Alaska Air Group Reports Third Quarter Results
Share
Alaska Air Group, Inc. today reported third quarter net income of $85.8 million, or $2.11 per diluted share, compared to a net loss of $17.4 million, or $0.44 per diluted share, in the third...
Alaska Air Group, Inc.
"Our record third quarter profit is the result of continued efforts to improve revenue, lower costs and maintain solid load factors. These results reflect the hard work of employees at both Alaska and Horizon. We continue to focus on improving our operation and addressing cost pressures, not the least of which is the skyrocketing price of fuel," said Bill Ayer, the company’s chairman and chief executive officer.
Alaska Airlines’ mainline passenger traffic in the third quarter increased 4.0 percent on a capacity increase of 3.3 percent. Load factor increased by 0.5 percentage points to 79.7 percent. Alaska’s mainline operating revenue per available seat mile (ASM) increased 1.5 percent and its operating costs per ASM excluding fuel and the special items mentioned above decreased 1.1 percent from the prior year. Alaska’s total pretax income for the quarter was $133.7 million, compared to a pretax loss of $27.9 million in 2006. Excluding the items noted above, Alaska would have reported pretax income of $129.7 million for the quarter compared to pretax income of $115.3 million in the third quarter of 2006.
Horizon Air’s combined passenger traffic in the third quarter increased 15.9 percent on a 14.0 percent capacity increase. Load factor increased by 1.3 percentage points to 77.2 percent. Horizon’s combined operating revenue per ASM decreased 2.0 percent and its operating costs per ASM excluding fuel decreased 2.2 percent. Horizon’s total pretax income for the quarter was $8.3 million, compared to a pretax income of $5.9 million in 2006. Excluding fuel hedge-related mark-to-market adjustments, Horizon’s pretax income was $7.5 million for the quarter, compared to pretax income of $15.1 million in the third quarter of 2006.
Alaska Air Group had cash and short-term investments at Sept. 30, 2007, of $888 million. The company repurchased 210,000 shares of its common stock for $5.0 million during the third quarter pursuant to the $100 million share repurchase program authorized by its board of directors in September 2007. As of yesterday, the company had repurchased 800,000 shares of its common stock for a total of $19.7 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 third quarter 2007 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Oct. 25, 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 Dec. 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 Horizon Air together serve 92 cities through an expansive network throughout 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)
(In Millions, Except Per Share Amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
2007 2006 2007 2006
Operating Revenues:
Passenger $926.5 $871.5 $2,458.5 $2,358.4
Freight and mail 27.0 26.7 75.6 74.8
Other - net 41.6 37.5 124.8 110.9
Total Operating Revenues 995.1 935.7 2,658.9 2,544.1
Operating Expenses:
Wages and benefits 241.1 238.6 714.7 696.2
Variable incentive pay 2.9 5.0 17.2 24.1
Aircraft fuel, including hedging
gains and losses 243.1 290.8 655.8 653.7
Aircraft maintenance 59.2 49.6 176.7 168.6
Aircraft rent 45.2 43.9 133.2 136.6
Landing fees and other rentals 58.1 52.9 169.3 152.4
Contracted services 40.4 37.6 118.8 114.3
Selling expenses 42.7 44.7 122.8 132.6
Depreciation and amortization 46.6 40.5 132.3 114.1
