Attached files
| file | filename |
|---|---|
| EX-99.2 - JULY 21, 2016 INVESTOR UPDATE - ALASKA AIR GROUP, INC. | ex9927212016investorupdate.htm |
| 8-K - 8-K - ALASKA AIR GROUP, INC. | alk8-k7212016earningsrelea.htm |
Exhibit 99.1
July 21, 2016
Contact: | Investor contact: | |
Media Relations | Lavanya Sareen | |
(206) 304-0008 | Managing Director, Investor Relations | |
(206) 392-5656 | ||
Alaska Air Group Reports Record Second Quarter 2016 Results
Financial Highlights:
• | Reported record second quarter net income, excluding special items, of $263 million, a 14% increase over the second quarter of 2015. Adjusted diluted earnings per share of $2.12 was a 20% increase over the second quarter of 2015. This quarter's results exceed First Call analyst consensus estimate of $2.09 per share. |
• | Reported net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $260 million or $2.10 per diluted share, compared to net income of $234 million, or $1.79 per diluted share in 2015. |
• | Paid $0.275 per-share quarterly cash dividend in the second quarter, a 38% increase over the dividend paid in the second quarter of 2015. |
• | Generated approximately $900 million of operating cash flow and $560 million of free cash flow in the first six months of 2016. |
• | Grew passenger revenues by 3% compared to the second quarter of 2015. |
• | Expanded adjusted pre-tax margins from 25.7% in the second quarter of 2015, to 28.4% in the second quarter of 2016. |
• | Achieved 25.3% adjusted pre-tax margin on a trailing twelve month basis. |
• | Achieved return on invested capital of 25.9% for the 12-month period ending June 30, 2016, compared to 22.0% for the 12-month period ending June 30, 2015. |
• | Lowered adjusted debt-to-capitalization ratio to 25% as of June 30, 2016. |
• | Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2016. |
Planned Acquisition of Virgin America:
• | Announced proposed acquisition of Virgin America, Inc. (Virgin America) on April 4, 2016. |
• | Announced Peter Hunt, currently Virgin America's senior vice president and chief financial officer, as the president of the planned Virgin America subsidiary upon transaction close, expected in the fourth quarter this year. |
• | Recorded special items of $14 million in the second quarter for merger-related costs. |
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Operational Highlights:
• | Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2016 by J.D. Power for the ninth year in a row. |
• | Ranked "Highest in Customer Satisfactions With Airline Loyalty Rewards Programs" in 2016 by J.D. Power for the third consecutive year. |
• | Joined the Standard & Poors 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. |
• | 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. |
• | 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 May 2016. |
• | Ranked in the Top 200 in the 2016 Forbes "America's Best Employers" survey. |
• | Ranked among the Fortune 500 for the third year in a row. |
• | Announced a new codeshare agreement and frequent flier partnership with Japan Airlines, providing Alaska customers seamless travel and mileage earning opportunities. |
• | 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. |
• | 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 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. |
• | 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 globe. |
New routes launched and announced in the second quarter are as follows:
New Non-Stop Routes Launched in Q2 | New Non-Stop Routes Announced (Launch Dates) |
San Diego to San Jose, California | Portland, Oregon to Sun Valley, Idaho (12/17/16) |
San Jose to Orange County, California | Portland to Orlando, Florida (3/16/17) |
Portland to Atlanta | San Diego to Steamboat Springs, Colorado (12/17/16) |
Anchorage, Alaska to Spokane, Washington | Seattle to San Luis Obispo, California (4/13/17) |
Los Angeles to Havana, Cuba (TBD)(a) | |
(a) Tentatively awarded by the Department of Transportation (DOT). Final DOT determination is expected during the third quarter of 2016.
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SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2016 GAAP net income of $260 million, or $2.10 per diluted share, compared to $234 million, or $1.79 per diluted share in the second quarter of 2015. Excluding the impact of mark-to-market fuel hedge adjustments and merger costs, the company reported record adjusted net income of $263 million, or $2.12 per diluted share, compared to adjusted net income of $230 million, or $1.76 per diluted share, in 2015.
