Alaska Air Group Reports First Quarter Results
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Alaska Air Group, Inc. today reported a first quarter net loss of $10.3 million, or $0.26 per share, compared to a net loss of $79.1 million, or $2.36 per share, in the first quarter of 2006. The...
Alaska Air Group, Inc.
"Higher fuel costs, increased competition and a softer revenue environment in the first quarter make it imperative that we continue to drive changes to keep ticket prices affordable and attract new customers," said Bill Ayer, the company’s chairman and chief executive officer.
Alaska Airlines’ passenger traffic in the first quarter decreased 0.3 percent on a capacity increase of 2.8 percent. Load factor declined 2.3 percentage points to 71.4 percent. Alaska’s mainline operating revenue per available seat mile (ASM) increased 0.1 percent and its operating costs per ASM, excluding fuel and the transition-related impairment charge in 2006, decreased 1.3 percent. Alaska’s pretax loss for the quarter was $7.5 million, compared to a pretax loss of $124.7 million in 2006. Excluding the fuel hedging adjustments and the fleet transition charge referenced above, Alaska’s pretax loss was $14.3 million for the quarter, compared to pretax income of $7.6 million in the first quarter of 2006.
Horizon Air’s passenger traffic in the first quarter increased 1.1 percent on a 5.5 percent capacity increase. Load factor decreased by 2.9 percentage points to 67.8 percent. Horizon’s operating revenue per ASM increased 4.8 percent and its operating costs per ASM excluding fuel increased 8.0 percent. Horizon’s pretax loss for the quarter was $9.2 million, compared to a pretax loss of $0.4 million in 2006. Excluding fuel-hedging adjustments, Horizon’s pretax loss was $11.2 million for the quarter, compared to a pretax loss of $1.6 million in the first quarter of 2006.
Alaska Air Group had cash and short-term investments at March 31, 2007, of $970 million. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 73 percent at March 31, 2007.
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 11.
A conference call regarding the first quarter 2007 results will be simulcast via the Internet at 8:30 a.m. Pacific time on April 26, 2007. 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 report 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 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, 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 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; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, 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 December 31, 2006. 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. 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 sister carrier, Horizon Air, together serve 90 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 alaskaair.com/newsroom.
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
Three Months
Ended March 31
2007 2006
Operating Revenues:
Passenger $695.8 $679.5
Freight and mail 21.2 21.4
Other - net 42.4 34.5
Total Operating Revenues 759.4 735.4
Operating Expenses:
Wages and benefits 237.0 223.2
Variable incentive pay 10.5 8.5
Contracted services 38.6 36.7
Aircraft fuel, including hedging
gains and losses 184.9 163.1
Aircraft maintenance 58.5 61.2
Aircraft rent 43.3 46.6
Food and beverage service 11.2 11.5
Selling expenses 39.0 40.0
Depreciation and amortization 41.9 36.9
Landing fees and other rentals 54.7 49.0
Other 54.9 52.8
Fleet transition costs - Alaska - 131.1
Fleet transition costs - Horizon 3.0 -
Total Operating Expenses 777.5 860.6
Operating Loss (18.1) (125.2)
Nonoperating Income (Expense):
Interest income 14.4 11.1
Interest expense (21.0) (19.1)
Interest capitalized 7.1 4.7
Other - net (0.2) (0.9)
0.3 (4.2)
Loss before income tax (17.8) (129.4)
Income tax benefit (7.5) (50.3)
Net Loss $(10.3) $(79.1)
Basic and Diluted Loss Per Share $(0.26) $(2.36)
Shares Used for Computation:
Basic and Diluted 40.365 33.464
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
(In Millions) 2007 2006
Cash and marketable securities $970 $1,014
