1-8957 | 91-1292054 | |
(Commission File Number) | (IRS Employer Identification No.) |
19300 International Boulevard, Seattle, Washington | 98188 | |
(Address of Principal Executive Offices) | (Zip Code) |
Media contact: | Investor contact: | |
Bobbie Egan | Lavanya Sareen | |
Corporate Communications | Managing Director, Investor Relations | |
(206) 392-5134 | (206) 392-5656 |
FOR IMMEDIATE RELEASE | October 22, 2015 |
• | Reported record third quarter net income, excluding special items, of $277 million, a 39% increase over the third quarter of 2014. |
• | Reported adjusted earnings per share of $2.16 per diluted share, a 47% increase over the third quarter of 2014 and ahead of First Call analyst consensus estimate of $2.10 per share. |
• | Earned net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $274 million, or $2.14 per diluted share, compared to net income of $198 million, or $1.45 per diluted share in 2014. |
• | Recorded $90 million of employee incentive pay through the first nine months of 2015 in recognition of Air Group employees’ progress on meeting customer service, safety, operational and financial goals. |
• | Generated record adjusted pretax margin in the third quarter of 29.2% compared to 21.8% in 2014. |
• | Generated 22.8% adjusted pretax margin for the trailing 12-month period ended September 30, 2015, compared to 15.9% for the same period in the prior year. |
• | Achieved trailing 12-month after-tax return on invested capital of 24.2%, a 700 basis point improvement from the 17.2% reported for the 12-month period ended September 30, 2014. |
• | Repurchased 1.6 million shares of common stock for $119 million in the third quarter of 2015, and 5.6 million shares of common stock for $381 million during the first nine months of 2015, representing 4.5% of the total shares outstanding at the beginning of the year. |
• | Paid a $0.20 per-share quarterly cash dividend on August 14, 2015, a 60% increase over the dividend paid in the third quarter of 2014. |
• | Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2015 by J.D. Power for the eighth year in a row. |
• | Ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in 2015 by J.D. Power for the second consecutive year. |
• | Awarded Fast Travel Platinum status from the International Air Transport Association, which is awarded to airlines offering four or more Fast Travel options to at least 80% of their passengers. |
• | Rated the #1 Best Airline Rewards Program by U.S. News and World Report. |
• | Announced that a free first checked bag is a permanent feature of the Alaska Airlines Visa Signature affinity credit card. |
• | 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 August 2015. |
• | Improved third quarter customer satisfaction score by 1.2 percentage points over prior year. |
• | Increased fuel efficiency (as measured by seat-miles per gallon) by 1.6% compared to the third quarter of 2014, as part of our effort to be the airline leader in environmental stewardship. |
• | Began offering customers the option to upgrade to Preferred Plus Seating, providing customers the ability to select bulkhead and exit-row seating 24 hours in advance of flight. Preferred Plus Seating also includes priority boarding and a complimentary beer, wine or cocktail. |
• | Amended our agreement with Skywest Airlines to replace all eight CRJ-700 regional aircraft with Embraer E175 aircraft. |
