Alaska Air Group Reports Record Second Quarter Results

Jul 26, 2012, 08:00 ET from Alaska Air Group

SEATTLE, July 26, 2012 /PRNewswire/ --

Second quarter highlights with comparison to 2011:

  • Reported record second quarter net income, excluding special items, of $110.8 million, or $1.53 per diluted share, compared to adjusted net income of $89.6 million, or $1.22 per diluted share. This quarter's results compare to a First Call mean estimate of $1.51 per share.
  • Earned net income under Generally Accepted Accounting Principles (GAAP) of $67.5 million, or $0.93 per diluted share, compared to net income of $28.8 million, or $0.39 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 twelve months ended May 2012.
  • Improved employee productivity by 3.7 percent.
  • Achieved trailing twelve-month return on invested capital of 12.3 percent, compared to 11.5 percent in the twelve months ended June 30, 2011.
  • Lowered adjusted debt-to-total capitalization ratio by 4 points, to 58 percent, since December 31, 2011.
  • Held $1.2 billion in unrestricted cash and marketable securities as of June 30, 2012.
  • Received "Positive" outlook from Standard and Poor's, up from "Stable."
  • Ratified a six-year agreement on July 18, 2012, with the International Association of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp service and stores agents.

Second quarter recognitions:

  • Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2012 by J.D. Power and Associates for the fifth year in a row.
  • Named "Best Regional Airline in North America" at the 2012 World Airline Awards.
  • Earned "Eco-Partnership of the Year Award" by Air Transport World magazine.
  • Recognized as the 2011 Best Company in the Northwest by The Seattle Times.
  • Received "2012 Fly Quiet Bravo Award" by the Port of Seattle Commission.

New routes:

  • Began new service in the second quarter as follows:

New Non-Stop Routes (Launch Date)

Oakland to Honolulu (4/10)

San Diego to Monterey (6/4)

San Jose to Honolulu (4/10)

Portland to Bellingham (6/4)

San Jose to Reno (6/4)

Portland to Bozeman (6/4)

San Diego to Santa Rosa (6/4)

Portland to Santa Barbara (6/4)

San Diego to Fresno (6/4)

Seattle to Philadelphia (6/11)

  •  Scheduled new service to start in the second half of the year as follows:

New Non-Stop Routes (Launch Date)

Seattle to Fort Lauderdale (7/16)

Portland to Lihue (11/5)

Portland to Washington, D.C. (8/28)

Bellingham to Kahului (11/8)

Seattle to San Antonio (9/17)

Anchorage to Kona (11/10)

San Diego to Orlando (10/11)


Alaska Air Group, Inc. (NYSE: ALK) today reported second quarter 2012 GAAP net income of $67.5 million, or $0.93 per diluted share, compared to GAAP net income of $28.8 million, or $0.39 per diluted share in 2011. Excluding the impact of mark-to-market fuel hedge adjustments of $69.6 million ($43.3 million after tax, or $0.60 per diluted share), the company reported record second quarter 2012 net income of $110.8 million, or $1.53 per diluted share, compared to net income excluding special items of $89.6 million, or $1.22 per diluted share, in 2011.

"Significantly higher revenues driven by strong demand, our growing route network and our preferred product led to a record second quarter profit," CEO Brad Tilden said.  "Our people are doing a terrific job, and I want to thank them for running a safe operation, taking great care of our customers and producing these excellent results."

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

Three Months Ended June 30,

2012

2011

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income

$

67.5

$

0.93

$

28.8

$

0.39

Fleet transition costs, net of tax

16.7

0.23

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

43.3

0.60

44.1

0.60

Non-GAAP adjusted income and per share amounts

 

$

110.8

$

1.53

$

89.6

$

1.22

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 9:00 a.m. Pacific time on July 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 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 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 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/Horizon Air 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)

2012

2011

Change

2012

2011

Change

Operating Revenues:

Passenger

Mainline

$

862.7

$

774.2

11.4%

$

1,586.1

$

1,433.5

10.6%

Regional

187.6

179.0

4.8%

360.4

340.6

5.8%

Total passenger revenue

1,050.3

953.2

10.2%

1,946.5

1,774.1

9.7%

Freight and mail

30.6

29.1

5.2%

55.0

54.0

1.9%

Other - net

132.3

127.9

3.4%

251.0

247.3

1.5%

Total Operating Revenues

1,213.2

1,110.2

9.3%

2,252.5

2,075.4

8.5%

Operating Expenses:

Wages and benefits

258.9

242.8

6.6%

515.5

492.1

4.8%

Variable incentive pay

21.5

17.9

20.1%

37.5

34.3

9.3%

Aircraft fuel, including hedging gains and losses

431.8

397.5

8.6%

750.6

592.0

26.8%

Aircraft maintenance

54.5

49.1

11.0%

104.6

102.4

2.1%

Aircraft rent

29.0

29.0

—%

57.0

59.5

(4.2)%

Landing fees and other rentals

60.5

59.9

1.0%

123.0

117.8

4.4%

Contracted services

50.5

46.6

8.4%

98.2

90.1

9.0%

Selling expenses

44.2

45.8

(3.5)%

85.3

85.6

(0.4)%

Depreciation and amortization

65.8

61.7

6.6%

129.5

122.0

6.1%

Food and beverage service

19.6

17.1

14.6%

37.4

32.2

16.1%

Other

61.1

58.2

5.0%

125.7

118.9

5.7%

Fleet transition costs

26.8

NM

36.9

NM

Total Operating Expenses

1,097.4

1,052.4

4.3%

2,064.3

1,883.8

9.6%

Operating Income

115.8

57.8

100.3%

188.2

191.6

(1.8)%

Nonoperating Income (Expense):

Interest income

5.1

6.3

10.0

13.9

Interest expense

(17.2)

(20.0)

(33.8)

(43.4)

Interest capitalized

3.5

1.6

8.0

3.4

Other - net

1.9

1.3

3.3

2.2

(6.7)

(10.8)

(38.0)%

(12.5)

(23.9)

(47.7)%

Income Before Income Tax

109.1

47.0

132.1%

175.7

167.7

4.8%

Income tax expense

41.6

18.2

67.4

64.7

Net Income

$

67.5

$

28.8

134.4%

$

108.3

$

103.0

5.1%

Basic Earnings Per Share:

$

0.95

$

0.40

$

1.52

$

1.43

Diluted Earnings Per Share:

$

0.93

$

0.39

$

1.50

$

1.40

Shares Used for Computation:

Basic

70.996

71.965

71.069

71.977

Diluted

72.200

73.473

72.325

73.551

NM - Not Meaningful

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.

(in millions)

June 30, 2012

December 31, 2011

Cash and marketable securities

$

1,185.4

$

1,140.9

Total current assets

1,698.4

1,595.5

Property and equipment-net

3,547.4

3,401.5

Other assets

177.8

198.0

Total assets

$

5,423.6

$

5,195.0

Current liabilities

$

1,664.3

$

1,509.6

Long-term debt

957.1

1,099.0

Other liabilities and credits

1,519.2

1,413.2

Shareholders' equity

1,283.0

1,173.2

Total liabilities and shareholders' equity

$

5,423.6

$

5,195.0

Debt to Capitalization, adjusted for operating leases

58%:42%

62%:38%

Number of common shares outstanding

70.724

70.950

 

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

Three Months Ended June 30,

Six Months Ended June 30,

2012

2011

Change

2012

2011

Change

Mainline Operating Statistics:

Revenue passengers (000)

4,752

4,533

4.8%

9,027

8,640

4.5%

RPMs (000,000) "traffic"

6,231

5,697

9.4%

11,868

10,976

8.1%

ASMs (000,000) "capacity"

7,130

6,702

6.4%

13,705

13,055

5.0%

Load factor

87.4%

85.0%

2.4 pts

86.6%

84.1

2.5 pts

Yield

13.85¢

13.59¢

1.9%

13.36¢

13.06¢

2.3%

PRASM

12.10¢

11.55¢

4.8%

11.57¢

10.98¢

5.4%

RASM

14.13¢

13.62¢

3.7%

13.55¢

13.01¢

4.2%

CASM excluding fuel(a)

7.46¢

7.44¢

0.3%

7.67¢

7.63¢

0.5%

Economic fuel cost per gallon(b)

$

3.40

$

3.27

4.0%

$

3.40

$

3.07

10.7%

Fuel gallons (000,000)