“This was a great quarter for us. From strong operational and financial performance to a growing customer base, our team delivered,” said chief executive officer Brad Tilden. “I want to thank our terrific people, who were once again recognized by JD Power for having the highest customer satisfaction among traditional network airlines for the 9th consecutive year. All of us at Alaska are enthusiastically looking forward to our merger with Virgin America and creating a larger national reach while fortifying our presence along the entire west coast.”
The following table reconciles the company's reported GAAP net income and earnings per diluted share (Diluted EPS) during the second quarters of 2016 and 2015 to adjusted amounts:
Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
Reported GAAP net income | $ | 260 | $ | 2.10 | $ | 234 | $ | 1.79 | |||||||
Mark-to-market fuel hedge adjustments, net of tax | (6 | ) | (0.05 | ) | (4 | ) | (0.03 | ) | |||||||
Special items - merger costs, net of tax | 9 | 0.07 | $ | — | $ | — | |||||||||
Non-GAAP adjusted income and per-share amounts | $ | 263 | $ | 2.12 | $ | 230 | $ | 1.76 | |||||||
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 second quarter results will be simulcast on the internet at 8:30 a.m. Pacific time on July 21, 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.
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Additional Information About the Merger and Where to Find It
This communication may be deemed to be solicitation material in respect of the merger of Virgin America, Inc. (“Virgin America”) with a wholly owned subsidiary of Alaska Air Group. Virgin America has filed relevant materials with the Securities and Exchange Commission (the “SEC”), including a definitive proxy statement, in connection with the solicitation of proxies for the merger. The definitive proxy statement contains important information about the proposed merger and related matters. BEFORE MAKING A VOTING DECISION, STOCKHOLDERS OF VIRGIN AMERICA ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER RELEVANT MATERIALS CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT VIRGIN AMERICA AND THE MERGER. Stockholders may obtain copies of the proxy statement and other relevant materials and any other documents filed by Virgin America with the SEC for no charge at the SEC’s website at www.sec.gov. In addition, stockholders will be able to obtain free copies of the proxy statement from Virgin America by contacting Virgin America’s Investor Relations Department by telephone at (650) 762-7000, by mail to Virgin America Inc., Attention: Investor Relations Department, 555 Airport Boulevard, Burlingame, California 94010, or by going to Virgin America’s Investor Relations page on its corporate website at http://ir.virginamerica.com.
Participants in the Solicitation
Alaska Air Group, Virgin America and certain of their respective directors, executive officers and other employees may be deemed to be participants in the solicitation of proxies from Virgin America’s stockholders in respect of the merger. Information concerning the ownership of Virgin America securities by Virgin America’s directors and executive officers is included in their SEC filings on Forms 3, 4, and 5, and additional information about Virgin America’s directors and executive officers is also available in Virgin America’s proxy statement for its 2016 annual meeting of stockholders filed with the SEC on March 25, 2016, and is supplemented by other public filings made, and to be made, with the SEC by Virgin America. Information concerning Alaska Air Group’s directors and executive officers is available in Alaska Air Group’s proxy statement for its 2016 annual meeting of stockholders filed with the SEC on April 1, 2016. Other information regarding persons who may be deemed participants in the proxy solicitation, including their respective interests by security holdings or otherwise, is set forth in the definitive proxy statement that Virgin America has filed with the SEC in connection with the special meeting of stockholders to be held on July 26, 2016. These documents can be obtained free of charge from the sources indicated above.
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: the failure to obtain Virgin America stockholder approval of the proposed merger; the possibility that the closing conditions to the proposed merger may not be satisfied or waived, including that a governmental entity may prohibit, delay or refuse to grant a necessary regulatory approval; delay in closing the merger or the possibility of non-consummation of the merger; the occurrence of any event that could give rise to termination of the merger agreement; the risk that stockholder litigation in connection with the contemplated merger may affect the timing or occurrence of the contemplated merger or result in significant costs of defense, indemnification and liability; risks inherent in the achievement of anticipated synergies and the timing thereof; risks related to the disruption of the merger to Virgin America and its management; the effect of the announcement of the merger on Virgin America’s ability to retain and hire key personnel and maintain relationships with suppliers and other third parties; 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 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.
