SEATTLE, Oct. 24, 2019 /PRNewswire/ --
Financial Highlights:
- Reported net income for the third quarter of 2019 under
Generally Accepted Accounting Principles (GAAP) of $322 million, or $2.60 per diluted share, compared to net income
of $217 million, or $1.75 per diluted share in the third quarter of
2018.
- Reported net income for the third quarter of 2019, excluding
merger-related costs and mark-to-market fuel hedge accounting
adjustments, of $326 million, or
$2.63 per diluted share, compared to
$237 million or $1.91 per diluted share, in the third quarter of
2018. This quarter's adjusted results compare to the First Call
analyst consensus estimate of $2.52
per share.
- Paid a $0.35 per-share cash
dividend in the third quarter, a 9% increase over the dividend paid
in the third quarter of 2018.
- Repurchased a total of 874,019 shares of common stock for
approximately $53 million in the
first nine months of 2019.
- Generated $1.4 billion of
operating cash flow in the first nine months of 2019.
- Made a voluntary contribution of $65
million to defined benefit pension plans in the third
quarter.
- Held $1.6 billion in unrestricted
cash and marketable securities as of Sept.
30, 2019.
- Reduced debt-to-capitalization ratio to 42% as of Sept. 30, 2019 compared to 47% as of Dec. 31, 2018.
Operational Highlights:
- Alaska's clerical, office,
passenger service, ramp and stores employees, represented by the
International Association of Machinists, ratified a new five-year
agreement in August.
- Opened a new 15,000+ square foot flagship lounge in the North
Satellite at Sea-Tac International Airport in July.
- Reallocated flying to expand offerings between the Pacific
Northwest and California,
increasing network utility and providing more non-stop service on
the West Coast.
- Completed cabin interior renovations of the 25th
Airbus aircraft during the third quarter.
- Installed high-speed satellite Wi-Fi on the 54th
mainline aircraft.
Recognition and Awards:
- Named "Best U.S. Airline" by Condé Nast Traveler for the second
consecutive year.
- Ranked as top U.S. airline in Newsweek's 2020 Best Customer
Service awards.
- Mileage Plan ranked first in the U.S. News & World Report's
list of Best Airline Rewards Programs for the fifth consecutive
year.
- Ranked as the top U.S. airline in the Dow Jones Sustainability
Index for the third consecutive year.
- Ranked among Forbes' 2019 global list for "World's Best
Employers."
Alaska Air Group Inc. today reported third quarter 2019 GAAP net
income of $322 million, or
$2.60 per diluted share, compared to
$217 million, or $1.75 per diluted share in the third quarter of
2018. Excluding the impact of merger-related costs and
mark-to-market fuel hedge adjustments, the company reported
adjusted net income of $326 million,
or $2.63 per diluted share, compared
to $237 million, or $1.91 per diluted share in 2018.
"Our teams at Alaska, Horizon
and McGee delivered industry-leading customer service and
operational reliability that helped drive strong third quarter
results," said Alaska Air Group CEO Brad
Tilden. "Our adjusted pretax profit margin of nearly 18% was
3.6 percentage points higher than last year - fueled by our
commitment to keep costs low and by the impressive 8% revenue
growth that our commercial team delivered. I want to thank our
employees for everything they're doing to make Alaska what we are today - and for helping us
shape what we're going to be in the future. They are the best in
the industry, and I believe these results demonstrate that."
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, 2019
and 2018 to adjusted amounts.
