Exhibit 99.1
July 25, 2023
| Media contact: | Investor/analyst contact: | |||||||
| Media Relations | Ryan St. John | |||||||
| (206) 304-0008 | VP Finance, Planning and Investor Relations | |||||||
| ALKInvestorRelations@alaskaair.com | ||||||||
Alaska Air Group reports second quarter 2023 results
Delivered industry-leading adjusted pre-tax margins of 18.3% on record quarterly revenue
Adjusted pre-tax margin exceeds 2019 second quarter results despite higher fuel costs
Achieved industry's best on-time performance and completion rate in June
SEATTLE — Alaska Air Group (NYSE: ALK) today reported financial results for the second quarter ending June 30, 2023, and provided outlook for the third quarter ending September 30, 2023.
“People are hungry to travel and our frontline employees are delivering the safe, reliable and caring experience that people expect when they fly with us,” said CEO Ben Minicucci. “I’m so proud of our team for knocking it out of the park and delivering industry-leading operational and financial outcomes. We chose to prioritize reliability, which is imperative to restoring stability, improving predictability for our guests and employees, capturing record revenue, and serving as the foundation for our long-term profitable growth.”
Financial Highlights:
•Reported net income for the second quarter of 2023 under Generally Accepted Accounting Principles (GAAP) of $240 million, or $1.86 per share, compared to a net income of $139 million, or $1.09 per share, for the second quarter of 2022.
•Reported net income for the second quarter of 2023, excluding special items and mark-to-market fuel hedge accounting adjustments, of $387 million, or $3.00 per share, compared to $280 million, or $2.19 per share, for the second quarter of 2022. This quarter's adjusted results exceed the First Call analyst consensus estimate of $2.70 per share.
•Generated adjusted pre-tax margins of 18.3%, a 250-basis point increase over the same period in 2019.
•Recorded $2.8 billion in operating revenue for the second quarter, the highest quarterly total in company history.
•Received $435 million in bank card partner commissions driven by increased consumer spending.
•Repurchased 871,987 shares of common stock for approximately $39 million in the second quarter, bringing total repurchases to $57 million for the six months ended June 30, 2023. The company continues to expect share repurchases of at least $100 million in 2023.
•Generated $610 million in operating cash flow for the second quarter.
•Held $2.4 billion in unrestricted cash and marketable securities as of June 30, 2023.
•Ended the quarter with a debt-to-capitalization ratio of 48%, within the target range of 40% to 50%.
Operational Updates:
•Received eight 737-9 aircraft and six E175 aircraft during the quarter, bringing the totals in the Alaska and Horizon fleets to 51 and 39, respectively.
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•Announced new routes to Nassau, Bahamas from Seattle and Los Angeles and Guatemala City, Guatemala from Los Angeles, marking six countries that Alaska will fly to and from its West Coast hubs.
•Launched partnership with STARLUX Airlines, whose flights between Los Angeles and Taipei allow Mileage Plan members to connect to 16 destinations across Asia.
•Reopened the renovated D Concourse Lounge in Seattle, offering 50% more seating and improved amenities.
•Completed Intelsat satellite Wi-Fi installation across the Mainline fleet.
Environmental, Social and Governance Updates:
•Released the 2022 Care Report, sharing the company's progress towards its environmental, social and governance goals, as well as highlighting accomplishments and ongoing initiatives.
•Contributed a retired Q400 aircraft to ZeroAvia to support its development of a hydrogen-electric powertrain system, showcasing Alaska's commitment to creating a sustainable future for aviation.
Awards and Recognition:
•Mileage Plan named Best Airline Reward program for 2023-2024 by U.S. News & World Report for the 9th consecutive year.
•Presented with the award for "Executive Leadership - North America" at the Airline Strategy Awards in recognition of Alaska's strong financial performance and operational excellence.
•Named to Forbes' Best Employers for Diversity list, receiving the highest ranking of all airlines.
•Scored 100% for the second year in a row in Disability:IN's Disability Equality Index, which benchmarks companies on their disability inclusion and equality.
•Rated by KAYAK users as the #1 overall airline in North America, earning the top scores for crew, comfort, food and boarding.
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The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2023 and 2022 to adjusted amounts.
