UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
January 22, 2015
(Date of earliest event reported)
ALASKA AIR GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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1-8957 | | 91-1292054 |
(Commission File Number) | | (IRS Employer Identification No.) |
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19300 International Boulevard, Seattle, Washington | | 98188 |
(Address of Principal Executive Offices) | | (Zip Code) |
(206) 392-5040
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.02. Results of Operations And Financial Condition
Alaska Air Group, Inc. today issued a press release reporting financial results for the fourth quarter and full-year results of 2014. The press release is filed as Exhibit 99.1.
ITEM 7.01. Regulation FD Disclosure
Pursuant to 17 CFR Part 243 (“Regulation FD”), the Company is submitting information relating to its financial and operational outlook in an Investor Update as attached in Exhibit 99.2.
In accordance with General Instruction B.2 of Form 8-K, the information under this item and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.
ITEM 9.01 Financial Statements and Other Exhibits
Exhibit 99.1 2014 Fourth Quarter and Full-Year Results
Exhibit 99.2 Investor Update dated January 22, 2015
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALASKA AIR GROUP, INC.
Registrant
Date: January 22, 2015
/s/ Brandon S. Pedersen
Brandon S. Pedersen
Vice President/Finance and Chief Financial Officer
Exhibit 99.1
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Media contact: | | Investor/analyst contact: |
Bryan Zidar | | Lavanya Sareen |
Managing Director | | Managing Director of Investor Relations |
Strategic & Corporate Communications | | (206) 392-5656 |
(206) 392-5134 | | |
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FOR IMMEDIATE RELEASE | | January 22, 2015 |
Alaska Air Group Reports Record Adjusted Fourth Quarter 2014 and Full-Year Results
and Raises Dividend 60%
Financial Highlights:
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• | Reported record fourth quarter net income, excluding special items, of $125 million, or $0.94 per diluted share, compared to $77 million, or $0.55 per diluted share in 2013. This quarter's results compare to a First Call analyst consensus estimate of $0.93 per share. |
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• | Reported record full-year net income, excluding special items, of $571 million, or $4.18 per diluted share, compared to $383 million, or $2.70 per diluted share in 2013. |
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• | Reported net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $148 million, or $1.11 per diluted share, compared to net income of $78 million, or $0.56 per diluted share in 2013. |
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• | Reported net income for the full year under GAAP of $605 million, or $4.42 per diluted share, compared to net income of $508 million, or $3.58 per diluted share in 2013. |
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• | Declared a $0.20 per share dividend, up 60% from the prior quarter. The dividend will be paid on March 10, to shareholders of record as of February 24, 2015. |
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• | Paid $0.125 per-share quarterly cash dividend on December 3, bringing total dividend payments in 2014 to $68 million. |
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• | Repurchased 7,316,731 shares of common stock for an average price of $47.63 during 2014 for $348 million, or 6.9% of market capitalization at the beginning of 2014. Since 2007, Air Group has used $827 million to repurchase 49 million shares at an average price of $16.85. |
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• | Grew passenger revenues by 8% compared to the fourth quarter of 2013, and by 7% compared to full-year 2013. |
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• | Generated record full-year adjusted pretax margin of 17.2% in 2014 compared to 12.4% in 2013. |
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• | Achieved return on invested capital of 18.6% in 2014, compared to 13.6% in 2013. |
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• | Generated over $1.0 billion in operating cash flows and $344 million in free cash flows in 2014. |
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• | Lowered adjusted debt-to-total capitalization ratio to 31% as of December 31, 2014. |
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• | Held $1.2 billion in unrestricted cash and marketable securities as of December 31, 2014. |
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• | Became one of only two U.S. airlines with investment grade credit ratings. |
Year-to-date highlights of Alaska Air Group's five-year strategic plan:
Safety & Compliance
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• | Launched Ready, Safe, Go safety campaign designed to increase safety awareness across the Air Group System. |
People Focus
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• | Awarded a record $116 million in incentive pay to employees for 2014, or more than one month's pay for most employees. Over the last five years, employees have earned more than $473 million in incentive pay, averaging 8.7% of annual pay. |
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• | Signed a five-year agreement with Alaska Airline's Flight Attendants in December 2014. |
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• | Signed a six-year contract with Horizon's aircraft technicians and fleet service agents in June 2014. |
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• | Signed a five-year contract with Alaska's clerical, office, and passenger service employees in April 2014. |
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• | Signed a four-year contract with Horizon's dispatchers in April 2014. |
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• | Completed "Gear Up" - an intensive leadership workshop for over 1,200 leaders at Alaska and Horizon. |
Hassle-free Customer Experience
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• | Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the seventh year in a row. |
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• | Ranked as the best airline in the U.S. by The Wall Street Journal's "Middle Seat" scorecard for two consecutive years. |
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• | Ranked highest by frequent fliers in the first-ever J.D. Power Airline Loyalty/Rewards Program Satisfaction Report. |
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• | Held the top spot in U.S. Department of Transportation on-time performance among the largest eight U.S. airlines for the twelve months ended November 2014. |
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• | Named No. 1 on-time carrier in North America for the fourth year in a row by FlightStats in February 2014. |