###
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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, including Hawaii, Canada, Costa Rica, and Mexico. With Alaska’s 17 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 your 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.
###
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||||||||||||||||||||
Alaska Air Group, Inc. | ||||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||
(in millions, except per-share amounts) | 2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||
Operating Revenues: | ||||||||||||||||||||||
Passenger | ||||||||||||||||||||||
Mainline | $ | 1,036 | $ | 1,019 | 2 | % | $ | 1,963 | $ | 1,920 | 2 | % | ||||||||||
Regional | 227 | 212 | 7 | % | 433 | 398 | 9 | % | ||||||||||||||
Total passenger revenue | 1,263 | 1,231 | 3 | % | 2,396 | 2,318 | 3 | % | ||||||||||||||
Freight and mail | 27 | 30 | (10 | )% | 51 | 53 | (4 | )% | ||||||||||||||
Other - net | 204 | 176 | 16 | % | 394 | 335 | 18 | % | ||||||||||||||
Total Operating Revenues | 1,494 | 1,437 | 4 | % | 2,841 | 2,706 | 5 | % | ||||||||||||||
Operating Expenses: | ||||||||||||||||||||||
Wages and benefits | 332 | 305 | 9 | % | 668 | 611 | 9 | % | ||||||||||||||
Variable incentive pay | 32 | 32 | — | % | 64 | 58 | 10 | % | ||||||||||||||
Aircraft fuel, including hedging gains and losses | 201 | 261 | (23 | )% | 368 | 496 | (26 | )% | ||||||||||||||
Aircraft maintenance | 65 | 52 | 25 | % | 133 | 115 | 16 | % | ||||||||||||||
Aircraft rent | 26 | 26 | — | % | 55 | 52 | 6 | % | ||||||||||||||
Landing fees and other rentals | 63 | 66 | (5 | )% | 143 | 137 | 4 | % | ||||||||||||||
Contracted services | 60 | 51 | 18 | % | 120 | 102 | 18 | % | ||||||||||||||
Selling expenses | 55 | 54 | 2 | % | 104 | 107 | (3 | )% | ||||||||||||||
Depreciation and amortization | 92 | 79 | 16 | % | 180 | 155 | 16 | % | ||||||||||||||
Food and beverage service | 31 | 28 | 11 | % | 62 | 53 | 17 | % | ||||||||||||||
Third-party regional carrier expense | 24 | 17 | 41 | % | 47 | 33 | 42 | % | ||||||||||||||
Other | 81 | 94 | (14 | )% | 175 | 177 | (1 | )% | ||||||||||||||
Special items - merger costs | 14 | — | NM | 14 | — | NM | ||||||||||||||||
Total Operating Expenses | 1,076 | 1,065 | 1 | % | 2,133 | 2,096 | 2 | % | ||||||||||||||
Operating Income | 418 | 372 | 12 | % | 708 | 610 | 16 | % | ||||||||||||||
Nonoperating Income (Expense): | ||||||||||||||||||||||
Interest income | 7 | 6 | 13 | 11 | ||||||||||||||||||
Interest expense | (9 | ) | (11 | ) | (22 | ) | (22 | ) | ||||||||||||||
Interest capitalized | 7 | 8 | 15 | 16 | ||||||||||||||||||
Other - net | (3 | ) | 1 | (2 | ) | 1 | ||||||||||||||||
Total Nonoperating Income (Expense) | 2 | 4 | 4 | 6 | ||||||||||||||||||
Income Before Income Tax | 420 | 376 | 712 | 616 | ||||||||||||||||||
Income tax expense | 160 | 142 | 268 | 233 | ||||||||||||||||||
Net Income | $ | 260 | $ | 234 | $ | 444 | $ | 383 | ||||||||||||||
Basic Earnings Per Share: | $ | 2.11 | $ | 1.80 | $ | 3.58 | $ | 2.93 | ||||||||||||||
Diluted Earnings Per Share: | $ | 2.10 | $ | 1.79 | $ | 3.56 | $ | 2.91 | ||||||||||||||
