Alaska Air loyalty term loan rated BBB- by Fitch as fuel costs pressure credit outlook

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Alaska Air loyalty loan rated BBB-

Highlights

Fitch rated Alaska Air's proposed loyalty program term loan BBB-/RR1, citing high fuel costs and weaker-than-expected credit measures, with a Negative Outlook.
Alaska ended 2025 with EBITDAR leverage of 4.1x and fixed-charge coverage of 3.2x, both below Fitch's negative rating thresholds and unlikely to markedly improve in 2026.
Alaska holds $20 billion in unencumbered assets and $1.8 billion cash as of March 31, 2026, but heavy capex and $820 million in recent share buybacks weigh on cash flow and credit quality.

Loyalty debt structure and rating rationale

As reported by Fitch Ratings, the proposed debt will be issued by AS Mileage Plan IP Ltd., Alaska's existing bankruptcy-remote special purpose vehicle, and will rank pari passu with the carrier's current loyalty program debt.

Fitch assigned the new term loan a BBB-/RR1 rating, saying the issuance should support liquidity at a time when the airline faces high fuel prices and the risk of softer consumer demand. The agency says Alaska's Negative Outlook reflects expectations that profitability pressure, driven in part by higher fuel costs, will keep credit measures outside negative rating sensitivities for longer than previously expected.

Rising fuel costs are expected to squeeze margins in 2026 because Fitch does not expect the airline to fully recover the increase through fares. Alaska ended 2025 with EBITDAR leverage of 4.1x and fixed-charge coverage of 3.2x, both weaker than Fitch's negative rating thresholds, and the agency says the improvement once assumed for 2026 is now harder to achieve.

Fuel exposure, integration progress and balance sheet capacity

Fitch says Alaska faces added pressure because more than half of its fuel consumption is tied to the U.S. West Coast, where crack spreads remain elevated. Over the longer term, however, the agency expects margins to improve as merger synergies from Hawaiian accrue, international routes expand and premium seating grows, with the company targeting $1 billion in incremental profit from those initiatives by 2027.

The ratings are also supported by what Fitch describes as solid financial flexibility. As of March 31, 2026, Alaska had 124 unencumbered aircraft and additional value in its loyalty program, for roughly $20 billion in unencumbered assets, alongside $1.8 billion in unrestricted cash and marketable securities and full availability under $1.1 billion of revolving credit facilities.

Debt maturities remain manageable at $554 million in 2026 and $766 million in 2027, though heavy capital spending is expected to keep free cash flow negative in both years before a possible return to positive territory later. Fitch also says shareholder returns are weighing on credit quality after Alaska repurchased $570 million of shares in 2025 and another $250 million year to date in 2026, even as it continues integrating Hawaiian and carries elevated debt.

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