Alaska Air Group today announced another quarter of improvement in its financial results for the second quarter ending June 30, 2022, and provided outlook for the third quarter ending Sept. 30, 2022.
“It’s clear that travel is one of the things people have missed the most these past two years. They are excited to fly again and our team is delivering on the safe, reliable and caring experience they expect from us,” said CEO Ben Minicucci. “Revenue in June topped $1 billion, the highest single month in our history. Our 14% adjusted pretax margin in Q2 is near the top of the industry, and our operation is on track in June with the #1 on-time performance and a schedule completion rate over 99%. I’m feeling so much gratitude for the people of Alaska, Horizon and McGee for pulling together. We have a strong platform for growth in 2023 and a lot to be optimistic about.”
Financial Results for the Second Quarter:
- Reported net income for the second quarter of 2022 under Generally Accepted Accounting Principles (GAAP) of $139 million, or $1.09 per share, compared to a net income of $397 million, or $3.13 per share, in the second quarter of 2021.
- Reported net income for the second quarter of 2022, excluding special items and mark-to-market fuel hedge accounting adjustments, of $280 million, or $2.19 per share, compared to a net loss, excluding special items and mark-to-market fuel hedge accounting adjustments, of $38 million, or $0.30 per share, in the second quarter of 2021.
- Reported adjusted pretax margin for the second quarter of 14%.
- Recorded $2.7 billion in operating revenues for the second quarter, the highest revenue-generating quarter in company history.
Balance Sheet and Liquidity:
- Generated $948 million in operating cash flow for the second quarter, inclusive of $231 million in net federal income tax refunds.
- Held $3.4 billion in unrestricted cash and marketable securities as of June 30, 2022.
- Maintained a debt-to-capitalization ratio of 50% as of June 30, 2022, within our target range of 40% to 50%.
Operational Updates and Milestones for the Second Quarter:
- Flew a record load factor for the quarter of 88%, driven by high demand on reduced capacity.
- Led the industry in on-time performance for the month of June, meeting our commitment to operational reliability.
- Received nine Boeing 737-9 aircraft in the second quarter, bringing the total number of 737-9s in our mainline fleet to 28.
- Ratified new contracts with Alaska Airlines dispatchers and Horizon Air aircraft technicians and fleet service agents; and reached a tentative agreement with Alaska Airlines IAM represented employees.
- Expanded pilot training throughput by 20% from April, and added 100 active mainline pilots in the second quarter.
- Began nonstop service to Miami and Cleveland from Seattle, bringing the total nonstop destinations served from Seattle to 100.
- Launched $8 flat rate satellite Wi-Fi on mainline aircraft in partnership with Intelsat.
Awards and Employee Recognition:
- Ranked as one of America’s Best Employers for Diversity by Forbes, recognizing our commitment to increasing diverse leadership representation and equity initiatives.
- Named the Best Major Airline in North America by the Airline Passenger Experience Association, highlighting Alaska’s inflight experience.
- Recognized the company’s workforce for their relentless commitment to caring for our guests for 90 years by giving each employee 90,000 miles redeemable for travel anywhere in the world.
Second Quarter Environmental, Social and Governance Updates:
- Released our 2021 Care Report, highlighting the company’s progress in various environmental, social and governance areas and outlining ongoing initiatives and future goals.
- Signed agreement with Aemetis to purchase 13 million gallons of sustainable aviation fuel to be delivered over the seven-year term of the agreement.
- Subsequent to quarter end, announced a partnership with Microsoft and Twelve, a carbon transformation technology company, to advance the availability of sustainable aviation fuels.
- Scored 100% in our first year participating in Disability:IN’s Disability Equality Index, which benchmarks companies on their disability inclusion and equality.
The following table reconciles the company’s reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2022, and 2021 to adjusted amounts.
| Three Months Ended June 30, | |||||||
| 2022 | 2021 | ||||||
| (in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||
| GAAP net income per share | $ 139 | $ 1.09 | $ 397 | $ 3.13 | |||
| Payroll Support Program grant wage offset | — | — | (503) | (3.97) | |||
| Mark-to-market fuel hedge adjustments | 40 | 0.31 | (46) | (0.36) | |||
| Special items – fleet transition and related charges(a) | 146 | 1.14 | (4) | (0.03) | |||
| Special items – restructuring charges(b) | — | — | (23) | (0.18) | |||
| Income tax effect of reconciling items above | (45) | (0.35) | 141 | 1.11 | |||
| Non-GAAP adjusted net income (loss) per share | $ 280 | $ 2.19 | $ (38) | $ (0.30) | |||
| Six Months Ended June 30, | |||||||
| 2022 | 2021 | ||||||
| (in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||
| GAAP net income (loss) per share | $ (4) | $ (0.03) | $ 266 | $ 2.10 | |||
| Payroll support program grant wage offset | — | — | (914) | (7.23) | |||
| Mark-to-market fuel hedge adjustments | (67) | (0.53) | (68) | (0.54) | |||
| Special items – fleet transition and related charges(a) | 221 | 1.75 | 14 | 0.11 | |||
| Special items – restructuring charges(b) | — | — | (12) | (0.09) | |||
| Income tax effect of reconciling items above | (37) | (0.30) | 240 | 1.90 | |||
| Non-GAAP adjusted net income (loss) per share | $ 113 | $ 0.89 | $ (474) | $ (3.75) | |||
| (a) | Special items – fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023. |
| (b) | Special items – restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves. |
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.
Alaska will hold its quarterly conference call to discuss second quarter results at 8:30 a.m. PDT on July 21, 2022. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.
