Airline Earnings Reports Require a Foreign Language Translator

Wouldn’t it be nice if you could just glance at an airline earnings release and know if they made money or not? Sadly it’s never that simple and it continues to get harder and harder. Take a look at Alaska Airlines for example. The first line for their fourth quarter results says “Company reports fourth quarter profit excluding $92 million of special items.” Ok, but what’s really in there?

First it says net income was $16.4 million EXCLUDING SPECIAL ITEMS, but under GAAP (accounting standards), the airline lost $75.2 million. So what the heck is the difference? What is so special about those items?

In general, special items are one time occurrences, though that’s not always the case. They may not happen again, but they’re very real in the results from the quarter. Still, they don’t usually reflect on the ability of the airline’s operation to make money. For example, this quarter we saw:

• $9.2 million in the mysterious “restructuring charges” category
• $6.7 million charge related to removing the CRJ-700 fleet from service
• $80.2 million charge related to fuel hedges
• $50 million realized loss on future fuel hedges

If we look at it net of special charges then we can see that the operation itself didn’t have a bad quarter. Then again, the bouncing fuel costs make that hard to determine as well. So what do I look at?

I really dig through everything to try to build a picture in my mind of how the airline is doing, but if I had to pick one number to watch, it’s cash position. If you have unrestricted cash, you can withstand a lot of pain. If you don’t, well, you have very little latitude. Alaska had just over $1 billion in cash on hand at the end of the year, a good number for an airline that size.

Ultimately, the best place for information is in the airline’s 10-K reports that are filed with the SEC. You can look those up on EDGAR when the filings are made in the near future.