Alaska Air Group Reports First Quarter Profit
Share
Alaska Air Group, Inc. today reported first quarter 2010 net income of $5.3 million, or $0.15 per diluted share, compared to a net loss of $19.2 million, or $0.53 per diluted share, in the first...
Alaska Air Group, Inc.
"Producing a profit in our seasonally weakest period is particularly noteworthy," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "The last time we reported a significant first-quarter profit was in 1999.
"Our results were driven by higher load factors, improving pricing trends and good cost management. Selective schedule reductions coupled with entry into new markets also contributed to our strong performance and provide a foundation for continued improvement.
"Our operational results continue to be outstanding. For the most recent 12-month DOT reporting period, Alaska held the No. 1 spot in on-time performance among the 10 largest U.S. airlines. And recently, Horizon was ranked among the world’s top five airlines for 2009 on-time performance. I want to thank all our employees for running a safe, reliable operation and providing outstanding customer service."
The following table reconciles the company’s adjusted net income and earnings per diluted share (EPS) during the first quarters of 2010 and 2009 to amounts as reported in accordance with GAAP (in millions except per-share amounts):
Three months ended March 31,
----------------------------
2010 2009
---- ----
Diluted Diluted
Dollars EPS Dollars EPS
------- ------- ------- -------
Net income (loss) and
diluted EPS, excluding
items noted below $13.1 $0.36 $(25.4) $(0.70)
Adjustments to reflect
the timing of gain or
loss recognition
resulting from mark-
to-market fuel-hedge
accounting, net of tax (7.8) (0.21) 6.2 0.17
Reported GAAP net income
(loss) $5.3 $0.15 $(19.2) $(0.53)
==== ===== ====== ======
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 glossary of financial terms can be found at the end of this release.
A conference call regarding the first quarter results will be simulcast via the Internet at 8:30 a.m. Pacific time on April 22, 2010. It can be accessed through the company’s Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.
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 may contain 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, 2009. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. 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
Ended March 31,
---------------
2010 2009
---- ----
Operating Revenues:
Passenger $748.4 $684.1
Freight and mail 23.0 19.4
Other - net 58.5 38.9
----
Total Operating Revenues 829.9 742.4
----- -----
Operating Expenses:
Wages and benefits 239.3 246.0
Variable incentive pay 17.9 9.3
Aircraft fuel, including hedging gains and
losses 207.3 157.7
Aircraft maintenance 57.0 59.7
Aircraft rent 37.0 38.0
Landing fees and other rentals 55.9 54.2
Contracted services 39.6 38.4
Selling expenses 33.6 25.0
Depreciation and amortization 56.2 52.8
Food and beverage service 12.3 11.6
Other 47.8 56.8
Fleet transition costs - Q200 - 4.8
---
Total Operating Expenses 803.9 754.3
----- -----
Operating Income (Loss) 26.0 (11.9)
---- -----
Nonoperating Income (Expense):
Interest income 7.5 8.3
Interest expense (25.6) (27.8)
Interest capitalized 1.7 2.8
Other - net 0.6 (1.0)
(15.8) (17.7)
----- -----
Income (loss) before income tax 10.2 (29.6)
Income tax expense (benefit) 4.9 (10.4)
Net Income (Loss) $5.3 $(19.2)
==== ======
Basic Earnings (Loss) Per Share: $0.15 $(0.53)
Diluted Earnings (Loss) Per Share: $0.15 $(0.53)
Shares Used for Computation:
Basic 35.667 36.326
Diluted 36.393 36.326
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March December
31, 31,
(in millions) 2010 2009
------------- ---- ----
Cash and marketable securities $1,171 $1,192
====== ======
Total current assets 1,664 1,645
Property and equipment-net 3,136 3,168
Other assets 216 183
Total assets $5,016 $4,996
====== ======
Current liabilities $1,340 $1,269
Long-term debt 1,657 1,699
Other liabilities and credits 1,134 1,156
Shareholders' equity 885 872
Total liabilities and shareholders' equity $5,016 $4,996
====== ======
Debt to Capitalization, adjusted for
operating leases 75%:25% 76%:24%
======= =======
Number of common shares outstanding 35.736 35.591
====== ======
Alaska Airlines Financial and Statistical Data
Three Months Ended March
31,
-------------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger $587.0 $539.8 8.7
