Alaska Air Group Reports First Quarter Results
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Alaska Air Group, Inc. today reported a first quarter net loss of $42.7 million, or $1.59 per diluted share, compared to a net loss of $56.3 million, or $2.12 per diluted share, in the first...
Alaska Air Group, Inc.
"The first quarter is traditionally our weakest, and this one included the added burden of high fuel prices and a severe winter storm," said Bill Ayer, chairman and CEO of Alaska Air Group. "Despite these obstacles, we narrowed our year-over-year loss by $13.6 million, or 24.2 percent. But the bottom line is that we had a sizable loss, illustrating that we still have work ahead.
"I’m encouraged, though, by the fact that we continue to move in the right direction. This marked the seventh consecutive quarter we realized year-over-year improvements in our cost structure at Alaska and the sixth of seven quarters at Horizon. One particularly gratifying aspect to the quarter was that revenues increased due largely to double-digit growth in passenger boardings at both Alaska and Horizon. That’s a strong endorsement of our value proposition — outstanding service at the right price, delivered by caring employees."
Operationally, Alaska Airlines’ passenger traffic in the first quarter increased 13.9 percent on a capacity increase of 10.0 percent. Alaska’s load factor increased 2.4 percentage points to 69.1 percent compared to the same period in 2003. Alaska’s operating revenue per available seat mile (ASM) increased 4.6 percent, while its operating cost per ASM excluding fuel decreased 1.6 percent. Alaska’s pretax loss for the quarter was $53.2 million, compared to $70.6 million in 2003. Horizon Air’s passenger traffic in the first quarter increased 26.1 percent on a 12.3 percent capacity increase. Horizon’s load factor increased by 6.9 percentage points to 65.0 percent compared to the same period in 2003. Horizon’s operating revenue per ASM decreased 0.8 percent, while its operating cost per ASM excluding fuel and impairment charges decreased 8.9 percent. The decrease in Horizon’s revenue per ASM and cost per ASM excluding fuel and impairment charge is largely due to the addition of Horizon’s contract flying for Frontier Airlines. This flying represented 16.2 percent of Horizon’s capacity during the first quarter and 7.4 percent of its passenger revenues. Horizon’s pretax loss for the quarter was $10.4 million, compared to a pretax loss of $15.3 million in 2003.
Alaska Air Group had cash and short-term investments at March 31, 2004 of approximately $830 million compared to $812 million at December 31, 2003. The increased balance primarily reflects cash generated from operations and the financing of two Alaska aircraft, partially offset by the purchase of one aircraft, capitalized overhauls and debt repayments. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 78 percent during the three months ended March 31, 2004 compared to 77 percent as of December 31, 2003.
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 6-8.
A conference call regarding the first quarter 2004 results will be simulcast via the internet at 8:30 a.m. Pacific Standard Time. It may be accessed through our website at www.alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at www.alaskaair.com.
This report may contain 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: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; our significant indebtedness; downgrades of our credit ratings; the competitive environment and other trends in our industry; changes in laws and regulations; changes in our operating costs including fuel; changes in our business plans; interest rates and the availability of financing; liability and other claims asserted against us; labor disputes; our ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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 report to conform them to actual results.
