Alaska Air Group Reports First Quarter Results
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Alaska Air Group, Inc. today reported a first quarter net loss of $79.1 million, or $2.36 per share, compared to a net loss of $80.5 million, or $2.39 per diluted share, in the first quarter of...
Alaska Air Group, Inc.
"We’re very pleased to report an adjusted net profit for what is seasonally our weakest quarter," said Bill Ayer, chairman and chief executive officer. "Our people are working hard to provide excellent value for our customers and improve efficiency. Add to that a fare environment that allows us to recover a greater portion of our high fuel costs, and we’ve got a great start to the year."
Last month, Alaska announced that it was investing $750 million to replace its MD-80s and move to a single fleet type by the end of 2008. As a result of this strategic decision, the company wrote down the value of its owned MD-80 fleet to estimated market value, recording a non-cash charge of $131.1 million. Separately, the company expects to make cash payments totaling $130 million to $150 million to terminate MD-80 leases before the end of the lease term. These costs will be recorded in future periods. "While this investment is substantial, it represents an important step toward ensuring our long-term competitiveness," said Ayer.
Alaska Airlines’ passenger traffic in the first quarter increased 4.7 percent on a capacity increase of 3.1 percent. Alaska’s load factor increased 1.1 percentage points to 73.7 percent, compared to the same period in 2005. Alaska’s operating revenue per available seat mile (ASM) increased 9.3 percent, while its operating cost per ASM excluding fuel, impairment of aircraft and restructuring charges and adjustments decreased 6.8 percent. Alaska’s pretax loss for the quarter was $124.7 million, compared to income before taxes and the accounting change of $15.4 million in 2005. Excluding the items noted above, Alaska would have reported pretax income of $7.6 million for the quarter, compared to a pretax loss of $54.9 million in the first quarter of 2005.
Horizon Air’s passenger traffic in the first quarter increased 14.8 percent on a 12.1 percent capacity increase. Horizon’s load factor increased by 1.7 percentage points to 70.7 percent, compared to the same period in 2005. Horizon’s operating revenue per ASM increased 7.6 percent, and its operating cost per ASM excluding fuel decreased 0.1 percent. Horizon’s pretax loss for the quarter was $0.4 million, compared to income before taxes and the accounting change of $4.6 million in 2005. Excluding the mark-to-market fuel hedge adjustments, Horizon’s pretax loss was $1.6 million for the quarter, compared to $7.7 million in the first quarter of 2005.
Alaska Air Group had cash and short-term investments at March 31, 2006, of approximately $1.0 billion compared to $983 million at Dec. 31, 2005. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 76 percent as of March 31, 2006, compared to 73 percent as of Dec. 31, 2005.
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 on pages 6 through 10.
A conference call regarding the first quarter 2006 results will be simulcast via the Internet at 9:30 a.m. Pacific Time on April 20, 2006. It may 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.
This report contains forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward- looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; our inability to secure new aircraft financing; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, the market value of MD-80 aircraft, and the amounts of potential lease termination payments with lessors and sublease payments from sub lessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2005. 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 disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release to conform them to actual results.
Alaska Airlines and sister carrier, Horizon Air, together serve 88 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air newsroom at http://newsroom.alaskaair.com/ .
