SEATTLE, Oct. 25, 2018 /PRNewswire/ --
Financial Highlights:
- Reported net income for the third quarter under Generally
Accepted Accounting Principles (GAAP) of $217 million, or $1.75 per diluted share, compared to net income
of $259 million, or $2.09 per diluted share in the third quarter of
2017. As the company has recently implemented new accounting
standards, including the standards relating to revenue recognition
and retirement benefits, 2017 financial information has been
adjusted.
- Reported net income for the third quarter, excluding special
items such as merger-related costs and mark-to-market fuel hedge
accounting adjustments, of $237
million, or $1.91 per diluted
share, compared to $270 million or
$2.18 per diluted share, in the third
quarter of 2017. This quarter's adjusted results compare to the
First Call analyst consensus estimate of $1.81 per share.
- Paid a $0.32 per-share quarterly
cash dividend in the third quarter, a 7% increase over the dividend
paid in the third quarter of 2017.
- Repurchased a total of 582,942 shares of common stock for
approximately $37 million in the
first nine months of 2018.
- Generated approximately $1
billion of operating cash flow in the first nine months of
2018, including merger-related costs and other special items.
- Held $1.4 billion in unrestricted
cash and marketable securities as of Sept.
30, 2018.
- Reduced debt-to-capitalization ratio to 49% as of Sept. 30, 2018, compared to 53% as of
Dec. 31, 2017, and down from 59%
immediately following our acquisition of Virgin America. Reduced
long-term debt balance to $1.7
billion as of Sept. 30, 2018
from $2.6 billion as of Dec. 31, 2016.
Operational Highlights:
- Updated food and beverage menus to highlight West Coast
inspired fresh meals, snacks and local craft beers further
enhancing the airline's onboard guest experience.
- Announced one new route to Columbus,
Ohio, which will begin service in March 2019, and two new routes to El Paso, Texas, which will begin service in
February 2019.
- Began our fleet-wide installation of satellite Wi-Fi,
completing three Airbus aircraft during the quarter.
- Completed the painting of Alaska livery on 16 Airbus aircraft, and
expect to have 33 completed by the end of the year.
- Finalized the integrated seniority list for our pilots; all
groups except for aircraft technicians are now under a single
contract and have an integrated seniority list.
- Added three Boeing 737-900ER aircraft to the mainline operating
fleet and four Embraer 175 (E175) aircraft to the regional
operating fleet in the third quarter of 2018.
Recognition and Awards:
- Named "Best U.S. Airline" by Condé Nast Traveler in their 2018
Reader's Choice Awards.
- Ranked as the top U.S. airline in the Dow Jones Sustainability
Index (DJSI) for the second consecutive year, receiving top scores
for "corporate governance" and "efficiency."
- Ranked "Best Airline" in the U.S. and Canada by KAYAK.
- Mileage Plan ranked first in the U.S. News & World Report's
list of Best Airline Rewards Programs for the fourth consecutive
year.
- Mileage Plan ranked in the top three airlines among traditional
and low-cost carriers in the 2018 J.D. Power Loyalty Program
study.
- Ranked among Forbes' 2018 global list for "World's Best
Employers" and national list for "America's Best Employers for New
Graduates."
Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter
2018 GAAP net income of $217 million,
or $1.75 per diluted share, compared
to $259 million, or $2.09 per diluted share in the third quarter of
2017. Excluding the impact of merger-related costs and
mark-to-market fuel hedge adjustments, the company reported
adjusted net income of $237 million,
or $1.91 per diluted share, compared
to $270 million, or $2.18 per diluted share, in 2017.
"In the nearly two years since our merger closed, we've now
completed approximately 90 percent of our integration milestones,"
said Alaska CEO Brad Tilden. "With
that work now behind us, we are doubling down on what we do best -
keeping fares low, delivering leading operational performance and
offering top-rated customer service. The recent recognition by
Condé Nast Traveler shows what our people can accomplish when we
focus on what's most important and pull together as one team."
