Alaska Air Group Reports Record Second Quarter 2014 Results

Jul 24, 2014, 08:00 ET from Alaska Airlines

SEATTLE, July 24, 2014 /PRNewswire/ --

Financial Highlights:

  • Reported record second quarter net income, excluding special items, of $157 million - a 50% increase over the second quarter of 2013.
  • Reported adjusted earnings per share of $1.13 per diluted share, a 53% increase over the second quarter of 2013 and ahead of First Call analyst consensus estimate of $1.11 per share.
  • Earned net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $165 million or $1.19 per diluted share, compared to net income of $104 million, or $0.74 per diluted share in 2013.
  • Recorded $54 million of incentive pay through the first six months of 2014. This includes each Air Group employee earning at least $550 by meeting or exceeding monthly customer satisfaction and operational performance goals and tracking to earn above-target payouts for full-year goals.
  • Grew operating revenues by 9%.
  • Generated record adjusted pretax margin in the second quarter of 18.3% compared to 13.5% in 2013.
  • Generated 14.9% pretax margin for the trailing 12-month period ended June 30, 2014, compared to 11.8% for the same period in the prior year.
  • Ranked in the Fortune 500 for the first time in Air Group's history.
  • Achieved trailing 12-month return on invested capital of 16.1% compared to 13.0% in the 12-month period ended June 30, 2013.
  • Rated BBB- by Fitch Ratings.  Air Group is one of only two U.S. airlines with investment grade credit ratings.
  • Declared a 2-for-1 stock split that was effective July 9, 2014. All stock and per-share figures reflect the split retroactively.
  • Announced an additional $650 million repurchase program, representing approximately 10% of our stock market capitalization at the time of announcement.
  • Repurchased 1,108,334 shares of common stock for $53 million in the second quarter of 2014.
  • Paid a $0.125 per-share quarterly cash dividend on June 10, bringing total dividend payments so far this year to $34 million.
  • Lowered adjusted debt-to-total-capitalization ratio to 32%.
  • Produced operating cash flows of $1 billion and free cash flows of $366 million for the 12-month period ended June 30, 2014.
  • Held $1.5 billion in unrestricted cash and marketable securities as of June 30, 2014.
  • Maintained fully funded pension plans and had no net debt.

Customer Service and Operational Highlights:

  • Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2014 by J.D. Power for the seventh year in a row.
  • Ranked highest by frequent fliers in the J.D. Power's first-ever Airline Loyalty/Rewards Program Satisfaction Report.
  • Held the No. 1 spot in U.S. Department of Transportation on-time performance among the eight largest U.S. airlines for the twelve months ended May 2014.
  • Named No. 1 on-time carrier in North America for the fourth year in a row from FlightStats in February 2014.
  • Received Airline Business Magazine's 2014 Airline Strategy Award for Technology, Environment and Operations.
  • Signed a new five-year contract with Alaska's clerical, office, and passenger service employees (COPS).
  • Reached agreement on a six-year contract with Horizon's aircraft technicians and fleet service agents, represented by the International Brotherhood of Teamsters.
  • Completed 44% of the cabin improvement project, with 41 out of 94 aircraft upgraded with Recaro seats and power at every seat.
  • Added split scimitar winglets to 12 aircraft.
  • Increased fuel efficiency (as measured by seat-miles per gallon) by 2.5% as part of our effort to be the airline leader in environmental stewardship.
  • Became the launch customer of Boeing's new, innovative, high-capacity 737 Space Bins, which will increase bag capacity in the cabin by 48%.
  • Sponsored Seattle's bike share program that is guaranteed to put 500 bikes and 50 docking stations throughout the city of Seattle.
  • Committed to $1.5 million in grants to support job training for workers at the Seattle-Tacoma airport, in addition to a voluntary wage increase to $12 per hour for certain vendors.
  • Pledged $2.5 million to Seattle's Museum of Flight to help create the Alaska Airlines Aerospace Education Center to guide students toward a future in science, technology, engineering and math (STEM), and sponsored Alaska Airlines Aviation Day in May 2014 to inspire youth to pursue careers in aviation.

