A difficult year for air travelers in 2022 was a lucrative one for the airlines, including Alaska Air Group, the parent company of Alaska Airlines and regional carrier Horizon Air.
Alaska executives outlined Thursday aggressive growth plans for 2023, including hiring thousands more people and taking delivery of dozens of new airplanes. On an earnings call with analysts, CEO Ben Minicucci said the airline hired nearly 8,000 people in 2022 as it emerged from the pandemic downturn and plans to hire 3,500 more this year.
In two weeks, Alaska will pay out a record $257 million in annual incentive bonuses — nearly six weeks of pay for most employees — for meeting or exceeding profitability, safety and emissions targets in 2022.
And anticipating a return to pre-pandemic air traffic levels, the airline this year will raise its aircraft seat capacity between 8% and 10% as it takes delivery of 37 more Boeing 737 MAXs.
“Our goal throughout the pandemic has been to emerge a stronger, more competitive airline,” Minicucci said. “We’re on that path.”
Facing operational problems
Alaska Air recorded a profit of $22 million in the fourth quarter and $58 million for the full year in 2022, figures released Thursday show.
That’s despite devoting almost half-a-billion dollars to retiring its leased fleet of Airbus A320s and Bombardier Q400 turboprops, as well as paying out $84 million in one-time labor contract ratification bonuses, the majority of that to its pilots.
The airline industry had a tumultuous year in 2022. It faced labor shortages as the pandemic eased. Airports were crowded and air fares skyrocketed as passenger traffic returned in force, with fewer airplane seats available.
As a result, Alaska Air’s revenue in 2022 was 10% higher than in pre-pandemic 2019, despite flying 9% fewer seats than then.
The comparison with 2021 was even starker. In 2022, Alaska and Horizon carried 41.5 million passengers, 28% more than the previous year. Yet revenue from fares at $8.8 billion was fully 60% higher.
The year presented operational challenges, first a serious pilot shortage in April and May and then a severe ice storm over the holiday in December. Alaska didn’t cope well with either.
The spring pilot shortage caused an unprecedented number of flight cancellations that brought chaos for passengers. By the summer, Alaska and Horizon had the schedule back under control by reducing the number of flights.
“Once we sorted out our April issues with pilot training, we were amongst the best in the industry in both on-time and (flight) completion rates,” said Alaska’s Chief Financial Officer Shane Tackett.
However that reliability broke down again over the Christmas period when the ice storm hit Alaska’s hubs in both Seattle and Portland.
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Pacific Northwest winter storms have become a regular setback for Alaska Air. It has had to cancel thousands of flights during previous storms, notably in 2016, in early 2021 and again in late 2021.
Yet on Thursday, executives dismissed the idea of over-staffing to handle such events.
“Although it’s becoming the norm, because it happened last year as well, this was a pretty unique event that lasted multiple days and did ice over our aircraft here in Seattle and in Portland,” said CFO Tackett. “We’re not going to assume that it happens to us every single year.”
CEO Minicucci added that though the airline will plan for winter events with “some additional cushion” of extra staff, it’s not practical to plan for something as severe as the December weather.
“Ice storms are massive events that cripple a city and there’s not a lot you can do no matter how much buffer you put in,” he said.
Chief Commercial Officer Andrew Harrison said the ice storm cut Alaska’s revenue by about $45 million.
Ready for growth
Alaska Airlines moved close in 2022 toward returning to an all- Boeing 737 fleet. This month Alaska Airlines retired its last Airbus A320 and on Thursday Horizon Air retired its final Q400.
CCO Harrison said most of the planned expansion of capacity this year will come from flying larger planes on longer routes, with about two thirds of the growth in the Pacific Northwest and a third in California.
The MAXs have more seats than the Airbus A319s and A320s they are replacing. They also have more high-fare premium seats, with 16 in a MAX 9 compared to 12 in the retired A320s.
Alaska Airlines now has just 10 Airbus aircraft left, all larger A321s. And Horizon now flies only Embraer E175 jets. Retraining of the Airbus pilots to fly Boeing jets should be completed this quarter. Out of almost 3,300 pilots at Alaska Airlines, only 150 pilots will be left flying the Airbus A321s.
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The simplification of the Alaska and Horizon fleets will add efficiency and reduce costs going forward.
“We are well-positioned to grow, compete and outperform in 2023,” Minicucci said.
Harrison said Alaska plans to have its fleet capacity back to pre-pandemic levels in the first half of the year. With international travel expected to boom in the summer, he said Alaska should get more passengers connecting from partners like American Airlines, Japan Air Lines and British Airways.
And he said corporate travel finished the year recovered to 75% of pre-pandemic levels, despite a severe pullback all year in travel by the big West Coast high-tech companies.
If a recession materializes as some fear, Tackett said Alaska can pull back on the growth plans accordingly.
In the fourth quarter, Alaska’s $22 million profit, or 17 cents per share, compared to $18 million, or 14 cents per share, a year earlier.
For the full year, Alaska’s, $58 million profit, or 45 cents per share, compared to $478 million, or $3.77 per share, a year earlier.
The higher profit in 2021 was a result of Alaska receiving $914 million in government grants from the Payroll Support Program. Adjusting the 2021 figures to remove one-time items such as the government support, Alaska would have lost $256 million, or $2.03 per share.
In addition, in 2022 Alaska wrote off $496 million for retiring the Airbus and Q400 planes and paid out $84 million for contract ratification bonuses.
Alaska agreed five labor contract in 2022, by far the biggest with its pilots. Management also agreed contracts with dispatchers, clerical and office staff, passenger service employees, reservation agents and baggage handlers. Negotiations with the flight attendants union continues.
Adjusting for the ratification bonuses, as well as one-time fuel hedge adjustments and income tax benefits, the adjusted core profit for 2022 would have been $556 million or $4.35 per share.
Alaska projects earnings this year of $5.50 to $7.50 per share and will resume share buybacks of up to $100 million.
Alaska shares rose slightly Thursday, closing up 27 cents, or 0.53%, at $51.32.