• | Contracted for eight additional E175 aircraft, beginning in 2017, bringing the total E175 fleet to 23 aircraft by the end of 2017. |
• | Launched "Beyond Service" customer service training to all customer-facing employees. Nearly 6,000 of Alaska and Horizon employees have completed the training. |
• | Began our award-winning intensive leadership training workshop, Gear Up 2, for over 1,200 leaders at Alaska and Horizon. |
• | Announced a 10-year sponsorship agreement with the University of Washington which includes, among other things, exclusive naming rights for Alaska Airlines Field at Husky Stadium and Alaska Airlines Arena. |
• | New routes announced in the third quarter are as follows: |
New Nonstop Routes Announced (Launch Dates) | |
Portland, Oregon, to Minneapolis/St. Paul, Minnesota (2/18/16) | Portland to Omaha (2/18/16) |
Portland to Dallas (2/18/16) | Portland to Kansas City, Missouri (2/18/16) |
Three Months Ended September 30, | |||||||||||||||
2015 | 2014 | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
Reported GAAP net income | $ | 274 | $ | 2.14 | $ | 198 | $ | 1.45 | |||||||
Mark-to-market fuel hedge adjustments, net of tax | 3 | 0.02 | 2 | 0.02 | |||||||||||
Non-GAAP adjusted income and per-share amounts | $ | 277 | $ | 2.16 | $ | 200 | $ | 1.47 |
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) | 2015 | 2014 | Change | 2015 | 2014 | Change | |||||||||||||||
Operating Revenues: | |||||||||||||||||||||
Passenger | |||||||||||||||||||||
Mainline | $ | 1,057 | $ | 1,030 | 3 | % | $ | 2,977 | $ | 2,858 | 4 | % | |||||||||
Regional | 240 | 219 | 10 | % | 638 | 605 | 5 | % | |||||||||||||
Total passenger revenue | 1,297 | 1,249 | 4 | % | 3,615 | 3,463 | 4 | % | |||||||||||||
Freight and mail | 30 | 32 | (6 | )% | 83 | 88 | (6 | )% | |||||||||||||
Other - net | 188 | 184 | 2 | % | 523 | 511 | 2 | % | |||||||||||||
Total Operating Revenues | 1,515 | 1,465 | 3 | % | 4,221 | 4,062 | 4 | % | |||||||||||||
Operating Expenses: | |||||||||||||||||||||
Wages and benefits | 312 | 279 | 12 | % | 923 | 832 | 11 | % | |||||||||||||
Variable incentive pay | 32 | 30 | 7 | % | 90 | 84 | 7 | % | |||||||||||||
Aircraft fuel, including hedging gains and losses | 245 | 394 | (38 | )% | 741 | 1,112 | (33 | )% | |||||||||||||
Aircraft maintenance | 67 | 58 | 16 | % | 182 | 166 | 10 | % | |||||||||||||
Aircraft rent | 26 | 27 | (4 | )% | 78 | 84 | (7 | )% | |||||||||||||
Landing fees and other rentals | 80 | 74 | 8 | % | 217 | 207 | 5 | % | |||||||||||||
Contracted services | 74 | 66 | 12 | % | 209 | 188 | 11 | % | |||||||||||||
Selling expenses | 53 | 55 | (4 | )% | 160 | 154 | 4 | % | |||||||||||||
Depreciation and amortization | 81 | 75 | 8 | % | 236 | 218 | 8 | % | |||||||||||||
Food and beverage service | 30 | 24 | 25 | % | 83 | 68 | 22 | % | |||||||||||||
Other | 82 | 67 | 22 | % | 259 | 229 | 13 | % | |||||||||||||
Total Operating Expenses | 1,082 | 1,149 | (6 | )% | 3,178 | 3,342 | (5 | )% | |||||||||||||
Operating Income | 433 | 316 | 37 | % | 1,043 | 720 | 45 | % | |||||||||||||
Nonoperating Income (Expense): | |||||||||||||||||||||
Interest income | 5 | 5 | 16 | 15 | |||||||||||||||||
Interest expense | (10 | ) | (12 | ) | (32 | ) | (36 | ) | |||||||||||||
Interest capitalized | 9 | 5 | 25 | 14 | |||||||||||||||||
