Alaska Air Group Reports Record Adjusted Full-Year Results


SEATTLE, Jan. 26, 2012 /PRNewswire/ --

Fourth quarter and full-year highlights with comparison to 2010:

  • Fourth quarter net income, excluding special items, of $37.2 million, or $1.02 per diluted share, compared to net income of $47.4 million, or $1.28 per diluted share. This quarter's results compare to a First Call mean estimate of $1.14 per share.
  • Record full-year net income, excluding special items, of $287.4 million, or $7.83 per diluted share, compared to $262.6 million, or $7.14 per diluted share.
  • Net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $64.0 million, or $1.76 per diluted share, compared to net income of $64.8 million, or $1.75 per diluted share. Full-year GAAP net income of $244.5 million, or $6.66 per diluted share, compared to net income of $251.1 million, or $6.83 per diluted share.
  • Alaska Airlines held the No. 1 spot in U.S. Department of Transportation on-time performance among the 10 largest U.S. airlines for the twelve months ended November 2011.
  • Air Group employees earned $72 million in incentive pay, or nearly one month's pay for most employees.
  • Contributed $133 million to the defined-benefit pension plans during 2011, despite having no required contribution.
  • Improved employee productivity by 2.7 percent compared to the fourth quarter of 2010.
  • Alaska Airlines signed a five-year agreement with the Aircraft Mechanics Fraternal Association (AMFA) representing aircraft technicians in December.
  • Redesigned alaskaair.com to establish more direct customer relationships, leading to a December record of more than 55 percent of total bookings.
  • Completed the current $50 million share repurchase program in early January 2012. Since 2007, Air Group has used $262 million to repurchase 8.4 million shares.
  • Twelve-month return on invested capital of 12 percent.
  • Lowered adjusted debt-to-total capitalization ratio by 5 points since Dec. 31, 2010 to 62 percent.
  • Held $1.1 billion in unrestricted cash and marketable securities as of Dec. 31, 2011.

Over the last twelve months, Alaska earned recognition for the following:

  • Awarded 2011 On-Time Performance Service Award among major North American airlines by FlightStats.com.
  • Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2011 by J.D. Power and Associates for the fourth year in a row.
  • Received the Joseph S. Murphy Industry Service Award for outstanding public and community service by Air Transport World magazine, the first North America carrier to win the industry service award.
  • Won Seattle Business Magazine's 2011 Green Award in the Large Services company category.

Alaska Air Group Inc. (NYSE: ALK) today reported fourth quarter 2011 GAAP net income of $64.0 million, or $1.76 per diluted share, compared to GAAP net income of $64.8 million, or $1.75 per diluted share in 2010. Excluding mark-to-market fuel hedge gains of $43.1 million ($26.8 million after tax, or $0.74 per diluted share), the company reported fourth quarter 2011 net income of $37.2 million, or $1.02 per diluted share, compared to net income excluding special items of $47.4 million, or $1.28 per diluted share, in 2010.

The company reported full-year 2011 GAAP net income of $244.5 million, compared to $251.1 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $287.4 million, or $7.83 per diluted share for 2011, compared to net income of $262.6 million, or $7.14 per diluted share in 2010. This marks the company's eighth consecutive year of adjusted profits.

"We are pleased to report record adjusted earnings for the second year in a row," said Bill Ayer, chairman and chief executive officer. "The improvement was due to schedule optimization and network expansion, high load factors, lower non-fuel unit costs, and industry-leading customer service and operational performance. I want to thank our employees who are working hard together to accomplish these results. We have made many changes over the past decade to transform our business and build a foundation for sustained profitability and measured growth, and we will continue to make the necessary changes as we move forward."

The following table reconciles the company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2011 and 2010 to amounts as reported in accordance with GAAP:



Three Months Ended December 31,


2011


2010

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Net income and diluted EPS, excluding the items noted below:

$

37.2



$

1.02



$

47.4



$

1.28


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

26.8



0.74



17.4



0.47


Reported GAAP amounts

$

64.0



$

1.76



$

64.8



$

1.75











Twelve Months Ended December 31,


2011


2010

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Net income and diluted EPS, excluding the items noted below:

$

287.4



$

7.83



$

262.6



$

7.14


Fleet transition costs, net of tax

(24.2)



(0.66)



(8.2)



(0.22)


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

(18.7)



(0.51)



(3.3)



(0.09)


Reported GAAP amounts

$

244.5



$

6.66



$

251.1



$

6.83





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 page 13 of this release.

