SEATTLE, Oct. 20, 2016
/PRNewswire/ --
Financial Highlights:
- Reported net income for the third quarter under Generally
Accepted Accounting Principles (GAAP) of $256 million, or $2.07 per diluted share, compared to net income
of $274 million, or $2.14 per diluted share in 2015.
- Reported adjusted diluted earnings per share of $2.20, a 2% increase over the third quarter of
2015. Third quarter net income, excluding special items, was
$272 million, a 2% decrease from the
third quarter of 2015. This quarter's results exceed First Call
analyst consensus estimate of $2.09
per share.
- Paid 27.5¢ per-share quarterly cash dividend in the third
quarter, a 38% increase over the dividend paid in the third quarter
of 2015.
- Generated approximately $1.2
billion of operating cash flow and $700 million of free cash flow for the nine
months ending Sept. 30, 2016.
- Achieved 24.8% adjusted pre-tax margin on a trailing 12-month
basis.
- Achieved return on invested capital of 24.4% for the 12-month
period ending Sept. 30, 2016.
- Held $3.2 billion in unrestricted
cash and marketable securities as of Sept.
30, 2016.
Planned Acquisition of Virgin America:
- Announced proposed acquisition of Virgin America on
April 4, 2016.
- Raised approximately $1.5 billion
of funding in anticipation of the proposed acquisition of Virgin
America.
- Recorded special items of $22
million in the third quarter for merger-related costs.
Year-To-Date Accomplishments and Highlights:
- Became the first major U.S. airline to receive approval from
the Federal Aviation Administration for its Safety Management
System.
- Ranked "Highest in Customer Satisfaction Among Traditional
Carriers in North America" in 2016
by J.D. Power for ninth year in a row.
- Ranked "Highest in Customer Satisfaction with Airline Loyalty
Rewards Programs" in 2016 by J.D. Power for the third consecutive
year.
- Ranked first in the U.S. News & World Report's list of Best
Airline Rewards Programs for the second consecutive year.
- Announced enhanced benefits to the Alaska Airlines Visa
Signature credit card and the Alaska Airlines Visa Business credit
card including the elimination of foreign transaction fees and
increased bonus miles.
- Announced a new codeshare agreement and frequent flier
partnership with Japan Airlines, providing Alaska customers seamless travel and mileage
earning opportunities.
- Ranked among Forbes' 2016 "America's Best Employers."
- Held the No. 1 spot in U.S. Department of Transportation
on-time performance among the six largest U.S. airlines for the 12
months ended August 2016.
- Received the Department of Defense 2016 Freedom Award, the
highest recognition given to employers by the U.S. government for
their support of National Guard and Reserve members.
- Received 15th Diamond Awards of Excellence from the Federal
Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for
their commitment to training.
- Earned first place in the commercial aviation division and
first place overall at the 2016 Annual International Aerospace
Maintenance Competition, surpassing over 50 teams from around the
world.
- Named the No. 1 cargo carrier by Logistics Management magazine,
as part of its annual Quest for Quality awards.
- Joined the Standard and Poor's 500 Index. Companies included in
the S&P 500 are chosen by the S&P Index Committee based on
their size, earnings history and liquidity, among other
factors.
- Ranked among the Fortune 500 for the third year in a row.
- Flew the first commercial flight using sustainable
alcohol-to-jet biofuel made from U.S. grown corn, continuing
Alaska's commitment to reduce its
carbon emissions.
- Ranked among the top "green companies" in the United States by Newsweek.
- Received the Seattle-Tacoma International Airport Green Gateway
Environmental Excellence Award for the second year in a row, as a
result of efforts in reducing emissions, recycling and waste
reduction and lowered energy consumption.
New routes announced in the third quarter were as follows:
New Nonstop Routes Announced (Launch
Dates)
Portland, Oregon to
Newark, New Jersey (11/10/16)
San Diego to Newark, New Jersey (11/21/16)
Portland to Sun Valley, Idaho (12/17/16)
Los Angeles to Havana, Cuba (1/5/17)
(a)
San Jose,
California to Newark, New
Jersey (3/12/17)
Seattle to Wichita, Kansas (4/13/17)
Seattle to Indianapolis, Indiana (5/11/17)
(a) Pending final Department of Transportation (DOT)
approval.
Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter
2016 GAAP net income of $256 million,
or $2.07 per diluted share, compared
to $274 million, or $2.14 per diluted share, in the third quarter of
2015. Excluding the impact of merger-related costs and
mark-to-market fuel hedge adjustments, the company reported record
adjusted net income of $272 million,
or $2.20 per diluted share, compared
to adjusted net income of $277
million, or $2.16 per diluted
share, in 2015.
"We had a fantastic quarter operationally and financially. I
want to thank both our employees and customers," said Alaska
Airlines Chairman and CEO Brad
Tilden. "All of us at Alaska are fully focused on completing our
merger with Virgin America, while continuing to work together to be
the best airline we can possibly be for our customers."
The following table reconciles the company's reported GAAP net
income and earnings per diluted share (Diluted EPS).
|
Three Months Ended
September 30,
|
|
2016
|
|
2015
|
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
|
Reported GAAP net
income
|
$
|
256
|
|
|
$
|
2.07
|
|
|
$
|
274
|
|
|
$
|
2.14
|
|
|
Mark-to-market fuel
hedge adjustments
|
3
|
|
|
0.02
|
|
|
5
|
|
|
0.04
|
|
|
Special items -
merger-related costs
|
22
|
|
|
0.18
|
|
|
—
|
|
|
—
|
|
|
Income tax
effect
|
(9)
|
|
|
(0.07)
|
|
|
(2)
|
|
|
(0.02)
|
|
|
Non-GAAP adjusted
income and per-share amounts
|
$
|
272
|
|
|
$
|
2.20
|
|
|
$
|
277
|
|
|
$
|
2.16
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
(in millions,
except per-share amounts)
|
Dollars
|
|
Diluted
EPS
|
|
Dollars
|
|
Diluted
EPS
|
|
Reported GAAP net
income
|
$
|
700
|
|
|
$
|
5.63
|
|
|
$
|
657
|
|
|
$
|
5.05
|
|
|
Mark-to-market fuel
hedge adjustments
|
(9)
|
|
|
(0.07)
|
|
|
(1)
|
|
|
(0.01)
|
|
|
Special items -
merger-related costs
|
36
|
|
|
0.29
|
|
|
—
|
|
|
—
|
|
|
Income tax
effect
|
(10)
|
|
|
(0.08)
|
|
|
—
|
|
|
—
|
|
|
Non-GAAP adjusted
income and per-share amounts
|
$
|
717
|
|
|
$
|
5.77
|
|
|
$
|
656
|
|
|
$
|
5.04
|
|
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
simulcast online at 8:30 a.m. Pacific
time on October 20, 2016. It can be accessed through
the company's website 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.
Forward-Looking Statements
This communication contains forward-looking statements, within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities and Exchange Act of 1934, as
amended. These statements relate to future events, Alaska Air
Group and the proposed merger of Virgin America with a wholly owned
subsidiary of Alaska Air Group. Forward-looking statements are
statements that are not historical facts. These statements can be
identified by the use of forward-looking terminology such as
"believe," " expect," "may," "likely," "should," "project,"
"could," "plan," "goal," "potential," "pro forma," "seek,"
"estimate," "intend" or "anticipate" or the negative thereof or
comparable terminology, and include discussions of strategy,
financial projections, guidance and estimates (including their
underlying assumptions), statements regarding plans, objectives,
expectations or consequences of announced transactions, and
statements about the future performance, operations and services of
Alaska Air Group. Alaska Air Group cautions readers not to place
undue reliance on these statements. These forward-looking
statements are subject to a variety of risks and uncertainties.
Consequently, actual results and experience may materially differ
from those contained in any forward-looking statements. Such risks
and uncertainties include the following: delay in closing the
merger or the possibility of non-consummation of the merger; labor
costs and relations; general economic conditions; increases in
operating costs including fuel; competition; inability to meet cost
reduction goals; seasonal fluctuations in our financial results; an
aircraft accident; and changes in laws and regulations. These risks
and others relating to Alaska Air Group and the proposed merger are
described in greater detail in Alaska Air Group's SEC filings,
including Alaska Air Group's Annual Report on Form 10-K for the
fiscal year ended December 31, 2015, as well as in other
documents filed by Alaska Air Group with the SEC after the date
thereof. Alaska Air Group makes no commitment to revise or update
any forward-looking statements in order to reflect events or
circumstances occurring or existing after the date any
forward-looking statement is made.
Alaska Airlines, together with its regional partners, flies 32
million customers a year to more than 110 cities with an average of
970 daily flights throughout the United
States, Canada,
Costa Rica, Mexico and soon Cuba. With Alaska's global airline partners, customers
can earn and redeem miles to more than 800 destinations worldwide.
