MIAMI — Like with American Airlines Group (AAL), Alaska Air Group (AS) have announced their fourth quarter and full year 2017 results today.
The group’s share value for the quarter has seen an increase of 7% to $0.32 per share.
The group reports a net income of $367 million, and $2.97 per diluted share in the fourth quarter results.
The full year result sees an increase of $114 million compared to the previous year, showing higher growth overall.
According to the report, the group’s levels of debt went from 59% to 51%, showing more liquidity and financial stability.
The Alaska Group have had a $1.6 billion cash flow, with a billion of that coming out of expenses, resulting in around $547 million in free cash.
Passenger revenues have gone up by a staggering 32% as a result of the Virgin America merger that occurred in 2016.
The additional growth was as a result of the 68 aircraft that were added to the fleet across the Alaska, Virgin America, and Horizon Air. This has ultimately brought the total count to 221 aircraft overall.
“2017 was a great year – we invested in our route network, our fleet, our product, and laid the foundation for our future,” said Brad Tilden, Alaska’s CEO.
“We added 44 new routes to our network (in addition to the 38 added through Virgin America), grew membership in our loyalty program, and made great progress on our integration of Virgin America,” he said.
“By early spring, we’ll have the bulk of the integration behind us, and working with our people to do more of what Alaska does best – running a highly reliable operation and offering our guests outstanding customer service,” Tilden added.
These increases in profits may potentially have come from the Republican tax cuts that were recently implemented into the U.S. government.
Employees also benefitted from the Group’s performance and were awarded an additional $1,000 bonus onto their paycheck, which they are to receive at the end of the month.
The 44 new routes that were added to the group’s network in 2017 have obviously helped Alaska boost its profits. However, another major factor could also be responsible for the positive performance experienced by the Group.
Virgin America Merger – An Investment Well Paid?
It could be argued that the Virgin America investment was well paid off.
Regarding the passenger revenues, it spiked to 32% as mentioned in the performance data, which they do believe is due to the acquisition. This would be as a result of carrying existing Virgin America passengers who want to stay loyal to the brand and have repeat business with them.
Concerning the combined branding strategy, the Virgin brand is something that attracts a lot of passengers to fly with them. If they know that a different group is buying it, then, of course, they will go to Alaska Air because of the services that Virgin America previously provided, which most definitely would explain the reasoning for the positive revenue spike.
To determine whether it is an investment well spent, we have to look a few years into the future, and that has data that doesn’t exist yet. We would need to establish around two or three years worth of data to determine whether this revenue spike is just a one-off or whether the percentage increases will be consistent going into the future.
As there are new aircraft on the way as well as new route additions coming across the group, it could be an investment well spent if expansions to current Virgin America routes occur with these new aircraft and whether the load factors in turn increase, thus generating that revenue they will need to prove that theory.
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Going into 2018, it will be interesting to see how Alaska will align the Virgin America model against the heavily saturated domestic market in the U.S.
With the likes of Frontier, American, Delta, United and many more carriers already dominating the market with either Low-Cost or Higher-Cost model, it will be interesting to see where the group aims to fit in in that respect.
This could be challenging, but if the cards are played right, it could most definitely be a fantastic investment made by the group.