Alaska Air Group Reports Record Adjusted Fourth Quarter And Full-Year Results

Employees earn $88 million in incentive pay

Jan 24, 2013, 08:00 ET from Alaska Air Group, Inc.

SEATTLE, Jan. 24, 2013 /PRNewswire/ --

Highlights and achievements:

  • Record fourth quarter net income, excluding special items, of $50 million, or $0.70 per diluted share, compared to $37 million, or $0.51 per diluted share. This quarter's results compare to a First Call analyst consensus estimate of $0.71 per share. 
  • Record full-year net income, excluding special items, of $339 million, or $4.73 per diluted share, compared to $287 million, or $3.92 per diluted share.
  • Net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $44 million, or $0.61 per diluted share, compared to net income of $64 million, or $0.88 per diluted share. Full-year GAAP net income of $316 million, or $4.40 per diluted share, compared to net income of $245 million, or $3.33 per diluted share.
  • Air Group employees earned $88 million in incentive pay, or more than one-month's pay for most employees. Over the last four years, employees have earned more than $325 million in incentive pay, averaging 8% of annual pay for most employees.
  • Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the fifth year in a row.
  • Signed an aircraft purchase agreement with The Boeing Company for 50 new 737 aircraft, including 37 of Boeing's new 737 MAX aircraft with deliveries expected in 2015 through 2024.
  • Carried a record number passengers in 2012 and achieved a record load factor of 85.9 percent, up 1.4 points from the prior year.
  • Improved employee productivity by 3.5 percent compared to the fourth quarter of 2011.
  • Completed renovation of Terminal 6 at Los Angeles International Airport (LAX) in March, which includes the Airport of the Future design, new common use systems, additional gates and convenient connections with international flights.
  • Ratified a six-year agreement in December with the International Brotherhood of Teamsters (IBT) representing Horizon's pilots.
  • Ratified a six-year agreement in July with the International Association of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp service and stores agents.
  • Repurchased 1,685,951 shares of common stock for approximately $60 million. Since 2007, Air Group has used $320 million to repurchase 18 million shares.
  • Lowered adjusted debt-to-total capitalization ratio by 8 points to 54 percent since Dec. 31, 2011 and by 27 points from 81 percent at the end of 2008. 
  • Held $1.3 billion in unrestricted cash and marketable securities as of December 31, 2012. 
  • Achieved twelve-month return on invested capital of 13 percent, surpassing the 10 percent goal for the third year in a row.
  • Contributed $110 million to the defined-benefit pension plans during 2012, bringing the total over four years to approximately $540 million, despite having no required contribution.

New routes:

  • Began new service from San Diego to Orlando, Portland to Lihue, Bellingham to Maui, and Anchorage to Kona in the fourth quarter, bringing the full year up to 21 new routes.
  • Announced service from San Diego to Boston and Lihue, and from Seattle to Salt Lake City beginning in 2013.

Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2012 GAAP net income of $44 million, or $0.61 per diluted share, compared to GAAP net income of $64 million, or $0.88 per diluted share in 2011. Excluding mark-to-market fuel hedge losses of $10 million ($6 million after tax, or $0.09 per diluted share), the company reported record fourth quarter 2012 net income of $50 million, or $0.70 per diluted share, compared to net income excluding mark-to-market fuel hedge gains of $37 million, or $0.51 per diluted share, in 2011.

The company reported full-year 2012 GAAP net income of $316 million, compared to $245 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $339 million, or $4.73 per diluted share for 2012, compared to net income of $287 million, or $3.92 per diluted share in 2011. This marks the company's ninth consecutive year of adjusted profits and the third year in a row the company has exceeded its goal of a 10 percent return on invested capital.

"We're very pleased with our strong performance in 2012, and we are moving ahead in 2013 to make Alaska a great business as well as a great airline," Chief Executive Officer Brad Tilden said. "I want to thank our 13,000 employees who are dedicated to providing our award-winning service, along with our loyal customers for their business and our investors who continue to put their trust in our company and our future."