New Routes:

  • New routes launched and announced in the second quarter are as follows:

New Non-Stop Routes Launched in Q2

New Non-Stop Routes Announced in Q2 (Launch Dates)

Salt Lake City to Portland, Oregon

Seattle to Baltimore (9/2/2014)

Salt Lake City to San Diego

Seattle to Albuquerque, New Mexico (9/18/2014)

Salt Lake City to Los Angeles

Portland to Los Cabos, Mexico (11/3/2014)*

Salt Lake City to San Jose, California

Portland to Puerto Vallarta (11/4/2014)*

Salt Lake City to Boise, Idaho

Seattle to Cancun (11/6/2014)

Salt Lake City to Las Vegas


Salt Lake City to San Francisco


Portland to Kalispell, Montana


Seattle to New Orleans


Seattle to Tampa, Florida


*    Subject to government approval.

Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2014 GAAP net income of $165 million, or $1.19 per diluted share, compared to $104 million, or $0.74 per diluted share in the second quarter of 2013. Excluding the impact of mark-to-market fuel hedge adjustments of $13 million ($8 million after tax, or $0.06 per diluted share), the company reported record adjusted net income of $157 million, or $1.13 per diluted share, compared to adjusted net income of $105 million, or $0.74 per diluted share, in 2013.

"We're pleased to report our 21st consecutive quarterly profit and a record second quarter result," said CEO Brad Tilden. "Through strong demand, a growing network, and steady support from our loyal customers, we were able to overcome the impact of substantial new competition."

"I want to thank our people for continuing to work together to provide outstanding service to our customers. For the seventh consecutive year, Alaska employees recently earned the J.D. Power award for 'Highest in Customer Satisfaction Among Traditional Carriers'. I am very proud of our team."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the second quarters of 2014 and 2013 to adjusted amounts:

Three Months Ended June 30,

2014

2013

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income

$

165

$

1.19

$

104

$

0.74

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

(8)

(0.06)

1

Non-GAAP adjusted income and per-share amounts

$

157

$

1.13

$

105

$

0.74

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 second quarter results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 24, 2014. It can be accessed through the company's website at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

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, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, 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 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers" in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the 2014 Airline Loyalty/Rewards Program Satisfaction Report. 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 June 30,

Six Months Ended June 30,

(in millions, except per-share amounts)

2014

2013

Change

2014

2013

Change

Operating Revenues:

Passenger

Mainline

$

974

$

896

9%

1,828

1,692

8%

Regional

200

192

4%

386

374

3%

Total passenger revenue

1,174

1,088

8%

2,214

2,066

7%

Freight and mail

32

30

7%

56

56

—%

Other - net

169

138

22%

327

268

22%

Total Operating Revenues

1,375

1,256

9%

2,597

2,390

9%

Operating Expenses:

Wages and benefits

281

258

9%

553

522

6%

Variable incentive pay

29

21

38%

54

42

29%

Aircraft fuel, including hedging gains and losses

360

372

(3)%

718

753

(5)%

Aircraft maintenance

57

67

(15)%

108

133

(19)%

Aircraft rent

29

30

(3)%

57

59

(3)%

Landing fees and other rentals

64

75

(15)%

133

136

(2)%

Contracted services

62

54

15%

122

107

14%

Selling expenses

53

51

4%

99

89

11%

Depreciation and amortization

73

68

7%

143

136

5%

Food and beverage service

23

21

10%

44

41

7%

Other

81

65

25%

161

133

21%

Total Operating Expenses

1,112

1,082

3%

2,192

2,151

2%

Operating Income

263

174

51%

405

239

69%

Nonoperating Income (Expense):

Interest income

5

4

10

9

Interest expense

(12)

(14)

(25)

(29)