A conference call regarding the fourth quarter and full year results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 26, 2012. It can be accessed through the company's Website 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 Dec. 31, 2010. 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 and Horizon Air, subsidiaries of Alaska Air Group (NYSE: ALK), together serve more than 90 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates 2008, 2009, 2010 and 2011 North America Airline Satisfaction Studies(SM) For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at 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)

2011


2010


Change


2011


2010


Change

Operating Revenues:












Passenger












Mainline

$

766.5



$

694.9



10.3

%


$

3,176.2



$

2,763.4



14.9

%

Regional

190.3



178.2



6.8

%


774.5



725.2



6.8

%

Total passenger revenue

956.8



873.1



9.6

%


3,950.7



3,488.6



13.2

%

Freight and mail

24.8



25.7



(3.5)

%


108.7



106.2



2.4

%

Other - net

62.7



59.7



5.0

%


258.4



237.5



8.8

%

Total Operating Revenues

1,044.3



958.5



9.0

%


4,317.8



3,832.3



12.7

%













Operating Expenses:












Wages and benefits

253.3



241.8



4.8

%


990.5



960.9



3.1

%

Variable incentive pay

18.5



29.5



(37.3)

%


71.9



92.0



(21.8)

%

Aircraft fuel, including hedging gains and losses

285.6



217.7



31.2

%


1,297.7



900.9



44.0

%

Aircraft maintenance

53.3



50.4



5.8

%


205.6



216.5



(5.0)

%

Aircraft rent

28.0



32.6



(14.1)

%


116.3



138.9



(16.3)

%

Landing fees and other rentals

58.4



59.2



(1.4)

%


238.2



232.8



2.3

%

Contracted services

48.9



41.6



17.5

%


185.1



163.0



13.6

%

Selling expenses

42.3



37.7



12.2

%


175.3



153.8



14.0

%

Depreciation and amortization

62.7



58.5



7.2

%


246.9



230.5



7.1

%

Food and beverage service

17.4



15.3



13.7

%


67.2



57.5



16.9

%

Other

61.8



54.9



12.6

%


235.3



200.7



17.2

%

Fleet transition costs





NM


38.9



13.2



NM

Total Operating Expenses

930.2



839.2



10.8

%


3,868.9



3,360.7



15.1

%

Operating Income

114.1



119.3



(4.4)

%


448.9



471.6



(4.8)

%













Nonoperating Income (Expense):












Interest income

3.5



6.7



(47.8)

%


21.9



29.4



(25.5)

%

Interest expense

(18.2)



(26.9)



(32.3)

%


(87.3)



(108.3)



(19.4)

%

Interest capitalized

7.0



1.5



NM


12.5



6.2



NM

Other - net

(5.7)



2.9



NM


(2.3)



7.0



NM


(13.4)



(15.8)



(15.2)

%


(55.2)



(65.7)



(16.0)

%

Income Before Income Tax

100.7



103.5



(2.7)

%


393.7



405.9



(3.0)

%

Income tax expense

36.7



38.7



(5.2)

%


149.2



154.8



(3.6)

%

Net Income

$

64.0



$

64.8



(1.2)

%


$

244.5



$

251.1



(2.6)

%













Basic Earnings Per Share:

$

1.80



$

1.80





$

6.81



$

7.01




Diluted Earnings Per Share:

$

1.76



$

1.75





$

6.66



$

6.83




Shares Used for Computation:












Basic

35.561



36.019





35.878



35.822




Diluted

36.318



36.951





36.710



36.786







NM - Not Meaningful


CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)




Alaska Air Group, Inc.