Food and beverage service 12.9 13.5 36.9 38.3
Other 55.7 55.6 167.7 160.4
Fleet transition costs - Alaska - 58.4 - 189.5
Fleet transition costs - Horizon 3.9 - 10.6 -
Restructuring charges and
adjustments - 28.6 - 32.4
Total Operating Expenses 851.8 959.7 2,456.0 2,613.2
Operating Income (Loss) 143.3 (24.0) 202.9 (69.1)
Nonoperating Income (Expense):
Interest income 13.8 14.2 42.0 39.4
Interest expense (22.8) (20.4) (66.3) (57.6)
Interest capitalized 7.1 7.1 20.9 17.6
Other - net (0.3) 0.2 (1.2) (1.5)
(2.2) 1.1 (4.6) (2.1)
Income (loss) before income tax 141.1 (22.9) 198.3 (71.2)
Income tax expense (benefit) 55.3 (5.5) 76.7 (30.2)
Net Income (Loss) $85.8 $(17.4) $121.6 $(41.0)
Basic Earnings (Loss)
Per Share: $2.12 ($0.44) $3.01 ($1.10)
Diluted Earnings (Loss)
Per Share: $2.11 ($0.44) $2.97 ($1.10)
Shares Used for Computation:
Basic 40.483 39.954 40.433 37.172
Diluted 40.715 39.954 40.899 37.172
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31,
(In Millions) 2007 2006
Cash and marketable securities $888 $1,014
Total current assets 1,468 1,572
Property and equipment-net 2,834 2,359
Other assets 155 146
Total assets $4,457 $4,077
Current liabilities $1,300 $1,236
Long-term debt 1,152 1,032
Other liabilities and credits 978 923
Shareholders' equity 1,027 886
Total liabilities and shareholders'
equity $4,457 $4,077
Debt to Capitalization, adjusted for
operating leases 70%:30% 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 September 30,
2007 2006
Dollars Diluted EPS Dollars Diluted EPS
Net income and diluted
EPS, excluding
mark-to-market
hedging adjustments,
and restructuring charges $82.8 $2.03 $77.9 $1.93
Effect of dilutive shares* NA 0.02
Adjustments to reflect the
timing of gain or loss
recognition resulting
from mark-to-market
fuel-hedge accounting,
net of tax 3.0 0.08 (40.9) (1.03)
Fleet transition - Alaska,
net of tax - - (36.5) (0.91)
Restructuring charges and
adjustments, net of tax - - (17.9) (0.45)
Reported GAAP amounts $85.8 $2.11 $(17.4) ($0.44)
Nine Months Ended September 30,
2007 2006
Dollars Diluted EPS Dollars Diluted EPS
Net income and diluted
EPS, excluding
mark-to-market
hedging adjustments,
Alaska fleet transition
costs, and restructuring
charges $114.2 $2.79 $141.1 $3.56
Effect of dilutive shares* NA 0.24
Adjustments to reflect
timing of gain or loss
recognition resulting
from mark-to-market
fuel-hedge accounting,
net of tax 7.4 0.18 (43.3) (1.16)
Fleet transition - Alaska,
net of tax - - (118.5) (3.19)
Restructuring charges and
adjustments, net of tax - - (20.3) (0.55)
Reported GAAP amounts $121.6 $2.97 $(41.0) $(1.10)
* "Diluted earnings per share for the three and nine months ended September 30, 2006, excluding the impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring charges and adjustments has been calculated using the dilutive weighted average number of shares outstanding of 40.4 million and 40.0 million, respectively. In order to reconcile the diluted earnings per share on an adjusted basis to the GAAP loss per share for the three and nine months ended September 30, 2006, the table above includes $0.02 per share and $0.24 per share, respectively, which represents the impact of the additional shares that were used in the adjusted diluted earnings per share. Additionally, $1.6 million of interest, net of tax, on the convertible senior notes that were outstanding during the first quarter of the year was added back to earnings for the three months ended September 30, 2006 in order to derive the diluted earnings per share on an adjusted basis.
