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Alaska Air Group Reports Record Adjusted Fourth Quarter 2013 and Full-Year Results

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 Launched in Q4

New Nonstop Routes (Launch Date)

Seattle - Colorado Springs

Portland - Salt 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 Springs

San Francisco - Salt Lake City (6/18/14)

Anchorage - Phoenix

 

Anchorage - Las Vegas

 

San Diego - Mammoth Lakes

 


SEATTLE — 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 December 31,

 

 

2013

 

2012

 

(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

$78


(1)

 

$1.11


(0.01)

 

$44


6

 

$0.61


0.09

Non GAAP adjusted income and per share amounts

$77

 

$1.10

 

$50

 

$0.70

     

 

 

12 Months Ended December 31,

 

 

2013

 

2012

 

(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

Special mileage plan revenue, net of tax


$508

(5)


(120)

 


$7.16

(0.06)


(1.70)

 


$316

23


$---

 


$4.40

0.33


$---

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 StudySM 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.


View Fourth Quarter and 2013 Year-End 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

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

This story is also posted online at http://www.alaskaair.com/newsroom/ .

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