Alaska Air Group Reports 2008 Fourth Quarter and Full Year Results
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Alaska Air Group, Inc. today reported a fourth quarter 2008 net loss of $75.2 million, compared to net income of $7.4 million in the fourth quarter of 2007. Excluding special items, the company...
Alaska Air Group, Inc.
Special items for the fourth quarter include the following:
* Restructuring charges of $9.2 million ($5.8 million after tax, or $0.16
per share);
* CRJ-700 fleet transition costs of $6.7 million ($4.2 million after tax,
or $0.12 per share);
* Mark-to-market fuel hedge adjustments of $80.2 million ($50.3 million
after tax, or $1.39 per share); and
* Realized losses on the early termination of fuel hedge contracts
originally scheduled to settle in 2009 and 2010 of $50 million
($31.3 million after tax, or $0.86 per share).
The company reported a full year 2008 net loss of $135.9 million, compared to net income of $124.3 million in 2007. Excluding the full year impact of the special items noted above, the $42.3 million benefit ($26.5 million after tax, or $0.73 per share) from changes in the company’s Mileage Plan program in the third quarter and MD-80 fleet transition costs, the company reported a 2008 net profit of $4.4 million, or $0.12 per diluted share, compared to $91.6 million, or $2.26 per diluted share, in 2007.
Financial and operational highlights for 2008 include:
* A $156.6 million, or 4 percent, increase in total operating revenues on
a system-wide capacity reduction of 1.2 percent;
* Revenues from the cargo operation that were greater than $100 million
for the first time;
* Continued non-fuel cost control at both Alaska and Horizon with unit
costs excluding fuel and special items relatively flat at both
companies; and
* Year-over-year improvements in on-time performance and schedule
completion at both Alaska and Horizon.
"In a year of unprecedented volatility that included soaring fuel prices and an economic meltdown, we were pleased to eke out a small profit for 2008, excluding special items, and be one of only a few major airlines to do so," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "Our concerted efforts to control costs, improve our operation and tailor our schedule to better match customer demand have prepared us to face whatever hurdles the current year brings. I want to thank our people for taking excellent care of customers and stepping up to the challenge to see us through this period of great uncertainty."
Alaska Airlines’ mainline passenger traffic in the fourth quarter declined 4.4 percent on a capacity decline of 7.1 percent, compared to the fourth quarter of 2007. Load factor increased 2.3 percentage points to 77.0 percent. Alaska’s mainline passenger revenue per available seat mile (ASM) increased 5.9 percent, and its operating cost per ASM, excluding fuel and the special items mentioned above, increased 0.6 percent. Alaska’s total pretax loss for the quarter was $93.4 million, compared to pretax income of $15.2 million in 2007. Excluding special items, Alaska’s pretax income was $23.8 million for the quarter, compared to a pretax loss of $18.8 million in the fourth quarter of 2007.
Horizon Air’s passenger traffic in the fourth quarter declined 22.4 percent on a 21.1 percent capacity decrease. Load factor decreased by 1.2 percentage points to 71.4 percent. Horizon’s passenger revenue per ASM increased 13.6 percent, and its operating cost per ASM, excluding fuel and the special items mentioned above, increased 2.9 percent. Horizon’s total pretax loss for the quarter was $25.7 million, compared to a pretax loss of $4.8 million in 2007. Excluding special items, Horizon’s pretax income was $3.2 million for the quarter, compared to a pretax loss of $11.2 million in the fourth quarter of 2007.
The company’s debt-to-capital ratio was 81 percent: 19 percent as of Dec. 31, 2008, compared to 70 percent: 30 percent at Dec. 31, 2007. The decline is attributable to the nearly $500 million increase in long-term debt and the GAAP loss of $135.9 million in 2008. The largest component of the change, however, was the significant increase in the company’s unfunded defined benefit pension obligation, which is recorded through equity net of the tax effect. The liability increased approximately $300 million from Dec. 31, 2007, primarily as a result of the decline in market value of the plan’s assets. On a projected benefit obligation basis, the company’s liability is 59.4-percent funded at Dec. 31, 2008, compared to 86.2 percent a year earlier.
