Despite another challenging year, Alaska Air Group (ALK -1.78%) finished the year with "solid results," according to Chief Operating Officer Ben Minicucci.

The SeaTac, Washington-based company posted mixed earnings results last month, beating earnings-per-share (EPS) estimates while missing on revenue expectations. Let's take a closer look at Alaska Air's fourth-quarter and full-year 2022 results to determine whether this airline stock is a buy in today's market.

A new yearly revenue record

Alaska Air Group led the industry last quarter with 7.6% pre-tax profit margins. In fact, Alaska has ranked first in pre-tax margins for 11 of the past 13 years. Profitability, even with the pandemic thrown into the mix, has remained a top priority for the airline. Although they've declined overall, Alaska Air's margins have remained comparably high relative to competitors.

Q4 revenues touched down at $2.5 billion, up 11.3% compared to Q4 of 2019. More impressively, full-year 2022 revenue landed at $9.6 billion, a nearly 10% increase compared with 2019 -- on 9% less capacity. The potential for record revenue and earnings is massive if Alaska Air Group can raise capacity in 2023 and beyond.

Executive Vice President Andrew Harrison cited Alaska's loyalty program as a "significant revenue driver" along with strong demand for the airline's premium products and services. First-class flight sales jumped 19% in Q4 versus the same period in 2019, and premium-class sales increased 14%.

Fourth-quarter profit under generally accepted accounting principles (GAAP) reached $22 million, and full-year profit hit $58 million. While Q4 profit enjoyed a year-over-year increase, full-year 2022's net income pales in comparison to 2021's $478 million. 

High revenue, low profit

Considering 2022 delivered the highest annual revenue in Alaska Air's history, profitability was clearly an issue. In 2021, the company generated over 8 times more profit than in 2022, on 36% less revenue. Although Alaska Air Group boasts the best margins in the industry, clearly there is work to be done in the profitability department.

Labor costs and fuel expenses pulled margins down substantially all year for Alaska Air Group, along with expenses related to fleet transitions. Chief Financial Officer Shane Tackett explained during the Q4 earnings call that as Alaska Air Group expands, labor costs will continue to grow. Aside from labor expenses, he affirmed that "everything else looks pretty normal."

With an updated fleet, Alaska Air Group plans to improve productivity straight out of the gate this year. As Minicucci put it, "Productivity is not where it used to be in this post-pandemic era[...]" In spite of headwinds, Alaska Air has dedicated itself to driving down costs and closing the "productivity gap," focusing its efforts on staffing and aircraft availability, two historically challenging areas.

Alaska Air Group hired almost 8,000 new employees last year and plans on bringing on 3,500 more this year.

Looking ahead

Undeterred by challenges, Alaska Air finished 2022 with one of the airline industry's top completion rates and on-time performance rates. According to Minicucci, the airline is "well-positioned to build on this success as we move into 2023 and beyond." 

Indeed, Alaska Air Group's current schedule shows the airline returning to "pre-pandemic levels of capacity during the first half of the year," according to Tackett. In Q1 alone, capacity is expected to rise 11% to 14%, and full-year capacity is forecast to increase 8% to 10%. 

Full-year margins are anticipated to hit between 9% and 12%, and total revenue for 2023 is expected to increase 29% to 32% year over year. Although Q1 is seasonally weaker than the rest of the year, Harrison affirmed that "leisure travel remains healthy, and yields are holding steady."

Is Alaska Air Group stock a buy?

From its April 2021 high of over $74 per share, Alaska Air Group fell more than 28% to its current price in the $53 to $54 range. That being said, the stock has also recovered nicely from its sub-$40 September 2022 low, making a nearly 39% comeback. 

Considering the company anticipates capacity, margin, and revenue to all improve this year, I think Alaska Air Group makes a buy at its current price. But keep in mind that this one might require some patience. Investors should pay close attention to whether the airline's performance aligns with company guidance as the year progresses. In particular, watch for the net margin to improve in future quarters.