ALASKA AIR GROUP, INC. 
By SEATTLE, Jan. 23, 2014 /PRNewswire/ --
Financial Highlights:
-- Record fourth quarter net income, excluding special items, of $77
million, or $1.10 per diluted share, compared to $50 million, or $0.70
per diluted share in 2012. This quarter's results compare to a First
Call analyst consensus estimate of $1.07 per share.
-- Record full-year net income, excluding special items, of $383 million,
or $5.40 per diluted share, compared to $339 million, or $4.73 per
diluted share in 2012.
-- Net income for the fourth quarter under Generally Accepted Accounting
Principles (GAAP) of $78 million, or $1.11 per diluted share, compared
to net income of $44 million, or $0.61 per diluted share in 2012.
Full-year GAAP net income of $508 million, or $7.16 per diluted share,
compared to net income of $316 million, or $4.40 per diluted share in
2012.
-- Air Group employees earned $105 million in incentive pay in 2013, or
nearly five weeks of pay for most employees. Over the last four years,
employees have earned more than $357 million in incentive pay, averaging
8.8% of annual pay for most employees.
-- Achieved return on invested capital of 13.6% in 2013, compared to 13% in
2012.
-- Lowered adjusted debt-to-total capitalization ratio to 35% as of Dec.
31, 2013.
-- Fully funded the company's defined benefit pension plans in 2013.
-- Held $1.3 billion in unrestricted cash and marketable securities as of
Dec. 31, 2013.
-- Repurchased 2,492,093 shares of common stock for approximately $159
million in 2013. Since 2007, Air Group has used $478 million to
repurchase 21 million shares.
-- Modified affinity card agreement with Bank of America and extended
through 2017, estimated to generate $55 million in additional cash flows
annually.
-- Received a credit rating upgrade from Standard and Poor's to "BB+" with
a stable outlook.
Other Highlights and Achievements:
-- Ranked "Highest in Customer Satisfaction Among Traditional Network
Carriers" by J.D. Power for the sixth year in a row.
-- Ranked as the best U.S. major airline by The Wall Street Journal's
"Middle Seat" scorecard.
-- Named Airline Industry Leader in the 2013 Temkin Customer Service
Rankings.
-- Held the top spot in U.S. Department of Transportation on-time
performance among major U.S. airlines for the 12 months ended November
2013.
-- Alaska Airlines received the FAA's "Diamond Certificate of Excellence"
award for the 12th consecutive year; and Horizon Air received the
certificate for the 12th time in the last 14 years.
-- Improved employee productivity in 2013 by 4.0% compared to 2012.
-- Signed five-year collective bargaining agreements with Alaska pilots and
Horizon flight attendants.
-- Named most fuel-efficient airline in the U.S. in a report released by
the International Council on Clean Transportation.
-- Donated $7.6 million to more than 1,300 charitable organizations,
including support for the grand opening of Aviation High School in
Seattle and other educational efforts. Our employees also volunteered
more than 10,500 hours of community service.
-- Signed an exclusive multi-year partnership with Seattle Seahawks
quarterback, Russell Wilson, and named him our "Chief Football Officer."
New routes:
-- New routes launched and announced in the fourth quarter are as follows:
New Nonstop Routes New Nonstop Routes
Launched in Q4 (Launch Date)
Seattle - Colorado Portland - Salt
Springs Lake City (6/9/14)
Portland - Tucson San Diego - Salt
Lake City
(6/10/14)
Portland - Boise Los Angeles - Salt
Lake City
(6/11/14)
San Diego - Boise San Jose - Salt
Lake City
(6/12/14)
Seattle - Omaha Boise - Salt Lake
City (6/16/14)
Portland - Reno Las Vegas - Salt
Lake City
(6/16/14)
Seattle - Steamboat San Francisco -
Springs Salt Lake City
(6/18/14)
Anchorage - Phoenix
Anchorage - Las Vegas
San Diego - Mammoth
Lakes
-------------------
Alaska Air Group Inc. (NYSE: ALK) today reported fourth quarter 2013 GAAP net income of $78 million, or $1.11 per diluted share, compared to GAAP net income of $44 million, or $0.61 per diluted share in 2012. Excluding mark-to-market fuel hedge gains of $2 million ($1 million after tax, or $0.01 per diluted share), the company reported record fourth quarter 2013 net income of $77 million, or $1.10 per diluted share, compared to net income excluding mark-to-market fuel hedge losses of $50 million, or $0.70 per diluted share, in 2012.