Freight and mail 22.0 18.3 20.2
Other - net 52.1 33.2 56.9
---- ----
Total mainline operating revenues 661.1 591.3 11.8
Passenger - purchased capacity 76.5 61.8 23.8
Total Operating Revenues 737.6 653.1 12.9
----- -----
Operating Expenses:
Wages and benefits 191.2 197.4 (3.1)
Variable incentive pay 14.8 7.1 108.5
Aircraft fuel, including hedging
gains and losses 171.7 131.9 30.2
Aircraft maintenance 42.1 46.3 (9.1)
Aircraft rent 25.9 26.5 (2.3)
Landing fees and other rentals 41.7 40.8 2.2
Contracted services 30.6 30.5 0.3
Selling expenses 26.7 19.1 39.8
Depreciation and amortization 45.7 43.3 5.5
Food and beverage service 11.8 11.0 7.3
Other 34.8 42.8 (18.7)
----
Total mainline operating expenses 637.0 596.7 6.8
----- -----
Purchased capacity costs 72.5 62.7 15.6
Total Operating Expenses 709.5 659.4 7.6
----- -----
Operating Income (Loss) 28.1 (6.3)
---- ----
Interest income 8.6 10.1
Interest expense (22.1) (23.9)
Interest capitalized 1.7 2.5
Other - net 0.9 (0.7)
----
(10.9) (12.0)
----- -----
Income (Loss) Before Income Tax $17.2 $(18.3)
===== ======
Mainline Operating Statistics:
Revenue passengers (000) 3,641 3,573 1.9
RPMs (000,000) "traffic" 4,472 4,179 7.0
ASMs (000,000) "capacity" 5,541 5,520 0.4
Passenger load factor 80.7% 75.7% 5.0pts
Yield per passenger mile (in
cents) 13.13 12.92 1.6
Operating revenue per ASM (in
cents) 11.93 10.71 11.4
Passenger revenue per ASM (in
cents) 10.59 9.78 8.3
Operating expense per ASM (in
cents) 11.50 10.81 6.4
Operating expense per ASM
excluding fuel (a) 8.40 8.42 (0.2)
(in cents)
GAAP fuel cost per gallon $2.38 $1.80 32.3
Economic fuel cost per gallon (b) $2.25 $1.91 17.8
Fuel gallons (000,000) 72.3 73.3 (1.4)
Average number of full-time
equivalent employees 8,537 9,021 (5.4)
Aircraft utilization (blk hrs/
day) 9.3 9.9 (6.1)
Average aircraft stage length
(miles) 1,068 1,016 5.1
Operating fleet at period-end 112 112 -
Purchased Capacity Operating
Statistics:
RPMs (000,000) 271 215 26.0
ASMs (000,000) 369 316 16.8
Passenger load factor 73.4% 68.0% 5.4pts
Yield per passenger mile (in
cents) 28.23 28.74 (1.8)
Operating revenue per ASM (in
cents) 20.73 19.56 6.0
Operating expenses per ASM (in
cents) 19.65 19.84 (1.0)
(a) See page 8 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(b) See page 10 for a reconciliation of economic fuel cost.
Horizon Air Financial and Statistical Data
Three Months Ended March
31,
-------------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger - brand flying $89.3 $86.6 3.1
Passenger -capacity purchase
arrangements 66.4 57.8 14.9
---- ----
Total passenger revenue 155.7 144.4 7.8
Freight and mail 0.6 0.7 (14.3)
Other - net 2.1 1.7 23.5
--- ---
Total Operating Revenues 158.4 146.8 7.9
----- -----
Operating Expenses:
Wages and benefits 45.4 46.4 (2.2)
Variable incentive pay 3.1 2.2 40.9
Aircraft fuel, including hedging gains
and losses 35.6 25.8 38.0
Aircraft maintenance 14.9 13.4 11.2
Aircraft rent 11.1 11.5 (3.5)
Landing fees and other rentals 14.5 13.7 5.8
Contracted services 8.3 7.5 10.7
Selling expenses 6.9 5.9 16.9
Depreciation and amortization 10.2 9.2 10.9
Food and beverage service 0.5 0.6 (16.7)
Other 9.5 11.0 (13.6)
Fleet transition costs - 4.8 NM
---
Total Operating Expenses 160.0 152.0 5.3
----- -----
Operating Loss (1.6) (5.2)
---- ----
Interest income 0.5 0.4
Interest expense (5.1) (6.0)
Interest capitalized - 0.3
--- ---
(4.6) (5.3)
---- ----
Loss Before Income Tax $(6.2) $(10.5)
===== ======
Combined Operating Statistics: (a)
Revenue passengers (000) 1,584 1,546 2.5
RPMs (000,000) "traffic" 566 524 8.0
ASMs (000,000) "capacity" 793 787 0.8
Passenger load factor 71.4% 66.6% 4.8pts
Yield per passenger mile (in cents) 27.51 27.56 (0.2)
Operating revenue per ASM (in cents) 19.97 18.65 7.1
Passenger revenue per ASM (in cents) 19.63 18.35 7.0
Operating expenses per ASM (in cents) 20.18 19.31 4.5
Operating expense per ASM excluding
fuel (b) (in cents) 15.69 16.04 (2.2)
GAAP fuel cost per gallon $2.51 $1.78 41.0
Economic fuel cost per gallon (c) $2.28 $1.90 20.0
Fuel gallons (000,000) 14.2 14.5 (2.1)
Average number of full-time
equivalent employees 3,161 3,382 (6.5)
Aircraft utilization (blk hrs/day) 7.6 8.3 (8.4)
Average aircraft stage length (miles) 326 317 2.8
Operating fleet at period-end 58 55 3 a/c
NM = Not Meaningful
(a) Represents combined information for all Horizon flights,
including those operated under a Capacity Purchase Agreement (CPA)
with Alaska. See page 9 for additional line of business
information.
