ALK
$67.86
Alaska Air Group
$.15
.22%
Earnings Details
3rd Quarter September 2018
Thursday, October 25, 2018 8:00:00 AM
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Summary

Alaska Air Group Beats

Alaska Air Group (ALK) reported 3rd Quarter September 2018 earnings of $1.91 per share on revenue of $2.2 billion. The consensus earnings estimate was $1.80 per share on revenue of $2.2 billion. The Earnings Whisper number was $1.83 per share. Revenue grew 4.3% 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
$1.91
Earnings Whisper
$1.83
Consensus Estimate
$1.80
Reported Revenue
$2.21 Bil
Revenue Estimate
$2.20 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Alaska Air Group reports Third Quarter 2018 results

SEATTLE, Oct. 25, 2018 /PRNewswire/ --

Financial Highlights:

  • Reported net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $217 million, or $1.75 per diluted share, compared to net income of $259 million, or $2.09 per diluted share in the third 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 net income for the third quarter, excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments, of $237 million, or $1.91 per diluted share, compared to $270 million or $2.18 per diluted share, in the third quarter of 2017. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.81 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the third quarter, a 7% increase over the dividend paid in the third quarter of 2017.
  • Repurchased a total of 582,942 shares of common stock for approximately $37 million in the first nine months of 2018.
  • Generated approximately $1 billion of operating cash flow in the first nine months of 2018, including merger-related costs and other special items.
  • Held $1.4 billion in unrestricted cash and marketable securities as of Sept. 30, 2018.
  • Reduced debt-to-capitalization ratio to 49% as of Sept. 30, 2018, compared to 53% as of Dec. 31, 2017, and down from 59% immediately following our acquisition of Virgin America. Reduced long-term debt balance to $1.7 billion as of Sept. 30, 2018 from $2.6 billion as of Dec. 31, 2016.

Operational Highlights:

  • Updated food and beverage menus to highlight West Coast inspired fresh meals, snacks and local craft beers further enhancing the airline's onboard guest experience.
  • Announced one new route to Columbus, Ohio, which will begin service in March 2019, and two new routes to El Paso, Texas, which will begin service in February 2019.
  • Began our fleet-wide installation of satellite Wi-Fi, completing three Airbus aircraft during the quarter.
  • Completed the painting of Alaska livery on 16 Airbus aircraft, and expect to have 33 completed by the end of the year.
  • Finalized the integrated seniority list for our pilots; all groups except for aircraft technicians are now under a single contract and have an integrated seniority list.
  • Added three Boeing 737-900ER aircraft to the mainline operating fleet and four Embraer 175 (E175) aircraft to the regional operating fleet in the third quarter of 2018.

Recognition and Awards:

  • Named "Best U.S. Airline" by Condé Nast Traveler in their 2018 Reader's Choice Awards.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the second consecutive year, receiving top scores for "corporate governance" and "efficiency."
  • Ranked "Best Airline" in the U.S. and Canada by KAYAK.
  • Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the fourth consecutive year.
  • Mileage Plan ranked in the top three airlines among traditional and low-cost carriers in the 2018 J.D. Power Loyalty Program study.
  • Ranked among Forbes' 2018 global list for "World's Best Employers" and national list for "America's Best Employers for New Graduates."

Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter 2018 GAAP net income of $217 million, or $1.75 per diluted share, compared to $259 million, or $2.09 per diluted share in the third quarter of 2017. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $237 million, or $1.91 per diluted share, compared to $270 million, or $2.18 per diluted share, in 2017.

"In the nearly two years since our merger closed, we've now completed approximately 90 percent of our integration milestones," said Alaska CEO Brad Tilden. "With that work now behind us, we are doubling down on what we do best - keeping fares low, delivering leading operational performance and offering top-rated customer service. The recent recognition by Condé Nast Traveler shows what our people can accomplish when we focus on what's most important and pull together as one team."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (diluted EPS) for the three and nine months ended Sept. 30, 2018 and 2017 to adjusted amounts.


