Alaska Air’s Cash Burn Rises As Travel Demand Stalls; Street Sees 11% Upside

Alaska Air Group said that cash burn in November was higher than in October as renewed restrictions imposed by many state and local governments took a toll on air travel demand.

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In a filing with Securities and Exchange Commission (SEC) Alaska Air (ALK) reported that its cash burn increased to $140 million in November from $97 million in October. In November, the airline carried 1.27 million passengers, down from 1.40 million in October.

Its available seat miles (ASM), which measures an airline’s passenger carrying capacity, fell 41% year-over-year in November, while revenues plunges 61% from the year-ago month. (See ALK stock analysis on TipRanks)

For December, Alaska Air expects cash burn between $125 million and $150 million assuming the demand remains soft as renewed restrictions are anticipated to continue through year end. The company projects December ASM to decline 40% on a year-over-year basis and revenue is likely to shrink in the range of 65%-70%.

In the SEC filing, Alaska Air said, “The public health and economic crises resulting from the outbreak of COVID-19 has had an unprecedented impact on our business. We are uncertain what shape the recovery will take, and we are continuously monitoring trends in demand to determine our capacity decisions as the situation unfolds. At this time we expect fourth quarter capacity will be down approximately 40%.”

On Dec. 11, Deutsche Bank analyst Michael Linenberg downgraded the stock to Hold from Buy saying that airline stocks are fairly valued based on 2022 valuations and investors have already paid for two years of earnings growth. Meanwhile, Linenberg raised the stock’s price target to $56 (12.6% upside potential) from $45.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 6 Buys and 3 Holds. The average price target stands at $55 and implies upside potential of about 10.6% to current levels. Shares have declined 26.6% year-to-date.