Alaska Air Group reports second quarter 2019 results July 25, 2019 Alaska Airlines 16 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 of 2019 under Generally Accepted Accounting Principles (GAAP) of $262 million, or $2.11 per diluted share, compared to net income... SEATTLE, July 25, 2019 /PRNewswire/ — Financial Highlights: Reported net income for the second quarter of 2019 under Generally Accepted Accounting Principles (GAAP) of $262 million, or $2.11 per diluted share, compared to net income of $193 million, or $1.56 per diluted share in the second quarter of 2018. Reported net income for the second quarter of 2019, excluding merger-related costs and mark-to-market fuel hedge accounting adjustments of $270 million, or $2.17 per diluted share, compared to $206 million or $1.66 per diluted share, in the second quarter of 2018. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $2.13 per share. Paid a $0.35 per-share quarterly cash dividend in the second quarter, a 9% increase over the dividend paid in the second quarter of 2018. Repurchased a total of 408,665 shares of common stock for approximately $25 million in the first six months of 2019. Generated $1 billion of operating cash flow in the first six months of 2019, including merger-related costs. Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2019. Reduced debt-to-capitalization ratio to 45% as of June 30, 2019, compared to 47% as of Dec. 31, 2018. Operational Highlights: Alaska technicians, represented by the Aircraft Mechanics Fraternal Association, ratified an integrated seniority list and a transition agreement, including a two-year contract extension, in July 2019. Reached a tentative agreement with the International Association of Machinists on a new five-year contract for Alaska’s clerical, office, passenger service, ramp and stores employees. Added EL AL Israel Airlines as a new global Mileage Plan partner. Announced a new route connecting Paine Field in Everett, Washington, to Palm Springs, California. Finished painting the Alaska Airlines livery on all Airbus aircraft. Completed cabin interior renovations of 14 Airbus aircraft and 11 737-700 aircraft. Installed high-speed satellite Wi-Fi on the 44th mainline aircraft. Recognition and Awards: Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2019 by J.D. Power for the 12th year in a row. Earned top spot for customer satisfaction on the American Customer Satisfaction Index Travel Report for 2018 – 2019. Ranked as the best U.S. airline by Wallethub. Named as No. 2 Domestic Airline by Travel & Leisure "World’s Best Awards." Alaska Air Group Inc. today reported second quarter 2019 GAAP net income of $262 million, or $2.11 per diluted share, compared to $193 million, or $1.56 per diluted share in the second quarter of 2018. Excluding the impact of merger-related costs, mark-to-market fuel hedge adjustments and other special items, the company reported adjusted net income of $270 million, or $2.17 per diluted share, compared to $206 million, or $1.66 per diluted share in 2018. "The three-percentage point improvement in our adjusted pretax margin shows that our revenue initiatives and cost management efforts are paying off. We set an ambitious plan and are executing it," said Alaska CEO Brad Tilden. "But what our people really do best is provide genuine, caring service for our guests, and that’s why they earned our 12th-straight J.D. Power award this year. From all of us on the leadership team, thank you to our employees for your fantastic performance. We’re all looking forward to building on this momentum in the months and years ahead." 