93.2

87.1

7.0%

179.7

170.2

5.6%

Average number of full-time equivalent employees

9,165

8,899

3.0%

9,088

8,892

2.2%

Aircraft utilization

10.9

10.5

3.8%

10.6

10.5

1.0%

Average aircraft stage length

1,149

1,104

4.1%

1,151

1,111

3.6%

Operating fleet

120

117

3 a/c

120

117

3 a/c

Regional Operating Statistics:(c)

Revenue passengers (000)

1,813

1,713

5.8%

3,533

3,358

5.2%

RPMs (000,000) "traffic"

638

596

7.0%

1,233

1,170

5.4%

ASMs (000,000) "capacity"

809

767

5.5%

1,578

1,526

3.4%

Load factor

78.9%

77.7%

1.2 pts

78.1

76.7

1.4 pts

Yield

29.40¢

30.03¢

(2.1)%

29.23¢

29.11¢

0.4%

PRASM

23.19¢

23.34¢

(0.6)%

22.84¢

22.32¢

2.3%

Operating fleet (Horizon only)

50

49

1 a/c

50

49

1 a/c

Consolidated Operating Statistics:(d)

Revenue passengers (000)

6,565

6,246

5.1%

12,560

11,998

4.7%

RPMs (000,000) "traffic"

6,869

6,293

9.2%

13,101

12,146

7.9%

ASMs (000,000) "capacity"

7,939

7,469

6.3%

15,283

14,581

4.8%

Load factor

86.5%

84.3%

2.2 pts

85.7

83.3

2.4 pts

Yield

15.29¢

15.15¢

0.9%

14.86¢

14.61¢

1.7%

PRASM

13.23¢

12.76¢

3.7%

12.74¢

12.17¢

4.7%

RASM

15.28¢

14.86¢

2.8%

14.74¢

14.23¢

3.6%

CASM excluding fuel and fleet transition costs(a)

8.38¢

8.41¢

(0.4)%

8.60

8.61¢

(0.1)%

Economic fuel cost per gallon(b)

$

3.40

$

3.28

3.7%

$

3.41

$

3.08

10.7%

Fuel gallons (000,000)

106.4

99.7

6.7%

205.8

196.0

5.0%

Average number of full-time equivalent employees

11,965

11,807

1.3%

11,899

11,846

0.4%

(a) See a reconciliation of operating expenses excluding fuel and certain special items and Note A for a discussion of why these measures may be important to investors in the accompanying pages.

(b) See a reconciliation of economic fuel cost in the accompanying pages.

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

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

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Three Months Ended June 30, 2012

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

862.7

$

$

$

$

862.7

$

$

862.7

Regional

187.6

187.6

187.6

Total passenger revenues

862.7

187.6

1,050.3

1,050.3

CPA revenues

89.2

(89.2)

Freight and mail

29.5

1.1

30.6

30.6

Other-net

115.4

15.1

1.8

132.3

132.3

Total operating revenues

1,007.6

203.8

91.0

(89.2)

1,213.2

1,213.2

Operating expenses

Operating expenses, excluding fuel

532.2

139.0

83.1

(88.7)

665.6

665.6

Economic fuel

316.7

45.5

362.2

69.6

431.8

Total operating expenses

848.9

184.5

83.1

(88.7)

1,027.8

69.6

1,097.4

Nonoperating income (expense)

Interest income

4.4

0.7

5.1

5.1

Interest expense

(12.7)

(4.1)

(0.4)

(17.2)

(17.2)

Other

5.1

0.4

(0.1)

5.4

5.4

(3.2)

(3.7)

0.2

(6.7)

(6.7)

Income (loss) before income tax

$

155.5

$

19.3

$

4.2

$

(0.3)

$

178.7

$

(69.6)

$

109.1

Three Months Ended June 30, 2011

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

774.2

$

$

$

$

774.2

$

$

774.2

Regional

179.0

179.0

179.0

Total passenger revenues

774.2

179.0

953.2

953.2

CPA revenues

93.5

(93.5)

Freight and mail

28.0

1.0

0.1

29.1

29.1

Other-net

110.7

15.4

1.8

127.9

127.9

Total operating revenues

912.9

195.4

95.4

(93.5)

1,110.2

1,110.2

Operating expenses

Operating expenses, excluding fuel(b)

498.4

138.1

83.8

(92.2)

628.1

26.8

654.9

Economic fuel

285.2

41.4

326.6

70.9

397.5

Total operating expenses

783.6

179.5

83.8

(92.2)

