Alaska Air Group Reports Second Quarter Results
Share
Alaska Air Group, Inc. today reported second quarter 2010 net income of $58.6 million, or $1.60 per diluted share, compared to net income of $29.1 million, or $0.79 per diluted share, in the...
Alaska Air Group, Inc.
"Our second quarter adjusted net earnings represent the best quarterly profit in our history. The results were driven by strong revenues and good cost control, partially offset by higher fuel costs," said Bill Ayer, chairman and chief executive officer. "Thanks to the employees at Alaska and Horizon, our reliability and customer service continue to be outstanding. Alaska has held the No. 1 spot in DOT on-time performance among the 10 largest U.S. airlines for 13 of the last 14 months. And for the third year in a row, J.D. Power and Associates named Alaska Airlines highest in customer satisfaction among traditional network carriers in North America."
The following table reconciles the company’s adjusted net income and earnings per diluted share (EPS) during the second quarters of 2010 and 2009 to amounts as reported in accordance with GAAP (in millions except per-share amounts):
Three months ended June 30,
---------------------------
2010 2009
---- ----
Diluted Diluted
Dollars EPS Dollars EPS
------- ------- ------- -------
Net income and diluted
EPS, excluding new
pilot contract
transition costs,
fleet transition costs
and mark-to-market
hedging adjustments $84.0 $2.29 $26.5 $0.72
New pilot contract
transition costs, net
of tax --- --- (22.3) (0.61)
Fleet transition costs
- CRJ-700, net of tax (2.1) (0.06) --- ---
Adjustments to reflect
the timing of gain or
loss recognition
resulting from mark-
to-market fuel-hedge
accounting, net of tax (23.3) (0.63) 24.9 0.68
----- ----- ---- ----
Reported GAAP amounts $58.6 $1.60 $29.1 $0.79
===== ===== ===== =====
Financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on page 4 of this release.
A conference call regarding the second quarter 2010 results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 22, 2010. It can be accessed through the company’s website at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.
References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."
This news release contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company’s Annual Report on Form 10-K for the year ended Dec. 31, 2009. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and government fees and taxes. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. 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 Horizon Air, subsidiaries of Alaska Air Group
Glossary of Financial Terms
ASM – Available seat miles or "capacity." Represents total seats available across the fleet multiplied by the number of miles flown.
RPM – Revenue passenger miles or "traffic." The number of those available seats that were filled with paying passengers. One passenger traveling one mile is one RPM.
RASM – Total operating revenue divided by ASMs. Operating revenue includes all passenger revenue, freight and mail, Mileage Plan and other ancillary revenue — commonly called "unit revenue" and represents the average total revenue for flying one seat one mile.
PRASM – Passenger revenue per ASM — commonly called "passenger unit revenue."
Yield – Passenger revenue per RPM. This represents the average revenue for flying one passenger one mile.
CASM – Total operating costs per ASM. This represents all operating expenses, including fuel and special items — commonly called "unit cost."
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 costs are largely out of the company’s control.
Economic fuel – Best estimate of the cash cost of fuel, net of the impact of the company’s fuel-hedging program.
Mainline – Represents flying on Alaska jets and all associated revenue and costs.
Purchased capacity flying – Represents operations whereby Horizon and, to a much lesser extent, another small carrier in the state of Alaska fly certain routes for Alaska using Horizon’s or the other carrier’s fleets.
