Alaska Air Group Reports Record Adjusted Fourth Quarter 2014 and Full-Year Results and Raises Dividend 60%

SEATTLE, Jan. 22, 2015 /PRNewswire/ —

Financial Highlights:

• Reported record fourth quarter net income, excluding special items, of $125 million, or $0.94 per diluted share, compared to $77 million, or $0.55 per diluted share in 2013. This quarter's results compare to a First Call analyst consensus estimate of $0.93 per share. 
• Reported record full-year net income, excluding special items, of $571 million, or $4.18 per diluted share, compared to $383 million, or $2.70 per diluted share in 2013.
• Reported net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $148 million, or $1.11 per diluted share, compared to net income of $78 million, or $0.56 per diluted share in 2013.
• Reported net income for the full year under GAAP of $605 million, or $4.42 per diluted share, compared to net income of $508 million, or $3.58 per diluted share in 2013.
• Declared a $0.20 per share dividend, up 60% from the prior quarter.  The dividend will be paid on March 10, to shareholders of record as of February 24, 2015.
• Paid $0.125 per-share quarterly cash dividend on December 3, bringing total dividend payments in 2014 to $68 million.
• Repurchased 7,316,731 shares of common stock for an average price of $47.63 during 2014 for $348 million, or 6.9% of market capitalization at the beginning of 2014. Since 2007, Air Group has used $827 million to repurchase 49 million shares at an average price of $16.85.
• Grew passenger revenues by 8% compared to the fourth quarter of 2013, and by 7% compared to full-year 2013.
• Generated record full-year adjusted pretax margin of 17.2% in 2014, compared to 12.4% in 2013.
• Achieved return on invested capital of 18.6% in 2014, compared to 13.6% in 2013.
• Generated over $1.0 billion in operating cash flows and $344 million in free cash flows in 2014.
• Lowered adjusted debt-to-total capitalization ratio to 31% as of Dec. 31, 2014.
• Held $1.2 billion in unrestricted cash and marketable securities as of Dec. 31, 2014. 
• Became one of only two U.S. airlines with investment grade credit ratings.

Year-to-date highlights of Alaska Air Group's five-year strategic plan:
Safety & Compliance

• Launched "Ready, Safe, Go" safety campaign designed to increase safety awareness across the Air Group System.

People Focus

• Awarded a record $116 million in incentive pay to employees for 2014, or more than one month's pay for most employees. Over the last five years, employees have earned more than $473 million in incentive pay, averaging 8.7% of annual pay.
• Signed a five-year agreement with Alaska Airline's Flight Attendants in December 2014.
• Signed a six-year contract with Horizon's aircraft technicians and fleet service agents in June 2014.
• Signed a five-year contract with Alaska's clerical, office, and passenger service employees in April 2014.
• Signed a four-year contract with Horizon's dispatchers in April 2014.
• Completed "Gear Up" – an intensive leadership workshop for over 1,200 leaders at Alaska and Horizon.

Hassle-free Customer Experience

• Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the seventh year in a row.
• Ranked as the best airline in the U.S. by The Wall Street Journal's "Middle Seat" scorecard for two consecutive years.
• Ranked highest by frequent fliers in the first-ever J.D. Power Airline Loyalty/Rewards Program Satisfaction Report.
• Held the top spot in U.S. Department of Transportation on-time performance among the largest eight U.S. airlines for the 12 months ended November 2014.
• Named No. 1 on-time carrier in North America for the fourth year in a row by FlightStats in February 2014.
• Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage and Juneau.
• Became the launch customer of Boeing's new, innovative, high-capacity 737 Space Bins, which will increase bag capacity in the cabin by 48%.

Energetic & Compelling Brand

• Launched Alaska Beyond™ in-flight experience featuring gourmet Tom Douglas signature meals, new streaming in-flight entertainment, and power at every seat on Alaska's 737-800/900/900ER aircraft.
• Received the 2014 Community Impact Award from Seattle Business Magazine.
• Celebrated the opening of the Alaska Airlines Center sports complex at the University of Alaska Anchorage.
• Committed over $7 million to support local communities, including job training for workers at the Seattle–Tacoma airport, STEM-focused education programs at Seattle's Museum of Flight, and Seattle's new bicycle sharing program.
• Flew 13 relief flights to Los Cabos, Loreto, and Mazatlan, Mexico and transported approximately 2,000 passengers to safety following Hurricane Odile.

Low Fares, Low Costs, and Network Growth

• Ordered ten additional Boeing 737-900ERs, which will further strengthen Alaska's fuel-efficient fleet.
• Exercised options for two Q400 aircraft to be delivered in 2017.
• Completed 100% of the cabin improvement project, adding new Recaro seats and power at every seat for 95 aircraft.
• Increased fuel efficiency (as measured by seat-miles per gallon) by 2.1% over 2013.
• Added split-scimitar winglets to 48 planned aircraft, which are expected to improve fuel efficiency by about 1.5% per aircraft.
• Lowered unit costs excluding fuel and special items for the fifth consecutive year, to the lowest level ever.
• Grew Seattle departures by 4% in 2014 and committed to growing Seattle departures by 10% in 2015.
• Added 16 routes during 2014.  New routes launched and announced in the fourth quarter are as follows:

Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2014 GAAP net income of $148 million, or $1.11 per diluted share, compared to GAAP net income of $78 million, or $0.56 per diluted share in 2013. Excluding mark-to-market fuel hedge gains of $6 million ($4 million after tax, or $0.03 per diluted share), a benefit related to the curtailment of certain postretirement benefit plans and a one-time gain associated with the settlement of a legal matter for $30 million in aggregate ($19 million after tax, or $0.14 per diluted share), the company reported record fourth quarter 2014 net income of $125 million, or $0.94 per diluted share, compared to net income, excluding mark-to-market fuel hedge gains, of $77 million, or $0.55 per diluted share, in 2013.         

The company reported full-year 2014 GAAP net income of $605 million, compared to $508 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $571 million, or $4.18 per diluted share for 2014, compared to net income of $383 million, or $2.70 per diluted share in 2013.

"Record earnings and the number one airline ranking in The Wall Street Journal for the second year in a row are proof that our 13,000 employees continue to do a great job serving our customers and running a reliable operation," said CEO Brad Tilden. "The substantial increase in the dividend underscores our commitment to shareholders and our confidence in the future."

The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2014 and 2013 to amounts as reported in accordance with GAAP:

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 8:30 a.m. Pacific time on Jan. 22, 2015. It can be accessed through the company's Web site at www.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, 2013. Some of these risks include competition, labor costs and relations, general economic conditions, increases in operating costs including fuel, 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 more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers" in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report. For reservations, visit www.alaskaair.com . For more news and information, visit the Alaska Airlines Newsroom at www.alaskaair.com/newsroom.

 

 

 

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 third quarter of 2013. This is purely an accounting change and the prior 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

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

ASMs – available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

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

Debt-to-capitalization ratio – represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

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

Economic Fuel – best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor – RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline – represents flying Boeing 737 jets and all associated revenues and costs

PRASM – passenger revenue per ASM; commonly called "passenger unit revenue"

Productivity – number of revenue passengers per full-time equivalent employee

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

Regional – represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir.  In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs).  Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

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

Yield – passenger revenue per RPM; represents the average revenue for flying one passenger one mile

 

SOURCE Alaska Air Group