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Alaska Air Group Reports Record Adjusted Fourth Quarter and Full-Year Results

Employees earn $88 million in incentive pay

1/24/2013 5:00:15 AM

Highlights and achievements:

• Record fourth quarter net income, excluding special items, of $50 million, or $0.70 per diluted share, compared to $37 million, or $0.51 per diluted share. This quarter's results compare to a First Call analyst consensus estimate of $0.71 per share.

• Record full-year net income, excluding special items, of $339 million, or $4.73 per diluted share, compared to $287 million, or $3.92 per diluted share.

• Net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $44 million, or $0.61 per diluted share, compared to net income of $64 million, or $0.88 per diluted share. Full-year GAAP net income of $316 million, or $4.40 per diluted share, compared to net income of $245 million, or $3.33 per diluted share.

• Air Group employees earned $88 million in incentive pay, or more than one-month's pay for most employees. Over the last four years, employees have earned more than $325 million in incentive pay, averaging 8% of annual pay for most employees.

• Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the fifth year in a row.

• Signed an aircraft purchase agreement with The Boeing Company for 50 new 737 aircraft, including 37 of Boeing's new 737 MAX aircraft with deliveries expected in 2015 through 2024.

• Carried a record number passengers in 2012 and achieved a record load factor of 85.9 percent, up 1.4 points from the prior year.

• Improved employee productivity by 3.5 percent compared to the fourth quarter of 2011.

• Completed renovation of Terminal 6 at Los Angeles International Airport (LAX) in March, which includes the Airport of the Future design, new common use systems, additional gates and convenient connections with international flights.

• Ratified a six-year agreement in December with the International Brotherhood of Teamsters (IBT) representing Horizon's pilots.

• Ratified a six-year agreement in July with the International Association of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp service and stores agents.

• Repurchased 1,685,951 shares of common stock for approximately $60 million. Since 2007, Air Group has used $320 million to repurchase 18 million shares.

• Lowered adjusted debt-to-total capitalization ratio by 8 points to 54 percent since Dec. 31, 2011 and by 27 points from 81 percent at the end of 2008.

• Held $1.3 billion in unrestricted cash and marketable securities as of December 31, 2012.

• Achieved twelve-month return on invested capital of 13 percent, surpassing the 10 percent goal for the third year in a row.

• Contributed $110 million to the defined-benefit pension plans during 2012, bringing the total over four years to approximately $540 million, despite having no required contribution.

New routes:

• Began new service from San Diego to Orlando, Portland to Lihue, Bellingham to Maui, and Anchorage to Kona in the fourth quarter, bringing the full year up to 21 new routes.

• Announced service from San Diego to Boston and Lihue, and from Seattle to Salt Lake City beginning in 2013.
 

SEATTLE — Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2012 GAAP net income of $44 million, or $0.61 per diluted share, compared to GAAP net income of $64 million, or $0.88 per diluted share in 2011. Excluding mark-to-market fuel hedge losses of $10 million ($6 million after tax, or $0.09 per diluted share), the company reported record fourth quarter 2012 net income of $50 million, or $0.70 per diluted share, compared to net income excluding mark-to-market fuel hedge gains of $37 million, or $0.51 per diluted share, in 2011.
 

The company reported full-year 2012 GAAP net income of $316 million, compared to $245 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $339 million, or $4.73 per diluted share for 2012, compared to net income of $287 million, or $3.92 per diluted share in 2011. This marks the company's ninth consecutive year of adjusted profits and the third year in a row the company has exceeded its goal of a 10 percent return on invested capital.
 

"We're very pleased with our strong performance in 2012, and we are moving ahead in 2013 to make Alaska a great business as well as a great airline," Chief Executive Officer Brad Tilden said. "I want to thank our 13,000 employees who are dedicated to providing our award-winning service, along with our loyal customers for their business and our investors who continue to put their trust in our company and our future."
 

The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2012 and 2011 to amounts as reported in accordance with GAAP:
 

 

 

Three Months Ended December 31,

 

 

2012

 

2011

 

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income

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

$44


6

 

$0.61


0.09

 

$64


(27)

 

$0.88


(0.37)

Non GAAP adjusted income and per share amounts

$50

 

$0.70

 

$37

 

$0.51

     

 

 

Twelve Months Ended December 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

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


$316

---


23
 

 


$4.40

---


0.33
 

 


$245

24


18

 


$3.33

0.33


0.26

Non GAAP adjusted income and per share amounts

$339

 

$4.73

 

$287

 

$3.92


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 January 24, 2013. It can be accessed through the company's Web site 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.
 

View Fourth Quarter Financial Results


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

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