Alaska Air Group lowers its forecast for third quarter due to softening demand, A320s to be retired before the end of 2022

Alaska Air Group updated its guidance for the third quarter 2021:

The public health and economic crises resulting from the outbreak of COVID-19 have dramatically impacted demand for air travel and driven significant change to our business operation and performance. From the beginning of these crises, the recovery path has been volatile and difficult to predict. If circumstances no longer support the plans we have established, our expectation for these metrics could change.
In the six weeks since we published our Q3 expectations, our bookings trends have deteriorated moderately as COVID case counts have increased. The setbacks in demand are not unique to any single geography. As a result, we have revised our guidance ranges. We now expect cash flow from operations toward the lower end of our previously disclosed range due to the above-mentioned slowing in forward bookings. While August and September performance is not expected to be as strong as that of July, we continue to expect to deliver positive pretax margins for the third quarter.
The table below provides our expectations for the third quarter.
Q3 Expectation(a)
Previous Q3 Expectation(d)
Capacity (ASMs) % change versus 2019(a)(b)
Down ~17% – 18% Down ~17% – 20%
Revenue passengers % change versus 2019(a)
Down ~21% to 23% Down ~15% to 18%
Passenger load factor ~79% to 81% ~82% to 85%
Total revenue % change versus 2019(a)
Down 19% to 21% Down 17% to 20%
Cost per ASM excluding fuel and special items % (CASMex) change versus 2019(a)
Up ~11% to 12% Up ~10% to 12%
Cash flow from operations(c)
~$0 million to $50 million ~$0 million to $100 million
Economic fuel cost per gallon ~$1.98 ~$1.95 – $2.00
Non-operating expense ~$13 to $15 million ~$15 to $20 million
Adjusted Tax Rate ~24% to 25% ~24% to 25%
(a)Due to the unusual nature of 2020, all comparisons are versus the third quarter of 2019.
(b)Capacity guidance excludes the impacts of close-in cancels that could occur as we monitor demand throughout the period.
(c)Metric represents our GAAP cash flow, exclusive of any federal income tax payments, refunds, or voluntary pension contributions.
(d)See investor update filed July 22, 2021.
Fleet Update
We continue to expect to return to 100% of 2019 capacity by summer of 2022. After that time, we expect to return to growth rates that are similar pre-pandemic levels. To accelerate the timing of that growth, we recently announced the early exercise of 12 options for Boeing 737-9 option aircraft with deliveries in 2023 and 2024. In conjunction with this transaction, Alaska also added 25 options to backfill those exercised in 2021.
The following table summarizes our anticipated fleet count by year, including the deliveries summarized above:
Actual Fleet
Anticipated Fleet Activity(a)
Aircraft June 30, 2021 2021 Additions 2021 Removals Dec 31, 2021 2022 Changes Dec 31, 2022 2023 Changes Dec 31, 2023
B737 Freighters 3 3 3 3
B737-700 11 11 11 11
B737-800 61 61 61 61
B737-900 12 12 12 12
B737-900ER 79 79 79 79
B737-9 MAX 5 7 12 31 43 32 75
21 7 (1) 27 (3) 24 (24)
A321neo 10 10 10 10
Total Mainline Fleet 202 14 (1) 215 28 243 8 251
Q400 operated by Horizon(c)
32 32 32 32
E175 operated by Horizon(c)
30 30 5 35 4 39
E175 operated by third party(c)
32 32 8 40 40
Total Regional Fleet 94 94 13 107 4 111
Total 296 14 (1) 309 41 350 12 362
(a) Anticipated fleet activity reflects intended early retirement and extensions or replacement of certain leases, not all of which have been contracted yet.
(b) Actual fleet at June 30, 2021, excluding Airbus aircraft permanently parked in response to COVID-19 capacity reductions. We have announced plans to return 12 of these to operating service, seven of which are planned for 2021 and five for 2022.
(c) Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third party.

All A320s to retired by the end of 2022

Above Copyright Photo: Alaska is preparing to retire the Airbus A320 fleet by December 31, 2022. Alaska Airlines Airbus A320-214 N626VA (msn 2830) PAE (Nick Dean). Image: 948142.
Capital Expenditures Forecast
The below table summarizes estimated capital expenditures, including aircraft and non-aircraft spend, for 2021 and 2022. Payments for those aircraft discussed above are not expected to impact capital expenditures in 2021 or 2022.
2021 2022
Expected Capital Expenditures $225 – $250 million $1.5 – $1.6 billion
Firm orders and option exercises beyond 2021 are expected to be financed primarily through operating cash flows and long-term debt.
Alaska Airlines (Airbus) aircraft slide show:

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