1-8957 | 91-1292054 | |
(Commission File Number) | (IRS Employer Identification No.) |
19300 International Boulevard, Seattle, Washington | 98188 | |
(Address of Principal Executive Offices) | (Zip Code) |
![]() | Exhibit 99.1 |
February 8, 2017 | ||
Media contact: | Investor/analyst contact: | |
Media Relations | Lavanya Sareen | |
(206) 304-0008 | Managing Director of Investor Relations | |
(206) 392-5656 |
• | Air Group completed its acquisition of Virgin America Inc. ("Virgin America") on December 14, 2016. |
• | Fourth quarter 2016 results reflect the results of operations and cash flows for Virgin America from December 14, 2016 through December 31, 2016, including the impacts associated with purchase accounting. Periods presented prior to the acquisition date do not include Virgin America's results, except in the supplementary combined comparative financial information. |
• | Announced today a 9% increase in the quarterly dividend, from $0.275 per share to $0.30 per share. This is the fourth time the Company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 200% since that time. |
• | Reported net income for the fourth quarter and full year under Generally Accepted Accounting Principles ("GAAP") of $114 million, or $0.92 per diluted share, and $814 million, or $6.54 per diluted share, respectively. These results compared to fourth quarter 2015 net income of $191 million, or $1.51 per diluted share, and full year 2015 net income of $848 million, or $6.56 per diluted share. |
• | Reported adjusted fourth quarter 2016 diluted earnings per share of $1.56, a 7% increase over the fourth quarter of 2015. Fourth quarter net income, excluding special items, was $193 million, a 4% increase from the fourth quarter of 2015. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.40 per share. |
• | Reported full year 2016 net income, excluding special items, of $911 million, an 8% increase from 2015, and adjusted diluted earnings per share of $7.32, a 12% increase from 2015. |
• | Paid a $0.275 per-share quarterly cash dividend in the fourth quarter, bringing total dividend payments in 2016 to $136 million. |
• | Generated approximately $1.4 billion of operating cash flow and $708 million of free cash flow in 2016. |
• | Achieved return on invested capital of 21% in 2016, including Virgin America's results beginning December 14, 2016. |
• | Grew passenger revenues by 9% compared to the fourth quarter of 2015, and by 4% compared to full-year 2015. |
• | Generated full-year adjusted pretax margin of 24% in 2016, in line with 2015. |
• | Lowered consolidated unit costs excluding fuel and special items for the seventh consecutive year, to the lowest level ever. Mainline unit costs excluding fuel and special items have declined 14 of the last 15 years. |
• | Held $1.6 billion in unrestricted cash and marketable securities as of December 31, 2016. |
• | Became the first major U.S. airline to receive approval from the Federal Aviation Administration for its Safety Management System. |
• | Ranked best airline in the U.S. by the Wall Street Journal's "2016 Airline Scorecard" for the fourth year in a row. |
• | Ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in 2016 by J.D. Power for the ninth year in a row. |
• | Ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in 2016 by J.D. Power for the third consecutive year. |
• | Ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the second consecutive year. |
• | Ranked among Forbes' 2016 "America's Best Employers." |
• | Named No. 1 on-time carrier in North America for the seventh year in a row by FlightStats in January 2017. |
• | Received the Department of Defense 2016 Freedom Award, the highest recognition given to employers by the U.S. government for their support of National Guard and Reserve members. |
• | Received 15th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training. |
• | Ranked first in the commercial aviation division and first place overall at the 2016 Annual International Aerospace Maintenance Competition, surpassing over 50 teams from around the world. |
• | Named the No. 1 cargo carrier by Logistics Management magazine, as part of its annual Quest for Quality awards. |
• | Joined Standard and Poor's 500 Index. Companies included in the S&P 500 are chosen by the S&P Index Committee based on their size, earnings history and liquidity, among other factors. |