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• | Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage, and Juneau. |
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• | Became the launch customer of Boeing's new, innovative, high-capacity 737 Space Bins, which will increase bag capacity in the cabin by 48%. |
Energetic & Compelling Brand
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• | Launched Alaska Beyond™ in-flight experience featuring gourmet Tom Douglas signature meals, new streaming in-flight entertainment, and power at every seat on our 737-800/900/900ER aircraft. |
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• | Received the 2014 Community Impact Award from Seattle Business Magazine. |
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• | Celebrated the opening of the Alaska Airlines Center sports complex at the University of Alaska Anchorage. |
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• | Committed over $7 million to support local communities, including job training for workers at the Seattle-Tacoma airport, STEM-focused education programs at Seattle's Museum of Flight, and Seattle's new bicycle sharing program. |
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• | Flew 13 relief flights to Los Cabos, Loreto, and Mazatlan, Mexico and transported approximately 2,000 passengers to safety following Hurricane Odile. |
Low Fares, Low Costs, and Network Growth
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• | Ordered ten additional Boeing 737-900ERs, which will further strengthen Alaska's fuel-efficient fleet. |
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• | Exercised options for two Q400 aircraft to be delivered in 2017. |
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• | Completed 100% of the cabin improvement project, adding new Recaro seats and power at every seat for 95 aircraft. |
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• | Increased fuel efficiency (as measured by seat-miles per gallon) by 2.1% over 2013. |
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• | Added split-scimitar winglets to 48 planned aircraft, which are expected to improve fuel efficiency by about 1.5% per aircraft. |
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• | Lowered unit costs excluding fuel and special items for the fifth consecutive year, to the lowest level ever. |
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• | Grew Seattle departures by 4% in 2014 and committed to growing Seattle departures by 10% in 2015. |
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• | Added 16 routes during 2014. New routes launched and announced in the fourth quarter are as follows: |
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New Non-Stop Routes Launched in Q4 | New Non-Stop Routes (Launch Date) |
Portland to Puerto Vallarta | Las Vegas to Mammoth Lakes (1/15/2015) |
Seattle to Cancun | San Diego to Kona (3/5/2015) |
Portland to Los Cabos | Seattle to Washington D.C. (Dulles) (3/11/2015) |
| Seattle to Milwaukee (7/1/2015) |
| Seattle to Oklahoma City (7/1/2015) |
| Portland to St. Louis (7/1/2015) |
SEATTLE — Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2014 GAAP net income of $148 million, or $1.11 per diluted share, compared to GAAP net income of $78 million, or $0.56 per diluted share in 2013. Excluding mark-to-market fuel hedge gains of $6 million ($4 million after tax, or $0.03 per diluted share), a benefit related to the curtailment of certain postretirement benefit plans and a one-time gain associated with the settlement of a legal matter for $30 million in aggregate ($19 million after tax, or $0.14 per diluted share), the company reported record fourth quarter 2014 net income of $125 million, or $0.94 per diluted share, compared to net income, excluding mark-to-market fuel hedge gains, of $77 million, or $0.55 per diluted share, in 2013.
The company reported full-year 2014 GAAP net income of $605 million, compared to $508 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $571 million, or $4.18 per diluted share for 2014, compared to net income of $383 million, or $2.70 per diluted share in 2013.
"Record earnings and the number one airline ranking in The Wall Street Journal for the second year in a row are proof that our 13,000 employees continue to do a great job serving our customers and running a reliable operation,” said CEO Brad Tilden. “The substantial increase in the dividend underscores our commitment to shareholders and our confidence in the future.”
The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2014 and 2013 to amounts as reported in accordance with GAAP: |
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| Three Months Ended December 31, |
| 2014 | | 2013 |
(in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
Reported GAAP net income | $ | 148 |
| | $ | 1.11 |
| | $ | 78 |
| | $ | 0.56 |
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Mark-to-market fuel hedge adjustments, net of tax | (4 | ) | | (0.03 | ) | | (1 | ) | | (0.01 | ) |
Special items, net of tax | (19 | ) | | (0.14 | ) | | — |
| | — |
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Non-GAAP adjusted income and per share amounts | $ | 125 |
| | $ | 0.94 |
| | $ | 77 |
| | $ | 0.55 |
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| Twelve Months Ended December 31, |
| 2014 | | 2013 |
(in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
Reported GAAP net income | $ | 605 |
| | $ | 4.42 |
| | $ | 508 |
| | $ | 3.58 |
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Mark-to-market fuel hedge adjustments, net of tax | (15 | ) | | (0.11 | ) | | (5 | ) | | (0.03 | ) |
Special items, net of tax | (19 | ) | | (0.13 | ) | | — |
| | — |
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Special mileage plan revenue, net of tax | $ | — |
| | $ | — |
| | $ | (120 | ) | | $ | (0.85 | ) |
Non-GAAP adjusted income and per share amounts | $ | 571 |
| | $ | 4.18 |
| | $ | 383 |
| | $ | 2.70 |
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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 fourth quarter and full year results will be simulcast via the Internet at 8:30 a.m. Pacific time on January 22, 2015. It can be accessed through the company's Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.
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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 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 December 31, 2013. Some of these risks include competition, labor costs and relations, general economic conditions, increases in operating costs including fuel, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. 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, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked “Highest in Customer Satisfaction Among Traditional Carriers” in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines’ Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report. For reservations, visit www.alaskaair.com . For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at www.alaskaair.com/newsroom.