(b) See page 9 for a reconciliation of these non-GAAP measures.
(c) See page 10 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:
-- By eliminating fuel expense and certain special items 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 is 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, maintenance costs,
etc., which are more controllable by management.
-- Cost per ASM excluding fuel and certain special items is one of the
most important measures used by managements of both Alaska and Horizon
and by the Air Group Board of Directors in assessing quarterly and
annual cost performance.
-- Cost per ASM excluding fuel (and other items as specified in our plan
documents) is an important metric for the employee incentive plan that
covers company management and the majority of other employee groups.
-- Cost per ASM excluding fuel and certain special items 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.
-- Disclosure of the individual impact of certain noted items provides
investors the ability to measure and monitor performance both with and
without these special items. We believe that disclosing the impact of
certain items, such as new pilot contract transition costs and fleet
transition costs, is important because it provides information on
significant items that are not necessarily indicative of future
performance. Industry analysts and investors consistently measure our
performance without these items for better comparability between periods
and among other airlines.
-- Although we disclose our "mainline" passenger unit revenues for
Alaska, we do not (nor are we able to) evaluate mainline unit revenues
excluding the impact that changes in fuel costs have had on ticket
prices. Fuel expense represents a large percentage of our total mainline
operating expenses. Fluctuations in fuel prices often drive changes in
unit revenues in the mid-to-long term. Although we believe it is useful
to evaluate non-fuel unit costs for the reasons noted above, we would
caution readers of these financial statements not to place undue reliance
on unit costs excluding fuel as a measure or predictor of future
profitability because of the significant impact of fuel costs on our
business.
Alaska Airlines, Inc.
---------------------
(in millions, except for per ASM unit
information)
Three Months
Ended March 31,
----------------
Mainline unit cost reconciliations: 2010 2009
----------------------------------- ---- ----
Mainline operating expenses $637.0 $596.7
Mainline ASMs 5,541 5,520
----- -----
Mainline operating expenses per ASM (in cents) 11.50 10.81
===== =====
Mainline operating expenses $637.0 $596.7
Less: aircraft fuel, including hedging gains and
losses (171.7) (131.9)
------ ------
Mainline operating expenses excluding fuel $465.3 $464.8
Mainline ASMs 5,541 5,520
----- -----
Mainline operating expenses per ASM excluding
fuel (in cents) 8.40 8.42
==== ====
Three Months
Ended March 31,
----------------
Reconciliation to GAAP income (loss) before
taxes : 2010 2009
------------------------------------------- ---- ----
Income (loss) before taxes, excluding items
noted below $26.5 $(26.6)
Adjustments to reflect timing of gain or loss
recognition resulting from
mark-to-market accounting on fuel hedges (9.3) 8.3
GAAP income (loss) before taxes as reported $17.2 $(18.3)
===== ======
Horizon Air Industries, Inc.