A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables.
A conference call regarding the fourth quarter and full year 2008 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 29, 2009. It can be accessed through the company’s Web site at alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com.
References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."
This news release contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2007. Some of these risks include increased economic conditions, competition, significant fuel costs, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
Alaska Airlines and Horizon Air, subsidiaries of Alaska Air Group
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in millions, except per share amounts)
Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
Operating Revenues:
Passenger $763.8 $784.3 $3,355.8 $3,236.5
Freight and mail 23.2 22.2 103.6 97.8
Other - net 40.1 46.9 160.9 171.7
Change in Mileage Plan terms - - 42.3 -
Total Operating Revenues 827.1 853.4 3,662.6 3,506.0
Operating Expenses:
Wages and benefits 232.5 243.2 943.7 959.0
Variable incentive pay 6.4 3.6 21.4 20.8
Aircraft fuel, including hedging
gains and losses 358.8 220.5 1,398.4 876.3
Aircraft maintenance 49.2 65.1 208.8 241.8
Aircraft rent 37.0 45.2 163.1 178.4
Landing fees and other rentals 54.0 56.7 223.7 226.0
Contracted services 37.8 41.8 166.1 160.6
Selling expenses 26.8 37.7 147.1 160.5
Depreciation and amortization 51.7 45.1 204.6 177.4
Food and beverage service 11.7 12.8 50.9 49.7
Other 51.5 62.8 222.9 230.5
Restructuring charges 9.2 - 12.9 -
Fleet transition costs - MD-80 - - 47.5 -
Fleet transition costs - CRJ-700 6.7 - 13.5 -
Fleet transition costs - Q200 0.5 3.5 10.2 14.1
Total Operating Expenses 933.8 838.0 3,834.8 3,295.1
Operating Income (Loss) (106.7) 15.4 (172.2) 210.9
Nonoperating Income (Expense):
Interest income 10.9 11.9 42.4 53.9
Interest expense (28.0) (21.7) (102.3) (88.0)
Interest capitalized 4.7 6.9 23.2 27.8
Other - net (0.9) (2.9) (4.3) (4.1)
(13.3) (5.8) (41.0) (10.4)
Income (loss) before income tax (120.0) 9.6 (213.2) 200.5
Income tax expense (benefit) (44.8) 2.2 (77.3) 76.2
Net Income (Loss) $(75.2) $7.4 $(135.9) $124.3
Basic Earnings (Loss) Per Share: $(2.08) $0.19 $(3.74) $3.10
Diluted Earnings (Loss) Per Share: $(2.08) $0.19 $(3.74) $3.07
Shares Used for Computation:
Basic 36.225 39.210 36.343 40.125
Diluted 36.225 39.393 36.343 40.424
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
December 31, December 31,
(in millions) 2008 2007
Cash and marketable securities $1,077 $823
Total current assets 1,509 1,391
Property and equipment-net 3,168 2,962
Other assets 159 138
Total assets $4,836 $4,491
Current liabilities $1,361 $1,374
Long-term debt 1,596 1,125
Other liabilities and credits 1,217 966
Shareholders' equity 662 1,026
Total liabilities and shareholders' equity $4,836 $4,491
Debt to Capitalization, adjusted for
operating leases 81%:19% 70%:30%
Number of common shares outstanding 36.275 38.051
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net income (loss)
and amounts per share during 2008 and 2007 excluding the benefit of the
change in Mileage Plan expiration terms, restructuring and MD-80 and