Other - net | — | 2 | 1 | 20 | |||||||||||||||||
4 | — | 10 | 13 | ||||||||||||||||||
Income Before Income Tax | 437 | 316 | 1,053 | 733 | |||||||||||||||||
Income tax expense | 163 | 118 | 396 | 276 | |||||||||||||||||
Net Income | $ | 274 | $ | 198 | $ | 657 | $ | 457 | |||||||||||||
Basic Earnings Per Share: | $ | 2.15 | $ | 1.47 | $ | 5.08 | $ | 3.35 | |||||||||||||
Diluted Earnings Per Share: | $ | 2.14 | $ | 1.45 | $ | 5.05 | $ | 3.31 | |||||||||||||
Shares Used for Computation: | |||||||||||||||||||||
Basic | 127.308 | 134.865 | 129.231 | 136.482 | |||||||||||||||||
Diluted | 128.205 | 136.158 | 130.200 | 137.825 | |||||||||||||||||
Cash dividend declared per share: | $ | 0.20 | $ | 0.125 | $ | 0.60 | $ | 0.375 |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
Alaska Air Group, Inc. | |||||||
(in millions) | September 30, 2015 | December 31, 2014 | |||||
Cash and marketable securities | $ | 1,258 | $ | 1,217 | |||
Total current assets | 1,715 | 1,756 | |||||
Property and equipment-net | 4,734 | 4,299 | |||||
Other assets | 115 | 126 | |||||
Total assets | 6,564 | 6,181 | |||||
Air traffic liability | 760 | 631 | |||||
Current portion of long-term debt | 117 | 117 | |||||
Other current liabilities | 977 | 923 | |||||
Current liabilities | 1,854 | 1,671 | |||||
Long-term debt | 593 | 686 | |||||
Other liabilities and credits | 1,752 | 1,697 | |||||
Shareholders' equity | 2,365 | 2,127 | |||||
Total liabilities and shareholders' equity | $ | 6,564 | $ | 6,181 | |||
Debt-to-capitalization ratio, adjusted for operating leases(a) | 27%:73% | 31%:69% | |||||
Number of common shares outstanding | 126.782 | 131.481 |
(a) | 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, | ||||||||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||||||||
Consolidated Operating Statistics:(a) | |||||||||||||||||||||
Revenue passengers (000) | 8,616 | 7,994 | 7.8 | % | 23,956 | 21,996 | 8.9 | % | |||||||||||||
RPMs (000,000) "traffic" | 8,878 | 8,245 | 7.7 | % | 25,052 | 23,078 | 8.6 | % | |||||||||||||
ASMs (000,000) "capacity" | 10,368 | 9,582 | 8.2 | % | 29,574 | 26,922 | 9.9 | % | |||||||||||||
Load factor | 85.6 | % | 86.0 | % | (0.4 pts | ) | 84.7 | % | 85.7 | % | (1.0 pts | ) | |||||||||
Yield | 14.61 | ¢ | 15.14 | ¢ | (3.5 | %) | 14.43 | ¢ | 15.00 | ¢ | (3.8 | %) | |||||||||
PRASM | 12.51 | ¢ | 13.03 | ¢ | (4.0 | %) | 12.22 | ¢ | 12.86 | ¢ | (5.0 | %) | |||||||||
RASM | 14.61 | ¢ | 15.28 | ¢ | (4.4 | %) | 14.27 | ¢ | 15.09 | ¢ | (5.4 | %) | |||||||||
CASM excluding fuel(b) | 8.07 | ¢ | 7.87 | ¢ | 2.5 | % | 8.24 | ¢ | 8.28 | ¢ | (0.5 | %) | |||||||||
Economic fuel cost per gallon(b) | $ | 1.82 | $ | 3.15 | (42.2 | %) | $ | 1.97 | $ | 3.22 | (38.8 | %) | |||||||||
Fuel gallons (000,000) | 132 | 124 | 6.5 | % | 377 | 351 | 7.4 | % | |||||||||||||
ASM's per gallon | 78.5 | 77.3 | 1.6 | % | 78.4 | 76.7 | 2.2 | % | |||||||||||||
Average number of full-time equivalent employees (FTE) | 14,003 | 12,998 | 7.7 | % | 13,690 | 12,633 | 8.4 | % | |||||||||||||
Mainline Operating Statistics: | |||||||||||||||||||||
Revenue passengers (000) | 6,171 | 5,752 | 7.3 | % | 17,193 | 15,796 | 8.8 | % | |||||||||||||
RPMs (000,000) "traffic" | 7,976 | 7,440 | 7.2 | % | 22,633 | 20,871 | 8.4 | % | |||||||||||||
ASMs (000,000) "capacity" | 9,278 | 8,607 | 7.8 | % | 26,609 | 24,197 | 10.0 | % | |||||||||||||
