News releases

Alaska Air Group reports third quarter 2019 results

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

SOURCE Alaska Air Group Inc.

For further information: Media contact: Media Relations, (206) 304-0008 OR Investor/analyst contact: Emily Halverson, Director, Investor Relations, (206) 392-5908