Alaska Air Group Reports Second Quarter Results
Share
Alaska Air Group, Inc. today reported a second quarter net loss of $1.7 million, or $0.06 per diluted share, compared to net income of $45.2 million, or $1.70 per diluted share, in the second...
Alaska Air Group, Inc. today reported a second quarter net loss of $1.7 million, or $0.06 per diluted share, compared to net income of $45.2 million, or $1.70 per diluted share, in the second quarter of 2003.
Second quarter results include impairment charges of $37.2 million ($24.7 million, net of tax, or $0.92 per share), substantially all of which was associated with a decision to accelerate the retirement of the company's Boeing 737-200C fleet. Second quarter results also include $22.3 million ($14.8 million, net of tax, or $0.55 per share) in mark-to-market hedging gains reflecting an increase in the fair value of the company's current hedge portfolio since March 31, 2004, which resulted from the loss of "hedge accounting" during the quarter. Without these items in 2004 and excluding the government compensation received in 2003, net income would have been $8.2 million, or $0.31 per share during 2004, compared to net income of $0.9 million, or $0.04 per share, in 2003.
"These results demonstrate real progress with our plan to reduce costs," said Bill Ayer, chairman and chief executive officer. "But change in our industry has been rapid, radical and permanent, so we need to pick up the pace. As we proceed, we will consider every possible option that helps us achieve near-term cost competitiveness and, in turn, assures our company's long-term viability."
Operationally, Alaska Airlines' passenger traffic in the second quarter increased 11.6 percent on a capacity increase of 8.2 percent. Alaska's load factor increased 2.2 percentage points to 72.8 percent compared to the same period in 2003. Alaska's operating revenue per available seat mile (ASM) increased 4.6 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 4.1 percent. Alaska's pretax loss for the quarter was $2.8 million, compared to pretax income of $59.6 million in 2003. Excluding the notable items referenced above, Alaska's pretax income was $14.4 million for the quarter compared to $6.8 million in 2003.
Horizon Air's passenger traffic in the second quarter increased 33.8 percent on a 25.1 percent capacity increase. Horizon's load factor increased by 4.2 percentage points to 67.5 percent compared to the same period in 2003. Horizon's operating revenue per ASM decreased 9.9 percent, while its operating cost per ASM excluding fuel and impairment charge decreased 17.2 percent. The decrease in Horizon's revenue per ASM and cost per ASM excluding fuel and impairment charge is largely due to the addition of Horizon's contract flying for Frontier Airlines. This flying represented 22.5 percent of Horizon's capacity during the second quarter and 9.6 percent of its passenger revenues. Horizon's pretax income for the quarter was $4.7 million, compared to a pretax income of $15.7 million in 2003. Excluding the notable items referenced above, Horizon's pretax income was $2.4 million for the quarter compared to a pretax loss of $2.9 million in 2003.
Alaska Air Group had cash and short-term investments at June 30, 2004 of approximately $865 million compared to $812 million at December 31, 2003. The company's debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 79 percent as of June 30, 2004 compared to 77 percent as of December 31, 2003.
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 6 to 10.
A conference call regarding the second quarter 2004 results will be simulcast via the internet at 8:30 a.m. Pacific Daylight Time. It may be accessed through the company's website at www.alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at www.alaskaair.com.
This report may contain forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or future financial performance and involve known and unknown risks and uncertainties that may cause 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 actual results to differ from expectations are: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; the company's significant indebtedness; downgrades of the company's credit ratings; the competitive environment and other trends in the company's industry; changes in laws and regulations; changes in the company's operating costs including fuel; changes in the company's business plans; interest rates and the availability of financing; liability and other claims asserted against the company; labor disputes; the company's ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see Item 1 of the company's Annual Report on Form 10-K/A for the year ended December 31, 2003. 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. The company operates 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 the company's business or events described in any forward-looking statements. The company disclaims any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results.