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||||||||||
| GAAP net income per share | $ | 240 | $ | 1.86 | $ | 139 | $ | 1.09 | |||||||||||||||
| Mark-to-market fuel hedge adjustments | 1 | 0.01 | 40 | 0.31 | |||||||||||||||||||
Special items - fleet transition and other(a) | 186 | 1.44 | 146 | 1.14 | |||||||||||||||||||
Special items - net non-operating(c) | 6 | 0.05 | — | — | |||||||||||||||||||
| Income tax effect of reconciling items above | (46) | (0.36) | (45) | (0.35) | |||||||||||||||||||
| Non-GAAP adjusted net income per share | $ | 387 | $ | 3.00 | $ | 280 | $ | 2.19 | |||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||||||||||
| GAAP net income (loss) per share | $ | 98 | $ | 0.76 | $ | (4) | $ | (0.03) | |||||||||||||||
| Mark-to-market fuel hedge adjustments | 21 | 0.16 | (67) | (0.53) | |||||||||||||||||||
Special items - fleet transition and other(a) | 199 | 1.54 | 221 | 1.75 | |||||||||||||||||||
Special items - labor and related(b) | 51 | 0.40 | — | — | |||||||||||||||||||
Special items - net non-operating(c) | 6 | 0.05 | — | — | |||||||||||||||||||
| Income tax effect of reconciling items above | (67) | (0.52) | (37) | (0.30) | |||||||||||||||||||
| Non-GAAP adjusted net income per share | $ | 308 | $ | 2.39 | $ | 113 | $ | 0.89 | |||||||||||||||
(a) Special items - fleet transition and other in the three and six months ended June 30, 2023 and 2022 is primarily for impairment charges and accelerated costs associated with the retirement of Airbus and Q400 aircraft.
(b) Special items - labor and related in the six months ended June 30, 2023 is primarily for changes to Alaska pilots' sick leave benefits resulting from an agreement signed in the first quarter of 2023.
(c) Special items - net non-operating in the three and six months ended June 30, 2023 is for interest expense associated with certain A321neo lease agreements which were modified as part of Alaska's fleet transition.
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.
Alaska will hold its quarterly conference call to discuss second quarter results at 8:30 a.m. PDT on July 25, 2023. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.
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Third Quarter and Full Year 2023 Forecast Information
| Q3 Expectation | ||||||||
| Capacity (ASMs) % change versus 2022 | Up 10% to 13% | |||||||
| Total revenue % change versus 2022 | Up 0% to 3% | |||||||
| Cost per ASM excluding fuel and special items (CASMex) % change versus 2022 | Down 0% to 2% | |||||||
| Economic fuel cost per gallon | $2.70 to $2.80 | |||||||
| Adjusted pre-tax margin % | 14% to 16% | |||||||
| Full Year Expectation | ||||||||
| Capacity (ASMs) % change versus 2022 | Up 11% to 13% | |||||||
| Total revenue % change versus 2022 | Up 8% to 10% | |||||||
| Cost per ASM excluding fuel and special items (CASMex) % change versus 2022 | Down 1% to 3% | |||||||
| Adjusted pre-tax margin % | 9% to 12% | |||||||
Earnings per share(a) | $5.50 to $7.50 | |||||||
| Capital expenditures | ~$1.8 billion | |||||||
(a) Earnings per share guidance assumes a full year tax rate of approximately 25%
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 news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, 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 our forward-looking statements, assumptions or beliefs. 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, 2022. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. 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 made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.
Alaska Airlines and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We strive to be the most caring airline with award-winning customer service and an industry-leading loyalty program. As a member of the oneworld alliance, and with our additional global partners, our guests can travel to more than 1,000 destinations on more than 25 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at news.alaskaair.com and follow @alaskaairnews for news and stories. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group.
