Alaska Air Group Reports Second Quarter Results
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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.
"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 of
Investor Relations, +1-206-392-5218, both of Alaska Air Group, Inc.
Web site: http://www.alaskaair.com/