(in millions)

December 31, 2011


December 31, 2010





Cash and marketable securities

$

1,140.9



$

1,208.2






Total current assets

1,595.5



1,662.0


Property and equipment-net

3,401.5



3,148.4


Other assets

198.0



206.2


Total assets

$

5,195.0



$

5,016.6






Current liabilities

$

1,510.6



$

1,424.7


Long-term debt

1,099.0



1,313.0


Other liabilities and credits

1,418.4



1,173.5


Shareholders' equity

1,167.0



1,105.4


Total liabilities and shareholders' equity

$

5,195.0



$

5,016.6






Debt to Capitalization, adjusted for operating leases

62%:38%


67%:33%





Number of common shares outstanding

35.475



35.924






OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.













Three Months Ended December 31,


Twelve Months Ended December 31,


2011


2010


Change


2011


2010


Change

Mainline Operating Statistics:












Revenue passengers (000)

4,331



4,141



4.6

%


17,810



16,514



7.8

%

RPMs (000,000) "traffic"

5,575



5,226



6.7

%


22,586



20,350



11.0

%

ASMs (000,000) "capacity"

6,526



6,237



4.6

%


26,517



24,434



8.5

%

Load factor

85.4

%


83.8

%


1.6 pts


85.2

%


83.3

%


1.9 pts

Yield  (in cents)

13.75



13.30



3.4

%


14.06



13.58



3.5

%

PRASM  (in cents)

11.75



11.14



5.5

%


11.98



11.31



5.9

%

CASM excluding fuel(a) (in cents)

7.89



7.75



1.8

%


7.60



7.85



(3.2)

%

Economic fuel cost per gallon(b)

$

3.33



$

2.56



30.1

%


$

3.18



$

2.37



34.2

%

Fuel gallons (000,000)

85.6



82.2



4.1

%


346.4



319.6



8.4

%

Average number of full-time equivalent employees

8,920



8,711



2.4

%


8,916



8,651



3.1

%

Aircraft utilization

10.2



10.1



1.0

%


10.5



10.0



5.0

%

Average aircraft stage length

1,129



1,104



2.3

%


1,114



1,085



2.7

%

Mainline operating fleet at period-end

117



114



3 a/c


117



114



3 a/c













Regional Operating Statistics:(c)












Revenue passengers (000)

1,752



1,704



2.8

%


6,980



6,820



2.3

%

RPMs (000,000) "traffic"

608



602



1.0

%


2,446



2,491



(1.8)

%

ASMs (000,000) "capacity"

772



790



(2.3)

%


3,110



3,302



(5.8)

%

Load factor

78.8

%


76.2

%


2.6 pts


78.6

%


75.4

%


3.2 pts

Yield  (in cents)

31.30



29.60



5.7

%


31.66



29.11



8.8

%

PRASM  (in cents)

24.65



22.56



9.3

%


24.90



21.96



13.4

%













Consolidated Operating Statistics:(d)












Revenue passengers (000)

6,083



5,845



4.1

%


24,790



23,334



6.2

%

RPMs (000,000) "traffic"

6,183



5,828



6.1

%


25,032



22,841



9.6

%

ASMs (000,000) "capacity"

7,298



7,027



3.9

%


29,627



27,736



6.8

%

Load factor

84.7

%


82.9

%


1.8 pts


84.5

%


82.4

%


2.1 pts

Yield   (in cents)

15.47



14.98



3.3

%


15.78



15.27



3.3

%

PRASM  (in cents)

13.11



12.42



5.6

%


13.33



12.58



6.0

%

CASM excluding fuel and fleet transition costs(a)  (in cents)

8.83



8.84



(0.1)

%


8.55



8.82



(3.1)

%

Economic fuel cost per gallon(b)

$

3.34



$

2.56



30.5

%


$

3.18



$

2.37



34.2

%

Fuel gallons (000,000)

98.5



96.2



2.4

%


398.3



377.3



5.6

%

Average number of full-time equivalent employees

11,807



11,649



1.4

%


11,840



11,696



1.2

%




(a)    See page 8 for a reconciliation of this non-GAAP measure and Note A on page 10 for a discussion of why these measures may be important to investors.

(b)    See page 9 for a reconciliation of economic fuel cost.

(c)    Data presented includes information related to flights operated by Horizon Air and third-party carriers.