Alaska Airlines revenue takes flight in Q1, but costs come along for the ride

Alaska Airlines (NYSE ALK) failed to meet its profit targets in the first quarter, despite carrying the same number of passengers as before the Covid-19 pandemic.

The SeaTac carrier, which is in the second half of the year now, faces headwinds for its business travel segment. However it expects that fuel and labor prices will ease.

Shane Tackett, Chief Financial Officer of Southwest Airlines, said on a Thursday earnings call that he had more planes and resources to fly harder. We'll continue to put operational reliability and stability first, and will closely monitor the economy.

Operating expenses rose 27%, to $2.4 billion, while revenue increased by more than 30%. The company reported $142 million in net losses, or $1.11 a share. This is a slight improvement from the first quarter, but still falls short of analyst expectations.

Alaska Airlines said that fuel costs will come down following a quarter's volatility. However, new contracts with pilots as well as ground crews, dispatchers and other employees have increased labor costs. Alaska Airlines said that it had added more flight instructors and simulators to its training program, which allowed it to train twice as many pilots as it did during the first quarter of last year.

This is a major part of the plan to increase flights in order to meet the high demand for air travel.

Ben Minicucci, CEO of Ben Minicucci Travel, said in a conference call that despite the possibility of a recession, and the softening of some sectors, the travel demand is still strong. While our industry and businesses may continue to face economic volatility in the year 2023, we have yet to see if this will negatively impact revenue.

In the next few months, the company plans to sign a new contract with its flight attendants.

Alaska increased its capacity by 14% and carried nearly 20% more passengers in the past year. The expansion of its mainline operation offset a decrease in seats available for Horizon Air, its regional airline. This is thanks to the new Boeing 737 Max planes, which added 20 extra seats per aircraft while reducing the company's fuel costs by 7 million gallons compared to older Airbus A320 aircraft. Alaska plans to increase capacity by 8% to 10% before the end of this year.

Minicucci stated that the fleet update "allows us growth efficiencies while not adding departures in an already constrained operational environment."

Fuel costs were $30 million more than expected, and the price per gallon was 30% higher compared to the same period last year.

The airline said that it is working on 'hardening' its operations to combat disruptive storms and improving its forecasting models by next winter.

Business travel has recovered to a level that is almost three quarters higher than it was before the pandemic, as more passengers choose premium products and upgrade their services. Andrew Harrison, Chief Commercial Officer at British Airways, warned that the business segment may still be hit by headwinds during the next quarter.

Harrison, the CEO of the West Coast-heavy company, said that 'nearly all our core hubs' are located in areas where the business environment has not recovered as quickly as it has in other economic centers across the country. Corporate layoffs as well as a concentration of tech companies have been major factors.

This did not impact the company’s full-year forecast, which called for a 8% to 10% increase in revenue by 2022 with earnings per share ranging from $5.50 to $8.50.