Alaska Air : Investor Updates - January 24, 2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

January 24, 2019

(Date of earliest event reported)

ALASKA AIR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

1-8957	91-1292054
(Commission File Number)	(IRS Employer Identification No.)
19300 International Boulevard, Seattle, Washington	98188
(Address of Principal Executive Offices)	(Zip Code)

[phone]

(Registrant's Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

• o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

• o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

• o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

• o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

• o Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

ITEM 2.02. Results of Operations and Financial Condition

On January 24, 2019, Alaska Air Group, Inc. (Air Group) issued a press release reporting financial results for the fourth quarter and full year of 2018. The press release is furnished herein as Exhibit 99.1.

ITEM 7.01. Regulation FD Disclosure

Pursuant to 17 CFR Part 243 ("Regulation FD"), the Company is submitting information relating to its financial and operational outlook in an Investor Update. The Investor Update is furnished herein as Exhibit 99.2.

In accordance with General Instruction B.2 of Form 8-K, the information under this item and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

ITEM 9.01. Financial Statements and Other Exhibits

Exhibit 99.1

Fourth Quarter and Full-Year 2018 Earnings Press Release dated January 24, 2019

Exhibit 99.2

Investor Update dated January 24, 2019

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALASKA AIR GROUP, INC. Registrant

Date: January 24, 2019

/s/ CHRISTOPHER M. BERRY Christopher M. Berry

Vice President Finance and Controller

Exhibit 99.1

January 24, 2019
Media contact:	Investor/analyst contact:
Media Relations	Matt Grady
[phone]	Director, Investor Relations
[phone]
Alaska Air Group Reports Fourth Quarter 2018 and Full-Year Results; Raises Dividend 9%
Dividend Increase:

• • Announced today a 9% increase in the quarterly dividend, from $0.32 per share to $0.35 per share. This is the sixth time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 250% since that time. The dividend will be paid on March 7, 2019, to all shareholders of record as of February 19, 2019. Dividends are financed from operating cash flow and cash on hand.

Financial Highlights:

• • Reported net income for the fourth quarter and full year 2018 under Generally Accepted Accounting Principles (GAAP) of $23 million, or $0.19 per diluted share, and $437 million, or $3.52 per diluted share. These results compare to fourth quarter 2017 net income of $315 million, or $2.55 per diluted share, and full year 2017 net income of $960 million, or $7.75 per diluted share. The 2017 financial information has been adjusted to reflect changes associated with the implementation of new revenue recognition and retirement benefits accounting standards that became effective January 1, 2018.

• • Reported adjusted net income, excluding merger-related costs, special charges, and mark-to-market fuel hedging adjustments for the fourth quarter and full year 2018 of $93 million, or $0.75 per diluted share, and $554 million, or $4.46 per diluted share. These results compare to fourth quarter 2017 adjusted net income of $88 million, or $0.71 per diluted share, and full year 2017 adjusted net income of $791 million, or $6.38 per diluted share. This quarter's adjusted results compare to the First Call analyst consensus estimate of $0.71 per share.

• • Paid a $0.32 per-share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2018 to $158 million.

• • Repurchased a total of 776,186 shares of common stock for approximately $50 million in 2018.

• • Generated approximately $1.2 billion of operating cash flow, and used approximately $960 million for capital expenditures, resulting in approximately $240 million of free cash flow in 2018.

• • Grew passenger revenues by 6% compared to the fourth quarter of 2017, and by 5% compared to full-year 2017.

• • Generated full-year adjusted pretax margin of 8.9% in 2018.

• • Held $1.2 billion in unrestricted cash and marketable securities as of December 31, 2018.

• • Reduced debt-to-capitalization ratio to 47% as of December 31, 2018, compared to 53% as of December 31, 2017.

1

2018 Accomplishments and Highlights:

Recognition and Awards

• • Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2018 by J.D. Power for the 11th year in a row.

• • Named "Best U.S. Airline" by Condé Nast Traveler in their 2018 Readers Choice Awards.

• • Mileage Plan™ ranked first in U.S. News & World Report's list of Best Travel Rewards Programs for the fourth time.

• • Ranked among the best U.S. airlines by Consumer Reports for economy flights and overall satisfaction by passengers.

• • Ranked No. 1 for performance and quality in the Airline Quality Rating study for the second year in a row.

• • Won the "Best Rewards Program" for Mileage Plan™ for carriers in the Americas region in the annual FlyerTalk Award for the second year in a row.

