Alaska Air Group Reports Challenging Second Quarter
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Alaska Air Group, Inc. today reported second quarter net income of $63.1 million, or $1.74 per diluted share, compared to net income of $46.1 million, or $1.13 per diluted share, in the second...
Alaska Air Group, Inc.
The current-year results include charges associated with the transition to single fleets at Alaska Airlines and Horizon Air of $32.1 million ($20.1 million after tax or $0.56 per diluted share). Both periods include adjustments to reflect timing of gain or loss recognition resulting from mark-to-market fuel hedge accounting. Because of significant recent increases in crude oil prices, the value of the company’s fuel hedge portfolio that will benefit future periods increased dramatically, resulting in a $155.3 million ($97.3 million after tax or $2.69 per share) mark-to-market gain, compared to a $1.8 million ($1.1 million after tax or $0.03 per share) loss in the second quarter of 2007.
"Skyrocketing fuel prices have eclipsed the improvements we’ve worked so hard to achieve in every area of our business," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "Decisive action, an excellent operation, and the genuine, caring service our employees provide will help us survive what is shaping up to be the most difficult period in commercial aviation history."
The company outlined a plan that includes maintaining a strong cash balance, cutting capacity, increasing fares and other sources of revenue, conserving fuel and controlling non-fuel costs. Ayer announced that Alaska’s fourth-quarter mainline capacity will decline by 5 percent from 2007 levels, and mainline capacity for 2009 will decrease by 5 percent to 10 percent, compared with 2008.
The company is determining the full effect of the schedule reductions on work groups and expects to have more information in early September. Alaska Airlines announced today that management headcount would be reduced by 5 percent, effective Sept. 1. Horizon Air reduced its management workforce by 13 percent earlier this year and will further reduce operational and management positions in connection with capacity cuts.
"We are keenly aware of the impact on our employees and regret having to take these actions," Ayer said. "Current fuel prices — which are devastating for airlines and consumers alike — require these measures to ensure the viability of our company."
Alaska Airlines’ mainline passenger traffic in the second quarter increased 1.1 percent on a capacity increase of 1.6 percent. Load factor declined 0.4 percentage points to 78.1 percent. Alaska’s mainline operating revenue per available seat mile (ASM) increased 0.9 percent, and its operating cost per ASM excluding fuel and the special items mentioned above increased 2.9 percent. Alaska’s total pretax income for the quarter was $87.3 million, compared to pretax income of $80.9 million in 2007. Excluding the mark-to- market fuel hedge adjustments and fleet transition charges, Alaska would have reported a pretax loss of $15.6 million for the quarter, compared to pretax income of $82.4 million in the second quarter of 2007.
Horizon Air’s passenger traffic in the second quarter declined 4.9 percent on a 3.0 percent capacity decrease. Load factor decreased by 1.5 percentage points to 73.6 percent. Horizon’s operating revenue per ASM increased 9.4 percent, and its operating cost per ASM excluding fuel and the special charges mentioned above decreased 4.2 percent. Horizon’s total pretax income for the quarter was $12.6 million, compared to a pretax loss of $4.9 million in 2007. Excluding the mark-to-market fuel hedge adjustments and CRJ-700 fleet transition charges, Horizon’s pretax loss would have been $7.7 million for the quarter, compared to a pretax loss of $4.6 million in the second quarter of 2007.
Alaska Air Group had cash and short-term investments at June 30, 2008, of $1.0 billion.
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 second quarter 2008 results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 24, 2008. 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 competition, significant fuel costs, general economic conditions, 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 together serve 95 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.
