Alaska Air Group Reports Third Quarter Results
Share
Alaska Air Group, Inc. today reported a net loss of $86.5 million for the third quarter of 2008, compared to net income of $81.8 million in 2007. Excluding special items, the company reported a...
Alaska Air Group, Inc.
"We are pleased to report an adjusted profit for the third quarter. Improved yields at both airlines helped recoup a portion of the $110 million increase in economic fuel expense," said Bill Ayer, Alaska Air Group’s chairman and chief executive officer. "Looking forward, the volatility of oil prices and the weak economy make this an extremely challenging environment. The key is to adapt our business to the changing conditions. Our fleet, balance sheet and strong customer following put us in a great position to do just that. I am grateful to the employees of Alaska and Horizon who, in spite of unprecedented headwinds, have kept their focus on customers and have dramatically improved our operation."
The current-period results include a loss of $218.2 million ($136.7 million after tax, or $3.79 per diluted share) associated with the decline in the value of the company’s fuel-hedge portfolio, compared to a $4.8 million gain ($3.0 million after tax, or $0.08 per diluted share) in the third quarter of 2007. "While the value of the portfolio of our hedges that will settle in future periods has declined with the drop in oil prices, the total value at the end of the second quarter was still nearly $100 million. We had a net cash benefit of $44 million for hedges that settled during the quarter and $130 million so far this year," Ayer said.
Under GAAP accounting rules, the company’s fuel-hedge portfolio must reflect the current market value at each reporting date, with changes in market value reflected in current-period earnings. For hedge contracts that settle in future periods, rising oil prices generally result in recording unrealized gains; conversely, falling oil prices generally result in recording unrealized losses. To a large extent, this quarter’s $218.2 million mark-to- market loss offsets the $155.3 million mark-to-market gain reported in the second quarter when oil prices were at historical highs.
Other special items in the third quarter of 2008 include MD-80 and CRJ-700 fleet transition costs of $22.2 million ($13.9 million after tax, or $0.38 per diluted share) and severance costs of $3.7 million ($2.3 million after tax, or $0.06 per diluted share) associated with the reductions in force. During the third quarter, Alaska also recorded a $42.3 million benefit ($26.5 million after tax, or $0.73 per diluted share) from the reduction in the number of Mileage Plan miles outstanding after deleting accounts with no activity for more than two years under its new policy.
Alaska Airlines’ mainline passenger traffic in the third quarter declined 1.1 percent on a capacity decline of 0.8 percent, compared to the third quarter of 2007. Load factor declined 0.2 percentage points to 79.5 percent. Alaska’s mainline passenger revenue per available seat mile (ASM) increased 4.4 percent and its operating cost per ASM excluding fuel and the special items mentioned above declined 0.7 percent. Alaska’s total pretax loss for the quarter was $107.4 million, compared to pretax income of $127.4 million in 2007. Excluding the special items above, Alaska’s pretax income was $56.6 million for the quarter, compared to pretax income of $123.4 million in the third quarter of 2007.
Horizon Air’s passenger traffic in the third quarter declined 13.9 percent on a 12.8 percent capacity decrease. Load factor decreased by 0.9 percentage points to 76.3 percent. Horizon’s passenger revenue per ASM increased 18.8 percent, and its operating cost per ASM excluding fuel and the special items mentioned above increased 0.7 percent. Horizon’s total pretax loss for the quarter was $25.1 million, compared to pretax income of $8.3 million in 2007. Excluding special items, Horizon’s pretax income was $12.7 million for the quarter, compared to pretax income of $7.5 million in the third quarter of 2007.
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 in the accompanying tables.
A conference call regarding the third quarter 2008 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Oct. 23, 2008. 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 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. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."