Onboard, customers are invited to make the most of their flight
with amenities like power outlets at every seat, streaming
entertainment direct to their device, Wi-Fi and an inspired food
and beverage selection featured on most flights. Alaska Airlines
ranked "Highest in Customer Satisfaction Among Traditional Carriers
in North America" in the J.D.
Power North American Airline Satisfaction Study for nine
consecutive years from 2008 to 2016. Alaska Airlines Mileage Plan
also ranked "Highest in Customer Satisfaction with Airline Loyalty
Rewards Programs" in the J.D. Power Airline Loyalty/Rewards Program
Satisfaction Report for the last three consecutive years. Alaska
Airlines is a subsidiary of Alaska Air Group (NYSE: ALK). Learn
more on the airline's newsroom, blog, alaskaair.com, @AlaskaAir,
facebook.com/alaskaairlines and
linkedin.com/company/alaska-airlines.
|
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)
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
Operating
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
$
|
1,073
|
|
|
$
|
1,057
|
|
|
2
|
%
|
|
$
|
3,036
|
|
|
$
|
2,977
|
|
|
2
|
%
|
|
Regional
|
249
|
|
|
240
|
|
|
4
|
%
|
|
682
|
|
|
638
|
|
|
7
|
%
|
|
Total passenger
revenue
|
1,322
|
|
|
1,297
|
|
|
2
|
%
|
|
3,718
|
|
|
3,615
|
|
|
3
|
%
|
|
Freight and
mail
|
31
|
|
|
30
|
|
|
3
|
%
|
|
82
|
|
|
83
|
|
|
(1)
|
%
|
|
Other -
net
|
213
|
|
|
188
|
|
|
13
|
%
|
|
607
|
|
|
523
|
|
|
16
|
%
|
|
Total Operating
Revenues
|
1,566
|
|
|
1,515
|
|
|
3
|
%
|
|
4,407
|
|
|
4,221
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and
benefits
|
340
|
|
|
312
|
|
|
9
|
%
|
|
1,008
|
|
|
923
|
|
|
9
|
%
|
|
Variable incentive
pay
|
31
|
|
|
32
|
|
|
(3)
|
%
|
|
95
|
|
|
90
|
|
|
6
|
%
|
|
Aircraft fuel,
including hedging gains and losses
|
225
|
|
|
245
|
|
|
(8)
|
%
|
|
593
|
|
|
741
|
|
|
(20)
|
%
|
|
Aircraft
maintenance
|
64
|
|
|
67
|
|
|
(4)
|
%
|
|
197
|
|
|
182
|
|
|
8
|
%
|
|
Aircraft
rent
|
25
|
|
|
26
|
|
|
(4)
|
%
|
|
80
|
|
|
78
|
|
|
3
|
%
|
|
Landing fees and
other rentals
|
89
|
|
|
80
|
|
|
11
|
%
|
|
232
|
|
|
217
|
|
|
7
|
%
|
|
Contracted
services
|
63
|
|
|
54
|
|
|
17
|
%
|
|
183
|
|
|
157
|
|
|
17
|
%
|
|
Selling
expenses
|
58
|
|
|
53
|
|
|
9
|
%
|
|
162
|
|
|
160
|
|
|
1
|
%
|
|
Depreciation and
amortization
|
101
|
|
|
81
|
|
|
25
|
%
|
|
281
|
|
|
236
|
|
|
19
|
%
|
|
Food and beverage
service
|
31
|
|
|
30
|
|
|
3
|
%
|
|
93
|
|
|
83
|
|
|
12
|
%
|
|
Third-party regional
carrier expense
|
25
|
|
|
20
|
|
|
25
|
%
|
|
72
|
|
|
52
|
|
|
38
|
%
|
|
Other
|
92
|
|
|
82
|