Total current assets $1,538 $1,572
Property and equipment-net 2,571 2,359
Other assets 178 146
Total assets $4,287 $4,077
Current liabilities $1,324 $1,236
Long-term debt 1,171 1,032
Other liabilities and credits 908 923
Shareholders' equity 884 886
Total liabilities and shareholders' equity $4,287 $4,077
Alaska Airlines Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2007 2006 Change
Operating Revenues:
Passenger revenue - Mainline $545.9 $536.8 1.7
Passenger revenue - Regional flying 57.3 4.4 NM
Freight and mail 20.7 20.5 1.0
Other - net 35.9 28.3 26.9
Total Operating Revenues 659.8 590.0 11.8
Operating Expenses:
Wages and benefits 187.3 175.7 6.6
Variable incentive pay 7.7 6.4 20.3
Contracted services 29.4 28.0 5.0
Regional flying costs 67.4 3.9 NM
Aircraft fuel, including hedging
gains and losses 157.6 142.0 11.0
Aircraft maintenance 34.3 44.3 (22.6)
Aircraft rent 26.3 29.3 (10.2)
Food and beverage service 10.6 10.8 (1.9)
Selling expenses 31.6 33.2 (4.8)
Depreciation and amortization 35.4 32.2 9.9
Landing fees and other rentals 41.8 38.4 8.9
Other 39.8 39.0 2.1
Fleet transition - 131.1 NM
Total Operating Expenses 669.2 714.3 (6.3)
Operating Loss (9.4) (124.3) NM
Interest income 15.9 11.8
Interest expense (20.4) (15.8)
Interest capitalized 6.3 4.3
Other - net 0.1 (0.7)
1.9 (0.4)
Loss Before Income Tax $(7.5) $(124.7) NM
Mainline Operating Statistics:
Revenue passengers (000) 3,862 3,905 (1.1)
RPMs (000,000) 4,066 4,080 (0.3)
ASMs (000,000) 5,694 5,539 2.8
Passenger load factor 71.4% 73.7% (2.3)pts
Yield per passenger mile (in cents) 13.43 13.16 2.0
Operating revenue per ASM (in cents) 10.58 10.57 0.1
Passenger revenue per ASM (in cents) 9.59 9.69 (1.1)
Operating expenses per ASM (a)
(in cents) 10.57 12.83 (17.6)
Operating expense per ASM excluding fuel
and fleet transition costs (a)
(in cents) 7.80 7.90 (1.3)
GAAP fuel cost per gallon (a) $1.87 $1.68 11.4
Economic fuel cost per gallon (a) $1.95 $1.67 16.8
Fuel gallons (000,000) 84.2 84.5 (0.4)
Average number of full-time
equivalent employees 9,542 8,988 6.2
Aircraft utilization (blk hrs/day) 10.8 11.0 (1.8)
Average aircraft stage length (miles) 917 921 (0.4)
Operating fleet at period-end 114 113 1 a/c
Regional Operating Statistics:
Revenue passengers (000) 578 13 NM
RPMs (000,000) 220 11 NM
ASMs (000,000) 316 18 NM
NM = Not Meaningful
(a) See Note A.
Horizon Air Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2007 2006 Change
Operating Revenues:
Passenger $159.4 $143.8 10.8
Freight and mail 0.5 0.9 (44.4)
Other - net 1.7 1.5 13.3
Total Operating Revenues 161.6 146.2 10.5
Operating Expenses:
Wages and benefits 48.9 46.5 5.2
Variable incentive pay 2.8 2.1 33.3
Contracted services 6.1 6.1 0.0
Aircraft fuel, including hedging
gains and losses 27.3 21.1 29.4
Aircraft maintenance 24.2 16.9 43.2
Aircraft rent 17.0 17.3 (1.7)
Food and beverage service 0.6 0.7 (14.3)
Selling expenses 7.4 8.1 (8.6)
Depreciation and amortization 6.2 4.4 40.9
Landing fees and other rentals 13.2 10.9 21.1
Other 12.8 11.8 8.5
Fleet transition 3.0 - NM
Total Operating Expenses 169.5 145.9 16.2
Operating Income (Loss) (7.9) 0.3 NM
Interest income 1.0 0.7
Interest expense (3.0) (1.8)
Interest capitalized 0.8 0.4
Other - net (0.1) -
(1.3) (0.7)
Loss Before Income Tax $(9.2) $(0.4) NM
Operating Statistics:
Revenue passengers (000) 1,609 1,594 0.9
RPMs (000,000) 627 620 1.1
ASMs (000,000) 925 877 5.5
Passenger load factor 67.8% 70.7% (2.9)pts
Yield per passenger mile (in cents) 25.42 23.19 9.6
Operating revenue per ASM (in cents) 17.47 16.67 4.8
Passenger revenue per ASM (in cents) 17.23 16.40 5.1
Operating expenses per ASM (a) (in cents) 18.32 16.64 10.1
Operating expense per ASM excluding
fuel (a) (in cents) 15.37 14.23 8.0
Operating expense per ASM excluding
fuel and fleet transition (a) (in cents) 15.05 14.23 5.8
GAAP fuel cost per gallon (a) $1.87 $1.64 14.0
Economic fuel cost per gallon (a) $2.01 $1.73 16.1
Fuel gallons (000,000) 14.6 12.9 13.2
Average number of full-time
equivalent employees 3,694 3,538 4.4
Aircraft utilization (blk hrs/day) 8.7 8.8 (1.1)
Operating fleet at period-end 71 69 2 a/c
NM = Not Meaningful
(a) See Note A.
Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate) and fleet transition costs. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without fleet transition costs is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.
The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.:
($ in millions) Three Months Ended March 31,
Unit cost reconciliations: 2007 2006
Total operating expenses $669.2 $714.3
Less: Regional flying costs (67.4) (3.9)
Mainline operating expenses 601.8 710.4
Mainline ASMs (000,000) 5,694 5,539
Mainline operating expenses per ASM (in cents) 10.57 12.83
Total operating expenses $669.2 $714.3
Less: regional flying costs (67.4) (3.9)
Less: aircraft fuel (157.6) (142.0)
Less: fleet transition costs - (131.1)
Mainline Operating expenses excluding
fuel and fleet transition costs $444.2 $437.3
Mainline ASMs (000,000) 5,694 5,539
Mainline Operating expenses per ASM
excluding fuel and fleet transition
costs (in cents) 7.80 7.90
Reconciliation to GAAP income (loss)
before taxes
Income (loss) before taxes, excluding
mark-to-market fuel hedging gains
(losses) and fleet transition costs $(14.3) $7.6
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting 6.8 (1.2)
Less: fleet transition costs - (131.1)
GAAP loss before taxes as reported $(7.5) $(124.7)
Aircraft fuel reconciliations: Three Months Ended March 31,
2007 2006
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $165.9 $1.97 $166.6 $1.98
Less: gains on settled hedges (1.5) (0.02) (25.8) (0.31)
Economic fuel expense 164.4 1.95 140.8 1.67
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting (6.8) (0.08) 1.2 0.01
GAAP fuel expense $157.6 $1.87 $142.0 $1.68
Fuel gallons (000,000) 84.2 84.5
Horizon Air Industries, Inc.
