Alaska Air Group Reports Second Quarter Results July 26, 2007 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) Alaska Air Group, Inc. today reported second quarter net income of $46.1 million, or $1.13 per diluted share, compared to net income of $55.5 million, or $1.38 per diluted share, in the second... Alaska Air Group, Inc. today reported second quarter net income of $46.1 million, or $1.13 per diluted share, compared to net income of $55.5 million, or $1.38 per diluted share, in the second quarter of 2006. The prior year results include a restructuring charge of $3.8 million ($2.4 million, after tax, or $0.06 per share) resulting from an offer of voluntary severance to Alaska’s flight attendants as part of an early-out program. Both periods include adjustments to reflect timing of gain or loss recognition resulting from mark-to-market fuel hedge accounting. Excluding the impact of these items, the company would have reported net income in the second quarter of 2007 of $47.2 million, or $1.16 per diluted share, compared to net income of $60.3 million, or $1.50 per diluted share, in the second quarter of 2006. "Although our second quarter profit fell short of last year’s, the results represent a solid performance in view of significantly higher fuel costs and a softer revenue environment," said Bill Ayer, the company’s chairman and chief executive officer. Alaska Airlines’ mainline passenger traffic in the second quarter increased 4.2 percent on a capacity increase of 5.2 percent. Load factor declined 0.8 percentage points to 78.5 percent. Alaska’s mainline operating revenue per available seat mile (ASM) decreased 2.6 percent and its operating costs per ASM excluding fuel and the special charges mentioned above decreased 7.3 percent. Alaska’s total pretax income for the quarter was $80.9 million, compared to a pretax income of $72.5 million in 2006. Excluding the items noted above, Alaska would have reported pretax income of $82.4 million for the quarter, compared to pretax income of $79.6 million in the second quarter of 2006. Horizon Air’s combined passenger traffic in the second quarter increased 5.9 percent on an 8.0 percent capacity increase. Load factor decreased by 1.5 percentage points to 75.1 percent. Horizon’s combined operating revenue per ASM increased 1.3 percent and its operating costs per ASM excluding fuel increased 7.1 percent. Horizon’s total pretax loss for the quarter was $4.9 million, compared to a pretax income of $9.7 million in 2006. Excluding fuel-hedging adjustments, Horizon’s pretax loss was $4.6 million for the quarter, compared to pretax income of $10.2 million in the second quarter of 2006. Alaska Air Group had cash and short-term investments at June 30, 2007, of $988 million. A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found on pages 7 through 11. A conference call regarding the second quarter 2007 results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 26, 2007. It can be accessed through the company’s Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors. References in this report 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 report contains forward-looking statements that are intended to be 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 or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the