|
|
12
|
%
|
|
267
|
|
|
259
|
|
|
3
|
%
|
|
Special items -
merger-related costs
|
22
|
|
|
—
|
|
|
NM
|
|
36
|
|
|
—
|
|
|
NM
|
|
Total Operating
Expenses
|
1,166
|
|
|
1,082
|
|
|
8
|
%
|
|
3,299
|
|
|
3,178
|
|
|
4
|
%
|
|
Operating
Income
|
400
|
|
|
433
|
|
|
(8)
|
%
|
|
1,108
|
|
|
1,043
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
7
|
|
|
5
|
|
|
|
|
20
|
|
|
16
|
|
|
|
|
Interest
expense
|
(11)
|
|
|
(10)
|
|
|
|
|
(33)
|
|
|
(32)
|
|
|
|
|
Interest
capitalized
|
6
|
|
|
9
|
|
|
|
|
21
|
|
|
25
|
|
|
|
|
Other -
net
|
—
|
|
|
—
|
|
|
|
|
(2)
|
|
|
1
|
|
|
|
|
Total Nonoperating
Income (Expense)
|
2
|
|
|
4
|
|
|
|
|
6
|
|
|
10
|
|
|
|
|
Income Before
Income Tax
|
402
|
|
|
437
|
|
|
|
|
1,114
|
|
|
1,053
|
|
|
|
|
Income tax
expense
|
146
|
|
|
163
|
|
|
|
|
414
|
|
|
396
|
|
|
|
|
Net
Income
|
$
|
256
|
|
|
$
|
274
|
|
|
|
|
$
|
700
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per
Share:
|
$
|
2.08
|
|
|
$
|
2.15
|
|
|
|
|
$
|
5.66
|
|
|
$
|
5.08
|
|
|
|
|
Diluted Earnings
Per Share:
|
$
|
2.07
|
|
|
$
|
2.14
|
|
|
|
|
$
|
5.63
|
|
|
$
|
5.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Used for
Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
123.149
|
|
|
127.308
|
|
|
|
|
123.648
|
|
|
129.231
|
|
|
|
|
Diluted
|
123.833
|
|
|
128.205
|
|
|
|
|
124.393
|
|
|
130.200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend
declared per share:
|
$
|
0.275
|
|
|
$
|
0.20
|
|
|
|
|
$
|
0.825
|
|
|
$
|
0.60
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (unaudited)
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
(in
millions)
|
September 30,
2016
|
|
December 31,
2015
|
|
Cash and marketable
securities
|
$
|
3,226
|
|
|
$
|
1,328
|
|
|
|
|
|
|
Total current
assets
|
3,600
|
|
|
1,663
|
|
|
Property and
equipment-net
|
5,031
|
|
|
4,802
|
|
|
Other
assets
|
68
|
|
|
65
|
|
|
Total
assets
|
8,699
|
|
|
6,530
|
|
|
|
|
|
|
Air traffic
liability
|
785
|
|
|
669
|
|
|
Current portion of
long-term debt
|
275
|
|
|
114
|
|
|
Other current
liabilities
|
1,063
|
|
|
1,022
|
|
|
Current
liabilities
|
2,123
|
|
|
1,805
|
|
|
Long-term
debt
|
1,861
|
|
|
569
|
|
|
Other liabilities and
credits
|
1,851
|
|
|
1,745
|
|
|
Shareholders'
equity
|
2,864
|
|
|
2,411
|
|
|
Total liabilities
and shareholders' equity
|
$
|
8,699
|
|
|
$
|
6,530
|
|
|
|
|
|
|
Debt-to-capitalization ratio, adjusted for operating
leases(a)
|
45%
|
|
|
27%
|
|
|
|
|
|
|
Number of common
shares outstanding
|
123.266
|
|
|
125.175
|
|
|
|
|
(a)
|
Calculated using the
present value of remaining aircraft lease payments.
