EX-99.1 2 ex99-1.htm INVESTOR UPDATE ex99-1.htm
Exhibit 99.1
 
 
 
Investor Update – April 8, 2009

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This update includes forecasted operational and financial information for our subsidiaries Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon).  Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items.  The most directly comparable GAAP measure is total operating expense per available seat mile.  However, due to the large fluctuations in fuel prices, we are unable to predict total operating expense for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

We are providing unaudited information about fuel price movements and the impact of our hedging program on our financial results.  Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period.  Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.


Forward-Looking Information
 
This update contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements.  For a comprehensive discussion of potential risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.   Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes.  All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. 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.
 


 
1
 


ALASKA AIRLINES – MAINLINE

March 2009 Statistics
 
March
2009
Change
Y-O-Y
QTD
2009
Change
Y-O-Y
Capacity (ASMs in millions)
1,910
(9.0)%
5,520
(9.3)%
Traffic (RPMs in millions)
1,559
(8.1)%
4,179
(7.7)%
Revenue passengers (000s)
1,344
(12.5)%
3,573
(12.4)%
Load factor*
81.6%
0.8pts
75.7%
1.3pts
*RPMs as a percentage of ASMs

Revenue and fuel cost information is not yet available for March.  However, information for the first two months of the first quarter, as previously disclosed, is as follows:
 
January and February 2009
Change Y-O-Y
RASM (cents)
10.37
1.3%
Passenger RASM (cents)
9.41
0.6%
Raw fuel cost/gal.
$1.65
(42.9)%
Economic fuel expense/gal.
$1.96
(25.8)%

Changes in Advance Booked Load Factors (percentage of available seat miles that are sold)
       
 
April
May
June
Point Change Y-O-Y
+1.0 pt*
-1.5 pts
-5.0 pts
       
* The Easter holiday is in April this year, but was in March 2008.  
 
2
 


ALASKA AIRLINES – MAINLINE (continued)

Forecast Information
 
Forecast
Q1 2009
Change
Y-O-Y
Forecast
Full Year 2009
Change
Y-O-Y
Capacity (ASMs in millions)
5,520*
(9.3)%*
22,600
(7)%
Cost per ASM excluding fuel (cents)**
8.4
11%
8.1
8%
Fuel Gallons (000,000)
74
(14)%
310
(7)%
Economic fuel cost per gallon***
$1.90
(30)%
***
***
* Actual results
** For Alaska, our forecasts of mainline cost per ASM excluding fuel, restructuring charges and fleet transition costs is based on forward-looking estimates, which may differ from actual results.
*** Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.

Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.

Impact of Mt. Redoubt Eruptions
The recent eruptions of Mt. Redoubt in Alaska have significantly impacted our operations in the state of Alaska.  Since the volcanic eruptions began Sunday, March 22, Alaska Airlines has canceled more than 300 flights affecting more than 20,000 passengers.  Most of these passengers were re-accommodated on other flights.  Full refunds are available to passengers that are not re-accommodated on another flight.  The eruptions have also resulted in disruptions in our cargo operations.

Labor Updates
As previously disclosed, Alaska recently reached an “agreement in concept” with the Air Line Pilots Association on a new four-year contract with our pilots.  Details of the agreement will be disclosed at a later date.

Alaska’s flight attendants ratified a new contract that extended the current contract by two years through April 2012.  As part of the new contract, flight attendants will receive a 1.5% pay increase on May 1, 2010 and May 1, 2011.  Flight attendants will now participate in the same performance-based incentive plan as Alaska’s non-union and dispatch employees.

3
ALASKA – PURCHASED CAPACITY

Alaska has Capacity Purchase Agreements (CPAs) with Horizon for certain routes and with a third party for service between Anchorage and Dutch Harbor, AK.

March 2009 Statistics
The following data represents only the Horizon CPA flying, which represents approximately 95% of the total purchased capacity.
 