• | Ranked among the Fortune 500 for the third year in a row. |
• | Ranked among the top "green companies" in the United States by Newsweek. |
• | Ranked among the top 100 socially just companies in the United States by Forbes. |
• | Received the Seattle-Tacoma International Airport Green Gateway Environmental Excellence Award for the second year in a row, as a result of efforts in reducing emissions, recycling and waste reduction and lowered energy consumption. |
• | Rated Best U.S. Airline by Conde Nast Traveler in their "Annual Readers' Choice Awards" for nine years in a row. |
• | Ranked Best Domestic Airline in Travel + Leisure "World's Best Awards" for nine years in a row. |
• | Rated the number one carrier in the 2016 Airline Quality Report for the fourth consecutive year, an annual analysis of airline performance metrics conducted by Wichita State University and Embry-Riddle Aeronautical University. |
• | Rated "Best Airline in North America" for the second year in a row and "Best Low-Cost Airline in the U.S." for the seventh year in a row by Skytrax World Airline Awards. |
• | Awarded a record $159 million in incentive pay to employees for 2016, including $32 million earned by Virgin America teammates in 2016 prior to the acquisition. |
• | Reached a tentative agreement with Alaska's aircraft technicians on a new collective bargaining agreement. |
• | Alaska received a perfect score of 100% for workplace equality on the 2017 Corporate Equality Index ("CEI"). Virgin America received a score of 95%. |
• | Announced enhanced benefits to the Alaska Airlines Visa Signature credit card and the Alaska Airlines Visa Business credit card including the elimination of foreign transaction fees and increased bonus miles. |
• | Announced a new codeshare agreement and frequent flier partnership with Japan Airlines, providing Alaska customers seamless travel and mileage earning opportunities. |
• | Launched Premium Class service on Alaska, including more legroom, complimentary alcoholic beverages, and premium snacks. |
• | Flew the first three commercial flights using sustainable alcohol-to-jet biofuel made from U.S. grown corn and alternative jet fuel made from forest residuals, continuing Alaska's commitment to reduce its carbon emissions. |
• | Placed an order for 33 firm Embraer 175 ("E175") regional jets to be flown by subsidiary Horizon Air, with the first delivery scheduled in 2017. An additional 30 options are available under the purchase arrangement. |
• | Added 19 Boeing 737-900ERs aircraft to the operating fleet in 2016, bringing the total fleet to 155 Boeing aircraft. |
• | Added 5 Airbus A320 aircraft to Virgin America's fleet in 2016, bringing the total fleet to 63 Airbus aircraft. |
• | Added 17 new markets in 2016 across the Alaska Air Group and Virgin America networks. |
• | Increased fuel efficiency (as measured by seat-miles per gallon) by 1.4% over 2015. |
• | Donated over $13 million to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach. |
Three Months Ended December 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except per share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
Reported GAAP net income and diluted EPS | $ | 114 | $ | 0.92 | $ | 191 | $ | 1.51 | |||||||
Mark-to-market fuel hedge adjustments | (4 | ) | (0.03 | ) | 1 | 0.01 | |||||||||
Special items - merger-related costs and other | 81 | 0.65 | 32 | 0.25 | |||||||||||
Income tax effect on special items and fuel hedge adjustments(a) | (15 | ) | (0.12 | ) | (12 | ) | (0.09 | ) | |||||||
Special tax (benefit)/expense(b) | 17 | 0.14 | (26 | ) | (0.22 | ) | |||||||||
Non-GAAP adjusted net income and diluted EPS | $ | 193 | $ | 1.56 | $ | 186 | $ | 1.46 |
Twelve Months Ended December 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except per share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
Reported GAAP net income and diluted EPS | $ | 814 | $ | 6.54 | $ | 848 | $ | 6.56 | |||||||
Mark-to-market fuel hedge adjustments | (13 | ) | (0.11 | ) | — | — | |||||||||
Special items - merger-related costs and other | 117 | 0.94 | 32 | 0.25 | |||||||||||
Income tax effect on special items and fuel hedge adjustments(a) | (24 | ) | (0.19 | ) | (12 | ) | (0.10 | ) | |||||||