Three Months Ended September 30,


2018


2017(a)

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income and diluted EPS

$

217



$

1.75



$

259



$

2.09


Mark-to-market fuel hedge adjustments

5



0.04



(5)



(0.04)


Special items—merger-related costs

22



0.18



23



0.19


Income tax effect of reconciling items above

(7)



(0.06)



(7)



(0.06)


Non-GAAP adjusted net income and diluted EPS

$

237



$

1.91



$

270



$

2.18





Nine Months Ended September 30,


2018


2017(a)

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income and diluted EPS

$

414



$

3.34



$

645



$

5.19


Mark-to-market fuel hedge adjustments

(30)



(0.24)



7



0.06


Special items—employee tax reform bonus

25



0.20






Special items—merger-related costs

67



0.54



86



0.69


Income tax effect of reconciling items above

(15)



(0.12)



(35)



(0.28)


Non-GAAP adjusted net income and diluted EPS

$

461



$

3.72



$

703



$

5.66




(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 third quarter results will be streamed online at 8:30 a.m. Pacific time on Oct.  25, 2018. It can be accessed at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc., Horizon Air Industries, Inc., and Virgin America Inc. 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 and its regional partners fly 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. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America Airline Satisfaction Study for 11 consecutive years from 2008 to 2018. Learn about Alaska's award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.




















Three Months Ended September 30,


Nine Months Ended September 30,

(in millions, except per-share amounts)

2018


2017(a)


Change


2018


2017(a)


Change

Operating Revenues:












Passenger revenue

$

2,043



$

1,958



4

%


$

5,725



$

5,505



4

%

Mileage Plan other revenue

114



105



9

%


329



314



5

%

Cargo and other

55



47



17

%


146



133



10

%

Total Operating Revenues

2,212



2,110



5

%


6,200



5,952



4

%

Operating Expenses:












Wages and benefits

549



477



15

%


1,629



1,397



17

%

Variable incentive pay

27



40



(33)

%


104



98



6

%

Aircraft fuel, including hedging gains and losses

513



368



39

%


1,397



1,051



33

%

Aircraft maintenance

107



88



22

%


320



271



18

%

Aircraft rent

82



70



17

%


233



204



14

%

Landing fees and other rentals

135



124



9

%


371



338



10

%

Contracted services

70



76



(8)

%


227



234



(3)

%

Selling expenses

79



92



(14)

%


245



277



(12)

%

Depreciation and amortization

99



95



4

%


290



275



5

%

Food and beverage service

53



50



6

%


158



145



9

%

Third-party regional carrier expense

38



30



27

%


114



84



36

%

Other

141



150



(6)

%


423



421



%

Special items—merger-related costs

22



23



(4)

%


67



86



(22)

%

Special items—other





%


25





NM

Total Operating Expenses

1,915



1,683



14

%


5,603



4,881



15

%

Operating Income

297



427



(30)

%


597



1,071



(44)

%

Nonoperating Income (Expense):












Interest income

11



9





29



25




Interest expense

(22)



(26)





(71)



(77)




Interest capitalized

5



5





14



13




Other—net

(7)



2





(20)



1




Total Nonoperating Income (Expense)

(13)



(10)





(48)



(38)




Income (Loss) Before Income Tax

284



417





549



1,033




Income tax expense

67



158





135



388




Net Income (Loss)

$

217



$

259





$

414



$

645
















Basic Earnings (Loss) Per Share:

$

1.76



$

2.10





$

3.36



$

5.22




Diluted Earnings (Loss) Per Share:

$

1.75



$

2.09





$

3.34



$

5.19
















Shares Used for Computation:












Basic

123.224



123.467





123.216



123.501




Diluted

123.864



124.220





123.804



124.341
















Cash dividend declared per share:

$

0.320



$

0.300





$

0.960



$

0.900






(a)

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)

September 30, 2018


December 31, 2017(a)

Cash and marketable securities

$

1,397



$

1,621






Total current assets

2,056



2,152


Property and equipment—net

6,495



6,284


Goodwill

1,943



1,943


Intangible assets

128



133


Other assets

271



234


Total assets

10,893



10,746






Air traffic liability

950



806


Current portion of long-term debt

345



307


Other current liabilities

1,593



1,573


Current liabilities

2,888



2,686


Long-term debt

1,684



2,262


Other liabilities and credits

2,530



2,338


Shareholders' equity

3,791



3,460


Total liabilities and shareholders' equity

$

10,893



$

10,746






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

49

%


53

%





Number of common shares outstanding

123.361



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 September 30,


Nine Months Ended September 30,


2018


2017


Change


2018


2017


Change

Consolidated Operating Statistics:(a)












Revenue passengers (000)

12,128


11,639


4.2%


34,685


33,038


5.0%

RPMs (000,000) "traffic"

14,386


13,811


4.2%


41,272


39,072


5.6%

ASMs (000,000) "capacity"

16,943


16,164


4.8%


49,256


46,169


6.7%

Load factor

84.9%


85.4%


(0.5) pts


83.8%


84.6%


(0.8) pts

Yield(d)

14.20¢


14.18¢


0.1%


13.87¢


14.10¢


(1.6)%

RASM(d)

13.05¢


13.06¢


(0.1)%


12.59¢


12.89¢


(2.3)%

CASMex(b)(d)