Alaska Air Group, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Six Months Ended June 30, Ended June 30, (in millions, except per share amounts) 2008 2007 2008 2007 Operating Revenues: Passenger $863.5 $836.2 $1,639.2 $1,532.0 Freight and mail 27.7 27.4 49.9 48.6 Other - net 39.6 40.8 81.2 83.2 Total Operating Revenues 930.8 904.4 1,770.3 1,663.8 Operating Expenses: Wages and benefits 234.4 236.6 476.8 473.6 Variable incentive pay 5.1 3.8 8.7 14.3 Aircraft fuel, including hedging gains and losses 182.0 227.8 464.0 412.7 Aircraft maintenance 54.2 59.0 112.2 117.5 Aircraft rent 42.3 44.7 85.9 88.0 Landing fees and other rentals 56.9 56.5 112.9 111.2 Contracted services 43.6 39.8 88.1 78.4 Selling expenses 44.1 41.1 78.6 80.1 Depreciation and amortization 51.5 43.8 100.8 85.7 Food and beverage service 13.4 12.8 25.7 24.0 Other 61.5 57.1 118.7 112.0 Fleet transition costs - MD-80 26.0 - 26.0 - Fleet transition costs - CRJ-700 6.1 - 6.1 - Fleet transition costs - Q200 3.2 3.7 9.0 6.7 Total Operating Expenses 824.3 826.7 1,713.5 1,604.2 Operating Income 106.5 77.7 56.8 59.6 Nonoperating Income (Expense): Interest income 10.5 13.8 20.8 28.2 Interest expense (25.0) (22.5) (48.4) (43.5) Interest capitalized 6.1 6.7 12.6 13.8 Other - net 0.1 (0.7) 0.3 (0.9) (8.3) (2.7) (14.7) (2.4) Income before income tax 98.2 75.0 42.1 57.2 Income tax expense 35.1 28.9 14.9 21.4 Net Income $63.1 $46.1 $27.2 $35.8 Basic Earnings Per Share: $1.75 $1.14 $0.75 $0.89 Diluted Earnings Per Share: $1.74 $1.13 $0.74 $0.88 Shares Used for Computation: Basic 36.059 40.450 36.542 40.408 Diluted 36.255 40.782 36.876 40.915 Alaska Air Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, December 31, (in millions) 2008 2007 Cash and marketable securities $1,006 $823 Total current assets 1,734 1,391 Property and equipment-net 3,142 2,962 Other assets 220 138 Total assets $5,096 $4,491 Current liabilities $1,650 $1,374 Long-term debt 1,445 1,125 Other liabilities and credits 991 968 Shareholders' equity 1,010 1,024 Total liabilities and shareholders' equity $5,096 $4,491 Debt to Capitalization, adjusted for operating leases 72%:28% 70%:30% Number of common shares outstanding 36.019 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 adjustments for fleet transition costs and to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting as reported in accordance with GAAP (in millions except per share amounts):
Three Months Ended June 30, 2008 2007 Diluted Diluted Dollars EPS Dollars EPS Net income (loss) and diluted EPS, excluding mark-to-market hedging adjustments and fleet transition costs $(14.1) $(0.39) $47.2 $1.16 Fleet transition costs - MD-80, net of tax (16.3) (0.45) - - Fleet transition costs - CRJ-700, net of tax (3.8) (0.11) - - Adjustments to reflect the timing of gain (loss) recognition resulting from mark-to-market fuel-hedge accounting, net of tax 97.3 2.69 (1.1) (0.03) Reported GAAP amounts $63.1 $1.74 $46.1 $1.13 Six Months Ended June 30, 2008 2007 Dollars Diluted Diluted EPS Dollars EPS Net income (loss) and diluted EPS, excluding mark-to-market edging adjustments and