Load factor | 86.0 | % | 86.4 | % | (0.4 pts | ) | 85.1 | % | 86.3 | % | (1.2 pts | ) | |||||||||
Yield | 13.26 | ¢ | 13.84 | ¢ | (4.2 | %) | 13.15 | ¢ | 13.69 | ¢ | (3.9 | %) | |||||||||
PRASM | 11.40 | ¢ | 11.97 | ¢ | (4.8 | %) | 11.19 | ¢ | 11.81 | ¢ | (5.2 | %) | |||||||||
RASM | 13.50 | ¢ | 14.18 | ¢ | (4.8 | %) | 13.23 | ¢ | 14.01 | ¢ | (5.6 | %) | |||||||||
CASM excluding fuel(b) | 7.19 | ¢ | 7.02 | ¢ | 2.4 | % | 7.33 | ¢ | 7.37 | ¢ | (0.5 | %) | |||||||||
Economic fuel cost per gallon(b) | $ | 1.81 | $ | 3.15 | (42.5 | %) | $ | 1.97 | $ | 3.22 | (38.8 | %) | |||||||||
Fuel gallons (000,000) | 113 | 108 | 4.6 | % | 326 | 305 | 6.9 | % | |||||||||||||
ASM's per gallon | 82.1 | 79.7 | 3.0 | % | 81.6 | 79.3 | 2.9 | % | |||||||||||||
Average number of FTE's | 10,824 | 10,153 | 6.6 | % | 10,643 | 9,837 | 8.2 | % | |||||||||||||
Aircraft utilization | 10.9 | 10.8 | 0.9 | % | 10.9 | 10.5 | 3.8 | % | |||||||||||||
Average aircraft stage length | 1,168 | 1,161 | 0.6 | % | 1,185 | 1,180 | 0.4 | % | |||||||||||||
Operating fleet | 144 | 136 | 8 a/c | 144 | 136 | 8 a/c | |||||||||||||||
Regional Operating Statistics:(c) | |||||||||||||||||||||
Revenue passengers (000) | 2,445 | 2,242 | 9.1 | % | 6,762 | 6,200 | 9.1 | % | |||||||||||||
RPMs (000,000) "traffic" | 903 | 806 | 12.0 | % | 2,419 | 2,206 | 9.7 | % | |||||||||||||
ASMs (000,000) "capacity" | 1,090 | 975 | 11.8 | % | 2,965 | 2,725 | 8.8 | % | |||||||||||||
Load factor | 82.8 | % | 82.7 | % | 0.1 pts | 81.6 | % | 81.0 | % | 0.6 pts | |||||||||||
Yield | 26.53 | ¢ | 27.17 | ¢ | (2.4 | %) | 26.37 | ¢ | 27.41 | ¢ | (3.8 | %) | |||||||||
PRASM | 21.97 | ¢ | 22.46 | ¢ | (2.2 | %) | 21.51 | ¢ | 22.19 | ¢ | (3.1 | %) | |||||||||
Operating fleet(c) | 63 | 51 | 12 | a/c | 63 | 51 | 12 | 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, 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. |
OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Three Months Ended September 30, 2015 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,057 | $ | — | $ | — | $ | — | $ | 1,057 | $ | — | $ | 1,057 | |||||||||||||
Regional | — | 240 | — | — | 240 | — | 240 | ||||||||||||||||||||
Total passenger revenues | 1,057 | 240 | — | — | 1,297 | — | 1,297 | ||||||||||||||||||||
CPA revenues | — | — | 105 | (105 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 29 | 1 | — | — | 30 | — | 30 | ||||||||||||||||||||
Other-net | 167 | 20 | 1 | — | 188 | 188 | |||||||||||||||||||||
Total operating revenues | 1,253 | 261 | 106 | (105 | ) | 1,515 | — | 1,515 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 667 | 181 | 93 | (104 | ) | 837 | — | 837 | |||||||||||||||||||
Economic fuel | 205 | 35 | — | — | 240 | 5 | 245 | ||||||||||||||||||||
Total operating expenses | 872 | 216 | 93 | (104 | ) | 1,077 | 5 | 1,082 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 5 | — | — | — | 5 | — | 5 | ||||||||||||||||||||
Interest expense | (7 | ) | — | (3 | ) | — | (10 | ) | — | (10 | ) | ||||||||||||||||
Other | 7 | — | — | 2 | 9 | — | 9 | ||||||||||||||||||||
5 | — | (3 | ) | 2 | 4 | — | 4 | ||||||||||||||||||||
Income before income tax | $ | 386 | $ | 45 | $ | 10 | $ | 1 | $ | 442 | $ | (5 | ) | $ | 437 |
Three Months Ended September 30, 2014 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,030 | $ | — | $ | — | $ | — | $ | 1,030 | $ | — | $ | 1,030 | |||||||||||||
Regional | — | 219 | — | — | 219 | — | 219 | ||||||||||||||||||||