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
Three Months
Ended March 31
2006 2005
Operating Revenues:
Passenger $679.5 $587.0
Freight and mail 21.4 20.3
Other - net 34.5 35.2
Total Operating Revenues 735.4 642.5
Operating Expenses:
Wages and benefits 223.2 240.6
Variable incentive pay 8.5 4.1
Contracted services 36.7 30.6
Aircraft fuel, including hedging gains and losses 163.1 38.5
Aircraft maintenance 61.2 61.2
Aircraft rent 46.6 46.1
Food and beverage service 11.5 11.5
Selling expenses 40.0 37.4
Depreciation and amortization 36.9 34.2
Landing fees and other rentals 49.0 52.2
Other 52.8 51.4
Impairment of aircraft 131.1 --
Restructuring charges and adjustments -- 7.4
Total Operating Expenses 860.6 615.2
Operating Income (Loss) (125.2) 27.3
Nonoperating Income (Expense):
Interest income 11.1 5.9
Interest expense (19.1) (14.1)
Interest capitalized 4.7 0.8
Other - net (0.9) (2.9)
(4.2) (10.3)
Income (loss) before income tax and accounting change (129.4) 17.0
Income tax expense (benefit) (50.3) 7.1
Income (loss) before accounting change $(79.1) $9.9
Cumulative effect of accounting change, net of tax -- (90.4)
Net Loss $(79.1) $(80.5)
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change $(2.36) $0.36
Cumulative effect of accounting change NA (3.33)
Net Loss Per Share $(2.36) $(2.97)
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change $(2.36) $0.34
Cumulative effect of accounting change NA (2.73)
Net Loss Per Share $(2.36) $(2.39)
Shares Used for Computation:
Basic 33.464 27.147
Diluted 33.464 33.158
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
(In Millions) 2006 2005
Cash and marketable securities $1,012 $983
Total current assets $1,601 $1,540
Property and equipment-net 2,039 2,032
Other assets 248 220
Total assets $3,888 $3,792
Current liabilities $1,331 $1,165
Long-term debt and capital lease obligations 1,027 969
Other liabilities and credits 779 830
Shareholders' equity 751 828
Total liabilities and shareholders' equity $3,888 $3,792
Alaska Airlines Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2006 2005 Change
Operating Revenues:
Passenger $536.8 $471.3 13.9
Freight and mail 20.5 19.3 6.2
Other - net 32.7 32.7 0.0
Total Operating Revenues 590.0 523.3 12.7
Operating Expenses:
Wages and benefits 175.7 196.9 (10.8)
Variable incentive pay 6.4 2.8 128.6
Contracted services 31.9 27.8 14.7
Aircraft fuel, including
hedging gains and losses 142.0 34.2 315.2
Aircraft maintenance 44.3 50.1 (11.6)
Aircraft rent 29.3 28.4 3.2
Food and beverage service 10.8 10.9 (0.9)
Selling expenses 33.2 32.7 1.5
Depreciation and amortization 32.2 30.3 6.3
Landing fees and other rentals 38.4 40.6 (5.4)
Other 39.0 38.4 1.6
Impairment of aircraft 131.1 -- NM
Restructuring charges and adjustments -- 7.4 NM
Total Operating Expenses 714.3 500.5 42.7
Operating Income (Loss) (124.3) 22.8 NM
Interest income 11.8 6.3
Interest expense (15.8) (11.5)
Interest capitalized 4.3 0.7
Other - net (0.7) (2.9)
(0.4) (7.4)
Income (Loss) Before Income Tax
and Accounting Change $(124.7) $15.4 NM
Operating Statistics:
Revenue passengers (000) 3,905 3,851 1.4
RPMs (000,000) 4,080 3,897 4.7
ASMs (000,000) 5,539 5,370 3.1
Passenger load factor 73.7% 72.6% 1.1pts
Yield per passenger mile (in cents) 13.16 12.09 8.8
Operating revenue per ASM (in cents) 10.65 9.74 9.3
Operating expenses per ASM (a) (in cents) 12.90 9.32 38.4
Operating expense per ASM excluding fuel,
impairment of aircraft, and restructuring
charges and adjustments (a) (in cents) 7.97 8.55 (6.8)
GAAP fuel cost per gallon (a) $1.68 $0.41 313.7
Economic fuel cost per gallon (a) $1.67 $1.33 25.4
Fuel gallons (000,000) 84.5 84.2 0.4
Average number of full-time
equivalent employees 8,988 9,219 (2.5)
Aircraft utilization (blk hrs/day) 11.0 10.7 2.8
Average aircraft stage length (miles) 921 897 2.7
Operating fleet at period-end 113 109 3.7
NM = Not Meaningful
(a) See Note A following.