###
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| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||||||||||||||||||||||||||
| Alaska Air Group, Inc. | |||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||
| Operating Revenue | |||||||||||||||||||||||||||||||||||
| Passenger revenue | $ | 2,598 | $ | 2,418 | 7 | % | $ | 4,582 | $ | 3,929 | 17 | % | |||||||||||||||||||||||
| Mileage Plan other revenue | 170 | 175 | (3) | % | 324 | 287 | 13 | % | |||||||||||||||||||||||||||
| Cargo and other revenue | 70 | 65 | 8 | % | 128 | 123 | 4 | % | |||||||||||||||||||||||||||
| Total Operating Revenue | 2,838 | 2,658 | 7 | % | 5,034 | 4,339 | 16 | % | |||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Wages and benefits | 754 | 639 | 18 | % | 1,477 | 1,245 | 19 | % | |||||||||||||||||||||||||||
| Variable incentive pay | 57 | 56 | 2 | % | 104 | 92 | 13 | % | |||||||||||||||||||||||||||
| Aircraft fuel, including hedging gains and losses | 573 | 776 | (26) | % | 1,238 | 1,123 | 10 | % | |||||||||||||||||||||||||||
| Aircraft maintenance | 125 | 104 | 20 | % | 249 | 239 | 4 | % | |||||||||||||||||||||||||||
| Aircraft rent | 54 | 73 | (26) | % | 113 | 146 | (23) | % | |||||||||||||||||||||||||||
| Landing fees and other rentals | 167 | 136 | 23 | % | 319 | 274 | 16 | % | |||||||||||||||||||||||||||
| Contracted services | 95 | 82 | 16 | % | 190 | 160 | 19 | % | |||||||||||||||||||||||||||
| Selling expenses | 81 | 78 | 4 | % | 147 | 136 | 8 | % | |||||||||||||||||||||||||||
| Depreciation and amortization | 113 | 104 | 9 | % | 217 | 206 | 5 | % | |||||||||||||||||||||||||||
| Food and beverage service | 60 | 50 | 20 | % | 114 | 91 | 25 | % | |||||||||||||||||||||||||||
| Third-party regional carrier expense | 54 | 50 | 8 | % | 106 | 92 | 15 | % | |||||||||||||||||||||||||||
| Other | 182 | 177 | 3 | % | 359 | 329 | 9 | % | |||||||||||||||||||||||||||
| Special items - fleet transition and other | 186 | 146 | 27 | % | 199 | 221 | (10) | % | |||||||||||||||||||||||||||
| Special items - labor and related | — | — | NM | 51 | — | NM | |||||||||||||||||||||||||||||
| Total Operating Expenses | 2,501 | 2,471 | 1 | % | 4,883 | 4,354 | 12 | % | |||||||||||||||||||||||||||
| Operating Income (Loss) | 337 | 187 | 80 | % | 151 | (15) | NM | ||||||||||||||||||||||||||||
| Non-operating Income (Expense) | |||||||||||||||||||||||||||||||||||
| Interest income | 22 | 11 | 100 | % | 39 | 18 | 117 | % | |||||||||||||||||||||||||||
| Interest expense | (28) | (26) | 8 | % | (56) | (53) | 6 | % | |||||||||||||||||||||||||||
| Interest capitalized | 7 | 3 | 133 | % | 14 | 5 | 180 | % | |||||||||||||||||||||||||||
| Special items - net non-operating | (6) | — | NM | (6) | — | NM | |||||||||||||||||||||||||||||
| Other - net | (7) | 10 | (170) | % | (16) | 24 | (167) | % | |||||||||||||||||||||||||||
| Total Non-operating Expense | (12) | (2) | NM | (25) | (6) | NM | |||||||||||||||||||||||||||||
| Income (Loss) Before Income Tax | 325 | 185 | 126 | (21) | |||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 85 | 46 | 28 | (17) | |||||||||||||||||||||||||||||||
| Net Income (Loss) | $ | 240 | $ | 139 | $ | 98 | $ | (4) | |||||||||||||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | 1.88 | $ | 1.10 | $ | 0.77 | $ | (0.03) | |||||||||||||||||||||||||||
| Diluted Earnings (Loss) Per Share | $ | 1.86 | $ | 1.09 | $ | 0.76 | $ | (0.03) | |||||||||||||||||||||||||||
| Shares used for computation: | |||||||||||||||||||||||||||||||||||
| Basic | 127.440 | 126.543 | 127.470 | 126.265 | |||||||||||||||||||||||||||||||
| Diluted | 128.919 | 127.795 | 128.860 | 126.265 | |||||||||||||||||||||||||||||||
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| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||||||
| Alaska Air Group, Inc. | |||||||||||
| (in millions) | June 30, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | 536 | $ | 338 | |||||||
| Marketable securities | 1,906 | 2,079 | |||||||||
| Total cash and marketable securities | 2,442 | 2,417 | |||||||||
| Receivables - net | 351 | 296 | |||||||||
| Inventories and supplies - net | 107 | 104 | |||||||||
| Prepaid expenses | 187 | 163 | |||||||||
| Other current assets | 157 | 60 | |||||||||