Alaska Airlines Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30, September 30,
Financial Data (in
millions): 2007 2006 % Change 2007 2006 % Change
Operating Revenues:
Passenger $731.5 $698.4 4.7 $1,940.7 $1,882.5 3.1
Passenger -
purchased capacity 81.2 4.2 NM 209.5 13.0 NM
Freight and mail 25.9 25.7 0.8 72.9 71.8 1.5
Other - net 35.4 31.6 12.0 105.8 93.0 13.8
Total Operating
Revenues 874.0 759.9 15.0 2,328.9 2,060.3 13.0
Operating Expenses:
Wages and benefits 189.0 190.3 (0.7) 561.9 552.9 1.6
Variable incentive
pay 1.4 3.3 (57.6) 11.2 17.3 (35.3)
Aircraft fuel,
including hedging
gains and losses 204.3 251.5 (18.8) 555.3 567.2 (2.1)
Aircraft maintenance 39.0 32.4 20.4 107.8 118.6 (9.1)
Aircraft rent 29.1 26.4 10.2 83.3 84.6 (1.5)
Landing fees and
other rentals 43.3 40.5 6.9 127.3 117.9 8.0
Purchased capacity
costs 80.6 3.2 NM 222.1 11.1 NM
Contracted services 31.6 29.1 8.6 91.2 87.3 4.5
Selling expenses 34.3 36.8 (6.8) 99.3 110.0 (9.7)
Depreciation and
amortization 35.1 35.2 (0.3) 106.1 99.6 6.5
Food and beverage
service 12.2 12.6 (3.2) 34.8 36.1 (3.6)
Other 42.0 40.8 2.9 125.0 118.4 5.6
Fleet transition
costs - 58.4 NM - 189.5 NM
Restructuring
charges and
adjustments - 28.6 NM - 32.4 NM
Total Operating
Expenses 741.9 789.1 (6.0) 2,125.3 2,142.9 (0.8)
Operating Income
(Loss) 132.1 (29.2) NM 203.6 (82.6) NM
Interest income 17.2 14.6 49.7 41.2
Interest expense (22.4) (19.9) (64.9) (53.5)
Interest capitalized 6.8 6.1 19.1 15.5
Other - net - 0.5 (0.4) (0.7)
1.6 1.3 3.5 2.5
Income (Loss) Before
Income Tax $133.7 $(27.9) $207.1 $(80.1)
Mainline Operating
Statistics:
Revenue passengers
(000) 4,878 4,710 3.6 13,367 13,058 2.4
RPMs (000,000)
"traffic" 5,067 4,873 4.0 13,953 13,579 2.8
ASMs (000,000)
"capacity" 6,354 6,150 3.3 18,188 17,523 3.8
Passenger load
factor 79.7% 79.2% 0.5pts 76.7% 77.5% (0.8)pts
Yield per passenger
mile (in cents) 14.44 14.33 0.8 13.91 13.86 0.4
Operating revenue
per ASM (in cents) 12.48 12.29 1.5 11.65 11.68 (0.3)
Passenger revenue
per ASM (in cents) 11.51 11.36 1.3 10.67 10.74 (0.7)
Operating expense
per ASM (a)(in cents) 10.41 12.78 (18.5) 10.46 12.17 (14.1)
Aircraft fuel per
ASM (in cents) 3.22 4.09 (21.3) 3.05 3.24 (5.7)
Fleet transition
costs per ASM (a)
(in cents) - 0.95 NM - 1.08 NM
Restructuring
charges per ASM (a)
(in cents) - 0.47 NM - 0.19 NM
Operating expense
per ASM excluding
fuel, restructuring
charges and fleet
transition costs
(a) (in cents) 7.19 7.27 (1.1) 7.41 7.66 (3.3)
GAAP fuel cost per
gallon $2.20 $2.68 (18.0) $2.08 $2.12 (1.9)
Economic fuel cost
per gallon (b) $2.24 $2.08 7.7 $2.11 $1.90 11.1
Fuel gallons
(000,000) 93.2 93.9 (0.7) 267.1 267.2 (0.0)
Average number of
full-time
equivalent
employees 9,753 9,467 3.0 9,681 9,267 4.5
Aircraft utilization
(blk hrs/day) 11.2 11.4 (1.8) 11.0 11.1 (0.9)
Average aircraft
stage length
(miles) 925 920 0.5 920 921 (0.1)
Operating fleet at
period-end 114 112 2 a/c 114 112 2 a/c
Regional Operating
Statistics:
Revenue passengers
(000) 799 14 NM 2,079 40 NM
RPMs (000,000) 319 10 NM 812 32 NM
ASMs (000,000) 399 15 NM 1,067 52 NM
Passenger load
factor 79.9% 66.7% NM 76.1% 61.5% NM
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.