($ in millions) Three Months Ended March 31,
Unit cost reconciliations 2007 2006
Operating expenses $169.5 $145.9
ASMs (000,000) 925 877
Operating expenses per ASM (in cents) 18.32 16.64
Operating expenses $169.5 $145.9
Less: aircraft fuel (27.3) (21.1)
Operating expenses excluding fuel $142.2 $124.8
ASMs (000,000) 925 877
Operating expenses per ASM excluding
fuel (in cents) 15.37 14.23
Unit cost reconciliations-excluding
fleet transition costs
Operating expenses $169.5 $145.9
Less: aircraft fuel (27.3) (21.1)
Less: fleet transition costs (3.0) -
Operating expenses excluding fuel and
fleet transition costs $139.2 $124.8
ASMs (000,000) 925 877
Operating expenses per ASM excluding fuel
and fleet transition costs (in cents) 15.05 14.23
Reconciliation to GAAP loss before taxes
Loss before taxes, excluding mark-to-
market fuel hedging adjustments $(11.2) $(1.6)
Adjustments to reflect timing of gain or
loss recognition resulting from
mark-to-market accounting 2.0 1.2
GAAP loss before taxes as reported $(9.2) $(0.4)
Aircraft fuel reconciliations: Three Months Ended March 31,
2007 2006
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $29.6 $2.03 $26.4 $2.05
Less: gains on settled hedges (0.3) (0.02) (4.1) (0.32)
Economic fuel expense 29.3 2.01 22.3 1.73
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting (2.0) (0.14) (1.2) (0.09)
GAAP fuel expense $27.3 $1.87 $21.1 $1.64
Fuel gallons (000,000) 14.6 12.9
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.’s net income (loss) and earnings (loss) per share during 2007 and 2006 excluding adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting, and the fleet transition costs related to the impairment of MD-80 in the prior year, as reported in accordance with GAAP (in millions except per share amounts):
Three Months Ended March 31,
2007 2006
Diluted Diluted
Dollars EPS Dollars EPS
Net income (loss) and diluted EPS,
excluding mark-to-market
hedging adjustments, and Alaska
fleet transition costs $(15.8) $(0.39) $2.8 $0.08
Adjustments to reflect timing of
gain or loss recognition resulting
from mark-to-market accounting,
net of tax 5.5 0.13 - -
Alaska fleet transition costs, net
of tax - - (81.9) (2.44)
Reported GAAP amounts $(10.3) $(0.26) $(79.1) $(2.36)
Air Group Capacity Guidance:
The following table summarizes Alaska’s and Horizon’s expected change in capacity as measured in available seat miles for the rest of 2007.
Alaska Horizon
Second quarter 2007 4%-5% 10%
Third quarter 2007 3%-4% 18%
Fourth quarter 2007 6%-7% 9%
Full year 2007 4%-5% 11%
Forecasted Unit Costs
During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for 2007. 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 - Mainline
Forecast of cost Forecast Forecast of total
per available of fuel operating cost
seat mile, cost per per available
excluding fuel available seat mile, as
seat mile GAAP basis reported on a
(cents) (cents) (cents)
Second quarter 2007 7.5 3.0 10.5
Full year 2007 7.5-7.6 3.0 10.5-10.6
Horizon Air
Forecast of cost Forecast Forecast of total
per available of fuel operating cost
seat mile, cost per per available
excluding fuel available seat mile, as
seat mile GAAP basis reported on a
(cents) (cents) (cents)
Second quarter 2007 14.8 3.3 18.1
Full year 2007 14.2 3.4 17.6
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.
Air Group fuel hedge positions
Approximate % Approximate
of Expected Crude Oil
Fuel Price
Requirements per Barrel
Second quarter 2007 53% $57.31
Third quarter 2007 49% $56.98
Fourth quarter 2007 41% $59.67
First quarter 2008 36% $61.92
Second quarter 2008 29% $63.53
Third quarter 2008 21% $63.94
Fourth quarter 2008 23% $64.20
First quarter 2009 5% $67.68
Second quarter 2009 5% $67.50
Third quarter 2009 6% $68.25
Air Group operating fleet
The following table displays the currently anticipated fleet count for Alaska and Horizon as of the end of each quarter in 2007 and as of December 31, 2008:
30-Jun-07 30-Sept-07 31-Dec-07 31-Dec-08
Alaska Airlines
MD80 20 17 15 -
737-400 35 35 34 34
737-400F** 1 1 1 1
737-400C** 4 4 5 5
737-700 20 20 20 20
737-800* 22 25 29 42
737-900 12 12 12 12
Totals 114 114 116 114
Horizon Air
Q200 23 20 17 12
Q400 32 33 33 36
CRJ-700 21 20 20 20
Totals 76 73 70 68
* The total assumes Alaska will identify one airplane for delivery in
2008 from the manufacturer or a lessor.
** F=Freighter; C=Combination freighter/passenger
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: media, Amanda Tobin Bielawski, Media Relations Manager,
+1-206-392-5134, or investor/analyst, Shannon Alberts, Managing Director of
Investor Relations, +1-206-392-5218, both of Alaska Air Group, Inc.
Web site: http://www.alaskaair.com/