Alaska Airlines' second-quarter managed business travel volume remained unchanged at about 75 percent of 2019 levels, but the company is optimistic that number could increase come the fourth quarter, executives said on a Tuesday earnings call.
"Both California and the technology sector still account for the largest gap to full recovery," Alaska chief commercial officer Andrew Harrison said. "However, we have seen more return-to-office efforts at major tech companies and are incrementally more optimistic that we might finally break through the 75 percent recovered ceiling."
Alaska is particularly exposed to technology customer travel patterns given its coverage of the West Coast.
"We have some of the biggest companies in the world headquartered here on the West Coast, both in Seattle and in the Bay Area," Alaska CEO Ben Minicucci said. "So, it is a more difficult time for them, but they're going to come out of this. We're optimistic they'll come out of it towards the latter part of the year and into next year. There is going to be tailwinds for us … and there should be a lot of upside."
Harrison noted that this optimism has not been baked into the third-quarter or full-year guidance. He also added that revenue at 10 of Alaska's top 20 corporate accounts have at least fully recovered to 2019 levels. But the airline also is beginning to see some tech company demand "perk up," he added. "This gives us a little bit of hope that there might be some green shoots here as we move through the rest of the year."
Premium Cabin, Close-In Purchase Strength
Alaska launched the sale of its exit-row seats as a premium in mid-March, and sales "have been strong right out of the gate," Harrison said. Including exit rows, first-class and premium-class revenue each were up about 12 percent year over year, outpacing main-cabin revenue by eight points, he said. In the second quarter, 31 percent of the company's total revenue came from premium-class products, "up from 2022 and up seven points from 2019."
Close-in purchases also have recently improved, Harrison said. The percentage of passengers booked and flown within the month during the second quarter surpassed both 2022 and 2019 levels, Harrison said, adding that he has continued to see that close-in strength in July.
Similar to other carriers' earnings reports, Alaska has seen an "unprecedented surge" in international demand. Long-haul international seat demand off the West Coast in June was up 31 percent year over year, Harrison said. Further, Alaska's lounges have seen a 68 percent second-quarter increase in visits from guests traveling internationally, year over year. However, executives believe this trend will "normalize" toward the end of 2023 and into 2024.
Alaska Q2 Metrics
Alaska reported $2.8 billion in second-quarter revenue, a quarterly record for the company, with $2.6 billion in passenger revenue. Each was up 7 percent year over year and driven by leisure and close-in demand, Harrison said. Net income was $240 million, up from $139 million a year prior. Average fuel cost for the quarter was $2.76 per gallon.
Third-quarter guidance included a capacity increase of 10 percent to 13 percent year over year, with revenue flat to up 3 percent. Projected average fuel costs were $2.70 to $2.80 per gallon. Alaska's full-year outlook anticipates capacity to increase 11 percent to 13 percent over 2022 and revenue to be up 8 percent to 10 percent.
During the second quarter, Alaska took delivery of eight Boeing 737-9 aircraft and six Embraer E175 aircraft, and it completed Intelsat satellite Wi-Fi installation across its mainline fleet. In addition, the airline reopened its renovated Concourse D lounge in Seattle, offering 50 percent more seating, according to the carrier.
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