Horizon Air Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2006 2005 Change
Operating Revenues:
Passenger $143.8 $117.7 22.2
Freight and mail 0.9 1.0 (10.0)
Other - net 1.5 2.5 (40.0)
Total Operating Revenues 146.2 121.2 20.6
Operating Expenses:
Wages and benefits 46.5 41.9 11.0
Variable incentive pay 2.1 1.3 61.5
Contracted services 6.1 5.5 10.9
Aircraft fuel, including
hedging gains and losses 21.1 4.3 390.7
Aircraft maintenance 16.9 11.1 52.3
Aircraft rent 17.3 17.7 (2.3)
Food and beverage service 0.7 0.6 16.7
Selling expenses 8.1 6.7 20.9
Depreciation and amortization 4.4 3.6 22.2
Landing fees and other rentals 10.9 11.8 (7.6)
Other 11.8 11.3 4.4
Total Operating Expenses 145.9 115.8 26.0
Operating Income 0.3 5.4 NM
Interest income 0.7 0.3
Interest expense (1.8) (1.2)
Interest capitalized 0.4 0.1
Other - net -- --
(0.7) (0.8)
Income (Loss) Before Income Tax
and Accounting Change $(0.4) $4.6 NM
Operating Statistics:
Revenue passengers (000) 1,594 1,475 8.1
RPMs (000,000) 620 540 14.8
ASMs (000,000) 877 782 12.1
Passenger load factor 70.7% 69.0% 1.7pts
Yield per passenger mile (in cents) 23.19 21.82 6.3
Operating revenue per ASM (in cents) 16.67 15.50 7.6
Operating expenses per ASM (a) (in cents) 16.64 14.80 12.4
Operating expense per ASM
excluding fuel (a) (in cents) 14.23 14.25 (0.1)
GAAP fuel cost per gallon (a) $1.64 $0.36 356.5
Economic fuel cost per gallon (a) $1.73 $1.38 25.4
Fuel gallons (000,000) 12.9 12.0 7.5
Average number of full-time
equivalent employees 3,538 3,363 5.2
Aircraft utilization (blk hrs/day) 8.8 8.4 4.8
Operating fleet at period-end 69 66 4.5
NM = Not Meaningful
(a) See Note A following.
Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the
reconciliation of reported non-GAAP financial measures to their most
directly comparable financial measures reported on a GAAP basis. The non-
GAAP financial measures provide management the ability to measure and
monitor performance both with and without the cost of aircraft fuel
(including the gains and losses associated with our fuel hedging program
where appropriate), aircraft impairment charges, and restructuring charges
and adjustments. Because the cost and availability of aircraft fuel are
subject to many economic and political factors beyond our control and we
record changes in the fair value of our hedge portfolio in our income
statement, it is our view that the measurement and monitoring of
performance without fuel is important. In addition, we believe the
disclosure of financial performance without impairment and restructuring
charges is useful to investors. Finally, these non-GAAP financial measures
are also more comparable to financial measures reported to the Department
of Transportation by other major network airlines.
The following tables reconcile our non-GAAP financial measures to the most
directly comparable GAAP financial measures for both Alaska Airlines, Inc.