Special tax (benefit)/expense(b) | 17 | 0.14 | (26 | ) | (0.20 | ) | |||||||||
Non-GAAP adjusted net income and diluted EPS | $ | 911 | $ | 7.32 | $ | 842 | $ | 6.51 |
(a) | Certain merger-related costs are non-deductible for tax purposes, resulting in a smaller income tax effect for current year adjusting items. |
(b) | Special tax (benefit)/expense represents the discrete impacts of adjustments to the Company’s position on income sourcing in various states. |
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||
Amounts below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016. | |||||||||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||||
(in millions, except per share amounts) | 2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||
Operating Revenues: | |||||||||||||||||||||
Passenger | |||||||||||||||||||||
Mainline | $ | 1,062 | $ | 962 | 10 | % | $ | 4,098 | $ | 3,939 | 4 | % | |||||||||
Regional | 226 | 216 | 5 | % | 908 | 854 | 6 | % | |||||||||||||
Total passenger revenue | 1,288 | 1,178 | 9 | % | 5,006 | 4,793 | 4 | % | |||||||||||||
Freight and mail | 26 | 25 | 4 | % | 108 | 108 | — | % | |||||||||||||
Other - net | 210 | 174 | 21 | % | 817 | 697 | 17 | % | |||||||||||||
Total Operating Revenues | 1,524 | 1,377 | 11 | % | 5,931 | 5,598 | 6 | % | |||||||||||||
Operating Expenses: | |||||||||||||||||||||
Wages and benefits | 374 | 331 | 13 | % | 1,382 | 1,254 | 10 | % | |||||||||||||
Variable incentive pay | 32 | 30 | 7 | % | 127 | 120 | 6 | % | |||||||||||||
Aircraft fuel, including hedging gains and losses | 238 | 213 | 12 | % | 831 | 954 | (13 | )% | |||||||||||||
Aircraft maintenance | 73 | 71 | 3 | % | 270 | 253 | 7 | % | |||||||||||||
Aircraft rent | 34 | 27 | 26 | % | 114 | 105 | 9 | % | |||||||||||||
Landing fees and other rentals | 88 | 79 | 11 | % | 320 | 296 | 8 | % | |||||||||||||
Contracted services | 64 | 57 | 12 | % | 247 | 214 | 15 | % | |||||||||||||
Selling expenses | 63 | 51 | 24 | % | 225 | 211 | 7 | % | |||||||||||||
Depreciation and amortization | 82 | 84 | (2 | )% | 363 | 320 | 13 | % | |||||||||||||
Food and beverage service | 33 | 30 | 10 | % | 126 | 113 | 12 | % | |||||||||||||
Third-party regional carrier expense | 21 | 20 | 5 | % | 95 | 72 | 32 | % | |||||||||||||
Other | 100 | 97 | 3 | % | 365 | 356 | 3 | % | |||||||||||||
Special items - merger-related costs and other | 81 | 32 | 153 | % | 117 | 32 | 266 | % | |||||||||||||
Total Operating Expenses | 1,283 | 1,122 | 14 | % | 4,582 | 4,300 | 7 | % | |||||||||||||
Operating Income | 241 | 255 | (5 | )% | 1,349 | 1,298 | 4 | % | |||||||||||||
Nonoperating Income (Expense): | |||||||||||||||||||||
Interest income | 7 | 5 | 27 | 21 | |||||||||||||||||
Interest expense | (22 | ) | (10 | ) | (55 | ) | (42 | ) | |||||||||||||
Interest capitalized | 4 | 9 | 25 | 34 | |||||||||||||||||
Other - net | 1 | — | (1 | ) | 1 | ||||||||||||||||
Total Nonoperating Income (Expense) | (10 | ) | 4 | (4 | ) | 14 | |||||||||||||||
Income Before Income Tax | 231 | 259 | (11 | )% | 1,345 | 1,312 | 3 | % | |||||||||||||
Income tax expense | 117 | 68 | 531 | 464 | |||||||||||||||||
Net Income | $ | 114 | $ | 191 | (40 | )% | $ | 814 | $ | 848 | (4 | )% | |||||||||
Basic Earnings Per Share: | $ | 0.92 | $ | 1.52 | (39 | )% | $ | 6.59 | $ | 6.61 | — | % | |||||||||
Diluted Earnings Per Share: | $ | 0.92 | $ | 1.51 | (39 | )% | $ | 6.54 | $ | 6.56 | — | % | |||||||||
Shares Used for Computation: | |||||||||||||||||||||
Basic | 123.286 | 125.900 | (2 | )% | 123.557 | 128.373 | (4 | )% | |||||||||||||
Diluted | 124.102 | 126.818 | (2 | )% | 124.389 | 129.372 | (4 | )% | |||||||||||||
Cash dividend declared per share | $ | 0.275 | $ | 0.200 | $ | 1.100 | $ | 0.800 |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
Alaska Air Group, Inc. | |||||||
Amounts below for December 31, 2016 reflect the acquisition of Virgin America, including impacts associated with purchase accounting. | |||||||
(in millions) | December 31, 2016 (b) | December 31, 2015 | |||||
Cash and marketable securities | $ | 1,580 | $ | 1,328 | |||
Total current assets | 2,050 | 1,663 | |||||
Property and equipment-net | 5,686 | 4,802 | |||||
Goodwill | 1,917 | — | |||||
Intangible assets | 155 | — | |||||
Other assets | 169 | 65 | |||||
Total assets | $ | 9,977 | $ | 6,530 | |||
Air traffic liability | 849 | 669 | |||||