fleet transition costs $(50.4) $(1.38) $31.4 $0.77 Fleet transition costs - MD-80, net of tax (16.3) (0.44) - - Fleet transition costs - CRJ-700, net of tax (3.8) (0.10) - - Adjustments to reflect the timing of gain recognition resulting from mark-to-market fuel-hedge accounting, net of tax 97.7 2.66 4.4 0.11 Reported GAAP amounts $27.2 $0.74 $35.8 $0.88 Alaska Airlines Financial and Statistical Data Three Months Ended June 30, Six Months Ended June 30, Financial Data (in millions): 2008 2007 % Change 2008 2007 % Change Operating Revenues: Passenger $682.7 $663.3 2.9 $1,290.0 $1,209.2 6.7 Freight and mail 26.6 26.3 1.1 47.9 47.0 1.9 Other - net 33.3 34.5 (3.5) 67.7 70.4 (3.8) Total mainline operating revenues 742.6 724.1 2.6 1,405.6 1,326.6 6.0 Passenger - purchased capacity 77.8 71.0 9.6 148.2 128.3 15.5 Total Operating Revenues 820.4 795.1 3.2 1,553.8 1,454.9 6.8 Operating Expenses: Wages and benefits 184.3 185.6 (0.7) 374.5 372.9 0.4 Variable incentive pay 3.3 2.1 57.1 5.9 9.8 (39.8) Aircraft fuel, including hedging gains and losses 151.2 193.4 (21.8) 384.9 351.0 9.7 Aircraft maintenance 37.4 34.5 8.4 79.5 68.8 15.6 Aircraft rent 27.9 27.9 - 56.1 54.2 3.5 Landing fees and other rentals 42.7 42.2 1.2 84.6 84.0 0.7 Contracted services 33.9 30.2 12.3 68.6 59.6 15.1 Selling expenses 36.0 33.4 7.8 62.5 65.0 (3.8) Depreciation and amortization 41.6 35.6 16.9 80.4 71.0 13.2 Food and beverage service 12.6 12.0 5.0 24.3 22.6 7.5 Other 47.4 43.2 9.7 89.2 83.0 7.5 Fleet transition costs - MD-80 26.0 - NM 26.0 - NM Total mainline operating expenses 644.3 640.1 0.7 1,336.5 1,241.9 7.6 Purchased capacity costs 84.5 74.1 14.0 161.2 141.5 13.9 Total Operating Expenses 728.8 714.2 2.0 1,497.7 1,383.4 8.3 Operating Income 91.6 80.9 56.1 71.5 Interest income 12.3 16.6 25.4 32.5 Interest expense (22.2) (22.1) (44.0) (42.5) Interest capitalized 5.4 6.0 11.3 12.3 Other - net 0.2 (0.5) 0.6 (0.4) (4.3) 0.0 (6.7) 1.9 Income Before Income Tax $87.3 $80.9 $49.4 $73.4 Mainline Operating Statistics: Revenue passengers (000) 4,425 4,627 (4.4) 8,505 8,489 0.2 RPMs (000,000) "traffic" 4,872 4,820 1.1 9,398 8,886 5.8 ASMs (000,000) "capacity" 6,238 6,140 1.6 12,322 11,834 4.1 Passenger load factor 78.1% 78.5% (0.4)pts 76.3% 75.1% 1.2 pts Yield per passenger mile (in cents) 14.01 13.76 1.8 13.73 13.61 0.9 Operating revenue per ASM (in cents) 11.90 11.79 0.9 11.41 11.21 1.8 Passenger revenue per ASM (in cents) 10.94 10.80 1.3 10.47 10.22 2.5 Operating expense per ASM (in cents) 10.33 10.43 (0.9) 10.85 10.49 3.4 Operating expense per ASM excluding fuel and fleet transition costs(a) (in cents) 7.49 7.28 2.9 7.51 7.53 (0.2) GAAP fuel cost per gallon $1.75 $2.16 (19.0) $2.23 $2.02 10.4 Economic fuel cost per gallon (b) $3.24 $2.14 51.4 $2.98 $2.05 45.4 Fuel gallons (000,000) 86.4 89.8 (3.8) 172.3 173.9 (0.9) Average number of full-time equivalent employees 9,880 9,748 1.4 9,881 9,645 2.4 Aircraft utilization (blk hrs/day) 10.9 11.0 (0.9) 10.8 10.9 (0.9) Average aircraft stage length (miles) 974 917 6.2 971 917 5.9 Operating fleet at period-end 115 114 1 a/c 115 114 1 a/c Regional