Alaska Air Group Reports Record Third Quarter Results

SEATTLE, Oct. 25, 2012 /PRNewswire/ --

Third quarter highlights with comparison to 2011:

  • Reported record third quarter net income, excluding special items, of $150.3 million, or $2.09 per diluted share, compared to adjusted net income of $131.1 million, or $1.79 per diluted share. This quarter's results compare to a First Call mean estimate of $2.08 per share.
  • Earned net income under Generally Accepted Accounting Principles (GAAP) of $163.4 million, or $2.27 per diluted share, compared to net income of $77.5 million, or $1.06 per diluted share.
  • Held the No. 1 spot in U.S. Department of Transportation on-time performance among the 10 largest U.S. airlines for the 12 months ended August 2012.
  • Announced a new $250 million share repurchase program, representing approximately 10 percent of our market capitalization, while completing our previously announced $50 million share repurchase program.
  • Achieved trailing 12-month return on invested capital of 12.7 percent, compared to 12.0 percent in the 12 months ended Sept. 30, 2011.
  • Lowered adjusted debt-to-total capitalization ratio by 8 points, to 54 percent, since Dec. 31, 2011.
  • Held $1.2 billion in unrestricted cash and marketable securities as of Sept. 30, 2012.
  • Received "2012 Global Vision Award" by Travel + Leisure magazine for Alaska Airlines' sustainability efforts.

New routes:

  • Began new service between Seattle and Fort Lauderdale, Fla.; Portland, Ore., and Washington, D.C.; and Seattle and San Antonio in the third quarter.
  • Announced expanded service between Los Angeles and Anchorage beginning in summer 2013.

Boeing order:

  • Signed an aircraft purchase agreement with Boeing for 50 new 737 aircraft, including 37 of Boeing's new 737 MAX aircraft with deliveries expected in 2015 through 2024. This order positions Alaska to replace aging aircraft over the next decade and grow the fleet, assuming profitability and return-on-invested-capital targets can be met.

Alaska Air Group, Inc. (NYSE: ALK) today reported third quarter 2012 GAAP net income of $163.4 million, or $2.27 per diluted share, compared to $77.5 million, or $1.06 per diluted share in 2011. Excluding the favorable impact of mark-to-market fuel hedge adjustments of $21.2 million ($13.1 million after tax, or $0.18 per diluted share), the company reported record third quarter 2012 net income of $150.3 million, or $2.09 per diluted share, compared to net income excluding special items of $131.1 million, or $1.79 per diluted share, in 2011.

"We're very pleased to report the best quarterly profit in our history," Alaska Air Group CEO Brad Tilden said. "Our pretax profit margin was one of the best in the industry, and it was made possible by the great service our people provide, low fares, and strong demand. We recognize this is a difficult industry, but we're committed to working together to sustain this high level of performance in the quarters and years ahead."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the third quarters of 2012 and 2011 to adjusted amounts:


Three Months Ended September 30,


2012


2011

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income

$

163.4



$

2.27



$

77.5



$

1.06


Fleet transition costs, net of tax





1.2



0.02


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

(13.1)



(0.18)



52.4



0.71


Non-GAAP adjusted income and per share amounts

$

150.3



$

2.09



$

131.1



$

1.79


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 third quarter results will be simulcast via the Internet at 9:00 a.m. Pacific time on October 25, 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 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 September 30,



Nine Months Ended September 30,


(in millions, except per share amounts)

2012


2011


Change


2012


2011


Change

Operating Revenues:












Passenger












Mainline

$

904.6



$

835.6



8.3%



$

2,490.7



$

2,269.1



9.8%


Regional

198.1



196.1



1.0%



558.5



536.7



4.1%


Total passenger revenue

1,102.7



1,031.7



6.9%



3,049.2



2,805.8



8.7%


Freight and mail

29.6



29.9



(1.0)%



84.6



83.9



0.8%


Other - net

139.9



136.5



2.5%



390.9



383.8



1.8%


Total Operating Revenues

1,272.2



1,198.1



6.2%



3,524.7



3,273.5



7.7%














Operating Expenses:












Wages and benefits

255.1



245.1



4.1%



770.6



737.2



4.5%


Variable incentive pay

23.7



19.1



24.1%



61.2



53.4



14.6%


Aircraft fuel, including hedging gains and losses

336.6



420.1



(19.9)%



1,087.2



1,012.1



7.4%


Aircraft maintenance

55.7



49.9



11.6%



160.3



152.3



5.3%


Aircraft rent

29.2



28.8



1.4%



86.2



88.3



(2.4)%


Landing fees and other rentals

61.5



62.0



(0.8)%



184.5



179.8



2.6%


Contracted services

50.3



46.1



9.1%



148.5



136.2



9.0%


Selling expenses

45.9



47.4



(3.2)%



131.2



133.0



(1.4)%


Depreciation and amortization

65.9



62.2



5.9%



195.4



184.2



6.1%


Food and beverage service

20.2



17.6



14.8%



57.6



49.8



15.7%


Other

58.6



54.6



7.3%



184.3



173.5



6.2%


Fleet transition costs



2.0



NM





38.9



NM


Total Operating Expenses

1,002.7



1,054.9



(4.9)%



3,067.0



2,938.7



4.4%


Operating Income

269.5



143.2



88.2%



457.7



334.8



36.7%














Nonoperating Income (Expense):












Interest income

4.5



4.5





14.5



18.4




Interest expense

(15.1)



(25.7)





(48.9)



(69.1)




Interest capitalized

4.4



2.1





12.4



5.5




Other - net

2.3



1.2





5.6



3.4





(3.9)



(17.9)



(78.2)%



(16.4)



(41.8)



(60.8)%


Income Before Income Tax

265.6



125.3



112.0%



441.3



293.0



50.6%


Income tax expense

102.2



47.8





169.6



112.5




Net Income

$

163.4



$

77.5



110.8%



$

271.7



$

180.5



50.5%














Basic Earnings Per Share:

$

2.30



$

1.08





$

3.83



$

2.51




Diluted Earnings Per Share:

$

2.27



$

1.06





$

3.77



$

2.46




Shares Used for Computation:












Basic

70.963



71.954





70.852



71.968




Diluted

71.883



73.238





72.059



73.450




















NM - Not Meaningful
















 


CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)



Alaska Air Group, Inc.








(in millions)

September 30, 2012


December 31, 2011





Cash and marketable securities

$

1,185.6



$

1,140.9






Total current assets

1,716.5



1,595.5


Property and equipment-net

3,547.5



3,401.5


Other assets

172.1



198.0


Total assets

$

5,436.1



$

5,195.0






Current liabilities

$

1,528.8



$

1,509.6


Long-term debt

898.9



1,099.0


Other liabilities and credits

1,569.2



1,413.2


Shareholders' equity

1,439.2



1,173.2


Total liabilities and shareholders' equity

$

5,436.1



$

5,195.0






Debt to Capitalization, adjusted for operating leases

54%:46%



62%:38%






Number of common shares outstanding

70.165



70.950


 


OPERATING STATISTICS SUMMARY (unaudited)


Alaska Air Group, Inc.
























Three Months Ended September 30,



Nine Months Ended September 30,



2012


2011


Change


2012


2011


Change

Consolidated Operating Statistics:(a)












Revenue passengers (000)

6,950



6,709



3.6%