• • Top-ranked airline in America for the second year in a row by The Points Guy.

• • Received 17th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training.

• • Ranked as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2018 by AirlineRatings.com.

• • Rated "Best Airline Staff in North America" & "Best Regional Airline in North America" by Skytrax.

• • Won the 2018 APEX Passenger Choice Award for Best Food and Beverage in the Americas.

• • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the second consecutive year, receiving top scores for "corporate governance" and "efficiency."

Our People

• • Ranked among Forbes' 2018 "America's Best Employers" for the fourth year in a row.

• • Awarded $147 million in incentive pay for 2018.

• • Reached joint agreements for all work groups except aircraft technicians.

• • Women Inc. magazine recognized Alaska's female board members as five of the Most Influential Corporate Directors.

• • Launched Flight Path, a workshop for every Alaska and Horizon Air employee that includes a mix of presentations, open-and-honest dialogue and interactive activities focused on Alaska's culture and future.

Our Guests and Product

• • Obtained a single operating certificate from the Federal Aviation Administration for Alaska Airlines and Virgin America, recognizing us as one airline.

• • Transitioned to a single Passenger Service System, enabling us to provide one reservation system, one website, and one inventory of flights to our guests.

• • Completed Premium Class rollout on our Boeing 737-800, 900 and 900ER fleets.

• • Began installation of next-generation Gogo inflight satellite-based Wi-Fi across the Mainline fleet.

• • Added partnerships with Japan Airlines, Fiji Airways, Aer Lingus and Finnair.

• • Added 8 Boeing 737-900ER aircraft and 4 Airbus A321neo aircraft in 2018, bringing the total Mainline operating fleet to 233 aircraft.

• • Added 25 Embraer 175 (E175) aircraft to the Regional operating fleet in 2018.

Our Communities

• • Donated over $17 million and contributed more than 44,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

2

SEATTLE - Alaska Air Group Inc. (NYSE: ALK) today reported fourth quarter 2018 GAAP net income of $23 million, or $0.19 per diluted share, compared to $315 million, or $2.55 per diluted share in 2017. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported fourth quarter adjusted net income of $93 million, or $0.75 per diluted share, compared to adjusted net income of $88 million, or $0.71 per diluted share in the fourth quarter of 2017.

The company reported full-year 2018 GAAP net income of $437 million, compared to $960 million in the prior year. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $554 million, or $4.46 per diluted share for 2018, compared to adjusted net income of $791 million, or $6.38 per diluted share in 2017.

"In 2018, we achieved the vast majority of our integration milestones and passed through an inflection point in our financial performance," said Alaska CEO Brad Tilden. "Our employees have shown great resilience through the integration, and thanks to their skill and dedication, we have strong momentum and a lot of optimism heading into 2019."

The following tables reconcile the company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2018 and 2017 to amounts as reported in accordance with GAAP:

Three Months Ended December 31,

2018

2017(a)

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income and diluted EPS Mark-to-market fuel hedge adjustments Special items - merger-related costs Special items - other (b)

$

23$

0.19$

315$ 2.55

52

0.42

(14) (0.11)

20

0.16

300.24

20

0.16

-

-

Income tax effect on special items and fuel hedge adjustments Special tax (benefit)/expense(c)

(22)-

(0.18)

(6)(0.05)

-

(237) (1.92)

Non-GAAP adjusted net income and diluted EPS

$

93$

0.75$

88$ 0.71

Twelve Months Ended December 31,2018

2017(a)

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income and diluted EPS Mark-to-market fuel hedge adjustments Special items - merger-related costs Special items - other (b)

$

437$

3.52$

960$ 7.75

22

0.18

(7) (0.06)

87

0.70

1160.94

45

0.36

-

-

Income tax effect on special items and fuel hedge adjustments Special tax (benefit)/expense(c)

(37)-

(0.30)

(41)(0.33)

-

(237) (1.92)

Non-GAAP adjusted net income and diluted EPS

$

554$

4.46$

791$ 6.38

• (a) Certain historical information has been adjusted to reflect the adoption of new accounting standards.

• (b) Special items - other includes special charges associated with the employee tax reform bonus paid in Q1 2018, and a $20 million contract termination fee incurred in Q4 2018.

• (c) The special tax benefit in 2017 is due to the remeasurement of deferred tax liabilities as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, offset by certain state tax law enactments. The resulting net tax benefit is excluded from our adjusted non-GAAP earnings.

Statistical data, as well as a reconciliation of other 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.

3