Like pretty much every other airline, Alaska Air (NYSE:ALK) has been hit hard by the COVID-19 pandemic this year. Last Thursday, the company reported a substantial revenue decline and a big loss for the second quarter of 2020.

However, the Alaska Airlines parent did an exceptionally good job of minimizing cash burn under the circumstances. Meanwhile, the company has been aggressively bolstering its liquidity with new borrowings. As a result, Alaska Air is positioned to survive the pandemic without compromising its long-term growth potential.

Another airline earnings report, another hefty loss

Alaska Airlines slashed its capacity nearly 75% year over year last quarter, as the pandemic caused air travel demand to virtually disappear in April. Revenue plunged by 81.6% to $421 million. This was actually a better result than what most other airlines have reported. However, given that Alaska could only reduce its adjusted operating expenses by 47%, the company still reported a big loss for the quarter.

On a pre-tax basis, Alaska Air lost $589 million excluding special items. Its adjusted net loss totaled $439 million. Under generally accepted accounting principles (GAAP), Alaska reported a smaller net loss of $214 million ($1.73 per share) last quarter, reflecting the benefit of payroll grants the company received under the CARES Act. For comparison, GAAP net income was $262 million, or $2.11 per share, in the second quarter of 2019.

Cash is king

In the current environment, airlines must focus first on survival. As a result, the most important business metrics right now are those related to cash. Alaska Airlines is in very good shape in that respect compared to most of its peers.

An Alaska Airlines plane flying over clouds

Image source: Alaska Airlines.

At the peak of the pandemic, Alaska was burning cash at a rate of $400 million per month. However, cash burn improved to $165 million in May and just $120 million in June, easily surpassing management's initial projections. That said, management did warn that cash burn would likely tick up to around $200 million in July. Some of that relates to timing factors, but airlines have also experienced a slowdown in bookings this month, due to rising COVID-19 case numbers in many parts of the U.S.

Even at a $200 million monthly cash burn rate, Alaska Air has plenty of cash for the next few quarters. As of last week, it had $3.7 billion of cash and investments on hand. Furthermore, the company has until the end of September to decide whether to tap a subsidized government loan of approximately $1.1 billion.

In any case, management is determined to reduce the cash burn rate further in the months ahead. On Alaska's recent earnings call, executives discussed a variety of efforts to cut costs, including eliminating 300 management positions as of Oct. 1, offering buyouts and voluntary leaves for frontline workers, and reducing structural costs by $250 million annually. Alaska Airlines executives also expect demand to continue recovering, albeit at a bumpy pace.

Setting the stage for a profit rebound

While the next few quarters will be rough for Alaska Airlines, the company is using this crisis as an opportunity to accelerate initiatives that should boost its long-term profitability. On the cost side, aside from the efforts mentioned above, it has removed some of the least efficient aircraft in its fleet from service. With the leases for most of its Airbus planes expiring over the next five years, there's a good chance that Alaska will revert to an all-Boeing 737 mainline fleet in the years ahead to maximize productivity.

On the revenue side, Alaska Airlines has eliminated routes where it was struggling to make money before the pandemic. Meanwhile, it is adding more service from California to markets in the Pacific Northwest where it has a strong presence, such as Spokane. Alaska also received a formal invitation to join the oneworld global airline alliance last week. This will help it attract more customers with global travel needs while supplying connecting traffic at Alaska's West Coast hubs.

It will probably take two or three years for Alaska Airlines to get back to normal business conditions. However, patient investors are likely to be well rewarded as this recovery plays out.