|
|
OPERATING
STATISTICS SUMMARY (unaudited)
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
|
Consolidated
Operating Statistics:(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
9,054
|
|
8,616
|
|
5.1%
|
|
25,536
|
|
23,956
|
|
6.6%
|
|
RPMs (000,000)
"traffic"
|
9,601
|
|
8,878
|
|
8.1%
|
|
27,569
|
|
25,052
|
|
10.0%
|
|
ASMs (000,000)
"capacity"
|
11,212
|
|
10,368
|
|
8.1%
|
|
32,728
|
|
29,574
|
|
10.7%
|
|
Load
factor
|
85.6%
|
|
85.6%
|
|
—pts
|
|
84.2%
|
|
84.7%
|
|
(0.5)pts
|
|
Yield
|
13.77¢
|
|
14.61¢
|
|
(5.7)%
|
|
13.49¢
|
|
14.43¢
|
|
(6.5)%
|
|
PRASM
|
11.79¢
|
|
12.51¢
|
|
(5.8)%
|
|
11.36¢
|
|
12.22¢
|
|
(7.0)%
|
|
RASM
|
13.97¢
|
|
14.61¢
|
|
(4.4)%
|
|
13.47¢
|
|
14.27¢
|
|
(5.6)%
|
|
CASM excluding fuel
and special items(b)
|
8.20¢
|
|
8.07¢
|
|
1.6%
|
|
8.16¢
|
|
8.24¢
|
|
(1.0)%
|
|
Economic fuel cost
per gallon(b)
|
$1.58
|
|
$1.82
|
|
(13.2)%
|
|
$1.47
|
|
$1.97
|
|
(25.4%)
|
|
Fuel gallons
(000,000)
|
140
|
|
132
|
|
6.1%
|
|
410
|
|
377
|
|
8.8%
|
|
ASM's per
gallon
|
80.1
|
|
78.5
|
|
2.0%
|
|
79.8
|
|
78.4
|
|
1.8%
|
|
Average number of
full-time equivalent employees (FTE)
|
14,674
|
|
14,003
|
|
4.8%
|
|
14,500
|
|
13,690
|
|
5.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline Operating
Statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
6,507
|
|
6,171
|
|
5.4%
|
|
18,432
|
|
17,193
|
|
7.2%
|
|
RPMs (000,000)
"traffic"
|
8,595
|
|
7,976
|
|
7.8%
|
|
24,767
|
|
22,633
|
|
9.4%
|
|
ASMs (000,000)
"capacity"
|
9,987
|
|
9,278
|
|
7.6%
|
|
29,216
|
|
26,609
|
|
9.8%
|
|
Load
factor
|
86.1%
|
|
86.0%
|
|
0.1pts
|
|
84.8%
|
|
85.1%
|
|
(0.3)pts
|
|
Yield
|
12.49¢
|
|
13.26¢
|
|
(5.8)%
|
|
12.26¢
|
|
13.15¢
|
|
(6.8)%
|
|
PRASM
|
10.75¢
|
|
11.40¢
|
|
(5.7)%
|
|
10.39¢
|
|
11.19¢
|
|
(7.1)%
|
|
RASM
|
12.96¢
|
|
13.50¢
|
|
(4.0)%
|
|
12.53¢
|
|
13.23¢
|
|
(5.3)%
|
|
CASM excluding fuel
and special items(b)
|
7.28¢
|
|
7.19¢
|
|
1.3%
|
|
7.21¢
|
|
7.33¢
|
|
(1.6)%
|
|
Economic fuel cost
per gallon(b)
|
$1.57
|
|
$1.81
|
|
(13.3)%
|
|
$1.46
|
|
$1.97
|
|
(25.9%)
|
|
Fuel gallons
(000,000)
|
119
|
|
113
|
|
5.3%
|
|
350
|
|
326
|
|
7.4%
|
|
ASM's per
gallon
|
83.9
|
|
82.1
|
|
2.2%
|
|
83.5
|
|
81.6
|
|
2.3%
|
|
Average number of
FTE's
|
11,397
|
|
10,824
|
|
5.3%
|
|
11,260
|
|
10,643
|
|
5.8%
|
|
Aircraft
utilization
|
10.6
|
|
10.9
|
|
(2.8%)
|
|
10.7
|
|
10.9
|
|
(1.8)%
|
|
Average aircraft
stage length
|
1,203
|
|
1,168
|
|
3.0%
|
|
1,218
|
|
1,185
|
|
2.8%
|
|
Operating
fleet
|
154
|
|
144
|
|
10
a/c
|
|
154
|
|
144
|
|
10
a/c
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional Operating
Statistics:(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers
(000)
|
2,547
|
|
2,445
|
|
4.2%
|
|
7,105
|
|
6,762
|
|
5.1%
|
|
RPMs (000,000)
"traffic"
|
1,006
|
|
903
|
|
11.4%
|
|
2,801
|
|
2,419
|
|
15.8%
|
|
ASMs (000,000)
"capacity"
|
1,225
|
|
1,090
|
|
12.4%
|
|
3,512
|
|
2,965
|
|
18.4%
|
|
Load
factor
|
82.1%
|
|
82.8%
|
|
(0.7)pts
|
|
79.8%
|
|
81.6%
|
|
(1.8)pts
|
|
Yield
|
24.75¢
|
|
26.53¢
|
|
(6.7)%
|
|
24.35¢
|
|
26.37¢
|
|
(7.7)%
|
|
PRASM
|
20.32¢
|
|
21.97¢
|
|
(7.5)%
|
|
19.43¢
|
|
21.51¢
|
|
(9.7)%
|
|
Operating
fleet
|
69
|
|
63
|
|
6
a/c
|
|
69
|
|
63
|
|
6
a/c
|
|
|
|
(a)
|
Except for full-time
equivalent employees, data includes information related to
third-party regional capacity purchase flying
arrangements.
