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Alaska Air Group's First Quarter 2012 Results

First quarter highlights with comparison to 2011:

• Reported first quarter net income, excluding special items, of $28.3 million, or $0.39 per diluted share, compared to net income of $29.5 million, or $0.40 per diluted share. This quarter's results compare to a First Call mean estimate of $0.35 per share and represent the second-best first quarter result in our history.

• Recorded net income under Generally Accepted Accounting Principles (GAAP) of $40.8 million, or $0.56 per diluted share, compared to net income of $74.2 million, or $1.01 per diluted share.

• Effected a 2-for-1 stock split in March, resulting in about 71 million shares outstanding. All EPS figures and share-related information have been adjusted to reflect the split.

• 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 February 2012.

• Won the "Platinum" award for excellence in baggage handling from the International Air Transport Association, the first carrier in North America and only the second in the world to earn that title.

• Improved employee productivity by 4.7 percent.

• Achieved 12-month return on invested capital of 11.6 percent, compared to 11.3 percent.

• Lowered adjusted debt-to-total capitalization ratio by 2 points, or to 60 percent, since Dec. 31, 2011.

• Held $1.1 billion in unrestricted cash and marketable securities as of March 31, 2012.

• Began new service from San Jose to Palm Springs, Calif., from Seattle to Kansas City, Mo., and from Portland, Ore., to Long Beach, Calif.

• Scheduled new service to start in the second quarter as follows:

New Non-Stop Routes (Launch Date)


Oakland to Honolulu (4/10)               Portland to Bellingham (6/4)

San Jose to Honolulu (4/10)             Portland to Bozeman (6/4)

San Jose to Reno (6/4)                      Portland to Santa Barbara (6/4)

San Diego to Santa Rosa (6/4)        Seattle to Philadelphia (6/11)

San Diego to Fresno (6/4)                 Seattle to Fort Lauderdale (7/16)

San Diego to Monterey (6/4)



SEATTLE — Alaska Air Group Inc. (NYSE: ALK) today reported first quarter 2012 GAAP net income of $40.8 million, or $0.56 per diluted share, compared to GAAP net income of $74.2 million, or $1.01 per diluted share in 2011. Excluding mark-to-market fuel hedge gains of $19.9 million ($12.5 million after tax, or $0.17 per diluted share), the company reported first quarter 2012 net income of $28.3 million, or $0.39 per diluted share, compared to net income excluding special items of $29.5 million, or $0.40 per diluted share, in 2011.

"We are very pleased to report a solid profit—the second-best first-quarter result in our history—in what is seasonally our weakest quarter. Changes to our network and new markets led to a significant improvement in revenues, which helped offset rising fuel prices. These results provide a strong footing for the rest of the year," said Brad Tilden, Air Group's chief executive officer-elect. "I want to thank our people who continue to do a great job taking care of our customers and running one of the best operations in the business."

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

 

 

 

Three Months Ended March 31,

 

 

2012

 

2011

 

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income

Fleet transition costs, net of tax

$40.8

 

$0.56

 

$74.2

6.3

 

$1.01

0.09

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

(12.5)

 

(0.17)

 

(51.0)

 

(0.70)

Net income and diluted EPS, excluding the items noted below:

$28.3

 

$0.39

 

$29.5

 

$0.40


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 page 10 of this release.

A conference call regarding the first quarter results will be simulcast via the Internet at 8:30 a.m. Pacific time on April 19. 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 Dec. 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 ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates 2008, 2009, 2010 and 2011 North America Airline Satisfaction StudiesSM. For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.


View First Quarter Financial Results

Glossary of Terms

Alaska Mainline - the 737 part of Alaska's business with average stage lengths greater than 1,000 miles.

Alaska Regional - Alaska's shorter distance network. In this segment, we record actual on board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under capacity purchase agreements (CPAs).

Horizon - Horizon operates regional aircraft. All of Horizon's capacity is sold to Alaska under a CPA. Expenses included those typically borne by regional airlines such as crew costs, ownership costs, and maintenance costs.

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 and 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.

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