Horizon Air Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30, September 30,
Financial Data (in
millions): 2007 2006 % Change 2007 2006 % Change
Operating Revenues:
Passenger (a) $194.5 $173.9 11.8 $529.6 $478.1 10.8
Freight and mail 0.7 1.0 (30.0) 1.8 3.0 (40.0)
Other - net 1.7 1.4 21.4 5.1 4.1 24.4
Total Operating
Revenues 196.9 176.3 11.7 536.5 485.2 10.6
Operating Expenses:
Wages and benefits 51.0 47.3 7.8 150.1 140.3 7.0
Variable incentive pay 1.5 1.7 (11.8) 6.0 6.8 (11.8)
Aircraft fuel, including
hedging gains and
losses 38.8 39.3 (1.3) 100.5 86.5 16.2
Aircraft maintenance 20.2 17.2 17.4 68.9 50.0 37.8
Aircraft rent 16.1 17.5 (8.0) 49.9 52.0 (4.0)
Landing fees and other
rentals 15.1 12.7 18.9 42.8 35.3 21.2
Contracted services 7.1 6.7 6.0 19.9 20.1 (1.0)
Selling expenses 8.4 8.8 (4.5) 23.5 25.2 (6.7)
Depreciation and
amortization 11.2 4.9 128.6 25.3 13.6 86.0
Food and beverage
service 0.7 0.9 (22.2) 2.1 2.2 (4.5)
Other 11.2 13.6 (17.6) 35.7 37.0 (3.5)
Fleet transition costs 3.9 - NM 10.6 - NM
Total Operating
Expenses 185.2 170.6 8.6 535.3 469.0 14.1
Operating Income 11.7 5.7 NM 1.2 16.2 NM
Interest income 1.1 1.0 3.4 2.7
Interest expense (4.8) (1.8) (12.1) (5.8)
Interest capitalized 0.3 1.0 1.8 2.1
Other - net - - (0.1) -
(3.4) 0.2 (7.0) (1.0)
Income (Loss) Before
Income Tax $8.3 $5.9 $(5.8) $15.2
Combined Operating
Statistics: (a)
Revenue passengers
(000) 2,104 1,832 14.8 5,622 5,171 8.7
RPMs (000,000)
"traffic" 837 722 15.9 2,195 2,032 8.0
ASMs (000,000)
"capacity" 1,084 951 14.0 2,982 2,729 9.3
Passenger load factor 77.2% 75.9% 1.3pts 73.6% 74.5% (0.9)pts
Yield per passenger
mile(in cents) 23.24 24.09 (3.5) 24.13 23.53 2.5
Operating revenue per
ASM (in cents) 18.16 18.54 (2.0) 17.99 17.78 1.2
Operating expenses per
ASM (in cents) 17.08 17.94 (4.8) 17.95 17.19 4.4
Aircraft fuel per
ASM (in cents) 3.57 4.13 (13.6) 3.37 3.17 6.3
Operating expense per
ASM excluding
fuel (b) (in cents) 13.51 13.81 (2.2) 14.58 14.02 4.0
Fleet transition costs
per ASM (b) (in cents) 0.36 - NM 0.36 - NM
Operating expense per
ASM excluding fuel
and fleet transition
costs (b) (in cents) 13.15 13.81 (4.8) 14.23 14.02 1.5
GAAP fuel cost per
gallon $2.26 $2.71 (16.6) $2.13 $2.13 -
Economic fuel cost per
gallon (c) $2.30 $2.08 10.6 $2.18 $1.92 13.5
Fuel gallons (000,000) 17.2 14.5 18.6 47.2 40.6 16.3
Average number of full-
time equivalent
employees 3,872 3,706 4.5 3,779 3,592 5.2
Aircraft utilization
(blk hrs/day) 8.8 8.8 0.0 8.7 8.8 (1.1)
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 9 and 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.
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 the B737 and MD80 aircraft fleets 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 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 holders of our common stock.
