Alaska Air forecasts worse-than-expected profit amid fare fight

Alaska Air Group Inc. forecast a third-quarter profit below Wall Street’s expectations, joining other US carriers whose bottom lines are being hit by deep fare discounts.

Adjusted earnings will be $1.40 to $1.60 a share, the airline said in a statement Wednesday that also included second-quarter financial results. Analysts had expected $2.06 on average for the period, according to estimates compiled by Bloomberg. 

Alaska follows larger rivals including United Airlines Holdings Inc. and Delta Air Lines Inc. that have said extensive price cuts have eroded revenue and expected profits during a summer in which a record 270 million people are forecast to travel by air. Larger carriers are forced to match discounts by lower-cost rivals in order to successfully compete for travelers.

Alaska on Wednesday also narrowed its full-year profit outlook to between $3.50 and $4.50 per share from the $3.25 to $5.25 it previously anticipated. The $4 mid-point of the new range compares with $4.52 expected by analysts. 

“That’s entirely driven by this modest revenue reduction versus our original expectation,” Chief Financial Officer Shane Tackett said in an interview. It also reflects a “slightly more expensive” labor agreement to be voted on by flight attendants, he said.

Domestic-focused discount airlines added too much flying capacity earlier this year, forcing them to slash ticket prices to fill seats. Most discounting occurred in Alaska’s least-expensive basic economy fares and in the main cabin, Tackett said, while demand for premium tickets continues to be resilient.

Alaska shares were little changed after the close of regular trading in New York on Wednesday.

The airline reported an adjusted second-quarter profit of $2.55 a share, topping analysts estimates for $2.38. Revenue was $2.9 billion. That figure includes a $60 million impairment from customers who booked April spring break trips with rivals due to the temporary grounding of Boeing Co.’s 737 Max 9 aircraft after a fuselage panel blew off an Alaska Airlines flight in January. The carrier has estimated a total impact of about $223 million from the incident, Tackett said.

Alaska is waiting for the US Justice Department to decide whether to challenge the carrier’s planned $1.9 billion acquisition of Hawaiian Holdings Inc. Antitrust authorities at the agency face an Aug. 5 deadline to make their decision.