Alaska Air Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended June
30,
------------------------
(in millions, except per share
amounts) 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger $881.5 $757.2 16.4
Freight and mail 28.1 25.2 11.5
Other - net 66.8 61.5 8.6
---- ----
Total Operating Revenues 976.4 843.9 15.7
----- -----
Operating Expenses:
Wages and benefits 239.6 247.1 (3.0)
Variable incentive pay 21.6 18.9 14.3
Aircraft fuel, including hedging
gains and losses 255.0 128.4 98.6
Aircraft maintenance 53.8 59.6 (9.7)
Aircraft rent 35.4 39.1 (9.5)
Landing fees and other rentals 57.9 54.4 6.4
Contracted services 41.1 36.8 11.7
Selling expenses 38.2 35.3 8.2
Depreciation and amortization 58.0 53.9 7.6
Food and beverage service 14.3 12.4 15.3
Other 48.2 50.3 (4.2)
New pilot contract transition
costs - 35.8 NM
Fleet transition costs - CRJ-700 3.4 - NM
Fleet transition costs - Q200 - 5.2 NM
---
Total Operating Expenses 866.5 777.2 11.5
----- -----
Operating Income 109.9 66.7
----- ----
Nonoperating Income (Expense):
Interest income 7.6 7.8
Interest expense (26.3) (25.1)
Interest capitalized 1.6 1.8
Other - net 1.2 (3.5)
(15.9) (19.0)
----- -----
Income before income tax 94.0 47.7
Income tax expense 35.4 18.6
Net Income $58.6 $29.1
===== =====
Basic Earnings Per Share: $1.64 $0.80
Diluted Earnings Per Share: $1.60 $0.79
Shares Used for Computation:
Basic 35.698 36.354
Diluted 36.697 36.591
Six Months Ended June 30,
-------------------------
(in millions, except per share
amounts) 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger $1,629.9 $1,441.3 13.1
Freight and mail 51.1 44.6 14.6
Other - net 125.3 100.4 24.8
-----
Total Operating Revenues 1,806.3 1,586.3 13.9
------- -------
Operating Expenses:
Wages and benefits 478.9 493.1 (2.9)
Variable incentive pay 39.5 28.2 40.1
Aircraft fuel, including hedging
gains and losses 462.3 286.1 61.6
Aircraft maintenance 110.8 119.3 (7.1)
Aircraft rent 72.4 77.1 (6.1)
Landing fees and other rentals 113.8 108.6 4.8
Contracted services 80.7 75.2 7.3
Selling expenses 71.8 60.3 19.1
Depreciation and amortization 114.2 106.7 7.0
Food and beverage service 26.6 24.0 10.8
Other 96.0 107.1 (10.4)
New pilot contract transition
costs - 35.8 NM
Fleet transition costs - CRJ-700 3.4 - NM
Fleet transition costs - Q200 - 10.0 NM
----
Total Operating Expenses 1,670.4 1,531.5 9.1
------- -------
Operating Income 135.9 54.8
----- ----
Nonoperating Income (Expense):
Interest income 15.1 16.1
Interest expense (51.9) (51.9)
Interest capitalized 3.3 4.6
Other - net 1.8 (5.5)
(31.7) (36.7)
----- -----
Income before income tax 104.2 18.1
Income tax expense 40.3 8.2
Net Income $63.9 $9.9
===== ====
Basic Earnings Per Share: $1.79 $0.27
Diluted Earnings Per Share: $1.74 $0.27
Shares Used for Computation:
Basic 35.683 36.340
Diluted 36.631 36.742
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, December 31,
(in millions) 2010 2009
--------- -------------
Cash and marketable securities $1,273 $1,192
====== ======
Total current assets 1,739 1,634
Property and equipment-net 3,164 3,168
Other assets 204 194
Total assets $5,107 $4,996
====== ======
Current liabilities $1,441 $1,269
Long-term debt 1,570 1,699
Other liabilities and credits 1,156 1,156
Shareholders' equity 940 872
Total liabilities and shareholders'
equity $5,107 $4,996
====== ======
Debt to Capitalization, adjusted for
operating leases 73%:27% 76%:24%
======= =======