The following table reconciles the company's reported GAAP net
income and earnings per diluted share (diluted EPS) for the three
and nine months ended Sept. 30, 2018 and 2017 to adjusted
amounts.
|
Three Months Ended
September 30,
|
|
2018
|
|
2017(a)
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
GAAP net income and
diluted EPS
|
$
|
217
|
|
|
$
|
1.75
|
|
|
$
|
259
|
|
|
$
|
2.09
|
|
Mark-to-market fuel
hedge adjustments
|
5
|
|
|
0.04
|
|
|
(5)
|
|
|
(0.04)
|
|
Special
items—merger-related costs
|
22
|
|
|
0.18
|
|
|
23
|
|
|
0.19
|
|
Income tax effect of
reconciling items above
|
(7)
|
|
|
(0.06)
|
|
|
(7)
|
|
|
(0.06)
|
|
Non-GAAP adjusted net
income and diluted EPS
|
$
|
237
|
|
|
$
|
1.91
|
|
|
$
|
270
|
|
|
$
|
2.18
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2018
|
|
2017(a)
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
GAAP net income and
diluted EPS
|
$
|
414
|
|
|
$
|
3.34
|
|
|
$
|
645
|
|
|
$
|
5.19
|
|
Mark-to-market fuel
hedge adjustments
|
(30)
|
|
|
(0.24)
|
|
|
7
|
|
|
0.06
|
|
Special
items—employee tax reform bonus
|
25
|
|
|
0.20
|
|
|
—
|
|
|
—
|
|
Special
items—merger-related costs
|
67
|
|
|
0.54
|
|
|
86
|
|
|
0.69
|
|
Income tax effect of
reconciling items above
|
(15)
|
|
|
(0.12)
|
|
|
(35)
|
|
|
(0.28)
|
|
Non-GAAP adjusted net
income and diluted EPS
|
$
|
461
|
|
|
$
|
3.72
|
|
|
$
|
703
|
|
|
$
|
5.66
|
|
|
|
(a)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
Statistical data, as well as a reconciliation of the reported
non-GAAP financial measures, can be found in the accompanying
tables. A glossary of financial terms can be found on the last page
of this release.
A conference call regarding the third quarter results will be
streamed online at 8:30 a.m. Pacific
time on Oct. 25, 2018. It can be accessed at
www.alaskaair.com/investors. For those unable to listen to the live
broadcast, a replay will be available after the conclusion of the
call.
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.,
Horizon Air Industries, Inc., and Virgin America Inc. are referred
to as "Alaska," "Horizon," and
"Virgin America" respectively, and together as our "airlines."
This news release may contain 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, 2017, as well as in other documents
filed by the Company with the SEC after the date thereof. Some of
these risks include general economic conditions, increases in
operating costs including fuel, competition, labor costs and
relations, our indebtedness, inability to meet cost reduction
goals, seasonal fluctuations in our financial results, an aircraft
accident, changes in laws and regulations and risks inherent in the
achievement of anticipated synergies and the timing thereof in
connection with the acquisition of Virgin America. All of the
forward-looking statements are qualified in their entirety by
reference to the risk factors discussed therein. 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 its regional partners fly 44 million guests
a year to more than 115 destinations with an average of 1,200 daily
flights across the United States
and to Mexico, Canada and Costa
Rica. With Alaska and
Alaska Global Partners, guests can earn and redeem miles on flights
to more than 900 destinations worldwide. Alaska Airlines ranked
"Highest in Customer Satisfaction Among Traditional Carriers in
North America" in the J.D. Power
North America Airline Satisfaction Study for 11 consecutive years
from 2008 to 2018. Learn about Alaska's award-winning service at
newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and
Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in millions,
except per-share amounts)
|
2018
|
|
2017(a)
|
|
Change
|
|
2018
|
|
2017(a)
|
|
Change
|
Operating
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue
|
$
|
2,043
|
|
|
$
|
1,958
|
|
|
4
|
%
|
|
$
|
5,725
|
|
|
$
|
5,505
|
|
|
4
|
%
|
Mileage Plan other
revenue
|
114
|
|
|
105
|
|
|
9
|
%
|
|
329
|
|
|
314
|
|
|
5
|
%
|
Cargo and