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CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) |
Alaska Air Group, Inc. | | | | | | | | | | | |
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| Three Months Ended December 31, | | Twelve Months Ended December 31, |
(in millions, except per share amounts) | 2014 | | 2013 | | Change | | 2014 | | 2013 | | Change |
Operating Revenues: | | | | | | | | | | | |
Passenger | | | | | | | | | | | |
Mainline | $ | 916 |
| | $ | 839 |
| | 9 | % | | $ | 3,774 |
| | $ | 3,490 |
| | 8 | % |
Regional | 200 |
| | 195 |
| | 3 | % | | 805 |
| | 777 |
| | 4 | % |
Total passenger revenue | 1,116 |
| | 1,034 |
| | 8 | % | | 4,579 |
| | 4,267 |
| | 7 | % |
Freight and mail | 26 |
| | 25 |
| | 4 | % | | 114 |
| | 113 |
| | 1 | % |
Other - net | 164 |
| | 151 |
| | 9 | % | | 675 |
| | 584 |
| | 16 | % |
Special mileage plan revenue | — |
| | — |
| | NM |
| | — |
| | 192 |
| | NM |
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Total Operating Revenues | 1,306 |
| | 1,210 |
| | 8 | % | | 5,368 |
| | 5,156 |
| | 4 | % |
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Operating Expenses: | | | | | | | | | | | |
Wages and benefits | 304 |
| | 280 |
| | 9 | % | | 1,136 |
| | 1,086 |
| | 5 | % |
Variable incentive pay | 32 |
| | 37 |
| | (14 | )% | | 116 |
| | 105 |
| | 10 | % |
Aircraft fuel, including hedging gains and losses | 306 |
| | 352 |
| | (13 | )% | | 1,418 |
| | 1,467 |
| | (3 | )% |
Aircraft maintenance | 63 |
| | 60 |
| | 5 | % | | 229 |
| | 247 |
| | (7 | )% |
Aircraft rent | 26 |
| | 30 |
| | (13 | )% | | 110 |
| | 119 |
| | (8 | )% |
Landing fees and other rentals | 72 |
| | 55 |
| | 31 | % | | 279 |
| | 262 |
| | 6 | % |
Contracted services | 66 |
| | 60 |
| | 10 | % | | 254 |
| | 221 |
| | 15 | % |
Selling expenses | 45 |
| | 42 |
| | 7 | % | | 199 |
| | 179 |
| | 11 | % |
Depreciation and amortization | 76 |
| | 67 |
| | 13 | % | | 294 |
| | 270 |
| | 9 | % |
Food and beverage service | 25 |
| | 21 |
| | 19 | % | | 93 |
| | 84 |
| | 11 | % |
Other | 79 |
| | 76 |
| | 4 | % | | 308 |
| | 278 |
| | 11 | % |
Special items | (30 | ) | | — |
| | NM |
| | (30 | ) | | — |
| | NM |
|
Total Operating Expenses | 1,064 |
| | 1,080 |
| | (1 | )% | | 4,406 |
| | 4,318 |
| | 2 | % |
Operating Income | 242 |
| | 130 |
| | 86 | % | | 962 |
| | 838 |
| | 15 | % |
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Nonoperating Income (Expense): | | | | | | | | | | | |
Interest income | 6 |
| | 4 |
| | | | 21 |
| | 18 |
| | |
Interest expense | (12 | ) | | (14 | ) | | | | (48 | ) | | (56 | ) | | |
Interest capitalized | 6 |
| | 6 |
| | | | 20 |
| | 21 |
| | |
Other - net | — |
| | (1 | ) | | | | 20 |
| | (5 | ) | | |
| — |
| | (5 | ) | | | | 13 |
| | (22 | ) | | |
Income Before Income Tax | 242 |
| | 125 |
| | 94 | % | | 975 |
| | 816 |
| | 19 | % |
Income tax expense | 94 |
| | 47 |
| | | | 370 |
| | 308 |
| | |
Net Income | $ | 148 |
| | $ | 78 |
| | 90 | % | | $ | 605 |
| | $ | 508 |
| | 19 | % |
| | | | | | | | | | | |
Basic Earnings Per Share: | $ | 1.12 |
| | $ | 0.56 |
| | | | $ | 4.47 |
| | $ | 3.63 |
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Diluted Earnings Per Share: | $ | 1.11 |
| | $ | 0.56 |
| | | | $ | 4.42 |
| | $ | 3.58 |
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| | | | | | | | | | | |
Shares Used for Computation: | | | | | | | | | | | |
Basic | 132.368 |
| | 138.670 |
| | | | 135.445 |
| | 139.910 |
| | |
Diluted | 133.705 |
| | 140.484 |
| | | | 136.801 |
| | 141.878 |
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Cash dividend declared per share | $ | 0.125 |
| | 0.100 |
| | | | $ | 0.500 |
| | 0.200 |
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NM - Not Meaningful
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CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | | | |
Alaska Air Group, Inc. | | | |
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(in millions) | December 31, 2014 |
| | December 31, 2013 |
|
Cash and marketable securities | $ | 1,217 |
| | $ | 1,330 |
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Total current assets | 1,756 |
| | 1,762 |
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Property and equipment-net | 4,299 |
| | 3,893 |
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Other assets | 126 |
| | 183 |
|
Total assets | $ | 6,181 |
| | $ | 5,838 |
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| |
| | |