| Total Current Assets | 3,244 | 3,040 | |||||||||
| Property and Equipment | |||||||||||
| Aircraft and other flight equipment | 9,918 | 9,053 | |||||||||
| Other property and equipment | 1,714 | 1,661 | |||||||||
| Deposits for future flight equipment | 550 | 670 | |||||||||
| 12,182 | 11,384 | ||||||||||
| Less accumulated depreciation and amortization | 4,219 | 4,127 | |||||||||
| Total Property and Equipment - net | 7,963 | 7,257 | |||||||||
| Other Assets | |||||||||||
| Operating lease assets | 1,318 | 1,471 | |||||||||
| Goodwill and intangible assets | 2,036 | 2,038 | |||||||||
| Other noncurrent assets | 268 | 380 | |||||||||
| Total Other Assets | 3,622 | 3,889 | |||||||||
| Total Assets | $ | 14,829 | $ | 14,186 | |||||||
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| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||||||
| Alaska Air Group, Inc. | |||||||||||
| (in millions, except share amounts) | June 30, 2023 | December 31, 2022 | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | 212 | $ | 221 | |||||||
| Accrued wages, vacation and payroll taxes | 463 | 619 | |||||||||
| Air traffic liability | 1,574 | 1,180 | |||||||||
| Other accrued liabilities | 871 | 846 | |||||||||
| Deferred revenue | 1,207 | 1,123 | |||||||||
| Current portion of operating lease liabilities | 277 | 228 | |||||||||
| Current portion of long-term debt and finance leases | 572 | 276 | |||||||||
| Total Current Liabilities | 5,176 | 4,493 | |||||||||
| Long-Term Debt, Net of Current Portion | 1,889 | 1,883 | |||||||||
| Noncurrent Liabilities | |||||||||||
| Long-term operating lease liabilities, net of current portion | 1,148 | 1,393 | |||||||||
| Deferred income taxes | 606 | 574 | |||||||||
| Deferred revenue | 1,370 | 1,374 | |||||||||
| Obligation for pension and post-retirement medical benefits | 362 | 348 | |||||||||
| Other liabilities | 327 | 305 | |||||||||
| Total Noncurrent Liabilities | 3,813 | 3,994 | |||||||||
| Commitments and Contingencies | |||||||||||
| Shareholders' Equity | |||||||||||
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding | — | — | |||||||||
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2023 - 137,983,828 shares; 2022 - 136,883,042 shares, Outstanding: 2023 - 127,348,343 shares; 2022 - 127,533,916 shares | 1 | 1 | |||||||||
| Capital in excess of par value | 648 | 577 | |||||||||
Treasury stock (common), at cost: 2023 - 10,635,485 shares; 2022 - 9,349,944 shares | (731) | (674) | |||||||||
| Accumulated other comprehensive loss | (365) | (388) | |||||||||
| Retained earnings | 4,398 | 4,300 | |||||||||
| 3,951 | 3,816 | ||||||||||
| Total Liabilities and Shareholders' Equity | $ | 14,829 | $ | 14,186 | |||||||
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| SUMMARY CASH FLOW (unaudited) | |||||||||||||||||
| Alaska Air Group, Inc. | |||||||||||||||||
| (in millions) | Six Months Ended June 30, 2023 | Three Months Ended March 31, 2023 (a) | Three Months Ended June 30, 2023(b) | ||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
| Net Income (Loss) | $ | 98 | $ | (142) | $ | 240 | |||||||||||
| Non-cash reconciling items | 511 | 191 | 320 | ||||||||||||||
| Changes in working capital | 223 | 173 | 50 | ||||||||||||||
| Net cash provided by operating activities | 832 | 222 | 610 | ||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Property and equipment additions | (634) | (124) | (510) | ||||||||||||||
| Other investing activities | 155 | 184 | (29) | ||||||||||||||
| Net cash provided by (used in) investing activities | (479) | 60 | (539) | ||||||||||||||
| Cash Flows from Financing Activities: | (165) | (114) | (51) | ||||||||||||||
| Net increase in cash and cash equivalents | 188 | 168 | 20 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 369 | 369 | 537 | ||||||||||||||
| Cash, cash equivalents, and restricted cash at end of the period | $ | 557 | $ | 537 | $ | 557 | |||||||||||
(a) As reported in Form 10-Q for the first quarter of 2023.
(b) Cash flows for the three months ended June 30, 2023, can be calculated by subtracting cash flows for the three months ended March 31, 2023, as reported in Form 10-Q for the first quarter 2023, from the six months ended June 30, 2023.
