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Alaska Air Group Reports Second Quarter 2013 Results

Financial Highlights:

•Reported second quarter net income, excluding special items, of $105 million, or $1.47 per diluted share, compared to adjusted net income of $111 million, or $1.53 per diluted share in the prior year quarter. This quarter's results compare to a First Call analyst consensus estimate of $1.51 per share.

•Recorded net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $104 million or $1.47 per diluted share, compared to net income of $68 million, or $0.93 per diluted share in 2012.

•Achieved trailing twelve-month return on invested capital of 13.0 percent compared to 12.3 percent in the twelve months ended June 30, 2012.

•Declared a $.20 quarterly cash dividend to be paid on August 22.

•Announced changes to bag and change fee policies effective October 30, estimated to increase revenues by approximately $50 million annually.

•Extended affinity card agreement with Bank of America through 2017, estimated to generate $55 million in additional cash flows on an annual basis.

•Lowered adjusted debt-to-total-capitalization ratio by 2.0 percentage points, to 52.0 percent, since Dec. 31, 2012.

•Repurchased 544,597 shares of common stock for $32 million in the second quarter. For the year the company has repurchased 917,782 shares for $51 million.

•Held $1.4 billion in unrestricted cash and marketable securities as of June 30, 2013.

Operational Highlights:

•Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2013 by J.D. Power and Associates for the sixth year in a row.

•Received the FAA's "Diamond Certificate of Excellence" award for the 12th consecutive year.

•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 2013.

•Improved employee productivity by 5.5 percent.

•Signed five-year collective bargaining agreements with Alaska pilots and Horizon flight attendants.

New routes:
•New routes launched and announced in the second quarter are as follows:

 

 

New Non-Stop Routes launched in Q2

New Non-Stop Routes (Launch Date)

Portland-Fairbanks

Anchorage-Fairbanks (3/3/14) - Horizon

San Diego-Lihue

Anchorage-Kodiak (3/3/14) - Horizon

Seattle-Salt Lake City

Anchorage-Las Vegas (12/19)

 

Anchorage-Phoenix (12/18)

 

Portland-Boise (11/1) - SkyWest

 

Portland-Reno (11/8)

 

Portland-Tucson (11/1)

 

San Diego-Boise (11/1)

 

San Diego-Mammoth Lakes (12/19)

 

Seattle-Colorado Springs (11/1)

 

Seattle-Omaha (11/7)
  Seattle-Steamboat Springs (12/18)
   

SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2013 GAAP net income of $104 million, or $1.47 per diluted share, compared to $68 million, or $0.93 per diluted share in the second quarter of 2012. Excluding the impact of mark-to-market fuel hedge adjustments of $1 million, the company reported adjusted net income of $105 million, or $1.47 per diluted share, compared to adjusted net income of $111 million, or $1.53 per diluted share, in 2012.

"These results represent our 17th consecutive quarter of profitability and the second-best June quarter in our history. I want to thank our employees at Alaska and Horizon who are continuing to work hard to keep us safe and reliable, provide a great experience for our customers, and produce results that make Alaska a great place to invest," CEO Brad Tilden said. "Although our quarterly results were down slightly, our financial performance continues to be very strong. This is why we were very pleased to recently announce the initiation of a quarterly dividend which, combined with our share repurchases, will be a key component of our capital deployment program."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the second quarters of 2013 and 2012 to adjusted amounts:

 

 

Three Months Ended June 30,

 

 

2013

 

2012

 

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income

$104

 

$1.47

 

$68

 

$0.93

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

            1

 

----

 

                43

 

            0.60

Non-GAAP adjusted income and per-share amounts

$105

 

$1.47

 

$111

 

$1.53

     
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 8:30 a.m. Pacific time on July 25, 2013. 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 Dec. 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 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 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 Second Quarter Financial Results

Glossary of Terms

Mainline - represents flying Boeing 737 jets and all associated revenues and costs

Regional - represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir. In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

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 seven times annualized aircraft rent) divided by total equity plus adjusted debt

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