Operating Statistics: RPMs (000,000) 302 273 10.6 569 493 15.4 ASMs (000,000) 399 352 13.4 762 668 14.1 Passenger load factor 75.7% 77.6% (1.9)pts 74.7% 73.8% 0.9 pts Yield per passenger mile (in cents) 25.76 26.01 (0.9) 26.05 26.02 0.1 Operating revenue per ASM (in cents) 19.50 20.17 (3.3) 19.45 19.21 1.3 Operating expenses per ASM (in cents) 21.18 21.05 0.6 21.15 21.18 (0.1) (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. NM = Not Meaningful Horizon Air Financial and Statistical Data Three Months Ended June 30, Six Months Ended June 30, Financial Data (in millions): 2008 2007 % Change 2008 2007 % Change Operating Revenues: Passenger - brand flying $107.7 $96.8 11.3 $210.4 $183.7 14.5 Passenger - capacity purchase arrangements(a) 78.7 78.9 (0.3) 150.1 151.4 (0.9) Total passenger revenue 186.4 175.7 6.1 360.5 335.1 7.6 Freight and mail 0.7 0.6 16.7 1.3 1.1 18.2 Other - net 1.8 1.7 5.9 4.3 3.4 26.5 Total Operating Revenues 188.9 178.0 6.1 366.1 339.6 7.8 Operating Expenses: Wages and benefits 48.6 50.2 (3.2) 98.9 99.1 (0.2) Variable incentive pay 1.8 1.7 5.9 2.8 4.5 (37.8) Aircraft fuel, including hedging gains and losses 30.8 34.4 (10.5) 79.1 61.7 28.2 Aircraft maintenance 16.8 24.5 (31.4) 32.7 48.7 (32.9) Aircraft rent 14.4 16.8 (14.3) 29.8 33.8 (11.8) Landing fees and other rentals 14.5 14.5 - 28.9 27.7 4.3 Contracted services 6.9 6.7 3.0 14.9 12.8 16.4 Selling expenses 8.1 7.7 5.2 16.1 15.1 6.6 Depreciation and amortization 9.6 7.9 21.5 19.8 14.1 40.4 Food and beverage service 0.8 0.8 - 1.4 1.4 - Other 11.2 11.7 (4.3) 24.0 24.5 (2.0) Fleet transition costs - CRJ-700 6.1 - NM 6.1 - NM Fleet transition costs - Q200 3.2 3.7 NM 9.0 6.7 NM Total Operating Expenses 172.8 180.6 (4.3) 363.5 350.1 3.8 Operating Income (Loss) 16.1 (2.6) 2.6 (10.5) Interest income 1.3 1.3 2.7 2.3 Interest expense (5.7) (4.3) (11.4) (7.3) Interest capitalized 0.7 0.7 1.3 1.5 Other - net 0.2 - 0.2 (0.1) (3.5) (2.3) (7.2) (3.6) Income (Loss) Before Income Tax $12.6 $(4.9) $(4.6) $(14.1) Combined Operating Statistics: (a) Revenue passengers (000) 1,913 1,909 0.2 3,765 3,518 7.0 RPMs (000,000) "traffic" 695 731 (4.9) 1,353 1,358 (0.4) ASMs (000,000) "capacity" 944 973 (3.0) 1,886 1,898 (0.6) Passenger load factor 73.6% 75.1% (1.5)pts 71.7% 71.5% 0.2 pts Yield per passenger mile (in cents) 26.82 24.04 11.6 26.64 24.68 8.0 Operating revenue per ASM (in cents) 20.01 18.29 9.4 19.41 17.89 8.5 Passenger revenue per ASM (in cents) 19.75 18.06 9.3 19.11 17.66 8.3 Operating expenses per ASM (in cents) 18.31 18.56 (1.4) 19.27 18.45 4.5 Operating expense per ASM excluding fuel and CRJ-700 fleet transition costs (b) (in cents) 14.40 15.03 (4.2) 14.76 15.19 (2.9) GAAP fuel cost per gallon $1.79 $2.23 (19.7) $2.27 $2.06 10.2 Economic fuel cost per gallon (c) $3.33 $2.21 50.7 $3.05 $2.11 44.5 Fuel gallons (000,000) 17.2 15.4 11.7 34.9 30.0 16.3 Average number of full- time equivalent employees 3,792 3,771 0.6 3,822 3,732 2.4 Aircraft utilization (blk hrs/day) 8.5 8.5 - 8.4 8.6 (2.3) Operating fleet at period-end 65 74 (9 a/c) 65 74 (9 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.
