ALK
$63.03
Alaska Air Group
$.56
.90%
Earnings Details
1st Quarter March 2018
Monday, April 23, 2018 8:00:00 AM
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Summary

Alaska Air Group Reports In-line

Alaska Air Group (ALK) reported 1st Quarter March 2018 earnings of $0.14 per share on revenue of $1.8 billion. The consensus earnings estimate was $0.11 per share on revenue of $1.8 billion. The Earnings Whisper number was $0.14 per share. Revenue grew 4.7% on a year-over-year basis.

Alaska Air Group Inc through its subsidiaries, provides passenger air, freight and mail services within the state of Alaska and on the West Coast.

Results
Reported Earnings
$0.14
Earnings Whisper
$0.14
Consensus Estimate
$0.11
Reported Revenue
$1.83 Bil
Revenue Estimate
$1.83 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Alaska Air Group reports First Quarter 2018 results

SEATTLE, April 23, 2018 /PRNewswire/ --

Financial Highlights:

  • Reported net income for the first quarter under Generally Accepted Accounting Principles (GAAP) of $4 million, or $0.03 per diluted share, compared to net income of $93 million, or $0.75 per diluted share in the first quarter of 2017. As the company has recently implemented new accounting standards, including the standards relating to revenue recognition and retirement benefits, 2017 financial information has been adjusted.
  • Reported first quarter 2018 adjusted diluted earnings per share of $0.14 compared to $0.99 reported in the first quarter of 2017. First quarter adjusted net income excluding special items such as merger-related costs, an employee bonus awarded in connection with the Tax Cuts and Jobs Act, and mark-to-market fuel hedge accounting adjustments was $18 million, compared to $124 million in the first quarter of 2017. This quarter's adjusted results compare to the First Call analyst consensus estimate of $0.12 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the first quarter, a 7% increase over the dividend paid in the first quarter of 2017.
  • Repurchased a total of 185,661 shares of common stock for approximately $12 million in the first three months of 2018.
  • Generated approximately $310 million of operating cash flow and used approximately $235 million for capital expenditures, resulting in approximately $75 million of free cash flow for the first three months of 2018.
  • Held $1.5 billion in unrestricted cash and marketable securities as of March 31, 2018.

Operational Highlights:

  • Obtained a single operating certificate (SOC) from the Federal Aviation Administration (FAA) for Alaska Airlines and Virgin America, our most significant integration milestone to date. The SOC recognizes Alaska and Virgin America as one airline.
  • Reached an agreement in early April 2018 with mainline flight attendants that includes a merger transition plan and a two-year extension from December 2019 to December 2021. The agreement provides pay increases and paves the way to fully align nearly 5,700 mainline flight attendants under a single agreement.
  • Expanded our codeshare partnerships with Japan Airlines, Fiji Airways, Cathay Pacific and Finnair.
  • Began installation of next-generation Gogo satellite-based Wi-Fi in the first quarter of 2018, which will provide guests a faster internet connection across the Boeing and Airbus fleets.
  • Added one Boeing 737-900ER aircraft and two Airbus A321neo aircraft to the mainline operating fleet in the first quarter of 2018. Added one Embraer 175 (E175) regional jet to Horizon Air's fleet in the first quarter of 2018 and added two E175 aircraft operated by SkyWest Airlines.

Recognition and Awards:

  • Ranked No. 1 in the "Airline Quality Rating" of performance and quality for the second year in a row — a study performed by Embry-Riddle Aeronautical University focused on four major areas of airline performance.
  • Ranked as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2018 by AirlineRatings.com.
  • Ranked the best U.S. airline by Time Inc.'s Money Magazine.
  • Ranked the best airline in America for the second year in a row by The Points Guy.
  • Ranked the No. 2 U.S airline by the Wall Street Journal's "2017 Airline Scorecard."
  • Ranked the second best U.S. airline by Consumer Reports.
  • Awarded 2018 PRWeek Best Promotional Event award for Alaska's Great American Eclipse Flight.

Alaska Air Group, Inc., (NYSE: ALK) today reported first quarter 2018 GAAP net income of $4 million, or $0.03 per diluted share, compared to $93 million, or $0.75 per diluted share in the first quarter of 2017. Excluding the impact of certain noted items, the company reported adjusted net income of $18 million, or $0.14 per diluted share, compared to $124 million, or $0.99 per diluted share, in 2017.

"Alaska is on an incredible journey. I want to thank our employees for continuing to run a highly reliable operation and for providing genuine and caring service to our guests in the midst of a complex merger," said Brad Tilden, Alaska's CEO. "We're excited to get the biggest integration milestones behind us in the next couple of months and then turn our full focus to running a great airline and realizing the full benefit of our new and expanded platform."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (diluted EPS) for the three months ended March 31, 2018 and 2017 to adjusted amounts.