amounts of potential lease termination payments with lessors for our remaining MD-80 leased aircraft and related sublease payments from sub lessee, if applicable; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release 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 sister carrier, Horizon Air, together serve 92 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom. ALASKA AIR GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In Millions, Except Per Share Amounts) Three Months Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 Operating Revenues: Passenger $836.2 $807.4 $1,532.0 $1,486.9 Freight and mail 27.4 26.7 48.6 48.1 Other - net 40.8 38.9 83.2 73.4 Total Operating Revenues 904.4 873.0 1,663.8 1,608.4 Operating Expenses: Wages and benefits 236.6 234.4 473.6 457.6 Variable incentive pay 3.8 10.6 14.3 19.1 Aircraft fuel, including hedging gains and losses 227.8 199.8 412.7 362.9 Aircraft maintenance 59.0 57.8 117.5 119.0 Aircraft rent 44.7 46.1 88.0 92.7 Landing fees and other rentals 56.5 52.0 111.2 99.5 Contracted services 39.8 39.6 78.4 76.7 Selling expenses 41.1 46.4 80.1 87.9 Depreciation and amortization 43.8 36.7 85.7 73.6 Food and beverage service 12.8 12.5 24.0 24.0 Other 57.1 53.2 112.0 105.6 Fleet transition costs - Alaska -- -- -- 131.1 Fleet transition costs - Horizon 3.7 -- 6.7 -- Restructuring charges and adjustments -- 3.8 -- 3.8 Total Operating Expenses 826.7 792.9 1,604.2 1,653.5 Operating Income (Loss) 77.7 80.1 59.6 (45.1) Nonoperating Income (Expense): Interest income 13.8 14.1 28.2 25.2 Interest expense (22.5) (18.1) (43.5) (37.2) Interest capitalized 6.7 5.8 13.8 10.5 Other - net (0.7) (0.8) (0.9) (1.7) (2.7) 1.0 (2.4) (3.2) Income (loss) before income tax 75.0 81.1 57.2 (48.3) Income tax expense (benefit) 28.9 25.6 21.4 (24.7) Net Income (Loss) $46.1 $55.5 $35.8 $(23.6) Basic Earnings (Loss) Per Share: $1.14 $1.46 $0.89 $(0.66) Diluted Earnings (Loss) Per Share: $1.13 $1.38 $0.88 $(0.66) Shares Used for Computation: Basic 40.450 38.028 40.408 35.759 Diluted 40.782 40.076 40.915 35.759 Alaska Air Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) June 30, December 31, (In Millions) 2007 2006 Cash and marketable securities $988 $1,014 Total current assets 1,630 1,572 Property and equipment-net 2,694 2,359 Other assets 156 146 Total assets $4,480 $4,077 Current liabilities $1,409 $1,236 Long-term debt 1,177 1,032 Other liabilities and credits 958 923 Shareholders' equity 936 886 Total liabilities and shareholders' equity $4,480 $4,077 Debt to Capitalization, adjusted for operating leases 72%:28% 72%:28% Air Group Net Income (Loss) and EPS Reconciliation: The following table summarizes Alaska Air Group, Inc.’s net income (loss) and amounts per share during 2007 and 2006 excluding adjustments to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting, fleet transition costs related to the impairment of the MD-80 fleet, and restructuring charges and adjustments, as reported in accordance with GAAP (in millions except per share amounts): Three Months Ended June 30, 2007 2006 Diluted Diluted Dollars EPS Dollars EPS Net income and diluted EPS, excluding mark-to-market hedging adjustments, and restructuring charges $47.2 $1.16 $60.3 $1.50 Adjustments to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting, net