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Air traffic liability | 631 |
| | 564 |
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Current portion of long-term debt | 117 |
| | 117 |
|
Other current liabilities | 923 |
| | 899 |
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Current liabilities | $ | 1,671 |
| | $ | 1,580 |
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Long-term debt | 686 |
| | 754 |
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Other liabilities and credits | 1,697 |
| | 1,475 |
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Shareholders' equity | 2,127 |
| | 2,029 |
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Total liabilities and shareholders' equity | $ | 6,181 |
| | $ | 5,838 |
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Debt to Capitalization, adjusted for operating leases(a) | 31%:69% |
| | 35%:65% |
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| | |
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Number of common shares outstanding | 131.481 |
| | 137.492 |
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(a) | Calculated using the present value of remaining aircraft lease payments for aircraft that are in our operating fleet as of the balance sheet date. |
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OPERATING STATISTICS SUMMARY (unaudited) |
Alaska Air Group, Inc. | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| 2014 | | 2013 | | Change | | 2014 | | 2013 | | Change |
Consolidated Operating Statistics:(a) | | | | | | | | | | | |
Revenue passengers (PAX) (000) | 7,282 | | 6,694 | | 8.8% | | 29,278 | | 27,414 | | 6.8% |
RPMs (000,000) "traffic" | 7,640 | | 6,980 | | 9.5% | | 30,718 | | 28,833 | | 6.5% |
ASMs (000,000) "capacity" | 9,156 | | 8,275 | | 10.6% | | 36,078 | | 33,672 | | 7.1% |
Load factor | 83.4% | | 84.4% | | (1.0) pts | | 85.1% | | 85.6% | | (0.5) pts |
Yield | 14.61¢ | | 14.80¢ | | (1.3)% | | 14.91¢ | | 14.80¢ | | 0.7% |
PRASM | 12.19¢ | | 12.49¢ | | (2.4)% | | 12.69¢ | | 12.67¢ | | 0.2% |
RASM | 14.27¢ | | 14.62¢ | | (2.4)% | | 14.88¢ | | 14.74¢ | | 0.9% |
CASM excluding fuel and special items(b) | 8.60¢ | | 8.81¢ | | (2.4)% | | 8.36¢ | | 8.47¢ | | (1.3)% |
Economic fuel cost per gallon(c) | $2.64 | | $3.21 | | (17.8)% | | $3.08 | | $3.30 | | (6.7)% |
Fuel gallons (000,000) | 118 | | 110 | | 7.3% | | 469 | | 447 | | 4.9% |
ASM's per gallon | 77.6 | | 75.2 | | 3.2% | | 76.9 | | 75.3 | | 2.1% |
Average number of full-time equivalent employees (FTEs) | 13,059 | | 12,284 | | 6.3% | | 12,739 | | 12,163 | | 4.7% |
Employee productivity (PAX/FTEs/months) | 185.9 | | 181.6 | | 2.4% | | 191.5 | | 187.8 | | 2.0% |
| | | | | | | | | | | |
Mainline Operating Statistics: | | | | | | | | | | | |
Revenue passengers (PAX) (000) | 5,177 | | 4,764 | | 8.7% | | 20,972 | | 19,737 | | 6.3% |
RPMs (000,000) "traffic" | 6,907 | | 6,308 | | 9.5% | | 27,778 | | 26,172 | | 6.1% |
ASMs (000,000) "capacity" | 8,233 | | 7,438 | | 10.7% | | 32,430 | | 30,411 | | 6.6% |
Load factor | 83.9% | | 84.8% | | (0.9) pts | | 85.7% | | 86.1% | | (0.4) pts |
Yield | 13.25¢ | | 13.29¢ | | (0.3)% | | 13.58¢ | | 13.33¢ | | 1.9% |
PRASM | 11.12¢ | | 11.27¢ | | (1.3)% | | 11.64¢ | | 11.48¢ | | 1.4% |
RASM | 13.18¢ | | 13.40¢ | | (1.6)% | | 13.80¢ | | 13.52¢ | | 2.1% |
CASM excluding fuel and special items(b) | 7.70¢ | | 7.91¢ | | (2.7)% | | 7.45¢ | | 7.54¢ | | (1.2)% |
Economic fuel cost per gallon(c) | $2.64 | | $3.21 | | (17.8)% | | $3.07 | | $3.30 | | (7.0)% |
Fuel gallons (000,000) | 102 | | 96 | | 6.3% | | 407 | | 393 | | 3.6% |
ASM's per gallon | 80.7 | | 77.5 | | 4.1% | | 79.7 | | 77.4 | | 3.0% |
Average number of FTEs | 10,171 | | 9,519 | | 6.8% | | 9,910 | | 9,493 | | 4.4% |
Employee productivity (PAX/FTEs/months) | 169.7 | | 166.8 | | 1.7% | | 176.4 | | 173.3 | | 1.8% |
Aircraft utilization | 10.3 | | 10.1 | | 2.0% | | 10.5 | | 10.6 | | (0.9)% |
Average aircraft stage length | 1,190 | | 1,177 | | 1.1% | | 1,182 | | 1,177 | | 0.4% |
| | | | | | | | | | | |
Regional Operating Statistics:(d) | | | | | | | | | | | |
Revenue passengers (PAX) (000) | 2,106 | | 1,930 | | 9.1% | | 8,306 | | 7,677 | | 8.2% |
RPMs (000,000) "traffic" | 734 | | 673 | | 9.1% | | 2,940 | | 2,661 | | 10.5% |
ASMs (000,000) "capacity" | 923 | | 837 | | 10.3% | | 3,648 | | 3,261 | | 11.9% |
Load factor | 79.5% | | 80.4% | | (0.9) pts | | 80.6% | | 81.6% | | (1.0) pts |
Yield | 27.38¢ | | 28.99¢ | | (5.6)% | | 27.40¢ | | 29.20¢ | | (6.2)% |
