What Factors Will Drive Alaska Airlines’ Revenues In 2020?

In 2019, Alaska Airlines’ (NYSE: ALK) revenues continued to expand from stable capacity and rising airfares while other major carriers such as Southwest Airlines and American Airlines faced headwinds from the Boeing 737 MAX groundings. As the Boeing 737 MAX is yet to clear regulatory proceedings and be available for service, the U.S. airline industry is likely to face another year of capacity shortage. Notably, Alaska Airlines was slated to induct nine Boeing 737 MAX aircraft into its fleet – driving a 3-4% growth in capacity. However, the overall capacity shortage in the industry should continue to keep airfare elevated – helping sustain growth in Alaska Airlines’ revenues over 2020, as detailed in our interactive dashboard.

A Quick Look at Alaska Airlines’ Revenues

Alaska Airlines’ reported $8.3 billion in Total Revenues for full-year 2018. It includes three revenue streams:

• Passenger Revenue: $7.6 billion in FY2018 (92% of Total Revenues). It represents income from the sale of air tickets and other ancillary offerings for the company’s mainline and affiliate carriers. If a ticket is sold and travel is yet to happen, the company recognizes income from such tickets as air traffic liability. Due to the complex structure of ticket pricing, cancellation and rescheduling, a certain portion of the liability is recognized as passenger revenues based on recognized historical patterns.
• Cargo Revenue: $198 million in FY2018 (3% of Total Revenues). It represents income from freight and mail services.
• Mileage Plan Revenue: $434 million in FY2018 (5% of Total Revenues). It comprises of income from loyalty point sales to credit card companies.

Alaska Airlines’ Total Revenue has grown by 40% from $6 billion in 2016 to $8.3 billion in 2018, and is expected to reach $9.4 billion in 2020

• The company generates a bulk of its revenues from air ticket sales, which contribute nearly 85% of Passenger revenues.
• Redemption of certain passenger loyalty rewards and other ancillary services such as baggage fees and on-board sales are also recognized as Passenger revenues.
• Air ticket sales are driven by available seat miles, passenger yield, and aircraft occupancy level.
• In the last three quarters, Alaska’s available seat miles have increased by 1.5%, aircraft occupancy levels have remained relatively flat, and passenger yield has grown by 4%.
• This has enabled Alaska’s passenger revenues to grow at a high single-digit rate in 2019.
• Mileage Plan comprises of income from loyalty point sales to credit card companies and Cargo Revenue includes income from mail services and other amenities such as lounge access.
• Income from these other sources have remained relatively stable over the last few years and we expect it to continue growing with the Passenger revenues in 2020.

Additional details about how key operating metrics underlying Alaska Airlines’ Passenger Revenues have trended over the years are available in our interactive dashboard.

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