other
|
55
|
|
|
47
|
|
|
17
|
%
|
|
146
|
|
|
133
|
|
|
10
|
%
|
Total Operating
Revenues
|
2,212
|
|
|
2,110
|
|
|
5
|
%
|
|
6,200
|
|
|
5,952
|
|
|
4
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Wages and
benefits
|
549
|
|
|
477
|
|
|
15
|
%
|
|
1,629
|
|
|
1,397
|
|
|
17
|
%
|
Variable incentive
pay
|
27
|
|
|
40
|
|
|
(33)
|
%
|
|
104
|
|
|
98
|
|
|
6
|
%
|
Aircraft fuel,
including hedging gains and losses
|
513
|
|
|
368
|
|
|
39
|
%
|
|
1,397
|
|
|
1,051
|
|
|
33
|
%
|
Aircraft
maintenance
|
107
|
|
|
88
|
|
|
22
|
%
|
|
320
|
|
|
271
|
|
|
18
|
%
|
Aircraft
rent
|
82
|
|
|
70
|
|
|
17
|
%
|
|
233
|
|
|
204
|
|
|
14
|
%
|
Landing fees and
other rentals
|
135
|
|
|
124
|
|
|
9
|
%
|
|
371
|
|
|
338
|
|
|
10
|
%
|
Contracted
services
|
70
|
|
|
76
|
|
|
(8)
|
%
|
|
227
|
|
|
234
|
|
|
(3)
|
%
|
Selling
expenses
|
79
|
|
|
92
|
|
|
(14)
|
%
|
|
245
|
|
|
277
|
|
|
(12)
|
%
|
Depreciation and
amortization
|
99
|
|
|
95
|
|
|
4
|
%
|
|
290
|
|
|
275
|
|
|
5
|
%
|
Food and beverage
service
|
53
|
|
|
50
|
|
|
6
|
%
|
|
158
|
|
|
145
|
|
|
9
|
%
|
Third-party regional
carrier expense
|
38
|
|
|
30
|
|
|
27
|
%
|
|
114
|
|
|
84
|
|
|
36
|
%
|
Other
|
141
|
|
|
150
|
|
|
(6)
|
%
|
|
423
|
|
|
421
|
|
|
—
|
%
|
Special
items—merger-related costs
|
22
|
|
|
23
|
|
|
(4)
|
%
|
|
67
|
|
|
86
|
|
|
(22)
|
%
|
Special
items—other
|
—
|
|
|
—
|
|
|
—
|
%
|
|
25
|
|
|
—
|
|
|
NM
|
Total Operating
Expenses
|
1,915
|
|
|
1,683
|
|
|
14
|
%
|
|
5,603
|
|
|
4,881
|
|
|
15
|
%
|
Operating
Income
|
297
|
|
|
427
|
|
|
(30)
|
%
|
|
597
|
|
|
1,071
|
|
|
(44)
|
%
|
Nonoperating
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
11
|
|
|
9
|
|
|
|
|
29
|
|
|
25
|
|
|
|
Interest
expense
|
(22)
|
|
|
(26)
|
|
|
|
|
(71)
|
|
|
(77)
|
|
|
|
Interest
capitalized
|
5
|
|
|
5
|
|
|
|
|
14
|
|
|
13
|
|
|
|
Other—net
|
(7)
|
|
|
2
|
|
|
|
|
(20)
|
|
|
1
|
|
|
|
Total Nonoperating
Income (Expense)
|
(13)
|
|
|
(10)
|
|
|
|
|
(48)
|
|
|
(38)
|
|
|
|
Income (Loss)
Before Income Tax
|
284
|
|
|
417
|
|
|
|
|
549
|
|
|
1,033
|
|
|
|
Income tax
expense
|
67
|
|
|
158
|
|
|
|
|
135
|
|
|
388
|
|
|
|
Net Income
(Loss)
|
$
|
217
|
|
|
$
|
259
|
|
|
|
|
$
|
414
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings
(Loss) Per Share:
|
$
|
1.76
|
|
|
$
|
2.10
|
|
|
|
|
$
|
3.36
|
|
|
$
|
5.22
|
|
|
|
Diluted Earnings
(Loss) Per Share:
|
$
|
1.75
|
|
|
$
|
2.09
|
|
|
|
|
$
|
3.34
|
|
|
$
|
5.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used for
Computation:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
123.224
|
|
|
123.467
|
|
|
|
|
123.216
|
|
|
123.501
|
|
|
|
Diluted
|
123.864
|
|
|
124.220
|
|
|
|
|
123.804
|
|
|
124.341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
declared per share:
|
$
|
0.320
|
|
|
$
|
0.300
|
|
|
|
|
$
|
0.960
|
|
|
$
|
0.900
|
|
|
|
|
|
(a)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
(in
millions)
|
September 30,
2018
|
|
December 31,
2017(a)
|
Cash and marketable
securities
|
$
|
1,397
|
|
|
$
|
1,621
|
|
|
|
|
|
Total current
assets
|
2,056
|
|
|
2,152
|
|
Property and
equipment—net
|
6,495
|
|
|
6,284
|
|
Goodwill
|
1,943
|
|
|
1,943
|
|
Intangible
assets
|
128
|
|
|
133
|
|
Other
assets
|
271
|
|
|
234
|
|
Total
assets
|
10,893
|
|
|
10,746
|
|
|
|
|
|
Air traffic
liability
|
950
|
|
|
806
|
|
Current portion of
long-term debt
|
345
|
|
|
307
|
|
Other current
liabilities
|
1,593
|
|
|
1,573
|
|
Current
liabilities
|
2,888
|
|
|
2,686
|
|
Long-term
debt
|
1,684
|
|
|
2,262
|
|
Other liabilities and
credits
|
2,530
|
|
|
2,338
|
|
Shareholders'
equity
|
3,791
|
|
|
3,460
|
|
Total liabilities
and shareholders' equity
|
$
|
10,893
|
|
|
$
|
10,746
|
|
|
|
|
|
Debt-to-capitalization ratio, adjusted for aircraft
operating leases(b)
|
49
|
%
|
|
53
|
%
|
|
|
|
|
Number of common
shares outstanding
|
123.361
|
|
|
123.061
|
|
|
|
(a)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
(b)
|
Calculated using the
present value of remaining aircraft lease payments.