Total passenger revenues | 1,030 | 219 | — | — | 1,249 | — | 1,249 | ||||||||||||||||||||
CPA revenues | — | — | 99 | (99 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 30 | 2 | — | — | 32 | — | 32 | ||||||||||||||||||||
Other-net | 161 | 22 | 1 | — | 184 | — | 184 | ||||||||||||||||||||
Total operating revenues | 1,221 | 243 | 100 | (99 | ) | 1,465 | — | 1,465 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 605 | 162 | 85 | (97 | ) | 755 | — | 755 | |||||||||||||||||||
Economic fuel | 338 | 52 | — | — | 390 | 4 | 394 | ||||||||||||||||||||
Total operating expenses | 943 | 214 | 85 | (97 | ) | 1,145 | 4 | 1,149 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 5 | — | — | — | 5 | — | 5 | ||||||||||||||||||||
Interest expense | (8 | ) | — | (4 | ) | — | (12 | ) | — | (12 | ) | ||||||||||||||||
Other | 7 | — | — | — | 7 | — | 7 | ||||||||||||||||||||
4 | — | (4 | ) | — | — | — | — | ||||||||||||||||||||
Income before income tax | $ | 282 | $ | 29 | $ | 11 | $ | (2 | ) | $ | 320 | $ | (4 | ) | $ | 316 |
Nine Months Ended September 30, 2015 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 2,977 | $ | — | $ | — | $ | — | $ | 2,977 | $ | — | $ | 2,977 | |||||||||||||
Regional | — | 638 | — | — | 638 | — | 638 | ||||||||||||||||||||
Total passenger revenues | 2,977 | 638 | — | — | 3,615 | — | 3,615 | ||||||||||||||||||||
CPA revenues | — | — | 303 | (303 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 79 | 4 | — | — | 83 | — | 83 | ||||||||||||||||||||
Other-net | 465 | 55 | 3 | 523 | — | 523 | |||||||||||||||||||||
Total operating revenues | 3,521 | 697 | 306 | (303 | ) | 4,221 | — | 4,221 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,951 | 514 | 274 | (302 | ) | 2,437 | — | 2,437 | |||||||||||||||||||
Economic fuel | 641 | 101 | — | — | 742 | (1 | ) | 741 | |||||||||||||||||||
Total operating expenses | 2,592 | 615 | 274 | (302 | ) | 3,179 | (1 | ) | 3,178 | ||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 15 | — | — | 1 | 16 | — | 16 | ||||||||||||||||||||
Interest expense | (21 | ) | — | (8 | ) | (3 | ) | (32 | ) | — | (32 | ) | |||||||||||||||
Other | 21 | — | — | 5 | 26 | — | 26 | ||||||||||||||||||||
15 | — | (8 | ) | 3 | 10 | — | 10 | ||||||||||||||||||||
Income before income tax | $ | 944 | $ | 82 | $ | 24 | $ | 2 | $ | 1,052 | $ | 1 | $ | 1,053 | |||||||||||||
Nine Months Ended September 30, 2014 | |||||||||||||||||||||||||||
Alaska | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 2,858 | $ | — | $ | — | $ | — | $ | 2,858 | $ | — | $ | 2,858 | |||||||||||||
Regional | — | 605 | — | — | 605 | — | 605 | ||||||||||||||||||||
Total passenger revenues | 2,858 | 605 | — | — | 3,463 | — | 3,463 | ||||||||||||||||||||
CPA revenues | — | — | 277 | (277 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 84 | 4 | — | — | 88 | — | 88 | ||||||||||||||||||||
Other-net | 448 | 59 | 4 | — | 511 | — | 511 | ||||||||||||||||||||
Total operating revenues | 3,390 | 668 | 281 | (277 | ) | 4,062 | — | 4,062 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,783 | 464 | 257 | (274 | ) | 2,230 | — | 2,230 | |||||||||||||||||||
Economic fuel | 980 | 149 | — | — | 1,129 | (17 | ) | 1,112 | |||||||||||||||||||
Total operating expenses | 2,763 | 613 | 257 | (274 | ) | 3,359 | (17 | ) | 3,342 | ||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 15 | — | — | — | 15 | — | 15 | ||||||||||||||||||||