 
March
2009
Change
Y-O-Y
QTD
2009
Change
Y-O-Y
Capacity (ASMs in millions)
105
(14.6)%
299
(13.0)%
Traffic (RPMs in millions)
74
(22.9)%
205
(20.2)%
Load factor*
71.1%
(7.4)pts
68.6%
    (5.9)pts
  *RPMs as a percentage of ASMs
 
Revenue information is not yet available for March.  However, purchased capacity unit revenues for the first two months of the first quarter were as follows:
 
January and February 2009
Change Y-O-Y
Passenger RASM (cents)
19.04
1.7%
 

 
Changes in Advance Booked Load Factors (percentage of available seat miles that are sold)
       
 
April
May
June
Point Change Y-O-Y
-3.0 pts*
-5.0 pts
-6.0 pts
       
* The Easter holiday is in April this year, but was in March 2008.  
 

 
Forecast Information (Horizon CPA)
 
Forecast
Q1 2009
Change
Y-O-Y
Forecast
Full Year 2009
Change
Y-O-Y
Capacity (ASMs in millions)
299*
(13)%*
1,300
(7)%
Cost per ASM (cents)**
19.9 – 20.0
(5)%
20.4 – 20.5
(4)%
* Actual results
** Costs associated with the Horizon CPA agreement represent the amount paid by Alaska to Horizon for operating costs plus a specified profit margin and are eliminated in consolidation.

Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.

 
4
 


HORIZON AIR

March 2009 Statistics
 
March
2009
Change
Y-O-Y
QTD
2009
Change
Y-O-Y
Capacity (ASMs in millions)
275
(15.9)%
787
(16.5)%
Traffic (RPMs in millions)
191
 (20.7)%
524
(20.4)%
Revenue passengers (000s)
558
(15.3)%
1,546
(16.5)%
Load factor*
69.5%
(4.3)pts
66.6%
(3.3)pts
*RPMs as a percentage of ASMs

Revenue and fuel cost information is not yet available for March.  Information for the first two months of the first quarter is as follows:
 
January and February 2009
Change Y-O-Y
System RASM (cents)
18.62
1.2%
Raw fuel cost/gal.
$1.63
(44.6)%
Economic fuel expense/gal.
$1.94
(27.9)%

Line-of-Business Information
Horizon’s line-of-business traffic and revenue information is presented below. In CPA arrangements, Horizon is insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity.  As a result, yield and load factor information is not presented.  Horizon bears the revenue risk in its brand flying markets. Revenue from the Alaska CPA is eliminated in consolidation.

  January and February 2009


   
Capacity Mix
  
Load Factor
  
Yield
    
RASM
  
   
Actual (000s)
Change
Y-O-Y
  
Current
%Total
  
Actual
  
Change
Y-O-Y
  
Actual
  
Change
Y-O-Y
  
Actual
  
Change
Y-O-Y
Brand
   317 (19.5 )% 62 %   63.9 % (1.4 )
pts
   27.47 ¢ 8.3 %   18.05 ¢ 6.2 %
Alaska CPA
   194 (12.0 )% 38 %  
NM
  
NM
      
NM
  
NM
     19.55 ¢ (6.3 )%
Total
   511 (16.8 )% 100 %   65.1 % (2.7 )
pts
   28.15 ¢ 5.4 %   18.62 ¢ 1.2 %

NM = Not Meaningful
 

 
Changes in Advance Booked Load Factors – Brand Flying Only (percentage of available seat miles that are sold)
       
 
April
May
June
Point Change Y-O-Y
flat*
-2.0 pts
-4.0 pts
       
* The Easter holiday is in April this year, but was in March 2008.  

 
5
 


HORIZON AIR – (continued)

Forecast Information
 
Forecast
Q1 2009
Change
Y-O-Y
Forecast
Full Year 2009
Change
Y-O-Y
Capacity (ASMs in millions)
787*
 (16.5)%*
3,250 – 3,350
(8)% -- (10)%
Cost per ASM excluding fuel and CRJ-700 fleet transition charges (cents)**
16.3
8%
15.3 – 15.4
5% – 6%
Cost per ASM excluding fuel and all fleet transition charges (cents)**
15.5 – 15.6
7% - 8%
15.1 – 15.2
6% – 7%
Fuel gallons (in millions)
15
(16)%
63
(6)%
Economic fuel cost per gallon***
$1.92
(31)%
***
***
* Actual results
** For Horizon, our forecast of cost per ASM excluding fuel is based on forward-looking estimates, which may differ significantly from actual results.
*** Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.

Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.