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, 2019, and 2018 to adjusted amounts. Three Months Ended June 30, 2019 2018 (in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income and diluted EPS $ 262 $ 2.11 $ 193 $ 1.56 Mark-to-market fuel hedge adjustments 3 0.02 (22) (0.18) Special items – merger-related costs 8 0.06 39 0.31 Income tax effect of reconciling items above (3) (0.02) (4) (0.03) Non-GAAP adjusted net income and diluted EPS $ 270 $ 2.17 $ 206 $ 1.66 Six Months Ended June 30, 2019 2018 (in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income and diluted EPS $ 266 $ 2.14 $ 197 $ 1.59 Mark-to-market fuel hedge adjustments (1) (0.01) (35) (0.28) Special items – merger-related costs 34 0.27 45 0.36 Special items – other — — 25 0.20 Income tax effect of reconciling items above (8) (0.06) (8) (0.06) Non-GAAP adjusted net income and diluted EPS $ 291 $ 2.34 $ 224 $ 1.81 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 1:30 p.m. Pacific time on July 25, 2019. 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. (through July 20, 2018, at which point it was legally merged into Alaska Airlines, 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, 2018, 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 46 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. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America Airline Satisfaction Study for 12 consecutive years from 2008 to 2019. 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) 2019 2018 Change 2019 2018 Change Operating Revenues: Passenger revenue $ 2,111 $ 1,997 6 % $ 3,827 $ 3,681 4 % Mileage Plan other revenue 118 108 9 % 228 215 6 % Cargo and other 59 51 16 % 109 92 18 % Total Operating Revenues 2,288 2,156 6 % 4,164 3,988 4 % Operating Expenses: Wages and benefits 567 544 4 % 1,124 1,080 4 % Variable incentive pay 44 38 16 % 79 77 3 % Aircraft fuel, including hedging gains and losses 502 475 6 % 922 884 4 % Aircraft maintenance 115 106 8 % 235 213 10 % Aircraft rent 82 77 6 % 165 151 9 % Landing fees and other rentals 113 110 3 % 245 236 4 % Contracted services 70 76 (8) % 142 157 (10) % Selling expenses 87 88 (1) % 159 166 (4) % Depreciation and amortization 105 97 8 % 211 191 10 % Food and beverage service 53 55 (4) % 102 105 (3) % Third-party regional carrier expense 42 39 8 % 83 76 9 % Other 136 141 (4) % 274 282 (3) % Special items – merger-related costs 8 39 (79) % 34 45 (24) % Special items – other — — NM — 25 NM Total Operating Expenses 1,924 1,885 2 % 3,775 3,688 2 % Operating Income 364 271 34 % 389 300 30 % Nonoperating Income (Expense): Interest income 11 10 10 % 20 18 11 % Interest expense (20) (25) (20) % (42) (49) (14) % Interest capitalized 3 4 (25) % 7 9 (22) % Other—net (7) (1) NM (17) (13) 31 % Total Nonoperating Income (Expense) (13) (12) 8 % (32) (35) (9) % Income Before Income Tax 351 259 357 265 Income tax expense 89 66 91 68 Net Income $ 262 $ 193 $ 266 $ 197 Basic Earnings Per Share: $ 2.12 $ 1.57 $ 2.15 $ 1.60 Diluted Earnings Per Share: $ 2.11 $ 1.56 $ 2.14 $ 1.59 Shares Used for Computation: Basic 123.418 123.268 123.355 123.212 Diluted 124.301 124.036 124.179 123.953 Cash dividend declared per share: $ 0.35 $ 0.32 $ 0.70 $ 0.64 CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) Alaska Air Group, Inc. (in millions) June 30, 2019 December 31, 2018 Cash and marketable securities $ 1,627 $ 1,236 Other current assets 591 551 Current assets 2,218 1,787 Property and equipment – net 6,744 6,781 Operating lease assets 1,696 — Goodwill 1,943 1,943 Intangible assets – net 125 127 Other assets 225 274 Total assets 12,951 10,912 Air traffic liability 1,173 788 Current portion of long-term debt 288 486 Current portion of operating lease liabilities 273 — Other current liabilities 1,800 1,668 Current liabilities 3,534 2,942 Long-term debt 1,538 1,617 Long-term operating lease liabilities 1,424 — Other liabilities and credits 2,482 2,602 Shareholders’ equity 3,973 3,751 Total liabilities and shareholders’ equity $ 12,951 $ 10,912 Debt-to-capitalization ratio, including operating leases(a) 45 % 47 % Number of common shares outstanding 123.338 123.194 (a) Following the adoption of the new lease accounting standard on January 1, 2019, the ratio is