Equities

Alaska Airlines narrows Q1 loss forecast after Boeing compensation for 737 MAX grounding

Alaska Airlines narrows Q1 loss forecast, receives $160M from Boeing for 737 MAX grounding.

By Bill Bullington

4/4, 08:37 EDT
Alaska Air Group, Inc.
Boeing Company
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Key Takeaway

  • Alaska Airlines narrows Q1 loss forecast to $1.15-$1.05 per share, benefiting from a $160 million Boeing compensation for 737 MAX grounding.
  • The compensation, treated as a reduction to aircraft assets, reflects adjustments after a fleet incident led to temporary booking losses.
  • Despite initial setbacks, strategic adjustments and strong demand enable Alaska Air to outperform its performance targets with an improved loss forecast of 45 cents to 55 cents per share.

Revised Loss Forecast

Alaska Airlines has adjusted its first-quarter loss forecast, now expecting a narrower loss than previously anticipated. This revision is attributed to a change in how the airline accounts for compensation received from Boeing following the grounding of its 737-9 Max jets. Initially, Alaska Airlines had forecasted a first-quarter adjusted loss ranging from 55 cents to 45 cents per share. However, the updated forecast predicts a loss of $1.15 to $1.05 per share. The adjustment comes after the airline decided not to recognize the Boeing compensation in its earnings, opting instead to treat it as a reduction to aircraft assets. This accounting change reflects the financial impact of the January incident and subsequent fleet grounding, which led to a temporary loss of bookings.

Boeing Compensation

Boeing has compensated Alaska Airlines with $160 million for the financial repercussions of grounding the 737 MAX 9 jets. This payment is intended to cover the lost profits resulting from the accident and the fleet's grounding in the first quarter. Alaska Airlines has acknowledged the receipt of this initial compensation and anticipates further compensation from Boeing, although specific details have not been disclosed. The grounding, which was lifted later in January, was prompted by a mid-air cabin panel blowout on an Alaska Air-operated MAX 9 jet, leading to the U.S. aviation regulator's decision to ground 171 jets for inspections.

Fleet Restoration and Performance Outlook

Following the grounding incident, Alaska Airlines has successfully returned its fleet to service. The airline has made strategic network adjustments and capitalized on strong demand, particularly for spring break travel and the continued recovery of West Coast business travel. These efforts have positioned the airline to surpass its initial first-quarter performance targets. Alaska Airlines now forecasts an adjusted loss of 45 cents to 55 cents per share for the quarter, an improvement over analysts' expectations of a $1.16 per share loss. Additionally, the airline anticipates a 2.5% reduction in flying capacity for the quarter, with full-year capacity expectations remaining uncertain due to ongoing federal scrutiny of Boeing and its operations.