Alaska Air Gr (NYSE:ALK) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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Summary
Alaska Air Gr reported a first quarter GAAP net loss of $193 million and an adjusted net loss of $192 million, primarily driven by sharply higher fuel prices and disruptions in key markets like Hawaii and Puerto Vallarta.
The company is making significant progress with its Alaska Accelerate strategy, including completing preparations for a single passenger service system cutover, expanding its network with new routes to Rome, London, and Reykjavik, and enhancing its loyalty program with a new agreement with Bank of America.
Despite near-term challenges, Alaska Air Gr maintains a positive long-term outlook, focusing on expanding its premium and international offerings and maintaining strong demand and revenue resilience, aiming for a $10 EPS target in the future.
Full Transcript
OPERATOR
Good morning ladies and gentlemen and welcome to the Alaska Air Group 2026 first quarter earnings call. At this time, all participants have been placed on mute to prevent background noise. Today’s call is being recorded and will be accessible for future playback at alaskaair.com after our speaker’s remarks, we will conduct a question and answer session for analysts. I would now like to turn the call over to Alaska Air Group Vice President of Finance, Planning and Investor Relations, Ryan St.
Ryan St. John (Vice President of Finance, Planning and Investor Relations)
Thank you Operator and good morning. Thanks for joining us today to discuss our first quarter 2026 earnings results. Yesterday we issued our earnings release along with several accompanying slides detailing our results which are available at investor.alaskaair.com on today’s call, you’ll hear updates from Ben, Andrew and Shane. Several others of our management team are also on the line to answer your questions. During the Q&A portion of the call, we reported a first quarter GAAP net loss of $193 million excluding special items. Air Group reported an adjusted net loss of $192 million. As a reminder, forward looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-generally accepted accounting principles financial measures such as adjusted earnings and unit cost excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable generally accepted accounting principles and non-generally accepted accounting principles measures in today’s earnings release.
Ben
Over to you Ben. Thanks Ryan and good morning everyone. To start, I want to thank our more than 30,000 employees across Alaska, Hawaiian and Horizon for their continued focus, professionalism and commitment to taking care of our guests through another unpredictable start to the year. The operating backdrop shifted rapidly this quarter. Sharply higher fuel prices driven by geopolitical events created uncertainty across global markets and and meaningful pressure on the airline industry. At the same time, our network faced more disruption than normal from once in a generation rain storms in Hawaii to civil unrest in Puerto Vallarta. Through it all, our teams have demonstrated remarkable resilience. Their response day in and day out remains the foundation of our performance and the long term success. While these events created close-in challenges, we remain convicted and excited about our strategy and the future we’re building at Air Group as we continue to unlock the initiatives we laid out under Alaska. Accelerate. Throughout our history we have leaned into periods of disruption to strengthen the company. After the 2001 downturn, we built a transcontinental network. Coming out of the 2008 financial crisis, we established our Hawaii franchise and most recently following the COVID pandemic, we acquired Hawaiian Airlines, secured more than 50% market share in Hawaii and launched Long Haul International Travel out of Seattle. Each of these moments shaped who we are today. The near term pressure facing the industry today is real. Fuel costs were more than $100 million higher in the first quarter and we expect incremental fuel costs of $600 million or more in the second quarter. That represents approximately a 70 cent impact to earnings per share in Q1 and over $3 in Q2. Offsetting some of that pressure is a strong demand backdrop with fair increases holding. Andrew will share more in his comments. Importantly, our position of strength allows us to manage through environments like this while continuing to build long term earnings power. Today’s backdrop reinforces why we designed Alaska Accelerate the way we did to create a structurally stronger, more diversified and more resilient airline capable of delivering value across cycles for our owners, employees and guests. Scale, relevance and loyalty with an emphasis on premium experiences and international travel remains central to that foundation. And while fuel volatility may dominate near term headlines, the initiatives most critical to our trajectory remain firmly within our control and we will continue to execute on them because it is the right strategy. Now turning to the business, we continue to make meaningful progress on Alaska, accelerated, advancing our priorities and not standing still even in a challenging environment. From an integration standpoint, we’ve completed preparations for our single passenger service system cutover, our final major guest facing milestone. Beginning tomorrow, our systems will operate on a single platform, eliminating the friction of a dual environment. This is a significant moment for Air Group. We’re moving forward with our combined and globally expanding network, an award winning loyalty program and premium offerings across our entire fleet. Along with the PSS cutover, Hawaiian Airlines has officially joined OneWorld expanding benefits for our loyal guests in Hawaii, attracting new OneWorld guests onto the Hawaiian brand and extending our global reach to meet the full range of business and leisure travel needs. Our network continues to grow as we connect our guests to the world. We launch Rome next week and London and Reykjavik later this spring, all tracking toward full flights. I could not be more excited to see the Alaska brand set foot in Europe for the first time in our 94 year history, marking a major milestone in becoming the fourth global carrier in the United States. At the same time, our premium