Alaska Air Group reports Second Quarter 2018 Results July 26, 2018 Alaska Airlines 17 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: Reported net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $193 million, or $1.56 per diluted share, compared to net income of $293... SEATTLE, July 26, 2018 /PRNewswire/ — Financial Highlights: Reported net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $193 million, or $1.56 per diluted share, compared to net income of $293 million, or $2.36 per diluted share in the second quarter of 2017. As the company has recently implemented new accounting standards, including the standards relating to revenue recognition and retirement benefits, 2017 financial information has been adjusted. Reported second quarter 2018 adjusted diluted earnings per share of $1.66 compared to $2.48 reported in the second quarter of 2017. Second quarter adjusted net income excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments was $206 million compared to $309 million in the second quarter of 2017. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $1.63 per share. Paid a $0.32 per-share quarterly cash dividend in the second quarter, a 7% increase over the dividend paid in the second quarter of 2017. Repurchased a total of 389,739 shares of common stock for approximately $25 million in the first six months of 2018. Generated approximately $725 million of operating cash flow, including merger-related costs and other special items. Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2018. Operational Highlights: Transitioned to a single Passenger Service System (PSS) in April 2018, enabling us to provide one reservation system, one website and one inventory of flights to our guests. Reached a merger transition agreement with the Transport Workers Union (TWU) to combine Boeing and Airbus dispatchers into a single group. Completed Premium Class rollout on our Boeing 737-800, 900 and 900ER fleets. Added Aer Lingus as a global Mileage Plan partner. Added two Boeing 737-900ER aircraft and two Airbus A321neo aircraft to the mainline operating fleet in the second quarter of 2018. Added four Embraer 175 (E175) regional jets to Horizon Air’s fleet in the second quarter of 2018 and four E175 aircraft operated by SkyWest Airlines. Recognition and Awards: Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2018 by J.D. Power for the 11th year in a row. Received top honors in three Skytrax World Airline Awards categories including "Best Regional Airline in North America," "Best Airline Staff in North America," and "Best Cabin Crew in the USA." Virgin America was rated Best Domestic Airline in Travel + Leisure "World’s Best Awards" for 11 years in a row. Ranked among Forbes’ 2018 "America’s Best Employers" for the fourth year in a row. Awarded "Best Food and Beverage in the Americas" by Airline Passenger Service Experience Association (APEX) passenger choice awards for 2018. Received 17th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon’s aircraft technicians for their commitment to training. Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2018 GAAP net income of $193 million, or $1.56 per diluted share, compared to $293 million, or $2.36 per diluted share in the second quarter of 2017. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $206 million, or $1.66 per diluted share, compared to $309 million, or $2.48 per diluted share, in 2017. "In the last year and half, we’ve made tremendous progress bringing Alaska Airlines and Virgin America together," said CEO Brad Tilden. "We’re on very solid footing today thanks to the fantastic efforts of our employees, who delivered exceptional on-time performance and earned our 11th consecutive J.D. Power award for highest in customer satisfaction – all while completing the most complex part of our integration." The following table reconciles the company’s reported GAAP net income and earnings per diluted share (diluted EPS) for the three and six months ended June 30, 2018 and 2017 to adjusted amounts. Three Months Ended June 30, 2018 2017 (a) (in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income and diluted EPS $ 193 $ 1.56 $ 293 $ 2.36 Mark-to-market fuel hedge adjustments (22) (0.18) 2 0.02 Special items—merger-related costs 39 0.31 24 0.19 Income tax effect (4) (0.03) (10) (0.09) Non-GAAP adjusted net income and diluted EPS $ 206 $ 1.66 $ 309 $ 2.48 Six Months Ended June 30, 2018 2017 (a) (in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income and diluted EPS $ 197 $ 1.59 $ 386 $ 3.10 Mark-to-market fuel hedge adjustments (35) (0.28) 12 0.10 Special items—employee tax reform bonus 25 0.20 — — Special items—merger-related costs 45 0.36 63 0.51 Income tax effect (8) (0.06) (28) (0.23) Non-GAAP adjusted net income and diluted EPS $ 224 $ 1.81 $ 433 $ 3.48 (a) Certain historical information has been adjusted to reflect the adoption of new accounting standards. 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 second quarter results will be streamed online at 8:30 a.m. Pacific time on July 26, 2018. It can be accessed 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., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as "Alaska," "Horizon," and "Virgin America" 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 Dec. 31, 2017, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. 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 and its regional partners fly 44 million guests a year to more than 115 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada and Costa Rica. With Alaska and Alaska Global Partners, guests can earn and redeem miles on flights to more than 900 destinations worldwide. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America Airline Satisfaction Study for 11 consecutive years from 2008 to 2018. Learn about Alaska’s award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK). CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Alaska Air Group, Inc. Three Months Ended June 30, Six Months Ended June 30, (in millions, except per-share amounts) 2018 2017(a) Change 2018 2017(a) Change Operating Revenues: Passenger revenue $ 1,997 $ 1,945 3 % $ 3,682 $ 3,547 4 % Mileage plan other revenue 108 109 (1) % 215 209 3 % Cargo and other 51 48 6 % 91 86 6 % Total Operating Revenues 2,156 2,102 3 % 3,988 3,842 4 % Operating Expenses: Wages and benefits 544 470 16 % 1,080 920 17 % Variable incentive pay 38 27 41 % 77 58 33 % Aircraft fuel, including hedging gains and losses 475 344 38 % 884 683 29 % Aircraft maintenance 106 96 10 % 213 183 16 % Aircraft rent 77 69 12 % 151 134 13 % Landing fees and other rentals 110 99 11 % 236 214 10 % Contracted services 76 77 (1) % 157 158 (1) % Selling expenses 88 102 (14) % 166 185 (10) % Depreciation and amortization 97 90 8 % 191 180 6 % Food and beverage service 55 50 10 % 105 95 11 % Third-party regional carrier expense 39 27 44 % 76 54 41 % Other 141 140 1 % 282 271 4 % Special items—merger-related costs 39 24 63 % 45 63 (29) % Special items—other — — — % 25 — NM Total Operating Expenses 1,885 1,615 17 % 3,688 3,198 15 % Operating Income 271 487 (44) % 300 644 (53) % Nonoperating Income (Expense): Interest income 10 9 18 16 Interest expense (25) (26) (49) (51) Interest capitalized 4 4 9 8 Other—net (1) — (13) (1) Total Nonoperating Income (Expense) (12) (13) (35) (28) Income (Loss) Before Income Tax 259 474 265 616 Income tax expense 66 181 68 230 Net Income (Loss) $ 193 $ 293 $ 197 $ 386 Basic Earnings (Loss) Per Share: $ 1.57 $ 2.37 $ 1.60 $ 3.12 Diluted Earnings (Loss) Per Share: $ 1.56 $ 2.36 $ 1.59 $ 3.10 Shares Used for Computation: Basic 123.268 123.573 123.212 123.534 Diluted 124.036 124.332 123.953 124.374 Cash dividend declared per share: $ 0.320 $ 0.300 $ 0.640 $ 0.600 (a) Certain historical information has been adjusted to reflect the adoption of new accounting standards. