Security Analysis Part 2 - Alaska Airlines Group
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% |