The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2012 and 2011 to amounts as reported in accordance with GAAP:

Three Months Ended December 31,

2012

2011

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income

$

44

$

0.61

$

64

$

0.88

Mark-to-market fuel hedge adjustments, net of tax

6

0.09

(27)

(0.37)

Non-GAAP adjusted income and per share amounts

$

50

$

0.70

$

37

$

0.51

Twelve Months Ended December 31,

2012

2011

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income

$

316

$

4.40

$

245

$

3.33

Fleet transition costs, net of tax

24

0.33

Mark-to-market fuel hedge adjustments, net of tax

23

0.33

18

0.26

Non-GAAP adjusted income and per share amounts

$

339

$

4.73

$

287

$

3.92

 

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.

A conference call regarding the fourth quarter and full year results will be simulcast via the Internet at 9:30 a.m. Pacific time on January 24, 2013. It can be accessed through the company's Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.  

References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."

This news release may contain 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, 2011. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. 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.

Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves 95 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates North America Airline Satisfaction StudySM for five consecutive years from 2008 to 2012. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines newsroom at www.alaskaair.com/newsroom.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31,

Twelve Months Ended December 31,

(in millions, except per share amounts)

2012

2011

Change

2012

2011

Change

Operating Revenues:

Passenger

Mainline

$

793

$

726

9%

$

3,284

$

2,995

10%

Regional

188

176

7%

746

713

5%

Total passenger revenue

981

902

9%

4,030

3,708

9%

Freight and mail

26

25

4%

111

109

2%

Other - net

125

117

7%

516

501

3%

Total Operating Revenues

1,132

1,044

8%

4,657

4,318

8%

Operating Expenses:

Wages and benefits

267

253

6%

1,038

991

5%

Variable incentive pay

27

19

42%

88

72

22%

Aircraft fuel, including hedging gains and losses

372

286

30%

1,459

1,298

12%

Aircraft maintenance

61

53

15%

222

206

8%

Aircraft rent

30

28

7%

116

116

Landing fees and other rentals

59

58

2%

243

238

 

2%

Contracted services

51

49

4%

200

185

8%

Selling expenses

37

42

(12)%

168

175

(4)%

Depreciation and amortization

69

63

10%

264

247

7%

Food and beverage service

21

17

24%

79

67

18%

Other

64

62

3%

248

235

6%

Fleet transition costs

NM

39

NM

Total Operating Expenses

1,058

930

14%

4,125

3,869

7%

Operating Income

74

114

(35)%

532

449

18%

Nonoperating Income (Expense):

Interest income

5

4

19

22

Interest expense

(15)

(18)

(64)

(87)

Interest capitalized

5

7

18

12

Other - net

3

(6)

9

(2)

(2)

(13)

(18)

(55)

Income Before Income Tax

72

101

(29)%

514

394

30%

Income tax expense

28

37

198

149

Net Income

$

44

$

64

(31)%

$

316

$

245

29%

Basic Earnings Per Share:

$

0.62

$

0.90

$

4.47

$

3.41

Diluted Earnings Per Share:

$

0.61

$

0.88

$

4.40

$

3.33

Shares Used for Computation:

Basic

71.112

71.122

70.708

71.755

Diluted

72.149

72.635

71.784

73.421

 

NM - Not Meaningful

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.