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) Alaska Air Group, Inc. (in millions) June 30, 2018 December 31, 2017(a) Cash and marketable securities $ 1,568 $ 1,621 Total current assets 2,216 2,152 Property and equipment—net 6,493 6,284 Goodwill 1,943 1,943 Intangible assets 130 133 Other assets 273 234 Total assets 11,055 10,746 Air traffic liability 1,112 806 Current portion of long-term debt 314 307 Other current liabilities 1,610 1,573 Current liabilities 3,036 2,686 Long-term debt 1,998 2,262 Other liabilities and credits 2,428 2,338 Shareholders’ equity 3,593 3,460 Total liabilities and shareholders’ equity $ 11,055 $ 10,746 Debt-to-capitalization ratio, adjusted for aircraft operating leases(b) 52 % 53 % Number of common shares outstanding 123.204 123.061 (a) Certain historical information has been adjusted to reflect the adoption of new accounting standards. (b) Calculated using the present value of remaining aircraft lease payments. OPERATING STATISTICS SUMMARY (unaudited) Alaska Air Group, Inc. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 Change 2018 2017 Change Consolidated Operating Statistics:(a) Revenue passengers (000) 12,069 11,391 6.0% 22,558 21,399 5.4% RPMs (000,000) "traffic" 14,484 13,554 6.9% 26,887 25,262 6.4% ASMs (000,000) "capacity" 16,833 15,612 7.8% 32,313 30,006 7.7% Load factor 86.0% 86.8% (0.8) pts 83.2% 84.2% (1.0) pts Yield(d) 13.79¢ 14.36¢ (4.0)% 13.69¢ 14.04¢ (2.5)% RASM(d) 12.81¢ 13.46¢ (4.8)% 12.34¢ 12.80¢ (3.6)% CASMex(b)(d) 8.14¢ 7.98¢ 2.0% 8.46¢ 8.17¢ 3.5% Economic fuel cost per gallon(b) $2.30 $1.71 34.5% $2.22 $1.75 26.9% Fuel gallons (000,000) 216 201 7.5% 413 385 7.3% ASM’s per gallon 77.9 77.7 0.3% 78.2 77.9 0.4% Average number of full-time equivalent employees (FTE) 21,655 19,745 9.7% 21,461 19,214 11.7% Mainline Operating Statistics: Revenue passengers (000) 9,462 8,941 5.8% 17,673 16,715 5.7% RPMs (000,000) "traffic" 13,221 12,525 5.6% 24,581 23,352 5.3% ASMs (000,000) "capacity" 15,289 14,341 6.6% 29,387 27,602 6.5% Load factor 86.5% 87.3% (0.8) pts 83.6% 84.6% (1.0) pts Yield(d) 12.95¢ 13.40¢ (3.4)% 12.83¢ 13.07¢ (1.8)% RASM(d) 12.16¢ 12.77¢ (4.8)% 11.70¢ 12.11¢ (3.4)% CASMex(b)(d) 7.43¢ 7.18¢ 3.5% 7.71¢ 7.35¢ 4.9% Economic fuel cost per gallon(b) $2.29 $1.70 34.7% $2.22 $1.74 27.6% Fuel gallons (000,000) 188 179 5.0% 360 343 5.0% ASM’s per gallon 81.3 80.3 1.2% 81.5 80.5 1.2% Average number of FTE’s 16,477 15,447 6.7% 16,245 15,227 6.7% Aircraft utilization 11.6 11.4 1.8% 11.4 11.1 2.7% Average aircraft stage length 1,298 1,294 0.3% 1,294 1,295 (0.1)% Operating fleet 228 221 7 a/c 228 221 7 a/c Regional Operating Statistics:(c) Revenue passengers (000) 2,607 2,450 6.4% 4,885 4,685 4.3% RPMs (000,000) "traffic" 1,263 1,030 22.6% 2,306 1,910 20.7% ASMs (000,000) "capacity" 1,544 1,270 21.6% 2,926 2,404 21.7% Load factor 81.8% 81.1% 0.7 pts 78.8% 79.5% (0.7) pts Yield(d) 22.64¢ 26.04¢ (13.1)% 22.93¢ 25.94¢ (11.6)% RASM(d) 19.14¢ 21.19¢ (9.7)% 18.72¢ 20.70¢ (9.6)% Operating fleet 89 78 11 a/c 89 78 11 a/c (a) Except for FTEs, 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 potential importance of this measure to investors in the accompanying pages. (c) Data presented includes information related to flights operated by Horizon and third-party carriers. (d) Certain