----------------------------
(in millions, except for per ASM unit
information)
Three Months
Ended March
31,
------------
Unit cost reconciliations: 2010 2009
-------------------------- ---- ----
Operating expenses $160.0 $152.0
ASMs 793 787
--- ---
Operating expenses per ASM (in
cents) 20.18 19.31
===== =====
Operating expenses $160.0 $152.0
Less: aircraft fuel, including hedging gains and losses (35.6) (25.8)
----- -----
Operating expenses excluding fuel $124.4 $126.2
ASMs 793 787
--- ---
Operating expenses per ASM excluding fuel (in cents) 15.69 16.04
===== =====
Unit cost reconciliations-excluding Q200 fleet
transition costs:
----------------------------------------------
Operating expenses $160.0 $152.0
Less: aircraft fuel, including hedging gains and losses (35.6) (25.8)
Less: fleet transition costs - Q200 - (4.8)
--- ----
Operating expenses excluding fuel and Q200 fleet
transition costs $124.4 $121.4
ASMs 793 787
--- ---
Operating expenses per ASM excluding fuel and Q200 fleet
transition costs 15.69 15.43
(in cents) ===== =====
Reconciliation to GAAP loss before taxes:
-----------------------------------------
Loss before taxes, excluding items noted below $(3.0) $(12.2)
Adjustments to reflect timing of gain or loss recognition
resulting from
mark-to-market accounting on fuel hedges (3.2) 1.7
---- ---
GAAP loss before taxes as reported $(6.2) $(10.5)
===== ======
Line of Business Information:
-----------------------------
Horizon brand flying includes those routes in the Horizon system not
covered by the Alaska Capacity Purchase Agreement (CPA). Horizon
bears the revenue risk in those markets and, as a result, traffic,
yield and load factor impact revenue recorded by Horizon. In the
CPA arrangement, Horizon is 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 March 31, 2010
---------------------------------
Capacity and Mix
----------------
Q1 2009
Q1 2010 Actual Current
Actual (000,000) Change % Total
-------- ---------- ------ -------
(000,000) Y-O-Y
-------- -----
Brand Flying 440 488 (9.8%) 55%
Alaska CPA 353 299 18.1% 45%
System Total 793 787 0.8% 100%
=== === === ===
NM= Not Meaningful
Three Months Ended March 31, 2010
---------------------------------
Load Factor
-----------
Point
Actual Change
------ ------
Y-O-Y
-----
Brand Flying 69.3% 3.8
Alaska CPA NM NM
System Total 71.4% 4.8
==== ===
NM= Not Meaningful
Three Months Ended March 31, 2010
---------------------------------
Yield RASM
----- ----
Actual
(in
Actual Change cents) Change
------ ------ ------- ------
(in
cents) Y-O-Y Y-O-Y
------- ----- -----
Brand Flying 29.27 8.0% 20.90 14.6%
Alaska CPA NM NM NM NM
System Total 27.51 (0.2%) 19.97 7.1%
===== ====== ===== ===
NM= Not Meaningful
Alaska Airlines Fuel Reconciliation
-----------------------------------
(in millions, except for per gallon amounts)
Three Months Ended March 31,
----------------------------
2010 2009
---- ----
Cost/
Dollars Cost/Gal Dollars Gal
------- -------- ------- ------
Raw or "into-plane" fuel cost $162.7 $2.25 $118.8 $1.62
Minus gains, or plus the
losses, during the period on
settled hedges (0.3) - 21.4 0.29
---- --- ---- ----
Economic fuel expense $162.4 $2.25 $140.2 $1.91
------ ----- ------ -----
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-
market accounting 9.3 0.13 (8.3) (0.11)
GAAP fuel expense $171.7 $2.38 $131.9 $1.80
====== ===== ====== =====
Fuel gallons 72.3 73.3
==== ====
Horizon Air Fuel
Reconciliation
----------------
(in millions, except for per
gallon amounts)
Three Months Ended March 31,
----------------------------
2010 2009
---- ----
Cost/
Dollars Cost/Gal Dollars Gal
------- -------- ------- ------
Raw or "into-plane" fuel cost $32.5 $2.29 $23.1 $1.59
Minus gains, or plus the
losses, during the period on
settled hedges (0.1) (0.01) 4.4 0.31
---- ----- --- ----
Economic fuel expense $32.4 $2.28 $27.5 $1.90
----- ----- ----- -----
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-
market accounting 3.2 0.23 (1.7) (0.12)
GAAP fuel expense $35.6 $2.51 $25.8 $1.78
===== ===== ===== =====
Fuel gallons 14.2 14.5
==== ====
Glossary of Financial Terms
ASM – Available seat miles or "capacity." Represents total seats available across the fleet multiplied by the number of miles flown.
RPM – Revenue passenger miles or "traffic." The number of those available seats that were filled with paying passengers. One passenger traveling one mile is one RPM.
RASM – Total operating revenue divided by ASMs. Operating revenue includes all passenger revenue, freight and mail, Mileage Plan and other ancillary revenue — commonly called "unit revenue" and represents the average total revenue for flying one seat one mile.
PRASM – Passenger revenue per ASM — commonly called "passenger unit revenue."
Yield – Passenger revenue per RPM. This represents the average revenue for flying one passenger one mile.
CASM – Total operating costs per ASM. This represents all operating expenses, including fuel and special items — commonly called "unit cost."
CASMex – Operating costs excluding fuel and special items per ASM. This metric is used to help track progress toward reduction of non-fuel operating costs, since fuel costs are largely out the company’s control.
Economic fuel – Best estimate of the cash cost of fuel, net of the impact of the company’s fuel-hedging program.
Mainline – Represents flying on Alaska jets and all associated revenue and costs.
Purchased capacity flying – Represents operations whereby Horizon and, to a much lesser extent, another small carrier in the state of Alaska fly certain routes for Alaska using Horizon’s or the other carrier’s fleets.
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Bobbie Egan of Alaska Airlines, +1-206-392-5101; or Dan
Russo of Horizon Air, +1-206-392-0218; or Investors/Analysts, Shannon Alberts
of Alaska Air Group, +1-206-392-5218
Web Site: http://alaskaair.com/
