Alaska Air Group’s second quarter earning beat expectations due to lower fuel prices, better costs and revenue, and new opportunities from its merger with Hawaiian Airlines, whose adjusted pretax margin hit profitability for the first time since 2019.
Ryan St. John, Alaska Air Group’s vice president of finance, planning and investor relations, told the Honolulu Star-Advertiser that the company posted “a beat of our prior guidance for the second quarter, which is great.”
The report released Wednesday was the third full-quarter earnings report filed by Alaska since Sept. 18, when it completed its $1.9 billion acquisition of Hawaiian Holdings, parent company of Hawaiian Airlines. In December, Alaska unveiled Alaska Accelerate, the airline’s strategic vision for the combined company, which it said is on track to unlock $1 billion in additional pretax profit by 2027.
St. John said, “The Hawaiian aircraft assets, as we are calling them, were profitable for the first quarter really since 2019, which is super exciting.”
He added that, “Everything related to our Alaska Accelerated plan in regards to the changes in the network with the two carriers has done very, very well,” and highlighted a “loyalty uplift” from its Huaka‘i by Hawaiian rewards program and greater credit card spending.
Alaska Air Group finished the second quarter on June 30 with a net income of $172 million, or $1.42 per share (including Hawaiian results), compared to a net income of $220 million, or $1.71 per share, in the second quarter of 2024 (which did not include Hawaiian results).
It reported an adjusted second-quarter net income excluding special items and other adjustments, of $215 million, or $1.78 cents per share, which includes Hawaiian results, compared to net income of $327 million, or $2.25 cents per share, for the second quarter of 2024, which did not include Hawaiian results.
Hawaiian’s own adjusted pretax margin just 10 months into the merger made an 11-point year-over-year improvement.
St. John said, “We just got into the profitable territory for the Hawaiian asset, obviously it was losing a good bit amount of money at this time last year. I’ve been in this industry for seventeen-and-a-half years now, and if you can get a profit margin between 5% and 10% that’s pretty darn good for this industry.”
Combining
efficiencies
St. John said the next major milestone is expected in October when the Federal Aviation Administration is expected to issue a single operating certificate that allows Alaska and Hawaiian to operate as a single entity. He said in April the two airlines are expected to move to a single reservation system.
Alaska CEO Ben Minicucci said in a statement, “The results this quarter are clear evidence of our team’s disciplined execution and unwavering focus on what we can control: delivering a remarkable guest experience, driving operational excellence and unlocking the value of our newly combined network and commercial platform.
“I’ve never been more confident in our team of 30,000 to execute our Alaska Accelerate plan and position Air Group for long-term success.”
The combined organization employs more than 6,500 workers based in Hawaii. Hawaiian has added 522 new union jobs this year, but three rounds of merger-related job cuts will eliminate 386 noncontract jobs with Hawaiian this year; 16 were outside Hawaii.
In addition to merger-related changes to its workforce, Alaska has identified other efficiencies and opportunities related to its combination with Hawaiian. Alaska’s total operating revenue in the second quarter topped $3.7 billion — driven in part by a revenue diversification strategy, which has led to 49% of all revenue generated outside of the main cabin, and a 5% gain in premium cabin revenue growth.
St. John said that premium cabins, including its first-class or extra-leg room sections, “continue to outperform the rest of the main cabin.”
“Hawaii obviously has really helped on that front, especially the longer flights,” he said, adding that people are more likely to buy premium seats for longer hauls.
Hawaiian’s larger planes also helped Alaska begin new daily nonstop service between Seattle and Tokyo, the first long-haul aircraft international destination from Seattle for Air Group. Alaska also is planning to launch its first trans-Atlantic route, which will connect Seattle to Rome next year.
Positive trajectory
During the first quarter, Alaska said it would not provide an update to its full-year 2025 guidance because of “recent economic uncertainty and volatility.”
However, St. John said there has been a recent positive inflection in traffic, yield and revenue for both Alaska and Hawaiian Airlines’ bookings. These changes, in part, reflect a reduction in off-peak flying in the third and fourth quarters based on prior guidance, which is expected to boost the profit margin.
“The state of Hawaii has been one of the brighter spots in our network for quite a while, especially since the merger closed and we are seeing more strength in the rest of the network now too, but it’s also benefiting Hawaii,” he said.
St. John said international travel to Hawaii has not fully recovered due to currency issues, but “everywhere else things are looking much, much better,” including Maui, which continues to recover.
“We expect positive trajectory going forward on revenues,” he said.
Alaska adjusted its 2025 capacity expectations to approximately 2% year-over-year growth.
“With recent changes to the demand environment, and our continued delivery on synergy and commercial initiative commitments, our outlook for full year earnings per share is greater than $3.25,” the carrier said.
Alaska is projecting that its third-quarter adjusted earnings per share will range between $1.00 and $1.40, including an expected 10-cent impact from an IT outage on July 20 that resulted in three hour systemwide ground stop for Alaska and Horizon Air flights.
St. John said, “That was an unfortunate IT outage from a vendor that we work with that manages some of our back-end systems. We chose in the interest of safety to pause the operation. It was a relatively quick recovery of the IT systems, but it obviously led to numerous delays and cancellations.”
He said the airline is “working to make it right” with customers.
That event followed Hawaiian Airlines’ experience in the second quarter with cybersecurity incident. In that case operations were not affected, but Alaska said it “took immediate steps to safeguard our airlines and remain engaged with authorities and experts to conclude our investigation.”