Number of common shares outstanding 35.710 35.591
====== ======
Air Group Net Income and EPS Reconciliation:
--------------------------------------------
The following table summarizes Alaska Air Group, Inc.'s net income
and amounts
per diluted share during 2010 and 2009 excluding adjustments for new
pilot contract
transition costs, certain fleet transition costs and to reflect the
timing of gain or loss
recognition resulting from mark-to-market fuel-hedge accounting as
reported in
accordance with GAAP (in millions except per share amounts):
Three Months Ended June 30,
---------------------------
2010 2009
---- ----
Diluted Diluted
Dollars EPS Dollars EPS
------- -------- ------- --------
Net income and
diluted EPS,
excluding mark-to-
market $84.0 $2.29 $26.5 $0.72
hedging adjustments,
new pilot contract
transition costs,
and
CRJ-700 fleet
transition costs
New pilot contract
transition costs,
net of tax - - (22.3) (0.61)
Fleet transition
costs - CRJ-700,
net of tax (2.1) (0.06) - -
Adjustments to
reflect the timing
of gain or loss
recognition (23.3) (0.63) 24.9 0.68
resulting from mark-
to-market fuel-
hedge accounting,
net of tax
Reported GAAP amounts $58.6 $1.60 $29.1 $0.79
===== ===== ===== =====
Six Months Ended June 30,
-------------------------
2010 2009
---- ----
Diluted Diluted
Dollars EPS Dollars EPS
------- -------- ------- --------
Net income and
diluted EPS,
excluding mark-to-
market $97.1 $2.65 $1.1 $0.03
hedging adjustments,
new pilot contract
transition costs,
and
CRJ-700 fleet
transition costs
New pilot contract
transition costs,
net of tax - - (22.3) (0.61)
Fleet transition
costs - CRJ-700,
net of tax (2.1) (0.06) - -
Adjustments to
reflect the timing
of gain or loss
recognition (31.1) (0.85) 31.1 0.85
resulting from mark-
to-market fuel-
hedge accounting,
net of tax
Reported GAAP amounts $63.9 $1.74 $9.9 $0.27
===== ===== ==== =====
Alaska Airlines Financial and Statistical Data
Three Months Ended June
30,
------------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger $702.3 $602.5 16.6
Freight and mail 26.9 24.2 11.2
Other - net 60.2 54.9 9.7
---- ----
Total mainline operating revenues 789.4 681.6 15.8
Passenger - purchased capacity 83.1 67.7 22.7
----
Total Operating Revenues 872.5 749.3 16.4
----- -----
Operating Expenses:
Wages and benefits 190.9 198.4 (3.8)
Variable incentive pay 17.9 16.1 11.2
Aircraft fuel, including hedging
gains and losses 214.5 107.4 99.7
Aircraft maintenance 40.0 46.6 (14.2)
Aircraft rent 24.3 28.1 (13.5)
Landing fees and other rentals 43.1 40.6 6.2
Contracted services 31.5 28.4 10.9
Selling expenses 30.7 28.3 8.5
Depreciation and amortization 47.6 44.2 7.7
Food and beverage service 13.7 11.9 15.1
Other 36.7 38.5 (4.7)
New pilot contract transition costs - 35.8 NM
----
Total mainline operating expenses 690.9 624.3 10.7
----- -----
Purchased capacity costs 74.3 68.9 7.8
Total Operating Expenses 765.2 693.2 10.4
----- -----
Operating Income 107.3 56.1
----- ----
Interest income 9.5 9.5
Interest expense (23.5) (22.1)
Interest capitalized 1.6 1.8
Other - net 1.6 (3.2)
----
(10.8) (14.0)
----- -----
Income Before Income Tax $96.5 $42.1
===== =====
Mainline Operating Statistics:
Revenue passengers (000) 4,170 3,983 4.7
RPMs (000,000) "traffic" 5,072 4,613 10.0
ASMs (000,000) "capacity" 6,112 5,852 4.4
Passenger load factor 83.0% 78.8% 4.2pts
Yield per passenger mile (in cents) 13.85 13.06 6.0
Operating revenue per ASM (RASM) (in