|
Three Months Ended
September 30,
|
|
2019
|
|
2018
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
GAAP net income and
diluted EPS
|
$
|
322
|
|
|
$
|
2.60
|
|
|
$
|
217
|
|
|
$
|
1.75
|
|
Mark-to-market fuel
hedge adjustments
|
—
|
|
|
—
|
|
|
5
|
|
|
0.04
|
|
Special items -
merger-related costs
|
5
|
|
|
0.04
|
|
|
22
|
|
|
0.18
|
|
Income tax effect of
reconciling items above
|
(1)
|
|
|
(0.01)
|
|
|
(7)
|
|
|
(0.06)
|
|
Non-GAAP adjusted net
income and diluted EPS
|
$
|
326
|
|
|
$
|
2.63
|
|
|
$
|
237
|
|
|
$
|
1.91
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
GAAP net income and
diluted EPS
|
$
|
588
|
|
|
$
|
4.74
|
|
|
$
|
414
|
|
|
$
|
3.34
|
|
Mark-to-market fuel
hedge adjustments
|
(1)
|
|
|
(0.01)
|
|
|
(30)
|
|
|
(0.24)
|
|
Special items -
merger-related costs
|
39
|
|
|
0.31
|
|
|
67
|
|
|
0.54
|
|
Special items -
other
|
—
|
|
|
—
|
|
|
25
|
|
|
0.20
|
|
Income tax effect of
reconciling items above
|
(9)
|
|
|
(0.07)
|
|
|
(15)
|
|
|
(0.12)
|
|
Non-GAAP adjusted net
income and diluted EPS
|
$
|
617
|
|
|
$
|
4.97
|
|
|
$
|
461
|
|
|
$
|
3.72
|
|
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 1:30 p.m. Pacific
time on Oct. 24, 2019. 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. (through
July 20, 2018, at which point it was
legally merged into Alaska Airlines, 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, 2018, 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 46 million guests
a year to more than 115 destinations with an average of 1,300 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 800 destinations worldwide. Alaska ranked "Highest in Customer
Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America
Airline Satisfaction Study for 12 consecutive years from 2008 to
2019. 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)
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Operating
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenue
|
$
|
2,211
|
|
|
$
|
2,043
|
|
|
8
|
%
|
|
$
|
6,038
|
|
|
$
|
5,724
|
|
|
5
|
%
|
Mileage Plan other
revenue
|
118
|
|
|
114
|
|
|
4
|
%
|
|
346
|
|
|
329
|
|
|
5
|
%
|
Cargo and
other
|
60
|
|
|
55
|
|
|
9
|
%
|
|
169
|
|
|
147
|
|
|
15
|
%
|
Total Operating
Revenues
|
2,389
|
|
|
2,212
|
|
|
8
|
%
|
|
6,553
|
|
|
6,200
|
|
|
6
|
%
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Wages and
benefits
|
608
|
|
|
549
|
|
|
11
|
%
|
|
1,732
|
|
|
1,629
|
|
|
6
|
%
|
Variable incentive
pay
|
46
|
|
|
27
|
|
|
70
|
%
|
|
125
|
|
|
104
|
|
|
20
|
%
|
Aircraft fuel,
including hedging gains and losses
|
486
|
|
|
513
|
|
|
(5)
|
%
|
|
1,408
|
|
|
1,397
|
|
|
1
|
%
|
Aircraft
maintenance
|
106
|
|
|
107
|
|
|
(1)
|
%
|
|
341
|
|
|
320
|
|
|
7
|
%
|
Aircraft
rent
|
82
|
|
|
82
|
|
|
—
|
%
|
|
247
|
|
|
233
|
|
|
6
|
%
|
Landing fees and
other rentals
|
143
|
|
|
135
|
|
|
6
|
%
|
|
388
|
|
|
371
|
|
|
5
|
%
|
Contracted
services
|
72
|
|
|
70
|
|
|
3
|
%
|
|
214
|
|
|
227
|
|
|
(6)
|
%
|
Selling
expenses
|
77
|
|
|
79
|
|
|
(3)
|
%
|
|
236
|
|
|
245
|
|
|
(4)
|
%
|
Depreciation and
amortization
|
106
|
|
|
99
|
|
|
7
|
%
|
|
317
|
|
|
290
|
|
|
9
|
%
|
Food and beverage
service
|
57
|
|
|
53
|
|
|
8
|
%
|
|
159
|
|
|
158
|
|
|
1
|
%
|
Third-party regional
carrier expense
|
42
|
|
|
38
|
|