This news release contains 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, 2007. Some of these risks include increased competition, significant fuel costs, general economic conditions, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes. 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 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 sister carrier Horizon Air together serve 90 cities through an expansive network in Alaska, the Lower 48, Hawaii, 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)
Three Months Ended Nine Months Ended
(in millions, except per share September 30, September 30,(1)
amounts) 2008 2007 2008 2007
Operating Revenues:
Passenger $952.8 $920.2 $2,592.0 $2,452.2
Freight and mail 30.5 27.0 80.4 75.6
Other - net 39.6 41.6 120.8 124.8
Change in Mileage Plan terms 42.3 - 42.3 -
Total Operating Revenues 1,065.2 988.8 2,835.5 2,652.6
Operating Expenses:
Wages and benefits 232.1 241.1 711.2 715.8
Variable incentive pay 6.3 2.9 15.0 17.2
Aircraft fuel, including hedging
gains and losses 575.6 243.1 1,039.6 655.8
Aircraft maintenance 47.4 59.2 159.6 176.7
Aircraft rent 40.2 45.2 126.1 133.2
Landing fees and other rentals 56.8 58.1 169.7 169.3
Contracted services 40.2 40.4 128.3 118.8
Selling expenses 41.7 42.7 120.3 122.8
Depreciation and amortization 52.1 46.6 152.9 132.3
Food and beverage service 13.5 12.9 39.2 36.9
Other 52.7 55.7 171.4 167.7
Restructuring charges 3.7 - 3.7 -
Fleet transition costs - MD-80 21.5 - 47.5 -
Fleet transition costs - CRJ-700 0.7 - 6.8 -
Fleet transition costs - Q200 0.7 3.9 9.7 10.6
Total Operating Expenses 1,185.2 851.8 2,901.0 2,457.1
Operating Income (Loss) (120.0) 137.0 (65.5) 195.5
Nonoperating Income (Expense):
Interest income 10.7 13.8 31.5 42.0
Interest expense (25.9) (22.8) (74.3) (66.3)
Interest capitalized 5.9 7.1 18.5 20.9
Other - net (3.7) (0.3) (3.4) (1.2)
(13.0) (2.2) (27.7) (4.6)
Income (loss) before income tax (133.0) 134.8 (93.2) 190.9
Income tax expense (benefit) (46.5) 53.0 (32.5) 74.0
Net Income (Loss) $(86.5) $81.8 $(60.7) $116.9
Basic Earnings (Loss) Per Share: $(2.40) $2.02 $(1.67) $2.89
Diluted Earnings (Loss) Per Share: $(2.40) $2.01 $(1.67) $2.86
Shares Used for Computation:
Basic 36.069 40.483 36.383 40.433
Diluted 36.069 40.775 36.383 40.941
(1) See note on page 6 for information regarding an immaterial correction
of amounts in the nine-month periods ended September 30, 2008 and
2007. The correction reduced net income or loss by $1.5 million ($0.04
per share) for the nine months ended September 30, 2008 and $0.7
million ($0.02 per share) for the nine months ended September 30,
2007.
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31,
(in millions) 2008 2007
Cash and marketable securities $1,067 $823
Total current assets 1,679 1,391
Property and equipment-net 3,218 2,962
Other assets 169 138
Total assets $5,066 $4,491
Current liabilities $1,540 $1,374
Long-term debt 1,613 1,125
Other liabilities and credits 987 966
Shareholders' equity 926 1,026
Total liabilities and shareholders' equity $5,066 $4,491
Debt to Capitalization, adjusted for
operating leases 75%:25% 70%:30%
Number of common shares outstanding 36.209 38.051
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 2008 and 2007 excluding the benefit
of the change in Mileage Plan expiration terms, restructuring and MD-80
and CRJ-700 fleet transition costs, and to reflect the timing of gain or
loss recognition resulting from mark-to-market fuel-hedge accounting as
reported in accordance with GAAP (in millions except per share amounts):
Three Months Ended September 30,
2008 2007
Diluted Diluted
Dollars EPS* Dollars EPS
Net income and diluted EPS, excluding
the items noted below $39.9 $1.10 $78.8 $1.93
Change in Mileage Plan terms, net of
tax 26.5 0.73 - -
Restructuring charges, net of tax (2.3) (0.06) - -
Fleet transition costs - MD-80, net
of tax (13.5) (0.37) - -
Fleet transition costs - CRJ-700, net
of tax (0.4) (0.01) - -
Adjustments to reflect the timing of
gain or loss recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax (136.7) (3.79) 3.0 0.08
Reported GAAP amounts $(86.5) $(2.40) $81.8 $2.01
Nine Months Ended September 30,(1)
2008 2007
Diluted Diluted
Dollars EPS Dollars EPS
Net income (loss) and diluted EPS,
excluding the items noted below $(12.0) $(0.33) $109.5 $2.67
Change in Mileage Plan terms, net of
tax 26.5 0.73 - -
Restructuring charges, net of tax (2.3) (0.06) - -
Fleet transition costs - MD-80, net
of tax (29.8) (0.82) - -
Fleet transition costs - CRJ-700, net
of tax (4.2) (0.12) - -
Adjustments to reflect the timing of
gain or loss recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax (38.9) (1.07) 7.4 0.19
Reported GAAP amounts $(60.7) $(1.67) $116.9 $2.86
* Diluted EPS, excluding special items was calculated using diluted
weighted-average shares outstanding of 36.232 million.