|
|
|
|
|
|
|
OPERATING
STATISTICS SUMMARY (unaudited)
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
Consolidated
Operating Statistics:(a)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
12,128
|
|
11,639
|
|
4.2%
|
|
34,685
|
|
33,038
|
|
5.0%
|
RPMs (000,000)
"traffic"
|
14,386
|
|
13,811
|
|
4.2%
|
|
41,272
|
|
39,072
|
|
5.6%
|
ASMs (000,000)
"capacity"
|
16,943
|
|
16,164
|
|
4.8%
|
|
49,256
|
|
46,169
|
|
6.7%
|
Load
factor
|
84.9%
|
|
85.4%
|
|
(0.5) pts
|
|
83.8%
|
|
84.6%
|
|
(0.8) pts
|
Yield(d)
|
14.20¢
|
|
14.18¢
|
|
0.1%
|
|
13.87¢
|
|
14.10¢
|
|
(1.6)%
|
RASM(d)
|
13.05¢
|
|
13.06¢
|
|
(0.1)%
|
|
12.59¢
|
|
12.89¢
|
|
(2.3)%
|
CASMex(b)(d)
|
8.15¢
|
|
8.00¢
|
|
1.9%
|
|
8.35¢
|
|
8.11¢
|
|
3.0%
|
Economic fuel cost
per gallon(b)
|
$2.33
|
|
$1.80
|
|
29.4%
|
|
$2.26
|
|
$1.76
|
|
28.4%
|
Fuel gallons
(000,000)
|
218
|
|
207
|
|
5.3%
|
|
631
|
|
592
|
|
6.6%
|
ASM's per
gallon
|
77.7
|
|
78.1
|
|
(0.5)%
|
|
78.1
|
|
78.0
|
|
0.1%
|
Average number of
full-time equivalent employees (FTE)
|
21,804
|
|
20,743
|
|
5.1%
|
|
21,575
|
|
19,723
|
|
9.4%
|
Mainline Operating
Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
9,435
|
|
9,136
|
|
3.3%
|
|
27,107
|
|
25,850
|
|
4.9%
|
RPMs (000,000)
"traffic"
|
13,096
|
|
12,694
|
|
3.2%
|
|
37,677
|
|
36,045
|
|
4.5%
|
ASMs (000,000)
"capacity"
|
15,343
|
|
14,796
|
|
3.7%
|
|
44,730
|
|
42,397
|
|
5.5%
|
Load
factor
|
85.4%
|
|
85.8%
|
|
(0.4) pts
|
|
84.2%
|
|
85.0%
|
|
(0.8) pts
|
Yield(d)
|
13.18¢
|
|
13.23¢
|
|
(0.4)%
|
|
12.95¢
|
|
13.13¢
|
|
(1.4)%
|
RASM(d)
|
12.28¢
|
|
12.35¢
|
|
(0.6)%
|
|
11.90¢
|
|
12.19¢
|
|
(2.4)%
|
CASMex(b)(d)
|
7.34¢
|
|
7.30¢
|
|
0.5%
|
|
7.58¢
|
|
7.34¢
|
|
3.3%
|
Economic fuel cost
per gallon(b)
|
$2.32
|
|
$1.79
|
|
29.6%
|
|
$2.25
|
|
$1.76
|
|
27.8%
|
Fuel gallons
(000,000)
|
189
|
|
183
|
|
3.3%
|
|
549
|
|
526
|
|
4.4%
|
ASM's per
gallon
|
81.2
|
|
80.9
|
|
0.4%
|
|
81.5
|
|
80.6
|
|
1.1%
|
Average number of
FTE's
|
16,499
|
|
15,862
|
|
4.0%
|
|
16,330
|
|
15,439
|
|
5.8%
|
Aircraft
utilization
|
11.4
|
|
11.4
|
|
—%
|
|
11.4
|
|
11.1
|
|
2.7%
|
Average aircraft
stage length
|
1,291
|
|
1,300
|
|
(0.7)%
|
|
1,293
|
|
1,296
|
|
(0.2)%
|
Operating
fleet
|
231
|
|
218
|
|
13 a/c
|
|
231
|
|
218
|
|
13 a/c
|
Regional Operating
Statistics:(c)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
2,693
|
|
2,503
|
|
7.6%
|
|
7,578
|
|
7,188
|
|
5.4%
|
RPMs (000,000)
"traffic"
|
1,290
|
|
1,117
|
|
15.5%
|
|
3,595
|
|
3,027
|
|
18.8%
|
ASMs (000,000)
"capacity"
|
1,600
|
|
1,368
|
|
17.0%
|
|
4,526
|
|
3,772
|
|
20.0%
|
Load
factor
|
80.6%
|
|
81.7%
|
|
(1.1) pts
|
|
79.4%
|
|
80.2%
|
|
(0.8) pts
|
Yield(d)
|
24.50¢
|
|
25.15¢
|
|
(2.6)%
|
|
23.49¢
|
|
25.65¢
|
|
(8.4)%
|
RASM(d)
|
20.41¢
|
|
20.61¢
|
|
(1.0)%
|
|
19.32¢
|
|
20.67¢
|
|
(6.5)%
|
Operating
fleet
|
89
|
|
83
|
|
6 a/c
|
|
89
|
|
83
|
|
6 a/c
|
|
|
(a)
|
Except for FTEs, data
includes information related to third-party regional capacity
purchase flying arrangements.
|
|
|
(b)
|
See a reconciliation
of this non-GAAP measure and Note A for a discussion of potential
importance of this measure to investors in the accompanying
pages.
|
|
|
(c)
|
Data presented