of tax (1.1) (0.03) (2.4) (0.06) Restructuring charges and adjustments, net of tax -- -- (2.4) (0.06) Reported GAAP amounts $46.1 $1.13 $55.5 $1.38 Six Months Ended June 30, 2007 2006 Diluted Diluted Dollars EPS Dollars EPS Net income and diluted EPS, excluding mark-to-market hedging adjustments, Alaska fleet transition costs, and restructuring charges $31.4 $0.77 $63.1 $1.77 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting, net of tax 4.4 0.11 (2.4) (0.07) Fleet transition - Alaska, net of tax -- -- (81.9) (2.29) Restructuring charges and adjustments, net of tax -- -- (2.4) (0.07) Reported GAAP amounts $35.8 $0.88 $(23.6) $(0.66) Alaska Airlines Financial and Statistical Data Three Months Six Months Ended June 30, Ended June 30, Financial Data (in millions): 2007 2006 %Change 2007 2006 %Change Operating Revenues: Passenger $663.3 $647.3 2.5 $1,209.2 $1,184.1 2.1 Passenger - regional flying 71.0 4.4 NM 128.3 8.8 NM Freight and mail 26.3 25.6 2.7 47.0 46.1 2.0 Other - net 34.5 33.1 4.2 70.4 61.4 14.7 Total Operating Revenues 795.1 710.4 11.9 1,454.9 1,300.4 11.9 Operating Expenses: Wages and benefits 185.6 186.9 (0.7) 372.9 362.6 2.8 Variable incentive pay 2.1 7.6 (72.4) 9.8 14.0 (30.0) Aircraft fuel, including hedging gains and losses 193.4 173.7 11.3 351.0 315.7 11.2 Aircraft maintenance 34.5 41.9 (17.7) 68.8 86.2 (20.2) Aircraft rent 27.9 28.9 (3.5) 54.2 58.2 (6.9) Landing fees and other rentals 42.2 40.5 4.2 84.0 77.4 8.5 Regional flying costs 74.1 4.0 NM 141.5 7.9 NM Contracted services 30.2 30.2 -- 59.6 58.2 2.4 Selling expenses 33.4 38.5 (13.2) 65.0 73.2 (11.2) Depreciation and amortization 35.6 32.2 10.6 71.0 64.4 10.2 Food and beverage service 12.0 11.9 0.8 22.6 22.7 (0.4) Other 43.2 39.4 9.6 83.0 78.4 5.9 Fleet transition costs -- -- NM -- 131.1 NM Restructuring charges and adjustments -- 3.8 NM -- 3.8 NM Total Operating Expenses 714.2 639.5 11.7 1,383.4 1,353.8 2.2 Operating Income (Loss) 80.9 70.9 NM 71.5 (53.4) NM Interest income 16.6 14.8 32.5 26.6 Interest expense (22.1) (17.8) (42.5) (33.6) Interest capitalized 6.0 5.1 12.3 9.4 Other - net (0.5) (0.5) (0.4) (1.2) 0.0 1.6 1.9 1.2 Income (Loss) Before Income Tax $80.9 $72.5 NM $73.4 $(52.2) NM Mainline Operating Statistics: Revenue passengers (000) 4,627 4,443 4.1 8,489 8,348 1.7 RPMs (000,000) "traffic" 4,820 4,626 4.2 8,886 8,706 2.1 ASMs (000,000) "capacity" 6,140 5,834 5.2 11,834 11,373 4.1 Passenger load factor 78.5% 79.3% (0.8)pts 75.1% 76.5% (1.4)pts Yield per passenger mile(in cents) 13.76 13.99 (1.6) 13.61 13.60 0.1 Operating revenue per ASM (in cents) 11.79 12.10 (2.6) 11.21 11.36 (1.3) Passenger revenue per ASM (in cents) 10.80 11.10 (2.7) 10.22 10.41 (1.8) Operating expense per ASM (in cents) 10.43 10.89 (4.2) 10.49 11.83 (11.3) Operating expense per ASM excluding fuel, restructuring charges and fleet transition costs (in cents) (a) 7.28 7.85 (7.3) 7.53 7.87 (4.3) GAAP fuel cost per gallon $2.16 $1.96 10.2 $2.02 $1.82 11.0 Economic fuel cost per gallon (a) $2.14 $1.92 11.5 $2.05 $1.80 13.9 Fuel gallons (000,000) 89.8 88.8 1.1 173.9 173.3 0.3 Average number of full- time equivalent employees 9,748 9,347 4.3 9,645 9,168 5.2 Aircraft utilization (blk hrs/day) 11.0 11.0 -- 10.9 11.0 (0.9) Average aircraft stage length (miles) 917 920 (0.3) 917 921 (0.4) Operating