Interest expense | (25 | ) | (1 | ) | (10 | ) | — | (36 | ) | — | (36 | ) | |||||||||||||||
Other | 34 | — | — | — | 34 | — | 34 | ||||||||||||||||||||
24 | (1 | ) | (10 | ) | — | 13 | — | 13 | |||||||||||||||||||
Income before income tax | $ | 651 | $ | 54 | $ | 14 | $ | (3 | ) | $ | 716 | $ | 17 | $ | 733 |
(a) | The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain charges. See Note A in the accompanying pages for further information. |
(b) | Includes mark-to-market fuel-hedge accounting adjustments. |
Alaska Air Group, Inc. | |||||||||||||||
CASM EXCLUDING FUEL RECONCILIATION (unaudited) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(in cents) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Consolidated: | |||||||||||||||
CASM | 10.44 | ¢ | 11.99 | ¢ | 10.75 | ¢ | 12.41 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses per ASM | 2.37 | 4.12 | 2.51 | 4.13 | |||||||||||
CASM excluding fuel | 8.07 | ¢ | 7.87 | ¢ | 8.24 | ¢ | 8.28 | ¢ | |||||||
Mainline: | |||||||||||||||
CASM | 9.45 | ¢ | 11.00 | ¢ | 9.74 | ¢ | 11.35 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses per ASM | 2.26 | 3.98 | 2.41 | 3.98 | |||||||||||
CASM excluding fuel | 7.19 | ¢ | 7.02 | ¢ | 7.33 | ¢ | 7.37 | ¢ |
FUEL RECONCILIATIONS (unaudited) | |||||||||||||||
Three Months Ended September 30, | |||||||||||||||
2015 | 2014 | ||||||||||||||
(in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 236 | $ | 1.78 | $ | 383 | $ | 3.09 | |||||||
Losses on settled hedges | 5 | 0.04 | 7 | 0.06 | |||||||||||
Consolidated economic fuel expense | 240 | 1.82 | 390 | 3.15 | |||||||||||
Mark-to-market fuel hedge adjustment | 5 | 0.03 | 4 | 0.03 | |||||||||||
GAAP fuel expense | $ | 245 | $ | 1.85 | $ | 394 | $ | 3.18 | |||||||
Fuel gallons | 132 | 124 |
Nine Months Ended September 30, | |||||||||||||||
2015 | 2014 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 727 | $ | 1.93 | $ | 1,095 | $ | 3.12 | |||||||
(Gains) losses on settled hedges | 15 | 0.04 | 34 | 0.10 | |||||||||||
Consolidated economic fuel expense | 742 | 1.97 | 1,129 | 3.22 | |||||||||||
Mark-to-market fuel hedge adjustment | (1 | ) | — | (17 | ) | (0.05 | ) | ||||||||
GAAP fuel expense | $ | 741 | $ | 1.97 | $ | 1,112 | $ | 3.17 | |||||||
Fuel gallons | 377 | 351 |
• | 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 items as specified in our plan documents) are important metrics for the employee incentive plan that covers all Air Group employees. |
• | CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors. |
• | Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as mark-to-market hedging adjustments or special revenues, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines. |
• | Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business. |
AIR GROUP - CONSOLIDATED |
Forecast Q4 2015 | Change Y-O-Y | Forecast Full Year 2015 | Change Y-O-Y | Prior Guidance September 14, 2015 | ||||||
Capacity (ASMs in millions) | 10,300 - 10,350 | ~ 12.5% | 39,875 - 39,925 | ~ 10.5% | 39,700 - 39,900 | |||||
Cost per ASM excluding fuel and special items (cents) | 8.48¢ - 8.52¢ | ~ (1.0) % | 8.30¢ - 8.32¢ | ~ (0.6) % | 8.29¢ - 8.34¢ | |||||
Fuel gallons (000,000) | 130 | ~ 10.0 % | 507 | ~ 8.0% | 506 | |||||
Economic fuel cost per gallon(a) | $1.71 | ~ (35.0)% | $1.90 | ~ (38.0)% | N/A |