Current portion of long-term debt | 318 | 114 | |||||
Other current liabilities | 1,370 | 1,022 | |||||
Current liabilities | $ | 2,537 | $ | 1,805 | |||
Long-term debt | 2,637 | 569 | |||||
Other liabilities and credits | 1,872 | 1,745 | |||||
Shareholders' equity | 2,931 | 2,411 | |||||
Total liabilities and shareholders' equity | $ | 9,977 | $ | 6,530 | |||
Debt to Capitalization, adjusted for operating leases(a) | 59% | 27% | |||||
Number of common shares outstanding | 123.328 | 125.175 |
(a) | Calculated using the present value of remaining aircraft lease payments for aircraft that are in our operating fleet as of the balance sheet date. |
(b) | The impacts of purchase accounting included in these balances were determined on a preliminary basis and are subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than December 14, 2017. |
OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
Consolidated and Mainline amounts presented below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016. | |||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||
Consolidated Operating Statistics:(a) | |||||||||||
Revenue passengers (PAX) (000) | 8,752 | 7,927 | 10.4% | 34,289 | 31,883 | 7.5% | |||||
RPMs (000,000) "traffic" | 9,640 | 8,526 | 13.1% | 37,209 | 33,578 | 10.8% | |||||
ASMs (000,000) "capacity" | 11,407 | 10,340 | 10.3% | 44,135 | 39,914 | 10.6% | |||||
Load factor | 84.5% | 82.5% | 2.0 pts | 84.3% | 84.1% | 0.2 pts | |||||
Yield | 13.36¢ | 13.82¢ | (3.3)% | 13.45¢ | 14.27¢ | (5.7)% | |||||
PRASM | 11.29¢ | 11.39¢ | (0.9)% | 11.34¢ | 12.01¢ | (5.6)% | |||||
RASM | 13.36¢ | 13.32¢ | 0.3% | 13.44¢ | 14.03¢ | (4.2)% | |||||
CASM excluding fuel and special items(b) | 8.45¢ | 8.48¢ | (0.4)% | 8.23¢ | 8.30¢ | (0.8)% | |||||
Economic fuel cost per gallon(c) | $1.68 | $1.62 | 3.7% | $1.52 | $1.88 | (19.1)% | |||||
Fuel gallons (000,000) | 144 | 131 | 9.9% | 554 | 508 | 9.1% | |||||
ASM's per gallon | 79.2 | 78.9 | 0.4% | 79.7 | 78.6 | 1.4% | |||||
Average full-time equivalent employees (FTEs) | 15,566 | 14,360 | 8.4% | 14,760 | 13,858 | 6.5% | |||||
Employee productivity (PAX/FTEs/months) | 187.4 | 184.0 | 1.8% | 193.6 | 191.7 | 1.0% | |||||
Mainline Operating Statistics: | |||||||||||
Revenue passengers (PAX) (000) | 6,406 | 5,676 | 12.9% | 24,838 | 22,869 | 8.6% | |||||
RPMs (000,000) "traffic" | 8,722 | 7,707 | 13.2% | 33,489 | 30,340 | 10.4% | |||||
ASMs (000,000) "capacity" | 10,257 | 9,303 | 10.3% | 39,473 | 35,912 | 9.9% | |||||
Load factor | 85.0% | 82.8% | 2.2 pts | 84.8% | 84.5% | 0.3 pts | |||||
Yield | 12.17¢ | 12.48¢ | (2.5)% | 12.24¢ | 12.98¢ | (5.7)% | |||||
PRASM | 10.35¢ | 10.34¢ | 0.1% | 10.38¢ | 10.97¢ | (5.4)% | |||||
RASM | 12.46¢ | 12.28¢ | 1.5% | 12.51¢ | 12.98¢ | (3.6)% | |||||
CASM excluding fuel and special items(b) | 7.57¢ | 7.54¢ | 0.4% | 7.30¢ | 7.39¢ | (1.2)% | |||||
Economic fuel cost per gallon(c) | $1.67 | $1.60 | 4.4% | $1.52 | $1.87 | (18.7)% | |||||
Fuel gallons (000,000) | 124 | 113 | 9.7% | 474 | 439 | 8.0% | |||||
ASM's per gallon | 82.7 | 82.3 | 0.5% | 83.3 | 81.8 | 1.8% | |||||
Average number of FTEs | 12,037 | 11,069 | 8.7% | 11,447 | 10,750 | 6.5% | |||||
Employee productivity (PAX/FTEs/months) | 177.4 | 170.9 | 3.8% | 180.8 | 177.3 | 2.0% | |||||
Aircraft utilization | 10.1 | 10.7 | (5.6)% | 10.5 | 10.8 | (2.8)% | |||||
Average aircraft stage length | 1,243 | 1,225 | 1.5% | 1,225 | 1,195 | 2.5% | |||||
Regional Operating Statistics:(d) | |||||||||||
Revenue passengers (PAX) (000) | 2,346 | 2,253 | 4.1% | 9,452 | 9,015 | 4.8% | |||||
RPMs (000,000) "traffic" | 918 | 819 | 12.1% | 3,720 | 3,238 | 14.9% | |||||
ASMs (000,000) "capacity" | 1,150 | 1,037 | 10.9% | 4,662 | 4,002 | 16.5% | |||||
Load factor | 79.8% | 79.0% | 0.8 pts | 79.8% | 80.9% | (1.1) pts | |||||
Yield | 24.64¢ | 26.37¢ | (6.6)% | 24.42¢ | 26.37¢ | (7.4)% | |||||
PRASM | 19.67¢ | 20.83¢ | (5.6)% | 19.49¢ | 21.34¢ | (8.7)% |
(a) | Except for full-time equivalent employees, 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 why these measures may be important to investors in the accompanying pages. |
(c) | See a reconciliation of economic fuel cost in the accompanying pages. |
(d) | Data presented includes information related to flights operated by Horizon and third-party carriers. |
OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Amounts below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016. | |||||||||||||||||||||||||||
Three Months Ended December 31, 2016 | |||||||||||||||||||||||||||
(in millions) | Mainline(a) | Regional | Horizon | Consolidating & Other(b) | Air Group Adjusted(c) | Special Items(d) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 1,062 | $ | — | $ | — | $ | — | $ | 1,062 | $ | — | $ | 1,062 | |||||||||||||
Regional | — | 226 | — | — | 226 | — | 226 | ||||||||||||||||||||
Total passenger revenues | 1,062 | 226 | — | — | 1,288 | — | 1,288 | ||||||||||||||||||||
Revenue from CPA with Alaska | — | — | 102 | (102 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 25 | 2 | — | (1 | ) | 26 | — | 26 | |||||||||||||||||||
Other-net | 192 | 17 | 1 | — | 210 | — | 210 | ||||||||||||||||||||
Total operating revenues | 1,279 | 245 | 103 | (103 | ) | 1,524 | — | 1,524 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Non-fuel operating expenses | 776 | 189 | 102 | (103 | ) | 964 | 81 | 1,045 | |||||||||||||||||||
Fuel expense | 207 | 35 | — | — | 242 | (4 | ) | 238 | |||||||||||||||||||
Total operating expenses | 983 | 224 | 102 | (103 | ) | 1,206 | 77 | 1,283 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 7 | — | — | — | 7 | — | 7 | ||||||||||||||||||||
Interest expense | (19 | ) | — | (2 | ) | (1 | ) | (22 | ) | — | (22 | ) | |||||||||||||||
Other | 4 | — | 1 | — | 5 | — | 5 | ||||||||||||||||||||
Total nonoperating income (expense) | (8 | ) | — | (1 | ) | (1 | ) | (10 | ) | — | (10 | ) | |||||||||||||||
Income (loss) before income tax | $ | 288 | $ | 21 | $ | — | $ | (1 | ) | $ | 308 | $ | (77 | ) | $ | 231 | |||||||||||
Three Months Ended December 31, 2015 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other(b) | Air Group Adjusted(c) | Special Items(d) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 962 | $ | — | $ | — | $ | — | $ | 962 | $ | — | $ | 962 | |||||||||||||
Regional | — | 216 | — | — | 216 | — | 216 | ||||||||||||||||||||
Total passenger revenues | 962 | 216 | — | — | 1,178 | — | 1,178 | ||||||||||||||||||||
Revenue from CPA with Alaska | — | — | 105 | (105 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 24 | 1 | — | — | 25 | — | 25 | ||||||||||||||||||||
Other-net | 156 | 17 | 1 | — | 174 | — | 174 | ||||||||||||||||||||
Total operating revenues | 1,142 | 234 | 106 | (105 | ) | 1,377 | — | 1,377 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Non-fuel operating expenses | 702 | 181 | 101 | (107 | ) | 877 | 32 | 909 | |||||||||||||||||||
Fuel expense | 182 | 30 | — | — | 212 | 1 | 213 | ||||||||||||||||||||
Total operating expenses | 884 | 211 | 101 | (107 | ) | 1,089 | 33 | 1,122 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 4 | — | — | 1 | 5 | — | 5 | ||||||||||||||||||||
Interest expense | (7 | ) | — | (2 | ) | (1 | ) | (10 | ) | — | (10 | ) | |||||||||||||||
Other | 7 | — | 1 | 1 | 9 | — | 9 | ||||||||||||||||||||
Total nonoperating income (expense) | 4 | — | (1 | ) | 1 | 4 | — | 4 | |||||||||||||||||||
Income (loss) before income tax | $ | 262 | $ | 23 | $ | 4 | $ | 3 | $ | 292 | $ | (33 | ) | $ | 259 |
OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Twelve Months Ended December 31, 2016 | |||||||||||||||||||||||||||
(in millions) | Mainline(a) | Regional | Horizon | Consolidating & Other(b) | Air Group Adjusted(c) | Special Items(d) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 4,098 | $ | — | $ | — | $ | — | $ | 4,098 | $ | — | $ | 4,098 | |||||||||||||
Regional | — | 908 | — | — | 908 | — | 908 | ||||||||||||||||||||
Total passenger revenues | 4,098 | 908 | — | — | 5,006 | — | 5,006 | ||||||||||||||||||||
Revenue from CPA with Alaska | — | — | 424 | (424 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 104 | 5 | — | (1 | ) | 108 | — | 108 | |||||||||||||||||||
Other-net | 738 | 74 | 4 | 1 | 817 | — | 817 | ||||||||||||||||||||
Total operating revenues | 4,940 | 987 | 428 | (424 | ) | 5,931 | — | 5,931 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Non-fuel operating expenses | 2,883 | 769 | 407 | (425 | ) | 3,634 | 117 | 3,751 | |||||||||||||||||||
Fuel expense | 719 | 125 | — | — | 844 | (13 | ) | 831 | |||||||||||||||||||
Total operating expenses | 3,602 | 894 | 407 | (425 | ) | 4,478 | 104 | 4,582 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 26 | — | 1 | — | 27 | — | 27 | ||||||||||||||||||||
