Today, US operator Alaska Airlines released its first-quarter 2020 earnings report, which appears to be fairly in line with what we’ve been expecting from the carrier. The airline announced a net loss (excluding impairment charges, merger-related costs, and other adjustments) of $102 million.
“In the face of one of the greatest challenges in the history of commercial aviation, our people at Alaska and Horizon are doing extraordinary work to respond to this crisis. . . I want to thank our leadership team for acting swiftly and courageously to reduce our cash burn rate and give us the best chance possible to navigate through this storm and capitalize on opportunities we may see on the other side.” –Brad Tilden, Alaska Airlines
Like virtually every other airline in the country, Alaska has taken a severe hit due to COVID-19 in the first quarter. It’s flown capacity last month decreased by more than 80% compared to April 2019. Furthermore, the airline has imposed capacity cuts this month that will be at least 80% down from the same month last year. “We continue to expect capacity cuts in June to be significant,” the airline says – although no exact percentage was given.
In total, Alaska Airlines has so far parked 156 mainline aircraft and 13 Horizon Air aircraft. It has also suspended flying eight aircraft for SkyWest Airlines, which are all Embraer E175 jets.
Gradually reducing expenditures
Alaska Airlines is indeed “acting swiftly” to reduce its cash burn rate. In its report, it showed that it has been able to reduce its cash burn from $400 million per month in March, down to $260 million in April. Throughout May, the airline is aiming to reach a cash burn of $200 million.
Part of this reduction in cash burn comes from enacting a “company-wide hiring freeze for all non-essential positions, reduced salaries of senior management.” The airline has also offered voluntary short-term and incentive leave programs that have been accepted by more than 5,000 employees.
Simple Flying asked the airline if it could provide any additional examples and methods of reducing its cash burn. A spokesperson responded with a transcript of their first quarter earnings call. Within the transcript, there is mention that cash burn reduction methods include deferring capital expenditures as well as suspending share repurchases and dividends.
Executive Vice President Finance and Chief Financial Officer Shane Tackett adds that the airline is working hard to “drive towards our commitment of zero cash burn by the end of the year”.
In addition to reducing its expenditures, the airline has secured multiple sources of funding and financing by doing the following:
- Drawing $400 million from existing credit facilities.
- Executing an agreement for a $425 million, 364-day term loan facility.
- Obtained an additional $50 million in secured financing on April 22.
- Reaching an agreement with the U.S. Treasury to receive support under the CARES Act, securing $992 million in funding on April 23.
- Finally, it has applied to participate in the Loan Program of the CARES Act, which would provide access to up to $1.1 billion in federal loans through September 30, 2020.
Tilden concludes his report by saying that his airline has been around for more than 88 years. The airline’s commitment is to ensure this continues and to emerge from this crisis better and stronger.
Are you at all surprised by Alaska’s first-quarter earnings? Or was it in line with your expectations? Let us know in the comments.