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
2003 2004 2003 2004
Operating Revenues:
Passenger $556.9 $637.4 $1,032.4 $1,190.7
Freight and mail 22.4 24.2 41.0 42.8
Other -- net 31.3 37.1 55.9 63.6
Total Operating Revenues 610.6 698.7 1,129.3 1,297.1
Operating Expenses:
Wages and benefits 232.5 244.6 459.6 486.9
Contracted services 24.4 33.4 50.1 60.5
Aircraft fuel 83.5 128.6 173.7 236.4
Aircraft maintenance 51.9 50.1 97.8 100.9
Aircraft rent 49.4 47.0 96.9 94.8
Food and beverage service 15.6 13.6 29.0 25.2
Other selling expenses and commissions 32.5 35.6 63.0 74.0
Depreciation and amortization 33.1 34.0 65.5 70.1
Loss on sale of assets -- 1.0 0.1 1.4
Landing fees and other rentals 40.2 45.4 77.3 88.2
Other 46.9 48.8 94.3 98.2
Impairment of aircraft and spare
engines -- 37.2 -- 39.6
Total Operating Expenses 610.0 719.3 1,207.3 1,376.2
Operating Income (Loss) 0.6 (20.6) (78.0) (79.1)
Nonoperating Income (Expense):
Interest income 5.4 6.1 6.0 10.7
Interest expense (14.2) (12.6) (25.3) (25.3)
Interest capitalized 0.7 0.3 1.5 0.6
U.S. government compensation 71.4 -- 71.4 --
Other - net 8.9 26.1 9.3 26.2
72.2 19.9 62.9 12.2
Income (loss) before income tax 72.8 (0.7) (15.1) (66.9)
Income tax expense (benefit) 27.6 1.0 (4.0) (22.5)
Net Income (Loss) $45.2 ($1.7) ($11.1) ($44.4)
Basic and Diluted Earnings (Loss) Per
Share:
Earnings (Loss) Per Share $1.70 $(0.06) $(0.42) $(1.66)
Shares used for computation:
Basic 26.618 26.818 26.600 26.798
Diluted 26.619 26.818 26.600 26.798
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
December 31, June 30,
(In Millions) 2003 2004
Cash and marketable securities $812 $865
Total current assets $1,148 $1,253
Property and equipment-net 1,949 1,919
Other assets 162 190
Total assets $3,259 $3,362
Current liabilities $1,017 $1,033
Long-term debt and capital lease obligations 907 1,003
Other liabilities and credits 661 690
Shareholders' equity 674 636
Total liabilities and equity $3,259 $3,362
Alaska Airlines Financial and Statistical Data
Three Months Ended June 30 Six Months Ended June 30
Financial Data (in % %
millions): 2003 2004 Change 2003 2004 Change
Operating Revenues:
Passenger $460.6 $519.9 12.9% $847.6 $969.2 14.3%
Freight and mail 21.0 23.1 10.0% 38.4 40.8 6.3%
Other -- net 29.0 34.6 19.3% 51.6 58.9 14.1%
Total Operating
Revenues 510.6 577.6 13.1% 937.6 1,068.9 14.0%
Operating Expenses:
Wages and benefits 192.0 203.7 6.1% 380.0 404.5 6.4%
Contracted services 19.7 29.4 49.2% 40.4 52.5 30.0%
Aircraft fuel 72.0 112.6 56.4% 148.9 206.2 38.5%
Aircraft maintenance 44.6 40.7 -8.7% 82.5 84.2 2.1%
Aircraft rent 31.2 27.9 -10.6% 61.7 57.4 -7.0%
Food and beverage
service 14.9 13.0 -12.8% 27.8 24.2 -12.9%
Other selling
expenses and
commissions 35.5 31.3 -11.8% 65.6 65.2 -0.6%
Depreciation and
amortization 29.6 30.4 2.7% 58.1 63.2 8.8%
Loss on sale of
assets 0.2 1.1 NM 0.5 1.9 NM
Landing fees and
other rentals 31.2 35.3 13.1% 59.9 68.5 14.4%
Other 34.3 37.0 7.9% 68.4 73.9 8.0%
Impairment of
aircraft -- 36.8 100.0% -- 36.8 100.0%
Total Operating
Expenses 505.2 599.2 18.6% 993.8 1,138.5 14.6%
Operating Income
(Loss) 5.4 (21.6) NM (56.2) (69.6) NM
Interest income 4.5 6.3 5.7 11.6
Interest expense (11.4) (10.7) (22.7) (21.5)
Interest capitalized 0.4 0.2 1.1 0.3
U.S. government
compensation 52.8 -- 52.8 --
Other -- net 7.9 23.0 8.3 23.2
54.2 18.8 45.2 13.6