Interest capitalized

4

5

9

9

Other - net

5

18

1

2

(5)

12

(10)

Income Before Income Tax

265

169

417

229

Income tax expense

100

65

158

88

Net Income

$

165

$

104

259

141

Basic Earnings Per Share:

$

1.20

$

0.75

$

1.88

$

1.00

Diluted Earnings Per Share:

$

1.19

$

0.74

$

1.86

$

0.99

Shares Used for Computation:

Basic

137.274

140.504

137.304

140.684

Diluted

138.711

142.318

138.776

142.594

Cash dividend declared per share:

$

0.125

$

0.250

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.

(in millions)

June 30, 2014

December 31, 2013

Cash and marketable securities

$

1,510

$

1,330

Total current assets

2,020

1,762

Property and equipment-net

4,102

3,893

Other assets

192

183

Total assets

6,314

5,838

Air traffic liability

807

564

Current portion of long-term debt

114

117

Other current liabilities

943

899

Current liabilities

1,864

1,580

Long-term debt

745

754

Other liabilities and credits

1,505

1,475

Shareholders' equity

2,200

2,029

Total liabilities and shareholders' equity

$

6,314

$

5,838

Debt to Capitalization, adjusted for operating leases(a)

32%:68%

35%:65%

Number of common shares outstanding

136.738

137.492

(a) 

Calculated using the present value of remaining aircraft lease payments.

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

Change

2014

2013

Change

Consolidated Operating Statistics:(a)

Revenue passengers (000)

7,353

6,980

5.3%

14,002

13,326

5.1%

RPMs (000,000) "traffic"

7,755

7,385

5.0%

14,832

14,181

4.6%

ASMs (000,000) "capacity"

8,988

8,547

5.2%

17,341

16,530

4.9%

Load factor

86.3%

86.4%

(0.1pts)

85.5%

85.8%

(0.3pts)

Yield

15.14¢

14.73¢

2.8%

14.93¢

14.56¢

2.5%

PRASM

13.06¢

12.73¢

2.6%

12.77¢

12.49¢

2.2%

RASM

15.29¢

14.70¢

4.0%

14.98¢

14.46¢

3.6%

CASM excluding fuel(b)

8.36¢

8.31¢

0.6%

8.50¢

8.46¢

0.5%

Economic fuel cost per gallon(c)

$

3.20

$

3.28

(2.4%)

$

3.26

$

3.38

(3.6%)

Fuel gallons (000,000)

116

113

2.7%

227

219

3.7%

ASM's per gallon

77.5

75.6

2.5%

76.4

75.5

1.2%

Average number of full-time equivalent employees (FTE)

12,515

12,059

3.8%

12,451

12,036

3.4%

Mainline Operating Statistics:

Revenue passengers (000)

5,307

5,074

4.6%

10,044

9,608

4.5%

RPMs (000,000) "traffic"

7,029

6,729

4.5%

13,431

12,901

4.1%

ASMs (000,000) "capacity"

8,095

7,743

4.5%

15,590

14,946

4.3%

Load factor

86.8%

86.9%

(0.1pts)

86.2%

86.3%

(0.1pts)

Yield

13.86¢

13.31¢

4.1%

13.61¢

13.11¢

3.8%

PRASM

12.03¢

11.57¢

4.0%

11.73¢

11.32¢

3.6%

RASM

14.24¢

13.50¢

5.5%

13.92¢

13.24¢

5.1%

CASM excluding fuel(b)

7.44¢

7.35¢

1.2%

7.56¢

7.47¢

1.2%

Economic fuel cost per gallon(c)

$

3.19

$

3.28

(2.7%)

$

3.25

$

3.37

(3.6%)

Fuel gallons (000,000)

102

100

2.0%

197

193

2.1%

Average number of FTE's

9,767

9,457

3.3%

9,679

9,404

2.9%

Aircraft utilization

10.5

10.9

(3.7%)

10.4

10.7

(2.8%)