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| OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||||||||||||||||||||||||||
| Alaska Air Group, Inc. | |||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
Consolidated Operating Statistics:(a) | |||||||||||||||||||||||||||||||||||
| Revenue passengers (000) | 11,592 | 11,005 | 5% | 21,444 | 19,700 | 9% | |||||||||||||||||||||||||||||
| RPMs (000,000) "traffic" | 14,936 | 13,746 | 9% | 27,491 | 24,332 | 13% | |||||||||||||||||||||||||||||
| ASMs (000,000) "capacity" | 17,160 | 15,611 | 10% | 32,865 | 29,394 | 12% | |||||||||||||||||||||||||||||
| Load factor | 87.0% | 88.1% | (1.1) pts | 83.6% | 82.8% | 0.8 pts | |||||||||||||||||||||||||||||
| Yield | 17.40¢ | 17.59¢ | (1)% | 16.67¢ | 16.15¢ | 3% | |||||||||||||||||||||||||||||
| RASM | 16.54¢ | 17.03¢ | (3)% | 15.32¢ | 14.76¢ | 4% | |||||||||||||||||||||||||||||
CASMex(b) | 10.15¢ | 9.92¢ | 2% | 10.33¢ | 10.24¢ | 1% | |||||||||||||||||||||||||||||
Economic fuel cost per gallon(b) | $2.76 | $3.76 | (27)% | $3.07 | $3.23 | (5)% | |||||||||||||||||||||||||||||
| Fuel gallons (000,000) | 207 | 196 | 6% | 396 | 368 | 8% | |||||||||||||||||||||||||||||
| ASMs per gallon | 82.9 | 79.6 | 4% | 83.0 | 79.9 | 4% | |||||||||||||||||||||||||||||
| Departures (000) | 104.4 | 105.7 | (1)% | 199.8 | 198.9 | —% | |||||||||||||||||||||||||||||
| Average full-time equivalent employees (FTEs) | 23,301 | 22,603 | 3% | 23,140 | 22,092 | 5% | |||||||||||||||||||||||||||||
| Mainline Operating Statistics: | |||||||||||||||||||||||||||||||||||
| Revenue passengers (000) | 9,221 | 8,321 | 11% | 17,054 | 14,887 | 15% | |||||||||||||||||||||||||||||
| RPMs (000,000) "traffic" | 13,827 | 12,460 | 11% | 25,496 | 21,972 | 16% | |||||||||||||||||||||||||||||
| ASMs (000,000) "capacity" | 15,851 | 14,052 | 13% | 30,462 | 26,439 | 15% | |||||||||||||||||||||||||||||
| Load factor | 87.2% | 88.7% | (1.5) pts | 83.7% | 83.1% | 0.6 pts | |||||||||||||||||||||||||||||
| Yield | 16.12¢ | 16.28¢ | (1)% | 15.37¢ | 14.89¢ | 3% | |||||||||||||||||||||||||||||
| RASM | 15.48¢ | 16.02¢ | (3)% | 14.26¢ | 13.81¢ | 3% | |||||||||||||||||||||||||||||
CASMex(b) | 9.26¢ | 8.98¢ | 3% | 9.38¢ | 9.29¢ | 1% | |||||||||||||||||||||||||||||
Economic fuel cost per gallon(b) | $2.74 | $3.74 | (27)% | $3.05 | $3.21 | (5)% | |||||||||||||||||||||||||||||
| Fuel gallons (000,000) | 179 | 165 | 8% | 345 | 311 | 11% | |||||||||||||||||||||||||||||
| ASMs per gallon | 88.6 | 85.2 | 4% | 88.3 | 85.0 | 4% | |||||||||||||||||||||||||||||
| Departures (000) | 67.2 | 61.6 | 9% | 129.8 | 117.4 | 11% | |||||||||||||||||||||||||||||
| Average full-time equivalent employees (FTEs) | 18,147 | 17,315 | 5% | 17,966 | 16,825 | 7% | |||||||||||||||||||||||||||||
| Aircraft utilization | 11.5 | 10.1 | 14% | 11.3 | 9.8 | 15% | |||||||||||||||||||||||||||||
| Average aircraft stage length | 1,384 | 1,363 | 2% | 1,375 | 1,349 | 2% | |||||||||||||||||||||||||||||
Operating fleet(d) | 226 | 233 | (7) a/c | 226 | 233 | (7) a/c | |||||||||||||||||||||||||||||
Regional Operating Statistics:(c) | |||||||||||||||||||||||||||||||||||
| Revenue passengers (000) | 2,372 | 2,685 | (12)% | 4,390 | 4,813 | (9)% | |||||||||||||||||||||||||||||
| RPMs (000,000) "traffic" | 1,109 | 1,285 | (14)% | 1,994 | 2,360 | (16)% | |||||||||||||||||||||||||||||
| ASMs (000,000) "capacity" | 1,309 | 1,559 | (16)% | 2,403 | 2,955 | (19)% | |||||||||||||||||||||||||||||
| Load factor | 84.7% | 82.4% | 2.3 pts | 83.0% | 79.9% | 3.1 pts | |||||||||||||||||||||||||||||
| Yield | 33.37¢ | 30.35¢ | 10% | 33.30¢ | 27.88¢ | 19% | |||||||||||||||||||||||||||||
| RASM | 29.26¢ | 26.04¢ | 12% | 28.59¢ | 23.21¢ | 23% | |||||||||||||||||||||||||||||
| Departures (000) | 37.2 | 44.1 | (16)% | 70.0 | 81.5 | (14)% | |||||||||||||||||||||||||||||
Operating fleet(d) | 81 | 104 | (23) a/c | 81 | 104 | (23) 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 the importance of this measure to investors in the accompanying pages.