calculated using the total capitalized Operating lease liability, whereas prior year periods were calculated utilizing the present value of aircraft lease payments. This change had no impact to the ratio. OPERATING STATISTICS SUMMARY (unaudited) Alaska Air Group, Inc. Three Months Ended June 30, Six Months Ended June 30, 2019 2018 Change 2019 2018 Change Consolidated Operating Statistics:(a) Revenue passengers (000) 12,026 12,069 (0.4)% 22,442 22,558 (0.5)% RPMs (000,000) "traffic" 14,638 14,484 1.1% 27,087 26,887 0.7% ASMs (000,000) "capacity" 16,980 16,833 0.9% 32,487 32,313 0.5% Load factor 86.2% 86.0% 0.2 pts 83.4% 83.2% 0.2 pts Yield 14.43¢ 13.79¢ 4.6% 14.13¢ 13.69¢ 3.2% RASM 13.48¢ 12.81¢ 5.2% 12.82¢ 12.34¢ 3.9% CASMex(b) 8.33¢ 8.14¢ 2.3% 8.68¢ 8.46¢ 2.6% Economic fuel cost per gallon(b) $2.27 $2.30 (1.3)% $2.20 $2.22 (0.9)% Fuel gallons (000,000) 220 216 1.9% 419 413 1.5% ASM’s per gallon 77.2 77.9 (0.9)% 77.5 78.2 (0.9)% Average number of full-time equivalent employees (FTE) 21,921 21,655 1.2% 21,876 21,461 1.9% Mainline Operating Statistics: Revenue passengers (000) 9,206 9,462 (2.7)% 17,070 17,673 (3.4)% RPMs (000,000) "traffic" 13,207 13,221 (0.1)% 24,379 24,581 (0.8)% ASMs (000,000) "capacity" 15,241 15,289 (0.3)% 29,114 29,387 (0.9)% Load factor 86.7% 86.5% 0.2 pts 83.7% 83.6% 0.1 pts Yield 13.38¢ 12.95¢ 3.3% 13.08¢ 12.83¢ 1.9% RASM 12.66¢ 12.16¢ 4.1% 12.02¢ 11.70¢ 2.7% CASMex(b) 7.65¢ 7.43¢ 3.0% 7.96¢ 7.71¢ 3.2% Economic fuel cost per gallon(b) $2.26 $2.29 (1.3)% $2.19 $2.22 (1.4)% Fuel gallons (000,000) 187 188 (0.5)% 356 360 (1.1)% ASM’s per gallon 81.5 81.3 0.2% 81.8 81.5 0.4% Average number of FTE’s 16,551 16,477 0.4% 16,504 16,245 1.6% Aircraft utilization 11.1 11.6 (4.3)% 10.7 11.4 (6.1)% Average aircraft stage length 1,311 1,298 1.0% 1,308 1,294 1.1% Operating fleet 238 228 10 a/c 238 228 10 a/c Regional Operating Statistics:(c) Revenue passengers (000) 2,820 2,607 8.2% 5,372 4,885 10.0% RPMs (000,000) "traffic" 1,431 1,263 13.3% 2,708 2,306 17.4% ASMs (000,000) "capacity" 1,739 1,544 12.6% 3,373 2,926 15.3% Load factor 82.3% 81.8% 0.5 pts 80.3% 78.8% 1.5 pts Yield 24.06¢ 22.64¢ 6.3% 23.57¢ 22.93¢ 2.8% RASM 20.51¢ 19.14¢ 7.2% 19.62¢ 18.72¢ 4.8% Operating fleet 94 89 5 a/c 94 89 5 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, excluding Pen Air. OPERATING SEGMENTS (unaudited) Alaska Air Group, Inc. Three Months Ended June 30, 2019 (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 1,767 $ 344 $ — $ — $ 2,111 $ — $ 2,111 CPA revenues — — 112 (112) — — — Mileage Plan other revenue 105 13 — — 118 — 118 Cargo and other 57 — — 2 59 — 59 Total operating revenues 1,929 357 112 (110) 2,288 — 2,288 Operating expenses Operating expenses, excluding fuel 1,167 268 95 (116) 1,414 8 1,422 Economic fuel 422 77 — — 499 3 502 Total operating expenses 1,589 345 95 (116) 1,913 11 1,924 Nonoperating income (expense) Interest income 17 — — (6) 11 — 11 Interest expense (19) — (7) 6 (20) — (20) Interest capitalized 3 — — — 3 — 3 Other – net (7) — — — (7) — (7) Total Nonoperating income (expense) (6) — (7) — (13) — (13) Income (loss) before income tax $ 334 $ 12 $ 10 $ 6 $ 362 $ (11) $ 351 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 – net 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 Six Months Ended June 30, 2019 (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 3,189 $ 638 $ — $ — $ 3,827 $ — $ 3,827 CPA revenues — — 228 (228) — — — Mileage Plan other revenue 205 23 — — 228 — 228 Cargo and other 105 1 1 2 109 — 109 Total operating revenues 3,499 662 229 (226) 4,164 — 4,164 Operating expenses Operating expenses, excluding fuel 2,319 542 192 (234) 2,819 34 2,853 Economic fuel 780 143 — — 923 (1) 922 Total operating expenses 3,099 685 192 (234) 3,742 33 3,775 Nonoperating income (expense) Interest income 33 — — (13) 20 — 20 Interest expense (40) — (15) 13 (42) — (42) Interest capitalized 7 — — — 7 — 7 Other – net (17) — — — (17) — (17) Total