(in millions)

December 31, 2012

December 31, 2011

Cash and marketable securities

$

1,252

$

1,141

Total current assets

1,737

1,596

Property and equipment-net

3,609

3,373

Other assets

159

198

Total assets

$

5,505

$

5,167

Current liabilities

$

1,501

$

1,510

Long-term debt

871

1,099

Other liabilities and credits

1,712

1,384

Shareholders' equity

1,421

1,174

Total liabilities and shareholders' equity

$

5,505

$

5,167

Debt to Capitalization, adjusted for operating leases

54%:46%

62%:38%

Number of common shares outstanding

70.377

70.950

 

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

Change

2012

2011

Change

Consolidated Operating Statistics:(a)

Revenue passengers (000)

6,387

6,083

5.0%

25,896

24,790

4.5%

RPMs (000,000) "traffic"

6,720

6,183

8.7%

27,007

25,032

7.9%

ASMs (000,000) "capacity"

7,870

7,298

7.8%

31,428

29,627

6.1%

Load factor

85.4%

84.7%

0.7 pts

85.9%

84.5%

1.4 pts

Yield

14.59¢

14.59¢

14.92¢

14.81¢

0.7%

PRASM

12.46¢

12.36¢

0.8%

12.82¢

12.51¢

2.5%

RASM

14.39¢

14.31¢

0.6%

14.82¢

14.57¢

1.7%

CASM excluding fuel and fleet transition costs(b)

8.72¢

8.83¢

(1.2)%

8.48¢

8.55¢

(0.8)%

Economic fuel cost per gallon(c)

$

3.43

$

3.34

2.7%

$

3.37

$

3.18

6.0%

Fuel gallons (000,000)

105

99

6.1%

422

398

6.0%

Average number of full-time equivalent employees

11,984

11,807

1.5%

11,955

11,840

1.0%

Mainline Operating Statistics:

Revenue passengers (000)

4,513

4,331

4.2%

18,526

17,810

4.0%

RPMs (000,000) "traffic"

6,065

5,575

8.8%

24,417

22,586

8.1%

ASMs (000,000) "capacity"

7,056

6,526

8.1%

28,180

26,517

6.3%

Load factor

86.0%

85.4%

0.6 pts

86.6%

85.2%

1.4 pts

Yield

13.08¢

13.01¢

0.5%

13.45¢

13.26¢

1.4%

PRASM

11.24¢

11.12¢

1.1%

11.65¢

11.29¢

3.2%

RASM

13.15¢

13.04¢

0.8%

13.62¢

13.31¢

2.3%

CASM excluding fuel(b)

7.77¢

7.89¢

(1.5)%

7.56¢

7.60¢

(0.5)%

Economic fuel cost per gallon(c)

$

3.43

$

3.33

3.0%

$

3.36

$

3.18

5.7%

Fuel gallons (000,000)

92

86

7.0%

368

346

6.4%

Average number of full-time equivalent employees

9,228

8,920

3.5%

9,178

8,916

2.9%

Aircraft utilization

10.5

10.2

2.9%

10.7

10.5

1.9%

Average aircraft stage length

1,189

1,129

5.3%

1,161

1,114

4.2%

Mainline operating fleet

124

117

7 a/c

124

117

7 a/c

Regional Operating Statistics:(d)

Revenue passengers (000)

1,873

1,752

6.9%

7,371

6,980

5.6%

RPMs (000,000) "traffic"

655

608

7.7%

2,590

2,446

5.9%

ASMs (000,000) "capacity"

814

772

5.4%

3,247

3,110

4.4%

Load factor

80.4%

78.8%

1.6 pts

79.8%

78.6%

1.2 pts

Yield

28.64¢

28.82¢

(0.6)%

28.81¢

29.13¢

(1.1)%

PRASM

23.03¢

22.84¢

0.8%

22.98¢

22.94¢

0.2%

Operating fleet (Horizon only)

48

48

48

48

 

(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 Air and third-party carriers.

