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Alaska Air Group Reports Record Adjusted Third Quarter Results

Third quarter highlights with comparison to third quarter 2010:

•Record third quarter net income, excluding special items, of $131.1 million, or $3.58 per diluted share, compared to net income of $118.1 million, or $3.21 per diluted share. This quarter's results compare to a First Call mean estimate of $3.33 per share.

•Net income under Generally Accepted Accounting Principles (GAAP) of $77.5 million, or $2.12 per diluted share, compared to net income of $122.4 million, or $3.32 per diluted share.

•Revenues improved by 12 percent with record load factors and higher yields in each month of the quarter, more than offsetting the 41 percent increase in economic fuel costs.

•Non-fuel unit costs declined by 2.6 percent.

•Improved employee productivity by 3.8 percent compared to the third quarter of 2010.

•Held $1.3 billion in unrestricted cash and marketable securities as of September 30, 2011.

•Adjusted debt-to-total capitalization ratio of 61 percent, lowest level on record.

•Twelve-month return on invested capital of 12 percent.

•Alaska Airlines 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 ending in August 2011.

•Reached tentative five-year agreement with the Aircraft Mechanics Fraternal Association ("AMFA") representing the Alaska Airlines aircraft technicians.

•Won Seattle Business Magazine's 2011 Green Award in the Large Services company category.

SEATTLE - Alaska Air Group, Inc. (NYSE: ALK) today reported third quarter 2011 net income of $77.5 million, or $2.12 per diluted share, compared to net income of $122.4 million, or $3.32 per diluted share. Excluding mark-to-market fuel hedge losses of $84.3 million ($52.4 million after tax, or $1.43 per diluted share) and fleet transition charges of $2.0 million ($1.2 million after tax or $0.03 per diluted share), the company reported record third quarter 2011 net income of $131.1 million, or $3.58 per diluted share, compared to net income of $118.1 million, or $3.21 per diluted share, excluding special items.

"We are pleased to report our highest adjusted quarterly profit ever. The outstanding financial performance was driven by a record quarterly load factor of 86.5%, higher yields and record on-time performance of over 91%," said Bill Ayer, chairman and chief executive officer. "These results reflect the hard work and changes we've made as a company over the past several years. As we grow stronger - both financially and operationally - we become better prepared to face challenges that come our way. I am grateful to the 12,000 Air Group employees who helped achieve this quarter's results."

The following table reconciles the company's adjusted net income and earnings per diluted share (EPS) during the third quarters of 2011 and 2010 to amounts as reported in accordance with GAAP (in millions except per-share amounts):





Three Months Ended September 30,





2011



2010





Dollars



Diluted EPS



Dollars



Diluted EPS

Net income and diluted EPS, excluding the items noted below:
Fleet transition costs, net of tax

$131.1

(1.2)



$3.58

(0.03)



$118.1

(6.1)



$3.21

(0.17)

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

(52.4)



(1.43)



& nbsp;   10.4



& nbsp;  0.28

Reported GAAP amounts

$77.5



$2.12



$122.4



$3.32



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 page 4 of this release.

A conference call regarding the third quarter results will be simulcast via the Internet at 8:30 a.m. Pacific time on October 20, 2011. It can be accessed through the company's Web site 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, 2010. 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 ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates 2008, 2009, 2010 and 2011 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 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 & 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 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

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

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 - represents the number of revenue passengers per full-time equivalent employee


View Third Quarter Financial Results

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