This post examines Alaska Air Groups’s FY2018 financial statements.

Today I’m going to examine the financials of Alaska Air Group with a particular intention of forecasting future earnings through a pro-forma model. This is the second post in a series on security analysis: see also the previous note on Western Digital.

The post is composed of three sections:
1) Comparison of balances, which will allow us to easily see trends from 2017 to 2018.
2) Pro-forma model developed from historical financial statements. For the purposes of this post, these will be rough estimates.
3) Concluding observations.

Note that I’m interested in performing this analysis in Python as opposed to Excel. The model shown here is a simplified edition of that which can be performed in Excel. Future models will be advanced from this point. Of note, the type of valuation I’m performing is absolute, that we are looking at the fundamental qualities of Alaska Air Group and deciphering a value of the company in the future based on these. This is distinct from a relative valuation, which is a comparison against other similar stocks (i.e. the P/E ratio of Alaska Air Group as compared against American Airlines, Delta, and United - the competitor United States airlines).

Comparing Balances

Comparing prior year and current year balances is standard practice within the financial industry. This allows one to easily decipher balances in increase and balances in decline.

9-30-18 9-30-17 Difference 18v17 Difference as %
Consolidated Income Statement In Millions
0 0.0 0.0 0.0 0.00%
Passenger revenue 2,043.0 1,958.0 85.0 4.34%
Mileage Plan other revenue 114.0 105.0 9.0 8.57%
Cargo and other 55.0 47.0 8.0 17.02%
Total Operating Revenues 2,212.0 2,110.0 102.0 4.83%
Operating Expenses 0.0 0.0 0.0 0.00%
Wages and benefits 549.0 477.0 72.0 15.09%
Variable incentive pay 27.0 40.0 -13.0 -32.50%
Aircraft fuel, including hedging gains 513.0 368.0 145.0 39.40%
and losses 0.0 0.0 0.0 0.00%
Aircraft maintenance 107.0 88.0 19.0 21.59%
Aircraft rent 82.0 70.0 12.0 17.14%
Landing fees and other rentals 135.0 124.0 11.0 8.87%
Contracted services 70.0 76.0 -6.0 -7.89%
Selling expenses 79.0 92.0 -13.0 -14.13%
Depreciation and amortization 99.0 95.0 4.0 4.21%
Food and beverage service 53.0 50.0 3.0 6.00%
Third-party regional carrier expense 38.0 30.0 8.0 26.67%
Other 141.0 150.0 -9.0 -6.00%
Special items-merger-related costs 22.0 23.0 -1.0 -4.35%
Special items-other 0.0 0.0 0.0 0.00%
Total Operating Expenses 1,915.0 1,683.0 232.0 13.78%
Operating Income 297.0 427.0 -130.0 -30.44%
Nonoperating Income (Expense) 0.0 0.0 0.0 0.00%
Interest income 11.0 9.0 2.0 22.22%
Interest expense -22.0 -26.0 4.0 -15.38%
Interest capitalized 5.0 5.0 0.0 0.00%
Other-net -7.0 2.0 -9.0 -450.00%
Total Nonoperating Income (Expense) -13.0 -10.0 -3.0 30.00%
Income Before Income Tax 284.0 417.0 -133.0 -31.89%
Income tax expense 67.0 158.0 -91.0 -57.59%
Net Income 217.0 259.0 -42.0 -16.22%