Alaska Air Group Reports Record Adjusted Fourth Quarter 2013 And Full-Year Results January 23, 2014 Alaska Airlines 31 min read Share Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window) Financial Highlights: Record fourth quarter net income, excluding special items, of $77 million, or $1.10 per diluted share, compared to $50 million, or $0.70 per diluted share in 2012. This... SEATTLE, Jan. 23, 2014 /PRNewswire/ — Financial Highlights: Record fourth quarter net income, excluding special items, of $77 million, or $1.10 per diluted share, compared to $50 million, or $0.70 per diluted share in 2012. This quarter's results compare to a First Call analyst consensus estimate of $1.07 per share. Record full-year net income, excluding special items, of $383 million, or $5.40 per diluted share, compared to $339 million, or $4.73 per diluted share in 2012. Net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $78 million, or $1.11 per diluted share, compared to net income of $44 million, or $0.61 per diluted share in 2012. Full-year GAAP net income of $508 million, or $7.16 per diluted share, compared to net income of $316 million, or $4.40 per diluted share in 2012. Air Group employees earned $105 million in incentive pay in 2013, or nearly five weeks of pay for most employees. Over the last four years, employees have earned more than $357 million in incentive pay, averaging 8.8% of annual pay for most employees. Achieved return on invested capital of 13.6% in 2013, compared to 13% in 2012. Lowered adjusted debt-to-total capitalization ratio to 35% as of Dec. 31, 2013. Fully funded the company's defined benefit pension plans in 2013. Held $1.3 billion in unrestricted cash and marketable securities as of Dec. 31, 2013. Repurchased 2,492,093 shares of common stock for approximately $159 million in 2013. Since 2007, Air Group has used $478 million to repurchase 21 million shares. Modified affinity card agreement with Bank of America and extended through 2017, estimated to generate $55 million in additional cash flows annually. Received a credit rating upgrade from Standard and Poor's to "BB+" with a stable outlook. Other Highlights and Achievements: Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power for the sixth year in a row. Ranked as the best U.S. major airline by The Wall Street Journal's "Middle Seat" scorecard. Named Airline Industry Leader in the 2013 Temkin Customer Service Rankings. Held the top spot in U.S. Department of Transportation on-time performance among major U.S. airlines for the 12 months ended November 2013. Alaska Airlines received the FAA's "Diamond Certificate of Excellence" award for the 12th consecutive year; and Horizon Air received the certificate for the 12th time in the last 14 years. Improved employee productivity in 2013 by 4.0% compared to 2012. Signed five-year collective bargaining agreements with Alaska pilots and Horizon flight attendants. Named most fuel-efficient airline in the U.S. in a report released by the International Council on Clean Transportation. Donated $7.6 million to more than 1,300 charitable organizations, including support for the grand opening of Aviation High School in Seattle and other educational efforts. Our employees also volunteered more than 10,500 hours of community service. Signed an exclusive multi-year partnership with Seattle Seahawks quarterback, Russell Wilson, and named him our "Chief Football Officer." New routes: New routes launched and announced in the fourth quarter are as follows: New Nonstop Routes Launched in Q4 New Nonstop Routes (Launch Date) Seattle – Colorado Springs Portland – Salt Lake City (6/9/14) Portland – Tucson San Diego – Salt Lake City (6/10/14) Portland – Boise Los Angeles – Salt Lake City (6/11/14) San Diego – Boise San Jose – Salt Lake City (6/12/14) Seattle – Omaha Boise – Salt Lake City (6/16/14) Portland – Reno Las Vegas – Salt Lake City (6/16/14) Seattle – Steamboat Springs San Francisco – Salt Lake City (6/18/14) Anchorage – Phoenix Anchorage – Las Vegas San Diego – Mammoth Lakes Alaska Air Group Inc. (NYSE: ALK) today reported fourth quarter 2013 GAAP net income of $78 million, or $1.11 per diluted share, compared to GAAP net income of $44 million, or $0.61 per diluted share in 2012. Excluding mark-to-market fuel hedge gains of $2 