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Alaska Air Group Reports Second Quarter Results

7/22/2010 4:54:26 AM

Second quarter highlights:

•Net income excluding special items was $84.0 million, or $2.29 per diluted share, compared to $26.5 million, or $0.72 per share, in the second quarter of 2009. This quarter's results compared to a First Call mean estimate of $2.12 per share.

•Net income under Generally Accepted Accounting Principles (GAAP) was $58.6 million, or $1.60 per diluted share, compared to net income of $29.1 million, or $0.79 per diluted share, in 2009.

•The company ended the quarter with $1.3 billion in unrestricted cash and marketable securities.

•Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2010 by J.D. Power and Associates for the third year in a row.

•Alaska ranked first among mainline/legacy carriers worldwide in Aviation Week magazine's "Top-Performing Airlines" study published in July 2010.

•Alaska continued its streak of excellent on-time performance, holding the No. 1 spot in U.S. Department of Transportation on-time performance among the 10 largest U.S. airlines for 13 of the last 14 months ending in May 2010.

SEATTLE — Alaska Air Group, Inc. (NYSE: ALK) today reported second quarter 2010 net income of $58.6 million, or $1.60 per diluted share, compared to net income of $29.1 million, or $0.79 per diluted share, in the second quarter of 2009. Excluding mark-to-market fuel hedge losses of $37.6 million ($23.3 million after tax or $0.63 per diluted share) and CRJ-700 transition charges of $3.4 million ($2.1 million after tax or $0.06 per diluted share), the company reported net income of $84.0 million, or $2.29 per diluted share, compared to net income of $26.5 million, or $0.72 per share, excluding special items in the second quarter of 2009.

"Our second quarter adjusted net earnings represent the best quarterly profit in our history. The results were driven by strong revenues and good cost control, partially offset by higher fuel costs," said Bill Ayer, chairman and chief executive officer. "Thanks to the employees at Alaska and Horizon, our reliability and customer service continue to be outstanding. Alaska has held the No. 1 spot in DOT on-time performance among the 10 largest U.S. airlines for 13 of the last 14 months. And for the third year in a row, J.D. Power and Associates named Alaska Airlines highest in customer satisfaction among traditional network carriers in North America."

The following table reconciles the company's adjusted net income and earnings per diluted share (EPS) during the second quarters of 2010 and 2009 to amounts as reported in accordance with GAAP (in millions except per-share amounts):

Three Months Ended June 30,

2010

2009

Dollars

Diluted EPS

Dollars

Diluted EPS

Net income and diluted EPS, excluding new pilot contract transition costs, fleet transition costs and mark-to-market hedging adjustments

$84.0

$2.29

$26.5

$0.72

New pilot contract transition costs, net of tax

----

----

(22.3)

(0.61)

Fleet transition costs - CRJ-700, net of tax

(2.1)

(0.06)

----

----

Adjustments to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting, net of tax

(23.3)

(0.63)

24.9

0.68

Reported GAAP amounts

$58.6

$1.60

$29.1

$0.79



Financial and statistical data for Alaska Airlines and Horizon Air, 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 4 of this release.

A conference call regarding the second quarter 2010 results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 22, 2010. 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 contains 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, 2009. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and government fees and taxes. 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 and 2010 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.
Glossary of Financial Terms

ASM - Available seat miles or "capacity." Represents total seats available across the fleet multiplied by the number of miles flown.

RPM – Revenue passenger miles or "traffic." The number of those available seats that were filled with paying passengers. One passenger traveling one mile is one RPM.

RASM - Total operating revenue divided by ASMs. Operating revenue includes all passenger revenue, freight and mail, Mileage Plan and other ancillary revenue — commonly called "unit revenue" and represents the average total revenue for flying one seat one mile.

PRASM – Passenger revenue per ASM — commonly called "passenger unit revenue."

Yield – Passenger revenue per RPM. This represents the average revenue for flying one passenger one mile.

CASM – Total operating costs per ASM. This represents all operating expenses, including fuel and special items — commonly called "unit cost."

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 costs are largely out of the company's control.

Economic fuel – Best estimate of the cash cost of fuel, net of the impact of the company's fuel-hedging program.

Mainline – Represents flying on Alaska jets and all associated revenue and costs.
Purchased capacity flying – Represents operations whereby Horizon and, to a much lesser extent, another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets.

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