(1) Correction of amounts presented for nine months ended September 30,
2008 and 2007
During the third quarter, we discovered an error in our calculation of
stock-based compensation expense for certain awards granted after
January 1, 2006. The error resulted in a $2.3 million understatement
of wages and benefits in the first quarter of 2008, a $1.1 million
understatement of expense in the first quarter of 2007 and a $2.9
million understatement of expense in 2006. We have concluded that
these items are not material to those periods, and in accordance with
SEC Staff Accounting Bulletin No. 108, we will make appropriate
adjustments to our previously filed financial statements when they are
presented in future Exchange Act reports.
Our results for the nine months ended September 30, 2008 and 2007 have
been adjusted for this item. We have also adjusted our Financial and
Statistical data schedules, unit cost reconciliations, and
reconciliations between GAAP and adjusted amounts for both Alaska and
Horizon.
Impact to 2008 reported amounts:
The impact was to increase Air Group wages and benefits expense and
total operating expenses and reduce the pretax result by $2.3 million
($1.9 million at Alaska and $0.4 million at Horizon). The after tax
impact to Air Group was $1.5 million or $0.04 per share for the first
quarter 2008. This amount impacts the first quarter of 2008 and thus
the nine-month period ended September 30, 2008.
Impact to 2007 reported amounts:
The impact was to increase Air Group wages and benefits expense and
total operating expenses and reduce the pretax result by $1.1 million
($1.0 at Alaska and $0.1 at Horizon). The after tax impact to Air
Group was $0.7 million or $0.02 per share. This amount impacts the
first quarter of 2008 and thus the nine-month period ended September
30, 2007. Our total 2007 results will also be impacted by the same
amount.