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET (unaudited)
December 31 March 31
(In Millions Except Per Share Amounts) 2003 2004
Cash and marketable securities $812 $830
Total current assets 1,148 1,232
Property and equipment-net 1,949 1,977
Other assets 162 190
Total assets $3,259 $3,399
Current liabilities 1,017 1,089
Long-term debt and capital lease
obligations 907 994
Other liabilities and credits 661 675
Shareholders' equity 674 641
Total liabilities and equity $3,259 $3,399
Alaska Air Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31
(In Millions Except Per Share Amounts) 2003 2004
Operating Revenues
Passenger $475.5 $553.3
Freight and mail 18.6 18.6
Other - net 24.6 26.5
Total Operating Revenues 518.7 598.4
Operating Expenses
Wages and benefits 227.1 242.3
Contracted services 25.7 27.1
Aircraft fuel 89.4 107.4
Aircraft maintenance 46.5 50.8
Aircraft rent 46.9 47.8
Food and beverage service 13.4 11.6
Other selling expenses and
commissions 30.5 38.4
Depreciation and amortization 32.4 36.1
Loss on sale of assets 0.1 0.4
Landing fees and other rentals 37.1 42.8
Other 47.4 49.4
Impairment of F-28 aircraft and spare
engines -- 2.4
Total Operating Expenses 596.5 656.5
Operating Loss (77.8) (58.1)
Nonoperating Income (Expense)
Interest income 0.6 4.6
Interest expense (11.1) (12.7)
Interest capitalized 0.8 0.3
Other - net (0.4) (0.3)
(10.1) (8.1)
Loss before income tax (87.9) (66.2)
Income tax benefit (31.6) (23.5)
Net Loss (56.3) (42.7)
Basic and Diluted Loss Per Share:
Net loss per share $(2.12) $(1.59)
Shares used for computation:
Basic and Diluted 26.582 26.778
Alaska Airlines Financial and Statistical Data (unaudited)
Three Months Ended March 31
%
Financial Data (in millions): 2003 2004 Change
Operating Revenues:
Passenger $387.0 $449.3 16.1%
Freight and mail 17.4 17.7 1.7%
Other - net 22.6 24.3 7.5%
Total Operating Revenues 427.0 491.3 15.1%
Operating Expenses:
Wages and benefits 188.0 200.8 6.8%
Contracted services 20.7 23.1 11.6%
Aircraft fuel 76.1 93.2 22.5%
Aircraft maintenance 37.9 43.5 14.8%
Aircraft rent 30.5 29.5 -3.3%
Food and beverage service 12.9 11.2 -13.2%
Other selling expenses and
commissions 30.1 33.9 12.6%
Depreciation and amortization 28.5 32.8 15.1%
Loss on sale of assets 0.3 0.8 NM
Landing fees and other rentals 28.7 33.2 15.7%
Other 34.1 36.9 8.2%
Total Operating Expenses 487.8 538.9 10.5%
Operating Loss (60.8) (47.6) -21.7%
Interest income 1.2 5.3
Interest expense (11.3) (10.8)
Interest capitalized 0.7 0.1
Other - net (0.4) (0.2)
(9.8) (5.6)
Loss Before Income Tax $(70.6) $(53.2) -24.6%
Operating Statistics:
Revenue passengers (000) 3,258 3,592 10.3%
RPMs (000,000) 3,143 3,580 13.9%
ASMs (000,000) 4,708 5,178 10.0%
Passenger load factor 66.7% 69.1% 2.4 pts
Breakeven load factor 80.3% 78.6% (1.7)pts
Yield per passenger mile 12.31 cents 12.55 cents 1.9%
Operating revenue per ASM 9.07 cents 9.49 cents 4.6%
Operating expenses per ASM 10.36 cents 10.41 cents 0.5%
Expense per ASM excluding fuel 8.75 cents 8.61 cents -1.6%
Fuel cost per gallon 98.1 cents 112.4 cents 14.6%
Fuel gallons (000,000) 77.6 82.9 6.8%
Average number of employees 9,988 9,984 0.0%
Aircraft utilization
(blk hrs/day) 10.3 10.4 1.0%
Operating fleet at period-end 106 108 1.9%
NM = Not Meaningful
Horizon Air Financial and Statistical Data (unaudited)
Three Months Ended March 31
%
Financial Data (in millions): 2003 2004 Change
Operating Revenues:
Passenger $94.0 $106.0 12.8%
Freight and mail 1.2 0.9 -25.0%
Other - net 3.7 3.4 -8.1%
Total Operating Revenues 98.9 110.3 11.5%
Operating Expenses:
Wages and benefits 39.1 41.5 6.1%
Contracted services 6.6 5.2 -21.2%
Aircraft fuel 13.3 14.2 6.8%