|
11
|
%
|
|
125
|
|
|
114
|
|
|
10
|
%
|
Other
|
137
|
|
|
141
|
|
|
(3)
|
%
|
|
411
|
|
|
423
|
|
|
(3)
|
%
|
Special items -
merger-related costs
|
5
|
|
|
22
|
|
|
(77)
|
%
|
|
39
|
|
|
67
|
|
|
(42)
|
%
|
Special items -
other
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
25
|
|
|
NM
|
Total Operating
Expenses
|
1,967
|
|
|
1,915
|
|
|
3
|
%
|
|
5,742
|
|
|
5,603
|
|
|
2
|
%
|
Operating
Income
|
422
|
|
|
297
|
|
|
42
|
%
|
|
811
|
|
|
597
|
|
|
36
|
%
|
Nonoperating
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
11
|
|
|
11
|
|
|
—
|
%
|
|
31
|
|
|
29
|
|
|
7
|
%
|
Interest
expense
|
(18)
|
|
|
(22)
|
|
|
(18)
|
%
|
|
(60)
|
|
|
(71)
|
|
|
(15)
|
%
|
Interest
capitalized
|
4
|
|
|
5
|
|
|
(20)
|
%
|
|
11
|
|
|
14
|
|
|
(21)
|
%
|
Other—net
|
(3)
|
|
|
(7)
|
|
|
(57)
|
%
|
|
(20)
|
|
|
(20)
|
|
|
—
|
%
|
Total Nonoperating
Income (Expense)
|
(6)
|
|
|
(13)
|
|
|
(54)
|
%
|
|
(38)
|
|
|
(48)
|
|
|
(21)
|
%
|
Income Before
Income Tax
|
416
|
|
|
284
|
|
|
|
|
773
|
|
|
549
|
|
|
|
Income tax
expense
|
94
|
|
|
67
|
|
|
|
|
185
|
|
|
135
|
|
|
|
Net
Income
|
$
|
322
|
|
|
$
|
217
|
|
|
|
|
$
|
588
|
|
|
$
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per
Share:
|
$
|
2.61
|
|
|
$
|
1.76
|
|
|
|
|
$
|
4.76
|
|
|
$
|
3.36
|
|
|
|
Diluted Earnings
Per Share:
|
$
|
2.60
|
|
|
$
|
1.75
|
|
|
|
|
$
|
4.74
|
|
|
$
|
3.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used for
Computation:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
123.280
|
|
|
123.224
|
|
|
|
|
123.330
|
|
|
123.216
|
|
|
|
Diluted
|
124.067
|
|
|
123.864
|
|
|
|
|
124.051
|
|
|
123.804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
declared per share:
|
$
|
0.35
|
|
|
$
|
0.32
|
|
|
|
|
$
|
1.05
|
|
|
$
|
0.96
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
(in
millions)
|
September 30,
2019
|
|
December 31,
2018
|
Cash and marketable
securities
|
$
|
1,619
|
|
|
$
|
1,236
|
|
Other current
assets
|
583
|
|
|
551
|
|
Current
assets
|
2,202
|
|
|
1,787
|
|
Property and
equipment - net
|
6,834
|
|
|
6,781
|
|
Operating lease
assets
|
1,647
|
|
|
—
|
|
Goodwill
|
1,943
|
|
|
1,943
|
|
Intangible assets -
net
|
123
|
|
|
127
|
|
Other
assets
|
234
|
|
|
274
|
|
Total
assets
|
12,983
|
|
|
10,912
|
|
|
|
|
|
Air traffic
liability
|
1,032
|
|
|
788
|
|
Current portion of
long-term debt
|
265
|
|
|
486
|
|
Current portion of
operating lease liabilities
|
268
|
|
|
—
|
|
Other current
liabilities
|
1,781
|
|
|
1,668
|
|
Current
liabilities
|
3,346
|
|
|
2,942
|
|
Long-term
debt
|
1,444
|
|
|
1,617
|
|
Long-term operating
lease liabilities
|
1,376
|
|
|
—
|
|
Other liabilities and
credits
|
2,565
|
|
|
2,602
|
|
Shareholders'
equity
|
4,252
|
|
|
3,751
|
|
Total liabilities
and shareholders' equity
|
$
|
12,983
|
|
|
$
|
10,912
|
|
|
|
|
|
Debt-to-capitalization ratio, including operating
leases(a)
|
42
|
%
|
|
47
|
%
|
|
|
|
|
Number of common
shares outstanding
|
123.278
|
|
|
123.194
|
|
|
|
(a)
|
Following the
adoption of the new lease accounting standard on January 1, 2019,
the ratio is calculated using the total capitalized Operating lease
liability, whereas prior year periods were calculated utilizing the
present value of aircraft lease payments. This change had no impact
to the ratio.