Alaska Airlines Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30, September 30, (c)
Financial Data
(in millions): 2008 2007 %Change 2008 2007 %Change
Operating Revenues:
Passenger $751.2 $725.2 3.6 $2,041.2 $1,934.4 5.5
Freight and mail 29.2 25.9 12.7 77.1 72.9 5.8
Other - net 33.5 35.4 (5.4) 101.2 105.8 (4.3)
Change in Mileage
Plan terms 42.3 - NM 42.3 - NM
Total mainline
operating revenues 856.2 786.5 8.9 2,261.8 2,113.1 7.0
Passenger -
purchased capacity 85.7 81.2 5.5 233.9 209.5 11.6
Total Operating
Revenues 941.9 867.7 8.6 2,495.7 2,322.6 7.5
Operating Expenses:
Wages and benefits 182.5 189.0 (3.4) 558.9 562.9 (0.7)
Variable
incentive pay 4.9 1.4 250.0 10.8 11.2 (3.6)
Aircraft fuel,
including hedging
gains and losses 479.1 204.3 134.5 864.0 555.3 55.6
Aircraft
maintenance 32.6 39.0 (16.4) 112.1 107.8 4.0
Aircraft rent 26.3 29.1 (9.6) 82.4 83.3 (1.1)
Landing fees and
other rentals 42.3 43.3 (2.3) 126.9 127.3 (0.3)
Contracted services 31.9 31.6 0.9 100.5 91.2 10.2
Selling expenses 33.1 34.3 (3.5) 95.6 99.3 (3.7)
Depreciation and
amortization 42.8 35.1 21.9 123.2 106.1 16.1
Food and beverage
service 12.8 12.2 4.9 37.1 34.8 6.6
Other 41.0 42.0 (2.4) 130.2 125.0 4.2
Restructuring
charges 3.7 - NM 3.7 - NM
Fleet transition
costs - MD-80 21.5 - NM 47.5 - NM
Total mainline
operating
expenses 954.5 661.3 44.3 2,292.9 1,904.2 20.4
Purchased capacity
costs 85.6 80.6 6.2 246.8 222.1 11.1
Total Operating
Expenses 1,040.1 741.9 40.2 2,539.7 2,126.3 19.4
Operating Income
(Loss) (98.2) 125.8 (44.0) 196.3
Interest income 12.8 17.2 38.2 49.7
Interest expense (23.5) (22.4) (67.5) (64.9)
Interest
capitalized 4.8 6.8 16.1 19.1
Other - net (3.3) - (2.7) (0.4)
(9.2) 1.6 (15.9) 3.5
Income (Loss)
Before Income
Tax $(107.4) $127.4 $(59.9) $199.8
Mainline Operating
Statistics:
Revenue
passengers (000) 4,532 4,878 (7.1) 13,037 13,367 (2.5)
RPMs (000,000)
"traffic" 5,012 5,067 (1.1) 14,410 13,953 3.3
ASMs (000,000)
"capacity" 6,306 6,354 (0.8) 18,628 18,188 2.4
Passenger load
factor 79.5% 79.7% (0.2)pts 77.4% 76.7% 0.7pts
Yield per
passenger
mile(in cents) 14.99 14.31 4.8 14.17 13.86 2.2
Operating revenue
per ASM "RASM"
(in cents) 13.58 12.38 9.7 12.14 11.62 4.5
Change in
Mileage Plan
terms per ASM
(in cents) 0.67 0.00 NM 0.23 0.00 NM
RASM excluding
change in Mileage
Plan terms
(in cents) 12.91 12.38 4.3 11.91 11.62 2.5
Passenger revenue
per ASM(in cents) 11.91 11.41 4.4 10.96 10.64 3.0
Operating expense
per ASM (c)
(in cents) 15.14 10.41 45.4 12.31 10.47 17.6
Operating expense
per ASM excluding
fuel, restructuring
charges and fleet
transition
costs (a) (c)
(in cents) 7.14 7.19 (0.7) 7.40 7.42 (0.3)
GAAP fuel cost
per gallon $5.57 $2.20 153.2 $3.34 $2.08 60.6
Economic fuel cost
per gallon (b) $3.47 $2.24 54.9 $3.14 $2.11 48.8
Fuel gallons
(000,000) 86.0 93.2 (7.7) 258.3 267.1 (3.3)
Average number of
full-time
equivalent
employees 9,594 9,753 (1.6) 9,785 9,681 1.1
Aircraft
utilization
(blk hrs/day) 10.8 11.2 (3.6) 10.8 11.0 (1.8)
Average aircraft
stage length
(miles) 981 925 6.1 975 920 6.0
Operating fleet
at period-end 110 114 (4 a/c) 110 114 (4 a/c)
Regional Operating
Statistics:
RPMs (000,000) 304 319 (4.7) 873 812 7.5
ASMs (000,000) 391 399 (2.0) 1,153 1,067 8.1
Passenger load
factor 77.7% 79.9% (2.2)pts 75.7% 76.1% (0.4)pts
Yield per passenger
mile(in cents) 28.19 25.45 10.7 26.79 25.80 3.8
Operating revenue
per ASM(in cents) 21.92 20.35 7.7 20.29 19.63 3.3
Operating expenses
per ASM
(in cents) 21.89 20.20 8.4 21.41 20.82 2.8
NM = Not Meaningful
(a) See page 9 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(b) See page 11 for a reconciliation of economic fuel cost.
