EX-99.2 3 ex9927252019investorup.htm JULY 25, 2019 INVESTOR UPDATE Exhibit


Exhibit 99.2
alaskaairgrouplogoa96.jpg

Investor Update - July 25, 2019

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 consolidated operations. 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 expenses per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expenses 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 information about estimated fuel prices and our hedging program. 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, 2018, 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.




AIR GROUP - CONSOLIDATED

Forecast Information
 
Forecast
Full Year 2019
 
Full Year 2018
 
% Change
 
Prior Guidance June 13, 2019
Capacity (ASMs in millions)
66,650 - 66,800
 
65,335
 
~ 2.1%
 
~ 2.0%
Cost per ASM excluding fuel and special items (cents)
8.67¢ - 8.70¢
 
8.50¢
 
~ 2.2%
 
~ 2.1%
Fuel gallons (millions)
865
 
839
 
~ 3.1%
 
857
 
Forecast
Q3 2019
 
Q3 2018
 
% Change
 
Prior Guidance June 13, 2019
Capacity (ASMs in millions)
17,435 - 17,485
 
16,943
 
~ 3.0%
 
N/A
Revenue per ASM (cents)
13.31¢ - 13.69¢
 
13.05¢
 
~ 2.0% - 5.0%
 
N/A
Cost per ASM excluding fuel and special items (cents)(b)
8.52¢ - 8.57¢
 
8.15¢
 
~ 5.0%
 
N/A
Fuel gallons (millions)
230
 
218
 
~ 5.5%
 
N/A
Economic fuel cost per gallon(a)
$2.21
 
$2.33
 
~ (5.2)%
 
N/A
(a)
Our economic fuel cost per gallon estimate for the third quarter includes the following per-gallon assumptions: crude oil cost—$1.43 (approximately $60 per barrel), refining margin—55 cents, cost of settled hedges—2 cents, with the remaining difference due to taxes and other into-plane costs. Estimate is based on the July 23, 2019 forward curve.
(b)
Our guidance for the third quarter and full year includes the impact of a recently ratified transition agreement with aircraft technicians, and assumes ratification of the tentative agreement with employees represented by the International Association of Machinists. The impact of these agreements is approximately $24 million, with $10 million in Q3 and $14 million in Q4. The guidance also includes a $24 million expected impact in Q3 for signing bonuses.

2019 Forecasted Capacity and CASMex by Quarter
The following table shows 2019 quarterly forecasted capacity by segment and forecasted consolidated CASMex with percent change on an adjusted basis from the same period in the prior year.
 
Actual
 
Forecast
 
Q1
 
Q2
 
Q3
 
Q4
 
Full Year
Mainline ASMs
(1.6)%
 
(0.3)%
 
~ 2.0%
 
~ 4.0%
 
~ 1.0%
Regional ASMs
18.2%
 
12.6%
 
~ 12.0%
 
~ 4.5%
 
~ 11.5%
Total Air Group ASMs
0.2%
 
0.9%
 
~ 3.0%
 
~ 4.0%
 
~ 2.1%
Prior Guidance April 25, 2019
 
 

 
3.0%
 
3.5%
 
2.0%
 
 
 
 
 
 
 
 
 
 
CASMex (cents)
9.06¢
 
8.33¢
 
8.52¢ - 8.57¢
 
8.82¢ - 8.87¢
 
8.67¢ - 8.70¢
% Change
2.8%
 
2.3%
 
~ 5.0%
 
~(1.2)%
 
~ 2.2%




Capacity and Capital Expenditures Forecast
The guidance below is based on our current expectation of capacity growth and capital expenditures.
(in millions, except %)
2019
 
2020
Capacity (ASMs) growth
2.1%
 
~3% - 4%
Expected capital expenditures
~$725
 
~$775

Nonoperating Expense

We expect that our consolidated nonoperating expense will be approximately $15 million in the third quarter of 2019.

Effective Tax Rate
We expect the 2019 full year effective tax rate to be approximately 26%.

Future Fuel Hedge Positions

All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. Our crude oil positions are as follows:
 
Approximate % of Expected Fuel Requirements
 
Weighted-Average Crude Oil Price per Barrel
 
Average Premium Cost per Barrel
Third Quarter 2019
50
%
 
76

 
2

Fourth Quarter 2019
50
%
 
74

 
2

Remainder 2019
50
%
 
$
75

 
$
2

First Quarter 2020
40
%
 
71

 
2

Second Quarter 2020
30
%

69


2

Third Quarter 2020
20
%
 
70

 
2

Fourth Quarter 2020
10
%
 
69

 
3

Full Year 2020
24
%
 
$
70

 
$
2