cents) 12.92 11.65 10.9
Passenger revenue per ASM (PRASM) (in
cents) 11.49 10.30 11.6
Operating expense per ASM (CASM) (in
cents) 11.30 10.67 5.9
CASM excluding fuel and new pilot
contract transition costs (a) (in
cents) 7.79 8.22 (5.2)
Aircraft fuel cost per gallon $2.70 $1.41 91.5
Economic fuel cost per gallon (b) $2.30 $1.84 25.0
Fuel gallons (000,000) 79.6 76.5 4.1
Average number of full-time
equivalent employees 8,621 8,937 (3.5)
Aircraft utilization (blk hrs/day) 10.0 9.9 1.0
Average aircraft stage length (miles) 1,076 1,020 5.5
Operating fleet at period-end 116 116 0 a/c
Regional Operating Statistics:
RPMs (000,000) 284 264 7.6
ASMs (000,000) 376 359 4.7
Passenger load factor 75.5% 73.5% 2.0pts
Yield per passenger mile (in cents) 29.26 25.64 14.1
RASM (in cents) 22.10 18.86 17.2
CASM (in cents) 19.76 19.19 3.0
Six Months Ended June 30,
-------------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger $1,289.3 $1,142.3 12.9
Freight and mail 48.9 42.5 15.1
Other - net 112.3 88.1 27.5
----- ----
Total mainline operating revenues 1,450.5 1,272.9 14.0
Passenger - purchased capacity 159.6 129.5 23.2
Total Operating Revenues 1,610.1 1,402.4 14.8
------- -------
Operating Expenses:
Wages and benefits 382.1 395.8 (3.5)
Variable incentive pay 32.7 23.2 40.9
Aircraft fuel, including hedging
gains and losses 386.2 239.3 61.4
Aircraft maintenance 82.1 92.9 (11.6)
Aircraft rent 50.2 54.6 (8.1)
Landing fees and other rentals 84.8 81.4 4.2
Contracted services 62.1 58.9 5.4
Selling expenses 57.4 47.4 21.1
Depreciation and amortization 93.3 87.5 6.6
Food and beverage service 25.5 22.9 11.4
Other 71.5 81.3 (12.1)
New pilot contract transition costs - 35.8 NM
----
Total mainline operating expenses 1,327.9 1,221.0 8.8
------- -------
Purchased capacity costs 146.8 131.6 11.6
Total Operating Expenses 1,474.7 1,352.6 9.0
------- -------
Operating Income 135.4 49.8
----- ----
Interest income 18.1 19.6
Interest expense (45.6) (45.1)
Interest capitalized 3.3 4.3
Other - net 2.5 (4.8)
----
(21.7) (26.0)
----- -----
Income Before Income Tax $113.7 $23.8
====== =====
Mainline Operating Statistics:
Revenue passengers (000) 7,811 7,556 3.4
RPMs (000,000) "traffic" 9,544 8,792 8.6
ASMs (000,000) "capacity" 11,653 11,372 2.5
Passenger load factor 81.9% 77.3% 4.6pts
Yield per passenger mile (in cents) 13.51 12.99 4.0
Operating revenue per ASM (RASM) (in
cents) 12.45 11.19 11.3
Passenger revenue per ASM (PRASM) (in
cents) 11.06 10.04 10.2
Operating expense per ASM (CASM) (in
cents) 11.40 10.74 6.1
CASM excluding fuel and new pilot
contract transition costs (a) (in
cents) 8.08 8.32 (2.9)
Aircraft fuel cost per gallon $2.55 $1.60 59.4
Economic fuel cost per gallon (b) $2.28 $1.88 21.3
Fuel gallons (000,000) 151.9 149.8 1.4
Average number of full-time
equivalent employees 8,579 8,979 (4.5)
Aircraft utilization (blk hrs/day) 9.7 9.9 (2.0)
Average aircraft stage length (miles) 1,072 1,018 5.3
Operating fleet at period-end 116 116 0 a/c
Regional Operating Statistics:
RPMs (000,000) 555 479 15.9
ASMs (000,000) 745 675 10.4
Passenger load factor 74.5% 71.0% 3.5pts
Yield per passenger mile (in cents) 28.76 27.04 6.4
RASM (in cents) 21.42 19.19 11.6
CASM (in cents) 19.70 19.50 1.0
(a) See page 10 for a reconciliation of these non-GAAP measures
and a discussion about why these measures may be important to
investors.
(b) See page 12 for a reconciliation of economic fuel cost.