CRJ-700 fleet transition costs, and to reflect fuel on an economic basis
and reconciles those amounts to results as reported in accordance with
GAAP (in millions except per share amounts):
Three Months Ended December 31,
2008 2007
Diluted Diluted
Dollars EPS* Dollars EPS
Net income (loss) and diluted EPS,
excluding the items noted below $16.4 $0.45 $(17.9) $(0.46)
Restructuring charges, net of tax (5.8) (0.16) - -
Fleet transition costs - CRJ-700, net
of tax (4.2) (0.12) - -
Adjustments to reflect the timing of
gain or loss recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax (50.3) (1.39) 25.3 0.65
Realized losses on hedge portfolio
restructuring, net of tax (31.3) (0.86) - -
Reported GAAP amounts $(75.2) $(2.08) $7.4 $0.19
Twelve Months Ended December 31,(1)
2008 2007
Diluted Diluted
Dollars EPS* Dollars EPS
Net income and diluted EPS, excluding
the items noted below $4.4 $0.12 $91.6 $2.26
Change in Mileage Plan terms, net of
tax 26.5 0.73 - -
Restructuring charges, net of tax (8.1) (0.22) - -
Fleet transition costs - MD-80, net
of tax (29.8) (0.82) - -
Fleet transition costs - CRJ-700, net
of tax (8.4) (0.23) - -
Adjustments to reflect the timing of
gain or loss recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax (89.2) (2.46) 32.7 0.81
Realized losses on hedge portfolio
restructuring, net of tax (31.3) (0.86)
Reported GAAP amounts $(135.9) $(3.74) $124.3 $3.07
* Diluted EPS, excluding special items was calculated using diluted
weighted-average shares outstanding of 36.568 million and 36.657 million
for the three and twelve months ended December 31, 2008, respectively.
(1) Correction of amounts presented for twelve months ended December 31,
2008
As disclosed previously, during the third quarter of 2008, we
discovered an error in our calculation of stock-based compensation
expense for certain awards granted after January 1, 2006. The error
resulted in a $2.3 million understatement of wages and benefits in
the first quarter of 2008 and a $1.1 million understatement of
expense in the first quarter of 2007. We have concluded that these
items are not material to those periods, and in accordance with SEC
Staff Accounting Bulletin No. 108, we will make appropriate
adjustments to our previously filed financial statements when they
are presented in future Exchange Act reports.
Our results for the twelve months ended December 31, 2008 and 2007 have
been adjusted for this item. We have also adjusted our Financial and
Statistical data schedules, unit cost reconciliations, and
reconciliations between GAAP and adjusted amounts for both Alaska and
Horizon.
Alaska Airlines Financial and Statistical Data
Three Months Ended Twelve Months Ended
December 31, December 31, (c)
Financial Data (in
millions): 2008 2007 % Change 2008 2007 % Change
Operating Revenues:
Passenger $602.5 $612.8 (1.7) $2,643.7 $2,547.2 3.8
Freight and mail 22.2 21.3 4.2 99.3 94.2 5.4
Other - net 34.0 41.3 (17.7) 135.2 147.1 (8.1)
Change in Mileage Plan
terms - - NM 42.3 - NM
Total mainline
operating revenues 658.7 675.4 (2.5) 2,920.5 2,788.5 4.7
Passenger - purchased
capacity 66.9 71.9 (7.0) 300.8 281.4 6.9
Total Operating
Revenues 725.6 747.3 (2.9) 3,221.3 3,069.9 4.9
Operating Expenses:
Wages and benefits 183.8 191.0 (3.8) 742.7 753.9 (1.5)
Variable incentive pay 5.0 2.3 117.4 15.8 13.5 17.0
Aircraft fuel,
including hedging
gains and losses 298.4 182.2 63.8 1,162.4 737.5 57.6
Aircraft maintenance 38.5 42.0 (8.3) 150.6 149.8 0.5
Aircraft rent 23.8 29.5 (19.3) 106.2 112.8 (5.9)
Landing fees and other
rentals 40.8 42.8 (4.7) 167.7 170.1 (1.4)
Contracted services 29.7 32.9 (9.7) 130.2 124.1 4.9
Selling expenses 20.4 30.0 (32.0) 116.0 129.3 (10.3)
Depreciation and
amortization 42.7 36.2 18.0 165.9 142.3 16.6
Food and beverage
service 11.2 12.1 (7.4) 48.3 46.9 3.0
Other 40.1 48.1 (16.6) 170.3 173.1 (1.6)
Restructuring charges 9.2 - NM 12.9 - NM
Fleet transition costs
- MD-80 - - NM 47.5 - NM
Total mainline
operating expenses 743.6 649.1 14.6 3,036.5 2,553.3 18.9
Purchased capacity
costs 66.9 80.7 (17.1) 313.7 302.8 3.6
Total Operating
Expenses 810.5 729.8 3,350.2 2,856.1
Operating Income
(Loss) (84.9) 17.5 NM (128.9) 213.8 NM
Interest income 13.1 15.1 51.3 64.8
Interest expense (25.0) (21.3) (92.5) (86.2)
Interest capitalized 4.1 6.6 20.2 25.7
Other - net (0.7) (2.7) (3.4) (3.1)
(8.5) (2.3) (24.4) 1.2
Income (Loss) Before
Income Tax $(93.4) $15.2 $(153.3) $215.0
Mainline Operating
Statistics:
Revenue passengers
(000) 3,772 4,191 (10.0) 16,809 17,558 (4.3)
RPMs (000,000)
"traffic" 4,302 4,498 (4.4) 18,712 18,451 1.4
ASMs (000,000)
"capacity" 5,590 6,020 (7.1) 24,218 24,208 0.0
Passenger load factor 77.0% 74.7% 2.3pts 77.3% 76.2% 1.1pts
Yield per passenger
mile (in cents) 14.01 13.62 2.8 14.13 13.81 2.3
Operating revenue per
ASM "RASM" (in cents) 11.78 11.22 5.0 12.06 11.52 4.7
Change in Mileage Plan
Terms per ASM
(in cents) 0.00 0.00 NM 0.17 0.00 NM
RASM excluding change
in Mileage Plan terms
(in cents) 11.78 11.22 5.0 11.89 11.52 3.2
Passenger revenue per
ASM (in cents) 10.78 10.18 5.9 10.92 10.52 3.7
Operating expense per
ASM (in cents) 13.30 10.78 23.4 12.54 10.55 18.9
Operating expense per
ASM excluding fuel,
restructuring charges
and fleet transition
costs (a) (c)
(in cents) 7.80 7.76 0.6 7.49 7.50 (0.2)
GAAP fuel cost per
gallon $3.95 $2.09 89.0 $3.48 $2.08 67.3
Economic fuel cost per
gallon (b) $2.52 $2.48 1.6 $3.00 $2.20 36.4
Fuel gallons (000,000) 75.5 87.2 (13.4) 333.8 354.3 (5.8)
Average number of
full-time equivalent
employees 9,156 9,672 (5.3) 9,628 9,679 (0.5)
Aircraft utilization
(blk hrs/day) 10.0 10.7 (6.5) 10.6 10.9 (2.8)
Average aircraft stage
length (miles) 995 946 5.2 979 926 5.7
Operating fleet at
period-end 110 115 (5) a/c 110 115 (5) a/c
Purchased Capacity
Operating Statistics:
RPMs (000,000) 227 287 (20.9) 1,100 1,099 0.1
ASMs (000,000) 316 386 (18.1) 1,469 1,453 1.1
Passenger load factor 71.8% 74.4% (2.6)pts 74.9% 75.6% (0.7)pts
Yield per passenger mile
(in cents) 29.47 25.05 17.6 27.35 25.61 6.8
Operating revenue per ASM
(in cents) 21.17 18.63 13.7 20.48 19.37 5.7
Operating expenses per ASM
(in cents) 21.17 20.91 1.3 21.35 20.84 2.5
NM = Not Meaningful
(a) See page 9 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(b) See page 11 for a reconciliation of economic fuel cost.
(c) See note on page 6 for information regarding an immaterial adjustment
in the twelve-month periods ended December 31, 2007 and 2008.