(c)Data presented includes information for flights operated by Horizon and third-party carriers.
(d)Excludes all aircraft removed from operating service.
9
| OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Alaska Air Group, Inc. | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||||||||||||||||
| Operating Revenue | |||||||||||||||||||||||||||||||||||||||||
| Passenger revenue | $ | 2,228 | $ | 370 | $ | — | $ | — | $ | 2,598 | $ | — | $ | 2,598 | |||||||||||||||||||||||||||
| CPA revenue | — | — | 92 | (92) | — | — | — | ||||||||||||||||||||||||||||||||||
| Mileage Plan other revenue | 158 | 12 | — | — | 170 | — | 170 | ||||||||||||||||||||||||||||||||||
| Cargo and other revenue | 67 | — | — | 3 | 70 | — | 70 | ||||||||||||||||||||||||||||||||||
| Total Operating Revenue | 2,453 | 382 | 92 | (89) | 2,838 | — | 2,838 | ||||||||||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating expenses, excluding fuel | 1,468 | 279 | 87 | (92) | 1,742 | 186 | 1,928 | ||||||||||||||||||||||||||||||||||
| Fuel expense | 490 | 81 | — | 1 | 572 | 1 | 573 | ||||||||||||||||||||||||||||||||||
| Total Operating Expenses | 1,958 | 360 | 87 | (91) | 2,314 | 187 | 2,501 | ||||||||||||||||||||||||||||||||||
| Non-operating Income (Expense) | 3 | — | (10) | 1 | (6) | (6) | (12) | ||||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Tax | $ | 498 | $ | 22 | $ | (5) | $ | 3 | $ | 518 | $ | (193) | $ | 325 | |||||||||||||||||||||||||||
| Pretax Margin | 18.3 | % | 11.5 | % | |||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||||||||||||||||
| Operating Revenue | |||||||||||||||||||||||||||||||||||||||||
| Passenger revenue | $ | 2,028 | $ | 390 | $ | — | $ | — | $ | 2,418 | $ | — | $ | 2,418 | |||||||||||||||||||||||||||
| CPA revenue | — | — | 101 | (101) | — | — | — | ||||||||||||||||||||||||||||||||||
| Mileage Plan other revenue | 159 | 16 | — | — | 175 | — | 175 | ||||||||||||||||||||||||||||||||||
| Cargo and other revenue | 64 | — | — | 1 | 65 | — | 65 | ||||||||||||||||||||||||||||||||||
| Total Operating Revenue | 2,251 | 406 | 101 | (100) | 2,658 | — | 2,658 | ||||||||||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating expenses, excluding fuel | 1,262 | 289 | 98 | (100) | 1,549 | 146 | 1,695 | ||||||||||||||||||||||||||||||||||
| Fuel expense | 617 | 119 | — | — | 736 | 40 | 776 | ||||||||||||||||||||||||||||||||||
| Total Operating Expenses | 1,879 | 408 | 98 | (100) | 2,285 | 186 | 2,471 | ||||||||||||||||||||||||||||||||||
| Non-operating Income (Expense) | 3 | — | (5) | — | (2) | — | (2) | ||||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Tax | $ | 375 | $ | (2) | $ | (2) | $ | — | $ | 371 | $ | (186) | $ | 185 | |||||||||||||||||||||||||||
| Pretax Margin | 14.0 | % | 7.0 | % | |||||||||||||||||||||||||||||||||||||
10
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||||||||||||||||
| Operating Revenue | |||||||||||||||||||||||||||||||||||||||||
| Passenger revenue | $ | 3,918 | $ | 664 | $ | — | $ | — | $ | 4,582 | $ | — | $ | 4,582 | |||||||||||||||||||||||||||
| CPA revenue | — | — | 170 | (170) | — | — | — | ||||||||||||||||||||||||||||||||||
| Mileage Plan other revenue | 301 | 23 | — | — | 324 | — | 324 | ||||||||||||||||||||||||||||||||||
| Cargo and other revenue | 124 | — | — | 4 | 128 | — | 128 | ||||||||||||||||||||||||||||||||||
| Total Operating Revenue | 4,343 | 687 | 170 | (166) | 5,034 | — | 5,034 | ||||||||||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating expenses, excluding fuel | 2,858 | 535 | 171 | (169) | 3,395 | 250 | 3,645 | ||||||||||||||||||||||||||||||||||
| Fuel expense | 1,051 | 166 | — | — | 1,217 | 21 | 1,238 | ||||||||||||||||||||||||||||||||||