Shares Used for Computation: | ||||||||||||||||||||||
Basic | 123.250 | 129.236 | 123.900 | 130.173 | ||||||||||||||||||
Diluted | 123.988 | 130.255 | 124.715 | 131.271 | ||||||||||||||||||
Cash dividend declared per share: | $ | 0.275 | $ | 0.20 | $ | 0.550 | $ | 0.40 | ||||||||||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
Alaska Air Group, Inc. | |||||||
(in millions) | June 30, 2016 | December 31, 2015 | |||||
Cash and marketable securities | $ | 1,607 | $ | 1,328 | |||
Total current assets | 2,003 | 1,663 | |||||
Property and equipment-net | 4,959 | 4,802 | |||||
Other assets | 73 | 65 | |||||
Total assets | 7,035 | 6,530 | |||||
Air traffic liability | 870 | 669 | |||||
Current portion of long-term debt | 117 | 114 | |||||
Other current liabilities | 1,074 | 1,022 | |||||
Current liabilities | 2,061 | 1,805 | |||||
Long-term debt | 509 | 569 | |||||
Other liabilities and credits | 1,838 | 1,745 | |||||
Shareholders' equity | 2,627 | 2,411 | |||||
Total liabilities and shareholders' equity | $ | 7,035 | $ | 6,530 | |||
Debt-to-capitalization ratio, adjusted for operating leases(a) | 25%:75% | 27%:73% | |||||
Number of common shares outstanding | 123.080 | 125.175 | |||||
(a) | Calculated using the present value of remaining aircraft lease payments. |
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OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||
Consolidated Operating Statistics:(a) | |||||||||||
Revenue passengers (000) | 8,647 | 8,024 | 7.8% | 16,482 | 15,340 | 7.4% | |||||
RPMs (000,000) "traffic" | 9,397 | 8,451 | 11.2% | 17,968 | 16,173 | 11.1% | |||||
ASMs (000,000) "capacity" | 11,062 | 9,949 | 11.2% | 21,515 | 19,206 | 12.0% | |||||
Load factor | 84.9% | 84.9% | — | 83.5% | 84.2% | (0.7)pts | |||||
Yield | 13.44¢ | 14.56¢ | (7.7)% | 13.34¢ | 14.33¢ | (6.9)% | |||||
PRASM | 11.42¢ | 12.37¢ | (7.7)% | 11.14¢ | 12.07¢ | (7.7)% | |||||
RASM | 13.51¢ | 14.44¢ | (6.4)% | 13.21¢ | 14.09¢ | (6.2)% | |||||
CASM excluding fuel and special items(b) | 7.78¢ | 8.08¢ | (3.7)% | 8.14¢ | 8.33¢ | (2.3)% | |||||
Economic fuel cost per gallon(b) | $1.53 | $2.12 | (27.8)% | $1.41 | $2.05 | (31.2%) | |||||
Fuel gallons (000,000) | 138 | 126 | 9.5% | 270 | 245 | 10.2% | |||||
ASM's per gallon | 80.2 | 79.0 | 1.5% | 79.7 | 78.4 | 1.7% | |||||
Average number of full-time equivalent employees (FTE) | 14,470 | 13,793 | 4.9% | 14,414 | 13,534 | 6.5% | |||||
Mainline Operating Statistics: | |||||||||||
Revenue passengers (000) | 6,282 | 5,787 | 8.6% | 11,925 | 11,022 | 8.2% | |||||
RPMs (000,000) "traffic" | 8,456 | 7,662 | 10.4% | 16,172 | 14,657 | 10.3% | |||||
ASMs (000,000) "capacity" | 9,875 | 8,984 | 9.9% | 19,229 | 17,330 | 11.0% | |||||
Load factor | 85.6% | 85.3% | 0.3pts | 84.1% | 84.6% | (0.5)pts | |||||
Yield | 12.25¢ | 13.29¢ | (7.8)% | 12.14¢ | 13.10¢ | (7.3)% | |||||
PRASM | 10.49¢ | 11.34¢ | (7.5)% | 10.21¢ | 11.08¢ | (7.9)% | |||||
RASM | 12.61¢ | 13.40¢ | (5.9)% | 12.31¢ | 13.09¢ | (6.0)% | |||||
CASM excluding fuel and special items(b) | 6.88¢ | 7.17¢ | (4.0)% | 7.18¢ | 7.41¢ | (3.1)% | |||||