8.15¢


8.00¢


1.9%


8.35¢


8.11¢


3.0%

Economic fuel cost per gallon(b)

$2.33


$1.80


29.4%


$2.26


$1.76


28.4%

Fuel gallons (000,000)

218


207


5.3%


631


592


6.6%

ASM's per gallon

77.7


78.1


(0.5)%


78.1


78.0


0.1%

Average number of full-time equivalent employees (FTE)

21,804


20,743


5.1%


21,575


19,723


9.4%

Mainline Operating Statistics:












Revenue passengers (000)

9,435


9,136


3.3%


27,107


25,850


4.9%

RPMs (000,000) "traffic"

13,096


12,694


3.2%


37,677


36,045


4.5%

ASMs (000,000) "capacity"

15,343


14,796


3.7%


44,730


42,397


5.5%

Load factor

85.4%


85.8%


(0.4) pts


84.2%


85.0%


(0.8) pts

Yield(d)

13.18¢


13.23¢


(0.4)%


12.95¢


13.13¢


(1.4)%

RASM(d)

12.28¢


12.35¢


(0.6)%


11.90¢


12.19¢


(2.4)%

CASMex(b)(d)

7.34¢


7.30¢


0.5%


7.58¢


7.34¢


3.3%

Economic fuel cost per gallon(b)

$2.32


$1.79


29.6%


$2.25


$1.76


27.8%

Fuel gallons (000,000)

189


183


3.3%


549


526


4.4%

ASM's per gallon

81.2


80.9


0.4%


81.5


80.6


1.1%

Average number of FTE's

16,499


15,862


4.0%


16,330


15,439


5.8%

Aircraft utilization

11.4


11.4


—%


11.4


11.1


2.7%

Average aircraft stage length

1,291


1,300


(0.7)%


1,293


1,296


(0.2)%

Operating fleet

231


218


13 a/c


231


218


13 a/c

Regional Operating Statistics:(c)












Revenue passengers (000)

2,693


2,503


7.6%


7,578


7,188


5.4%

RPMs (000,000) "traffic"

1,290


1,117


15.5%


3,595


3,027


18.8%

ASMs (000,000) "capacity"

1,600


1,368


17.0%


4,526


3,772


20.0%

Load factor

80.6%


81.7%


(1.1) pts


79.4%


80.2%


(0.8) pts

Yield(d)

24.50¢


25.15¢


(2.6)%


23.49¢


25.65¢


(8.4)%

RASM(d)

20.41¢


20.61¢


(1.0)%


19.32¢


20.67¢


(6.5)%

Operating fleet

89


83


6 a/c


89


83


6 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 September 30, 2018

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other


Air Group
Adjusted(a)


Special
Items(b)


Consolidated

Operating revenues














Passenger revenues

$

1,727



$

316



$



$



$

2,043



$



$

2,043


CPA revenues





128



(128)








Mileage Plan other revenue

104



10







114





114


Cargo and other

53





2





55





55


Total operating revenues

1,884



326



130



(128)



2,212





2,212


Operating expenses














Operating expenses, excluding fuel

1,126



267



118



(131)



1,380



22



1,402


Economic fuel

438



70







508



5



513


Total operating expenses

1,564



337



118



(131)



1,888



27



1,915


Nonoperating income (expense)














Interest income

15







(4)



11





11


Interest expense

(20)





(6)



4



(22)





(22)


Interest capitalized

4





1





5





5


Other

(5)



(2)







(7)





(7)


Total Nonoperating income (expense)

(6)



(2)



(5)





(13)





(13)


Income (loss) before income tax

$

314



$

(13)



$

7



$

3



$

311



$

(27)



$

284







Three Months Ended September 30, 2017(c)

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other


Air Group
Adjusted(a)


Special
Items(b)


Consolidated

Operating revenues














Passenger revenues

$

1,677



$

281



$



$



$

1,958



$



$

1,958


CPA revenues





112



(112)








Mileage Plan other revenue

97



8







105





105


Cargo and other

46





1





47





47


Total operating revenues

1,820



289



113



(112)



2,110





2,110


Operating expenses














Operating expenses, excluding fuel

1,081



219



104



(112)



1,292



23



1,315


Economic fuel

328



45







373



(5)



368


Total operating expenses

1,409



264



104



(112)



1,665



18



1,683


Nonoperating income (expense)














Interest income

12







(3)



9





9


Interest expense

(25)





(4)



3



(26)





(26)


Interest capitalized

5









5





5


Other

2









2





2


Total Nonoperating income (expense)

(6)





(4)





(10)





(10)


