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Alaska Air Group Reports Record Second Quarter 2014 Results

7/24/2014 4:51:48 AM

Financial Highlights:
 

  • Reported record second quarter net income, excluding special items, of $157 million - a 50% increase over the second quarter of 2013.
  • Reported adjusted earnings per share of $1.13 per diluted share, a 53% increase over the second quarter of 2013 and ahead of First Call analyst consensus estimate of $1.11 per share.
  • Earned net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $165 million or $1.19 per diluted share, compared to net income of $104 million, or $0.74 per diluted share in 2013.
  • Recorded $54 million of incentive pay through the first six months of 2014. This includes each Air Group employee earning at least $550 by meeting or exceeding monthly customer satisfaction and operational performance goals and tracking to earn above-target payouts for full-year goals.
  • Grew operating revenues by 9%.
  • Generated record adjusted pretax margin in the second quarter of 18.3% compared to 13.5% in 2013.
  • Generated 14.9% pretax margin for the trailing 12-month period ended June 30, 2014, compared to 11.8% for the same period in the prior year.
  • Ranked in the Fortune 500 for the first time in Air Group's history.
  • Achieved trailing 12-month return on invested capital of 16.1% compared to 13.0% in the 12-month period ended June 30, 2013.
  • Rated BBB- by Fitch Ratings. Air Group is one of only two U.S. airlines with investment grade credit ratings.
  • Declared a 2-for-1 stock split that was effective July 9, 2014. All stock and per-share figures reflect the split retroactively.
  • Announced an additional $650 million repurchase program, representing approximately 10% of our stock market capitalization at the time of announcement.
  • Repurchased 1,108,334 shares of common stock for $53 million in the second quarter of 2014.
  • Paid a $0.125 per-share quarterly cash dividend on June 10, bringing total dividend payments so far this year to $34 million.
  • Lowered adjusted debt-to-total-capitalization ratio to 32%.
  • Produced operating cash flows of $1 billion and free cash flows of $366 million for the 12-month period ended June 30, 2014.
  • Held $1.5 billion in unrestricted cash and marketable securities as of June 30, 2014.
  • Maintained fully funded pension plans and had no net debt.

Customer Service and Operational Highlights:

  • Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2014 by J.D. Power for the seventh year in a row.
  • Ranked highest by frequent fliers in the J.D. Power's first-ever Airline Loyalty/Rewards Program Satisfaction Report.
  • Held the No. 1 spot in U.S. Department of Transportation on-time performance among the eight largest U.S. airlines for the twelve months ended May 2014.
  • Named No. 1 on-time carrier in North America for the fourth year in a row from FlightStats in February 2014.
  • Received Airline Business Magazine's 2014 Airline Strategy Award for Technology, Environment and Operations.
  • Signed a new five-year contract with Alaska's clerical, office, and passenger service employees (COPS).
  • Reached agreement on a six-year contract with Horizon's aircraft technicians and fleet service agents, represented by the International Brotherhood of Teamsters.
  • Completed 44% of the cabin improvement project, with 41 out of 94 aircraft upgraded with Recaro seats and power at every seat.
  • Added split scimitar winglets to 12 aircraft.
  • Increased fuel efficiency (as measured by seat-miles per gallon) by 2.5% as part of our effort to be the airline leader in environmental stewardship.
  • Became the launch customer of Boeing's new, innovative, high-capacity 737 Space Bins, which will increase bag capacity in the cabin by 48%.
  • Sponsored Seattle's bike share program that is guaranteed to put 500 bikes and 50 docking stations throughout the city of Seattle.
  • Committed to $1.5 million in grants to support job training for workers at the Seattle-Tacoma airport, in addition to a voluntary wage increase to $12 per hour for certain vendors.
  • Pledged $2.5 million to Seattle's Museum of Flight to help create the Alaska Airlines Aerospace Education Center to guide students toward a future in science, technology, engineering and math (STEM), and sponsored Alaska Airlines Aviation Day in May 2014 to inspire youth to pursue careers in aviation.

New Routes:

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

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the second quarters of 2014 and 2013 to adjusted amounts:

New Non-Stop Routes Launched in Q2

New Non-Stop Routes Announced in Q2 (Launch Dates)

Salt Lake City to Portland, Oregon

Seattle to Baltimore (9/2/2014)

Salt Lake City to San Diego

Seattle to Albuquerque, New Mexico (9/18/2014)

Salt Lake City to Los Angeles

Portland to Los Cabos, Mexico (11/3/2014)*

Salt Lake City to San Jose, California

Portland to Puerto Vallarta (11/4/2014)*

Salt Lake City to Boise, Idaho

Seattle to Cancun (11/6/2014)

Salt Lake City to Las Vegas

 

Salt Lake City to San Francisco

 

Portland to Kalispell, Montana

 

Seattle to New Orleans

 

Seattle to Tampa, Florida

 
* Subject to government approval  

SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2014 GAAP net income of $165 million, or $1.19 per diluted share, compared to $104 million, or $0.74 per diluted share in the second quarter of 2013. Excluding the impact of mark-to-market fuel hedge adjustments of $13 million ($8 million after tax, or $0.06 per diluted share), the company reported record adjusted net income of $157 million, or $1.13 per diluted share, compared to adjusted net income of $105 million, or $0.74 per diluted share, in 2013.

“We’re pleased to report our 21st consecutive quarterly profit and a record second quarter result," said CEO Brad Tilden. "Through strong demand, a growing network, and steady support from our loyal customers, we were able to overcome the impact of substantial new competition.”

"I want to thank our people for continuing to work together to provide outstanding service to our customers. For the seventh consecutive year, Alaska employees recently earned the J.D. Power award for 'Highest in Customer Satisfaction Among Traditional Carriers'. I am very proud of our team."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the second quarters of 2014 and 2013 to adjusted amounts:

 

 

Three Months Ended June 30,

 

 

2014

 

2013

 

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income

$165

 

$1.19

 

$104

 

$0.74

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

            (8)< /span>

 

(0.06)

 

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Non-GAAP adjusted income and per-share amounts

$157

 

$1.13

 

$105

 

$0.74

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 24, 2014. It can be accessed through the company's website at www.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, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, 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 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers" in the J.D. Power and Associates for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the 2014 Airline Loyalty/Rewards Program Satisfaction Report. 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

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

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

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

Debt to Capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

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

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

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

PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"

Productivity - number of revenue passengers per full-time equivalent employee

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

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

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

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

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