Q200 Fleet Transition Charges Expected in First Quarter
As previously disclosed, Horizon expects to record a charge of approximately $4 million to $6.5 million in the first quarter related to the final six Q200 aircraft removed from operations during the period.  The actual amount could differ from this estimate when the calculation is finalized.  In the first quarter of 2008, Horizon recorded Q200 fleet transition charges of $5.8 million.

Consistent with past practice, Q200 fleet transition charges are not considered special items and are thus not excluded from our “adjusted” results.


 
6
 


AIR GROUP
 
Future Fuel Hedge Positions*
 
 
Approximate % of Expected
Fuel Requirements
 
Approximate Crude Oil
Price per Barrel
Second Quarter 2009
50%
$71
Third Quarter 2009
50%
$76
Fourth Quarter 2009
50%
$76
  Full Year 2009
50%
$76
 
First Quarter 2010
 
47%
 
$67
Second Quarter 2010
38%
$68
Third Quarter 2010
29%
$67
Fourth Quarter 2010
24%
$78
  Full Year 2010
34%
$69
 
First Quarter 2011
 
17%
 
$91
Second Quarter 2011
15%
$73
Third Quarter 2011
11%
$74
Fourth Quarter 2011
5%
$67
  Full Year 2011
12%
$78

*All of our 2010 and 2011 positions and the majority of our 2009 positions are call options which are designed to effectively cap our cost of the crude oil component of our jet fuel purchases.  With call options, we benefit from a decline in crude oil prices, as there is no cash outlay other than the premiums we pay to enter into the contracts.

Cash and Share Count
 
(in millions)
 
March 31, 2009
 
December 31, 2008
Cash and marketable securities
$1,043
$1,077
Common shares outstanding
36.386
36.275


Capital Expenditures
 
Total expected capital expenditures for 2009 are as follows (in millions):
 
 
Total 2009 Estimate
 
Aircraft-related
Non-aircraft
Total
Alaska
$340
$45
$385
Horizon
70
5
75
Air Group
$410
$50
$460
 

 
Firm Aircraft Commitments
         
 
April – Dec. 2009
2010
2011
Total
Alaska (B737-800)
4
7
4
15
Horizon (Q400)
3
7
1
11
Totals
7
14
5
26
         
In addition to the firm orders noted above, Alaska has options to acquire 44 additional B737-800s and Horizon has options to acquire 10 Q400s.

 
7
 


AIR GROUP – (continued)

Projected Fleet Count

   
Actual Fleet Count
  
Expected Fleet Activity
           
Changes by Quarter
      
 
Alaska
 
Seats
Dec. 31,
2007
Dec. 31, 2008
Mar. 31,
2009
  
 
Q2
 
Q3
 
Q4
Dec. 31,
2009 2
2010
Changes
Dec. 31, 2010 2
737-400F 1
---
1
1
1
  
---
---
---
1
---
1
737-400C 1
72
5
5
5
  
---
---
---
5
---
5
737-400
144
34
31
28
  
---
---
---
28
(5)
23
737-700
124
20
20
19
  
---
(2)
(2)
15
(2)
13
737-800
157
29
41
47
  
4
---
---
51
7
58
737-900
172
12
12
12
  
---
---
---
12
---
12
MD-80
140
14
---
---
  
---
---
---
---
---
---
Totals
  
115
110
112
  
4
(2)
(2)
112
---
112
   
 
Actual Fleet Count
  
 
Expected Fleet Activity
           
Changes by Quarter
      
 
Horizon
 
Seats
Dec. 31,
2007
Dec. 31,
2008
Mar. 31,
2009
  
 
Q2
 
Q3
 
Q4
Dec. 31,
2009
2010
Changes
Dec. 31, 2010
Q200
37
16
6
---
  
---
---
---
---
---
---
Q400
74-76
33
35
37
  
---
---
3
40
7
47
CRJ-700 3
70
21
18
18
  
---
(1)
(4)
13
(8)
5
Totals
  
70
59
55
  
---
(1)
(1)
53
(1)
52

1 F=Freighter; C=Combination freighter/passenger
2 The expected fleet counts at December 31, 2009 and 2010 for Alaska are subject to change as we continue to refine the capacity reduction and aircraft utilization plan, and attempt to market four of our B737-700 aircraft.
3 The planned CRJ and Q400 fleets at December 31, 2009 and 2010 are subject to change as we finalize the fleet transition plan and is dependent on our ability to remarket the CRJ aircraft.

 
8