Alaska Air Group Reports First Quarter Results
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Alaska Air Group, Inc. today reported a first quarter net loss of $80.5 million, or $2.39 per diluted share, compared to a net loss of $42.7 million, or $1.59 per diluted share, in the first...
Alaska Air Group, Inc.
First quarter results in 2005 include a charge of $144.7 million ($90.4 million, net of tax, or $2.73 per diluted share) resulting from the cumulative effect of a change in the way the company accounts for airframe and engine overhauls and a $7.4 million restructuring charge ($4.6 million, net of tax, or $0.13 per diluted share), primarily associated with a decision to terminate the lease at the company’s Oakland heavy maintenance base. This quarter’s results also include $90.0 million ($56.2 million, net of tax, or $1.69 per diluted share) in mark-to-market gains on fuel hedges that settle in future periods compared to $0.4 million ($0.3 million, net of tax, or $0.01 per diluted share) in 2004. Without these items, and excluding the impairment charge of $2.4 million ($1.6 million, net of tax, or $.06 per diluted share) in the first quarter of 2004, the net loss would have been $41.7 million, or $1.54 per share during the first quarter of 2005 compared to a loss of $41.4 million, or $1.54 per diluted share in the first quarter of 2004.
"Making excuses for our results would be easy based on the current environment of extremely high fuel prices, very little pricing power and a seasonally soft first quarter," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "But these realities, along with the cost reductions achieved by others in the industry, mean that we simply must have lower costs."
Alaska Airlines’ passenger traffic in the first quarter increased 8.9 percent on a capacity increase of 3.7 percent. Alaska’s load factor increased 3.5 percentage points to 72.6 percent compared to the same period in 2004. Alaska’s operating revenue per available seat mile (ASM) increased 2.6 percent, while its operating cost per ASM excluding fuel and restructuring charges decreased 0.7 percent. Alaska’s pretax income for the quarter was $15.4 million. Excluding the restructuring charges of $7.4 million and the gains on fuel hedges that settle in future periods of $77.7 million in 2005 and $0.4 million in 2004, Alaska’s pretax loss was $54.9 million for the quarter, compared to a pretax loss of $53.6 million in 2004.
Horizon Air’s passenger traffic in the first quarter increased 20 percent on a 13 percent capacity increase. Horizon’s load factor increased by 4 percentage points to 69 percent compared to the same period in 2004. Horizon’s operating revenue per ASM decreased 2.8 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 4.4 percent. The decrease in Horizon’s revenue per ASM and cost per ASM excluding fuel is largely due to the addition of Horizon’s contract flying for Frontier Airlines, which began in January 2004. This flying represented 23 percent of Horizon’s capacity during the first quarter and 10.1 percent of its passenger revenues compared to 16.2 percent of its capacity and 7.4 percent of its passenger revenues in the first quarter of 2004. Horizon’s pretax income for the quarter was $4.6 million, compared to a pretax loss of $10.4 million in 2004. Excluding gains on fuel hedges that settle in future periods of $12.3 million and the impairment charge in 2004, Horizon’s pretax loss was $7.7 million for the quarter, compared to $8.0 million in the first quarter of 2004.
Alaska Air Group had cash and short-term investments at March 31, 2005, of approximately $764 million compared to $874 million at Dec. 31, 2004.
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 following.