Average aircraft stage length

1,181

1,156

2.2%

1,190

1,188

0.2%

Operating fleet

134

128

6a/c

134

128

6a/c

Regional Operating Statistics:(d)

Revenue passengers (000)

2,046

1,907

7.3%

3,958

3,718

6.5%

RPMs (000,000) "traffic"

725

656

10.5%

1,401

1,280

9.5%

ASMs (000,000) "capacity"

894

804

11.2%

1,751

1,584

10.5%

Load factor

81.2%

81.6%

(0.4pts)

80.0%

80.8%

(0.8pts)

Yield

27.55¢

29.29¢

(5.9%)

27.54¢

29.19¢

(5.7%)

PRASM

22.37¢

23.91¢

(6.4%)

22.04¢

23.60¢

(6.6%)

Operating fleet (Horizon only)

51

48

3a/c

51

48

3a/c

(a) 

 Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements.

(b) 

 See a reconciliation of operating expenses excluding fuel 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 June 30, 2014

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items(b)

Consolidated

Operating revenues

Passenger

Mainline

$

974

$

$

$

$

974

$

$

974

Regional

200

200

200

Total passenger revenues

974

200

1,174

1,174

CPA revenues

87

(87)

Freight and mail

31

1

32

32

Other-net

147

20

2

169

169

Total operating revenues

1,152

221

89

(87)

1,375

1,375

Operating expenses

Operating expenses, excluding fuel

602

151

86

(87)

752

752

Economic fuel

324

49

373

(13)

360

Total operating expenses

926

200

86

(87)

1,125

(13)

1,112

Nonoperating income (expense)

Interest income

5

5

5

Interest expense

(9)

(1)

(2)

(12)

(12)

Other

9

1

(1)

9

9

5

(3)

2

2

Income (loss) before income tax

$

231

$

21

$

$

$

252

$

13

$

265

Three Months Ended June 30, 2013

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items(b)

Consolidated

Operating revenues

Passenger

Mainline

$

896

$

$

$

$

896

$

$

896

Regional

192

192

192

Total passenger revenues

896

192

1,088

1,088

CPA revenues

91

(91)

Freight and mail

29

1

30

30

Other-net

120

16

2

138

138

Total operating revenues

1,045

209

93

(91)

1,256

1,256

Operating expenses

Operating expenses, excluding fuel

569

149

84

(92)

710

710

Economic fuel

327

44

371

1

372

Total operating expenses

896

193

84

(92)

1,081

1

1,082

Nonoperating income (expense)

Interest income

4

4

4

Interest expense

(9)

(4)

(1)

(14)

(14)

Other

6

(1)

1

(1)

5

5

1

(1)

(3)

(2)

(5)

(5)

Income (loss) before income tax

$

150

$

15

$

6

$

(1)

$

170

$

(1)

$

169

Six Months Ended June 30, 2014

Alaska

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items(b)

Consolidated

Operating revenues

Passenger

Mainline

$

1,828

$

$

$

$

1,828

$

$

1,828

Regional

386

386

386

Total passenger revenues

1,828

386

2,214

2,214

CPA revenues

178

(178)

Freight and mail

54

2

56

56

Other - net

287

37

3

327

327

Total operating revenues

2,169

425

181

(178)

2,597

2,597

Operating expenses

Operating expenses, excluding fuel

1,178

302

172

(178)

1,474

1,474

Economic fuel

642

97

739

(21)

718

Total operating expenses

1,820

399

172

(178)

2,213

(21)

2,192

Nonoperating income (expense)

Interest income

10

10

10

Interest expense

(17)

(1)

(6)

(1)

(25)

(25)

Other

27

27

27

20

(1)

(6)

(1)

12

12

Income (loss) before income tax

$

369

$

25

$

3

$

(1)

$

396

$

21

$

417

Six Months Ended June 30, 2013

Alaska

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items(b)