million ($1 million after tax, or $0.01 per diluted share), the company reported record fourth quarter 2013 net income of $77 million, or $1.10 per diluted share, compared to net income excluding mark-to-market fuel hedge losses of $50 million, or $0.70 per diluted share, in 2012. The company reported full-year 2013 GAAP net income of $508 million, compared to $316 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $383 million, or $5.40 per diluted share for 2013, compared to net income of $339 million, or $4.73 per diluted share in 2012. This marks the fourth year in a row the company has exceeded its goal of a 10 percent return on invested capital. "Award-winning customer service, industry-leading on-time performance, and solid execution by our outstanding people led us to our best year ever," CEO Brad Tilden said. "We're proud of our record profitability and of the record bonus of more than a month's pay that each of our people will receive next month. And we're grateful to our customers for their loyalty. We know that in this highly competitive industry, we must earn their business every day, every flight." The following table reconciles the company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2013 and 2012 to amounts as reported in accordance with GAAP: Three Months Ended Dec. 31, 2013 2012 (in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS Reported GAAP net income $ 78 $ 1.11 $ 44 $ 0.61 Mark-to-market fuel hedge adjustments, net of tax (1) (0.01) 6 0.09 Non-GAAP adjusted income and per share amounts $ 77 $ 1.10 $ 50 $ 0.70 12 Months Ended Dec. 31, 2013 2012 (in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS Reported GAAP net income $ 508 $ 7.16 $ 316 $ 4.40 Mark-to-market fuel hedge adjustments, net of tax (5) (0.06) 23 0.33 Special mileage plan revenue, net of tax $ (120) $ (1.70) $ — $ — Non-GAAP adjusted income and per share amounts $ 383 $ 5.40 $ 339 $ 4.73 Statistical data, 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 on the last page of this release. A conference call regarding the fourth quarter and full year results will be simulcast via the Internet at 9:30 a.m. Pacific time on Jan. 23, 2014. It can be accessed through the company's website at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call. 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 December 31, 2012. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, 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, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves nearly 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates North America Airline Satisfaction StudySM for six consecutive years from 2008 to 2013. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines Newsroom at www.alaskaair.com/newsroom. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Alaska Air Group, Inc. Three Months Ended Dec. 31, 12 Months Ended Dec. 31, (in millions, except per share amounts) 2013 2012 Change 2013 2012 Change Operating Revenues: Passenger Mainline $ 839 $ 793 6% $ 3,490 $ 3,284 6% Regional 195 188 4% 777 746 4% Total passenger revenue 1,034 981 5% 4,267 4,030 6% Freight and mail 25 26 (4)% 113 111 2% Other – net 151 125 21% 584 516 13% Special mileage plan revenue — — NM 192 — NM Total Operating Revenues 1,210 1,132 7% 5,156 4,657 11% Operating Expenses: Wages and benefits 280 267 5% 1,086 1,038 5% Variable incentive pay 37 27 37% 105 88 19% Aircraft fuel, including hedging gains and losses 352 372 (5)% 1,467 1,459 1% Aircraft maintenance 60 61 (2)% 247 222 11% Aircraft rent 30 30 — 119 116 3% Landing fees and other rentals 55 59 (7)% 262 243 8% Contracted services 60 51 18% 221 200 11% Selling expenses 42 37 14% 179 168 7% Depreciation and amortization 67 69 (3)% 270 264 2% Food and beverage service 21 21 — 84 79 6% Other 76 64 19% 278 248 12% Total Operating Expenses 1,080 1,058 2% 4,318 4,125 5% Operating Income 130 74 76% 838 532 58% Nonoperating Income (Expense): Interest income 4 5 18 19 Interest expense (14) (15) (56) (64) Interest capitalized 6 5 21 18 Other – net (1) 3 (5) 9 (5) (2) (22) (18) Income Before Income Tax 125 72 74% 816 514 59% Income tax expense 47 28 308 198 Net Income $ 78 $ 44 77% $ 508 $ 316 61% Basic Earnings Per Share: $ 1.12 $ 0.62 $ 7.26 $ 4.47 Diluted Earnings Per Share: $ 1.11 $ 0.61 $ 7.16 $ 4.40 Shares Used for Computation: Basic 69.335 71.112 69.955 70.708 Diluted 70.242 72.149 70.939 71.784 Cash dividend declared per share $ 0.20 — $ 0.40 — NM – Not Meaningful CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) Alaska Air Group, Inc. (in millions) Dec. 31, 2013 Dec. 31, 2012 Cash and marketable securities $ 1,330 $ 1,252 Total current assets 1,762 1,737 Property and equipment-net 3,893 3,609 Other assets 183 159 Total assets $ 5,838 $ 5,505 Air traffic liability 564 534 Current portion of long-term debt 117 161 Other current liabilities 899 806 Current liabilities $ 1,580 $ 1,501 Long-term debt 754 871 Other liabilities and credits 1,475 1,712 Shareholders' equity 2,029 1,421 Total liabilities and shareholders' equity $ 5,838 $ 5,505 Debt to Capitalization, adjusted for operating leases(a) 35%:65% 48%:52% Number of common shares outstanding 68.746 70.377 (a) Calculated using the present value of remaining aircraft lease payments. OPERATING STATISTICS SUMMARY (unaudited) Alaska Air Group, Inc. Three Months Ended Dec. 31, 12 Months Ended Dec. 31, 2013 2012 Change 2013 2012 Change Consolidated Operating Statistics:(a) Revenue passengers (000) 6,694 6,387 4.8% 27,414 25,896 5.9% RPMs (000,000) "traffic" 6,980 6,720 3.9% 28,833 27,007 6.8% ASMs (000,000) "capacity" 8,275 7,870 5.1% 33,672 31,428 7.1% Load factor 84.4% 85.4% (1.0) pts 85.6% 85.9% (0.3) pts Yield 14.80¢ 14.59¢ 1.4% 14.80¢ 14.92¢ (0.8)% PRASM 12.49¢ 12.46¢ 0.2% 12.67¢ 12.82¢ (1.2)% RASM 14.62¢ 14.39¢ 1.6% 14.74¢ 14.82¢ (0.5)% CASM excluding fuel and fleet transition costs(b) 8.81¢ 8.72¢ 1.0% 8.47¢ 8.48¢ (0.1)% Economic fuel cost per gallon(c) $3.21 $3.43 (6.4)% $3.30 $3.37 (2.1)% Fuel gallons (000,000) 110 105 4.8% 447 422 5.9% Average number of full-time equivalent employees 12,284 11,984 2.5% 12,163 11,955 1.7% Mainline Operating Statistics: Revenue passengers (000) 4,764 4,513 5.5% 19,737 18,526 6.5% RPMs (000,000) "traffic" 6,308 6,065 4.0% 26,172 24,417 7.2% ASMs (000,000) "capacity" 7,438 7,056 5.4% 30,411 28,180 7.9% Load factor 84.8% 86.0% (1.2) pts 86.1% 86.6% (0.5) pts Yield 13.29¢ 13.08¢ 1.6% 13.33¢ 13.45¢ (0.9)% PRASM 11.27¢ 11.24¢ 0.3% 11.48¢ 11.65¢ (1.5)% RASM 13.40¢ 13.15¢ 1.9% 13.52¢ 13.62¢ (0.7)% CASM excluding fuel(b) 7.91¢ 7.77¢ 1.8% 7.54¢ 7.56¢ (0.3)% Economic fuel cost per gallon(c) $3.21 $3.43 (6.4)% $3.30 $3.36 (1.8)% Fuel gallons (000,000) 96 92 4.2% 393 368 6.8% Average number of full-time equivalent employees 9,519 9,228 3.2% 9,493 9,178 3.4% Aircraft utilization 10.1 10.5 (3.8)% 10.6 10.7 (0.9)% Average aircraft stage length 1,177 1,189 (1.0)% 1,177 1,161 1.4% Mainline operating fleet 131 124 7 a/c 131 124 7 a/c Regional Operating Statistics:(d) Revenue passengers (000) 1,930 1,873 3.0% 7,677 7,371 4.2% RPMs (000,000) "traffic" 673 655 2.7% 2,661 2,590 2.7% ASMs (000,000) "capacity" 837 814 2.8% 3,261 3,247 0.4% Load factor 80.4% 80.4% — 81.6% 79.8% 1.8 pts Yield 28.99¢ 28.64¢ 1.2% 29.20¢ 28.81¢ 1.4% PRASM 23.32¢ 23.03¢ 1.3% 23.83¢ 22.98¢ 3.7% Operating fleet (Horizon only) 51 48 3 a/c 51 48 3 a/c (a) Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements. (b) See a reconciliation of this non-GAAP measure and Note A for a discussion of why these measures may be important to investors in the accompanying pages. (c) See a reconciliation of economic fuel cost in the accompanying pages. (d) Data presented includes information related to flights operated by Horizon Air and third-party carriers. OPERATING SEGMENTS (unaudited) Alaska Air Group, Inc. Three Months Ended Dec. 31, 2013 Alaska (in millions) Mainline Regional Horizon Consolidating Air Group Adjusted(a) Special Items(b) Consolidated Operating revenues Passenger Mainline $ 839 $ — $ — $ — $ 839 $ — $ 839 Regional — 195 — — 195 — 195 Total passenger revenues 839 195 — — 1,034 — 1,034 Revenue from CPA with Alaska — — 94 (94) — — — Freight and mail 24 1 — — 25 — 25 Other-net 133 17 1 — 151 — 151 Total operating revenues 996 213 95 (94) 1,210 — 1,210 Operating expenses Operating expenses, excluding fuel 589 145 88 (94) 728 — 728 Economic fuel 307 47 — — 354 (2) 352 Total operating expenses 896 192 88 (94) 1,082 (2) 1,080 Nonoperating income (expense) Interest income 4 — — — 4 — 4 Interest expense (8) — (4) (2) (14) — (14) Other 6 (3) 1 1 5 — 5 2 (3) (3) (1) (5) — (5) Income (loss) before income tax $ 102 $ 18 $ 4 $ (1) $ 123 $ 2 $ 125 Three Months Ended Dec. 31, 2012 Alaska (in millions) Mainline Regional Horizon Consolidating Air Group Adjusted(a) Special Items(b) Consolidated Operating revenues Passenger Mainline $ 793 $ — $ — $ — $ 793 $ — $ 793 Regional — 188 — — 188 — 188 Total passenger revenues 793 188 — — 981 — 981 Revenue from CPA with Alaska — — 97 (97) — — — Freight and mail 25 1 — — 26 — 26 Other-net 110 14 1 — 125 — 125 Total operating revenues 928 203 98 (97) 1,132 — 1,132 Operating expenses Operating expenses, excluding fuel 548 145 90 (97) 686 — 686 Economic fuel 315 47 — — 362 10 372 Total operating expenses 863 192 90 (97) 1,048 10 1,058 Nonoperating income (expense) Interest income 5 — — — 5 — 5 Interest expense (11) — (4) — (15) — (15) Other 8 — 1 (1) 8 — 8 2 — (3) (1) (2) — (2) Income (loss) before income tax $ 67 $ 11 $ 5 $ (1) $ 82 $ (10) $ 72 OPERATING SEGMENTS (unaudited) Alaska Air Group, Inc. 12 Months Ended Dec. 31, 2013 Alaska (in millions) Mainline Regional Horizon Consolidating Air Group Adjusted(a) Special Items(b) Consolidated Operating revenues Passenger Mainline $ 3,490 $ — $ — $ — $ 3,490 $ — $ 3,490 Regional — 777 — — 777 — 777 Total passenger revenues 3,490 777 — — 4,267 — 4,267 Revenue from CPA with Alaska — — 368 (368) — — — Freight and mail 109 4 — 113 — 113 Other-net 513 66 5 584 192 776 Total operating revenues 4,112 847 373 (368) 4,964 192 5,156 Operating expenses Operating expenses, excluding fuel 2,293 585 341 (368) 2,851 — 2,851 Economic fuel 1,294 181 — — 1,475 (8) 1,467 Total operating expenses 3,587 766 341 (368) 4,326 (8) 4,318 Nonoperating income (expense) Interest income 18 — — — 18 — 18 Interest expense (38) — (14) (4) (56) — (56) Other 25 (12) 2 1 16 — 16 5 (12) (12) (3) (22) — (22) Income (loss) before income tax $ 530 $ 69 $ 20 $ (3) $ 616 $ 200 $ 816 12 Months Ended Dec. 31, 2012 Alaska (in millions) Mainline Regional Horizon Consolidating Air Group Adjusted(a) Special Items(b) Consolidated Operating revenues Passenger Mainline $ 3,284 $ — $ — $ — $ 3,284 $ — $ 3,284 Regional — 746 — — 746 — 746 Total passenger revenues 3,284 746 — — 4,030 — 4,030 Revenue from CPA with Alaska — — 369 (369) — — — Freight and mail 107 4 — — 111 — 111 Other-net 448 61 7 — 516 — 516 Total operating revenues 3,839 811 376 (369) 4,657 — 4,657 Operating expenses Operating expenses, excluding fuel 2,131 566 338 (369) 2,666 — 2,666 Economic fuel 1,238 183 — — 1,421 38 1,459 Total operating expenses 3,369 749 338 (369) 4,087 38 4,125 Nonoperating income (expense) Interest income 19 — — — 19 — 19 Interest expense (47) — (16) (1) (64) — (64) Other 24 — 2 1 27 — 27 (4) — (14) — (18) — (18) Income (loss) before income tax $ 466 $ 62 $ 24 $ — $ 552 $ (38) $ 514 (a) The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain charges. See Note A for further information in the accompanying pages. (b) Includes accounting adjustments related to special mileage plan revenue, and mark-to-market fuel-hedge accounting charges. Alaska Air Group, Inc. RASM RECONCILIATION (unaudited) Three Months Ended Dec. 31, 12 Months Ended Dec. 31, (in millions) 2013 2012 2013 2012 Total operating revenues $ 1,210 $ 1,132 $ 5,156 $ 4,657 Less: special mileage plan revenue — — 192 — Adjusted Revenue $ 1,210 $ 1,132 $ 4,964 $ 4,657 Consolidated ASMs 8,275 7,870 33,672 31,428 RASM 14.62¢ 14.39¢ 14.74¢ 14.82¢ CASM EXCLUDING FUEL RECONCILIATION (unaudited) Three Months Ended Dec. 31, 12 Months Ended Dec. 31, (in cents) 2013 2012 2013 2012 Consolidated: CASM 13.05¢ 13.44¢ 12.82¢ 13.12¢ Less the following components: Aircraft fuel, including hedging gains and losses 4.24 4.72 4.35 4.64 CASM excluding fuel 8.81¢ 8.72¢ 8.47¢ 8.48¢ Mainline: CASM 12.02¢ 12.38¢ 11.77¢ 12.09¢ Less the following components: Aircraft fuel, including hedging gains and losses 4.11 4.61 4.23 4.53 CASM excluding fuel 7.91¢ 7.77¢ 7.54¢ 7.56¢ FUEL RECONCILIATIONS (unaudited) Alaska Air Group, Inc. Three Months Ended Dec. 31, 2013 2012 (in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $ 347 $ 3.15 $ 351 $ 3.33 Losses on settled hedges 6 0.06 11 0.10 Consolidated economic fuel expense $ 354 $ 3.21 $ 362 $ 3.43 Mark-to-market fuel hedge adjustments (2) (0.01) 10 0.10 GAAP fuel expense $ 352 $ 3.20 $ 372 $ 3.53 Fuel gallons 110 105 12 Months