Horizon Air Financial and Statistical Data
Three Months Ended Twelve Months Ended
December 31, December 31, (d)
Financial Data (in millions): 2008 2007 % Change 2008 2007 % Change
Operating Revenues:
Passenger - brand flying $98.5 $99.2 (0.7) $429.2 $391.3 9.7
Passenger - capacity purchase
arrangements (a) 62.5 80.4 (22.3) 293.7 317.9 (7.6)
Total passenger revenue 161.0 179.6 (10.4) 722.9 709.2 1.9
Freight and mail 0.6 0.5 20.0 2.7 2.3 17.4
Other - net 2.1 1.8 16.7 8.3 6.9 20.3
Total Operating Revenues 163.7 181.9 (10.0) 733.9 718.4 2.2
Operating Expenses:
Wages and benefits 46.9 51.1 (8.2) 194.1 201.3 (3.6)
Variable incentive pay 1.4 1.3 7.7 5.6 7.3 (23.3)
Aircraft fuel, including
hedging gains and losses 60.4 38.3 57.7 236.0 138.8 70.0
Aircraft maintenance 10.7 23.1 (53.7) 58.2 92.0 (36.7)
Aircraft rent 13.2 15.7 (15.9) 56.9 65.6 (13.3)
Landing fees and other
rentals 13.6 14.1 (3.5) 57.2 56.9 0.5
Contracted services 7.1 7.2 (1.4) 29.1 27.1 7.4
Selling expenses 6.4 7.7 (16.9) 31.1 31.2 (0.3)
Depreciation and amortization 8.7 8.6 1.2 37.5 33.9 10.6
Food and beverage service 0.5 0.7 (28.6) 2.6 2.8 (7.1)
Other 9.0 12.3 (26.8) 42.7 48.0 (11.0)
Fleet transition
costs - CRJ-700 6.7 - NM 13.5 - NM
Fleet transition costs - Q200 0.5 3.5 NM 10.2 14.1 NM
Total Operating Expenses 185.1 183.6 0.8 774.7 719.0 7.7
Operating Loss (21.4) (1.7) NM (40.8) (0.6) NM
Interest income 1.6 1.1 5.4 4.5
Interest expense (6.7) (4.5) (23.6) (16.6)
Interest capitalized 0.7 0.3 3.0 2.1
Other - net 0.1 - 0.2 (0.1)
(4.3) (3.1) (15.0) (10.1)
Loss Before Income Tax $(25.7) $(4.8) $(55.8) $(10.7)
Combined Operating
Statistics: (a)
Revenue passengers (000) 1,636 1,930 (15.2) 7,390 7,552 (2.1)
RPMs (000,000) "traffic" 561 723 (22.4) 2,635 2,918 (9.7)
ASMs (000,000) "capacity" 786 996 (21.1) 3,617 3,978 (9.1)
Passenger load factor 71.4% 72.6% (1.2)pts 72.9% 73.4% (0.5)pts
Yield per passenger mile
(in cents) 28.70 24.84 15.5 27.43 24.30 12.9
Operating revenue per ASM
(RASM) (in cents) 20.83 18.26 14.0 20.29 18.06 12.4
Passenger revenue per ASM
(in cents) 20.48 18.03 13.6 19.99 17.83 12.1
Operating expense per ASM
(in cents) 23.55 18.43 27.8 21.42 18.07 18.5
Operating expense per ASM
excluding fuel and
CRJ-700 fleet transition
costs (b) (d) (in cents) 15.01 14.59 2.9 14.52 14.59 (0.4)
GAAP fuel cost per gallon $4.08 $2.18 87.2 $3.53 $2.14 65.0
Economic fuel cost per
gallon (c) $2.58 $2.54 1.6 $3.05 $2.28 33.8
Fuel gallons (000,000) 14.8 17.6 (15.9) 66.9 64.8 3.2
Average number of
full-time equivalent
employees 3,466 3,941 (12.1) 3,699 3,897 (5.1)
Aircraft utilization (blk
hrs/day) 8.0 8.4 (4.8) 8.3 8.6 (3.5)
Average aircraft stage
length (miles) 312 356 (12.4) 334 351 (4.8)
Operating fleet at
period-end 58 70 (12) a/c 58 70 (12) a/c
NM = Not Meaningful
(a) Represents combined information for Horizon flights operated under
Capacity Purchase Agreements (CPAs) with Alaska and as Frontier Jet
Express (through November 2007). See page 10 for additional line of
business information.