|
OPERATING
STATISTICS SUMMARY (unaudited)
|
|
|
|
|
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Consolidated
Operating Statistics:(a)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
12,574
|
|
12,128
|
|
3.7%
|
|
35,018
|
|
34,685
|
|
1.0%
|
RPMs (000,000)
"traffic"
|
15,026
|
|
14,386
|
|
4.4%
|
|
42,113
|
|
41,272
|
|
2.0%
|
ASMs (000,000)
"capacity"
|
17,519
|
|
16,943
|
|
3.4%
|
|
50,006
|
|
49,256
|
|
1.5%
|
Load
factor
|
85.8%
|
|
84.9%
|
|
0.9 pts
|
|
84.2%
|
|
83.8%
|
|
0.4 pts
|
Yield
|
14.71¢
|
|
14.20¢
|
|
3.6%
|
|
14.34¢
|
|
13.87¢
|
|
3.4%
|
RASM
|
13.64¢
|
|
13.05¢
|
|
4.5%
|
|
13.10¢
|
|
12.59¢
|
|
4.1%
|
CASMex(b)
|
8.43¢
|
|
8.15¢
|
|
3.4%
|
|
8.59¢
|
|
8.35¢
|
|
2.9%
|
Economic fuel cost
per gallon(b)
|
$2.13
|
|
$2.33
|
|
(8.6)%
|
|
$2.18
|
|
$2.26
|
|
(3.5)%
|
Fuel gallons
(000,000)
|
227
|
|
218
|
|
4.1%
|
|
646
|
|
631
|
|
2.4%
|
ASM's per
gallon
|
77.2
|
|
77.7
|
|
(0.6)%
|
|
77.4
|
|
78.1
|
|
(0.9)%
|
Average number of
full-time equivalent employees (FTE)
|
22,247
|
|
21,804
|
|
2.0%
|
|
22,000
|
|
21,575
|
|
2.0%
|
Mainline Operating
Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
9,655
|
|
9,435
|
|
2.3%
|
|
26,725
|
|
27,107
|
|
(1.4)%
|
RPMs (000,000)
"traffic"
|
13,538
|
|
13,096
|
|
3.4%
|
|
37,917
|
|
37,677
|
|
0.6%
|
ASMs (000,000)
"capacity"
|
15,702
|
|
15,343
|
|
2.3%
|
|
44,816
|
|
44,730
|
|
0.2%
|
Load
factor
|
86.2%
|
|
85.4%
|
|
0.8 pts
|
|
84.6%
|
|
84.2%
|
|
0.4 pts
|
Yield
|
13.66¢
|
|
13.18¢
|
|
3.6%
|
|
13.29¢
|
|
12.95¢
|
|
2.6%
|
RASM
|
12.83¢
|
|
12.28¢
|
|
4.5%
|
|
12.30¢
|
|
11.90¢
|
|
3.4%
|
CASMex(b)
|
7.81¢
|
|
7.34¢
|
|
6.4%
|
|
7.91¢
|
|
7.58¢
|
|
4.4%
|
Economic fuel cost
per gallon(b)
|
$2.13
|
|
$2.32
|
|
(8.2)%
|
|
$2.17
|
|
$2.25
|
|
(3.6)%
|
Fuel gallons
(000,000)
|
193
|
|
189
|
|
2.1%
|
|
549
|
|
549
|
|
—%
|
ASM's per
gallon
|
81.4
|
|
81.2
|
|
0.2%
|
|
81.6
|
|
81.5
|
|
0.1%
|
Average number of
FTE's
|
16,789
|
|
16,499
|
|
1.8%
|
|
16,599
|
|
16,330
|
|
1.6%
|
Aircraft
utilization
|
11.3
|
|
11.4
|
|
(0.9)%
|
|
10.9
|
|
11.4
|
|
(4.4)%
|
Average aircraft
stage length
|
1,281
|
|
1,291
|
|
(0.8)%
|
|
1,298
|
|
1,293
|
|
0.4%
|
Operating
fleet
|
238
|
|
231
|
|
7 a/c
|
|
238
|
|
231
|
|
7 a/c
|
Regional Operating
Statistics:(c)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
2,919
|
|
2,693
|
|
8.4%
|
|
8,293
|
|
7,578
|
|
9.4%
|
RPMs (000,000)
"traffic"
|
1,488
|
|
1,290
|
|
15.3%
|
|
4,196
|
|
3,595
|
|
16.7%
|
ASMs (000,000)
"capacity"
|
1,817
|
|
1,600
|
|
13.6%
|
|
5,190
|
|
4,526
|
|
14.7%
|
Load
factor
|
81.9%
|
|
80.6%
|
|
1.3 pts
|
|
80.8%
|
|
79.4%
|
|
1.4 pts
|
Yield
|
24.23¢
|
|
24.50¢
|
|
(1.1)%
|
|
23.81¢
|
|
23.49¢
|
|
1.4%
|
RASM
|
20.51¢
|
|
20.41¢
|
|
0.5%
|
|
19.93¢
|
|
19.32¢
|
|
3.2%
|
Operating
fleet
|
94
|
|
89
|
|
5 a/c
|
|
94
|
|