Three Months Ended March 31,


2018


2017 (a)

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income and diluted EPS

$

4



$

0.03



$

93



$

0.75


Mark-to-market fuel hedge adjustments

(13)



(0.11)



10



0.08


Special items—employee tax reform bonus

25



0.20






Special items—merger-related costs

6



0.05



39



0.30


Income tax effect

(4)



(0.03)



(18)



(0.14)


Non-GAAP adjusted net income and diluted EPS

$

18



$

0.14



$

124



$

0.99



(a)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

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 first quarter results will be simulcast online at 8:30 a.m. Pacific time on April 23, 2018. 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.

References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as "Alaska," "Horizon," and "Virgin America" respectively, and together as our "airlines."

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended Dec. 31, 2017, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance, or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines, together with Virgin America and its regional partners, flies 44 million guests a year to more than 115 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada and Costa Rica. With Alaska and Alaska Global Partners, guests can earn and redeem miles on flights to more than 900 destinations worldwide. Learn about Alaska's award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.













Three Months Ended March 31,

(in millions, except per-share amounts)

2018


2017(a)


Change

Operating Revenues:






Passenger revenue

1,685



1,602



5

%

Mileage plan other revenue

107



100



7

%

Cargo and other

40



38



5

%

Total Operating Revenues

1,832



1,740



5

%

Operating Expenses:






Wages and benefits

536



450



19

%

Variable incentive pay

39



31



26

%

Aircraft fuel, including hedging gains and losses

409



339



21

%

Aircraft maintenance

107



87



23

%

Aircraft rent

74



65



14

%

Landing fees and other rentals

126



115



10

%

Contracted services

81



81



%

Selling expenses

78



83



(6)

%

Depreciation and amortization

94



90



4

%

Food and beverage service

50



45



11

%

Third-party regional carrier expense

37



27



37

%

Other

141



131



8

%

Special items—merger-related costs

6



39



(85)

%

Special items—other

25





NM

Total Operating Expenses

1,803



1,583



14

%

Operating Income

29



157



(82)

%

Nonoperating Income (Expense):






Interest income

8



7




Interest expense

(24)



(25)




Interest capitalized

5



4




Other—net

(12)



(1)




Total Nonoperating Income (Expense)

(23)



(15)




Income (Loss) Before Income Tax

6



142




Income tax expense

2



49




Net Income (Loss)

$

4



$

93










Basic Earnings (Loss) Per Share:

$

0.03



$

0.75




Diluted Earnings (Loss) Per Share:

$

0.03



$

0.75










Shares Used for Computation:






Basic

123.155



123.495




Diluted

123.630



124.299










Cash dividend declared per share:

$

0.320



$

0.300





(b)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.


(in millions)

March 31, 2018


December 31, 2017(a)

Cash and marketable securities

$

1,528



$

1,621






Total current assets

2,114



2,152


Property and equipment—net

6,403



6,284


Goodwill

1,943



1,943


Intangible assets

132



133


Other assets

256



234


Total assets

10,848



10,746






Air traffic liability

1,122



806


Current portion of long-term debt

387



307


Other current liabilities

1,483



1,573


Current liabilities

2,992



2,686


Long-term debt

2,062



2,262


Other liabilities and credits

2,355



2,338


Shareholders' equity

3,439



3,460


Total liabilities and shareholders' equity

$

10,848



$

10,746






Debt-to-capitalization ratio, adjusted for operating leases(b)

53

%


53

%





Number of common shares outstanding

123.350



123.061








(a)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

(b)

Calculated using the present value of remaining aircraft lease payments.

 


OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.



Three Months Ended March 31,


2018


2017


Change

Consolidated Operating Statistics:(a)






Revenue passengers (000)

10,489


10,008


4.8%

RPMs (000,000) "traffic"

12,403


11,707


5.9%

ASMs (000,000) "capacity"

15,480


14,394


7.5%

Load factor

80.1%


81.3%


(1.2) pts

Yield(d)

13.59¢


13.69¢


(0.7)%

RASM(d)

11.84¢


12.09¢


(2.1)%

CASMex(b)(d)

8.81¢


8.38¢


5.1%

Economic fuel cost per gallon(b)

$2.14


$1.78


20.2%

Fuel gallons (000,000)

197


184


7.1%

ASM's per gallon

78.6


78.2


0.5%

Average number of full-time equivalent employees (FTE)

21,266


18,682


13.8%

Mainline Operating Statistics:






Revenue passengers (000)

8,211


7,774


5.6%

RPMs (000,000) "traffic"

11,360


10,827


4.9%

ASMs (000,000) "capacity"

14,098


13,260


6.3%

Load factor

80.6%


81.7%


(1.1) pts

Yield(d)

12.70¢


12.70¢


—%

RASM(d)

11.20¢


11.39¢


(1.7)%

CASMex(b)(d)

8.02¢


7.54¢


6.4%

Economic fuel cost per gallon(b)

$2.13


$1.78


19.7%

Fuel gallons (000,000)

172


164


4.9%

ASM's per gallon

82.0


80.8


1.5%

Average number of FTE's

16,013


15,007


6.7%

Aircraft utilization

11.2


10.8


3.7%

Average aircraft stage length

1,285


1,245


3.2%

Operating fleet

224


217


7 a/c

Regional Operating Statistics:(c)






Revenue passengers (000)

2,278


2,234


2.0%

RPMs (000,000) "traffic"

1,043


880


18.5%

ASMs (000,000) "capacity"

1,382


1,134


21.9%

Load factor

75.5%


77.6%


(2.1) pts

Yield(d)

23.70¢


25.36¢


(6.5)%

RASM(d)

18.26¢


20.14¢


(9.3)%

Operating fleet

83


73


10 a/c


(a)

Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)

See a reconciliation of this non-GAAP measure and Note A for a discussion of potential importance of this measure to investors in the accompanying pages.