Consolidated

Operating revenues

Passenger

Mainline

$

1,692

$

$

$

$

1,692

$

$

1,692

Regional

374

374

374

Total passenger revenues

1,692

374

2,066

2,066

CPA revenues

186

(186)

Freight and mail

54

2

56

56

Other - net

234

31

3

268

268

Total operating revenues

1,980

407

189

(186)

2,390

2,390

Operating expenses

Operating expenses, excluding fuel

1,116

296

173

(187)

1,398

1,398

Economic fuel

650

90

740

13

753

Total operating expenses

1,766

386

173

(187)

2,138

13

2,151

Nonoperating income (expense)

Interest income

9

9

9

Interest expense

(21)

(7)

(1)

(29)

(29)

Other

11

(1)

1

(1)

10

10

(1)

(1)

(6)

(2)

(10)

(10)

Income (loss) before income tax

$

213

$

20

$

10

$

(1)

$

242

$

(13)

$

229

(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 revenues/charges.  See Note A for further information in the accompanying pages.

(b) 

 Includes mark-to-market fuel-hedge accounting charges.

Alaska Air Group, Inc.

CASM EXCLUDING FUEL RECONCILIATION (unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

(in cents)

2014

2013

2014

2013

Consolidated:

CASM

12.37¢

12.66¢

12.64¢

13.01¢

Less the following components:

Aircraft fuel, including hedging gains and losses

4.01

4.35

4.14

4.55

CASM excluding fuel

8.36¢

8.31¢

8.50¢

8.46¢

Mainline:

CASM

11.28¢

11.58¢

11.54¢

11.90¢

Less the following components:

Aircraft fuel, including hedging gains and losses

3.84

4.23

3.98

4.43

CASM excluding fuel

7.44¢

7.35¢

7.56¢

7.47¢

FUEL RECONCILIATIONS (unaudited)

Three Months Ended June 30,

2014

2013

(in millions, except for per-gallon amounts)

Dollars

Cost/Gallon

Dollars

Cost/Gallon

Raw or "into-plane" fuel cost

$

365

$

3.13

$

347

$

3.07

(Gains) losses on settled hedges

8

0.07

24

0.21

Consolidated economic fuel expense

373

3.20

371

3.28

Mark-to-market fuel hedge adjustment

(13)

(0.11)

1

0.01

GAAP fuel expense

$

360

$

3.09

$

372

$

3.29

Fuel gallons

116

113

Six Months Ended June 30, 2014

2014

2013

(in millions, except for per-gallon amounts)

Dollars

Cost/Gallon

Dollars

Cost/Gallon

Raw or "into-plane" fuel cost

$

712

$

3.14

$

704

$

3.22

(Gains) losses on settled hedges

27

0.12

36

0.16

Consolidated economic fuel expense

739

3.26

740

3.38

Mark-to-market fuel hedge adjustment

(21)

(0.09)

13

0.06

GAAP fuel expense

$

718

$

3.17

$

753

$

3.44

Fuel gallons

227

219

Note A: Pursuant to Regulation G, we are providing disclosure of the reconciliation 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 eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations without the consideration of accounting changes or 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 Taxes 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 fleet transition costs or special revenues, 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.

Note B: Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams primarily in operational roles. To manage the two operating airlines, management views the business in three operating segments. Alaska operates a fleet of passenger jets (Alaska Mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights (Alaska Regional). Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (Horizon). The Company believes the amounts paid by Alaska to Horizon approximate current market rates received by other regional carriers for similar flying and are available to pay for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs.  All inter-company revenues and expenses between Alaska and Horizon are eliminated in consolidation.

Glossary of Terms

Aircraft Utilization - block hours per day; this represents the average number of hours our aircraft are flying

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 the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share 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 jets and all associated revenues and costs

PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"

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, SkyWest, and PenAir.  In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs).  Additionally, Alaska 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

SOURCE Alaska Airlines



RELATED LINKS

http://www.alaskaair.com