Interest expense | (42 | ) | — | (9 | ) | (4 | ) | (55 | ) | — | (55 | ) | |||||||||||||||
Other | 19 | — | 1 | 4 | 24 | — | 24 | ||||||||||||||||||||
Total nonoperating income (expense) | 3 | — | (7 | ) | — | (4 | ) | — | (4 | ) | |||||||||||||||||
Income (loss) before income tax | $ | 1,341 | $ | 93 | $ | 14 | $ | 1 | $ | 1,449 | $ | (104 | ) | $ | 1,345 | ||||||||||||
Twelve Months Ended December 31, 2015 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other(b) | Air Group Adjusted(c) | Special Items(d) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger | |||||||||||||||||||||||||||
Mainline | $ | 3,939 | $ | — | $ | — | $ | — | $ | 3,939 | $ | — | $ | 3,939 | |||||||||||||
Regional | — | 854 | — | — | 854 | — | 854 | ||||||||||||||||||||
Total passenger revenues | 3,939 | 854 | — | — | 4,793 | — | 4,793 | ||||||||||||||||||||
Revenue from CPA with Alaska | — | — | 408 | (408 | ) | — | — | — | |||||||||||||||||||
Freight and mail | 103 | 5 | — | — | 108 | — | 108 | ||||||||||||||||||||
Other-net | 621 | 72 | 4 | — | 697 | — | 697 | ||||||||||||||||||||
Total operating revenues | 4,663 | 931 | 412 | (408 | ) | 5,598 | — | 5,598 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Non-fuel operating expenses | 2,653 | 695 | 375 | (409 | ) | 3,314 | 32 | 3,346 | |||||||||||||||||||
Fuel expense | 823 | 131 | — | — | 954 | — | 954 | ||||||||||||||||||||
Total operating expenses | 3,476 | 826 | 375 | (409 | ) | 4,268 | 32 | 4,300 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 19 | — | — | 2 | 21 | — | 21 | ||||||||||||||||||||
Interest expense | (28 | ) | — | (10 | ) | (4 | ) | (42 | ) | — | (42 | ) | |||||||||||||||
Other | 28 | — | 1 | 6 | 35 | — | 35 | ||||||||||||||||||||
Total nonoperating income (expense) | 19 | — | (9 | ) | 4 | 14 | — | 14 | |||||||||||||||||||
Income (loss) before income tax | $ | 1,206 | $ | 105 | $ | 28 | $ | 5 | $ | 1,344 | $ | (32 | ) | $ | 1,312 |
(a) | Includes Alaska activity for the full period, and Virgin America financial results for the period December 14, 2016 through December 31, 2016, and the impacts associated with purchase accounting as of December 14, 2016. |
(b) | Includes consolidating entries, Parent Company, and other immaterial business units. |
(c) | Air Group Adjusted excludes certain charges. See Note A on the accompanying pages for further information. |
(d) | Includes merger-related costs, mark-to-market fuel-hedge accounting charges, and other special items described previously. |
CASM Excluding Fuel and Special Items Reconciliation (unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
(in cents) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Consolidated: | |||||||||||||||
Total operating expenses per ASM (CASM) | 11.25 | ¢ | 10.85 | ¢ | 10.38 | ¢ | 10.77 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 2.09 | 2.06 | 1.88 | 2.39 | |||||||||||
Special items - merger-related costs and other | 0.71 | 0.31 | 0.27 | 0.08 | |||||||||||
CASM, excluding fuel and special items | 8.45 | ¢ | 8.48 | ¢ | 8.23 | ¢ | 8.30 | ¢ | |||||||
Mainline: | |||||||||||||||
Total operating expenses per ASM (CASM) | 10.33 | ¢ | 9.86 | ¢ | 9.39 | ¢ | 9.77 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 1.98 | 1.97 | 1.79 | 2.29 | |||||||||||
Special items - merger-related costs and other | 0.78 | 0.35 | 0.30 | 0.09 | |||||||||||
CASM, excluding fuel and special items | 7.57 | ¢ | 7.54 | ¢ | 7.30 | ¢ | 7.39 | ¢ | |||||||
Fuel Reconciliations (unaudited) | |||||||||||||||
Three Months Ended December 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gal | Dollars | Cost/Gal | |||||||||||
Raw or "into-plane" fuel cost | $ | 238 | $ | 1.65 | $ | 208 | $ | 1.59 | |||||||
Losses on settled hedges | 4 | 0.03 | 4 | 0.03 | |||||||||||
Consolidated economic fuel expense | $ | 242 | $ | 1.68 | $ | 212 | $ | 1.62 | |||||||
Mark-to-market fuel hedge adjustments | (4 | ) | (0.03 | ) | 1 | — | |||||||||
GAAP fuel expense | $ | 238 | $ | 1.65 | $ | 213 | $ | 1.62 | |||||||
Fuel gallons | 144 | 131 | |||||||||||||
Twelve Months Ended December 31, | |||||||||||||||
2016 | 2015 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gal | Dollars | Cost/Gal | |||||||||||
Raw or "into-plane" fuel cost | $ | 828 | $ | 1.49 | $ | 935 | $ | 1.84 | |||||||
Losses on settled hedges | 16 | 0.03 | 19 | 0.04 | |||||||||||
