Alaska Airlines Eagerly Awaits California's Reopening as Key to Recovery

Alaska Airlines is watching California's progress towards reopening on June 15 closely, with executives touting the date as a key "step change" in its recovery from the coronavirus pandemic.

"Seeing [California] reopen will be a powerful near-term enabler for our path back," said Alaska CEO Ben Minicucci said during a first-quarter earnings call on Thursday.

It's no small wonder that how California goes, so goes Alaska Airlines. The Seattle-based carrier has spent much of the past decade expanding its franchise in the Golden State, including the $2.6 billion acquisition of Bay Area-based Virgin America in 2016. By 2019, nearly 49 percent of Alaska's capacity touched California — a 10 point increase over the decade — according to Cirium schedules. Half of its revenues also came from the state.

California has underperformed the rest of Alaska's network since the pandemic began. In the first quarter, bookings touching the state were down roughly twice as much as the rest of the airline's system, Alaska commercial chief Andrew Harrison said on the call. The real test will come in June when the state is due to reopen, he added couching his general optimism.

That caution is rightly placed considering the unpredictable nature of Covid-19. California partially reopened last August only to go back into lockdown in December. As of Wednesday, the state had fully vaccinated nearly 34 percent of its population and the number of new cases were trending downwards at 2,411 a day, according to state data.

Outside of California, Alaska's outlook is more bullish. The airline plans to fly roughly 80 percent of its 2019 passenger capacity this summer primarily focused on its Anchorage, Portland, Ore., and Seattle hubs. The carrier is deliberate in its desire to raise load factors — and fares like at partner American Airlines — and retrain crews as it shifts to a mostly Boeing 737 fleet before recovering to pre-pandemic capacity by summer 2022, said Minicucci.

Business travel remains "severely depressed," said Harrison. But Alaska has a line of sight on the critical segment recovering to about half of 2019 levels by year-end.

What's more, the airline saw a 4.6 percentage point improvement in its share among managed corporate accounts during the first quarter compared with 2019, Harrison added. This came amid the expansion of Alaska's renewed codeshare with American and membership in Oneworld, which occurred on March 31. Capturing more corporate traffic was cited as a driver for both strategic moves.

The airline posted a $131 million net loss after a $411 million federal payroll relief benefit in the first quarter. Revenues and expenses were both down 51 percent year-over-year to $797 million and $958 million, respectively. Passenger traffic was down 49 percent on a 32 percent drop in capacity.

Alaska's results were ahead of the Wall Street consensus for the first quarter. Revenues and capacity recovered more than forecast, while its cost performance missed expectations.

For the second quarter, Alaska anticipates revenues of 63 to 68 percent of 2019 levels, said Harrison. Passenger capacity will be about 80 percent of two years ago.

And, if all goes as hoped, the April-to-June period could be the last loss for Alaska. Executives at the airline anticipate turning the corner and returning to profitability in the third quarter.