includes information related to flights operated by Horizon and
third-party carriers.
|
|
|
(d)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
|
|
|
|
OPERATING SEGMENTS
(unaudited)
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2018
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
1,727
|
|
|
$
|
316
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,043
|
|
|
$
|
—
|
|
|
$
|
2,043
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
128
|
|
|
(128)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
104
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
114
|
|
Cargo and
other
|
53
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
Total operating
revenues
|
1,884
|
|
|
326
|
|
|
130
|
|
|
(128)
|
|
|
2,212
|
|
|
—
|
|
|
2,212
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
1,126
|
|
|
267
|
|
|
118
|
|
|
(131)
|
|
|
1,380
|
|
|
22
|
|
|
1,402
|
|
Economic
fuel
|
438
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
508
|
|
|
5
|
|
|
513
|
|
Total operating
expenses
|
1,564
|
|
|
337
|
|
|
118
|
|
|
(131)
|
|
|
1,888
|
|
|
27
|
|
|
1,915
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
15
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Interest
expense
|
(20)
|
|
|
—
|
|
|
(6)
|
|
|
4
|
|
|
(22)
|
|
|
—
|
|
|
(22)
|
|
Interest
capitalized
|
4
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Other
|
(5)
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
(7)
|
|
Total Nonoperating
income (expense)
|
(6)
|
|
|
(2)
|
|
|
(5)
|
|
|
—
|
|
|
(13)
|
|
|
—
|
|
|
(13)
|
|
Income (loss)
before income tax
|
$
|
314
|
|
|
$
|
(13)
|
|
|
$
|
7
|
|
|
$
|
3
|
|
|
$
|
311
|
|
|
$
|
(27)
|
|
|
$
|
284
|
|
|
|
|
|
|
Three Months Ended
September 30, 2017(c)
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
1,677
|
|
|
$
|
281
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,958
|
|
|
$
|
—
|
|
|
$
|
1,958
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
112
|
|
|
(112)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
97
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
105
|
|
|
—
|
|
|
105
|
|
Cargo and
other
|
46
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
47
|
|
|
—
|
|
|
47
|
|
Total operating
revenues
|
1,820
|
|
|
289
|
|
|
113
|
|
|
(112)
|
|
|
2,110
|
|
|
—
|
|
|
2,110
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
1,081
|
|
|
219
|
|
|
104
|
|
|
(112)
|
|
|
1,292
|
|
|
23
|
|
|
1,315
|
|
Economic
fuel
|
328
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
373
|
|
|
(5)
|
|
|
368
|
|
Total operating
expenses
|
1,409
|
|
|
264
|
|
|
104
|
|
|
(112)
|
|
|
1,665
|
|
|
18
|
|
|
1,683
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
12
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
9
|
|
|
—
|
|
|
9
|
|
Interest
expense
|
(25)
|
|
|
—
|
|
|
(4)
|
|
|
3
|
|
|
(26)
|
|
|
—
|
|
|
(26)
|
|
Interest
capitalized
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total Nonoperating
income (expense)
|
(6)
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
Income (loss)
before income tax
|
$
|
405
|
|
|
$
|
25
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
435
|
|
|
$
|
(18)
|
|
|
$
|
417
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2018