Economic fuel cost per gallon(b) | $1.52 | $2.12 | (28.3)% | $1.40 | $2.05 | (31.7%) | |||||
Fuel gallons (000,000) | 118 | 110 | 7.3% | 231 | 213 | 8.5% | |||||
ASM's per gallon | 83.7 | 81.7 | 2.4% | 83.2 | 81.4 | 2.2% | |||||
Average number of FTE's | 11,261 | 10,726 | 5.0% | 11,192 | 10,553 | 6.1% | |||||
Aircraft utilization | 10.8 | 11.1 | (2.7%) | 10.7 | 10.8 | (0.9)% | |||||
Average aircraft stage length | 1,177 | 1,191 | (1.2%) | 1,195 | 1,195 | —% | |||||
Operating fleet | 152 | 140 | 12 a/c | 152 | 140 | 12 a/c | |||||
Regional Operating Statistics:(c) | |||||||||||
Revenue passengers (000) | 2,365 | 2,237 | 5.7% | 4,558 | 4,318 | 5.6% | |||||
RPMs (000,000) "traffic" | 941 | 789 | 19.3% | 1,796 | 1,516 | 18.5% | |||||
ASMs (000,000) "capacity" | 1,187 | 965 | 23.0% | 2,287 | 1,876 | 21.9% | |||||
Load factor | 79.3% | 81.8% | (2.5)pts | 78.5% | 80.8% | (2.3)pts | |||||
Yield | 24.17¢ | 26.92¢ | (10.2)% | 24.13¢ | 26.28¢ | (8.2)% | |||||
PRASM | 19.16¢ | 21.99¢ | (12.9)% | 18.95¢ | 21.25¢ | (10.8)% | |||||
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. |
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OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Three Months Ended June 30, 2016 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Parent & Consolidating(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,036 | $ | — | $ | — | $ | — | $ | 1,036 | $ | — | $ | 1,036 | |||||||||||||
Regional | — | 227 | — | — | 227 | — | 227 | ||||||||||||||||||||
Total passenger revenues | 1,036 | 227 | — | — | 1,263 | — | 1,263 | ||||||||||||||||||||
CPA revenues | — | — | 110 | (110 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 26 | 1 | — | — | 27 | — | 27 | ||||||||||||||||||||
Other-net | 184 | 19 | 1 | — | 204 | — | 204 | ||||||||||||||||||||
Total operating revenues | 1,246 | 247 | 111 | (110 | ) | 1,494 | — | 1,494 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 679 | 192 | 101 | (111 | ) | 861 | 14 | 875 | |||||||||||||||||||
Economic fuel | 180 | 31 | — | — | 211 | (10 | ) | 201 | |||||||||||||||||||
Total operating expenses | 859 | 223 | 101 | (111 | ) | 1,072 | 4 | 1,076 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 6 | — | 1 | — | 7 | — | 7 | ||||||||||||||||||||
Interest expense | (4 | ) | — | (4 | ) | (1 | ) | (9 | ) | — | (9 | ) | |||||||||||||||
Other | 3 | — | — | 1 | 4 | — | 4 | ||||||||||||||||||||
Total Nonoperating income (expense) | 5 | — | (3 | ) | — | 2 | — | 2 | |||||||||||||||||||
Income (loss) before income tax | $ | 392 | $ | 24 | $ | 7 | $ | 1 | $ | 424 | $ | (4 | ) | $ | 420 | ||||||||||||
Three Months Ended June 30, 2015 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Parent & Consolidating(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,019 | $ | — | $ | — | $ | — | $ | 1,019 | $ | — | $ | 1,019 | |||||||||||||
Regional | — | 212 | — | — | 212 | — | 212 | ||||||||||||||||||||
Total passenger revenues | 1,019 | 212 | — | — | 1,231 | — | 1,231 | ||||||||||||||||||||