(b) See page 10 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(c) See page 11 for a reconciliation of economic fuel cost.
(d) See note on page 6 for information regarding an immaterial adjustment
in the twelve-month periods ended December 31, 2007 and 2008.
Note A: Pursuant to Regulation G, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of this measure of unit costs excluding fuel, purchased capacity costs, and other noted items may be important to investors for the following reasons:
* Cost per available seat mile (ASM) excluding fuel, purchased capacity costs, and other special items is one of the most important measures used by managements of both Alaska and Horizon and the Air Group Board of Directors in assessing quarterly and annual cost performance and, for Alaska Airlines, the operating results of the "mainline" operation, which includes the operation of aircraft branded in Alaska Airlines livery.
* Cost per ASM excluding fuel, purchased capacity costs, and other items as specified in our governing documents is an important metric used in the employee incentive plan that covers company management and executives.
* By eliminating fuel expense from our unit cost metrics, we believe that we have better visibility into the results of our non-fuel cost-reduction initiatives. Our industry is highly competitive, and characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company specific cost drivers such as labor rates and productivity, airport costs, and maintenance costs, which are more controllable by management.
* Cost per ASM excluding fuel and purchased capacity costs is a measure commonly used by industry analysts and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from current or prospective investors.
* By eliminating the impact of certain noted or "special" items, management is provided the ability to measure and monitor performance both with and without these special items. Management believes that the disclosure of the impact of certain items such as the fleet transition costs and restructuring charges is important to the reader as it provides information on significant items that are not indicative of future performance. Industry analysts and investors consistently measure the Company’s performance without these items for better comparability between periods and between other airlines.
* Although we disclose our "mainline" unit revenues for Alaska to eliminate those revenues associated with purchased capacity flying performed by others on our behalf, we do not (nor are we able to) present unit revenues excluding the impact that rising fuel costs have had on ticket prices. This is a limitation of our non-GAAP measure that excludes fuel from unit costs, as economic fuel represents approximately 35% of our total annual mainline operating expenses (excluding special items), and fluctuations in our fuel prices are often the driver of changes in unit revenues in the mid-to long term. We would caution the readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability.
The following tables reconcile our non-GAAP financial measures to the most
directly comparable GAAP financial measures for both Alaska Airlines, Inc.
and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.
(in millions, except for per ASM unit information)
Three Months Ended Twelve Months Ended
December 31 December 31,
Mainline unit cost reconciliations: 2008 2007 2008 2007
Mainline operating expenses $743.6 $649.1 $3,036.5 $2,553.3
Mainline ASMs 5,590 6,020 24,218 24,208
Mainline operating expenses per ASM
(in cents) 13.30 10.78 12.54 10.55
Mainline operating expenses $743.6 $649.1 $3,036.5 $2,553.3
Less: aircraft fuel, including hedging
gains and losses (298.4) (182.2) (1,162.4) (737.5)
Less: restructuring charges (9.2) - (12.9) -
Less: fleet transition costs - MD-80 - - (47.5) -
Mainline operating expenses excluding
fuel, restructuring charges and
fleet transition costs $436.0 $466.9 $1,813.7 $1,815.8
Mainline ASMs 5,590 6,020 24,218 24,208
Mainline operating expenses per ASM
excluding fuel, restructuring charges
and fleet transition costs (in cents) 7.80 7.76 7.49 7.50
Three Months Ended Twelve Months Ended
December 31 December 31,
Reconciliation to GAAP income (loss)
before taxes : 2008 2007 2008 2007
Income (loss) before taxes, excluding
items noted below $23.8 $(18.8) $25.2 $171.7
Change in Mileage Plan terms - - 42.3 -
Restructuring charges (9.2) - (12.9) -
Fleet transition costs - MD-80 - - (47.5) -
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting on fuel
hedges (66.5) (34.0) (118.9) (43.3)
Realized losses on hedge portfolio
restructuring (41.5) - (41.5) -
GAAP income (loss) before taxes as
reported $(93.4) $15.2 $(153.3) $215.0
Horizon Air Industries, Inc.
