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Alaska Air Plans to Boost Profits by $1 Billion by 2027
(Reuters) – In a strategic move that has energized investors, Alaska Air revealed its ambitious plan to generate an additional $1 billion in profits by 2027. The announcement, made on Tuesday, comes in the wake of the airline’s recent acquisition of Hawaiian Airlines and increasing demand for premium travel options.
On the eve of its 2024 investor day, the Seattle-based carrier raised its profit projections for the fourth quarter and full year. This adjustment reflects a surge in bookings for the holiday season and reduced interest expenses, leading to a significant boost in share prices, which rose approximately 13% to $61.10 by midday.
Following the completion of its $1.9 billion purchase of Hawaiian Airlines in September, Alaska Air clarified that it does not anticipate a negative impact on its profit margin. Instead, the deal is poised to uncover at least $500 million in potential savings.
To augment its global reach, Alaska Air plans to introduce non-stop flights to Tokyo and Seoul from Seattle in the forthcoming year, utilizing Hawaiian’s widebody aircraft. The airline aims to operate flights to 12 international destinations by 2030, projecting an additional revenue intake of $1.5 billion.
“The merger with Hawaiian enhances our scale, enabling us to provide our guests with enhanced travel experiences tailored to their preferences,” said Shane Tackett, Chief Financial Officer of Alaska Air.
In response to the growing appetite for upscale travel, Alaska intends to increase the percentage of premium seats on its flights by 3%, reaching 29% by 2027. The company anticipates that these enhancements will lead to an extra $100 million in profits.
Furthermore, the airline is set to launch a new premium credit card as part of a comprehensive overhaul of its loyalty program. This initiative is expected to boost the number of frequent flyer members by 50%, contributing an estimated $150 million in additional pretax profit by 2027.
Loyalty programs have become increasingly lucrative for U.S. airlines, generating significant revenue through the sale of miles to third-party partners, predominantly credit card companies. As consumer spending increases, airlines benefit from higher mileage earnings and subsequent payments from partners.
Consulting firm On Point Loyalty valued the loyalty programs of Delta, United, and American Airlines at over $20 billion last year, highlighting the financial importance of such programs in the airline industry.
Alaska Air is forecasting earnings of at least $10 per share by 2027, more than double the projected $4.25 to $4.50 for 2024. The airline aims for a pretax margin ranging between 11% and 13% during this period.
For 2025, Alaska anticipates profits of at least $5.75 per share, exceeding analyst expectations of $5.50 according to data from LSEG.
The airline has also revised its profit estimates for the fourth quarter, now projecting earnings of 40 to 50 cents per share, up from an earlier forecast of 20 to 40 cents.
Additionally, Alaska Air announced a $1 billion share buyback plan as part of its financial strategy moving forward.
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