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
4,880
|
|
|
$
|
845
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,725
|
|
|
$
|
—
|
|
|
$
|
5,725
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
375
|
|
|
(375)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
301
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
329
|
|
|
—
|
|
|
329
|
|
Cargo and
other
|
141
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
146
|
|
|
—
|
|
|
146
|
|
Total operating
revenues
|
5,322
|
|
|
874
|
|
|
379
|
|
|
(375)
|
|
|
6,200
|
|
|
—
|
|
|
6,200
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
3,392
|
|
|
755
|
|
|
345
|
|
|
(378)
|
|
|
4,114
|
|
|
92
|
|
|
4,206
|
|
Economic
fuel
|
1,237
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
1,427
|
|
|
(30)
|
|
|
1,397
|
|
Total operating
expenses
|
4,629
|
|
|
945
|
|
|
345
|
|
|
(378)
|
|
|
5,541
|
|
|
62
|
|
|
5,603
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
39
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
29
|
|
|
—
|
|
|
29
|
|
Interest
expense
|
(64)
|
|
|
—
|
|
|
(16)
|
|
|
9
|
|
|
(71)
|
|
|
—
|
|
|
(71)
|
|
Interest
capitalized
|
12
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
14
|
|
|
—
|
|
|
14
|
|
Other
|
(9)
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
Total Nonoperating
income (expense)
|
(22)
|
|
|
(11)
|
|
|
(14)
|
|
|
(1)
|
|
|
(48)
|
|
|
—
|
|
|
(48)
|
|
Income (loss)
before income tax
|
$
|
671
|
|
|
$
|
(82)
|
|
|
$
|
20
|
|
|
$
|
2
|
|
|
$
|
611
|
|
|
$
|
(62)
|
|
|
$
|
549
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2017(c)
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
4,729
|
|
|
$
|
776
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,505
|
|
|
$
|
—
|
|
|
$
|
5,505
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
317
|
|
|
(317)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
291
|
|
|
23
|
|
|
—
|
|
|
—
|
|
|
314
|
|
|
—
|
|
|
314
|
|
Cargo and
other
|
127
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
133
|
|
Total operating
revenues
|
5,147
|
|
|
802
|
|
|
320
|
|
|
(317)
|
|
|
5,952
|
|
|
—
|
|
|
5,952
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
3,111
|
|
|
625
|
|
|
323
|
|
|
(315)
|
|
|
3,744
|
|
|
86
|
|
|
3,830
|
|
Economic
fuel
|
924
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
1,044
|
|
|
7
|
|
|
1,051
|
|
Total operating
expenses
|
4,035
|
|
|
745
|
|
|
323
|
|
|
(315)
|
|
|
4,788
|
|
|
93
|
|
|
4,881
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
29
|
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
25
|
|
|
—
|
|
|
25
|
|
Interest
expense
|
(72)
|
|
|
—
|
|
|
(9)
|
|
|
4
|
|
|
(77)
|
|
|
—
|
|
|
(77)
|
|
Interest
capitalized
|
12
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Total Nonoperating
income (expense)
|
(30)
|
|
|
—
|
|
|
(8)
|
|
|
—
|
|
|
(38)
|
|
|
—
|
|
|
(38)
|
|
Income (loss)
before income tax
|
$
|
1,082
|
|
|
$
|
57
|
|
|
$
|
(11)
|
|
|
$
|
(2)
|
|
|
$
|
1,126
|
|
|
$
|
(93)
|
|
|
$
|
1,033
|
|
|
|
(a)
|
The Air Group
Adjusted column represents the financial information that is
reviewed by management to assess performance of operations and
determine capital allocation and does not include certain charges.