NM = Not Meaningful
Horizon Air Financial and Statistical Data
Three Months Ended June
30,
------------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger - brand flying $100.9 $91.7 10.0
Passenger -capacity purchase
arrangements (a) 67.4 63.5 6.1
---- ----
Total passenger revenue 168.3 155.2 8.4
Freight and mail 0.7 0.6 16.7
Other - net 2.1 2.1 -
--- ---
Total Operating Revenues 171.1 157.9 8.4
----- -----
Operating Expenses:
Wages and benefits 46.0 46.2 (0.4)
Variable incentive pay 3.7 2.8 32.1
Aircraft fuel, including hedging
gains and losses 40.5 21.0 92.9
Aircraft maintenance 13.8 13.0 6.2
Aircraft rent 11.1 11.0 0.9
Landing fees and other rentals 15.1 14.1 7.1
Contracted services 8.2 7.9 3.8
Selling expenses 7.5 7.0 7.1
Depreciation and amortization 10.1 9.4 7.4
Food and beverage service 0.6 0.5 20.0
Other 7.5 8.6 (12.8)
Fleet transition costs - CRJ-700 3.4 - NM
Fleet transition costs - Q200 - 5.2 NM
Total Operating Expenses 167.5 146.7 14.2
----- -----
Operating Income 3.6 11.2
--- ----
Interest income 1.0 0.6
Interest expense (5.6) (5.2)
Interest capitalized - -
Other - net (0.2) (0.1)
---- ----
(4.8) (4.7)
---- ----
Income (Loss) Before Income Tax $(1.2) $6.5
===== ====
Combined Operating Statistics: (a)
Revenue passengers (000) 1,705 1,694 0.6
RPMs (000,000) "traffic" 623 609 2.3
ASMs (000,000) "capacity" 833 828 0.6
Passenger load factor 74.8% 73.6% 1.2pts
Yield per passenger mile (in cents) 27.01 25.48 6.0
RASM (in cents) 20.54 19.07 7.7
PRASM (in cents) 20.20 18.74 7.8
CASM (in cents) 20.11 17.72 13.5
CASM excluding fuel and CRJ-700 fleet 14.84 15.18 (2.2)
transition costs (b) (in cents)
GAAP fuel cost per gallon $2.76 $1.41 95.7
Economic fuel cost per gallon (c) $2.35 $1.86 26.3
Fuel gallons (000,000) 14.7 15.0 (2.0)
Average number of full-time
equivalent employees 3,096 3,308 (6.4)
Aircraft utilization (blk hrs/day) 7.9 8.3 (4.8)
Average aircraft stage length (miles) 335 327 2.4
Operating fleet at period-end 57 55 2 a/c
Six Months Ended June
30,
----------------------
Financial Data (in millions): 2010 2009 % Change
---- ---- --------
Operating Revenues:
Passenger - brand flying $190.2 $178.3 6.7
Passenger -capacity purchase
arrangements (a) 133.8 121.3 10.3
----- -----
Total passenger revenue 324.0 299.6 8.1
Freight and mail 1.3 1.3 -
Other - net 4.2 3.8 10.5
--- ---
Total Operating Revenues 329.5 304.7 8.1
----- -----
Operating Expenses:
Wages and benefits 91.4 92.6 (1.3)
Variable incentive pay 6.8 5.0 36.0
Aircraft fuel, including hedging
gains and losses 76.1 46.8 62.6
Aircraft maintenance 28.7 26.4 8.7
Aircraft rent 22.2 22.5 (1.3)
Landing fees and other rentals 29.6 27.8 6.5
Contracted services 16.5 15.4 7.1
Selling expenses 14.4 12.9 11.6
Depreciation and amortization 20.3 18.6 9.1
Food and beverage service 1.1 1.1 -
Other 17.0 19.6 (13.3)
Fleet transition costs - CRJ-700 3.4 - NM
Fleet transition costs - Q200 - 10.0 NM
---
Total Operating Expenses 327.5 298.7 9.6
----- -----
Operating Income 2.0 6.0
--- ---
Interest income 1.5 1.0
Interest expense (10.7) (11.1)
Interest capitalized - 0.3
Other - net (0.2) (0.2)
---- ----
(9.4) (10.0)
---- -----
Income (Loss) Before Income Tax $(7.4) $(4.0)
===== =====
Combined Operating Statistics: (a)
Revenue passengers (000) 3,289 3,240 1.5
RPMs (000,000) "traffic" 1,189 1,133 4.9
ASMs (000,000) "capacity" 1,626 1,615 0.7
Passenger load factor 73.1% 70.2% 2.9pts
Yield per passenger mile (in cents) 27.25 26.44 3.1
RASM (in cents) 20.26 18.87 7.4
PRASM (in cents) 19.93 18.55 7.4
CASM (in cents) 20.14 18.50 8.9