(in millions, except for per ASM unit information)
Three Months Ended Twelve Months Ended
December 31 December 31,
Unit cost reconciliations: 2008 2007 2008 2007
Operating expenses $185.1 $183.6 $774.7 $719.0
ASMs 786 996 3,617 3,978
Operating expenses per ASM (in cents) 23.55 18.43 21.42 18.07
Operating expenses $185.1 $183.6 $774.7 $719.0
Less: aircraft fuel, including
hedging gains and losses (60.4) (38.3) (236.0) (138.8)
Less: fleet transition costs - CRJ-700 (6.7) - (13.5) -
Operating expenses excluding fuel and
CRJ-700 fleet transition costs $118.0 $145.3 $525.2 $580.2
ASMs 786 996 3,617 3,978
Operating expenses per ASM excluding
fuel and CRJ-700 fleet transition
costs (in cents) 15.01 14.59 14.52 14.59
Unit cost reconciliations-excluding
all fleet transition costs:
Operating expenses $185.1 $183.6 $774.7 $719.0
Less: aircraft fuel, including
hedging gains and losses (60.4) (38.3) (236.0) (138.8)
Less: fleet transition costs - CRJ-700 (6.7) - (13.5) -
Less: fleet transition costs - Q200 (0.5) (3.5) (10.2) (14.1)
Operating expenses excluding fuel and
all fleet transition costs $117.5 $141.8 $515.0 $566.1
ASMs 786 996 3,617 3,978
Operating expenses per ASM excluding
fuel and all fleet transition costs
(in cents) 14.95 14.24 14.24 14.23
Reconciliation to GAAP loss before
taxes:
Income (loss) before taxes, excluding
items noted below $3.2 $(11.2) $(10.4) $(19.6)
Fleet transition costs - CRJ-700 (6.7) - (13.5) -
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting on fuel
hedges (13.7) (6.4) (23.4) (8.9)
Realized losses on hedge portfolio
restructuring (8.5) - (8.5) -
GAAP loss before taxes as reported $(25.7) $(4.8) $(55.8) $(10.7)
Line of Business Information:
Horizon brand flying includes those routes in the Horizon system not covered by the Alaska and Frontier Capacity Purchase Agreements (CPA). Horizon bears the revenue risk in those markets and, as a result, traffic, yield and load factor impact revenue recorded by Horizon. In CPA arrangements, Horizon is (or was, as was the case with the Frontier CPA which ended in November 2007) insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity. As a result, yield and load factor information is not presented.
Three Months Ended December 31, 2008
Capacity and Mix
2007 Current
2008 Actual Actual Change %
(000,000) (000,000) Y-O-Y Total
Brand Flying 485 568 (14.6%) 62%
Alaska CPA 301 369 (18.4%) 38%
Frontier CPA - 59 (100.0%) 0%
System Total 786 996 (21.1%) 100%
Twelve Months Ended December 31, 2008
Capacity and Mix
2007 Current
2008 Actual Actual Change %
(000,000) (000,000) Y-O-Y Total
Brand Flying 2,221 2,086 6.5% 61%
Alaska CPA 1,396 1,383 0.9% 39%
Frontier CPA - 509 (100.0%) 0%
System Total 3,617 3,978 (9.1%) 100%
Three Months Ended December 31, 2008
Load Factor Yield
Point 2008
2008 Change Actual Change
Actual Y-O-Y (in cents) Y-O-Y
Brand Flying 70.9% 0.6 28.65 15.2%
Alaska CPA NM NM NM NM
Frontier CPA NM NM NM NM
System Total 71.4% (1.2) 28.70 15.5%
NM= Not Meaningful
Twelve Months Ended December 31, 2008
Load Factor Yield
Point 2008
2008 Change Actual Change
Actual Y-O-Y (in cents) Y-O-Y
Brand Flying 71.1% (0.7) 27.20 4.1%
Alaska CPA NM NM NM NM
Frontier CPA NM NM NM NM
System Total 72.9% (0.5) 27.43 12.9%
NM= Not Meaningful
Three Months Ended December 31, 2008
RASM
2008 Actual 2007 Actual
(in cents) (in cents) Change Y-O-Y