(c) See note on page 6 for information regarding an immaterial adjustment
in the nine-month periods ended September 30, 2008 and 2007.
Horizon Air Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30, September 30, (d)
Financial Data (in
millions): 2008 2007 % Change 2008 2007 % Change
Operating Revenues:
Passenger - brand
flying $121.0 $108.4 11.6 $331.4 $292.1 13.5
Passenger - capacity
purchase arrangements
(a) 80.4 86.1 (6.6) 230.5 237.5 (2.9)
Total passenger
revenue 201.4 194.5 3.5 561.9 529.6 6.1
Freight and mail 0.8 0.7 14.3 2.1 1.8 16.7
Other - net 1.9 1.7 11.8 6.2 5.1 21.6
Total Operating
Revenues 204.1 196.9 3.7 570.2 536.5 6.3
Operating Expenses:
Wages and benefits 47.9 51.0 (6.1) 147.2 150.2 (2.0)
Variable incentive pay 1.4 1.5 (6.7) 4.2 6.0 (30.0)
Aircraft fuel,
including hedging
gains and losses 96.5 38.8 148.7 175.6 100.5 74.7
Aircraft maintenance 14.8 20.2 (26.7) 47.5 68.9 (31.1)
Aircraft rent 13.9 16.1 (13.7) 43.7 49.9 (12.4)
Landing fees and other
rentals 14.7 15.1 (2.6) 43.6 42.8 1.9
Contracted services 7.1 7.1 - 22.0 19.9 10.6
Selling expenses 8.6 8.4 2.4 24.7 23.5 5.1
Depreciation and
amortization 9.0 11.2 (19.6) 28.8 25.3 13.8
Food and beverage
service 0.7 0.7 - 2.1 2.1 -
Other 9.7 11.2 (13.4) 33.7 35.7 (5.6)
Fleet transition costs
- CRJ-700 0.7 - NM 6.8 - NM
Fleet transition costs
- Q200 0.7 3.9 (82.1) 9.7 10.6 (8.5)
Total Operating
Expenses 225.7 185.2 21.9 589.6 535.4 10.1
Operating Income
(Loss) (21.6) 11.7 (19.4) 1.1
Interest income 1.1 1.1 3.8 3.4
Interest expense (5.5) (4.8) (16.9) (12.1)
Interest capitalized 1.0 0.3 2.3 1.8
Other - net (0.1) - 0.1 (0.1)
(3.5) (3.4) (10.7) (7.0)
Income (Loss) Before
Income Tax $(25.1) $8.3 $(30.1) $(5.9)
Combined Operating
Statistics: (a)
Revenue passengers
(000) 1,989 2,104 (5.5) 5,754 5,622 2.3
RPMs (000,000)
"traffic" 721 837 (13.9) 2,074 2,195 (5.5)
ASMs (000,000)
"capacity" 945 1,084 (12.8) 2,831 2,982 (5.1)
Passenger load factor 76.3% 77.2% (0.9)pts 73.3% 73.6% (0.3)pts
Yield per passenger
mile(in cents) 27.93 23.24 20.2 27.09 24.13 12.3
Operating revenue per
ASM(in cents) 21.60 18.16 18.9 20.14 17.99 12.0
Passenger revenue per
ASM(in cents) 21.31 17.94 18.8 19.85 17.76 11.8
Operating expenses per
ASM (d)(in cents) 23.88 17.08 39.8 20.83¢ 17.95 16.0
Operating expense per
ASM excluding fuel
and CRJ-700 fleet
transition costs (b)
(d)(in cents) 13.60 13.51 0.7 14.38 14.58 (1.4)
GAAP fuel cost per
gallon $5.61 $2.26 148.2 $3.37 $2.13 58.2
Economic fuel cost per
gallon (c) $3.45 $2.30 50.0 $3.18 $2.18 45.9
Fuel gallons (000,000) 17.2 17.2 0.0 52.1 47.2 10.4
Average number of
full-time equivalent
employees 3,687 3,963 (7.0) 3,777 3,882 (2.7)
Aircraft utilization
(blk hrs/day) 8.5 8.8 (3.4) 8.4 8.7 (3.4)
Average aircraft stage
length (miles) 362 398 (9.0) 360 391 (7.9)
Operating fleet at
period-end 63 74 (11 a/c) 63 74 (11 a/c)
NM = Not Meaningful
(a) Represents combined information for Horizon flights operated under
Capacity Purchase Agreements (CPAs) with Alaska and as Frontier Jet
Express (through November 2007). See page 10 for additional line of
business information.