— By eliminating the impact of certain noted 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 and restructuring charges 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 fuel represents nearly 30% of our total mainline operating expenses, 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 Nine Months
Ended September 30, Ended September 30,
Mainline unit cost reconciliations: 2007 2006 2007 2006
Operating expenses $741.9 $789.1 $2,125.3 $2,142.9
Less: purchased capacity flying
costs (80.6) (3.2) (222.1) (11.1)
Mainline operating expenses $661.3 $785.9 $1,903.2 $2,131.8
Mainline ASMs 6,354 6,150 18,188 17,523
Mainline operating expenses
per ASM (in cents) 10.41 12.78 10.46 12.17
Operating expenses $741.9 $789.1 $2,125.3 $2,142.9
Less: purchased capacity flying
costs (80.6) (3.2) (222.1) (11.1)
Less: aircraft fuel (204.3) (251.5) (555.3) (567.2)
Less: fleet transition costs - (58.4) - (189.5)
Less: restructuring charges and
adjustments - (28.6) - (32.4)
Mainline operating expenses excluding
fuel, fleet transition costs, and
restructuring charges and
adjustments $457.0 $447.4 $1,347.9 $1,342.7
Mainline ASMs 6,354 6,150 18,188 17,523
Mainline operating expenses per ASM
excluding fuel, fleet transition
costs, and restructuring charges
and adjustments (in cents) 7.19 7.27 7.41 7.66
Three Months Nine Months
Ended September 30, Ended September 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 $129.7 $115.3 $197.8 $202.5
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel
hedges 4.0 (56.2) 9.3 (60.7)
Less: fleet transition costs - (58.4) - (189.5)
Less: restructuring charges and
adjustments - (28.6) - (32.4)
GAAP income (loss) before taxes as
reported $133.7 $(27.9) $207.1 $(80.1)
Horizon Air Industries, Inc.
(in millions, except for Three Months Ended Nine Months Ended
per ASM unit information) September 30, September 30,
2007 2006 2007 2006
Unit cost reconciliations:
Operating expenses $185.2 $170.6 $535.3 $469.0
ASMs 1,084 951 2,982 2,729
Operating expenses per
ASM (in cents) 17.08 17.94 17.95 17.19
Operating expenses $185.2 $170.6 $535.3 $469.0
Less: aircraft fuel (38.8) (39.3) (100.5) (86.5)
Operating expenses excluding
fuel $146.4 $131.3 $434.8 $382.5
ASMs 1,084 951 2,982 2,729
Operating expenses per ASM
excluding fuel (in cents) 13.51 13.81 14.58 14.02
Unit cost reconciliations-
excluding fleet transition costs:
Operating expenses $185.2 $170.6 $535.3 $469.0
Less: aircraft fuel (38.8) (39.3) (100.5) (86.5)
Less: fleet transition costs (3.9) - (10.6) -
Operating expenses excluding
fuel and fleet transition
costs $142.5 $131.3 $424.2 $382.5
ASMs 1,084 951 2,982 2,729
Operating expenses per ASM
excluding fuel and fleet
transition costs (in cents) 13.15 13.81 14.23 14.02
Reconciliation to GAAP income
(loss) before taxes:
Income (loss) before taxes,
excluding mark-to-market
fuel hedging gains
(losses) $7.5 $15.1 $(8.3) $23.7
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel hedges 0.8 (9.2) 2.5 (8.5)
GAAP income (loss) before taxes
as reported $8.3 $5.9 $(5.8) $15.2
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 September 30, 2007
Capacity and Mix Load Factor
Actual % Current % Point Point
(000,000) Change Total Change Yr Actual Change Yr
-over-Yr -over-Yr
Brand Flying
(in cents) 562 19.9 52% 3 74.7% (1.4)
Alaska CPA
(in cents) 384 35.2 35% 5 NM NM
Frontier CPA
(in cents) 138 (30.2) 13% (8) NM NM
System Total
(in cents) 1,084 14.0 100% - 77.2% 1.3
Three Months Ended September 30, 2007
Yield RASM
Actual % Change Actual % Change
Brand Flying (in cents) 25.79 (7.5) 19.70 (8.6)
Alaska CPA (in cents) NM NM 19.84 (9.1)
Frontier CPA (in cents) NM NM 17.17 7.7
System Total (in cents) 23.24 (3.5) 18.16 (2.0)
Nine Months Ended September 30, 2007
Capacity and Mix Load Factor
Actual % Current % Point Point
(000,000) Change Total Change Yr Actual Change Yr
-over-Yr -over-Yr
Brand Flying
(in cents) 1,518 16.2 51% 3 72.3% (1.8)
Alaska CPA
(in cents) 1,014 26.4 34% 5 NM NM
Frontier CPA
(in cents) 450 (27.4) 15% (8) NM NM
System Total
(in cents) 2,982 9.3 100% - 73.6% (0.9)
Nine Months Ended September 30, 2007
Yield RASM
Actual % Change Actual % Change
Brand Flying (in cents) 26.60 (5.2) 19.70 (6.9)
Alaska CPA (in cents) NM NM 20.44 (3.3)
Frontier CPA (in cents) NM NM 6.70 5.9
System Total (in cents) 24.13 2.5 17.99 1.2
NM= Not Meaningful.