Consolidated economic fuel expense | $ | 844 | $ | 1.52 | $ | 954 | $ | 1.88 | |||||||
Mark-to-market fuel hedge adjustments | (13 | ) | (0.02 | ) | — | — | |||||||||
GAAP fuel expense | $ | 831 | $ | 1.50 | $ | 954 | $ | 1.88 | |||||||
Fuel gallons | 554 | 508 |
Three months ended December 31, 2016 | Three months ended December 31, 2015 | |||||||||||||||||||||
(in millions) | Alaska Air Group (as reported) | Virgin America (as conformed) | Combined | Alaska Air Group (as reported) | Virgin America (as reported and conformed) | Combined | Combined % Change | |||||||||||||||
Passenger revenue | $ | 1,288 | 293 | $ | 1,581 | $ | 1,178 | $ | 347 | $ | 1,525 | 3.7 | % | |||||||||
Other revenue(a) | 236 | 37 | 273 | 199 | 43 | 242 | 12.8 | % | ||||||||||||||
Total Operating Revenues | 1,524 | 330 | 1,854 | 1,377 | 390 | 1,767 | 4.9 | % | ||||||||||||||
Non-fuel operating expense | 1,045 | 237 | 1,282 | 909 | 288 | 1,197 | 7.1 | % | ||||||||||||||
Fuel expense | 238 | 64 | 302 | 213 | 82 | 295 | 2.4 | % | ||||||||||||||
Total Operating Expenses | 1,283 | 301 | 1,584 | 1,122 | 370 | 1,492 | 6.2 | % | ||||||||||||||
Operating Income | 241 | 29 | 270 | 255 | 20 | 275 | (1.8 | )% | ||||||||||||||
Nonoperating income (expense) | (10 | ) | (5 | ) | (15 | ) | 4 | (3 | ) | 1 | NM | |||||||||||
Income Before Tax | 231 | 24 | 255 | 259 | 17 | 276 | (7.6 | )% | ||||||||||||||
Special items - merger-related and other | 81 | 13 | 94 | 32 | 36 | 68 | 38.2 | % | ||||||||||||||
Mark-to-market fuel hedge adjustments | (4 | ) | — | (4 | ) | 1 | — | 1 | NM | |||||||||||||
Adjusted Income Before Tax | $ | 308 | $ | 37 | $ | 345 | $ | 292 | $ | 53 | $ | 345 | — | % |
Twelve months ended December 31, 2016 | Twelve months ended December 31, 2015 | |||||||||||||||||||||
(in millions) | Alaska Air Group (as reported) | Virgin America (as conformed) | Combined | Alaska Air Group (as reported) | Virgin America (as reported and conformed) | Combined | Combined % Change | |||||||||||||||
Passenger revenue | $ | 5,006 | $ | 1,388 | $ | 6,394 | $ | 4,793 | $ | 1,361 | $ | 6,154 | 3.9 | % | ||||||||
Other revenue(a) | 925 | 176 | 1,101 | 805 | 165 | 970 | 13.5 | % | ||||||||||||||
Total Operating Revenues | 5,931 | 1,564 | 7,495 | 5,598 | 1,526 | 7,124 | 5.2 | % | ||||||||||||||
Non-fuel operating expense | 3,751 | 1,049 | 4,800 | 3,346 | 989 | 4,335 | 10.7 | % | ||||||||||||||
Fuel Expense | 831 | 293 | 1,124 | 954 | 360 | 1,314 | (14.5 | )% | ||||||||||||||
Total Operating Expenses | 4,582 | 1,342 | 5,924 | 4,300 | 1,349 | 5,649 | 4.9 | % | ||||||||||||||
Operating Income | 1,349 | 222 | 1,571 | 1,298 | 177 | 1,475 | 6.5 | % | ||||||||||||||
Nonoperating income (expense) | (4 | ) | (19 | ) | (23 | ) | 14 | (9 | ) | 5 | NM | |||||||||||
Income Before Tax | 1,345 | 203 | 1,548 | 1,312 | 168 | 1,480 | 4.6 | % | ||||||||||||||
Special items - merger-related and other | 117 | 21 | 138 | 32 | 36 | 68 | 102.9 | % | ||||||||||||||
Mark-to-market fuel hedge adjustments | (13 | ) | (2 | ) | (15 | ) | — | (2 | ) | (2 | ) | NM | ||||||||||
Adjusted Income Before Tax | $ | 1,449 | $ | 222 | $ | 1,671 | $ | 1,344 | $ | 202 | $ | 1,546 | 8.1 | % |
(a) | Includes Freight and Mail, and Other-net revenue as presented on the Statement of Operations. |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||
Revenue Passengers (000) | 10,382 | 9,787 | 6.1% | 41,947 | 38,919 | 7.8% | |
ASMs (000,000) | 14,404 | 13,697 | 5.2% | 57,953 | 52,605 | 10.2% | |
Load Factor | 83.9% | 82.1% | 1.8 pts | 84.1% | 83.7% | 0.4 pts | |
PRASM | 10.97¢ | 11.13¢ | (1.4)% | 11.03¢ | 11.70¢ | (5.7)% | |
RASM | 12.87¢ | 12.90¢ | (0.2)% | 12.93¢ | 13.54¢ | (4.5)% | |
CASMex | 8.25¢ | 8.24¢ | 0.1% | 8.04¢ | 8.11¢ | (0.9)% |
• | 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 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 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, 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. |
![]() | Exhibit 99.2 |
AIR GROUP - CONSOLIDATED |
Forecast Q1 2017 | Actual Q1 2016 | Forecast Full Year 2017 | Actual 2016 | ||||
Capacity (ASMs in millions) | 14,500 - 14,550 | 10,453 | 62,800 - 63,000 | 44,135 | |||
Cost per ASM excluding fuel and special items (cents) | 8.35¢ - 8.40¢ | 8.51¢ | 8.00¢ - 8.05¢ | 8.23¢ | |||
Fuel gallons (000,000) | 185 | 132 | 790 | 554 | |||
