Strong cash flows
Alaska Air Group (ALK) has been profitable for each of the last ten years. Its cash flow from operations has totaled ~$5.6 billion since 2010, and its free cash flow was $2.6 billion.
ALK has continued the trend in 2015. Cash flow from operations totaled $1.6 billion in 2015 and free cash flow totaled $760 million.
Alaska Air Group (ALK) has been striving to reduce its debt burden in order to strengthen its balance sheet in the long term. ALK’s strong and consistent cash flows have made this possible. The airline has been successful in reducing its debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio from ~2.19x in 2010 to 0.44x at the end of 3Q15. American Airlines’ (AAL) leverage ratio for 3Q15 stands at 2.74x, United Continental Holdings’ (UAL) leverage ratio is 1.87x, and Delta Air Lines’ (DAL) leverage ratio is 1.24x.
Alaska Airlines is one of the few US air carriers to be positive on a net debt level, allowing it to enjoy an investment-grade rating. As a result, Alaska Air Group enjoys a 36% cost advantage over the legacy players.
ALK’s low debt and cost advantage is significant, especially at a time when the industry fundamentals have improved tremendously.
Alaska Air Group has set strong cash flow expectations for 2016. The airline expects to generate about $1,375 million in cash flow from operations. It expects to generate about $600 million in free cash flow in the upcoming year. It also expects to repay $115 million of debt in 2016.