Alaska Air Group faces a lot of churn in its performance as it works through merger challenges

Alaska Air Group faces a mixture of dynamics in its business and operations during 2H2017 as competitive capacity growth throughout its network remains reasonable, driving a more positive outlook from the airline compared with some of its US industry peers.

But the company also faces the decision rendered by an arbitration panel on its joint contract with Alaska and Virgin America pilots, and continued fallout from a pilot shortage that has triggered schedule cuts at its wholly owned regional subsidiary Horizon Air.

The company also faces unit cost pressure stemming from its merger integration with Virgin America, and operational challenges that it has faced in 2017. Although Alaska believes its FY2017 unit costs will only grow 0.5ppt year-on-year, those estimates exclude the cost of a new pilot contract. Alaska has estimated that its proposal under consideration by the arbitration represents the largest salary increase for a single labour group in the company's history.

Needless to say, Alaska faces a significant amount of choppiness in its results during the next year as it works through integration and cultural challenges in the completion of its merger with Virgin America.

Despite the flux, Alaska believes its business is heading in the right direction as it works to carve out a more competitive position in the US market.