Economic fuel cost per gallon(b) | $1.78 | $1.29 | (c) | $1.52 |
(a) | Consolidated forecast information includes Virgin America Inc. (Virgin America), which became a wholly-owned subsidiary of the Company on December 14, 2016. |
(b) | Our economic fuel cost per gallon estimate for the first quarter includes the following per-gallon assumptions: crude oil cost - $1.26 ($53 per barrel); refining margin - 30 cents; cost of settled hedges - 2 cents, with the remaining difference due to taxes and other into-plane costs. |
(c) | Because of the volatility of fuel prices, we do not provide full-year economic fuel estimates. |
Forecast Q1 2017 | Q1 2016 Combined Comparative | % Change | Forecast Full Year 2017 | 2016 Combined Comparative | % Change | ||||||
Capacity (ASMs in millions) | 14,500 - 14,550 | 13,718 | ~ 6% | 62,800 - 63,000 | 57,953 | ~ 8.5% | |||||
Cost per ASM excluding fuel and special items (cents) | 8.35¢ - 8.40¢ | 8.36¢ | flat | 8.00¢ - 8.05¢ | 8.04¢ | flat | |||||
Fuel gallons (000,000) | 185 | 175 | ~ 6% | 790 | 739 | ~ 7% |
2017 | 2018 | 2019 | 2020 | ||||||||||||
Aircraft and aircraft purchase deposits - firm | $ | 780 | $ | 710 | $ | 600 | $ | 300 | |||||||
Other flight equipment | 145 | 135 | 95 | 55 | |||||||||||
Other property and equipment | 215 | 205 | 90 | 75 | |||||||||||
Total property and equipment additions | $ | 1,140 | $ | 1,050 | $ | 785 | $ | 430 | |||||||
Option aircraft and aircraft deposits, if exercised (a) | $ | 60 | $ | 240 | $ | 705 | $ | 1,425 |
(a) | The Company has options to acquire 41 B737 aircraft with deliveries from 2019 through 2024, options to acquire 30 A320 aircraft with deliveries from 2020 through 2022, and options to acquire 30 E175 aircraft with deliveries in 2019 to 2021. |
Actual Fleet Count | Expected Fleet Activity | ||||||||||||||||||
Aircraft | Dec 31, 2015 | Dec 31, 2016 | 2017 Changes | Dec 31, 2017 | 2018 - 2019 Changes | Dec 31, 2019 | |||||||||||||
737 Freighters & Combis | 6 | 6 | (3 | ) | 3 | — | 3 | ||||||||||||
737 Passenger Aircraft | 141 | 149 | — | 149 | 17 | 166 | |||||||||||||
A319/A320/A321 Airbus Aircraft | — | 63 | 5 | — | 68 | 4 | 72 | ||||||||||||
Total Mainline Fleet | 147 | 218 | 2 | 220 | 21 | — | 241 | ||||||||||||
Q400 | 52 | 52 | — | 52 | (15 | ) | 37 | ||||||||||||
E175(b) | 5 | 15 | 18 | 33 | 20 | 53 | |||||||||||||
CRJ-700(b) | 8 | — | — | — | — | — | |||||||||||||
Total Regional Fleet | 65 | 67 | 18 | 85 | 5 | 90 | |||||||||||||
Total Air Group Fleet | 212 | 285 | 20 | 305 | 26 | 331 |
(a) | The expected fleet counts at December 31, 2017 and beyond are subject to change. |
(b) | Aircraft are operated under capacity purchase agreements with either Horizon or a third party. |
AIR GROUP - CONSOLIDATED (continued) |
Approximate % of Expected Fuel Requirements | Weighted-Average Crude Oil Price per Barrel | Average Premium Cost per Barrel | |||
First Quarter 2017 | 50% | $60 | $2 | ||
Second Quarter 2017 | 50% | $62 | $2 | ||
Third Quarter 2017 | 40% | $63 | $2 | ||
Fourth Quarter 2017 | 30% | $65 | $3 | ||
Full Year 2017 | 42% | $62 | $2 | ||
First Quarter 2018 | 20% | $65 | $3 | ||
Second Quarter 2018 | 10% | $67 | $2 | ||
Full Year 2018 | 7% | $65 | $2 |
MAINLINE - Alaska and Virgin America |
Forecast Q1 2017 | Actual Q1 2016 | Forecast Full Year 2017 | Actual 2016 | ||||
Capacity (ASMs in millions) | 13,325 -13,375 | 9,354 | 57,200 - 57,400 | 39,473 | |||
Cost per ASM excluding fuel and special items (cents) | 7.55¢ - 7.60¢ | 7.49¢ | 7.30¢ - 7.35¢ | 7.30¢ | |||
Fuel gallons (000,000) | 165 | 113 | 700 | 474 | |||
Economic fuel cost per gallon(a) | $1.78 | $1.28 | (b) | $1.52 |
(a) | Please see note (a) in Consolidated for the breakout of economic fuel cost per gallon. |
(b) | Because of the volatility of fuel prices, we do not provide full-year economic fuel estimates. |
Forecast Q1 2017 | Q1 2016 Combined Comparative | % Change | Forecast Full Year 2017 | 2016 Combined Comparative | % Change | ||||||
Capacity (ASMs in millions) | 13,325 -13,375 | 12,619 | ~ 6% | 57,200 - 57,400 | 53,291 | ~ 7.5% | |||||
Cost per ASM excluding fuel and special items (cents) | 7.55¢ - 7.60¢ | 7.60¢ | ~ (0.5)-0% | 7.30¢ - 7.35¢ | 7.34¢ | ~ (0.5)-0% | |||||
Fuel gallons (000,000) | 165 | 156 | ~ 6% | 700 | 659 | ~ 6% |
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