Income (loss) before income tax

$

405



$

25



$

5



$



$

435



$

(18)



$

417







Nine Months Ended September 30, 2018

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other


Air Group
Adjusted(a)


Special
Items(b)


Consolidated

Operating revenues














Passenger revenues

$

4,880



$

845



$



$



$

5,725



$



$

5,725


CPA revenues





375



(375)








Mileage Plan other revenue

301



28







329





329


Cargo and other

141



1



4





146





146


Total operating revenues

5,322



874



379



(375)



6,200





6,200


Operating expenses














Operating expenses, excluding fuel

3,392



755



345



(378)



4,114



92



4,206


Economic fuel

1,237



190







1,427



(30)



1,397


Total operating expenses

4,629



945



345



(378)



5,541



62



5,603


Nonoperating income (expense)














Interest income

39







(10)



29





29


Interest expense

(64)





(16)



9



(71)





(71)


Interest capitalized

12





2





14





14


Other

(9)



(11)







(20)





(20)


Total Nonoperating income (expense)

(22)



(11)



(14)



(1)



(48)





(48)


Income (loss) before income tax

$

671



$

(82)



$

20



$

2



$

611



$

(62)



$

549







Nine Months Ended September 30, 2017(c)

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other


Air Group
Adjusted(a)


Special
Items(b)


Consolidated

Operating revenues














Passenger revenues

$

4,729



$

776



$



$



$

5,505



$



$

5,505


CPA revenues





317



(317)








Mileage Plan other revenue

291



23







314





314


Cargo and other

127



3



3





133





133


Total operating revenues

5,147



802



320



(317)



5,952





5,952


Operating expenses














Operating expenses, excluding fuel

3,111



625



323



(315)



3,744



86



3,830


Economic fuel

924



120







1,044



7



1,051


Total operating expenses

4,035



745



323



(315)



4,788



93



4,881


Nonoperating income (expense)














Interest income

29







(4)



25





25


Interest expense

(72)





(9)



4



(77)





(77)


Interest capitalized

12





1





13





13


Other

1









1





1


Total Nonoperating income (expense)

(30)





(8)





(38)





(38)


Income (loss) before income tax

$

1,082



$

57



$

(11)



$

(2)



$

1,126



$

(93)



$

1,033




(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 January 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
September 30,


Nine Months Ended
September 30,


2018


2017(b)


2018


2017(b)

Consolidated:








CASM

11.30

¢


10.41

¢


11.38

¢


10.57

¢

Less the following components:








Aircraft fuel, including hedging gains and losses

3.02



2.27



2.84



2.27


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

0.13



0.14



0.19



0.19


CASM excluding fuel and special items

8.15

¢


8.00

¢


8.35

¢


8.11

¢









Mainline:








CASM

10.37

¢


9.64

¢


10.49

¢


9.74

¢

Less the following components:








Aircraft fuel, including hedging gains and losses

2.89



2.18



2.70



2.20


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

0.14



0.16



0.21



0.20


CASM excluding fuel and special items

7.34

¢


7.30

¢


7.58

¢


7.34

¢



(a)

Special items include merger-related costs and an employee bonus awarded in January 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 September 30,


2018


2017

(in millions, except for per-gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or "into-plane" fuel cost

$

520



$

2.38



$

368



$

1.78


(Gains) losses on settled hedges

(12)



(0.05)



5



0.02


Consolidated economic fuel expense

508



2.33



373



1.80


Mark-to-market fuel hedge adjustment

5



0.02



(5)



(0.02)


GAAP fuel expense

$

513



$

2.35



$

368



$

1.78


Fuel gallons

218





207















Nine Months Ended September 30,


2018


2017

(in millions, except for per gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or "into-plane" fuel cost

$

1,450



$

2.30



$

1,030



$

1.74


(Gains) losses on settled hedges

(23)



(0.04)



14



0.02


Consolidated economic fuel expense

$

1,427



$

2.26



$

1,044



$

1.76


Mark-to-market fuel hedge adjustment

(30)



(0.05)



7



0.01


GAAP fuel expense

$

1,397



$

2.21



$

1,051



$

1.77


Fuel gallons

631





592







Debt-to-capitalization, adjusted for aircraft operating leases

(in millions)

September 30, 2018


December 31, 2017(a)

Long-term debt

$

1,684



$

2,262


Capitalization of aircraft operating leases(b)

1,887



1,671


Adjusted debt

3,571



3,933


Shareholders' equity

3,791



3,460


Total Invested Capital

$

7,362



$

7,393






Debt-to-capitalization ratio, adjusted for aircraft operating leases

49

%


53

%



(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.





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.