The company reported full-year 2013 GAAP net income of $508 million, compared to $316 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $383 million, or $5.40 per diluted share for 2013, compared to net income of $339 million, or $4.73 per diluted share in 2012. This marks the fourth year in a row the company has exceeded its goal of a 10 percent return on invested capital.
"Award-winning customer service, industry-leading on-time performance, and solid execution by our outstanding people led us to our best year ever," CEO Brad Tilden said. "We're proud of our record profitability and of the record bonus of more than a month's pay that each of our people will receive next month. And we're grateful to our customers for their loyalty. We know that in this highly competitive industry, we must earn their business every day, every flight."
The following table reconciles the company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2013 and 2012 to amounts as reported in accordance with GAAP:
Three Months Ended Dec.
31,
------------------------
2013 2012
---- ----
(in Diluted Diluted
millions, EPS EPS
except
per
share
amounts) Dollars Dollars
------ ------ ------ ------
Reported
GAAP
net
income $78 $1.11 $44 $0.61
Mark-
to-
market
fuel
hedge
adjustments,
net
of
tax (1) (0.01) 6 0.09
--- ----- --- ----
Non-
GAAP
adjusted
income
and
per
share
amounts $77 $1.10 $50 $0.70
=== ===== === =====
12 Months Ended Dec. 31,
------------------------
2013 2012
---- ----
(in Diluted Diluted
millions, EPS EPS
except
per
share
amounts) Dollars Dollars
------ ------ ------ ------
Reported
GAAP
net
income $508 $7.16 $316 $4.40
Mark-
to-
market
fuel
hedge
adjustments,
net
of
tax (5) (0.06) 23 0.33
Special
mileage
plan
revenue,
net
of
tax $(120) $(1.70) $ - $ -
Non-
GAAP
adjusted
income
and
per
share
amounts $383 $5.40 $339 $4.73
==== ===== ==== =====
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 Jan. 23, 2014. 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.
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, 2012. 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 nearly 100 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 Study(SM) for six consecutive years from 2008 to 2013. 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 12 Months Ended
Dec. 31, Dec. 31,
------------------- ----------------
(in millions,
except per
share amounts) 2013 2012 Change 2013 2012 Change
---- ---- ------ ---- ---- ------
Operating Revenues:
Passenger
Mainline $839 $793 6% $3,490 $3,284 6%
Regional 195 188 4% 777 746 4%
--- --- --- ---
Total passenger
revenue 1,034 981 5% 4,267 4,030 6%
Freight and mail 25 26 (4)% 113 111 2%
Other - net 151 125 21% 584 516 13%
Special mileage
plan revenue - - NM 192 - NM
Total Operating
Revenues 1,210 1,132 7% 5,156 4,657 11%
----- ----- ----- -----
Operating Expenses:
Wages and
benefits 280 267 5% 1,086 1,038 5%
Variable
incentive pay 37 27 37% 105 88 19%
Aircraft fuel,
including
hedging gains
and losses 352 372 (5)% 1,467 1,459 1%
Aircraft
maintenance 60 61 (2)% 247 222 11%
Aircraft rent 30 30 - 119 116 3%
Landing fees and
other rentals 55 59 (7)% 262 243 8%
Contracted
services 60 51 18% 221 200 11%
Selling expenses 42 37 14% 179 168 7%
Depreciation and
amortization 67 69 (3)% 270 264 2%
Food and
beverage
service 21 21 - 84 79 6%
Other 76 64 19% 278 248 12%