Nonoperating income (expense) (17) — (15) — (32) — (32) Income (loss) before income tax $ 383 $ (23) $ 22 $ 8 $ 390 $ (33) $ 357 Six Months Ended June 30, 2018 (in millions) Mainline Regional Horizon Consolidating& Other Air GroupAdjusted(a) SpecialItems(b) Consolidated Operating revenues Passenger revenues $ 3,152 $ 529 $ — $ — $ 3,681 $ — $ 3,681 CPA revenues — — 247 (247) — — — Mileage Plan other revenue 197 18 — — 215 — 215 Cargo and other 89 1 2 — 92 — 92 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 – net (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 (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 excludes certain charges. See Note A in the accompanying pages for further information. (b) Includes merger-related costs, an employee bonus awarded in January 2018 in connection with the Tax Cuts and Jobs Act, and mark-to-market fuel hedge accounting adjustments. 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, 2019 2018 2019 2018 Consolidated: CASM 11.33 ¢ 11.20 ¢ 11.62 ¢ 11.41 ¢ Less the following components: Aircraft fuel, including hedging gains and losses 2.96 2.82 2.84 2.74 Special items – merger-related costs 0.04 0.24 0.10 0.13 Special items – other(a) — — — 0.08 CASM excluding fuel and special items 8.33 ¢ 8.14 ¢ 8.68 ¢ 8.46 ¢ Mainline: CASM 10.50 ¢ 10.36 ¢ 10.76 ¢ 10.54 ¢ Less the following components: Aircraft fuel, including hedging gains and losses 2.79 2.68 2.68 2.60 Special items – merger-related costs 0.06 0.25 0.12 0.14 Special items – other(a) — — — 0.09 CASM excluding fuel and special items 7.65 ¢ 7.43 ¢ 7.96 ¢ 7.71 ¢ (a) Special items – other includes special charges associated with the employee tax reform bonus awarded in January 2018. Fuel Reconciliation Three Months Ended June 30, 2019 2018 (in millions, except for per-gallon amounts) Dollars Cost/Gallon Dollars Cost/Gallon Raw or "into-plane" fuel cost $ 495 $ 2.25 $ 506 $ 2.34 (Gains) losses on settled hedges 4 0.02 (9) (0.04) Consolidated economic fuel expense 499 2.27 497 2.30 Mark-to-market fuel hedge adjustment 3 0.01 (22) (0.10) GAAP fuel expense $ 502 $ 2.28 $ 475 $ 2.20 Fuel gallons 220 216 Six Months Ended June 30, 2019 2018 (in millions, except for per gallon amounts) Dollars Cost/Gallon Dollars Cost/Gallon Raw or "into-plane" fuel cost $ 916 $ 2.18 $ 929 $ 2.25 (Gains) losses on settled hedges 7 0.02 (10) (0.03) Consolidated economic fuel expense $ 923 $ 2.20 $ 919 $ 2.22 Mark-to-market fuel hedge adjustment (1) — (35) (0.08) GAAP fuel expense $ 922 $ 2.20 $ 884 $ 2.14 Fuel gallons 419 413 Debt-to-capitalization, adjusted for operating leases (in millions) June 30, 2019 December 31, 2018 Long-term debt $ 1,538 $ 1,617 Capitalized operating leases(a) 1,697 1,768 Adjusted debt 3,235 3,385 Shareholders’ equity 3,973 3,751 Total Invested Capital $ 7,208 $ 7,136 Debt-to-capitalization ratio, including operating leases 45 % 47 % (a) Following the adoption of the new lease accounting standard on January 1, 2019, the ratio is calculated using the total capitalized Operating lease liability, whereas prior year periods were calculated utilizing the present value of aircraft lease payments. This change had no impact to the ratio. Net adjusted debt to earnings before interest, taxes, depreciation, amortization, special items and rent (in millions) June 30, 2019 Adjusted debt $ 3,235 Current portion of long-term debt 288 Total adjusted debt 3,523 Less: Cash and marketable securities (1,627) Net adjusted debt $ 1,896 (in millions) Last Twelve MonthsEnded June 30, 2019 GAAP Operating Income(a) $ 732 Adjusted for: Special items 96 Mark-to-market fuel hedge adjustments 56 Depreciation and amortization 418 Aircraft rent 329 EBITDAR $ 1,631 Net adjusted debt to EBITDAR 1.2x (a) Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC. 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, Airbus 320 and Airbus 321neo 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