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Alaska Air (ALK) Tweaks Q4 View, to Resume Buybacks in 2023
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Alaska Air Group’s (ALK - Free Report) management stated that air-travel demand in the current quarter has remained strong despite unfavorable weather. On a more encouraging note, management stated that despite the modest weakening of demand pertaining to corporate travel, the outlook for the remainder of fourth-quarter 2022 remains buoyant.
View Adjusted for Q4 & Full-Year 2022
Alaska Air now expects fourth-quarter 2022 capacity to decline in the 7-9% range from fourth-quarter 2019 actuals (earlier guidance called for a 7-10% decline). On the back of upbeat air-travel demand and favorable pricing, ALK now expects fourth-quarter 2022 total revenues to increase 13-14% from the fourth-quarter 2019 actuals (the previous guidance had hinted at a 12-15% increase).
Load factor (% of seats filled by passengers) is now expected in the 84-86% band (earlier guidance was in the 83-86% range). Cost per available seat miles, excluding fuel and special items, is still projected to increase in the 20-23% band versus 2019. Non-operating expense is now expected in the range of $9-$10 million (earlier expectation was in the $3-$5 million band).
With oil prices coming down in the latter half of the December quarter, fuel price per gallon is expected in the range of $3.50-$3.60 (earlier guidance was in the $3.50-$3.70 band). For full-year 2022, adjusted pre-tax margin is now expected in the range of 7-9% range (earlier view was in the range of 6-9%). Capital expenditure is still anticipated to be between $1.5 billion and $1.6 billion.
Rosy Outlook Issued for 2023
Assuming air-travel demand to remain buoyant next year, ALK expects to boost its fleet to meet the anticipated high demand. As a result, capacity for 2023 is expected to increase in the 8-10% band versus 2022 levels. Non-fuel unit costs are likely to decline 1-3% on a year-over-year basis.
Adjusted pre-tax margin for full-year 2023 is expected in the range of 9-12%. Capital expenditure is likely to be between $1.8 billion and $2 billion.
On a shareholder-friendly note, ALK’s management aims to resume share buybacks early next year, following the lifting of restrictions under the CARES Act. The restrictions prohibited airlines from paying dividends or buying back shares till Sep 30.
The buybacks will be made under the $1 billion repurchase plan cleared by the board of directors in August 2015. Under the authorization, $456 million remains. The buybacks are expected in the range of $75-$100 million in 2023.
Notably, another airline, Southwest Airlines (LUV - Free Report) has decided to start paying quarterly dividends after a pandemic-induced hiatus of more than two years following the removal of the restrictions. LUV’s management announced earlier this month that it was reinstating its quarterly dividend of 18 cents per share. With the carrier returning to profitability in March 2022 and expecting to be profitable for full-year 2022 as well, the decision was hugely-expected. The dividend will be paid out on Jan 31, 2023 to its shareholders of record at the close of business on Jan 10, 2023.
Some better-ranked stocks in the broader Transportation sector include the following:
Covenant Logistics (CVLG - Free Report) : CVLG offers a portfolio of transportation and logistics services, including asset-based expedited, dedicated and irregular route truckload capacity, besides asset-light warehousing, transportation management and freight brokerage capability.
The gradually improving freight market scenario is a tailwind to Covenant. CVLG’s cost-control efforts are appreciated as well. CVLG currently sports a Zacks Rank #1. The stock has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 10.1% upward over the past 60 days.
Teekay Tankers (TNK - Free Report) : TNK is being well-served by the increase in tanker rates. A gradual ramp-up in economic activities also bodes well. High fuel costs are, however, weighing on the bottom line.
Teekay Tankers currently sports a Zacks Rank #1. TNK’s shares have soared 160% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 87.6% north.
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Alaska Air (ALK) Tweaks Q4 View, to Resume Buybacks in 2023
Alaska Air Group’s (ALK - Free Report) management stated that air-travel demand in the current quarter has remained strong despite unfavorable weather. On a more encouraging note, management stated that despite the modest weakening of demand pertaining to corporate travel, the outlook for the remainder of fourth-quarter 2022 remains buoyant.
View Adjusted for Q4 & Full-Year 2022
Alaska Air now expects fourth-quarter 2022 capacity to decline in the 7-9% range from fourth-quarter 2019 actuals (earlier guidance called for a 7-10% decline). On the back of upbeat air-travel demand and favorable pricing, ALK now expects fourth-quarter 2022 total revenues to increase 13-14% from the fourth-quarter 2019 actuals (the previous guidance had hinted at a 12-15% increase).
Load factor (% of seats filled by passengers) is now expected in the 84-86% band (earlier guidance was in the 83-86% range). Cost per available seat miles, excluding fuel and special items, is still projected to increase in the 20-23% band versus 2019. Non-operating expense is now expected in the range of $9-$10 million (earlier expectation was in the $3-$5 million band).
With oil prices coming down in the latter half of the December quarter, fuel price per gallon is expected in the range of $3.50-$3.60 (earlier guidance was in the $3.50-$3.70 band). For full-year 2022, adjusted pre-tax margin is now expected in the range of 7-9% range (earlier view was in the range of 6-9%). Capital expenditure is still anticipated to be between $1.5 billion and $1.6 billion.
Rosy Outlook Issued for 2023
Assuming air-travel demand to remain buoyant next year, ALK expects to boost its fleet to meet the anticipated high demand. As a result, capacity for 2023 is expected to increase in the 8-10% band versus 2022 levels. Non-fuel unit costs are likely to decline 1-3% on a year-over-year basis.
Adjusted pre-tax margin for full-year 2023 is expected in the range of 9-12%. Capital expenditure is likely to be between $1.8 billion and $2 billion.
On a shareholder-friendly note, ALK’s management aims to resume share buybacks early next year, following the lifting of restrictions under the CARES Act. The restrictions prohibited airlines from paying dividends or buying back shares till Sep 30.
The buybacks will be made under the $1 billion repurchase plan cleared by the board of directors in August 2015. Under the authorization, $456 million remains. The buybacks are expected in the range of $75-$100 million in 2023.
Notably, another airline, Southwest Airlines (LUV - Free Report) has decided to start paying quarterly dividends after a pandemic-induced hiatus of more than two years following the removal of the restrictions. LUV’s management announced earlier this month that it was reinstating its quarterly dividend of 18 cents per share. With the carrier returning to profitability in March 2022 and expecting to be profitable for full-year 2022 as well, the decision was hugely-expected. The dividend will be paid out on Jan 31, 2023 to its shareholders of record at the close of business on Jan 10, 2023.
Zacks Rank & Key Picks
Alaska Air and Southwest Airlines both carry a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the broader Transportation sector include the following:
Covenant Logistics (CVLG - Free Report) : CVLG offers a portfolio of transportation and logistics services, including asset-based expedited, dedicated and irregular route truckload capacity, besides asset-light warehousing, transportation management and freight brokerage capability.
The gradually improving freight market scenario is a tailwind to Covenant. CVLG’s cost-control efforts are appreciated as well. CVLG currently sports a Zacks Rank #1. The stock has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 10.1% upward over the past 60 days.
Teekay Tankers (TNK - Free Report) : TNK is being well-served by the increase in tanker rates. A gradual ramp-up in economic activities also bodes well. High fuel costs are, however, weighing on the bottom line.
Teekay Tankers currently sports a Zacks Rank #1. TNK’s shares have soared 160% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 87.6% north.