CPA revenues | — | — | 99 | (99 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 28 | 2 | — | — | 30 | — | 30 | ||||||||||||||||||||
Other-net | 156 | 19 | 1 | — | 176 | — | 176 | ||||||||||||||||||||
Total operating revenues | 1,203 | 233 | 100 | (99 | ) | 1,437 | — | 1,437 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 645 | 169 | 90 | (100 | ) | 804 | — | 804 | |||||||||||||||||||
Economic fuel | 232 | 35 | — | — | 267 | (6 | ) | 261 | |||||||||||||||||||
Total operating expenses | 877 | 204 | 90 | (100 | ) | 1,071 | (6 | ) | 1,065 | ||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 5 | — | — | 1 | 6 | — | 6 | ||||||||||||||||||||
Interest expense | (7 | ) | — | (1 | ) | (3 | ) | (11 | ) | — | (11 | ) | |||||||||||||||
Other | 7 | — | (1 | ) | 3 | 9 | — | 9 | |||||||||||||||||||
Total Nonoperating income (expense) | 5 | — | (2 | ) | 1 | 4 | — | 4 | |||||||||||||||||||
Income (loss) before income tax | $ | 331 | $ | 29 | $ | 8 | $ | 2 | $ | 370 | $ | 6 | $ | 376 | |||||||||||||
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Six Months Ended June 30, 2016 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
Mainline | Regional | Horizon | Parent & Consolidating(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | 1,963 | — | $ | — | $ | — | $ | 1,963 | $ | — | $ | 1,963 | |||||||||||||||
Regional | — | 433 | — | — | 433 | — | 433 | ||||||||||||||||||||
Total passenger revenues | 1,963 | 433 | — | — | 2,396 | — | 2,396 | ||||||||||||||||||||
CPA revenues | — | — | 213 | (213 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 49 | 2 | — | — | 51 | — | 51 | ||||||||||||||||||||
Other - net | 356 | 36 | 2 | — | 394 | — | 394 | ||||||||||||||||||||
Total operating revenues | 2,368 | 471 | 215 | (213 | ) | 2,841 | — | 2,841 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,380 | 378 | 206 | (213 | ) | 1,751 | 14 | 1,765 | |||||||||||||||||||
Economic fuel | 324 | 56 | — | — | 380 | (12 | ) | 368 | |||||||||||||||||||
Total operating expenses | 1,704 | 434 | 206 | (213 | ) | 2,131 | 2 | 2,133 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 12 | — | 1 | — | 13 | — | 13 | ||||||||||||||||||||
Interest expense | (16 | ) | — | (5 | ) | (1 | ) | (22 | ) | — | (22 | ) | |||||||||||||||
Other | 10 | — | — | 3 | 13 | — | 13 | ||||||||||||||||||||
Total Nonoperating income (expense) | 6 | — | (4 | ) | 2 | 4 | — | 4 | |||||||||||||||||||
Income (loss) before income tax | $ | 670 | $ | 37 | $ | 5 | $ | 2 | $ | 714 | $ | (2 | ) | $ | 712 | ||||||||||||
Six Months Ended June 30, 2015 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
Mainline | Regional | Horizon | Parent & Consolidating(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | |||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,920 | $ | — | $ | — | $ | — | $ | 1,920 | $ | — | $ | 1,920 | |||||||||||||
Regional | — | 398 | — | — | 398 | — | 398 | ||||||||||||||||||||
Total passenger revenues | 1,920 | 398 | — | — | 2,318 | — | 2,318 | ||||||||||||||||||||
CPA revenues | — | — | 198 | (198 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 50 | 3 | — | — | 53 | — | 53 | ||||||||||||||||||||