Alaska Airlines Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended September 30,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel
cost $222.4 $2.39 $218.9 $2.33
Less: gains during the period
on settled hedges (14.1) (0.15) (23.6) (0.25)
Economic fuel expense $208.3 $2.24 $195.3 $2.08
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel hedges (4.0) (0.04) 56.2 0.60
GAAP fuel expense $204.3 $2.20 $251.5 $2.68
Fuel gallons 93.2 93.9
Nine Months Ended September 30,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel
cost $585.2 $2.19 $585.5 $2.19
Less: gains during the period
on settled hedges (20.6) (0.08) (79.0) (0.29)
Economic fuel expense $564.6 $2.11 $506.5 $1.90
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel hedges (9.3) (0.03) 60.7 0.22
GAAP fuel expense $555.3 $2.08 $567.2 $2.12
Fuel gallons 267.1 267.2
Horizon Air Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended September 30,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel
cost $42.3 $2.46 $33.9 $2.34
Less: gains during the period
on settled hedges (2.7) (0.16) (3.8) (0.26)
Economic fuel expense $39.6 $2.30 $30.1 $2.08
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel hedges (0.8) (0.04) 9.2 0.63
GAAP fuel expense $38.8 $2.26 $39.3 $2.71
Fuel gallons 17.2 14.5
Nine Months Ended September 30,
2007 2006
Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel
cost $106.9 $2.26 $90.8 $2.24
Less: gains during the period
on settled hedges (3.9) (0.08) (12.8) (0.32)
Economic fuel expense $103.0 $2.18 $78.0 $1.92
Adjustments to reflect timing
of gain or loss recognition
resulting from mark-to-market
accounting on fuel hedges (2.5) (0.05) 8.5 0.21
GAAP fuel expense $100.5 $2.13 $86.5 $2.13
Fuel gallons 47.2 40.6
Air Group Fuel Hedge Positions
Approximate % of Approximate Crude
Expected Fuel Oil Price per
Requirements Barrel
Fourth quarter 2007 50% $62.27
First quarter 2008 40% $62.62
Second quarter 2008 33% $64.10
Third quarter 2008 27% $64.93
Fourth quarter 2008 29% $65.03
First quarter 2009 5% $67.68
Second quarter 2009 5% $67.50
Third quarter 2009 6% $68.25
Fourth quarter 2009 5% $67.20
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 Fourth quarter 2007 3-4% 8% 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)
Fourth quarter 2007 7.8-7.9 3.8 11.6-11.7
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)
Fourth quarter 2007 14.9-15.0 4.4 19.3-19.4
Full year 2007 14.7-14.8 3.6 18.3-18.4
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 as of December 31, 2007 and 2008:
Actual Actual Planned Planned
Seats 31-Dec-06 30-Sept-07 31-Dec-07 31-Dec-08
Alaska Airlines
737-200C** 111 2 - - -
MD80 140 23 17 15 -
737-400 144 39 35 34 32
737-400F** - 1 1 1 1
737-400C** 72 - 4 5 5
737-700 124 22 20 20 20
737-800* 157 15 25 29 46
737-900 172 12 12 12 12
Totals 114 114 116 116
Actual Actual Planned Planned
Seats 31-Dec-06 30-Sept-07 31-Dec-07 31-Dec-08
Horizon Air
Q200 37 28 20 16 10
Q400 74-76 20 33 33 35
CRJ-700 70 21 21 21 20
Totals 69 74 70 65
* The total includes one leased aircraft in 2008.
** F=Freighter; C=Combination freighter/passenger
Air Group Year-to-Date and Projected Capital Expenditures
(In Millions)
Year-to-date
September 30, 2007 Total 2007
Alaska $447 $555
Horizon 213 225
Total Air Group $660 $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 Investor|analysts: Shannon Alberts, Managing Director of
Investor Relations, +1-206-392-5218, both of Alaska Airlines
Web site: http://www.alaskaair.com/