954.7

97.7

1,052.4

Nonoperating income (expense)

Interest income

7.1

(0.8)

6.3

6.3

Interest expense

(16.3)

(4.4)

0.7

(20.0)

(20.0)

Other

2.3

0.2

0.4

2.9

2.9

(6.9)

(4.2)

0.3

(10.8)

(10.8)

Income (loss) before income tax

$

122.4

$

15.9

$

7.4

$

(1.0)

$

144.7

$

(97.7)

$

47.0

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Six Months Ended June 30, 2012

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

1,586.1

$

$

$

$

1,586.1

$

$

1,586.1

Regional

360.4

360.4

360.4

Total passenger revenues

1,586.1

360.4

1,946.5

1,946.5

CPA revenues

176.2

(176.2)

Freight and mail

53.0

2.0

55.0

55.0

Other-net

218.2

29.1

3.7

251.0

251.0

Total operating revenues

1,857.3

391.5

179.9

(176.2)

2,252.5

2,252.5

Operating expenses

Operating expenses, excluding fuel

1,051.8

275.8

161.4

(175.3)

1,313.7

1,313.7

Economic fuel

611.1

89.8

700.9

49.7

750.6

Total operating expenses

1,662.9

365.6

161.4

(175.3)

2,014.6

49.7

2,064.3

Nonoperating income (expense)

Interest income

9.3

0.7

10.0

10.0

Interest expense

(25.3

)

(8.1)

(0.4)

(33.8)

(33.8)

Other

10.4

0.8

0.1

11.3

11.3

(5.6

)

(7.3)

0.4

(12.5)

(12.5)

Income (loss) before income tax

$

188.8

$

25.9

$

11.2

$

(0.5)

$

225.4

$

(49.7)

$

175.7

 

Six Months Ended June 30, 2011

Alaska

(in millions)

Mainline

Regional

Horizon

Consolidating

Air Group Adjusted(a)

Special Items

Consolidated

Operating revenues

Passenger

Mainline

$

1,433.5

$

$

$

$

1,433.5

$

$

1,433.5

Regional

340.6

340.6

340.6

Total passenger revenues

1,433.5

340.6

1,774.1

1,774.1

CPA revenues

188.1

(188.1)

Freight and mail

51.9

2.0

0.1

54.0

54.0

Other-net

212.7

30.4

4.2

247.3

247.3

Total operating revenues

1,698.1

373.0

192.4

(188.1)

2,075.4

2,075.4

Operating expenses

Operating expenses, excluding fuel(b)

996.1

271.0

174.0

(186.2)

1,254.9

36.9

1,291.8

Economic fuel

523.6

79.5

603.1

(11.1)

592.0

Total operating expenses

1,519.7

350.5

174.0

(186.2)

1,858.0

25.8

1,883.8

Nonoperating income (expense)

Interest income

15.8

(1.9)

13.9

13.9

Interest expense

(36.0)

(9.1)

1.7

(43.4)

(43.4)

Other

4.4

1.0

0.2

5.6

5.6

(15.8)

(8.1)

(23.9)

(23.9)

Income (loss) before income tax

$

162.6

$

22.5

$

10.3

$

(1.9)

$

193.5

$

(25.8)

$

167.7

(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 June 30,

2012

2011

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or "into-plane" fuel cost

$

350.4

$

3.29

$

343.1

$

3.44

Minus gains, or plus the losses, during the period on settled hedges

11.8

0.11

(16.5)

(0.16)

Consolidated economic fuel expense

$

362.2

$

3.40

$

326.6

$

3.28

Adjustments to reflect timing of (gain) or loss recognition resulting from mark-to-market accounting

69.6

0.66

70.9

0.71

GAAP fuel expense

$

431.8

$

4.06

$

397.5

$

3.99

Fuel gallons

106.4

99.7

Six Months Ended June 30,

2012

2011

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or "into-plane" fuel cost

$

687.7

$

3.34

$

632.1

$

3.23

Minus gains, or plus the losses, during the period on settled hedges

13.2

0.07

(29.0)

(0.15)

Consolidated economic fuel expense

$

700.9

$

3.41

$

603.1

$

3.08

Adjustments to reflect timing of (gain) or loss recognition resulting from mark-to-market accounting

49.7

0.24

(11.1)

(0.06)