See Note A in the accompanying pages for further
information.
|
|
|
(b)
|
Includes
merger-related costs, an employee bonus awarded in January in
connection with the Tax Cuts and Jobs Act, and mark-to-market fuel
hedge accounting adjustments.
|
|
|
(c)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
|
|
|
|
GAAP TO NON-GAAP
RECONCILIATIONS (unaudited)
|
|
|
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
CASM Excluding
Fuel and Special Items Reconciliation
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2018
|
|
2017(b)
|
|
2018
|
|
2017(b)
|
Consolidated:
|
|
|
|
|
|
|
|
CASM
|
11.30
|
¢
|
|
10.41
|
¢
|
|
11.38
|
¢
|
|
10.57
|
¢
|
Less the following
components:
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
3.02
|
|
|
2.27
|
|
|
2.84
|
|
|
2.27
|
|
Special
items—merger-related costs and other(a)
|
0.13
|
|
|
0.14
|
|
|
0.19
|
|
|
0.19
|
|
CASM excluding
fuel and special items
|
8.15
|
¢
|
|
8.00
|
¢
|
|
8.35
|
¢
|
|
8.11
|
¢
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
CASM
|
10.37
|
¢
|
|
9.64
|
¢
|
|
10.49
|
¢
|
|
9.74
|
¢
|
Less the following
components:
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
2.89
|
|
|
2.18
|
|
|
2.70
|
|
|
2.20
|
|
Special
items—merger-related costs and other(a)
|
0.14
|
|
|
0.16
|
|
|
0.21
|
|
|
0.20
|
|
CASM excluding
fuel and special items
|
7.34
|
¢
|
|
7.30
|
¢
|
|
7.58
|
¢
|
|
7.34
|
¢
|
|
|
(a)
|
Special items include
merger-related costs and an employee bonus awarded in January in
connection with the Tax Cuts and Jobs Act.
|
|
|
(b)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
|
|
|
|
Fuel
Reconciliation
|
|
Three Months Ended
September 30,
|
|
2018
|
|
2017
|
(in millions,
except for per-gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
Raw or "into-plane"
fuel cost
|
$
|
520
|
|
|
$
|
2.38
|
|
|
$
|
368
|
|
|
$
|
1.78
|
|
(Gains) losses on
settled hedges
|
(12)
|
|
|
(0.05)
|
|
|
5
|
|
|
0.02
|
|
Consolidated
economic fuel expense
|
508
|
|
|
2.33
|
|
|
373
|
|
|
1.80
|
|
Mark-to-market fuel
hedge adjustment
|
5
|
|
|
0.02
|
|
|
(5)
|
|
|
(0.02)
|
|
GAAP fuel
expense
|
$
|
513
|
|
|
$
|
2.35
|
|
|
$
|
368
|
|
|
$
|
1.78
|
|
Fuel
gallons
|
218
|
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2018
|
|
2017
|
(in millions,
except for per gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
Raw or "into-plane"
fuel cost
|
$
|
1,450
|
|
|
$
|
2.30
|
|
|
$
|
1,030
|
|
|
$
|
1.74
|
|
(Gains) losses on
settled hedges
|
(23)
|
|
|
(0.04)
|
|
|
14
|
|
|
0.02
|
|
Consolidated
economic fuel expense
|
$
|
1,427
|
|
|
$
|
2.26
|
|
|
$
|
1,044
|
|
|
$
|
1.76
|
|
Mark-to-market fuel
hedge adjustment
|
(30)
|
|
|
(0.05)
|
|
|
7
|
|
|
0.01
|
|
GAAP fuel
expense
|
$
|
1,397
|
|
|
$
|
2.21
|
|
|
$
|
1,051
|
|
|
$
|
1.77
|
|
Fuel
gallons
|
631
|
|
|
|
|
592
|
|
|
|
|
|
|
Debt-to-capitalization, adjusted for aircraft
operating leases
|
(in
millions)
|
September 30,
2018
|
|
December 31,
2017(a)
|
Long-term
debt
|
$
|
1,684
|
|
|
$
|
2,262
|
|
Capitalization of
aircraft operating leases(b)
|
1,887
|
|
|
1,671
|
|
Adjusted
debt
|
3,571
|
|
|
3,933
|
|
Shareholders'
equity
|
3,791
|
|
|
3,460
|
|
Total Invested
Capital
|
$
|
7,362
|
|
|
$
|
7,393
|
|
|
|
|
|
Debt-to-capitalization ratio, adjusted for aircraft
operating leases
|
49
|
%
|
|
53
|
%
|
|
|
(a)
|
Certain historical
information has been adjusted to reflect the adoption of new
accounting standards.