Other - net | 298 | 35 | 2 | — | 335 | — | 335 | ||||||||||||||||||||
Total operating revenues | 2,268 | 436 | 200 | (198 | ) | 2,706 | — | 2,706 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,284 | 333 | 181 | (198 | ) | 1,600 | — | 1,600 | |||||||||||||||||||
Economic fuel | 436 | 66 | — | — | 502 | (6 | ) | 496 | |||||||||||||||||||
Total operating expenses | 1,720 | 399 | 181 | (198 | ) | 2,102 | (6 | ) | 2,096 | ||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 10 | — | — | 1 | 11 | — | 11 | ||||||||||||||||||||
Interest expense | (14 | ) | — | (5 | ) | (3 | ) | (22 | ) | — | (22 | ) | |||||||||||||||
Other | 14 | — | — | 3 | 17 | — | 17 | ||||||||||||||||||||
Total Nonoperating income (expense) | 10 | — | (5 | ) | 1 | 6 | — | 6 | |||||||||||||||||||
Income (loss) before income tax | $ | 558 | $ | 37 | $ | 14 | $ | 1 | $ | 610 | $ | 6 | $ | 616 | |||||||||||||
(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. |
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Alaska Air Group, Inc. | |||||||||||||||
CASM EXCLUDING FUEL RECONCILIATION (unaudited) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(in cents) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Consolidated: | |||||||||||||||
CASM | 9.73 | ¢ | 10.70 | ¢ | 9.91 | ¢ | 10.91 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 1.82 | 2.62 | 1.71 | 2.58 | |||||||||||
Special items - merger costs | 0.13 | — | 0.06 | ¢ | — | ||||||||||
CASM excluding fuel and special items | 7.78 | ¢ | 8.08 | ¢ | 8.14 | ¢ | 8.33 | ¢ | |||||||
Mainline: | |||||||||||||||
CASM | 8.60 | ¢ | 9.70 | ¢ | 8.80 | ¢ | 9.89 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 1.72 | 2.53 | 1.62 | 2.48 | |||||||||||
CASM excluding fuel and special items | 6.88 | ¢ | 7.17 | ¢ | 7.18 | ¢ | 7.41 | ¢ | |||||||
FUEL RECONCILIATIONS (unaudited) | |||||||||||||||
Three Months Ended June 30, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 207 | $ | 1.50 | $ | 262 | $ | 2.08 | |||||||
Losses on settled hedges | 4 | 0.03 | 5 | 0.04 | |||||||||||
Consolidated economic fuel expense | 211 | 1.53 | 267 | 2.12 | |||||||||||
Mark-to-market fuel hedge adjustment | (10 | ) | (0.07 | ) | (6 | ) | (0.05 | ) | |||||||
GAAP fuel expense | $ | 201 | $ | 1.46 | $ | 261 | $ | 2.07 | |||||||
Fuel gallons | 138 | 126 | |||||||||||||
Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 372 | $ | 1.38 | $ | 492 | $ | 2.01 | |||||||
Losses on settled hedges | 8 | 0.03 | 10 | 0.04 | |||||||||||
Consolidated economic fuel expense | $ | 380 | $ | 1.41 | $ | 502 | $ | 2.05 | |||||||
Mark-to-market fuel hedge adjustment | (12 | ) | (0.04 | ) | (6 | ) | (0.02 | ) | |||||||
GAAP fuel expense | $ | 368 | $ | 1.37 | $ | 496 | $ | 2.03 | |||||||
Fuel gallons | 270 | 245 | |||||||||||||
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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 (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.
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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
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