PRASM | 21.76¢ | | 23.32¢ | | (6.7)% | | 22.08¢ | | 23.83¢ | | (7.3)% |
| |
(a) | Except for full-time equivalent employees, 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 why these measures may be important to investors in the accompanying pages. |
| |
(c) | See a reconciliation of economic fuel cost in the accompanying pages. |
| |
(d) | 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 December 31, 2014 |
| Alaska | | | | | | | | | | |
(in millions) | Mainline | | Regional | | Horizon | | Consolidating | | Air Group Adjusted(a) | | Special Items(b) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 916 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 916 |
| | $ | — |
| | $ | 916 |
|
Regional | — |
| | 200 |
| | — |
| | — |
| | 200 |
| | — |
| | 200 |
|
Total passenger revenues | 916 |
| | 200 |
| | — |
| | — |
| | 1,116 |
| | — |
| | 1,116 |
|
Revenue from CPA with Alaska | — |
| | — |
| | 94 |
| | (94 | ) | | — |
| | — |
| | — |
|
Freight and mail | 25 |
| | 1 |
| | — |
| | — |
| | 26 |
| | — |
| | 26 |
|
Other-net | 144 |
| | 19 |
| | 1 |
| | — |
| | 164 |
| | — |
| | 164 |
|
Total operating revenues | 1,085 |
| | 220 |
| | 95 |
| | (94 | ) | | 1,306 |
| | — |
| | 1,306 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 634 |
| | 159 |
| | 92 |
| | (97 | ) | | 788 |
| | (30 | ) | | 758 |
|
Economic fuel | 271 |
| | 41 |
| | — |
| | — |
| | 312 |
| | (6 | ) | | 306 |
|
Total operating expenses | 905 |
| | 200 |
| | 92 |
| | (97 | ) | | 1,100 |
| | (36 | ) | | 1,064 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 5 |
| | — |
| | — |
| | 1 |
| | 6 |
| | — |
| | 6 |
|
Interest expense | (7 | ) | | 1 |
| | (2 | ) | | (4 | ) | | (12 | ) | | — |
| | (12 | ) |
Other | 5 |
| | (1 | ) | | 2 |
| | — |
| | 6 |
| | — |
| | 6 |
|
| 3 |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | — |
|
Income (loss) before income tax | $ | 183 |
| | $ | 20 |
| | $ | 3 |
| | $ | — |
| | $ | 206 |
| | $ | 36 |
| | $ | 242 |
|
| | | | | | | | | | | | | |
| Three Months Ended December 31, 2013 |
| Alaska | | | | | | | | | | |
(in millions) | Mainline | | Regional | | Horizon | | Consolidating | | Air Group Adjusted(a) | | Special Items(b) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 839 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 839 |
| | $ | — |
| | $ | 839 |
|
Regional | — |
| | 195 |
| | — |
| | — |
| | 195 |
| | — |
| | 195 |
|
Total passenger revenues | 839 |
| | 195 |
| | — |
| | — |
| | 1,034 |
| | — |
| | 1,034 |
|
Revenue from CPA with Alaska | — |
| | — |
| | 94 |
| | (94 | ) | | — |
| | — |
| | — |
|
Freight and mail | 24 |
| | 1 |
| | — |
| | — |
| | 25 |
| | — |
| | 25 |
|
Other-net | 133 |
| | 17 |
| | 1 |
| | — |
| | 151 |
| | — |
| | 151 |
|
Total operating revenues | 996 |
| | 213 |
| | 95 |
| | (94 | ) | | 1,210 |
| | — |
| | 1,210 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 589 |
| | 145 |
| | 88 |
| | (94 | ) | | 728 |
| | — |
| | 728 |
|
Economic fuel | 307 |
| | 47 |
| | — |
| | — |
| | 354 |
| | (2 | ) | | 352 |
|
Total operating expenses | 896 |
| | 192 |
| | 88 |
| | (94 | ) | | 1,082 |
| | (2 | ) | | 1,080 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
|
Interest expense | (8 | ) | | — |
| | (4 | ) | | (2 | ) | | (14 | ) | | — |
| | (14 | ) |
Other | 6 |
| | (3 | ) | | 1 |
| | 1 |
| | 5 |
| | — |
| | 5 |
|
| 2 |
| | (3 | ) | | (3 | ) | | (1 | ) | | (5 | ) | | — |
| | (5 | ) |
Income (loss) before income tax | $ | 102 |
| | $ | 18 |
| | $ | 4 |
| | $ | (1 | ) | | $ | 123 |
| | $ | 2 |
| | $ | 125 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
OPERATING SEGMENTS (unaudited) | | | | | | | |
Alaska Air Group, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2014 |
| Alaska | | | | | | | | | | |
(in millions) | Mainline | | Regional | | Horizon | | Consolidating | | Air Group Adjusted(a) | | Special Items(b) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 3,774 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,774 |
| | $ | — |
| | $ | 3,774 |
|
Regional | — |
| | 805 |
| | — |
| | — |
| | 805 |
| | — |
| | 805 |
|
Total passenger revenues | 3,774 |
| | 805 |
| | — |
| | — |
| | 4,579 |
| | — |
| | 4,579 |
|
Revenue from CPA with Alaska | — |
| | — |
| | 371 |
| | (371 | ) | | — |
| | — |
| | — |
|
Freight and mail | 109 |
| | 5 |
| | — |
| |
|
| | 114 |
| | — |
| | 114 |
|
Other-net | 592 |
| | 78 |
| | 5 |
| |
|
| | 675 |
| |
|
| | 675 |
|
Total operating revenues | 4,475 |
| | 888 |
| | 376 |
| | (371 | ) | | 5,368 |