89
|
|
5 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, excluding PenAir.
|
OPERATING SEGMENTS
(unaudited)
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2019
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
1,850
|
|
|
$
|
361
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,211
|
|
|
$
|
—
|
|
|
$
|
2,211
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
112
|
|
|
(112)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
107
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
118
|
|
|
—
|
|
|
118
|
|
Cargo and
other
|
58
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
60
|
|
|
—
|
|
|
60
|
|
Total operating
revenues
|
2,015
|
|
|
373
|
|
|
112
|
|
|
(111)
|
|
|
2,389
|
|
|
—
|
|
|
2,389
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
1,226
|
|
|
275
|
|
|
94
|
|
|
(119)
|
|
|
1,476
|
|
|
5
|
|
|
1,481
|
|
Economic
fuel
|
411
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
486
|
|
|
—
|
|
|
486
|
|
Total operating
expenses
|
1,637
|
|
|
350
|
|
|
94
|
|
|
(119)
|
|
|
1,962
|
|
|
5
|
|
|
1,967
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
17
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Interest
expense
|
(18)
|
|
|
—
|
|
|
(7)
|
|
|
7
|
|
|
(18)
|
|
|
—
|
|
|
(18)
|
|
Interest
capitalized
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
4
|
|
Other -
net
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(3)
|
|
Total Nonoperating
income (expense)
|
—
|
|
|
—
|
|
|
(7)
|
|
|
1
|
|
|
(6)
|
|
|
—
|
|
|
(6)
|
|
Income (loss)
before income tax
|
$
|
378
|
|
|
$
|
23
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
421
|
|
|
$
|
(5)
|
|
|
$
|
416
|
|
|
|
|
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 -
net
|
(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
|
|
|
|
|
Nine Months Ended
September 30, 2019
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating
& Other
|
|
Air Group
Adjusted(a)
|
|
Special
Items(b)
|
|
Consolidated
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
revenues
|
$
|
5,039
|
|
|
$
|
999
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,038
|
|
|
$
|
—
|
|
|
$
|
6,038
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
340
|
|
|
(340)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
312
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
346
|
|
|
—
|
|
|
346
|
|
Cargo and
other
|
163
|
|
|
2
|
|
|
1
|
|
|
3
|
|
|
169
|
|
|
—
|
|
|
169
|
|
Total operating
revenues
|
5,514
|
|
|
1,035
|
|
|
341
|
|
|
(337)
|
|
|
6,553
|
|
|
—
|
|
|
6,553
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
3,545
|
|
|
817
|
|
|
286
|
|
|
(353)
|
|
|
4,295
|
|
|
39
|
|
|
4,334
|
|
Economic
fuel
|
1,191
|
|
|
218
|
|
|
—
|
|
|
—
|
|
|
1,409
|
|
|
(1)
|
|
|
1,408
|
|
Total operating
expenses
|
4,736
|
|
|
1,035
|
|
|
286
|
|
|
(353)
|
