12/12/2023 0 Comments Alaska time now![]() ![]() ![]() However, this should finally end the huge special fleet-related charges the company will have taken in 20 and the market can focus solely on the company's core operating results. The 10 A321s are set to leave the fleet in September, and the company expects to incur another $300-350 million in special charges related to this exit. This harmonization should have both revenue and cost benefits going forward as more of the aircraft, in particular the 737 MAX aircraft, are introduced into the company's fleet. The Embraer 175 and Boeing 737 MAX aircraft replacing these respective fleets are larger, have more premium seats, and are already operated by the airline. Fleet upgrade and simplificationĪlaska has substantially completed its fleet reduction goals, and incurred substantial associated charges, on its Q400 and A320 fleets. Provided that the business performs as expected and the company is able to increase profitability while managing its debt and capex requirements, the potential for meaningful dividends and/or buybacks will exist over time. Management guided to a very modest $100 million in 2023 repurchases to offset dilution, while the dividend does not sound likely to be reintroduced this year. The program has remaining authorization of $438 million. The Company announced plans to resume share repurchases in 2023. Capital allocation and potential dividend renewalīased on excess capital forecast to be generated by the business, it is not a reach to see dividends and/or buybacks reinstated in size in the not-too-distant future. The balance sheet has been and will continue to be a source of strength that will allow the company to prudently pursue its objectives with respect to growing the business. In addition, it has sustained its industry-leading pre-tax margin performance, something that Alaska Air has been able to achieve for 11 of the past 13 full years and believes it will be able to continue into 2023. ![]() The company also ended the first quarter with approximately $2.8 billion in liquidity and an intent to maintain this level near the top of its 15-25% of revenues range. Alaska is second to Southwest in Net Debt / EBITDAR, leading all of its other larger peers in addition to smaller ones like Spirit and Frontier. I anticipate this despite my assumption that Alaska will need to do some borrowing to support its growth, an assumption that may prove to be conservative if the business generates sufficient cash flows. ![]() My forecast is that these ratios will remain stable, if not slightly improve, over the next few years despite the $4+ billion of capital expenditures from 2024-2026. I anticipate that the company will end the year with gross debt of approximately two times EBITDAR and net debt of approximately one turn. Source: Alaska Air investor relations, author's own calculations An investment-grade balance sheet My forecast only includes the recently indicated $100 million of annual buybacks, which I believe could be very conservative if performance comes at or above my expectations: In addition, management has previously guided to $5.50 - $7.50 in 2023 full-year earnings. My forecast against the analyst community's forecast can be found below. The following table plots my estimate of 2023 earnings at different levels of growth in yield relative to 2022 levels, as well as passenger load factor (RPM/ASM): ![]()
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