ALASKA AIR GROUP, INC. (ALK)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 was resilient operationally but macro-driven demand softness from February weighed on revenue; adjusted EPS of $(0.77) matched S&P Global consensus while revenue of $3.137B was slightly below ($3.159B cons.). Unit revenue rose ~5% YoY (likely industry-leading), and CASMex increased 2.1% YoY as the new AFA contract and integration costs flowed through . Consensus values marked with an asterisk are from S&P Global.
• Management guided Q2 2025 to adjusted EPS of $1.15–$1.65 with ~6 points of revenue headwind embedded; full-year guidance was paused, but the company still expects to be “solidly profitable” in 2025. FY capacity growth around 2–3% remains intact .
• Integration with Hawaiian is tracking slightly ahead of plan with Q1 Hawaiian unit revenue +8.8% YoY and a 14pt improvement in adjusted pretax margin; ALK sees Hawaiian nearing breakeven for the last three quarters of 2025, supporting the path to $1B incremental profit and $10 EPS by 2027 .
• Capital returns are an emerging catalyst: ALK has repurchased $149M YTD and signaled willingness to accelerate the $1B four-year authorization at current valuation while maintaining balance sheet health (58% debt-to-cap including leases; 2.1x net leverage) .

What Went Well and What Went Wrong

• What Went Well

  • Industry-leading domestic unit revenue; RASM +5% YoY despite ~3pt macro drag. Premium revenue +10% YoY; loyalty cash remuneration +12% YoY; total revenue +9% YoY on 3.9% capacity growth .
  • Hawaiian integration synergies ahead of plan; Hawaiian unit revenue +8.8% YoY and adjusted pretax margin +14pts, with management expecting close to breakeven in the last three quarters of 2025 .
  • Strong cash generation and capital return: $459M operating cash flow in Q1; $149M share repurchases YTD; liquidity of ~$3.3B and leverage metrics stable (Debt/Cap 58%, Adjusted Net Debt/EBITDAR 2.1x) .
  • Quote: “Even in the event of a recession, we expect to remain solidly profitable in 2025… and are fully committed to our share buyback plan of $1 billion over the next 4 years” — CEO Ben Minicucci .

• What Went Wrong

  • Macro softness emerged in February, pressuring yields; management estimated a ~3pt revenue headwind in Q1 and ~6pts embedded in Q2 guidance .
  • CASMex rose 2.1% YoY as labor and integration costs flowed through, and management flagged Q2 as the peak cost-pressure quarter (mid-to-high single-digit CASMex increase YoY) before sequential improvement in 2H25 .
  • Non-GAAP adjustments remained material: $91M special items (labor/integration) and mark-to-market fuel hedge adjustments; GAAP pretax margin of (7.4)% vs adjusted (4.5)% .

Financial Results

Headline results vs prior two quarters and YoY

Q1 2025 actuals vs S&P Global consensus

Operating KPIs across recent quarters

Segment breakdown (Q1 2025)

Non-GAAP adjustments (Q1 2025)

• Special items – operating: $91M (Labor and other $51M; Integration costs $40M) .
• Mark-to-market fuel hedge: $(3)M .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy and earnings power: “We have conviction in our ability to deliver $10 of earnings per share by 2027 and do not believe what's happening today jeopardizes that target in any way” — CEO Ben Minicucci .
• Resilience despite macro: “Even in the event of a recession, we expect to remain solidly profitable in 2025… [and] accelerate our share repurchase program” — CEO Ben Minicucci .
• Premium strength: “Premium revenues grew 10% and represent approximately 34% of our total revenues” — CCO Andrew Harrison .
• Cost and Q2 setup: “Q2 will be the most pressured this year with improving unit cost trends in the second half… EPS of $1.15 to $1.65, reflecting ~6 points of revenue impact” — CFO Shane Tackett .
• Hawaiian outlook: “The last three quarters for Hawaiian should be close to breakeven” — CEO Ben Minicucci .

Q&A Highlights

• Q2 guide composition: ~62–63% of Q2 booked; macro softness is the primary headwind, not initiatives/synergies; expect flat to down low-single-digit RASM, with premium trends resilient .
• Hawaiian trajectory: Neighbor Island and international Hawaii strong; management expects near-breakeven over the last three quarters of 2025 despite macro .
• Share repurchase acceleration: Company sees ability to execute up to half the $1B program with de minimis impact on leverage trajectory; prioritizes buying at low valuation while maintaining balance sheet flexibility .
• Capacity discipline: Will evaluate fall/off-peak reductions if weakness persists; Q2 capacity growth driven by Hawaiian while Alaska brand remains flat .
• Integration milestones: Single operating certificate tracking to Q4; PSS integration by early 2026; milestones not interdependent .

Estimates Context

• Q1 2025: Adjusted/Primary EPS $(0.77) vs $(0.770)* consensus; Revenue $3.137B vs $3.159B* consensus — EPS inline, revenue slight miss . Values retrieved from S&P Global.
• Q2 2025: Company guide $1.15–$1.65 EPS vs $1.54* consensus mid; RASM flat to down low single digits with ~6pt revenue headwind; CASMex up mid-to-high single digits as peak cost quarter . Values retrieved from S&P Global.

Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

• Macro drove the variance: revenue underperformed plan (RASM +5% vs “high-single-digit”) as demand softened in Feb; management embedded a ~6pt revenue headwind in Q2 — watch booking/yield stabilization through summer .
• Premium and loyalty are structural offsets: premium revenue +10%, premium ~34% of mix, co-brand cash remuneration +12% — supports margin defense even with softer yields .
• Hawaiian synergies are material and ahead of plan: unit revenue +8.8% YoY; adjusted pretax margin +14pts; breakeven trajectory in 2H25 is a medium-term earnings lever .
• Cost inflection likely after Q2: CASMex up 2.1% in Q1 and mid-to-high single digits in Q2 (peak), improving in 2H25; track execution vs labor/integration pressures .
• Capital return catalyst: $149M YTD buybacks with intent to accelerate, supported by 2.1x net leverage and $3.3B liquidity; potential support for shares at depressed valuation .
• FY guide paused but profitability reiterated: no update to FY EPS, but management remains confident in full-year profitability and the long-term $10 EPS by 2027 target .
• Near-term trading setup: Expect sensitivity to monthly revenue updates (fare/pricing), macro prints, and integration milestones (SOC timing, loyalty platform launch) as catalysts .

Appendix: Additional Context and Relevant Releases

• AFA contract ratified Feb 28; cost impact reflected in Q1 special items and CASMex (labor and other $51M within $91M special items) .
• Network/product: San Diego expansion and widebody international preparation; first intercontinental (SEA–NRT) imminent; fleet +8 aircraft in Q1 including one 787-9 .