|
|
5,704
|
|
|
38
|
|
|
5,742
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
50
|
|
|
—
|
|
|
—
|
|
|
(19)
|
|
|
31
|
|
|
—
|
|
|
31
|
|
Interest
expense
|
(58)
|
|
|
—
|
|
|
(22)
|
|
|
20
|
|
|
(60)
|
|
|
—
|
|
|
(60)
|
|
Interest
capitalized
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Other -
net
|
(20)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
Total Nonoperating
income (expense)
|
(17)
|
|
|
—
|
|
|
(22)
|
|
|
1
|
|
|
(38)
|
|
|
—
|
|
|
(38)
|
|
Income (loss)
before income tax
|
$
|
761
|
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
17
|
|
|
$
|
811
|
|
|
$
|
(38)
|
|
|
$
|
773
|
|
|
|
|
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
|
$
|
4,879
|
|
|
$
|
845
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,724
|
|
|
$
|
—
|
|
|
$
|
5,724
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
375
|
|
|
(375)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Mileage Plan other
revenue
|
301
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
329
|
|
|
—
|
|
|
329
|
|
Cargo and
other
|
142
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
147
|
|
|
—
|
|
|
147
|
|
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 -
net
|
(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
|
|
|
|
(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 excludes certain charges. See Note
A in the accompanying pages for further information.
|
(b)
|
Includes
merger-related costs, an employee bonus awarded in January 2018 in
connection with the Tax Cuts and Jobs Act, and mark-to-market fuel
hedge accounting adjustments.
|
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,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Consolidated:
|
|
|
|
|
|
|
|
CASM
|
11.23
|
¢
|
|
11.30
|
¢
|
|
11.48
|
¢
|
|
11.38
|
¢
|
Less the following
components:
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
2.77
|
|
|
3.02
|
|
|
2.82
|
|
|
2.84
|
|
Special items -
merger-related costs
|
0.03
|
|
|
0.13
|
|
|
0.07
|
|
|
0.14
|
|
Special items -
other(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
0.05
|
|
CASM excluding
fuel and special items
|
8.43
|
¢
|
|
8.15
|
¢
|
|
8.59
|
¢
|
|
8.35
|
¢
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
CASM
|
10.46
|
¢
|
|
10.37
|
¢
|
|
10.65
|
¢
|
|
10.49
|
¢
|
Less the following
components:
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
2.62
|
|
|
2.89
|
|
|
2.65
|
|
|
2.70
|
|
Special items -
merger-related costs
|
0.03
|
|
|
0.14
|
|
|
0.09
|
|
|
0.15
|
|
Special items -
other(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
0.06
|
|
CASM excluding
fuel and special items
|
7.81
|
¢
|
|
7.34
|
¢
|
|
7.91
|
¢
|
|
7.58
|
¢
|
|
|
(a)
|
Special items - other
includes special charges associated with the employee tax reform
bonus awarded in January 2018.