| | — |
| | 5,368 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 2,417 |
| | 623 |
| | 349 |
| | (371 | ) | | 3,018 |
| | (30 | ) | | 2,988 |
|
Economic fuel | 1,251 |
| | 190 |
| | — |
| | — |
| | 1,441 |
| | (23 | ) | | 1,418 |
|
Total operating expenses | 3,668 |
| | 813 |
| | 349 |
| | (371 | ) | | 4,459 |
| | (53 | ) | | 4,406 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 20 |
| | — |
| | — |
| | 1 |
| | 21 |
| | — |
| | 21 |
|
Interest expense | (32 | ) | | — |
| | (12 | ) | | (4 | ) | | (48 | ) | | — |
| | (48 | ) |
Other | 39 |
| | (1 | ) | | 2 |
| | — |
| | 40 |
| | — |
| | 40 |
|
| 27 |
| | (1 | ) | | (10 | ) | | (3 | ) | | 13 |
| | — |
| | 13 |
|
Income (loss) before income tax | $ | 834 |
| | $ | 74 |
| | $ | 17 |
| | $ | (3 | ) | | $ | 922 |
| | $ | 53 |
| | $ | 975 |
|
| | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2013 |
| Alaska | | | | | | | | | | |
(in millions) | Mainline | | Regional | | Horizon | | Consolidating | | Air Group Adjusted(a) | | Special Items(b) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 3,490 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,490 |
| | $ | — |
| | $ | 3,490 |
|
Regional | — |
| | 777 |
| | — |
| | — |
| | 777 |
| | — |
| | 777 |
|
Total passenger revenues | 3,490 |
| | 777 |
| | — |
| | — |
| | 4,267 |
| | — |
| | 4,267 |
|
Revenue from CPA with Alaska | — |
| | — |
| | 368 |
| | (368 | ) | | — |
| | — |
| | — |
|
Freight and mail | 109 |
| | 4 |
| | — |
| |
|
| | 113 |
| | — |
| | 113 |
|
Other-net | 513 |
| | 66 |
| | 5 |
| |
|
| | 584 |
| | 192 |
| | 776 |
|
Total operating revenues | 4,112 |
| | 847 |
| | 373 |
| | (368 | ) | | 4,964 |
| | 192 |
| | 5,156 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 2,293 |
| | 585 |
| | 341 |
| | (368 | ) | | 2,851 |
| | — |
| | 2,851 |
|
Economic fuel | 1,294 |
| | 181 |
| | — |
| | — |
| | 1,475 |
| | (8 | ) | | 1,467 |
|
Total operating expenses | 3,587 |
| | 766 |
| | 341 |
| | (368 | ) | | 4,326 |
| | (8 | ) | | 4,318 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 18 |
| | — |
| | — |
| | — |
| | 18 |
| | — |
| | 18 |
|
Interest expense | (38 | ) | | — |
| | (14 | ) | | (4 | ) | | (56 | ) | | — |
| | (56 | ) |
Other | 25 |
| | (12 | ) | | 2 |
| | 1 |
| | 16 |
| | — |
| | 16 |
|
| 5 |
| | (12 | ) | | (12 | ) | | (3 | ) | | (22 | ) | | — |
| | (22 | ) |
Income (loss) before income tax | $ | 530 |
| | $ | 69 |
| | $ | 20 |
| | $ | (3 | ) | | $ | 616 |
| | $ | 200 |
| | $ | 816 |
|
| |
(a) | 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 for further information in the accompanying pages. |
| |
(b) | Includes accounting adjustments related to special mileage plan revenue, mark-to-market fuel-hedge accounting charges, non-cash curtailment gain, and a one-time gain related to a legal matter. |
|
| | | | | | | | | | | | | | | |
Alaska Air Group, Inc. | | | | | | | |
| | | | | | | |
RASM RECONCILIATION (unaudited) |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
(in millions) | 2014 | | 2013 | | 2014 | | 2013 |
Total operating revenues | $ | 1,306 |
| | $ | 1,210 |
| | $ | 5,368 |
| | $ | 5,156 |
|
Less: special mileage plan revenue | — |
| | — |
| | — |
| | 192 |
|
Adjusted Revenue | $ | 1,306 |
| | $ | 1,210 |
| | $ | 5,368 |
| | $ | 4,964 |
|
Consolidated ASMs | 9,156 |
| | 8,275 |
| | 36,078 |
| | 33,672 |
|
RASM |
| 14.27 | ¢ | |
| 14.62 | ¢ | |
| 14.88 | ¢ | |
| 14.74 | ¢ |
| | | | | | | |
CASM EXCLUDING FUEL RECONCILIATION (unaudited) |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
(in cents) | 2014 | | 2013 | | 2014 | | 2013 |
Consolidated: | | | | | | | |
CASM |
| 11.61 | ¢ | |
| 13.05 | ¢ | |
| 12.21 | ¢ | |
| 12.82 | ¢ |
Less the following components: | | | |
| | | | |
|
Aircraft fuel, including hedging gains and losses | 3.34 |
| | 4.24 |
| | 3.93 |
| | 4.35 |
|
Special items | (0.33 | ) | | — |
| | (0.08 | ) | | — |
|
CASM excluding fuel |
| 8.60 | ¢ | |
| 8.81 | ¢ | |
| 8.36 | ¢ | |
| 8.47 | ¢ |
| | | | | | | |
Mainline: | | | | | | | |
CASM |
| 10.56 | ¢ | |
| 12.02 | ¢ | |
| 11.15 | ¢ | |
| 11.77 | ¢ |
Less the following components: | | | |
| | | | |
|
Aircraft fuel, including hedging gains and losses | 3.22 |
| | 4.11 |
| | 3.79 |
| | 4.23 |
|
Special items | (0.36 | ) | | — |
| | (0.09 | ) | | — |
|
CASM excluding fuel |
| 7.70 | ¢ | |
| 7.91 | ¢ | |
| 7.45 | ¢ | |
| 7.54 | ¢ |
| | | | | | | |
FUEL RECONCILIATIONS (unaudited) | | | | | | | |
Alaska Air Group, Inc. | | | | | | | |
| | | | | | | |
| Three Months Ended December 31, |
