For the last several months, Wall Street has been bracing for the carnage brought by the fight between Alaska Airlines and its larger rival, Delta Air Lines, for business at Sea-Tac Airport.
Alaska’s stock has stagnated, and analysts have published cautionary warnings.
Delta is creating an international hub in Seattle and is adding domestic connections at the airport to serve those overseas flights.
But based on the financial results released by SeaTac-based Alaska Air Group Thursday, the investing public must be wondering why the anxiety:
Alaska Air Group announced record profits for the third quarter, $200 million excluding special items, a 27 percent increase over the third quarter of 2013.
The airline holding company which owns Alaska Airlines and its sister carrier Horizon Air, reported per share earnings of $1.47 a share, five cents greater than Wall Street had predicted.
Those profits created a margin of 15.9 percent pretax margin for the 12 months ending Sept. 30. That compares with pretax margins for the same period in 2013 of 11.7 percent.
The airline holding company meanwhile paid its employees $84 million in bonuses during the year’s first nine months for meeting performance goals, repurchased $242 million of its own stock and paid its investors $51 million in dividends.
The airline’s pensions are fully funded, its debt reduced to just 31 percent of capitalization, and the airline group has $1.3 billion of cash on hand.
Alaska officials have acknowledged that Delta’s ramp up of its presence at Sea-Tac — the airline has more than doubled its daily departures — has put pressure on pricing on competitive routes and diminished the connecting traffic that Alaska used to carry on Delta’s behalf, so-called “codeshare” flights.
“New competition is making us reach higher and is creating an imperative for us to challenge ourselves and make necessary changes to achieve more,” said Alaska Chairman Brad Tilden.
In the third quarter, for instance, said Andrew Harrison, the airline company’s senior vice president, Alaska’s codeshare flying for Delta declined 53 percent, diminishing the company’s income from that business by $38 million.
But Alaska regained 85 percent of those passenger numbers on its own flights or on the flights of other codeshare partners.
Delta has announced plans to add even more flights to its Sea-Tac flight schedule in 2015, but Alaska, the dominant airline at the airport, said its not worried about that competitive effort.
Alaska will continue to upgrade its fleet next year with more Boeing 737-900ER aircraft that add capacity to its network without using more fuel. The 737-900ER carries 37 more passengers than the 737-400 planes it is replacing without using any more fuel.
And Alaska is retrofitting its 737-800 aircraft with thinner seats allowing more passengers in the same space as before. Another Alaska initiative is fitting the company’s fleet with scimitar-shaped wingtips to cut fuel usage by another 1.5 to 2 percent.
Alaska has added nine new nonstop destinations from Sea-Tac in 2014. Most of those new flights, company officials said, are producing revenues above the average for the airline’s flights.