gary Beck and 30 percent cuts for executive and senior vice president level management.

Tilden added that the outlook for the airline industry has only again turned dismal in recent weeks as the number of coronavirus cases has again spiked across much of the country since states began reopening in May and June.

“We were on a really nice clip through the July 4 weekend in terms of it seemed like every day was a thousand more customers than the previous day, but as the narrative changed and the headlines changed I do think every airline has seen a softness in bookings for future travel and that’s what’s making us nervous for August and September,” Tilden said. “The environment is a lot different than it was 30 days ago.”

Elwood Brehmer can be reached at [email protected].

07/28/2020 - 5:11pm