|
|
|
|
(b)
|
See a reconciliation
of operating expenses excluding fuel and special items, a
reconciliation of economic fuel costs, and Note A in the
accompanying pages, for a discussion of why these measures may be
important to investors.
|
|
|
|
(c)
|
Data presented
includes information related to flights operated by Horizon Air and
third-party carriers.
|
|
OPERATING SEGMENTS
(unaudited)
|
|
Alaska Air Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2016
|
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent &
Consolidating(a)
|
|
Air Group
Adjusted(b)
|
|
Special
Items(c)
|
|
Consolidated
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
|
Regional
|
—
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
|
—
|
|
|
249
|
|
|
Total
passenger revenues
|
1,073
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
1,322
|
|
|
—
|
|
|
1,322
|
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
109
|
|
|
(109)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Freight and
mail
|
30
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
|
Other-net
|
190
|
|
|
21
|
|
|
1
|
|
|
1
|
|
|
213
|
|
|
—
|
|
|
213
|
|
|
Total operating
revenues
|
1,293
|
|
|
271
|
|
|
110
|
|
|
(108)
|
|
|
1,566
|
|
|
—
|
|
|
1,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
727
|
|
|
202
|
|
|
99
|
|
|
(109)
|
|
|
919
|
|
|
22
|
|
|
941
|
|
|
Economic
fuel
|
188
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
222
|
|
|
3
|
|
|
225
|
|
|
Total operating
expenses
|
915
|
|
|
236
|
|
|
99
|
|
|
(109)
|
|
|
1,141
|
|
|
25
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|
Interest
expense
|
(7)
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
|
(11)
|
|
|
—
|
|
|
(11)
|
|
|
Other
|
5
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
Total Nonoperating
income (expense)
|
5
|
|
|
—
|
|
|
(2)
|
|
|
(1)
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Income (loss)
before income tax
|
$
|
383
|
|
|
$
|
35
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
427
|
|
|
$
|
(25)
|
|
|
$
|
402
|
|
|
Three Months Ended
September 30, 2015
|
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent &
Consolidating(a)
|
|
Air Group
Adjusted(b)
|
|
Special
Items(c)
|
|
Consolidated
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
$
|
1,057
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,057
|
|
|
$
|
—
|
|
|
$
|
1,057
|
|
|
Regional
|
—
|
|
|
240
|
|
|
—
|
|
|
—
|
|
|
240
|
|
|
—
|
|
|
240
|
|
|
Total
passenger revenues
|
1,057
|
|
|
240
|
|
|
—
|
|
|
—
|
|
|
1,297
|
|
|
—
|
|
|
1,297
|
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
105
|
|
|
(105)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Freight and
mail
|
29
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|
Other-net
|
167
|
|
|
20
|
|
|
1
|
|
|
—
|
|
|
188
|
|
|
—
|
|
|
188
|
|
|
Total operating
revenues
|
1,253
|
|
|
261
|
|
|
106
|
|
|
(105)
|
|
|
1,515
|
|
|
—
|
|
|
1,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
667
|
|
|
181
|
|
|
93
|
|
|
(104)
|
|
|
837
|
|
|
—
|
|
|
837
|
|
|
Economic
fuel
|
205
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
240
|
|
|
5
|
|
|
245
|
|
|
Total operating
expenses
|
872
|
|
|
216
|
|
|
93
|
|
|
(104)
|
|
|
1,077
|
|
|
5
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
Interest
expense
|
(7)
|
|
|
—
|
|
|
(3)
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
Other
|
7
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|
Total Nonoperating
income (expense)
|
5
|
|
|
—
|
|
|
(3)
|
|
|
2
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|
Income (loss)
before income tax
|
$
|
386
|
|
|
$
|
45
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
442
|
|
|
$
|
(5)
|
|
|
$
|
437
|
|
|
Nine Months Ended
September 30, 2016
|
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent &
Consolidating(a)
|
|
Air Group
Adjusted(b)
|
|
Special
Items(c)
|