| Total Operating Expenses | 3,909 | 701 | 171 | (169) | 4,612 | 271 | 4,883 | ||||||||||||||||||||||||||||||||||
| Non-operating Income (Expense) | (3) | — | (18) | 2 | (19) | (6) | (25) | ||||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Tax | $ | 431 | $ | (14) | $ | (19) | $ | 5 | $ | 403 | $ | (277) | $ | 126 | |||||||||||||||||||||||||||
| Pretax Margin | 8.0 | % | 2.5 | % | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) | Air Group Adjusted(b) | Special Items(c) | Consolidated | ||||||||||||||||||||||||||||||||||
| Operating Revenue | |||||||||||||||||||||||||||||||||||||||||
| Passenger revenue | $ | 3,271 | $ | 658 | $ | — | $ | — | $ | 3,929 | $ | — | $ | 3,929 | |||||||||||||||||||||||||||
| CPA revenue | — | — | 195 | (195) | — | — | — | ||||||||||||||||||||||||||||||||||
| Mileage Plan other revenue | 259 | 28 | — | — | 287 | — | 287 | ||||||||||||||||||||||||||||||||||
| Cargo and other revenue | 121 | — | — | 2 | 123 | — | 123 | ||||||||||||||||||||||||||||||||||
| Total Operating Revenue | 3,651 | 686 | 195 | (193) | 4,339 | — | 4,339 | ||||||||||||||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||||||||
| Operating expenses, excluding fuel | 2,456 | 551 | 197 | (194) | 3,010 | 221 | 3,231 | ||||||||||||||||||||||||||||||||||
| Fuel expense | 998 | 192 | — | — | 1,190 | (67) | 1,123 | ||||||||||||||||||||||||||||||||||
| Total Operating Expenses | 3,454 | 743 | 197 | (194) | 4,200 | 154 | 4,354 | ||||||||||||||||||||||||||||||||||
| Non-operating Income (Expense) | 4 | — | (10) | — | (6) | — | (6) | ||||||||||||||||||||||||||||||||||
| Income (Loss) Before Income Tax | $ | 201 | $ | (57) | $ | (12) | $ | 1 | $ | 133 | $ | (154) | $ | (21) | |||||||||||||||||||||||||||
| Pretax Margin | 3.1 | % | (0.5) | % | |||||||||||||||||||||||||||||||||||||
(a)Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.
(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information.
(c)Includes special items and mark-to-market fuel hedge accounting adjustments.
11
| GAAP TO NON-GAAP RECONCILIATIONS (unaudited) | |||||||||||||||||||||||
| Alaska Air Group, Inc. | |||||||||||||||||||||||
| CASM Excluding Fuel and Special Items Reconciliation | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in cents) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||
| CASM | 14.57 | ¢ | 15.84 | ¢ | 14.86 | ¢ | 14.81 | ¢ | |||||||||||||||
| Less the following components: | |||||||||||||||||||||||
| Aircraft fuel, including hedging gains and losses | 3.34 | 4.98 | 3.77 | 3.82 | |||||||||||||||||||
Special items - fleet transition and other(a) | 1.08 | 0.94 | 0.61 | 0.75 | |||||||||||||||||||
Special items - labor and related(b) | — | — | 0.15 | — | |||||||||||||||||||
| CASM excluding fuel and special items | 10.15 | ¢ | 9.92 | ¢ | 10.33 | ¢ | 10.24 | ¢ | |||||||||||||||
| Mainline: | |||||||||||||||||||||||
| CASM | 13.56 | ¢ | 15.06 | ¢ | 13.73 | ¢ | 13.69 | ¢ | |||||||||||||||
| Less the following components: | |||||||||||||||||||||||
| Aircraft fuel, including hedging gains and losses | 3.10 | 5.06 | 3.52 | 3.84 | |||||||||||||||||||
Special items - fleet transition and other(a) | 1.20 | 1.02 | 0.67 | 0.56 | |||||||||||||||||||
Special items - labor and related(b) | — | — | 0.16 | — | |||||||||||||||||||
| CASM excluding fuel and special items | 9.26 | ¢ | 8.98 | ¢ | 9.38 | ¢ | 9.29 | ¢ | |||||||||||||||
(a) Special items - fleet transition and other in the three and six months ended June 30, 2023 and 2022 is primarily for impairment charges and accelerated costs associated with the retirement of Airbus and Q400 aircraft.