and guest experience continues to improve. Premium retrofits on our 737 fleet are now more than 90% complete, increasing our share of premium seats across the network and driving higher premium revenue. Our entire regional fleet is now retrofitted with free Starlink wi-fi and Boeing 737 installations are underway, further enhancing our end to end guest experience. Guest satisfaction has already improved 15 points across all Starlink equipped aircraft and nearly 30 points on regional jets. Another core pillar of Alaska accelerated Our loyalty platform continues to gain momentum. We recently agreed to a multi year extension with enhanced economics and a deeper partnership with bank of America, supporting continued growth in our loyalty ecosystem and reinforcing loyalty as one of the most powerful earnings drivers in our business. We’re also pleased to have reached an agreement with Amazon that eliminates losses under the legacy Hawaiian terms and creates mutual value as the relationship evolves. With still more to do and finally, despite winter weather and severe rainstorms in Hawaii, we delivered the industry’s number one on time performance in the first quarter along with very high Net Promoter Scores, another indicator that integration friction is in the rearview mirror for Air Group. Collectively, these initiatives are reshaping the composition of our revenues and making our business more durable. Today, more than half of our revenues come from outside the main cabin, driven by premium products, loyalty cargo and ancillary streams, and we expect that share to keep growing to close. Alaska is operating from a position of strength. We have a healthy balance sheet, strong liquidity and a fleet and network that provide flexibility as conditions evolve. I want to reiterate my confidence in our people, our strategy and our future. We are navigating this environment with discipline, clarity and purpose. The challenges we’re navigating today do not change our longer term trajectory, our ability to achieve a $10 EPS target, or remain a top margin producing airline. While the path is rarely linear, the direction is clear and our conviction in where we’re headed has not wavered. Airlines with caring and committed people, strong brands, loyal guests, disciplined cost structures and financial flexibility are best positioned to emerge stronger and I firmly believe Air Group fits that profile. And with that I’ll turn it over to Andrew.
Andrew
Thanks Ben and good morning everyone. Today I’ll walk through our first quarter financial performance, our perspective on the near term demand and revenue environment, and the significant progress we’re realizing on the core initiatives that underpin Alaska accelerate. Total Q1 revenues reached $3.3 billion, up 5% year over year on capacity growth of just 1.7%. Our unit revenues were up 3.5% in line with our initial expectations for the quarter and building on a strong prior year comparison. From a demand and revenue perspective, performance in the first quarter was resilient despite the volatile macro backdrop and material demand headwinds uniquely impacting our spring break revenue given our network. Specifically, we experienced significant headwinds in Hawaii and Puerto Vallarta, which together represent approximately 30% of our system capacity. In Hawaii, unprecedented storms with rainfall reaching as much as 3,000% of normal historical levels during March disrupted travel plans and drove a spike in cancellations and near term book away. In Puerto Vallarta, where Air Group is the largest US Carrier, civil unrest leading up to the spring break travel period had a meaningful impact on demand as well. Together, These impacts reduced first quarter unit revenues by nearly 1 point, with effects continuing into April and May. In response, we’ve reduced Puerto Vallarta flying by approximately 30% in the second quarter to better align capacity with demand in Hawaii, we have maintained near term capacity as the severe weather was transitory. We are busy taking great care of local travelers and welcoming visitors with the Hawaiian experience they know and love and this past week saw bookings return to last year’s level on strong fare increases. Setting aside these regions, we saw broad based strength across our network. Premium demand continued to outperform the System and was up 8% year over year. With over 90% of our premium fleet retrofits complete, we’re on track to sell all 1.3 million incremental premium seats across the network ahead of the peak summer travel season. Encouragingly, first class revenue continues to produce positive unit revenues even as capacity increases 5%. Internationally, the relevance of our network continues to drive strong results as guests are choosing to fly with us in in more ways than ever before. Seattle Tokyo reached profitability in March, less than a year after its launch and load factors for both Seattle to Tokyo and Seoul exceeded 90%. We’re extending this momentum with the launch of Rome next week, followed by London and Reykjavik next month. Early booking trends are tracking in line with expectations with demand building nicely and premium cabins performing particularly well. Notably, more than 70% of guests booked on our new roam service are Alaska Mileage Plan members, materially higher than the rest of our network. Managed corporate travel was exceptionally strong, up 19% in the first quarter. Our international expansion has meaningfully increased Alaska’s relevance with corporate customers. As a result, we are competing for and in some cases exceedingly our fair market share in business travel on these long haul routes, particularly in the US Point of sale. We’re also seeing improved domestic corporate relevance as global connectivity strengthens our value proposition for corporate travelers. Managed corporate demand remains robust in the Q2 with held revenue over the next 90 days up almost 30%. We are seeing broad based strength across all industries, in particular manufacturing, financial services and technology and are beginning to see traction through greater sign ups for small and medium businesses in our Alaska Mileage Plan for Business platform. Turning to loyalty growth remains a priority for Alaska. Every major initiative we’re executing on is driving relevance and growth for our members. These large scale enablers such as the Hawaiian