Ended Dec. 31, 2013 2012 (in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $ 1,423 $ 3.19 $ 1,397 $ 3.31 Losses on settled hedges 52 0.11 24 0.06 Consolidated economic fuel expense $ 1,475 $ 3.30 $ 1,421 $ 3.37 Mark-to-market fuel hedge adjustments (8) (0.02) 38 0.09 GAAP fuel expense $ 1,467 $ 3.28 $ 1,459 $ 3.46 Fuel gallons 447 422 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 these non-GAAP financial measures may be important to investors for the following reasons: By eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations without the consideration of accounting changes or 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. Operating revenue per ASM (RASM) excludes a favorable, one-time "special" revenue item of $192 million primarily related to our modified affinity card agreement with Bank of America, executed in July 2013. In accordance with accounting standards, we recorded this one-time special revenue item in the the third quarter of 2013. This is purely an accounting change and the current period results do not reflect the economics of the agreement; rather it reflects a non-cash adjustment of the value of miles outstanding in the program. We believe it is appropriate to exclude this special revenue item from recurring revenues from operations. Cost per ASM (CASM) excluding fuel and certain special items is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance. Adjusted Income before Income Taxes and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan that covers all Air Group employees. CASM 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 fleet transition costs or special revenues, 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 passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total 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. Note B: Air Group has two operating airlines – Alaska Airlines and Horizon Air. Each is a regulated airline with separately managed operations. To manage the two operating airlines, management views the business in three operating segments. Alaska operates a fleet of passenger jets (Alaska Mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights (Alaska Regional). Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (Horizon). The Company believes the amounts paid by Alaska to Horizon approximate current market rates received by other regional carriers for similar flying and are available to pay for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs. All inter-company revenues and expenses between Alaska and Horizon are eliminated in consolidation. Glossary of Terms Mainline – represents flying on Alaska jets and all associated revenues and costs Regional – represents operations whereby Horizon, SkyWest, and another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets RPMs – revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM ASMs – available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown Load Factor – RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers Yield – passenger revenue per RPM; represents the average revenue for flying one passenger one mile PRASM – passenger revenue per ASM; commonly called "passenger unit revenue" RASM – operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan, and other ancillary revenue; represents the average total revenue for flying one seat one mile CASM – operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items 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 is largely out of our control Economic fuel – best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program Aircraft Utilization – block hours per day; this represents the average number of hours our aircraft are flying Aircraft Stage Length – represents the average miles flown per aircraft departure Diluted Earnings per Share – represents earnings per share using fully diluted shares outstanding Diluted Shares – represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised Productivity – number of revenue passengers per full-time equivalent employee Debt to Capitalization ratio – represents adjusted debt (long-term debt plus the present value of remaining aircraft lease payments) divided by total equity plus adjusted debt SOURCE Alaska Air Group Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window) Related