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Alaska Air Group, Inc. (NYSE:ALK) shares are trading lower premarket on Thursday. On Wednesday, the company reported first-quarter sales growth of 41% year over year (Y/Y) to $3.14 billion, which missed the street view of $3.17 billion.
The Seattle-based company disclosed capacity (available seat miles) growth of 3.9% Y/Y, around 1 point higher than expected, thanks to lower-than-expected flight cancellation rates.
Operating revenue per available seat miles (RASM) increased by 5.0% Y/Y in the quarter.
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Unit revenues improved 5.0% Y/Y, despite a 3-point impact from softening demand. Unit costs rose 2.1% Y/Y, at par with the company's expectations. This includes the new Alaska flight attendant contract, which was ratified in February.
The economic fuel price per gallon came in at $2.61 in the first quarter, reflecting moderating crude oil prices partly negated by higher West Coast refining margins.
Adjusted EPS loss of 77 cents, missed the consensus loss of 74 cents. The loss reflects a softening demand environment and macroeconomic factors.
The overall results reflect strong initial progress on the integration of Hawaiian Airlines. In the first quarter, Hawaiian unit revenue increased 8.8% year over year, and Hawaiian's adjusted pretax margin improved 14 points year over year.
CEO Ben Minicucci said, "Amid the economic uncertainty, our teams controlled what they can control and delivered results that strengthen our foundation for the long term."
The company generated an operating cash flow of $459 million in the first quarter. As of March 31, 2025, the company's unrestricted cash and marketable securities stood at $2.5 billion.
Buyback: The company repurchased 1.8 million shares of common stock for around $107 million in the first quarter, bringing year-to-date repurchases to $149 million as of April 22, 2025.
Outlook: Alaska Air projects a second-quarter adjusted EPS of $1.15 to $1.65 vs. a consensus of $2.37, a capacity (available seat miles) growth of 2%-3%, and RASM flat to down low single digits.
The company says that while overall bookings have stabilized, the guidance for Q2 reflects an expected revenue impact of around six points due to recent demand softness.
As previously indicated, the second quarter is expected to see the most cost pressure, but unit costs are anticipated to improve sequentially in the second half of the year.
Due to ongoing economic uncertainty and market volatility, the company is not providing an update to FY25 guidance at this time.
The company says it continues to expect to deliver $1 billion in incremental profit by 2027.
Investors can gain exposure to the stock via Themes Airlines ETF (NASDAQ:AIRL) and U.S. Global Jets ETF (NYSE:JETS).
Price Action: ALK shares are down 7.18% at $42.80 premarket at the last check Thursday.
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