and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.:
($ in millions) Three Months Ended March 31,
Unit cost reconciliations: 2006 2005
Operating expenses $714.3 $500.5
ASMs (000,000) 5,539 5,370
Operating expenses per ASM (in cents) 12.90 9.32
Operating expenses $714.3 $500.5
Less: aircraft fuel (142.0) (34.2)
Less: impairment of aircraft (131.1) --
Less: restructuring charges
and adjustments -- (7.4)
Operating expenses excluding fuel,
impairment of aircraft, and
restructuring charges
and adjustments $441.2 $458.9
ASMs (000,000) 5,539 5,370
Operating expenses per ASM
excluding fuel, impairment of
aircraft, and restructuring
charges and adjustments (in cents) 7.97 8.55
Reconciliation to GAAP income (loss)
before taxes and accounting change:
Income (loss) before taxes and
accounting change, excluding
mark-to-market hedging gains
(losses), impairment of aircraft,
and restructuring charges
and adjustments $7.6 $(54.9)
Mark-to-market hedging gains
(losses) included in aircraft fuel (1.2) 77.7
Less: impairment of aircraft (131.1) --
Less: restructuring charges
and adjustments -- (7.4)
GAAP income (loss) before taxes
and accounting change as reported $(124.7) $15.4
Aircraft fuel reconciliations:*
Three Months Ended March 31,
2006 2005
(000s) Cost/Gal (000s) Cost/Gal
GAAP fuel expense** $142.0 $1.68 $34.2 $0.41
Add: mark-to-market gains (losses)
related to hedges that settle in
future periods, net of the
reclassification of previously
recorded mark-to-market gains
on settled hedges (1.2) (0.01) 77.7 0.92
Economic fuel expense $140.8 $1.67 $111.9 $1.33
Fuel gallons (000,000) 84.5 84.2
* Beginning this quarter, the Company is recording all fuel hedging
activity, including mark-to-market gains and losses, in aircraft fuel
expense. Prior year amounts have been reclassified for consistency.
** Includes $25.8 million and $19.1 million in 2006 and 2005,
respectively, of gains on hedges that settled during the reported period.
Horizon Air Industries, Inc.
($ in millions) Three Months Ended March 31,
Unit cost reconciliations: 2006 2005
Operating expenses $145.9 $115.8
ASMs (000,000) 877 782
Operating expenses per ASM (in cents) 16.64 14.80
Operating expenses $145.9 $115.8
Less: aircraft fuel (21.1) (4.3)
Operating expenses excluding fuel $124.8 $111.5
ASMs (000,000) 877 782
Operating expenses per ASM
excluding fuel (in cents) 14.23 14.25
Reconciliation to GAAP income (loss)
before taxes and accounting
change: Income (loss) before
taxes and accounting change,
excluding mark-to-market hedging
gains (losses) $(1.6) $(7.7)
Mark-to-market hedging gains (losses)
included in aircraft fuel 1.2 12.3
GAAP income (loss) before taxes
and accounting change as reported $(0.4) $4.6
Aircraft fuel reconciliations:*
Three Months Ended March 31,
2006 2005
(000s) Cost/Gal (000s) Cost/Gal
GAAP fuel expense** $21.1 $1.64 $4.3 $0.36
Add: mark-to-market gains related
to hedges that settle in future
periods, net of the reclassification
of previously recorded mark-to-market
gains on settled hedges 1.2 0.09 12.3 1.02
Economic fuel expense $22.3 $1.73 $16.6 $1.38
Fuel gallons (000,000) 12.9 12.0
* Beginning this quarter, the Company is recording all fuel hedging
activity, including mark-to-market gains and losses, in aircraft fuel
expense. Prior year amounts have been reclassified for consistency.
** Includes $4.2 million and $2.9 million in 2006 and 2005, respectively,
of gains on hedges that settled during the reported period.
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net income (loss)
and earnings per share during 2006 and 2005 excluding the cumulative
effect of the accounting change, mark-to-market hedging gains net of
related reclassifications, impairment of aircraft, and restructuring
charges and adjustments, as reported in accordance with GAAP (in millions
except per share amounts):
Three Months Ended March 31,
2006 2005
Dollars Diluted EPS Dollars Diluted EPS
Net income (loss) and diluted
EPS excluding the cumulative
effect of the accounting
change, mark-to-market
hedging gains, impairment
of aircraft and restructuring
charges and adjustments * $2.8 $0.08 $(41.7) $(1.54)
Effect of dilutive shares and
interest on convertible bonds * -- -- NA 0.32
Cumulative effect of
accounting change, net of tax -- -- (90.4) (2.73)
Mark-to-market hedging gains,
net of tax -- -- 56.2 1.69
Impairment of aircraft,
net of tax (81.9) (2.44) -- --
Restructuring charges and
adjustments, net of tax -- -- (4.6) (0.13)
Reported GAAP amounts $(79.1) $(2.36) $(80.5) $(2.39)
*For the three months ended March 31, 2005, diluted loss per share
excluding the impact of the accounting change, mark-to-market hedging
gains, restructuring and impairment charges has been calculated using the
weighted average number of shares oustanding (27.1 million at March 31,
2005). This share count excludes the dilutive impact of stock awards and
the contingently convertible senior notes as the impact would have been
antidilutive (and thus excluded) if calculated based on a net loss of
$41.7 million.