fleet at period-end 114 113 1 a/c 114 113 1 a/c Regional Operating Statistics: Revenue passengers (000) 702 13 NM 1280 26 NM RPMs (000,000) 273 11 NM 493 22 NM ASMs (000,000) 352 19 NM 668 37 NM Passenger load factor 77.6% 57.9% NM 73.8% 59.5% NM Yield per passenger mile(in cents) 26.01 40.00 NM 26.02 40.00 NM Operating revenue per ASM (in cents) 20.17 23.16 NM 19.21 23.78 NM NM = Not Meaningful (a) See pages 9 and 11 for a reconciliation of these non-GAAP measures. Horizon Air Financial and Statistical Data Three Months Six Months Ended June 30, Ended June 30, Financial Data (in millions): 2007 2006 % Change 2007 2006 % Change Operating Revenues: Passenger (a) $175.7 $160.4 9.5 $335.1 $304.2 10.2 Freight and mail 0.6 1.1 (45.5) 1.1 2.0 (45.0) Other - net 1.7 1.2 41.7 3.4 2.7 25.9 Total Operating Revenues 178.0 162.7 9.4 339.6 308.9 9.9 Operating Expenses: Wages and benefits 50.2 46.5 8.0 99.1 93.0 6.6 Variable incentive pay 1.7 3.0 (43.3) 4.5 5.1 (11.8) Aircraft fuel, including hedging gains and losses 34.4 26.1 31.8 61.7 47.2 30.7 Aircraft maintenance 24.5 15.9 54.1 48.7 32.8 48.5 Aircraft rent 16.8 17.2 (2.3) 33.8 34.5 (2.0) Landing fees and other rentals 14.5 11.7 23.9 27.7 22.6 22.6 Contracted services 6.7 6.9 (2.9) 12.8 13.4 (4.5) Selling expenses 7.7 8.3 (7.2) 15.1 16.4 (7.9) Depreciation and amortization 7.9 4.3 83.7 14.1 8.7 62.1 Food and beverage service 0.8 0.6 33.3 1.4 1.3 7.7 Other 11.7 12.0 (2.5) 24.5 23.4 4.7 Fleet transition costs 3.7 -- NM 6.7 -- NM Total Operating Expenses 180.6 152.5 18.4 350.1 298.4 17.3 Operating Income (Loss) (2.6) 10.2 NM (10.5) 10.5 NM Interest income 1.3 1.0 2.3 1.7 Interest expense (4.3) (2.2) (7.3) (4.0) Interest capitalized 0.7 0.7 1.5 1.1 Other - net -- -- (0.1) -- (2.3) (0.5) (3.6) (1.2) Income (Loss) Before Income Tax $(4.9) $9.7 $(14.1) $9.3 Combined Operating Statistics: (a) Revenue passengers (000) 1,909 1,745 9.4 3,518 3,339 5.4 RPMs (000,000) "traffic" 731 690 5.9 1,358 1,310 3.7 ASMs (000,000) "capacity" 973 901 8.0 1,898 1,778 6.7 Passenger load factor 75.1% 76.6% (1.5)pts 71.5% 73.7% (2.2)pts Yield per passenger mile (in cents) 24.04 23.25 3.4 24.68 23.22 6.3 Operating revenue per ASM(in cents) 18.29 18.06 1.3 17.89 17.37 3.0 Operating expenses per ASM(in cents) 18.56 16.93 9.7 18.45 16.78 9.9 Operating expense per ASM excluding fuel (in cents)(b) 15.03 14.03 7.1 15.19 14.13 7.5 Operating expense per ASM excluding fuel and fleet transition costs (in cents)(b) 14.65 14.03 4.4 14.84 14.13 5.0 GAAP fuel cost per gallon $2.23 $1.98 12.6 $2.06 $1.81 13.8 Economic fuel cost per gallon (b) $2.21 $1.94 13.9 $2.11 $1.84 14.7 Fuel gallons (000,000) 15.4 13.2 16.7 30.0 26.1 14.9 Average number of full-time equivalent employees 3,771 3,531 6.8 3,732 3,535 5.6 Aircraft utilization (blk hrs/day) 8.5 8.8 (3.4) 8.6 8.8 (2.3) Operating fleet at period-end 74 69 5 a/c 74 69 5 a/c NM = Not Meaningful (a) Represents combined information for all Horizon flights, including those operated under Capacity Purchase Agreements (CPAs) with Alaska and as Frontier Jet Express. See page 10 for additional line of business information. (b) See pages 10 and 11 for a reconciliation of these non-GAAP measures. Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate,) fleet transition costs, and restructuring charges and adjustments. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without fleet transition costs and restructuring charges and adjustments is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major airlines. The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.: Alaska Airlines, Inc. (in millions, except for per ASM unit information) Three Months Six Months Ended June 30, Ended June 30, Mainline unit cost reconciliations: 2007 2006 2007 2006 Operating expenses $714.2 $639.5 $1,383.4 $1,353.8 Less: regional flying costs (74.1) (4.0) (141.5) (7.9) Mainline operating expenses $640.1 $635.5 $1,241.9 $1,345.9 Mainline ASMs 6,140 5,834 11,834 11,373 Mainline operating expenses per ASM (in cents) 10.43 10.89 10.49 11.83 Operating expenses $714.2 $639.5 $1,383.4 $1,353.8 Less: regional flying costs (74.1) (4.0) (141.5) (7.9) Less: aircraft fuel (193.4) (173.7) (351.0) (315.7) Less: fleet transition costs -- -- -- (131.1) Less: restructuring charges and adjustments -- (3.8) -- (3.8) Mainline operating expenses excluding fuel, fleet transition costs, and restructuring charges and adjustments $446.7 $458.0 $890.9 $895.3 Mainline ASMs 6,140 5,834 11,834 11,373 Mainline operating expenses per ASM excluding fuel, fleet transition costs, and restructuring charges and adjustments(in cents) 7.28 7.85 7.53 7.87 Three Months Ended Six Months Ended June 30, June 30, Reconciliation to GAAP income (loss) before taxes : 2007 2006 2007 2006 Income before taxes, excluding mark- to-market hedging gains (losses), fleet transition costs, and restructuring charges and adjustments $82.4 $79.6 $68.1 $87.2 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges (1.5) (3.3) 5.3 (4.5) Less: fleet transition costs -- -- -- (131.1) Less: restructuring charges and adjustments -- (3.8) -- (3.8) GAAP income (loss) before taxes as reported $80.9 $72.5 $73.4 $(52.2) Horizon Air Industries, Inc. (in millions, except for per ASM Three Months Ended Six Months Ended unit information) June 30, June 30, Unit cost reconciliations: 2007 2006 2007 2006 Operating expenses $180.6 $152.5 $350.1 $298.4 ASMs 973 901 1,898 1,778 Operating expenses per ASM (in cents) 18.56 16.93 18.45 16.78 Operating expenses $180.6 $152.5 $350.1 $298.4 Less: aircraft fuel (34.4) (26.1) (61.7) (47.2) Operating expenses excluding fuel $146.2 $126.4 $288.4 $251.2 ASMs 973 901 1,898 1,778 Operating expenses per ASM excluding fuel (in cents) 15.03 14.03 15.19 14.13 Unit cost reconciliations-excluding fleet transition costs: Operating expenses $180.6 $152.5 $350.1 $298.4 Less: aircraft fuel (34.4) (26.1) (61.7) (47.2) Less: fleet transition costs (3.7) -- (6.7) -- Operating expenses excluding fuel and fleet transition costs $142.5 $126.4 $281.7 $251.2 ASMs 973 901 1,898 1,778 Operating expenses per ASM excluding fuel and fleet transition costs (in cents) 14.65 14.03 14.84 14.13 Reconciliation to GAAP income before taxes: Income (loss) before taxes, excluding mark-to-market fuel hedging gains (losses) $(4.6) $10.2 $(15.8) $8.6 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges (0.3) (0.5) 1.7 0.7 GAAP income (loss) before taxes as reported $(4.9) $9.7 $(14.1) $9.3 Line of Business Information Horizon brand flying includes those routes in the Horizon system not covered by the Alaska and Frontier Capacity Purchase Agreements (CPA). Horizon bears the revenue risk in those markets and, as a result, traffic, yield and load factor impact revenue recorded by Horizon. In both CPA arrangements, Horizon is insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity. As a result, yield and load factor information is not presented. Three Months Ended June 30, 2007 Capacity and Mix Actual Current % Point Change (000,000) %Change Total Yr-over-Yr Brand Flying 492 16.6 51% 4 pts Alaska CPA 333 25.1 34% 4 pts Frontier CPA 148 (30.4) 15% (9) pts System Total 973 8.0 100% -- Load Factor Yield RASM Point Change Actual Actual Actual Yr-over-Yr (cents) %Change (cents) %Change Brand Flying 74.5% (0.8) pts 26.42 (7.4) 20.16 (7.7) Alaska CPA NM NM NM NM 20.69 (3.8) Frontier CPA NM NM NM NM 6.77 8.0 System Total 75.1% (1.5) pts 24.04 3.4 18.29 1.3 Six Months Ended June 30, 2007 Capacity and Mix Actual Current % Point Change (000,000) %Change Total Yr-over-Yr Brand Flying 955 14.1 50% 3 pts Alaska CPA 630 21.6 33% 4 pts Frontier CPA 313 (26.1) 17% (7) pts System Total 1,898 6.7 100% -- Load Factor Yield RASM Point Change Actual Actual Actual Yr-over-Yr (cents) %Change (cents) %Change Brand Flying 70.9% (2.1) pts 27.10 (3.7) 19.70 (5.9) Alaska CPA NM NM NM NM 20.81 0.3 Frontier CPA NM NM NM NM 6.50 5.1 System Total 71.5% (2.2) pts 24.68 6.3 17.89 3.0 NM= Not Meaningful. Alaska Airlines Fuel Reconciliation (in millions, except for per gallon amounts) Three Months Ended June 30, 2007 2006 Cost Cost Dollars /Gal Dollars /Gal Raw or "into-plane" fuel cost $196.9 $2.20 $200.0 $2.25 Less: gains during the period on settled hedges (5.0) (0.06) (29.6) (0.33) Economic fuel expense $191.9 $2.14 $170.4 $1.92 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges 1.5 0.02 3.3 0.04 GAAP fuel expense $193.4 $2.16 $173.7 $1.96 Fuel gallons 89.8 88.8 Six Months Ended June 30, 2007 2006 Cost Cost Dollars /Gal Dollars /Gal Raw or "into-plane" fuel cost $362.8 $2.09 $366.6 $2.12 Less: gains during the period on settled hedges (6.5) (0.04) (55.4) (0.32) Economic fuel expense $356.3 $2.05 $311.2 $1.80 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges (5.3) (0.03) 4.5 0.02 GAAP fuel expense $351.0 $2.02 $315.7 $1.82 Fuel gallons 173.9 173.3 Horizon Air Fuel Reconciliation (in millions, except for per gallon amounts) Three Months Ended June 30, 2007 2006 Cost Cost Dollars /Gal Dollars /Gal Raw or "into-plane" fuel cost $35.0 $2.27 $30.4 $2.30 Less: gains during the period on settled hedges (0.9) (0.06) (4.8) (0.36) Economic fuel expense $34.1 $2.21 $25.6 $1.94 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges 0.3 0.02 0.5 0.04 GAAP fuel expense $34.4 $2.23 $26.1 $1.98 Fuel gallons 15.4 13.2 Six Months Ended June 30, 2007 2006 Cost Cost Dollars /Gal Dollars /Gal Raw or "into-plane" fuel cost $64.6 $2.15 $56.9 $2.18 Less: gains during the period on settled hedges (1.2) (0.04) (9.0) (0.34) Economic fuel expense $63.4 $2.11 $47.9 $1.84 Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting on fuel hedges (1.7) (0.05) (0.7) (0.03) GAAP fuel expense $61.7 $2.06 $47.2 $1.81 Fuel gallons 30.0 26.1 Air Group Fuel Hedge Positions Approximate % of Approximate Crude Expected Oil Price Fuel Requirements per Barrel Third quarter 2007 50% $57.12 Fourth quarter 2007 50% $62.21 First quarter 2008 36% $61.92 Second quarter 