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Alaska Air Group Reports Record Second Quarter Results

Second quarter highlights with comparison to 2011:

• Reported record second quarter net income, excluding special items, of $110.8 million, or $1.53 per diluted share, compared to adjusted net income of $89.6 million, or $1.22 per diluted share. This quarter's results compare to a First Call mean estimate of $1.51 per share.

• Earned net income under Generally Accepted Accounting Principles (GAAP) of $67.5 million, or $0.93 per diluted share, compared to net income of $28.8 million, or $0.39 per diluted share.

• Held the No. 1 spot in U.S. Department of Transportation on-time performance among the 10 largest U.S. airlines for the twelve months ended May 2012.

• Improved employee productivity by 3.7 percent.

• Achieved trailing twelve-month return on invested capital of 12.3 percent, compared to 11.5 percent in the twelve months ended June 30, 2011.

• Lowered adjusted debt-to-total capitalization ratio by 4 points, to 58 percent, since December 31, 2011.

• Held $1.2 billion in unrestricted cash and marketable securities as of June 30, 2012.

• Received "Positive" outlook from Standard and Poor's, up from "Stable."

• Ratified a six-year agreement on July 18, 2012, with the International Association of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp service and stores agents.

Second quarter recognitions:

• Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2012 by J.D. Power and Associates for the fifth year in a row.

• Named "Best Regional Airline in North America" at the 2012 World Airline Awards.

• Earned "Eco-Partnership of the Year Award" by Air Transport World magazine.

• Recognized as the 2011 Best Company in the Northwest by The Seattle Times.

• Received "2012 Fly Quiet Bravo Award" by the Port of Seattle Commission.

 

  New routes:
• Began new service in the second quarter as follows:

New Non-Stop Routes (Launch Date)

   

Oakland to Honolulu (4/10)

San Diego to Monterrey (6/4)  

San Jose to Honolulu  (4/10)

Portland to Bellingham (6/4)  

San Jose to Reno (6/4)

Portland to Bozeman (6/4)  

San Diego to Santa Rosa (6/4)

Portland to Santa Barbara (6/4)  

San Diego to Fresno (6/4)

Seattle to Philadelphia (6/11)  
 
   • Scheduled new service to start in the second half of the year as follows:

New Non-Stop Routes (Launch Date)

   
Seattle to Fort Lauderdale (7/16) Portland to Lihue (11/5)  
Portland to Washington, D.C. (8/28) Bellingham to Kahului (11/8)  
Seattle to San Antonio (9/17) Anchorage to Kona (11/10)  
San Diego to Orlando (10/11)    
     

SEATTLE — Alaska Air Group, Inc. (NYSE: ALK) today reported second quarter 2012 GAAP net income of $67.5 million, or $0.93 per diluted share, compared to GAAP net income of $28.8 million, or $0.39 per diluted share in 2011. Excluding the impact of mark-to-market fuel hedge adjustments of $69.6 million ($43.3 million after tax, or $0.60 per diluted share), the company reported record second quarter 2012 net income of $110.8 million, or $1.53 per diluted share, compared to net income excluding special items of $89.6 million, or $1.22 per diluted share, in 2011:

"Significantly higher revenues driven by strong demand, our growing route network and our preferred product led to a record second quarter profit," CEO Brad Tilden said. "Our people are doing a terrific job, and I want to thank them for running a safe operation, taking great care of our customers and producing these excellent results."

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

 

 

Three Months Ended June 30,

 

 

2012

 

2011

 

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income

Fleet transition costs, net of tax

$67.5

 

$0.93

 

$28.8

16.7

 

$0.39

0.23

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

             43.3

 

0.60

 

                44.1

 

            0.60

Non-GAAP adjusted income and per share amounts

$110.8

 

$1.53

 

$89.6

 

$1.22


     
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 second quarter results will be simulcast via the Internet at 9:00 a.m. Pacific time on July 26, 2012. 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 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 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 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/Horizon Air Newsroom at www.alaskaair.com/newsroom.


View Second 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 onboard passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under Capacity Purchase Agreements (CPA).

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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