|
Fuel
Reconciliation
|
|
Three Months Ended
September 30,
|
|
2019
|
|
2018
|
(in millions,
except for per-gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
Raw or "into-plane"
fuel cost
|
$
|
481
|
|
|
$
|
2.11
|
|
|
$
|
520
|
|
|
$
|
2.38
|
|
(Gains) losses on
settled hedges
|
5
|
|
|
0.02
|
|
|
(12)
|
|
|
(0.05)
|
|
Consolidated
economic fuel expense
|
486
|
|
|
2.13
|
|
|
508
|
|
|
2.33
|
|
Mark-to-market fuel
hedge adjustment
|
—
|
|
|
—
|
|
|
5
|
|
|
0.02
|
|
GAAP fuel
expense
|
$
|
486
|
|
|
$
|
2.13
|
|
|
$
|
513
|
|
|
$
|
2.35
|
|
Fuel
gallons
|
227
|
|
|
|
|
218
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2019
|
|
2018
|
(in millions,
except for per gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
Raw or "into-plane"
fuel cost
|
$
|
1,397
|
|
|
$
|
2.16
|
|
|
$
|
1,450
|
|
|
$
|
2.30
|
|
(Gains) losses on
settled hedges
|
12
|
|
|
0.02
|
|
|
(23)
|
|
|
(0.04)
|
|
Consolidated
economic fuel expense
|
$
|
1,409
|
|
|
$
|
2.18
|
|
|
$
|
1,427
|
|
|
$
|
2.26
|
|
Mark-to-market fuel
hedge adjustment
|
(1)
|
|
|
—
|
|
|
(30)
|
|
|
(0.05)
|
|
GAAP fuel
expense
|
$
|
1,408
|
|
|
$
|
2.18
|
|
|
$
|
1,397
|
|
|
$
|
2.21
|
|
Fuel
gallons
|
646
|
|
|
|
|
631
|
|
|
|
|
Debt-to-capitalization, adjusted for operating
leases
|
(in
millions)
|
September 30,
2019
|
|
December 31,
2018
|
Long-term
debt
|
$
|
1,444
|
|
|
$
|
1,617
|
|
Capitalized operating
leases(a)
|
1,644
|
|
|
1,768
|
|
Adjusted
debt
|
3,088
|
|
|
3,385
|
|
Shareholders'
equity
|
4,252
|
|
|
3,751
|
|
Total Invested
Capital
|
$
|
7,340
|
|
|
$
|
7,136
|
|
|
|
|
|
Debt-to-capitalization ratio, including operating
leases
|
42
|
%
|
|
47
|
%
|
|
|
(a)
|
Following the
adoption of the new lease accounting standard on January 1, 2019,
the ratio is calculated using the total capitalized Operating lease
liability, whereas prior year periods were calculated utilizing the
present value of aircraft lease payments. This change had no impact
to the ratio.
|
Net adjusted debt
to earnings before interest, taxes, depreciation, amortization,
special items and rent
|
(in
millions)
|
September 30,
2019
|
Adjusted
debt
|
$
|
3,088
|
|
Current portion of
long-term debt
|
265
|
|
Total adjusted
debt
|
3,353
|
|
Less: Cash and
marketable securities
|
(1,619)
|
|
Net adjusted
debt
|
$
|
1,734
|
|
|
|
(in
millions)
|
Last Twelve
Months
Ended September 30,
2019
|
GAAP Operating
Income(a)
|
$
|
857
|
|
Adjusted
for:
|
|
Special
items
|
79
|
|
Mark-to-market fuel
hedge adjustments
|
51
|
|
Depreciation and
amortization
|
425
|
|
Aircraft
rent
|
329
|
|
EBITDAR
|
$
|
1,741
|
|
|
|
Net adjusted debt to
EBITDAR
|
1.0x
|
|
|
(a)
|
Operating income can
be reconciled using the trailing twelve month operating income as
filed quarterly with the SEC.
|
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, Airbus 320 and
Airbus 321neo family jets and all associated revenues and costs
Net adjusted debt - long-term debt, including current
portion, plus capitalized operating leases, less cash and
marketable securities
Net adjusted debt to EBITDAR - represents net adjusted
debt divided by EBITDAR (trailing twelve months earnings before
interest, taxes, depreciation, amortization, special items and
rent)
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.