|
Consolidated
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
3,036
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,036
|
|
|
$
|
—
|
|
|
$
|
3,036
|
|
|
Regional
|
—
|
|
|
682
|
|
|
—
|
|
|
—
|
|
|
682
|
|
|
—
|
|
|
682
|
|
|
Total
passenger revenues
|
3,036
|
|
|
682
|
|
|
—
|
|
|
—
|
|
|
3,718
|
|
|
—
|
|
|
3,718
|
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
322
|
|
|
(322)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Freight and
mail
|
79
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
82
|
|
|
Other -
net
|
546
|
|
|
57
|
|
|
3
|
|
|
1
|
|
|
607
|
|
|
—
|
|
|
607
|
|
|
Total operating
revenues
|
3,661
|
|
|
742
|
|
|
325
|
|
|
(321)
|
|
|
4,407
|
|
|
—
|
|
|
4,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
2,107
|
|
|
580
|
|
|
305
|
|
|
(322)
|
|
|
2,670
|
|
|
36
|
|
|
2,706
|
|
|
Economic
fuel
|
512
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
602
|
|
|
(9)
|
|
|
593
|
|
|
Total operating
expenses
|
2,619
|
|
|
670
|
|
|
305
|
|
|
(322)
|
|
|
3,272
|
|
|
27
|
|
|
3,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
19
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
|
Interest
expense
|
(23)
|
|
|
—
|
|
|
(7)
|
|
|
(3)
|
|
|
(33)
|
|
|
—
|
|
|
(33)
|
|
|
Other
|
15
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
19
|
|
|
—
|
|
|
19
|
|
|
Total Nonoperating
income (expense)
|
11
|
|
|
—
|
|
|
(6)
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
Income (loss)
before income tax
|
$
|
1,053
|
|
|
$
|
72
|
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
1,141
|
|
|
$
|
(27)
|
|
|
$
|
1,114
|
|
|
Nine Months Ended
September 30, 2015
|
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent &
Consolidating(a)
|
|
Air Group
Adjusted(b)
|
|
Special
Items(c)
|
|
Consolidated
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainline
|
$
|
2,977
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
|
Regional
|
—
|
|
|
638
|
|
|
—
|
|
|
—
|
|
|
638
|
|
|
—
|
|
|
638
|
|
|
Total
passenger revenues
|
2,977
|
|
|
638
|
|
|
—
|
|
|
—
|
|
|
3,615
|
|
|
—
|
|
|
3,615
|
|
|
CPA
revenues
|
—
|
|
|
—
|
|
|
303
|
|
|
(303)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Freight and
mail
|
79
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
83
|
|
|
Other -
net
|
465
|
|
|
55
|
|
|
3
|
|
|
—
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|
Total operating
revenues
|
3,521
|
|
|
697
|
|
|
306
|
|
|
(303)
|
|
|
4,221
|
|
|
—
|
|
|
4,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses,
excluding fuel
|
1,951
|
|
|
514
|
|
|
274
|
|
|
(302)
|
|
|
2,437
|
|
|
—
|
|
|
2,437
|
|
|
Economic
fuel
|
641
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
742
|
|
|
(1)
|
|
|
741
|
|
|
Total operating
expenses
|
2,592
|
|
|
615
|
|
|
274
|
|
|
(302)
|
|
|
3,179
|
|
|
(1)
|
|
|
3,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
15
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|
Interest
expense
|
(21)
|
|
|
—
|
|
|
(8)
|
|
|
(3)
|
|
|
(32)
|
|
|
—
|
|
|
(32)
|
|
|
Other
|
21
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|
Total Nonoperating
income (expense)
|
15
|
|
|
—
|
|
|
(8)
|
|
|
3
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|
Income (loss)
before income tax
|
$
|
944
|
|
|
$
|
82
|
|
|
$
|
24
|
|
|
$
|
2
|
|
|
$
|
1,052
|
|
|
$
|
1
|
|
|
$
|
1,053
|
|
|
|
|
(a)
|
Includes
consolidating entries, Parent Company, and other immaterial
business units.
|
|
|
|
(b)
|
The adjusted column
represents the financial information that is reviewed by management
to assess performance of operations and determine capital
allocations and does not include certain charges. See Note A
in the accompanying pages for further information.
|
|
|
|
(c)
|
Includes accounting
adjustments related to mark-to-market fuel-hedge accounting
charges, and other special items described previously.
|
|
Alaska Air Group,
Inc.