historical information has been adjusted to reflect the adoption of new accounting standards. OPERATING SEGMENTS (unaudited) Alaska Air Group, Inc. Three Months Ended June 30, 2018 (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 1,711 $ 286 $ — $ — $ 1,997 $ — $ 1,997 CPA revenues — — 137 (137) — — — Mileage plan other revenue 99 9 — — 108 — 108 Cargo and other 49 1 1 — 51 — 51 Total operating revenues 1,859 296 138 (137) 2,156 — 2,156 Operating expenses Operating expenses, excluding fuel 1,135 249 123 (136) 1,371 39 1,410 Economic fuel 432 65 — — 497 (22) 475 Total operating expenses 1,567 314 123 (136) 1,868 17 1,885 Nonoperating income (expense) Interest income 13 — — (3) 10 — 10 Interest expense (22) — (5) 2 (25) — (25) Interest capitalized 4 — — — 4 — 4 Other 1 (2) — — (1) — (1) Total Nonoperating income (expense) (4) (2) (5) (1) (12) — (12) Income (loss) before income tax $ 288 $ (20) $ 10 $ (2) $ 276 $ (17) $ 259 Three Months Ended June 30, 2017(c) (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) Special Items(b) Consolidated Operating revenues Passenger revenues $ 1,677 $ 268 $ — $ — $ 1,945 $ — $ 1,945 CPA revenues — — 108 (108) — — — Mileage plan other revenue 101 8 — — 109 — 109 Cargo and other 45 2 1 — 48 — 48 Total operating revenues 1,823 278 109 (108) 2,102 — 2,102 Operating expenses Operating expenses, excluding fuel 1,030 206 116 (105) 1,247 24 1,271 Economic fuel 304 38 — — 342 2 344 Total operating expenses 1,334 244 116 (105) 1,589 26 1,615 Nonoperating income (expense) Interest income 10 — — (1) 9 — 9 Interest expense (24) — (3) 1 (26) — (26) Interest capitalized 3 — 1 — 4 — 4 Other — — — — — — — Total Nonoperating income (expense) (11) — (2) — (13) — (13) Income (loss) before income tax $ 478 $ 34 $ (9) $ (3) $ 500 $ (26) $ 474 Six Months Ended June 30, 2018 (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 3,153 $ 529 $ — $ — $ 3,682 $ — $ 3,682 CPA revenues — — 247 (247) — — — Mileage plan other revenue 197 18 — — 215 — 215 Cargo and other 88 1 2 — 91 — 91 Total operating revenues 3,438 548 249 (247) 3,988 — 3,988 Operating expenses Operating expenses, excluding fuel 2,266 488 227 (247) 2,734 70 2,804 Economic fuel 799 120 — — 919 (35) 884 Total operating expenses 3,065 608 227 (247) 3,653 35 3,688 Nonoperating income (expense) Interest income 24 — — (6) 18 — 18 Interest expense (44) — (10) 5 (49) — (49) Interest capitalized 8 — 1 — 9 — 9 Other (4) (9) — — (13) — (13) Total Nonoperating income (expense) (16) (9) (9) (1) (35) — (35) Income (loss) before income tax $ 357 $ (69) $ 13 $ (1) $ 300 $ (35) $ 265 Six Months Ended June 30, 2017(c) (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 3,052 $ 495 $ — $ — $ 3,547 $ — $ 3,547 CPA revenues — — 205 (205) — — — Mileage plan other revenue 194 15 — — 209 — 209 Cargo and other 81 3 2 — 86 — 86 Total operating revenues 3,327 513 207 (205) 3,842 — 3,842 Operating expenses Operating expenses, excluding fuel 2,030 406 219 (203) 2,452 63 2,515 Economic fuel 596 75 — — 671 12 683 Total operating expenses 2,626 481 219 (203) 3,123 75 3,198 Nonoperating income (expense) Interest income 17 — — (1) 16 — 16 Interest expense (47) — (5) 1 (51) — (51) Interest capitalized 7 — 1 — 8 — 8 Other (1) — — — (1) — (1) Total Nonoperating income (expense) (24) — (4) — (28) — (28) Income (loss) before income tax $ 677 $ 32 $ (16) $ (2) $ 691 $ (75) $ 616 (a) The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information. (b) Includes merger-related costs, an employee bonus awarded in January in connection with the Tax Cuts and Jobs Act, and mark-to-market fuel hedge accounting adjustments. (c) Certain historical information has been adjusted to reflect the adoption of new accounting