A conference call regarding the first quarter 2005 results will be simulcast via the Internet at 8:30 a.m. Pacific Time. It may be accessed through the company’s website 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 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: changes in our operating costs including fuel, which can be volatile; the competitive environment and other trends in our industry; our ability to meet our cost reduction goals; the outcome of the arbitration with the Air Line Pilots Association; other labor disputes; economic conditions; our reliance on automated systems; actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities; changes in laws and regulations; liability and other claims asserted against us; failure to expand our business; interest rates and the availability of financing; our ability to attract and retain qualified personnel; changes in our business plans; our significant indebtedness; downgrades of our credit ratings; and inflation. For a discussion of these and other risk factors, see Item 7 of the company’s Annual Report for the year ended Dec. 31, 2004, on Form 10-K. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
Three Months
Ended March 31
2005 2004
Operating Revenues:
Passenger $587.0 $553.3
Freight and mail 20.3 18.6
Other -- net 35.2 26.1
Total Operating Revenues 642.5 598.0
Operating Expenses:
Wages and benefits 244.7 241.8
Contracted services 30.6 27.5
Aircraft fuel 146.7 107.8
Aircraft maintenance 61.2 50.8
Aircraft rent 46.1 47.8
Food and beverage service 11.5 11.6
Other selling expenses and commissions 37.4 38.4
Depreciation and amortization 34.2 36.1
(Gain) loss on sale of assets (0.2) 0.4
Landing fees and other rentals 52.2 42.6
Other 51.6 49.3
Impairment of F-28 aircraft and spare engines -- 2.4
Restructuring charges, primarily
write off of Oakland leasehold improvements 7.4 --
Total Operating Expenses 723.4 656.5
Operating Loss (80.9) (58.5)
Nonoperating Income (Expense):
Interest income 5.9 4.6
Interest expense (14.1) (12.7)
Interest capitalized 0.8 0.3
Other -- net, including fuel hedging gains 105.3 0.1
97.9 (7.7)
Income (loss) before income tax
and accounting change 17.0 (66.2)
Income tax expense (benefit) 7.1 (23.5)
Income (loss) before accounting change $9.9 $(42.7)
Cumulative effect of accounting change,
net of tax (90.4) --
Net Loss $(80.5) $(42.7)
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change $0.36 $(1.59)
Cumulative effect of accounting change (3.33) --
Net Loss Per Share $(2.97) $(1.59)
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change $0.34 $(1.59)
Cumulative effect of accounting change (2.73) --
Net Loss Per Share $(2.39) $(1.59)
Shares Used for Computation:
Basic 27.147 26.778
Diluted 33.158 26.778
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
March 31, December 31,
(In Millions) 2005 2004
Cash and marketable securities $764 $874
Total current assets $1,234 $1,242
Property and equipment-net 1,824 1,908
Other assets 243 185
Total assets $3,301 $3,335
Current liabilities $1,056 $957
Long-term debt and capital lease obligations 980 990
Other liabilities and credits 680 723
Shareholders' equity 585 665
Total liabilities and shareholders' equity $3,301 $3,335
AlaskaAirlines Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2005 2004 Change
Operating Revenues:
Passenger $471.3 $449.3 4.9
Freight and mail 19.3 17.7 9.0
Other -- net 32.7 24.3 34.6
Total Operating Revenues 523.3 491.3 6.5
Operating Expenses:
Wages and benefits 199.7 200.8 (0.5)
Contracted services 27.8 23.1 20.3
Aircraft fuel 127.6 93.6 36.3
Aircraft maintenance 50.1 43.5 15.2
Aircraft rent 28.4 29.5 (3.7)
Food and beverage service 10.9 11.2 (2.7)
Other selling expenses and commissions 32.7 33.9 (3.5)
Depreciation and amortization 30.3 32.8 (7.6)
Loss on sale of assets -- 0.8 NM
Landing fees and other rentals 40.6 33.2 22.3
Other 38.4 36.9 4.1
Restructuring charges, primarily write
off of Oakland leasehold improvements 7.4 -- NM
Total Operating Expenses 593.9 539.3 10.1
Operating Loss (70.6) (48.0) NM
Interest income 6.3 5.3
Interest expense (11.5) (10.8)
Interest capitalized 0.7 0.1
Other -- net, including
fuel hedging gains 90.5 0.2
86.0 (5.2)
Income (Loss) Before Income Tax
and Accounting Change $15.4 $(53.2) NM
Operating Statistics:
Revenue passengers (000) 3,851 3,592 7.2
RPMs (000,000) 3,897 3,580 8.9
ASMs (000,000) 5,370 5,178 3.7
Passenger load factor 72.6% 69.1% 3.5pts
Yield per passenger mile
(in cents) 12.09 12.55 (3.7)
Operating revenue per ASM
(in cents) 9.74 9.49 2.6
Operating expenses per ASM (a)
(in cents) 11.06 10.42 6.1
Operating expense per ASM excluding
fuel and restructuring charges (a)
(in cents) 8.55 8.61 (0.7)
Raw fuel cost per gallon (a)
(in cents) 155.6 116.6 33.4
GAAP fuel cost per gallon (a)
(in cents) 151.5 112.9 34.2
Economic fuel cost per gallon (a)
(in cents) 132.9 112.9 17.7
Fuel gallons (000,000) 84.2 82.9 1.6
Average number of employees 9,219 9,984 (7.7)
Aircraft utilization (blk hrs/day) 10.7 10.4 2.9
Operating fleet at period-end 109 108 0.9
NM = Not Meaningful
(a) See Note A following.