Total Operating
Expenses 1,080 1,058 2% 4,318 4,125 5%
Operating Income 130 74 76% 838 532 58%
--- --- --- ---
Nonoperating Income
(Expense):
Interest income 4 5 18 19
Interest expense (14) (15) (56) (64)
Interest
capitalized 6 5 21 18
Other - net (1) 3 (5) 9
(5) (2) (22) (18)
Income Before
Income Tax 125 72 74% 816 514 59%
Income tax
expense 47 28 308 198
Net Income $78 $44 77% $508 $316 61%
=== === ==== ====
Basic Earnings
Per Share: $1.12 $0.62 $7.26 $4.47
Diluted Earnings
Per Share: $1.11 $0.61 $7.16 $4.40
Shares Used for
Computation:
Basic 69.335 71.112 69.955 70.708
Diluted 70.242 72.149 70.939 71.784
Cash dividend
declared per
share $0.20 - $0.40 -
NM - Not Meaningful
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
(in millions) Dec. 31, Dec. 31,
2013 2012
--------- --------
Cash and marketable securities $1,330 $1,252
====== ======
Total current assets 1,762 1,737
Property and equipment-net 3,893 3,609
Other assets 183 159
--- ---
Total assets $5,838 $5,505
====== ======
Air traffic liability 564 534
Current portion of long-term
debt 117 161
Other current liabilities 899 806
--- ---
Current liabilities $1,580 $1,501
Long-term debt 754 871
Other liabilities and credits 1,475 1,712
Shareholders' equity 2,029 1,421
----- -----
Total liabilities and
shareholders' equity $5,838 $5,505
====== ======
Debt to Capitalization, adjusted
for operating leases(a) 35%:65% 48%:52%
====== ======
Number of common shares
outstanding 68.746 70.377
====== ======
(a) Calculated using the
present value of
remaining aircraft
lease payments.
OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
Three Months Ended 12 Months Ended
Dec. 31, Dec. 31,
------------------- ----------------
2013 2012 Change 2013 2012 Change
---- ---- ------ ---- ---- ------
Consolidated Operating
Statistics:(a)
Revenue
passengers
(000) 6,694 6,387 4.8% 27,414 25,896 5.9%
RPMs (000,000)
"traffic" 6,980 6,720 3.9% 28,833 27,007 6.8%
ASMs (000,000)
"capacity" 8,275 7,870 5.1% 33,672 31,428 7.1%
Load factor 84.4% 85.4% (1.0) pts 85.6% 85.9% (0.3) pts
Yield 14.80¢ 14.59¢ 1.4% 14.80¢ 14.92¢ (0.8)%
PRASM 12.49¢ 12.46¢ 0.2% 12.67¢ 12.82¢ (1.2)%
RASM 14.62¢ 14.39¢ 1.6% 14.74¢ 14.82¢ (0.5)%
CASM excluding
fuel and fleet
transition
costs(b) 8.81¢ 8.72¢ 1.0% 8.47¢ 8.48¢ (0.1)%
Economic fuel
cost per
gallon(c) $3.21 $3.43 (6.4)% $3.30 $3.37 (2.1)%
Fuel gallons
(000,000) 110 105 4.8% 447 422 5.9%
Average number
of full-time
equivalent
employees 12,284 11,984 2.5% 12,163 11,955 1.7%
Mainline Operating Statistics:
Revenue
passengers
(000) 4,764 4,513 5.5% 19,737 18,526 6.5%
RPMs (000,000)
"traffic" 6,308 6,065 4.0% 26,172 24,417 7.2%
ASMs (000,000)
"capacity" 7,438 7,056 5.4% 30,411 28,180 7.9%
Load factor 84.8% 86.0% (1.2) pts 86.1% 86.6% (0.5) pts
Yield 13.29¢ 13.08¢ 1.6% 13.33¢ 13.45¢ (0.9)%
PRASM 11.27¢ 11.24¢ 0.3% 11.48¢ 11.65¢ (1.5)%
RASM 13.40¢ 13.15¢ 1.9% 13.52¢ 13.62¢ (0.7)%
CASM excluding
fuel(b) 7.91¢ 7.77¢ 1.8% 7.54¢ 7.56¢ (0.3)%
Economic fuel
cost per
gallon(c) $3.21 $3.43 (6.4)% $3.30 $3.36 (1.8)%
Fuel gallons
(000,000) 96 92 4.2% 393 368 6.8%
Average number
of full-time
equivalent
employees 9,519 9,228 3.2% 9,493 9,178 3.4%
Aircraft
utilization 10.1 10.5 (3.8)% 10.6 10.7 (0.9)%
Average
aircraft stage
length 1,177 1,189 (1.0)% 1,177 1,161 1.4%
Mainline
operating
fleet 131 124 7 a/c 131 124 7 a/c