| 2014 | | 2013 |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 305 |
| | $ | 2.58 |
| | $ | 347 |
| | $ | 3.15 |
|
Losses on settled hedges | 7 |
| | 0.06 |
| | 6 |
| | 0.06 |
|
Consolidated economic fuel expense | $ | 312 |
| | $ | 2.64 |
| | $ | 354 |
| | $ | 3.21 |
|
Mark-to-market fuel hedge adjustments | (6 | ) | | (0.05 | ) | | (2 | ) | | 0.10 |
|
GAAP fuel expense | $ | 306 |
| | $ | 2.59 |
| | $ | 352 |
| | $ | 3.20 |
|
Fuel gallons | 118 |
| | | | 110 |
| | |
| | | | | | | |
| Twelve Months Ended December 31, |
| 2014 | | 2013 |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 1,400 |
| | $ | 2.99 |
| | $ | 1,423 |
| | $ | 3.19 |
|
Losses on settled hedges | 41 |
| | 0.09 |
| | 52 |
| | 0.11 |
|
Consolidated economic fuel expense | $ | 1,442 |
| | $ | 3.08 |
| | $ | 1,475 |
| | $ | 3.30 |
|
Mark-to-market fuel hedge adjustments | (23 | ) | | (0.05 | ) | | (8 | ) | | (0.02 | ) |
GAAP fuel expense | $ | 1,418 |
| | $ | 3.03 |
| | $ | 1,467 |
| | $ | 3.28 |
|
Fuel gallons | 469 |
| | | | 447 |
| | |
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 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 without the consideration of accounting changes or 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. |
| |
• | Operating revenue per ASM (RASM) excludes a favorable, one-time "special" revenue item of $192 million primarily related to our modified affinity card agreement with Bank of America, executed in July 2013. In accordance with accounting standards, we recorded this one-time special revenue item in the third quarter of 2013. This is purely an accounting change and the prior period results do not reflect the economics of the agreement; rather it reflects a non-cash adjustment of the value of miles outstanding in the program. We believe it is appropriate to exclude this special revenue item from recurring revenues from operations. |
| |
• | 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 Taxes and CASM excluding fuel (and other items as specified in our plan documents) 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 fleet transition costs or special revenues, 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 separately managed operations. 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 (Horizon). 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
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
Exhibit 99.2
Investor Update - January 22, 2015
References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.
This update includes forecasted operational and financial information for our consolidated and mainline operations. Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expenses per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expenses for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”
We are providing information about estimated fuel prices and our hedging program. Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.
We are also providing our expected capital expenditures and fleet count for future periods. These estimates are based on firm commitments we currently have in place for future aircraft deliveries and our current estimate of non-aircraft capital spending.
Forward-Looking Information
This update 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 December 31, 2013. 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, and changes in laws and regulations. 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.
Forecast Information
|
| | | | | | | |
| Forecast Q1 2015 | | Change Y-O-Y | | Forecast Full Year 2015 | | Change Y-O-Y |
Capacity (ASMs in millions) | 9,225 - 9,275 | | ~ 11.0% | | 38,900 - 39,100 | | ~ 8.0% |
Cost per ASM excluding fuel and special items (cents) | 8.62¢ - 8.67¢ | | ~ flat | | 8.35¢ - 8.40¢ | | ~ flat |
Fuel gallons (000,000) | 119 | | ~ 8.0% | | 492 | | ~ 5.5% |
Economic fuel cost per gallon(a) | $1.85 | | ~ (44.0)% | | (b) | | (b) |
| |
(a) | Our economic fuel cost per gallon estimate for the first quarter includes the following per-gallon assumptions: crude oil cost - $1.14 ($48 per barrel); refining margin - 39 cents; cost of settled hedges - 5 cents, with the remaining difference due to taxes and other into-plane costs. |
| |
(b) | Because of the volatility of fuel prices, we do not provide full-year economic fuel estimates. |
Nonoperating Expense
We expect that our consolidated nonoperating expense will be approximately $1 million in the first quarter of 2015.
