With the airline industry still struggling to recover from the pandemic and now higher oil prices, Alaska Airlines has reported record quarterly revenues of $2.65 billion, an increase of 16% from the same quarter for 2019.
Inflation and increased demand have contributed to higher revenues. What we need to focus on are profits. The pretax income of the company is still down 47% compared to the second quarter of 2019.
However, if we ignore the increase in fuel prices and special items, profits would have been up by 70%.
Accounting for higher fuel prices, profits would be down only by 6%.
What's actually taking money away from the business are the special items.
And these special items are mostly transition costs from the Airbus fleet (obtained with Virgin America acquisition) to a Boeing fleet.
Alaska Airlines is producing strong cash flows and has started to rebuild its fortress balance sheet.
If an economic slowdown or recession comes, Alaska Airlines is prepared for it. And we can expect dividends and buybacks as soon as they are able to do it again.