Regional Operating
Statistics:(d)
Revenue
passengers
(000) 1,930 1,873 3.0% 7,677 7,371 4.2%
RPMs (000,000)
"traffic" 673 655 2.7% 2,661 2,590 2.7%
ASMs (000,000)
"capacity" 837 814 2.8% 3,261 3,247 0.4%
Load factor 80.4% 80.4% - 81.6% 79.8% 1.8 pts
Yield 28.99¢ 28.64¢ 1.2% 29.20¢ 28.81¢ 1.4%
PRASM 23.32¢ 23.03¢ 1.3% 23.83¢ 22.98¢ 3.7%
Operating fleet
(Horizon only) 51 48 3 a/c 51 48 3 a/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 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 Dec. 31, 2013
--------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air
Group Special Consolidated
Adjusted(a) Items(b)
---
Operating revenues
Passenger
Mainline $839 $ - $ - $ - $839 $ - $839
Regional - 195 - - 195 - 195
--- --- --- --- --- --- ---
Total passenger
revenues 839 195 - - 1,034 - 1,034
Revenue from CPA
with Alaska - - 94 (94) - - -
Freight and mail 24 1 - - 25 - 25
Other-net 133 17 1 - 151 - 151
--- --- --- --- --- --- ---
Total operating
revenues 996 213 95 (94) 1,210 - 1,210
--- --- --- --- ----- --- -----
Operating expenses
Operating
expenses,
excluding fuel 589 145 88 (94) 728 - 728
Economic fuel 307 47 - - 354 (2) 352
---
Total operating
expenses 896 192 88 (94) 1,082 (2) 1,080
--- --- --- --- ----- --- -----
Nonoperating income
(expense)
Interest income 4 - - - 4 - 4
Interest expense (8) - (4) (2) (14) - (14)
Other 6 (3) 1 1 5 - 5
--- --- --- --- --- --- ---
2 (3) (3) (1) (5) - (5)
Income (loss)
before income
tax $102 $18 $4 $(1) $123 $2 $125
==== === === === ==== === ====
Three Months Ended Dec. 31, 2012
--------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air
Group Special Consolidated
Adjusted(a) Items(b)
---
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
=== === === === === ==== ===
OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
12 Months Ended Dec. 31, 2013
-----------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air
Group Special Consolidated
Adjusted(a) Items(b)
-------- ------
Operating
revenues
Passenger
Mainline $3,490 $ - $ - $ - $3,490 $ - $3,490
Regional - 777 - - 777 - 777
--- --- --- --- --- --- ---
Total passenger
revenues 3,490 777 - - 4,267 - 4,267
Revenue from CPA
with Alaska - - 368 (368) - - -
Freight and mail 109 4 - 113 - 113
Other-net 513 66 5 584 192 776
--- --- --- --- --- ---
Total operating
revenues 4,112 847 373 (368) 4,964 192 5,156
----- --- --- ---- ----- --- -----
Operating
expenses
Operating
expenses,
excluding fuel 2,293 585 341 (368) 2,851 - 2,851
Economic fuel 1,294 181 - - 1,475 (8) 1,467
-----
Total operating
expenses 3,587 766 341 (368) 4,326 (8) 4,318
----- --- --- ---- ----- --- -----
Nonoperating
income
(expense)
Interest income 18 - - - 18 - 18
Interest expense (38) - (14) (4) (56) - (56)
Other 25 (12) 2 1 16 - 16
--- --- --- --- --- --- ---
5 (12) (12) (3) (22) - (22)
Income (loss)
before income
tax $530 $69 $20 $(3) $616 $200 $816
==== === === === ==== ==== ====
12 Months Ended Dec. 31, 2012
-----------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air
Group Special Consolidated
Adjusted(a) Items(b)
-------- ------
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
==== === === === === ==== ==== ====
(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) Includes accounting
adjustments related to
special mileage plan
revenue, and mark-to-
market fuel-hedge
accounting charges.