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31, 2012

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

793

$

$

$

$

793

$

$

793

Regional

188

188

188

Total passenger revenues

793

188

981

981

Revenue from CPA with Alaska

97

(97)

Freight and mail

25

1

26

26

Other-net

110

14

1

125

125

Total operating revenues

928

203

98

(97)

1,132

1,132

Operating expenses

Operating expenses, excluding fuel

548

145

90

(97)

686

686

Economic fuel

315

47

362

10

372

Total operating expenses

863

192

90

(97)

1,048

10

1,058

Nonoperating income (expense)

Interest income

5

5

5

Interest expense

(11)

(4)

(15)

(15)

Other

8

1

(1)

8

8

2

(3)

(1)

(2)

(2)

Income (loss) before income tax

$

67

$

11

$

5

$

(1)

$

82

$

(10)

$

72

Three Months Ended December 31, 2011

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

726

$

$

$

$

726

$

$

726

Regional

176

176

176

Total passenger revenues

726

176

902

902

Revenue from CPA with Alaska

90

(90)

Freight and mail

24

1

25

25

Other-net

101

14

2

117

117

Total operating revenues

851

191

92

(90)

1,044

1,044

Operating expenses

Operating expenses, excluding fuel

515

135

83

(89)

644

644

Economic fuel

285

44

329

(43)

286

Total operating expenses

800

179

83

(89)

973

(43)

930

Nonoperating income (expense)

Interest income

3

1

4

4

Interest expense

(14)

(4)

(18)

(18)

Other

1

1

1

(10)

(4)

1

(13)

(13)

Income (loss) before income tax

$

41

$

12

$

5

$

$

58

$

43

$

101

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Twelve Months Ended December 31, 2012

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

3,284

$

$

$

$

3,284

$

$

3,284

Regional

746

746

746

Total passenger revenues

3,284

746

4,030

4,030

Revenue from CPA with Alaska

369

(369)

Freight and mail

107

4

111

111

Other-net

448

61

7

516

516

Total operating revenues

3,839

811

376

(369)

4,657

4,657

Operating expenses

Operating expenses, excluding fuel

2,131

566

338

(369)

2,666

2,666

Economic fuel

1,238

183

1,421

38

1,459

Total operating expenses

3,369

749

338

(369)

4,087

38

4,125

Nonoperating income (expense)

Interest income

19

19

19

Interest expense

(47)

(16)

(1)

(64)

(64)

Other

24

2

1

27

27

(4)

(14)

(18)

(18)

Income (loss) before income tax

$

466

$

62

$

24

$

$

552

$

(38)

$

514

Twelve Months Ended December 31, 2011

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

2,995

$

$

$

$

2,995

$

$

2,995

Regional

713

713

713

Total passenger revenues

2,995

713

3,708

3,708

Revenue from CPA with Alaska

369

(369)

Freight and mail

105

4

109

109

Other-net

431

62

8

501

501

Total operating revenues

3,531

779

377

(369)

4,318

4,318

Operating expenses

Operating expenses, excluding fuel(b)

2,015

544

340

(367)

2,532

39

2,571

Economic fuel

1,101

167

1,268

30

1,298

Total operating expenses

3,116

711

340

(367)

3,800

69

3,869

Nonoperating income (expense)

Interest income

24

(2)

22

22

Interest expense

(72)

(17)

2

(87)

(87)

Other

8

2

10

10

(40)

(15)

(55)

(55)

Income (loss) before income tax

$

375

$

68

$

22

$

(2)

$

463

$

(69)

$

394

 

(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 for further information in the accompanying pages.

(b)

Special charges related to CRJ-700 fleet transitions costs.

 

FUEL RECONCILIATIONS (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31,

2012

2011

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or "into-plane" fuel cost

$

351

$

3.33

$

320

$

3.24

(Gains) losses on settled hedges

11

0.10

9

0.10

Consolidated economic fuel expense

$

362

$

3.43

$

329

$

3.34

Mark-to-market fuel hedge adjustments

10

0.10

(43)

(0.44)

GAAP fuel expense

$

372

$

3.53

$

286

$

2.90

Fuel gallons

105

99

Twelve Months Ended December 31,

2012

2011

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or "into-plane" fuel cost

$

1,397

$

3.31

$

1,289

$

3.24

(Gains) losses on settled hedges

24

0.06

(21)

(0.06)

Consolidated economic fuel expense

$

1,421