(a) | Our economic fuel cost per gallon estimate for the fourth quarter includes the following per-gallon assumptions: crude oil cost - $1.11 (approximately $47 per barrel), refining margin - 40 cents, cost of settled hedges - 3 cents, with the remaining difference due to taxes and other into-plane costs. |
2015 | 2016 | 2017 | 2018 | ||||||||||||
Aircraft and aircraft purchase deposits - firm | $ | 580 | $ | 535 | $ | 500 | $ | 400 | |||||||
Other flight equipment | 70 | 70 | 45 | 25 | |||||||||||
Other property and equipment | 65 | 110 | 80 | 80 | |||||||||||
Total property and equipment additions | $ | 715 | $ | 715 | $ | 625 | $ | 505 | |||||||
Option aircraft and aircraft deposits, if exercised(b) | $ | — | $ | 60 | $ | 140 | $ | 295 |
(a) | Preliminary estimate, subject to change. |
(b) | Alaska has options to acquire 46 B737 aircraft with deliveries from 2018 through 2024. Horizon has options to acquire five Q400 aircraft with deliveries from 2018 through 2019. |
Actual Fleet | Expected Fleet Activity(b) | ||||||||||||
Aircraft | Dec 31, 2014 | 2015 Changes | Dec 31, 2015 | 2016-2017 Changes | Dec 31, 2017 | ||||||||
737 Freighters & Combis | 6 | — | 6 | (3 | ) | 3 | |||||||
737 Passenger Aircraft | 131 | 10 | 141 | 9 | 150 | ||||||||
Total Mainline Fleet | 137 | 10 | 147 | 6 | 153 | ||||||||
Q400 | 51 | 1 | 52 | 2 | 54 | ||||||||
E-175 | — | 5 | 5 | 18 | 23 | ||||||||
CRJ700 | 8 | — | 8 | (8 | ) | — | |||||||
Total Regional Fleet | 59 | 6 | 65 | 12 | 77 | ||||||||
Total | 196 | 16 | 212 | 18 | 230 |
(a) | The expected fleet counts at December 31, 2016 and 2017 are subject to change. |
(b) | Expected fleet activity includes aircraft deliveries, net of planned retirements and lease returns. |
AIR GROUP - CONSOLIDATED (continued) |
Approximate % of Expected Fuel Requirements | Weighted-Average Crude Oil Price per Barrel | Average Premium Cost per Barrel | ||||
Fourth Quarter 2015 | 50 | % | $83 | $3 | ||
Remainder 2015 | 50 | % | $83 | $3 | ||
First Quarter 2016 | 46 | % | $76 | $3 | ||
Second Quarter 2016 | 38 | % | $70 | $3 | ||
Third Quarter 2016 | 29 | % | $70 | $3 | ||
Fourth Quarter 2016 | 20 | % | $69 | $3 | ||
Full Year 2016 | 33 | % | $69 | $3 | ||
1st Quarter 2017 | 9 | % | $64 | $4 | ||
Total 2017 | 2 | % | $64 | $4 |
Crude Price per Barrel | ||||||||||||||||||||||
$ | 30 | $ | 40 | $ | 50 | $ | 60 | $ | 70 | |||||||||||||
Refining Margin (cents per Gallon) | 30 | $ | 1.77 | $ | 1.84 | $ | 1.90 | $ | 1.96 | $ | 2.02 | |||||||||||
40 | $ | 1.80 | $ | 1.86 | $ | 1.92 | $ | 1.98 | $ | 2.04 | ||||||||||||
50 | $ | 1.83 | $ | 1.89 | $ | 1.95 | $ | 2.01 | $ | 2.07 | ||||||||||||
60 | $ | 1.85 | $ | 1.91 | $ | 1.97 | $ | 2.03 | $ | 2.09 | ||||||||||||
70 | $ | 1.88 | $ | 1.94 | $ | 2.00 | $ | 2.06 | $ | 2.12 |
ALASKA AIRLINES - MAINLINE |
Forecast Q4 2015 | Change Y-O-Y | Forecast Full Year 2015 | Change Y-O-Y | Prior Guidance September 14, 2015 | ||||||
Capacity (ASMs in millions) | 9,250 - 9,300 | ~ 12.5 % | 35,850 - 35,900 | ~ 11.0% | 35,700 - 35,900 | |||||
Cost per ASM excluding fuel and special items (cents)(b) (c) | 7.54¢ - 7.58¢ | ~ (2.0) % | 7.39¢ - 7.41¢ | ~ (0.7) % | 7.40¢ - 7.45¢ | |||||
Fuel gallons (000,000) | 113 | ~ 10.5% | 439 | ~ 8.0% | 440 | |||||
Economic fuel cost per gallon(a) | $1.71 | ~ (35.0)% | $1.90 | ~ (38.0)% | N/A |
(a) | Please see note(a) in Consolidated. |