Overview

• US airline's Q2 revenue rose 10%, slightly beating analyst expectations

• Adjusted EPS loss for Q2 was smaller than analysts expected

• Company cited higher fuel costs and Hawaii travel disruption as main drivers of Q2 loss

Outlook

• Alaska Air expects Q3 capacity to rise 2% to 3% year-over-year, mainly from international routes

• Company sees Q3 unit revenue up low double digits year-over-year, supported by strong yields and demand

• Alaska Air expects Q3 non-fuel unit costs to rise low to mid single digits year-over-year

• Company expects Q3 economic fuel cost per gallon at $3.75, down from Q2 levels

• Alaska Air forecasts Q3 adjusted earnings per share between $0.00 and $1.00

Result Drivers

• FUEL COST SPIKE - Co said an 85% year-over-year increase in fuel prices added $600 mln in costs and was the primary driver of the Q2 loss

• HAWAII TRAVEL DISRUPTION - Historic rainstorms in Hawaii reduced system unit revenue by about 3 points in Q2, more than the 2 points originally expected

• REVENUE GROWTH IN PREMIUM, CARGO, CORPORATE - Premium revenue rose 15%, cargo revenue 21%, and managed corporate revenue 30% year-over-year, offsetting some headwinds

Company press release: ID:nPn4004fRa

Key Details

Metric	Beat/Miss	Actual	Consensus Estimate
Q2 Total Operating Revenue	Slight Beat*	$4.10 bln	$4.09 bln (13 Analysts)
Q2 Adjusted EPS	Beat	-$0.92	-$0.99 (13 Analysts)
Q2 EPS		-$0.68

*Applies to a deviation of less than 1%; not applicable for per-share numbers.

Analyst Coverage

• The current average analyst rating on the shares is "buy" and the breakdown of recommendations is 16 "strong buy" or "buy", no "hold" and 2 "sell" or "strong sell"

• The average consensus recommendation for the airlines peer group is "buy"

• Wall Street's median 12-month price target for Alaska Air Group Inc is $63.75, about 40.2% above its July 21 closing price of $45.46

• The stock recently traded at 13 times the next 12-month earnings vs. a P/E of 8 three months ago

Reuters Recommended Reads

• July 21 - Alaska Air forecasts quarterly profit below expectations as jet fuel prices stay high

• July 21 - Hawaiian Airlines is increasing capacity on inter-island flights

• July 20 - Ryanair's Q1 profit falls 34% on higher fuel costs, lower fares

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