CASM excluding fuel and CRJ-700 fleet 15.25 15.60 (2.2)
transition costs (b) (in cents)
GAAP fuel cost per gallon $2.64 $1.58 67.1
Economic fuel cost per gallon (c) $2.32 $1.87 24.1
Fuel gallons (000,000) 28.9 29.5 (2.0)
Average number of full-time
equivalent employees 3,128 3,345 (6.5)
Aircraft utilization (blk hrs/day) 7.8 8.3 (6.0)
Average aircraft stage length (miles) 330 322 2.5
Operating fleet at period-end 57 55 2 a/c
NM = Not Meaningful
(a) Represents combined information for all Horizon flights,
including those operated under a Capacity Purchase Agreement (CPA)
with Alaska. See page 11 for additional line of business
information.
(b) See page 11 for a reconciliation of these non-GAAP measures.
(c) See page 12 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:
-----------------------------------------------------------------
- By eliminating fuel expense and certain special items 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 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 is
one of the most important measures used by managements of both
Alaska and Horizon and by the Air Group Board of Directors in
assessing quarterly and annual cost performance.
-CASM excluding fuel (and other items as specified in our plan
documents) is an important metric for the employee incentive
plan that covers company management and the majority of other
employee groups.
-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 new
pilot contract transition costs and fleet transition costs, 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 "mainline" passenger unit revenues
for Alaska, we do not (nor are we able to) evaluate mainline
unit revenues excluding the impact that changes in fuel costs
have had on ticket prices. Fuel expense represents a large
percentage of our total mainline 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.
The following tables reconcile our non-GAAP financial measures
to the most directly comparable GAAP financial measures for both
Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.
---------------------
(in millions, except
for per ASM unit
information)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
Mainline unit cost
reconciliations: 2010 2009 2010 2009
------------------ ---- ---- ---- ----
Mainline operating
expenses $690.9 $624.3 $1,327.9 $1,221.0
Mainline ASMs 6,112 5,852 11,653 11,372
----- ----- ------ ------
Mainline CASM (in
cents) 11.30 10.67 11.40 10.74
===== ===== ===== =====
Mainline operating
expenses $690.9 $624.3 $1,327.9 $1,221.0
Less: aircraft fuel,
including hedging
gains and losses (214.5) (107.4) (386.2) (239.3)
Less: new pilot
contract transition
costs - (35.8) - (35.8)
--- ----- --- -----
Mainline operating
expenses excluding
fuel and special
items $476.4 $481.1 $941.7 $945.9
Mainline ASMs 6,112 5,852 11,653 11,372
----- ----- ------ ------
Mainline CASM,
excluding fuel and
special items (in
cents) 7.79 8.22 8.08 8.32
==== ==== ==== ====
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -----------------
Reconciliation to GAAP
income before taxes : 2010 2009 2010 2009
---------------------- ---- ---- ---- ----
Income before taxes,
excluding items noted
below $128.1 $44.9 $154.6 $18.3
New pilot contract
transition costs - (35.8) - (35.8)
Adjustments to reflect
timing of gain or
loss recognition
resulting from
mark-to-market
accounting on fuel
hedges (31.6) 33.0 (40.9) 41.3
GAAP income before
taxes as reported $96.5 $42.1 $113.7 $23.8
===== ===== ====== =====
Horizon Air Industries, Inc.