|
|
|
(b)
|
Calculated using the
present value of remaining aircraft lease payments.
|
|
|
|
|
Note A: Pursuant to Regulation G, we are providing
reconciliations of reported non-GAAP financial measures to their
most directly comparable financial measures reported on a GAAP
basis. We believe that consideration of these non-GAAP financial
measures may be important to investors for the following
reasons:
- By eliminating fuel expense and certain special items
(including merger-related costs) from our unit metrics, we believe
that we have better visibility into the results of operations and
our non-fuel cost-reduction initiatives. Our industry is
highly competitive and is 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, maintenance costs, etc., which are
more controllable by management.
- Cost per ASM (CASM) excluding fuel and certain special items,
such as merger-related costs, is one of the most important measures
used by management and by the Air Group Board of Directors in
assessing quarterly and annual cost performance.
- Adjusted income before income tax and CASM excluding fuel (and
other items as specified in our plan documents) are important
metrics for the employee incentive plan, which covers the majority
of Air Group employees.
- CASM excluding fuel and certain special items 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 investors.
- Disclosure of the individual impact of certain noted items
provides investors the ability to measure and monitor performance
both with and without these special items. We believe that
disclosing the impact of certain items, such as merger-related
costs and mark-to-market hedging adjustments, is important because
it provides information on significant items that are not
necessarily indicative of future performance. Industry analysts and
investors consistently measure our performance without these items
for better comparability between periods and among other
airlines.
- Although we disclose our passenger unit revenues, we do not
(nor are we able to) evaluate unit revenues excluding the impact
that changes in fuel costs have had on ticket prices. Fuel
expense represents a large percentage of our total operating
expenses. Fluctuations in fuel prices often drive changes in
unit revenues in the mid-to-long term. Although we believe it
is useful to evaluate non-fuel unit costs for the reasons noted
above, we would caution readers of these financial statements not
to place undue reliance on unit costs excluding fuel as a measure
or predictor of future profitability because of the significant
impact of fuel costs on our business.
GLOSSARY OF TERMS
Aircraft Utilization - block hours per day; this
represents the average number of hours per day our aircraft are in
transit
Aircraft Stage Length - represents the average miles
flown per aircraft departure
ASMs - available seat miles, or "capacity"; represents
total seats available across the fleet multiplied by the number of
miles flown
CASM - operating costs per ASM, or "unit cost";
represents all operating expenses including fuel and special
items
CASMex - operating costs excluding fuel and special items
per ASM; this metric is used to help track progress toward
reduction of non-fuel operating costs since fuel is largely out of
our control
Debt-to-capitalization ratio - represents adjusted debt
(long-term debt plus the present value of future operating lease
payments) divided by total equity plus adjusted debt
Diluted Earnings per Share - represents earnings per
share (EPS) using fully diluted shares outstanding
Diluted Shares - represents the total number of shares
that would be outstanding if all possible sources of conversion,
such as stock options, were exercised
Economic Fuel - best estimate of the cash cost of fuel,
net of the impact of our fuel-hedging program
Free Cash Flow - total operating cash flow generated less
cash paid for capital expenditures
Load Factor - RPMs as a percentage of ASMs; represents
the number of available seats that were filled with paying
passengers
Mainline - represents flying Boeing 737 and Airbus 320
family jets and all associated revenues and costs
Productivity - number of revenue passengers per full-time
equivalent employee
RASM - operating revenue per ASMs, or "unit revenue";
operating revenue includes all passenger revenue, freight &
mail, Mileage Plan and other ancillary revenue; represents the
average total revenue for flying one seat one mile
Regional - represents capacity purchased by Alaska from Horizon, SkyWest and PenAir. In
this segment, Regional records actual on-board passenger revenue,
less costs such as fuel, distribution costs, and payments made to
Horizon, SkyWest and PenAir under the respective capacity purchased
arrangement (CPAs). Additionally, Regional includes an allocation
of corporate overhead such as IT, finance, other administrative
costs incurred by Alaska and on
behalf of Horizon.
RPMs - revenue passenger miles, or "traffic"; represents
the number of seats that were filled with paying passengers; one
passenger traveling one mile is one RPM
Yield - passenger revenue per RPM; represents the average
revenue for flying one passenger one mile
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SOURCE Alaska Air Group, Inc.