(b) See page 10 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(c) See page 11 for a reconciliation of economic fuel cost.
(d) See note on page 6 for information regarding an immaterial adjustment
in the nine-month periods ended September 30, 2008 and 2007.
Note A: Pursuant to Regulation G, 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. We
believe that consideration of this measure of unit costs excluding fuel,
purchased capacity costs, and other noted items may be important to
investors for the following reasons:
* Cost per available seat mile (ASM) excluding fuel, purchased
capacity costs, and other special items is one of the most important
measures used by managements of both Alaska and Horizon and the Air
Group Board of Directors in assessing quarterly and annual cost
performance and, for Alaska Airlines, the operating results of the
"mainline" operation, which includes the operation of aircraft
branded in Alaska Airlines livery.
* Cost per ASM excluding fuel, purchased capacity costs, and other
items as specified in our governing documents is an important metric
used in the employee incentive plan that covers company management
and executives.
* By eliminating fuel expense from our unit cost metrics, we believe
that we have better visibility into the results of our non-fuel
cost-reduction initiatives. Our industry is highly competitive, and
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, and
maintenance costs, which are more controllable by management.
* Cost per ASM excluding fuel and purchased capacity costs 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 current
or prospective investors.
* By eliminating the impact of certain noted or "special" items,
management is provided the ability to measure and monitor
performance both with and without these special items. Management
believes that the disclosure of the impact of certain items such as
the fleet transition costs is important to the reader as it provides
information on significant items that are not indicative of future
performance. Industry analysts and investors consistently measure
the Company's performance without these items for better
comparability between periods and between other airlines.
* Although we disclose our ''mainline'' unit revenues for Alaska to
eliminate those revenues associated with purchased capacity flying
performed by others on our behalf, we do not (nor are we able to)
present unit revenues excluding the impact that rising fuel costs
have had on ticket prices. This is a limitation of our non-GAAP
measure that excludes fuel from unit costs, as economic fuel
represents approximately 35% to 40% of our total mainline operating
expenses (excluding special items), and fluctuations in our fuel
prices are often the driver of changes in unit revenues in the mid-
to long term. We would caution the readers of these financial
statements not to place undue reliance on unit costs excluding fuel
as a measure or predictor of future profitability.
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 Ended Nine Months Ended
September 30, September 30,(1)
Mainline unit cost reconciliations: 2008 2007 2008 2007
Mainline operating expenses $954.5 $661.3 $2,292.9 $1,904.2
Mainline ASMs 6,306 6,354 18,628 18,188
Mainline operating expenses
per ASM(in cents) 15.14 10.41 12.31 10.47
Mainline operating expenses $954.5 $661.3 $2,292.9 $1,904.2
Less: aircraft fuel (479.1) (204.3) (864.0) (555.3)
Less: restructuring charges (3.7) - (3.7) -
Less: fleet transition costs - MD-80 (21.5) - (47.5) -
Mainline operating expenses excluding
fuel, restructuring charges
and fleet transition costs $450.2 $457.0 $1,377.7 $1,348.9
Mainline ASMs 6,306 6,354 18,628 18,188
Mainline operating expenses per ASM
excluding fuel, restructuring charges
and fleet transition costs(in cents) 7.14 7.19 7.40 7.42
Three Months Ended Nine Months Ended
September 30, September 30,(1)
Reconciliation to GAAP income (loss)
before taxes : 2008 2007 2008 2007
Income before taxes, excluding items
noted below $56.6 $123.4 $1.4 $190.5
Change in Mileage Plan terms 42.3 - 42.3 -
Restructuring charges (3.7) - (3.7) -
Fleet transition costs - MD-80 (21.5) - (47.5) -
Adjustments to reflect timing of gain
or loss recognition resulting from
mark-to-market accounting on fuel
hedges (181.1) 4.0 (52.4) 9.3
GAAP income (loss) before taxes as
reported $(107.4) $127.4 $(59.9) $199.8
(1) See note on page 6 for information regarding an immaterial adjustment
of amounts in the nine-month periods ended September 30, 2008 and
2007.