Income (Loss) Before
Income Tax $59.6 $(2.8) NM $(11.0) $(56.0) NM
Operating Statistics:
Revenue passengers
(000) 3,797 4,116 8.4% 7,055 7,707 9.2%
RPMs (000,000) 3,678 4,104 11.6% 6,821 7,684 12.7%
ASMs (000,000) 5,209 5,635 8.2% 9,918 10,813 9.0%
Passenger load factor 70.6% 72.8% 2.2 pts 68.8% 71.1% 2.3 pts
Breakeven load
factor, excluding
impairment charge 70.2% 68.5% -1.7 pts 74.9% 73.3% -1.6 pts
Yield per passenger
mile (in cents) .1252 .1267 1.2% .1243 12.61 1.4%
Operating revenue per
ASM (in cents) 9.80 10.25 4.6% 9.45 9.89 4.7%
Operating expenses
per ASM (in cents)(a) 9.70 10.63 9.6% 10.02 10.53 5.1%
Operating expenses
per ASM excluding
fuel and impairment
charge (in cents) (a) 8.32 7.98 -4.1% 8.52 8.28 -2.8%
Fuel cost per gallon
(in cents)(a) 85.4 126.7 48.4% 92.0 120.0 30.4%
Fuel cost per gallon
excluding all
hedging activities
(in cents)(a) 91.1 131.6 44.5% 98.0 124.4 26.9%
Economic fuel cost
per gallon
(in cents)(a) 82.0 123.1 50.1% 90.2 118.2 31.0%
Fuel gallons
(000,000) 84.3 88.9 5.5% 161.9 171.8 6.1%
Average number of
employees 10,136 10,255 1.2% 10,062 10,120 0.6%
Aircraft utilization
(blk hrs/day) 10.5 11.1 5.7% 10.4 10.7 2.9%
Operating fleet at
period-end 110 108 -1.8% 110 108 -1.8%
NM = Not Meaningful
(a) See Note A
Horizon Air Financial and Statistical Data
Three Months Ended Six Months Ended
June 30 June 30
Financial Data (in % %
millions): 2003 2004 Change 2003 2004 Change
Operating Revenues:
Passenger $105.6 $119.9 13.5% $199.6 $225.9 13.2%
Freight and mail 1.4 1.1 -21.4% 2.6 2.0 -23.1%
Other -- net 3.7 3.7 0.0% 7.4 7.1 -4.1%
Total Operating
Revenues 110.7 124.7 12.6% 209.6 235.0 12.1%
Operating Expenses:
Wages and benefits 40.5 40.9 1.0% 79.6 82.4 3.5%
Contracted services 6.1 5.2 -14.8% 12.7 10.4 -18.1%
Aircraft fuel 11.5 16.0 39.1% 24.8 30.2 21.8%
Aircraft maintenance 7.3 9.4 28.8% 15.3 16.7 9.2%
Aircraft rent 18.2 19.1 4.9% 35.2 37.4 6.3%
Food and beverage
service 0.7 0.6 -14.3% 1.2 1.0 -16.7%
Other selling expenses
and commissions 6.3 6.7 6.3% 12.2 13.2 8.2%
Depreciation and
amortization 3.2 3.3 3.1% 6.8 6.3 -7.4%
Gain on sale of assets (0.2) (0.1) NM (0.4) (0.5) NM
Landing fees and other
rentals 9.2 10.3 12.0% 17.9 20.2 12.8%
Other 11.4 10.8 -5.3% 22.9 22.3 -2.6%
Impairment of aircraft
and spare engines -- 0.4 100.0% -- 2.8 100.0%
Total Operating
Expenses 114.2 122.6 7.4% 228.2 242.4 6.2%
Operating (Income) Loss (3.5) 2.1 NM (18.6) (7.4) NM
Interest income 0.1 0.4 0.3 0.6
Interest expense (0.8) (1.0) (1.3) (2.3)
Interest capitalized 0.3 0.1 0.4 0.3
Government compensation 18.6 -- 18.6 --
Other -- net 1.0 3.1 1.0 3.1
19.2 2.6 19.0 1.7
Income (Loss) Before
Income Tax $15.7 $4.7 NM $0.4 $(5.7) NM
Operating Statistics:
Revenue passengers
(000) 1,207 1,454 20.5% 2,295 2,721 18.6%
RPMs (000,000) 400 535 33.8% 758 985 29.9%
ASMs (000,000) 633 792 25.1% 1,248 1,484 18.9%
Passenger load factor 63.3% 67.5% 4.2 pts 60.7% 66.4% 5.7 pts
Breakeven load factor,
excluding impairment
charge 65.3% 65.0% -0.3 pts 66.8% 66.9% 0.1 pts
Yield per passenger
mile (in cents) 26.40 22.42 -15.1% 26.33 22.94 -12.9%
Operating revenue per
ASM (in cents) 17.49 15.75 -9.9% 16.79 15.84 -5.7%
Operating expenses per
ASM (in cents)(a) 18.04 15.49 -14.1% 18.29 16.34 -10.7%
Operating expenses per
ASM excluding fuel and
impairment charge
(in cents)(a) 16.22 13.43 -17.2% 16.30 14.12 -13.4%