Horizon Air Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 2005 2004 Change
Operating Revenues:
Passenger $117.7 $106.5 10.5
Freight and mail 1.0 0.9 11.1
Other -- net 2.5 2.9 (13.8)
Total Operating Revenues 121.2 110.3 9.9
Operating Expenses:
Wages and benefits 43.2 41.5 4.1
Contracted services 5.5 5.2 5.8
Aircraft fuel 19.1 14.2 34.5
Aircraft maintenance 11.1 7.3 52.1
Aircraft rent 17.7 18.3 (3.3)
Food and beverage service 0.6 0.4 50.0
Other selling expenses and commissions 6.7 6.5 3.1
Depreciation and amortization 3.6 3.0 20.0
Gain on sale of assets (0.2) (0.4) NM
Landing fees and other rentals 11.8 9.9 19.2
Other 11.5 11.5 0.0
Impairment of F-28 aircraft
and spare engines -- 2.4 NM
Total Operating Expenses 130.6 119.8 9.0
Operating Income (Loss) (9.4) (9.5) NM
Interest income 0.3 --
Interest expense (1.2) (1.3)
Interest capitalized 0.1 0.2
Other -- net, including
fuel hedging gains 14.8 0.2
14.0 (0.9)
Income (Loss) Before Income Tax
and Accounting Change $4.6 $(10.4) NM
Operating Statistics:
Revenue passengers (000) 1,475 1,267 16.4
RPMs (000,000) 540 450 20.0
ASMs (000,000) 782 692 13.0
Passenger load factor 69.0% 65.0% 4.0pts
Yield per passenger mile
(in cents) 21.82 23.67 (7.8)
Operating revenue per ASM
(in cents) 15.50 15.94 (2.8)
Operating expenses per ASM (a)
(in cents) 16.69 17.30 (3.5)
Operating expense per ASM excluding
fuel and impairment charges (a)
(in cents) 14.25 14.91 (4.4)
Raw fuel cost per gallon (a)
(in cents) 162.5 121.7 33.5
GAAP fuel cost per gallon (a)
(in cents) 158.5 117.7 34.8
Economic fuel cost per gallon (a)
(in cents) 137.7 117.7 17.0
Fuel gallons (000,000) 12.0 12.0 0.0
Average number of employees 3,363 3,344 0.6
Aircraft utilization (blk hrs/day) 8.4 7.7 8.3
Operating fleet at period-end 66 64 3.1
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), restructuring charges, and aircraft impairment
charges. 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: 2005 2004
Operating expenses $593.9 $539.3
ASMs (000,000) 5,370 5,178
Operating expenses per ASM (in cents) 11.06 10.42
Operating expenses $593.9 $539.3
Less: aircraft fuel (127.6) (93.6)
Less: restructuring charges (7.4) --
Operating expense excluding
fuel & restructuring charges $458.9 $445.7
ASMs (000,000) 5,370 5,178
Operating expenses per ASM excluding
fuel and restructuring charges (in cents) 8.55 8.61
Reconciliation to GAAP pretax income (loss):
Pretax income (loss) reported GAAP amounts $15.4 $(53.2)
Less: mark-to-market hedging gains
included in nonoperating income (expense) (77.7) (0.4)
Add: restructuring charges 7.4 --
Pretax loss excluding restructuring
charges and mark-to-market
hedging gains $(54.9) $(53.6)
Aircraft fuel reconciliations:
Three Months Ended March 31,
2005 2004
(000s) Cost/Gal (000s) Cost/Gal
Fuel expense before
hedge activities
("raw fuel") $131.0 $1.56 $96.7 $1.17
Less: gains on settled hedges
included in fuel expense (3.4) (0.04) (3.1) (0.04)
GAAP fuel expense $127.6 $1.52 $93.6 $1.13
Less: gains on settled hedges
included in nonoperating income
(expense) (15.7) (0.19) -- --
Economic fuel expense $111.9 $1.33 $93.6 $1.13
Fuel gallons (000,000) 84.2 82.9
Mark-to-market gains included in
non-operating income related to
hedges that settle in
future periods $77.7 $0.4
Horizon Air Industries, Inc.