(b) Special items - labor and related in the six months ended June 30, 2023 is primarily for changes to Alaska pilots' sick leave benefits resulting from an agreement signed in the first quarter of 2023.
| Fuel Reconciliation | |||||||||||||||||||||||
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||||||||||
| Raw or "into-plane" fuel cost | $ | 555 | $ | 2.68 | $ | 824 | $ | 4.20 | |||||||||||||||
| Losses (gains) on settled hedges | 17 | 0.08 | (88) | (0.44) | |||||||||||||||||||
| Consolidated economic fuel expense | 572 | 2.76 | 736 | 3.76 | |||||||||||||||||||
| Mark-to-market fuel hedge adjustment | 1 | — | 40 | 0.20 | |||||||||||||||||||
| GAAP fuel expense | $ | 573 | $ | 2.76 | $ | 776 | $ | 3.96 | |||||||||||||||
| Fuel gallons | 207 | 196 | |||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||||||||||
| Raw or "into-plane" fuel cost | $ | 1,188 | $ | 3.00 | $ | 1,328 | $ | 3.61 | |||||||||||||||
| Losses (gains) on settled hedges | 29 | 0.07 | (138) | (0.38) | |||||||||||||||||||
| Consolidated economic fuel expense | 1,217 | 3.07 | 1,190 | 3.23 | |||||||||||||||||||
| Mark-to-market fuel hedge adjustment | 21 | 0.05 | (67) | (0.18) | |||||||||||||||||||
| GAAP fuel expense | $ | 1,238 | $ | 3.12 | $ | 1,123 | $ | 3.05 | |||||||||||||||
| Fuel gallons | 396 | 368 | |||||||||||||||||||||
12
| Debt-to-capitalization, including operating and finance leases | |||||||||||
| (in millions) | June 30, 2023 | December 31, 2022 | |||||||||
| Long-term debt, net of current portion | $ | 1,889 | $ | 1,883 | |||||||
| Capitalized operating leases | 1,425 | 1,621 | |||||||||
Capitalized finance leases(a) | 316 | — | |||||||||
| Adjusted debt, net of current portion of long-term debt | 3,630 | 3,504 | |||||||||
| Shareholders' equity | 3,951 | 3,816 | |||||||||
| Total Invested Capital | $ | 7,581 | $ | 7,320 | |||||||
| Debt-to-capitalization ratio, including operating and finance leases | 48 | % | 48 | % | |||||||
(a)To best reflect our leverage at June 30, 2023, we included our capitalized finance lease balances, which are recognized within the 'Current portion of long-term debt and finance leases' line of the condensed consolidated balance sheet.
| Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent and special items | |||||||||||
| (in millions) | June 30, 2023 | December 31, 2022 | |||||||||
| Current portion of long-term debt and finance leases | $ | 572 | $ | 276 | |||||||
| Current portion of operating lease liabilities | 277 | 228 | |||||||||
| Long-term debt | 1,889 | 1,883 | |||||||||
| Long-term operating lease liabilities, net of current portion | 1,148 | 1,393 | |||||||||
| Total adjusted debt | 3,886 | 3,780 | |||||||||
| Less: Total cash and marketable securities | 2,442 | 2,417 | |||||||||
| Adjusted net debt | $ | 1,444 | $ | 1,363 | |||||||
| (in millions) | Twelve Months Ended June 30, 2023 | Twelve Months Ended December 31, 2022 | |||||||||
GAAP Operating Income(a) | $ | 236 | $ | 70 | |||||||
| Adjusted for: | |||||||||||
| Special items | 609 | 580 | |||||||||
| Mark-to-market fuel hedge adjustments | 164 | 76 | |||||||||
| Depreciation and amortization | 426 | 415 | |||||||||
| Aircraft rent | 258 | 291 | |||||||||
| EBITDAR | $ | 1,693 | $ | 1,432 | |||||||
| Adjusted net debt to EBITDAR | 0.9x | 1.0x | |||||||||
(a)Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.
13
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 excluding fuel expense and special items from our unit metrics, we believe that we have better visibility into the results of operations. 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 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.
•CASM excluding fuel and special items is a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.
•Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee incentive plan, which covers the majority of Air Group employees.
•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 these items as noted above 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 unit revenue, we do not, nor are we able to, evaluate unit revenue 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 revenue 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.
14
GLOSSARY OF TERMS
Adjusted net debt - long-term debt, including current portion, plus capitalized operating and finance leases, less cash and marketable securities
Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)
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 capitalized operating and finance lease liabilities) 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
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, Airbus A320, and Airbus A321neo jets and all associated revenue 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 and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest 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
15