2008 29% $63.53 Third quarter 2008 21% $63.94 Fourth quarter 2008 23% $64.20 First quarter 2009 5% $67.68 Second quarter 2009 5% $67.50 Third quarter 2009 6% $68.25 Air Group Capacity Guidance: The following table summarizes Alaska's and Horizon's expected increase in capacity as measured in available seat miles for the rest of 2007. Alaska Horizon Third quarter 2007 2-3% 15-16% Fourth quarter 2007 4-5% 8-9% Full year 2007 3-4% 9-10% Alaska and Horizon Unit Cost Forecast During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for the remainder of 2007. This forecasted unit cost information includes non-GAAP unit cost estimates which are summarized in the following table together with the most directly comparable GAAP unit cost for both Alaska Mainline and Horizon Combined: Alaska Airlines-Mainline Forecast of total Forecast of operating cost cost per per available available seat Forecast of seat mile, as mile, fuel cost per reported on a excluding available seat GAAP basis fuel(cents) mile(cents) (cents) Third quarter 2007 7.4-7.5 3.4 10.8-10.9 Fourth quarter 2007 7.6-7.7 3.4 11.0-11.1 Full year 2007 7.5-7.6 3.2 10.7-10.8 Horizon Air Combined Forecast of total Forecast of operating cost cost per per available available seat Forecast of seat mile, as mile, fuel cost per reported on a excluding available seat GAAP basis fuel(cents) mile(cents) (cents) Third quarter 2007 13.1-13.2 3.8 16.9-17.0 Fourth quarter 2007 14.0-14.1 4.1 18.1-18.2 Full year 2007 14.3-14.4 3.7 18.0-18.1 Our forecast of fuel costs is based on anticipated gallons consumed and estimated fuel cost per gallon. The estimate also includes the expected benefit from settled hedges. Given the volatility of fuel prices and the mark-to-market adjustments on our fuel hedge portfolio, readers should be cautioned that actual fuel expense will likely differ from the forecast above. Air Group operating fleet The following table displays the fleet count for Alaska and Horizon as of the end of the prior year and the current quarter, and the anticipated fleet count for the two remaining quarters in 2007 and as of December 31, 2008: Seats 31-Dec-06 30-June-07 30-Sept-07 31-Dec-07 31-Dec-08 Alaska Airlines 737-200C** 111 2 -- -- -- -- MD80 140 23 20 17 15 -- 737-400 144 39 35 35 34 32 737-400F** -- 1 1 1 1 1 737-400C** 72 -- 4 4 5 5 737-700 124 22 20 20 20 20 737-800* 157 15 22 25 29 46 737-900 172 12 12 12 12 12 Totals 114 114 114 116 116 Seats 31-Dec-06 30-June-07 30-Sept-07 31-Dec-07 31-Dec-08 Horizon Air Q200 37 28 22 19 16 11 Q400 74-76 20 31 33 33 36 CRJ-700 70 21 21 21 21 20 Totals 69 74 73 70 67 * The total assumes Alaska will identify one airplane for delivery in 2008 from Boeing or a lessor. ** F=Freighter; C=Combination freighter/passenger Air Group Year-to-Date and Projected Capital Expenditures (In Millions) Year-to-date June 30, 2007 Total 2007 Alaska $293 $570 Horizon 180 210 Total Air Group $473 $780 First Call Analyst: FCMN Contact: maria.koenig@alaskaair.com SOURCE: Alaska Air Group, Inc. CONTACT: Media, Amanda Tobin Bielawski, Media Relations Manager,+1-206-392-5134, or InvestorsAnalysts, Shannon Alberts, Managing Director ofInvestor Relations, +1-206-392-5218, both of Alaska Air Group, Inc. Web site: http://www.alaskaair.com/ 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