Horizon Air Industries, Inc.
(in millions, except for per ASM unit information)
Three Months Ended Nine Months Ended
September 30, September 30,(1)
Unit cost reconciliations: 2008 2007 2008 2007
Operating expenses $225.7 $185.2 $589.6 $535.4
ASMs 945 1,084 2,831 2,982
Operating expenses per ASM(in cents) 23.88 17.08 20.83 17.95
Operating expenses $225.7 $185.2 $589.6 $535.4
Less: aircraft fuel (96.5) (38.8) (175.6) (100.5)
Less: fleet transition costs - CRJ-
700 (0.7) - (6.8) -
Operating expenses excluding fuel
and CRJ-700 fleet transition costs $128.5 $146.4 $407.2 $434.9
ASMs 945 1,084 2,831 2,982
Operating expenses per ASM excluding
fuel and CRJ-700 fleet transition
costs(in cents) 13.60 13.51 14.38 14.58
Unit cost reconciliations-excluding
all fleet transition costs:
Operating expenses $225.7 $185.2 $589.6 $535.4
Less: aircraft fuel (96.5) (38.8) (175.6) (100.5)
Less: fleet transition costs - CRJ-
700 (0.7) - (6.8) -
Less: fleet transition costs - Q200 (0.7) (3.9) (9.7) (10.6)
Operating expenses excluding fuel
and all fleet transition costs $127.8 $142.5 $397.5 $424.3
ASMs 945 1,084 2,831 2,982
Operating expenses per ASM excluding
fuel and all fleet transition costs
(in cents) 13.52 13.15 14.04 14.23
Reconciliation to GAAP income (loss)
before taxes:
Income (loss) before taxes,
excluding mark-to-market fuel
hedging gains (losses)
and CRJ-700 fleet transition costs $12.7 $7.5 $(13.6) $(8.4)
Fleet transition costs - CRJ-700 (0.7) - (6.8) -
Adjustments to reflect timing of
gain or loss recognition resulting
from mark-to-market accounting on
fuel hedges (37.1) 0.8 (9.7) 2.5
GAAP income (loss) before taxes as
reported $(25.1) $8.3 $(30.1) $(5.9)
(1) See note on page 6 for information regarding an immaterial adjustment
of amounts in the nine-month periods ended September 30, 2008 and
2007.