----------------------------
(in millions, except for per ASM unit information)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
Unit cost
reconciliations: 2010 2009 2010 2009
----------------- ---- ---- ---- ----
Operating expenses $167.5 $146.7 $327.5 $298.7
ASMs 833 828 1,626 1,615
--- --- ----- -----
CASM (in cents) 20.11 17.72 20.14 18.50
===== ===== ===== =====
Operating expenses $167.5 $146.7 $327.5 $298.7
Less: aircraft fuel,
including hedging gains
and losses (40.5) (21.0) (76.1) (46.8)
Less: fleet transition
costs - CRJ-700 (3.4) - (3.4) -
---- --- ---- ---
Operating expenses
excluding fuel and CRJ-
700 fleet transition
costs $123.6 $125.7 $248.0 $251.9
ASMs 833 828 1,626 1,615
--- --- ----- -----
CASM, excluding fuel and
CRJ-700 fleet
transition costs (in
cents) 14.84 15.18 15.25 15.60
===== ===== ===== =====
Unit cost
reconciliations-
excluding all fleet
transition costs:
--------------------
Operating expenses $167.5 $146.7 $327.5 $298.7
Less: aircraft fuel,
including hedging gains
and losses (40.5) (21.0) (76.1) (46.8)
Less: fleet transition
costs - CRJ-700 (3.4) - (3.4) -
Less: fleet transition
costs -Q200 - (5.2) - (10.0)
--- ---- --- -----
Operating expenses
excluding fuel and all
fleet transition costs $123.6 $120.5 $248.0 $241.9
ASMs 833 828 1,626 1,615
--- --- ----- -----
CASM, excluding fuel and
all fleet transition
costs (in cents) 14.84 14.55 15.25 14.98
===== ===== ===== =====
Reconciliation to GAAP
income (loss) before
taxes:
----------------------
Income (loss) before
taxes, excluding items
noted below $8.2 $(0.3) $5.2 $(12.5)
Fleet transition costs -
CRJ-700 (3.4) - (3.4) -
Adjustments to reflect
timing of gain or loss
recognition resulting
from
mark-to-market
accounting on fuel
hedges (6.0) 6.8 (9.2) 8.5
GAAP income (loss) before
taxes as reported $(1.2) $6.5 $(7.4) $(4.0)
===== ==== ===== =====
Line of Business Information:
-----------------------------
Horizon brand flying includes those routes in the Horizon system not
covered by the Alaska Capacity Purchase Agreement (CPA).
Horizon bears the revenue risk in those markets and, as a result,
traffic, yield and load factor impact revenue recorded by Horizon.
In the CPA arrangement, 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 June 30, 2010
--------------------------------
Capacity and Mix
----------------
2010 2009 Change Current %
Actual Actual Y-O-Y Total
(000,000) (000,000)
Brand Flying 477 488 (2.3%) 57
Alaska CPA 356 340 4.7% 43
System Total 833 828 0.6% 100
=== === === ===
Three Months Ended June 30, 2010
--------------------------------
Load Factor
-----------
Point
Actual Change
Y-O-Y
Brand Flying 73.1% 0.2
Alaska CPA NM NM
System Total 74.8% 1.2
==== ===
Three Months Ended June 30, 2010
--------------------------------
Yield
-----
Actual Change
(in
cents) Y-O-Y
Brand Flying 28.91 12.2%
Alaska CPA NM NM
System Total 27.01 6.0%
===== ===
Three Months Ended June 30, 2010
--------------------------------
RASM
----
Actual Change
(in
cents) Y-O-Y
Brand Flying 21.74 12.4%
Alaska CPA 18.97 1.5%
System Total 20.54 7.7%
===== ===
NM= Not Meaningful
Six Months Ended June 30, 2010
------------------------------
Capacity and Mix
----------------
2010 2009 Change Current %
Actual Actual Y-O-Y Total
(000,000) (000,000)
Brand Flying 917 976 (6.0%) 56
Alaska CPA 709 639 11.0% 44
System Total 1,626 1,615 0.7% 100
===== ===== === ===
Six Months Ended June 30, 2010