acquisition and resulting domestic and international network expansion, the launch of our Alaska Mileage Plan Rewards platform, issuance of a premium co-brand card and free Starlink WI fi on board for Alaska Mileage Plan members are all designed to accelerate growth across our portfolio and deepen engagement with our most valuable guests. And it’s working. In the first quarter we generated $615 million in cash remuneration from our co-brand cards. That’s up 12% year over year while active membership in the Alaska Mileage Plan program grew by 13% year over year. Importantly, we’re seeing particular strength in our Hawaii loyalty metrics with double digit year over year growth across members, new cardholders and card spend. Over 70% of the Hawaii adult resident population is now enrolled in Alaska Mileage Plan Rewards reflecting the strong value proposition of our combined network and and loyalty program. With two beloved airline brands and oneworld’s expansive global connectivity, spend from our Hawaii based cardholders increased 19% year over year and now accounts for nearly 6% of the state’s Gross Domestic Product. Our top rated Atmos rewards program is clearly resonating, attracting more guests, keeping them within our ecosystem and reinforcing the strength of our loyalty flywheel as we look to further accelerate the growth and relevance of our Atmos Rewards program. Yesterday we announced a long term extension of our multi decade relationship with bank of America. This newly expanded agreement delivers improved economics, all new capabilities and a significant step up in marketing investment as we move to a single issuer of at most branded CO brand products through 2030. The agreement secures an additional $1 billion of total cash remuneration while offering what we believe will be a step change in portfolio growth. These economics are incremental to what we shared as part of the Alaska Accelerate vision and go meaningfully beyond the $150 million of loyalty profit we targeted by 2027. We’re grateful to the team at bank of America for their long standing and continued partnership. Turning to our outlook, we ended the year with one of the most prudent growth plans in the industry. The vast majority of our 2026 growth is concentrated in long haul flying out of Seattle as we continue to build our new global hub and generate new revenue streams at the same time. In response to current fuel environment, we’ve proactively trimmed nearly a point of capacity in May and June, including reductions in Mexico and select late night departures in high frequency markets. We now expect second quarter capacity to be up approximately 1% year over year, again among the lowest growth rates in the industry, comprised entirely of our long haul international service out of Seattle. While our North America capacity is down slightly year over year, the overwhelming majority of our capacity remains deployed in core hubs where we have scale, relevance and strong loyalty. As conditions evolve, we will continue to prioritize margins consistent with the disciplined actions we took last year with when we were the first large airline to reduce capacity. In response to a challenging macro environment, demand has shown resilience in the face of higher fares. Incoming yields for continental US markets have sustained an increase of 20% plus year over year in recent weeks, pushing held unit revenues in these regions to up double digits for the back half of the quarter. Given that we still have 35% of revenue to book in the quarter and provided this demand continues, we would expect to see the system achieve high single digit unit revenue gains with a path to 10% in Q2 despite an overall 2 point drag from Hawaii. Specific impacts in the quarter to wrap up While the near term environment remains volatile, we continue to make strong strides on the initiatives that matter most to the long term value of this business. And importantly, we are not standing still, as evidenced by our new co brand agreement with bank of America and the transition to a single passenger service system this week which will unlock the depth and breadth of our guest products and services seamlessly across our global network. We’re executing against Alaska Accelerate, improving the durability and quality of our revenue, maintaining prudent capacity, discipline and investing in areas that strengthen our earnings power over time. I remain confident that the actions we’re taking today position Alaska Air Group to emerge stronger as conditions evolve. And with that I’ll pass it over to Shane.
Shane
Thanks Andrew and good morning everyone. While we entered 2026 with strong momentum, geopolitical events have quickly disrupted that trajectory, driving an acute run up in fuel prices that has put pressure on the entire industry. In moments like this, it’s important to separate what has changed from what has not. Fuel has moved sharply higher and remains volatile. Demand for air travel has remained both resilient and strong and we have continued to execute on both our integration and the Alaska Accelerate Plan which is focused on building strength into the business for the long term. While we are once again navigating an unexpected and challenging backdrop, we know that successful airlines will be those with scale, relevance and loyalty The Alaska Accelerate Plan delivers in each of those areas and also broadens our commercial model as we expand internationally and in our premium offerings, two areas of the industry where demand continues to grow rapidly. As we navigate the near term, we will double down on our core business model, operational excellence, high productivity and providing award winning service to our guests while also delivering on continued investment in the initiatives that will grow our earnings over time. Against that backdrop, our first quarter adjusted loss per share of $1.68 came in better than the midpoint of our revised guidance, reflecting both the resilience of demand and the discipline with which we’re managing the business. Absent fuel, which alone accounted for approximately $0.70 of incremental EPS pressure versus our original plan and the impactful though transitory events in Puerto Vallarta and Hawaii that Andrew mentioned, we would have been well above the midpoint of our original guide. Our financial …
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