Alaska Air Group, Inc.
RASM RECONCILIATION (unaudited)
Three Months 12 Months
Ended Dec. Ended Dec.
31, 31,
------------- ----------
(in millions) 2013 2012 2013 2012
---- ---- ---- ----
Total operating
revenues $1,210 $1,132 $5,156 $4,657
Less: special
mileage plan
revenue - - 192 -
Adjusted Revenue $1,210 $1,132 $4,964 $4,657
------ ------ ------ ------
Consolidated
ASMs 8,275 7,870 33,672 31,428
RASM 14.62¢ 14.39¢ 14.74¢ 14.82¢
====== ===== ====== =====
CASM EXCLUDING FUEL RECONCILIATION (unaudited)
Three Months 12 Months
Ended Dec. Ended Dec.
31, 31,
------------- ----------
(in cents) 2013 2012 2013 2012
---- ---- ---- ----
Consolidated:
CASM 13.05¢ 13.44¢ 12.82¢ 13.12¢
Less the following
components:
Aircraft fuel,
including
hedging gains
and losses 4.24 4.72 4.35 4.64
CASM excluding
fuel 8.81¢ 8.72¢ 8.47¢ 8.48¢
==== ==== ==== ====
Mainline:
CASM 12.02¢ 12.38¢ 11.77¢ 12.09¢
Less the following
components:
Aircraft fuel,
including
hedging gains
and losses 4.11 4.61 4.23 4.53
CASM excluding
fuel 7.91¢ 7.77¢ 7.54¢ 7.56¢
==== ==== ==== ====
FUEL RECONCILIATIONS (unaudited)
Alaska Air Group, Inc.
Three Months Ended Dec. 31,
---------------------------
2013 2012
---- ----
(in millions,
except for per
gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
------ -------- ------ --------
Raw or "into-
plane" fuel
cost $347 $3.15 $351 $3.33
Losses on
settled hedges 6 0.06 11 0.10
--- ---- --- ----
Consolidated
economic fuel
expense $354 $3.21 $362 $3.43
---- ----- ---- -----
Mark-to-market
fuel hedge
adjustments (2) (0.01) 10 0.10
GAAP fuel
expense $352 $3.20 $372 $3.53
==== ===== ==== =====
Fuel gallons 110 105
=== ===
12 Months Ended Dec. 31,
------------------------
2013 2012
---- ----
(in millions,
except for per
gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
------ -------- ------ --------
Raw or "into-
plane" fuel
cost $1,423 $3.19 $1,397 $3.31
Losses on
settled hedges 52 0.11 24 0.06
--- ---- --- ----
Consolidated
economic fuel
expense $1,475 $3.30 $1,421 $3.37
------ ----- ------ -----
Mark-to-market
fuel hedge
adjustments (8) (0.02) 38 0.09
GAAP fuel
expense $1,467 $3.28 $1,459 $3.46
====== ===== ====== =====
Fuel gallons 447 422
=== ===
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.
-- Operating revenue per ASM (RASM) excludes a favorable, one-time
"special" revenue item of $192 million primarily related to our modified
affinity card agreement with Bank of America, executed in July 2013. In
accordance with accounting standards, we recorded this one-time special
revenue item in the the third quarter of 2013. This is purely an
accounting change and the current period results do not reflect the
economics of the agreement; rather it reflects a non-cash adjustment of
the value of miles outstanding in the program. We believe it is
appropriate to exclude this special revenue item from recurring revenues
from operations.
-- 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 separately managed operations. 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
Mainline - represents flying on Alaska jets and all associated revenues and costs
Regional - represents operations whereby Horizon, SkyWest, and another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets
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
ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown
Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers
Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile
PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"
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
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
Economic fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program
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
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
Productivity - number of revenue passengers per full-time equivalent employee
Debt to Capitalization ratio - represents adjusted debt (long-term debt plus the present value of remaining aircraft lease payments) divided by total equity plus adjusted debt
SOURCE Alaska Air Group