Brand Flying 20.89 17.88 16.8%
Alaska CPA 20.78 20.60 0.9%
Frontier CPA NM 7.33 NM
System Total 20.83 18.26 14.0%
NM= Not Meaningful
Twelve Months Ended December 31, 2008
RASM
2008 Actual 2007 Actual
(in cents) (in cents) Change Y-O-Y
Brand Flying 19.82 19.20 3.2%
Alaska CPA 21.04 20.49 2.7%
Frontier CPA NM 6.77 NM
System Total 20.29 18.06 12.4%
NM= Not Meaningful
Alaska Airlines Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended December 31,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $185.0 $2.45 $240.5 $2.76
Minus gains, or plus the losses,
during the period on settled hedges 5.4 0.07 (24.3) (0.28)
Economic fuel expense $190.4 $2.52 $216.2 $2.48
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting* 66.5 0.88 (34.0) (0.39)
Plus net realized losses on hedge
portfolio restructuring** 41.5 0.55 - -
Total adjustments 108.0 1.43 (34.0) (0.39)
GAAP fuel expense $298.4 $3.95 $182.2 $2.09
Fuel gallons 75.5 87.2
Twelve Months Ended December 31,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $1,103.8 $3.31 $825.7 $2.33
Minus gains during the period on
settled hedges (101.8) (0.31) (44.9) (0.13)
Economic fuel expense $1,002.0 $3.00 $780.8 $2.20
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting* 118.9 0.36 (43.3) (0.12)
Plus net realized losses on hedge
portfolio restructuring** 41.5 0.12 - -
Total adjustments 160.4 0.48 (43.3) (0.12)
GAAP fuel expense $1,162.4 $3.48 $737.5 $2.08
Fuel gallons 333.8 354.3
Horizon Air Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended December 31,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $37.1 $2.51 $49.3 $2.80
Minus gains, or plus the losses,
during the period on settled
hedges 1.1 0.07 (4.6) (0.26)
Economic fuel expense $38.2 $2.58 $44.7 $2.54
Adjustments to reflect timing of
gain or loss recognition
resulting from mark-to-market
accounting* 13.7 0.93 (6.4) (0.36)
Plus net realized losses on
hedge portfolio restructuring** 8.5 0.57 - -
Total adjustments 22.2 1.50 (6.4) (0.36)
GAAP fuel expense $60.4 $4.08 $38.3 $2.18
Fuel gallons 14.8 17.6
Twelve Months Ended December 31,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $225.0 $3.36 $156.2 $2.41
Minus gains during the period on
settled hedges (20.9) (0.31) (8.5) (0.13)
Economic fuel expense $204.1 $3.05 $147.7 $2.28
Adjustments to reflect timing of
gain or loss recognition
resulting from mark-to-market
accounting* 23.4 0.35 (8.9) (0.14)
Plus net realized losses on
hedge portfolio restructuring** 8.5 0.13 - -
Total adjustments 31.9 0.48 (8.9) (0.14)
GAAP fuel expense $236.0 $3.53 $138.8 $2.14
Fuel gallons 66.9 64.8
* Includes gains or losses recognized during the current period for
contracts settling in future periods and the reversal of cumulative
gains or losses recognized in prior periods for contracts that settled
in the current period.
** These amounts reflect losses on the early termination of hedge
contracts originally scheduled to settle in 2009 and 2010. The net
amount represents the difference between the original premiums paid for
the terminated contracts and the cash received upon termination.
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Caroline Boren of Alaska Airlines, +1-206-392-5101, or
Dan Russo of Horizon Air, +1-206-431-4513, or Investor/analyst, Shannon
Alberts of Alaska Air Group, +1-206-392-5218
Web site: http://www.alaskaair.com/