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 the B737 and MD80 aircraft fleets 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 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 investors. -- By eliminating the impact of certain noted 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 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 mainline operating expenses, 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 Six Months Ended Ended June 30, June 30, Mainline unit cost reconciliations: 2008 2007 2008 2007 Mainline operating expenses $644.3 $640.1 $1,336.5 $1,241.9 Mainline ASMs 6,238 6,140 12,322 11,834 Mainline operating expenses per ASM (in cents) 10.33 10.43 10.85 10.49 Mainline operating expenses $644.3 $640.1 $1,336.5 $1,241.9 Less: aircraft fuel (151.2) (193.4) (384.9) (351.0) Less: fleet transition costs - MD-80 (26.0) - (26.0) - Mainline operating expenses excluding fuel and fleet transition costs $467.1 $446.7 $925.6 $890.9 Mainline ASMs 6,238 6,140 12,322 11,834 Mainline operating expenses per ASM excluding fuel and fleet transition costs (in cents) 7.49 7.28 7.51 7.53 Three Months Six Months Ended Ended June 30, June 30, Reconciliation to GAAP income before taxes : 2008 2007 2008 2007 Income (loss) before taxes, excluding mark-to-market hedging gains (losses) and fleet transition costs $(15.6) $82.4 $(53.3) $68.1 Fleet transition costs - MD-80 (26.0) - (26.0) - Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges 128.9 (1.5) 128.7 5.3 GAAP income before taxes as reported $87.3 $80.9 $49.4 $73.4 Horizon Air Industries, Inc. (in millions, except for per ASM unit information) Three Months Ended Six Months Ended June 30, June 30, Unit cost reconciliations: 2008 2007 2008 2007 Operating expenses $172.8 $180.6 $363.5 $350.1 ASMs 944 973 1,886 1,898 Operating expenses per ASM (in cents) 18.31 18.56 19.27 18.45 Operating expenses $172.8 $180.6 $363.5 $350.1 Less: aircraft fuel (30.8) (34.4) (79.1) (61.7) Less: fleet transition costs - CRJ- 700 (6.1) - (6.1) - Operating expenses excluding fuel and CRJ-700 fleet transition costs $135.9 $146.2 $278.3 $288.4 ASMs 944 973 1,886 1,898 Operating expenses per ASM excluding fuel and CRJ-700 fleet transition costs (in cents) 14.40 15.03 14.76 15.19 Unit cost reconciliations-excluding all fleet transition costs: Operating expenses $172.8 $180.6 $363.5 $350.1 Less: aircraft fuel (30.8) (34.4) (79.1) (61.7) Less: fleet transition costs - CRJ- 700 (6.1) - (6.1) - Less: fleet transition costs - Q200 (3.2) (3.7) (9.0) (6.7) Operating expenses excluding fuel and all fleet transition costs $132.7 $142.5 $269.3 $281.7 ASMs 944 973 1,886 1,898 Operating expenses per ASM excluding fuel and all fleet transition costs (in cents) 14.06 14.65 14.28 14.84 Reconciliation to GAAP income (loss) before taxes: Loss before taxes, excluding mark- to-market fuel hedging gains (losses) and CRJ-700 fleet transition costs $(7.7) $(4.6) $(25.8) $(15.8) Fleet transition costs - CRJ-700 (6.1) - (6.1) - Adjustments to reflect timing of gain (loss) recognition resulting from mark-to-market accounting on fuel hedges 26.4 (0.3) 27.3 1.7 GAAP income (loss) before taxes as reported $12.6 $(4.9) $(4.6) $(14.1) 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 June 30, 2008 Capacity and Mix 2008 Actual 2007 Actual Change Current % Point Change (000,000) (000,000) Y-O-Y Total Y-O-Y Brand Flying 570 492 15.9% 60% 10 Alaska CPA 374 333 12.3% 40% 6 Frontier CPA - 148 (100.0%) 0% (16) System Total 944 973 (3.0%) 100% - Load Factor Yield RASM Point Change Change Change Actual Y-O-Y