Although Alaska Air Group stock faltered, two key pieces of information during the month may have reversed its near-term trend, as indicated in the chart below, which extends from the beginning of October to the date of this writing.
Shares had been under pressure since late September as investors fretted over Alaska's upcoming third-quarter 2018 report (issued near the end of October). Alaska Airlines has struggled over the last two years to bring costs in check while integrating Virgin America Airlines into its system, following its December 2016 acquisition of the smaller carrier. Rising fuel prices, which soared 27% year over year in the first half of 2018, have also presented a current-year earnings headwind.
On Oct. 12, an investor update filed alongside Alaska's monthly traffic report included a revised third-quarter forecast for RASM, or revenue per available seat mile. The company tightened a previous range of 12.76 cents-13.06 cents to between 13.03 cents and 13.05 cents, effectively signaling that RASM would land at the high end of management's projections.
This projection of higher unit revenue (which helps offset cost creep) seemed to stabilize shares mid-month and prevented a steeper price decline. When Alaska's third-quarter results were released on Oct. 25, RASM landed at 13.05 cents for the three-month period, representing a dip of just 0.1% from the prior-year RASM of 13.06 cents. Total revenue improved nearly 5% year over year to $2.2 billion.
During Alaska's third-quarter earnings conference call, executives relayed to investors that Alaska has completed 90% of the integration milestones related to the Virgin merger. The company is curbing capacity growth to 2% next year in order to focus on profitable expansion. In addition, management appears to be intent on rapidly paying down the $2 billion it borrowed to finance the merger. Alaska has reduced balance sheet debt by $550 million through the first three quarters of 2017, and affirms that it's on pace to have paid down $800 million, or 40% of the transaction's borrowings, by 2018 year-end. Alaska will next report earnings when it reveals its fourth-quarter results in late January 2019.