Fuel cost per gallon
(in cents)(a) 87.8 131.1 49.3% 95.0 124.3 30.8%
Fuel cost per gallon
excluding all hedging
activities
(in cents)(a) 88.5 136.1 53.8% 101.5 128.4 26.5%
Economic fuel cost per
gallon (in cents)(a) 83.5 127.1 52.2% 92.7 122.8 32.5%
Fuel gallons (000,000) 13.1 12.2 -6.9% 26.1 24.3 -6.9%
Average number of
employees 3,342 3,414 2.2% 3,378 3,379 0.0%
Aircraft utilization
(blk hrs/day) 7.8 8.4 7.7% 7.8 8.0 2.6%
Operating fleet at
period-end 59 64 8.5% 59 64 8.5%
NM = Not Meaningful
(a) See Note A
Note A:
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 our performance both with and without the cost of aircraft fuel
(including the impact of our fuel hedging program where appropriate), the
impairment charge related to Alaska's 737-200 aircraft and Horizon's F-28
aircraft and spare engines, government compensation and mark-to-market
hedging gains recorded during the second quarter of 2004. Because the
cost and availability of aircraft fuel are subject to many economic and
political factors beyond our control, 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 impairment
charges, government compensation and mark-to-market hedging gains is
useful to investors in evaluating our ongoing operational performance.
Finally, these non-GAAP financial measures are also more comparable to
financial measures reported to the Department of Transportation by other
major network 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.:
Three Months Six Months
($ in millions) Ended Ended
June 30, June 30,
Unit cost reconciliations: 2003 2004 2003 2004
Operating expenses $505.2 $599.2 $993.8 $1,138.5
ASMs (000,000) 5,209 5,635 9,918 10,813
Operating expenses per ASM
(in cents) 9.70 10.63 10.02 10.53
Operating expenses $505.2 $599.2 $993.8 $1,138.5
Less: aircraft fuel (72.0) (112.6) (148.9) (206.2)
Less: impairment of aircraft -- (36.8) -- (36.8)
Operating expense excluding fuel and
impairment charge $433.2 $449.8 $844.9 $895.5
ASMs (000,000) 5,209 5,635 9,918 10,813
Operating expense per ASM excluding
fuel and impairment charge
(in cents) 8.32 7.98 8.52 8.28
Aircraft fuel reconciliations:
Aircraft fuel $72.0 $112.6 $148.9 $206.2
Fuel gallons (000,000) 84.3 88.9 161.9 171.8
Fuel cost per gallon (GAAP basis)
(in cents) 85.4 126.7 92.0 120.0
Aircraft fuel $72.0 $112.6 $148.9 $206.2
Add: hedging gains included in
aircraft fuel 4.8 4.4 9.7 7.5
Aircraft fuel excluding all hedging
gains $76.8 $117.0 $158.6 $213.7
Fuel gallons (000,000) 84.3 88.9 161.9 171.8
Fuel cost per gallon excluding all
hedging activities (in cents) 91.1 131.6 98.0 124.4
Aircraft fuel $72.0 $112.6 $148.9 $206.2
Less: Gains on settled hedges
included in nonoperating
income (expense) (2.9) (3.2) (2.9) (3.2)
Adjusted fuel 69.1 109.4 146.0 203.0
Fuel gallons (000,000) 84.3 88.9 161.9 171.8
Economic fuel cost per gallon
(in cents) 82.0 123.1 90.2 118.2
Reconciliation to GAAP pretax income
(loss):
Pretax income (loss) excluding
impairment charge, government
comp and mark-to-market hedging
gains $6.8 $14.4 ($63.8) ($39.3)
Less: impairment of aircraft and
related spare parts -- (36.8) -- (36.8)
Add: government compensation 52.8 - 52.8 --
Add: mark-to-market hedging gains
included
in nonoperating
income (expense) -- 19.6 -- 20.1
Pretax income (loss) reported GAAP
amounts $59.6 ($2.8) ($11.0) ($56.0)
Horizon Air Industries, Inc.