standards. GAAP TO NON-GAAP RECONCILIATIONS (unaudited) Alaska Air Group, Inc. CASM Excluding Fuel and Special Items Reconciliation Three Months Ended June 30, Six Months Ended June 30, 2018 2017(b) 2018 2017(b) Consolidated: CASM 11.20 ¢ 10.34 ¢ 11.41 ¢ 10.66 ¢ Less the following components: Aircraft fuel, including hedging gains and losses 2.82 2.21 2.74 2.28 Special items—merger-related costs and other(a) 0.24 0.15 0.21 0.21 CASM excluding fuel and special items 8.14 ¢ 7.98 ¢ 8.46 ¢ 8.17 ¢ Mainline: CASM 10.36 ¢ 9.48 ¢ 10.54 ¢ 9.79 ¢ Less the following components: Aircraft fuel, including hedging gains and losses 2.68 2.13 2.60 2.20 Special items—merger-related costs and other(a) 0.25 0.17 0.23 0.24 CASM excluding fuel and special items 7.43 ¢ 7.18 ¢ 7.71 ¢ 7.35 ¢ (a) Special items includes merger-related costs and an employee bonus awarded in January in connection with the Tax Cuts and Jobs Act. (b) Certain historical information has been adjusted to reflect the adoption of new accounting standards. Fuel Reconciliation Three Months Ended June 30, 2018 2017 (in millions, except for per-gallon amounts) Dollars Cost/Gallon Dollars Cost/Gallon Raw or "into-plane" fuel cost $ 506 $ 2.34 $ 337 $ 1.69 (Gains) losses on settled hedges (9) (0.04) 5 0.02 Consolidated economic fuel expense 497 2.30 342 1.71 Mark-to-market fuel hedge adjustment (22) (0.10) 2 0.01 GAAP fuel expense $ 475 $ 2.20 $ 344 $ 1.72 Fuel gallons 216 201 Six Months Ended June 30, 2018 2017 (in millions, except for per gallon amounts) Dollars Cost/Gallon Dollars Cost/Gallon Raw or "into-plane" fuel cost $ 929 $ 2.25 $ 663 $ 1.73 (Gains) losses on settled hedges (10) (0.03) 8 0.02 Consolidated economic fuel expense $ 919 $ 2.22 $ 671 $ 1.75 Mark-to-market fuel hedge adjustment (35) (0.08) 12 0.03 GAAP fuel expense $ 884 $ 2.14 $ 683 $ 1.78 Fuel gallons 413 385 Debt-to-capitalization, adjusted for aircraft operating leases (in millions) June 30, 2018 December 31, 2017(a) Long-term debt $ 1,998 $ 2,262 Capitalization of aircraft operating leases(b) 1,883 1,671 Adjusted debt 3,881 3,933 Shareholders’ equity 3,593 3,460 Total Invested Capital $ 7,474 $ 7,393 Debt-to-capitalization ratio, adjusted for aircraft operating leases 52 % 53 % (a) Certain historical information has been adjusted to reflect the adoption of new accounting standards. (b) Calculated using the present value of remaining aircraft lease payments. Note A: Pursuant to Regulation G, we are providing reconciliations 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 (including merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and 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. Cost per ASM (CASM) excluding fuel and certain special items, such as merger-related costs, 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 tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of 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 merger-related costs and mark-to-market hedging adjustments, 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. GLOSSARY OF TERMS Aircraft Utilization – block hours per day; this represents the average number of hours per day our aircraft are in transit 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 (EPS) 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 Free Cash Flow – total operating cash flow generated less cash paid for capital expenditures 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 and Airbus 320 family jets and all associated revenues and costs 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, 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, 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, Inc. 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