Alaska Airlines Signals Improving Recovery by No Longer Offering Updates on Cash Burn
The coronavirus pandemic recovery is looking just a little bit brighter for airlines, from surging bookings at EasyJet to signals of a new phase financially at Alaska Airlines.
Seattle-based Alaska has dropped the metric that the industry has focused on during the crisis — daily cash burn — with what can be considered a relatively rosy forecast. In the first quarter, the airline anticipates cash flow from operations of negative $100 million to zero, according to an investor update on Wednesday. That is a marked improvement on the $450 million monthly cash burn during the final quarter of 2020.
“We believe [cash flow from operations] be a more appropriate measure of the condition of our business in the next phase of recovery,” the airline said in the update.
Cash burn as an indicator of financial status took the lead early in the crisis. Initial outlooks were dire, with daily losses exceeding $100 million at some of the largest carriers, but has improved gradually in recent months. And in some cases, airlines have said they are no longer concerned with cash burn and instead focused on the recovery. United Airlines, for example, recently decided to restart investments in new premium Polaris business class cabins on its Boeing 787 jets.
But daily losses continue even as carriers shift their focus to other indicators. The International Air Transport Association (IATA) has raised its industry cash burn outlook for the year, anticipating between $75 billion and $95 billion in losses in 2021. The organization forecast just $48 billion in annual cash burn for the year as recently as December.
Alaska’s decision to drop daily cash burn guidance is likely a combination of an accelerated recovery and its U.S. focus. The airline benefits from a nearly entirely domestic network — only 4 percent of its capacity was international in 2019 — where there are few travel restrictions. Many expect domestic leisure travel to take off as soon as Americans, many of whom are eager to get away from their homes, get their second vaccine injection.
In addition, Alaska has added new routes aimed at pandemic holidaygoers interested in the Great Outdoors. The carrier has doubled down in its Pacific Northwest home with expanded service to places like Eugene and Redmond/Bend in Oregon, and added flights to iconic Western destinations including Jackson Hole and Palm Springs.
How much this route expansion — versus a general uptick in travel — is benefitting Alaska is unclear, but numbers for the first quarter are trending in the right direction. The airline has revised up guidance for overall revenue, passenger numbers, and load factor for the first quarter. While all three metrics are still down dramatically from 2019, each saw a five-point improvement in the outlook this week as compared to in January.
This is good news as airlines look towards the recovery. With the specter of domestic Covid testing restrictions no longer a concern, the industry is awaiting the proverbial tipping point when newly vaccinated travelers flock back to planes, eager to take that long delay holiday or just to see mom and dad.Subscribe Now to Airline Weekly