Three Months Six Months
Ended Ended
($ in millions) June 30, June 30,
Unit cost reconciliations: 2003 2004 2003 2004
Operating expenses $114.2 $122.6 $228.2 $242.4
ASMs (000,000) 633 792 1,248 1,484
Operating expenses per ASM
(in cents) 18.04 15.49 18.29 16.34
Operating expenses $114.2 $122.6 $228.2 $242.4
Less: aircraft fuel (11.5) (16.0) (24.8) (30.2)
Less: impairment of aircraft -- (0.4) -- (2.8)
Operating expense excluding fuel and
impairment charge $102.7 $106.2 $203.4 $209.4
ASMs (000,000) 633 792 1,248 1,484
Operating expense per ASM excluding
fuel and impairment charge
(in cents) 16.22 13.43 16.30 14.12
Aircraft fuel reconciliations:
Aircraft fuel $11.5 $16.0 $24.8 $30.2
Fuel gallons (000,000) 13.1 12.2 26.1 24.3
Fuel cost per gallon (GAAP basis)
(in cents) 87.8 131.1 95.0 124.3
Aircraft fuel $11.5 $16.0 $24.8 $30.2
Add: hedging gains included in
aircraft fuel 0.1 0.6 1.7 1.0
Aircraft fuel excluding all hedging
gains $11.6 $16.6 $26.5 $31.2
Fuel gallons (000,000) 13.1 12.2 26.1 24.3
Fuel cost per gallon excluding all
hedging activities (in cents) 88.5 136.1 101.5 128.4
Aircraft fuel $11.5 $16.0 $24.8 $30.2
Less: Gains on settled hedges
included in nonoperating
income (expense) (0.5) (0.4) (0.5) (0.4)
Adjusted fuel 11.0 15.6 24.3 29.8
Fuel gallons (000,000) 13.1 12.2 26.1 24.3
Economic fuel cost per gallon
(in cents) 83.5 127.1 92.7 122.8
Reconciliation to GAAP pretax income
(loss):
Pretax income (loss) excluding
impairment charge, government
comp and mark-to-market hedging
gains ($2.9) $2.4 ($18.2) ($5.6)
Less: impairment of aircraft and
related spare parts -- (0.4) -- (2.8)
Add: government compensation 18.6 - 18.6 --
Add: mark-to-market hedging gains
included
in nonoperating
income (expense) -- 2.7 -- 2.7
Pretax income (loss) reported GAAP
amounts $15.7 $4.7 $0.4 ($5.7)
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net earnings
(loss) and diluted income (loss) per share during 2003 and 2004 excluding
impairment charges, the second quarter of 2004 hedging mark-to-market
gain of $22.3 million ($14.8 million, net of tax), government
compensation and as reported in accordance with GAAP (in millions except
per share amounts):
Three Months Ended June 30,
2003 2004
Dollars EPS Dollars EPS
Net income (loss) and diluted EPS
excluding government compensation
and impairment charge $0.9 $0.04 $8.2 $0.31
Government compensation, net of tax 44.3 1.66 -- --
Mark-to-market hedging gains, net of
tax -- -- 14.8 $0.55
Impairment charge, net of tax -- -- (24.7) (0.92)
Reported GAAP amounts $45.2 $1.70 ($1.7) ($0.06)
Six Months Ended June 30,
2003 2004
Dollars EPS Dollars EPS
Net loss and diluted EPS excluding
government compensation and
impairment charge ($55.4) ($2.09) ($33.2) ($1.24)
Government compensation, net of tax 44.3 1.67 -- --
Mark-to-market hedging gains, net of
tax -- -- 15.1 $0.56
Impairment charge, net of tax -- -- (26.3) (0.98)
Reported GAAP amounts ($11.1) ($0.42) ($44.4) ($1.66)
SOURCE: Alaska Airlines
CONTACT: Brad Tilden, +1-206-392-5362, or Lou Cancelmi, +1-206-392-5170,
both of Alaska Airlines
Web site: http://www.alaskaair.com/