|
|
|
CASM EXCLUDING
FUEL RECONCILIATION (unaudited)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
(in
cents)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
CASM
|
10.40
|
¢
|
|
10.44
|
¢
|
|
10.08
|
¢
|
|
10.75
|
¢
|
|
Less the following
components:
|
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
2.01
|
|
|
2.37
|
|
|
1.81
|
|
|
2.51
|
|
|
Special items -
merger-related costs
|
0.19
|
|
|
—
|
|
|
0.11
|
|
|
—
|
|
|
CASM excluding
fuel and special items
|
8.20
|
¢
|
|
8.07
|
¢
|
|
8.16
|
¢
|
|
8.24
|
¢
|
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
|
CASM
|
9.19
|
¢
|
|
9.45
|
¢
|
|
8.93
|
¢
|
|
9.74
|
¢
|
|
Less the following
components:
|
|
|
|
|
|
|
|
|
Aircraft fuel,
including hedging gains and losses
|
1.91
|
|
|
2.26
|
|
|
1.72
|
|
|
2.41
|
|
|
CASM excluding
fuel and special items
|
7.28
|
¢
|
|
7.19
|
¢
|
|
7.21
|
¢
|
|
7.33
|
¢
|
|
FUEL
RECONCILIATIONS (unaudited)
|
|
Three Months Ended
September 30,
|
|
2016
|
|
2015
|
|
(in millions,
except for per-gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
|
Raw or "into-plane"
fuel cost
|
$
|
218
|
|
|
$
|
1.55
|
|
|
$
|
235
|
|
|
$
|
1.78
|
|
|
Losses on settled
hedges
|
4
|
|
|
0.03
|
|
|
5
|
|
|
0.04
|
|
|
Consolidated
economic fuel expense
|
222
|
|
|
1.58
|
|
|
240
|
|
|
1.82
|
|
|
Mark-to-market fuel
hedge adjustment
|
3
|
|
|
0.02
|
|
|
5
|
|
|
0.03
|
|
|
GAAP fuel
expense
|
$
|
225
|
|
|
$
|
1.60
|
|
|
$
|
245
|
|
|
$
|
1.85
|
|
|
Fuel
gallons
|
140
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
(in millions,
except for per gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
|
Raw or "into-plane"
fuel cost
|
$
|
590
|
|
|
$
|
1.44
|
|
|
$
|
727
|
|
|
$
|
1.93
|
|
|
Losses on settled
hedges
|
12
|
|
|
0.03
|
|
|
15
|
|
|
0.04
|
|
|
Consolidated
economic fuel expense
|
$
|
602
|
|
|
$
|
1.47
|
|
|
$
|
742
|
|
|
$
|
1.97
|
|
|
Mark-to-market fuel
hedge adjustment
|
(9)
|
|
|
(0.02)
|
|
|
(1)
|
|
|
—
|
|
|
GAAP fuel
expense
|
$
|
593
|
|
|
$
|
1.45
|
|
|
$
|
741
|
|
|
$
|
1.97
|
|
|
Fuel
gallons
|
410
|
|
|
|
|
377
|
|
|
|
Note A: Pursuant to Regulation G, we have provided
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 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 term, 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 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 special items, are important metrics for the employee
incentive plan that covers all 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 mark-to-market
hedging adjustments or Virgin America merger-related 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 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.
Note B: Air Group has two operating airlines - Alaska
Airlines and Horizon Air. Each is a regulated airline with separate
management teams primarily in operational roles. To manage the two
operating airlines, management views the business in three
operating segments. Alaska
operates a fleet of passenger jets (Alaska Mainline) and contracts
with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula
Airways, Inc. (PenAir) for regional capacity under which
Alaska receives all passenger
revenue from those flights (Alaska Regional). Horizon operates a
fleet of turboprop aircraft and sells all of its capacity to
Alaska pursuant to a capacity
purchase arrangement. The Company believes the amounts paid by
Alaska to Horizon approximate
current market rates received by other regional carriers for
similar flying and are available to pay for various Horizon
operating expenses such as crew expenses, maintenance, and aircraft
ownership costs. All inter-company revenues and expenses
between Alaska and Horizon are
eliminated in consolidation.
Glossary of Terms
Aircraft Utilization - block hours per day; this
represents the average number of hours our aircraft are flying
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 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 jets and all
associated revenues and costs
PRASM - passenger revenue per ASM; commonly called
"passenger unit revenue"
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, Alaska 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, Alaska 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
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/alaska-air-group-reports-third-quarter-2016-results-300348212.html
SOURCE Alaska Air Group, Inc.