Capital Expenditures(a)
Total expected capital expenditures are as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | |
| 2014 Actual | | 2015 | | 2016 | | 2017 | | 2018 |
Aircraft and aircraft purchase deposits - firm | $ | 472 |
| | $ | 485 |
| | $ | 445 |
| | $ | 445 |
| | $ | 405 |
|
Other flight equipment | 130 |
| | 50 |
| | 35 |
| | 25 |
| | 25 |
|
Other property and equipment | 65 |
| | 120 |
| | 75 |
| | 80 |
| | 80 |
|
Total property and equipment additions | $ | 667 |
| | $ | 655 |
| | $ | 555 |
| | $ | 550 |
| | $ | 510 |
|
Option aircraft and aircraft deposits, if exercised.(b) | $ | — |
| | $ | 5 |
| | $ | 60 |
| | $ | 185 |
| | $ | 315 |
|
| |
(a) | Preliminary estimate, subject to change. |
| |
(b) | Alaska has options to acquire 48 737 aircraft with deliveries from 2017 through 2024, and options to lease 16 E-175 aircraft with deliveries from 2017 to 2018. Horizon has options to acquire 5 Q400 aircraft with deliveries from 2018 through 2019. |
Projected Fleet Count(a)
|
| | | | | | | | | | | | | | | | | |
| Actual Fleet Count | | Expected Fleet Activity |
Aircraft | Dec 31, 2013 | | Dec 31, 2014 | | 2015 Changes | | Dec 31, 2015 | | 2016 - 2017 Changes | | Dec 31, 2017 |
737 Freighters & Combis | 6 |
| | 6 |
| | — |
| | 6 |
| | (3 | ) | | 3 |
|
737 Passenger Aircraft(b) | 125 |
| | 131 |
| | 6 |
| | 137 |
| | 7 |
| | 144 |
|
Total Mainline Fleet | 131 |
| | 137 |
| | 6 |
| | 143 |
| | 4 |
| | 147 |
|
Q400 | 51 |
| | 51 |
| | 1 |
| | 52 |
| | 2 |
| | 54 |
|
E-175(c) | — |
| | — |
| | 3 |
| | 3 |
| | 4 |
| | 7 |
|
CRJ-700(c) | 8 |
| | 8 |
| | — |
| | 8 |
| | — |
| | 8 |
|
Total Regional Fleet | 59 |
| | 59 |
| | 4 |
| | 63 |
| | 6 |
| | 69 |
|
Total Air Group Fleet | 190 |
| | 196 |
| | 10 |
| | 206 |
| | 10 |
| | 216 |
|
| |
(a) | The expected fleet counts at December 31, 2015, 2016, and 2017 are subject to change. |
| |
(b) | 2015 changes include the expected delivery of 11 Boeing 737-900ER aircraft offset by the scheduled return of five 737-400 aircraft to lessors. |
| |
(c) | Aircraft are operated under capacity purchase agreements with a third party. |
|
|
AIR GROUP - CONSOLIDATED (continued) |
Future Fuel Hedge Positions
All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. Our crude oil positions are as follows:
|
| | | | | |
| Approximate % of Expected Fuel Requirements | | Weighted-Average Crude Oil Price per Barrel | | Average Premium Cost per Barrel |
First Quarter 2015 | 50% | | $105 | | $4 |
Second Quarter 2015 | 50% | | $97 | | $3 |
Third Quarter 2015 | 40% | | $98 | | $3 |
Fourth Quarter 2015 | 30% | | $94 | | $3 |
Full Year 2015 | 42% | | $99 | | $3 |
First Quarter 2016 | 20% | | $88 | | $3 |
Second Quarter 2016 | 10% | | $73 | | $4 |
Full Year 2016 | 7% | | $83 | | $3 |
Fuel Price Sensitivity
The following table depicts a forward-looking sensitivity of our full year 2015 economic fuel price per gallon given our current crude oil positions, and a range of possible future crude oil and refining margin prices:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Crude Price per Barrel | | |
| | | $ | 30 |
| | $ | 40 |
| | $ | 50 |
| | $ | 60 |
| | $ | 70 |
| | $ | 80 |
|
Refining Margin (cents per Gallon) | 20 |
| | $ | 1.16 |
| | $ | 1.40 |
| | $ | 1.64 |
| | $ | 1.87 |
| | $ | 2.11 |
| | $ | 2.33 |
|
30 |
| | $ | 1.26 |
| | $ | 1.50 |
| | $ | 1.74 |
| | $ | 1.97 |
| | $ | 2.21 |
| | $ | 2.43 |
|
40 |
| | $ | 1.36 |
| | $ | 1.60 |
| | $ | 1.84 |
| | $ | 2.07 |
| | $ | 2.31 |
| | $ | 2.53 |
|
50 |
| | $ | 1.46 |
| | $ | 1.70 |
| | $ | 1.94 |
| | $ | 2.17 |
| | $ | 2.41 |
| | $ | 2.63 |
|
60 |
| | $ | 1.56 |
| | $ | 1.80 |
| | $ | 2.04 |
| | $ | 2.27 |
| | $ | 2.51 |
| | $ | 2.73 |
|
70 |
| | $ | 1.66 |
| | $ | 1.90 |
| | $ | 2.14 |
| | $ | 2.37 |
| | $ | 2.61 |
| | $ | 2.83 |
|
|
|
ALASKA AIRLINES - MAINLINE |
Forecast Information
|
| | | | | | | |
| Forecast Q1 2015 | | Change Y-O-Y | | Forecast Full Year 2015 | | Change Y-O-Y |
Capacity (ASMs in millions) | 8,325 - 8,375 | | ~ 11.5% | | 35,000 - 35,200 | | ~ 8.5% |
Cost per ASM excluding fuel and special items (cents)(b) | 7.66¢ - 7.71¢ | | ~ flat | | 7.45¢ - 7.50¢ | | ~ flat |
Fuel gallons (000,000) | 103 | | ~ 7.5% | | 430 | | ~ 5.5% |
Economic fuel cost per gallon(a) | $1.85 | | ~ (44)% | | (b) | | (b) |
| |
(a) | Please see note (a) in Consolidated for the breakout of economic fuel cost per gallon. |
| |
(b) | Because of the volatility of fuel prices, we do not provide full-year economic fuel estimates. |
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