In order to reconcile the diluted loss per share to the GAAP loss per
share, the table above includes $0.32, which represents the impact of the
additional shares that were used in the GAAP loss per share as well as
$1.2 million of interest, net of tax, on the contingently convertible
senior notes added back to earnings in order to derive the loss per share
in accordance with GAAP.
The per share impact of the change in accounting, mark-to-market gain on
fuel hedges, restructuring and impairment charges have been presented in
the table above assuming 33.2 million fully diluted shares outstanding.
The following table summarizes Alaska Air Group, Inc.'s basic and diluted
per share calculations for earnings before the accounting change and net
loss (in millions except per share amounts):
Three Months Ended March 31,
2006 2005
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change $(79.1) $9.9
Weighted average shares outstanding 33.464 27.147
Income (loss) per share before
accounting change $(2.36) $0.36
Cumulative effect of accounting
change, net of tax NA $(90.4)
Weighted average shares outstanding NA 27.147
Per share cumulative effect of
accounting change NA $(3.33)
Net loss $(79.1) $(80.5)
Weighted average shares outstanding 33.464 27.147
Net loss per share $(2.36) $(2.97)
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change $(79.1) $9.9
Interest on convertible notes, net of tax NA 1.2
Income (loss) before accounting change
for diluted calculation $(79.1) $11.1
Weighted average shares outstanding 33.464 33.158
Income (loss) per share before
accounting change $(2.36) $0.34
Cumulative effect of accounting change,
net of tax NA $(90.4)
Weighted average shares outstanding NA 33.158
Per share cumulative effect of
accounting change NA $(2.73)
Net loss $(79.1) $(80.5)
Interest on convertible notes, net of tax NA 1.2
Net loss for diluted calculation $(79.1) $(79.3)
Weighted average shares outstanding 33.464 33.158
Net loss per share $(2.36) $(2.39)
Forecasted Financial Measures
During our quarterly earnings conference call, we expect to discuss
forward-looking forecasted unit cost information for 2006. This forecasted
unit cost information includes non-GAAP unit cost estimates which are
summarized in the following table together with the most directly
comparable GAAP unit cost for both Alaska Airlines, Inc. and Horizon Air
Industries, Inc.:
Alaska Airlines Horizon Air
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Forecast Forecast
of total of total
operating operating
Forecast of cost per Forecast of cost per
cost per available cost per available
available Forecast of seat mile, available Forecast of seat mile,
seat mile, fuel cost as reported seat mile, fuel cost as reported
excluding per available on a GAAP excluding per available on a
fuel seat mile basis fuel seat mile GAAP basis
(cents) (See Note 1) (cents) (cents) (See Note 1) (cents)
Second
quarter
2006 7.9 2.8 10.7 14.1 3.0 17.1
Third
quarter
2006 7.5 3.0 10.5 13.7 3.3 17.0
Fourth
quarter
2006 7.5 3.1 10.6 14.4 3.4 17.8
Note 1: Our forecast of fuel costs is based on anticipated gallons
consumed and estimated fuel cost per gallon. The estimate also includes
the expected benefit from settled hedges. Given the volatility of fuel
prices and the mark-to-market adjustments on our fuel hedge portfolio,
readers should be cautioned that actual fuel expense will likely differ
from the forecast above.
SOURCE: Alaska Airlines
CONTACT: Brad Tilden, +1-206-392-5362, or Caroline Boren,
+1-206-392-5799, both of Alaska Air Group
Web site: http://www.alaskaair.com/