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 CPA arrangements, Horizon is (or was, as was the case with the Frontier CPA which ended in November 2007) 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 September 30, 2008
Capacity and Mix Load Factor
2008 2007 Point
Actual Actual Change Current % Change
(000,000) (000,000) Y-O-Y Total Actual Y-O-Y
Brand Flying 568 562 1.1% 60% 75.0% 0.3
Alaska CPA 377 384 (1.8%) 40% NM NM
Frontier CPA - 138 (100.0%) 0% NM NM
System Total 945 1,084 (12.8%) 100% 76.3% (0.9)
NM= Not Meaningful
Yield RASM
Actual Change Actual Change
(in cents) Y-O-Y (in cents) Y-O-Y
Brand Flying 28.23 9.5% 21.63 9.8%
Alaska CPA NM NM 21.52 8.5%
Frontier CPA NM NM NM NM
System Total 27.93 20.2% 21.60 18.9%
NM= Not Meaningful
Nine Months Ended September 30, 2008
Capacity and Mix Load Factor
2008 2007 Point
Actual Actual Change Current % Change
(000,000) (000,000) Y-O-Y Total Actual Y-O-Y
Brand Flying 1,736 1,518 14.4% 61% 71.1% (1.2)
Alaska CPA 1,095 1,014 8.0% 39% NM NM
Frontier CPA - 450 (100.0%) 0% NM NM
System Total 2,831 2,982 (5.1%) 100% 73.3% 0.3
NM= Not Meaningful
Yield RASM
Actual Change Actual Change
(in cents) Y-O-Y (in cents) Y-O-Y
Brand Flying 26.80 7.0% 19.53 (0.9%)
Alaska CPA NM NM 21.11 3.2%
Frontier CPA NM NM NM NM
System Total 27.09 12.3% 20.14 12.0%
NM= Not Meaningful
Alaska Airlines Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended September 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane"
fuel cost $334.5 $3.89 $222.4 $2.39
Minus gains during the
period on settled
hedges (36.5) (0.42) (14.1) (0.15)
Economic fuel expense $298.0 $3.47 $208.3 $2.24
Minus the gain or plus
the loss recognized
during current period for
contracts settling in
future periods 119.5 1.39 (14.0) (0.15)
Plus the reversal of
cumulative gains
recognized in prior
periods for contracts
settled in current period 61.6 0.71 10.0 0.11
Net adjustments 181.1 2.10 (4.0) (0.04)
GAAP fuel expense $479.1 $5.57 $204.3 $2.20
Fuel gallons 86.0 93.2
Nine Months Ended September 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane"
fuel cost $918.8 $3.56 $585.2 $2.19
Minus gains during the
period on settled
hedges (107.2) (0.42) (20.6) (0.08)
Economic fuel expense $811.6 $3.14 $564.6 $2.11
Minus the gain
recognized during
current period for
contracts settling in
future periods (54.0) (0.21) (31.0) (0.11)
Plus the reversal of
cumulative gains
recognized in prior
periods for contracts
settled in current
period 106.4 0.41 21.7 0.08
Net adjustments 52.4 0.20 (9.3) (0.03)
GAAP fuel expense $864.0 $3.34 $555.3 $2.08
Fuel gallons 258.3 267.1
Horizon Air Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended September 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane"
fuel cost $66.9 $3.89 $42.3 $2.46
Minus gains during the
period on settled hedges (7.5) (0.44) (2.7) (0.16)
Economic fuel expense $59.4 $3.45 $39.6 $2.30
Minus the gain or plus
the loss recognized
during current period
for contracts settling
in future periods 24.5 1.42 (2.7) (0.15)
Plus the reversal of
cumulative gains
recognized in prior
periods for contracts
settled in current
period 12.6 0.74 1.9 0.11
Net adjustments 37.1 2.16 (0.8) (0.04)
GAAP fuel expense $96.5 $5.61 $38.8 $2.26
Fuel gallons 17.2 17.2
Nine Months Ended September 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane"
fuel cost $187.9 $3.61 $106.9 $2.26
Minus gains during the
period on settled
hedges (22.0) (0.43) (3.9) (0.08)
Economic fuel expense $165.9 $3.18 $103.0 $2.18
Minus the gain
recognized during
current period for
contracts
settling in future
periods (11.8) (0.22) (6.7) (0.14)
Plus the reversal of
cumulative gains
recognized in prior
periods for contracts
settled in current
period 21.5 0.41 4.2 0.09
Net adjustments 9.7 0.19 (2.5) (0.05)
GAAP fuel expense $175.6 $3.37 $100.5 $2.13
Fuel gallons 52.1 47.2
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Caroline Boren of Alaska Airlines, +1-206-392-5101; or
Dan Russo of Horizon Air, +1-206-431-4513; or Investor|analysts, Shannon
Alberts of Alaska Air Group, +1-206-392-5218
Web site: http://www.alaskaair.com/