($ in millions) Three Months Ended March 31,
Unit cost reconciliations: 2005 2004
Operating expenses $130.6 $119.8
ASMs (000,000) 782 692
Operating expenses per ASM (in cents) 16.69 17.30
Operating expenses $130.6 $119.8
Less: aircraft fuel (19.1) (14.2)
Less: impairment of aircraft and spare engines -- (2.4)
Operating expenses excluding fuel
and impairment charge $111.5 $103.2
ASMs (000,000) 782 692
Operating expenses per ASM excluding
fuel and impairment charge (in cents) 14.25 14.91
Reconciliation to GAAP pretax income (loss):
Pretax income (loss) reported GAAP amounts $4.6 $(10.4)
Less: mark-to-market hedging gains included
in nonoperating income (expense) (12.3) --
Add: impairment of aircraft and spare engines -- 2.4
Pretax loss excluding impairment charge
and mark-to-market hedging gains $(7.7) $(8.0)
Aircraft fuel reconciliations:
Three Months Ended March 31,
2005 2004
(000s) Cost/Gal (000s) Cost/Gal
Fuel expense before hedge
activities ("raw fuel") $19.5 $1.63 $14.6 $1.22
Less: gains on settled hedges
included in fuel expense (0.4) (0.04) (0.4) (0.04)
GAAP fuel expense $19.1 $1.59 $14.2 $1.18
Less: gains on settled hedges
included in nonoperating
income (expense) (2.5) (0.21) -- --
Economic fuel expense $16.6 $1.38 $14.2 $1.18
Fuel gallons (000,000) 12.0 12.0
Mark-to-market gains included in
non-operating income related to
hedges that settle in
future periods $12.3 --
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net loss and
diluted loss per share during 2005 and 2004 excluding the cumulative
effect of the accounting change, restructuring and impairment charges, and
mark-to-market gains of fuel hedges that settle in future periods, as
reported in accordance with GAAP (in millions except per share amounts):
Three Months Ended March 31,
2005 2004
Dollars Diluted EPS Dollars Diluted EPS
Net loss and diluted EPS
excluding the cumulative
effect of the accounting
change, restructuring and
impairment charges, and
mark-to-market hedging
gains * ($41.7) ($1.54) ($41.4) (1.54)
Effect of dilutive shares
and interest on
convertible bonds * NA $0.32 NA NA
Cumulative effect of
accounting change (90.4) (2.73) -- --
Mark-to-market hedging
gains, net of tax 56.2 1.69 0.3 0.01
Restructuring charges,
primarily write off of
Oakland leasehold improvements,
net of tax ( 4.6) (0.13) -- --
Impairment charges, net of tax -- -- (1.6) (0.06)
Reported GAAP amounts ($80.5) ($2.39) ($42.7) ($1.59)
*Diluted loss per share excluding the impact of the accounting change,
mark to market gain on fuel hedges, 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 assuming33.2 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,
2005 2004
Basic Earnings (Loss) Per Share:
Income (loss) before accounting change $9.9 $(42.7)
Weighted average shares outstanding 27.147 26.778
Income (loss) per share before
accounting change $0.36 $(1.59)
Cumulative effect of accounting change,
net of tax $(90.4) NA
Weighted average shares outstanding 27.147 NA
Per share cumulative effect of
accounting change $(3.33) NA
Net loss $(80.5) $(42.7)
Weighted average shares outstanding 27.147 26.778
Net loss per share $(2.97) $(1.59)
Diluted Earnings (Loss) Per Share:
Income (loss) before accounting change $9.9 $(42.7)
Interest on convertible notes, net of tax 1.2 --
Income (loss) before accounting change
for diluted calculation $11.1 $(42.7)
Weighted average shares outstanding 33.158 26.778
Income (loss) per share before
accounting change $0.34 $(1.59)
Cumulative effect of accounting change,
net of tax $(90.4) NA
Weighted average shares outstanding 33.158 NA
Per share cumulative effect of
accounting change $(2.73) NA
Net loss $(80.5) $(42.7)
Interest on convertible notes, net of tax 1.2 --
Net loss for diluted calculation $(79.3) $(42.7)
Weighted average shares outstanding 33.158 26.778
Net loss per share $(2.39) $(1.59)
Forecasted Financial Measures
During our quarterly earnings conference call, we expect to discuss
forward-looking forecasted unit cost information for 2005. 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 Horizon Air Industries, Inc.:
Horizon Air
Forecast of cost Forecast of fuel Forecast of total
per available cost per available operating cost
seat mile, seat mile per available
excluding fuel (See Note 1) seat mile, as
(cents) reported on a
GAAP basis (cents)
Second quarter 2005 13.2 2.9 16.1
Third quarter 2005 12.0 2.8 14.8
Fourth quarter 2005 12.8 2.8 15.6
Total 2005 13.0 2.8 15.8
Note 1: Our forecast of fuel costs is based on anticipated gallons
consumed and estimated fuel cost per gallon for Horizon. The estimate also
excludes the benefit from settled hedges recorded in other non-operating
income as it does not impact our operating cost per available seat mile as
presented on a GAAP basis. Given the volatility of fuel prices, readers
should be cautioned that actual fuel expense will likely differ from the
forecast above.
SOURCE: Alaska Air Group, Inc.
CONTACT: Brad Tilden, +1-206-392-5362, or Sam Sperry, +1-206-392-5038,
both of Alaska Air Group
Web site: http://www.alaskaair.com/