------------------------------
Load Factor
-----------
Point
Actual Change
Y-O-Y
Brand Flying 71.3% 2.1
Alaska CPA NM NM
System Total 73.1% 2.9
==== ===
Six Months Ended June 30, 2010
------------------------------
Yield
-----
Actual Change
(in
cents) Y-O-Y
Brand Flying 29.07 10.2%
Alaska CPA NM NM
System Total 27.25 3.1%
===== ===
Six Months Ended June 30, 2010
------------------------------
RASM
----
Actual Change
(in
cents) Y-O-Y
Brand Flying 21.33 13.6%
Alaska CPA 18.89 (0.5%)
System Total 20.26 7.4%
===== ===
NM= Not Meaningful
Alaska Airlines Fuel Reconciliation
-----------------------------------
(in millions, except for per gallon amounts)
Three Months Ended June 30,
---------------------------
2010 2009
---- ----
Cost/ Cost/
Dollars Gal Dollars Gal
------- ------ ------- ------
Raw or "into-plane" fuel cost $187.6 $2.36 $132.3 $1.73
Minus gains, or plus the
losses, during the period on
settled hedges (4.7) (0.06) 8.1 0.11
---- ----- --- ----
Economic fuel expense $182.9 $2.30 $140.4 $1.84
------ ----- ------ -----
Adjustments to reflect timing
of gain or loss recognition
resulting from 31.6 0.40 (33.0) (0.43)
mark-to-market accounting
GAAP fuel expense $214.5 $2.70 $107.4 $1.41
====== ===== ====== =====
Fuel gallons 79.6 76.5
==== ====
Six Months Ended June 30,
-------------------------
2010 2009
---- ----
Cost/ Cost/
Dollars Gal Dollars Gal
------- ------ ------- ------
Raw or "into-plane" fuel cost $350.3 $2.31 $251.1 $1.68
Minus gains, or plus the
losses, during the period on
settled hedges (5.0) (0.03) 29.5 0.20
---- ----- ---- ----
Economic fuel expense $345.3 $2.28 $280.6 $1.88
------ ----- ------ -----
Adjustments to reflect timing
of gain or loss recognition
resulting from 40.9 0.27 (41.3) (0.28)
mark-to-market accounting
GAAP fuel expense $386.2 $2.55 $239.3 $1.60
====== ===== ====== =====
Fuel gallons 151.9 149.8
===== =====
Horizon Air Fuel Reconciliation
-------------------------------
(in millions, except for per
gallon amounts)
Three Months Ended June 30,
---------------------------
2010 2009
---- ----
Cost/ Cost/
Dollars Gal Dollars Gal
------- ------ ------- ------
Raw or "into-plane" fuel cost $35.3 $2.40 $26.2 $1.75
Minus gains, or plus the
losses, during the period on
settled hedges (0.8) (0.05) 1.6 0.11
---- ----- --- ----
Economic fuel expense $34.5 $2.35 $27.8 $1.86
----- ----- ----- -----
Adjustments to reflect timing
of gain or loss recognition
resulting from 6.0 0.41 (6.8) (0.45)
mark-to-market accounting
GAAP fuel expense $40.5 $2.76 $21.0 $1.41
===== ===== ===== =====
Fuel gallons 14.7 15.0
==== ====
Six Months Ended June 30,
-------------------------
2010 2009
---- ----
Cost/ Cost/
Dollars Gal Dollars Gal
------- ------ ------- ------
Raw or "into-plane" fuel cost $67.8 $2.35 $49.3 $1.67
Minus gains, or plus the
losses, during the period on
settled hedges (0.9) (0.03) 6.0 0.20
---- ----- --- ----
Economic fuel expense $66.9 $2.32 $55.3 $1.87
----- ----- ----- -----
Adjustments to reflect timing
of gain or loss recognition
resulting from 9.2 0.32 (8.5) (0.29)
mark-to-market accounting
GAAP fuel expense $76.1 $2.64 $46.8 $1.58
===== ===== ===== =====
Fuel gallons 28.9 29.5
==== ====
First Call Analyst:
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: Media, Bobbie Egan, Alaska Airlines, +1-206-392-5101, or Dan
Russo, Horizon Air, +1-206-392-0218, or Investor/analyst, Shannon Alberts of
Alaska Air Group, +1-206-392-5218