(c)

Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

 


OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.
















Three Months Ended March 31, 2018

(in millions)

Mainline


Regional


Horizon


Consolidating & Other


Air Group
Adjusted(a)


Special Items(b)


Consolidated

Operating revenues














Passenger revenues

1,442



243







1,685





1,685


CPA revenues





110



(110)








Mileage plan other revenue

98



9







107





107


Cargo and other

39





1





40





40


Total operating revenues

1,579



252



111



(110)



1,832





1,832


Operating expenses














Operating expenses, excluding fuel

1,131



239



104



(111)



1,363



31



1,394


Economic fuel

367



55







422



(13)



409


Total operating expenses

1,498



294



104



(111)



1,785



18



1,803


Nonoperating income (expense)














Interest income

11







(3)



8





8


Interest expense

(22)





(5)



3



(24)





(24)


Interest capitalized

4





1





5





5


Other

(5)



(7)







(12)





(12)


Total Nonoperating income (expense)

(12)



(7)



(4)





(23)





(23)


Income (loss) before income tax

$

69



$

(49)



$

3



$

1



$

24



$

(18)



$

6




Three Months Ended March 31, 2017(c)

(in millions)

Mainline


Regional


Horizon


Consolidating & Other


Air Group Adjusted(a)


Special Items(b)


Consolidated

Operating revenues














Passenger revenues

1,375



227







1,602





1,602


CPA revenues





97



(97)








Mileage plan other revenue

93



7







100





100


Cargo and other

36



1



1





38





38


Total operating revenues

1,504



235



98



(97)



1,740





1,740


Operating expenses














Operating expenses, excluding fuel

1,000



200



103



(98)



1,205



39



1,244


Economic fuel

292



37







329



10



339


Total operating expenses

1,292



237



103



(98)



1,534



49



1,583


Nonoperating income (expense)














Interest income

7









7





7


Interest expense

(23)





(2)





(25)





(25)


Interest capitalized

4









4





4


Other

(1)









(1)





(1)


Total Nonoperating income (expense)

(13)





(2)





(15)





(15)


Income (loss) before income tax

$

199



$

(2)



$

(7)



$

1



$

191



$

(49)



$

142































(a)

The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.

(b)

Includes merger-related costs, an employee bonus awarded in connection with the Tax Cuts and Jobs Act, and mark-to-market fuel hedge accounting adjustments.

(c)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

 


GAAP TO NON-GAAP RECONCILIATIONS (unaudited)

Alaska Air Group, Inc.


CASM Excluding Fuel and Special Items Reconciliation


Three Months Ended March 31,


2018


2017(b)

Consolidated:




CASM

11.65

¢


11.00

¢

Less the following components:




Aircraft fuel, including hedging gains and losses

2.64



2.36


Special items—merger-related costs and other(a)

0.20



0.26


CASM excluding fuel and special items

8.81

¢


8.38

¢





Mainline:




CASM

10.72

¢


10.11

¢

Less the following components:




Aircraft fuel, including hedging gains and losses

2.51



2.28


Special items—merger-related costs and other(a)

0.19



0.29


CASM excluding fuel and special items

8.02

¢


7.54

¢


(a)

Special items includes merger-related costs and an employee bonus awarded in connection with the Tax Cuts and Jobs Act.

(b)

Certain historical information has been adjusted to reflect the adoption of new accounting standards.

 

Fuel Reconciliation


Three Months Ended March 31,


2018


2017

(in millions, except for per-gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or "into-plane" fuel cost

$

423



$

2.15



$

325



$

1.76


(Gains) Losses on settled hedges

(1)



(0.01)



4



0.02


Consolidated economic fuel expense

422



2.14



329



1.78


Mark-to-market fuel hedge adjustment

(13)



(0.07)



10



0.06


GAAP fuel expense

$

409



$

2.07



$

339



$

1.84


Fuel gallons

197





184




Note A: Pursuant to Regulation G, we are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

  • By eliminating fuel expense and certain special items (including merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
  • Cost per ASM (CASM) excluding fuel and certain special items, such as merger-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
  • Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees.
  • CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.
  • Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
  • Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

GLOSSARY OF TERMS

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Free Cash Flow - total operating cash flow generated less cash paid for capital expenditures

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737 and Airbus 320 family jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon, SkyWest and PenAir. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

 

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SOURCE Alaska Air Group, Inc.