Actual Y-O-Y Actual Y-O-Y (in cents) (in cents) Brand Flying 71.3% (3.3) 26.52 0.3% 19.34 (4.0%) Alaska CPA NM NM NM NM 21.02 1.6% Frontier CPA NM NM NM NM NM NM System Total 73.6% (1.5) 26.82 11.6% 20.01 9.4% NM= Not Meaningful Six Months Ended June 30, 2008 Capacity and Mix 2008 Actual 2007 Actual Change Current % Point Change (000,000) (000,000) Y-O-Y Total Y-O-Y Brand Flying 1,168 955 22.3% 62% 12 Alaska CPA 718 630 14.0% 38% 5 Frontier CPA - 313 (100.0%) 0% (17) System Total 1,886 1,898 (0.6%) 100% - Load Factor Yield RASM Point Change Change Change Actual Y-O-Y Actual Y-O-Y Actual Y-O-Y (in cents) (in cents) Brand Flying 69.2% (1.7) 26.04 (3.9%) 18.50 (6.1%) Alaska CPA NM NM NM NM 20.89 0.4% Frontier CPA NM NM NM NM NM NM System Total 71.7% 0.2 26.64 8.0% 19.41 8.5% NM= Not Meaningful Alaska Airlines Fuel Reconciliation (in millions, except for per gallon amounts) Three Months Ended June 30, 2008 2007 Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $326.6 $3.78 $196.9 $2.20 Minus gains during the period on settled hedges (46.5) (0.54) (5.0) (0.06) Economic fuel expense $280.1 $3.24 $191.9 $2.14 Minus the gain recognized during current period for contracts settling in future periods (151.6) (1.75) (6.0) (0.07) Plus the reversal of cumulative gains recognized in prior periods for contracts settled in current period 22.7 0.26 7.5 0.09 Net adjustments (128.9) (1.49) 1.5 0.02 GAAP fuel expense $151.2 $1.75 $193.4 $2.16 Fuel gallons 86.4 89.8 Six Months Ended June 30, 2008 2007 Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $584.3 $3.39 $362.8 $2.09 Minus gains during the period on settled hedges (70.7) (0.41) (6.5) (0.04) Economic fuel expense $513.6 $2.98 $356.3 $2.05 Minus the gain recognized during current period for contracts settling in future periods (173.5) (1.01) (17.0) (0.10) Plus the reversal of cumulative gains recognized in prior periods for contracts settled in current period 44.8 0.26 11.7 0.07 Net adjustments (128.7) (0.75) (5.3) (0.03) GAAP fuel expense $384.9 $2.23 $351.0 $2.02 Fuel gallons 172.3 173.9 Horizon Air Fuel Reconciliation (in millions, except for per gallon amounts) Three Months Ended June 30, 2008 2007 Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $66.7 $3.88 $35.0 $2.27 Minus gains during the period on settled hedges (9.5) (0.55) (0.9) (0.06) Economic fuel expense $57.2 $3.33 $34.1 $2.21 Minus the gain recognized during current period for contracts settling in future periods (31.1) (1.81) (1.2) (0.08) Plus the reversal of cumulative gains recognized in prior periods for contracts settled in current period 4.7 0.27 1.5 0.10 Net adjustments (26.4) (1.54) 0.3 0.02 GAAP fuel expense $30.8 $1.79 $34.4 $2.23 Fuel gallons 17.2 15.4 Six Months Ended June 30, 2008 2007 Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $120.9 $3.46 $64.6 $2.15 Minus gains during the period on settled hedges (14.5) (0.41) (1.2) (0.04) Economic fuel expense $106.4 $3.05 $63.4 $2.11 Minus the gain recognized during current period for contracts settling in future periods (36.2) (1.04) (4.0) (0.13) Plus the reversal of cumulative gains recognized in prior periods for contracts settled in current period 8.9 0.26 2.3 0.08 Net adjustments (27.3) (0.78) (1.7) (0.05) GAAP fuel expense $79.1 $2.27 $61.7 $2.06 Fuel gallons 34.9 30.0
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Caroline Boren, +1-206-392-5101, or Investors, Shannon
Alberts, +1-206-392-5218, both of Alaska Air Group, Inc.; or Media, Dan Russo
of Horizon Air, +1-206-431-4513, for Alaska Air Group, Inc.
Web site: http://www.alaskaair.com/