Aircraft maintenance 8.6 7.3 -15.1%
Aircraft rent 16.4 18.3 11.6%
Food and beverage service 0.5 0.4 -20.0%
Other selling expenses and
commissions 5.9 6.5 10.2%
Depreciation and amortization 3.6 3.0 -16.7%
Gain on sale of assets (0.2) (0.4) NM
Landing fees and other rentals 8.7 9.9 13.8%
Other 11.5 11.5 0.0%
Impairment of F-28 aircraft
and spare engines -- 2.4 NM
Total Operating Expenses 114.0 119.8 5.1%
Operating Loss (15.1) (9.5) -37.1%
Interest expense 0.2 (1.3)
Interest capitalized (0.5) 0.2
Other - net 0.1 0.2
(0.2) (0.9)
Loss Before Income Tax $(15.3) $(10.4) -32.0%
Operating Statistics:
Revenue passengers (000) 1,088 1,267 16.5%
RPMs (000,000) 357 450 26.1%
ASMs (000,000) 616 692 12.3%
Passenger load factor 58.1% 65.0% 6.9 pts
Breakeven load factor 68.3% 68.5% 0.2 pts
Yield per passenger mile 26.30 cents 23.57 cents -10.4%
Operating revenue per ASM 16.07 cents 15.94 cents -0.8%
Operating expenses per ASM 18.53 cents 17.30 cents -6.6%
Expense per ASM excluding
fuel and impairment charge 16.37 cents 14.91 cents -8.9%
Fuel cost per gallon * 102.0 cents 118.3 cents 16.0%
Fuel gallons (000,000) * 13.0 12.0 -7.7%
Average number of employees 3,415 3,344 -2.1%
Aircraft utilization
(blk hrs/day) 7.8 7.7 -1.3%
Operating fleet at period-end 59 64 8.5%
NM = Not Meaningful
*Excludes contract flying for Frontier Airlines
Note A:
Pursuant to Item 10 of Regulation S-K, the Company is 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 the Company’s performance both with and without the cost of aircraft fuel and the impairment charge related to Horizon’s F-28 aircraft and spare engines. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond the Company’s control, it is the Company’s view that the measurement and monitoring of performance without fuel is important. In addition, the Company believes the disclosure of financial performance without impairment charges is useful to investors in evaluating our ongoing operational performance. 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 table reconciles operating expenses excluding fuel and operating expenses per ASM excluding fuel for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.:
($ in millions) Three Months Ended March 31
2003 2004
Operating expenses $487.8 $538.9
ASMs (000,000) 4,708 5,178
Operating expenses per ASM 10.36 cents 10.41 cents
Operating expenses $487.8 $538.9
Less: aircraft fuel 76.1 93.2
Operating expense excluding fuel $411.7 $445.7
ASMs (000,000) 4,708 5,178
Operating expense per ASM excluding fuel 8.75 cents 8.61 cents
Horizon Air Industries, Inc.:
($ in millions) 2003 2004
Operating expenses $114.0 $119.8
ASMs (000,000) 616 692
Operating expenses per ASM 18.53 cents 17.30 cents
Operating expenses $114.0 $119.8
Less: aircraft fuel 13.3 14.2
impairment of F-28 aircraft and spare engines -- 2.4
Operating expense excluding fuel and
impairment charge $100.7 $103.2
ASMs (000,000) 616 692
Operating expense per ASM excluding fuel
and impairment charge 16.37 cents 14.91 cents
The following table reconciles Alaska Air Group, Inc.'s loss and loss per
share during the three months ended March 31, 2004 excluding the
impairment for F-28 aircraft and spare engines to total reported net loss.
There was no such amount in the three months ended March 31, 2003.
Three Months Ended
March 31, 2004
Dollars Loss Per Share
Net loss and loss per share excluding
impairment charges ($41.1) ($1.53)
Impairment of F-28 aircraft and spare engines (1.6) (0.06)
GAAP net loss and loss per share ($42.7) ($1.59)
SOURCE: Alaska Airlines, Inc.
CONTACT: Brad Tilden, +1-206-392-5362, or Lou Cancelmi, +1-206-392-5170,
both of Alaska Airlines, Inc.
Web site: http://www.alaska-air.com/