Third Quarter and Full Year 2022 Outlook
| Q3 Expectation(a) | ||
| Capacity (ASMs) % change versus 2019(a) | Down 5% to 8% | |
| Revenue passengers % change versus 2019(a) | Down 8% to 10% | |
| Passenger load factor | 85% to 88% | |
| Total revenue % change versus 2019(a) | Up 16% to 19% | |
| Cost per ASM excluding fuel and special items (CASMex) % change versus 2019(a) | Up 16% to 19% | |
| Economic fuel cost per gallon | $3.79 to $3.89 | |
| Non-operating expense | $2 million to $4 million | |
| Adjusted tax rate | 24% to 25% |
| (a) | Due to the unusual nature of 2021 and 2020, all 2022 comparisons are versus the third quarter of 2019. |
For full year 2022, we expect our capacity to be down 8% to 9% versus 2019, and expect our CASMex to be up 15% to 17% versus 2019. We continue to expect our full year adjusted pre-tax margin to be between 6% and 9%.
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||
| Alaska Air Group, Inc. | |||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | Change | 2022 | 2021 | Change | |||||
| Operating Revenues | |||||||||||
| Passenger revenue | $ 2,418 | $ 1,352 | 79 % | $ 3,929 | $ 2,011 | 95 % | |||||
| Mileage Plan other revenue | 175 | 118 | 48 % | 287 | 212 | 35 % | |||||
| Cargo and other | 65 | 57 | 14 % | 123 | 101 | 22 % | |||||
| Total Operating Revenues | 2,658 | 1,527 | 74 % | 4,339 | 2,324 | 87 % | |||||
| Operating Expenses | |||||||||||
| Wages and benefits | 639 | 510 | 25 % | 1,245 | 1,003 | 24 % | |||||
| Variable incentive pay | 56 | 34 | 65 % | 92 | 67 | 37 % | |||||
| Payroll Support Program grant wage offset | — | (503) | NM | — | (914) | NM | |||||
| Aircraft fuel, including hedging gains and losses | 776 | 274 | 183 % | 1,123 | 477 | 135 % | |||||
| Aircraft maintenance | 104 | 102 | 2 % | 239 | 183 | 31 % | |||||
| Aircraft rent | 73 | 62 | 18 % | 146 | 124 | 18 % | |||||
| Landing fees and other rentals | 136 | 144 | (6) % | 274 | 273 | — % | |||||
| Contracted services | 82 | 54 | 52 % | 160 | 105 | 52 % | |||||
| Selling expenses | 78 | 41 | 90 % | 136 | 74 | 84 % | |||||
| Depreciation and amortization | 104 | 98 | 6 % | 206 | 195 | 6 % | |||||
| Food and beverage service | 50 | 35 | 43 % | 91 | 58 | 57 % | |||||
| Third-party regional carrier expense | 50 | 37 | 35 % | 92 | 67 | 37 % | |||||
| Other | 177 | 117 | 51 % | 329 | 222 | 48 % | |||||
| Special items – fleet transition and related charges | 146 | (4) | NM | 221 | 14 | NM | |||||
| Special items – restructuring charges | — | (23) | . | NM | — | (12) | NM | ||||
| Total Operating Expenses | 2,471 | 978 | 153 % | 4,354 | 1,936 | 125 % | |||||
| Operating Income (Loss) | 187 | 549 | (66) % | (15) | 388 | (104) % | |||||
| Non-operating Income (Expense) | |||||||||||
| Interest income | 11 | 6 | 100 % | 18 | 13 | 38 % | |||||
| Interest expense | (26) | (39) | (33) % | (53) | (71) | (25) % | |||||
| Interest capitalized | 3 | 3 | 7 % | 5 | 6 | (17) % | |||||
| Other – net | 10 | 9 | 10 % | 24 | 19 | 25 % | |||||
| Total Non-operating Income (Expense) | (2) | (21) | (90) % | (6) | (33) | (82) % | |||||
| Income (Loss) Before Income Tax | 185 | 528 | (21) | 355 | |||||||
| Income tax expense (benefit) | 46 | 131 | (17) | 89 | |||||||
| Net Income (Loss) | $ 139 | $ 397 | $ (4) | $ 266 | |||||||
| Basic Earnings (Loss) Per Share | $ 1.10 | $ 3.18 | $ (0.03) | $ 2.13 | |||||||
| Diluted Earnings (Loss) Per Share | $ 1.09 | $ 3.13 | $ (0.03) | $ 2.10 | |||||||
| Shares used for computation: | |||||||||||
| Basic | 126.543 | 124.977 | 126.265 | 124.640 | |||||||
| Diluted | 127.795 | 126.825 | 126.265 | 126.388 | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||
| Alaska Air Group, Inc. | |||
| (in millions) | June 30, 2022 | December 31, 2021 | |
| ASSETS | |||
| Current Assets | |||
| Cash and cash equivalents | $ 778 | $ 470 | |
| Marketable securities | 2,647 | 2,646 | |
| Total cash and marketable securities | 3,425 | 3,116 | |
| Receivables – net | 401 | 546 | |
| Inventories and supplies – net | 93 | 62 | |
| Prepaid expenses and other current assets | 313 | 196 | |
| Total Current Assets | 4,232 | 3,920 | |
| Property and Equipment | |||
| Aircraft and other flight equipment | 8,569 | 8,127 | |
| Other property and equipment | 1,532 | 1,489 | |
| Deposits for future flight equipment | 292 | 384 | |
| 10,393 | 10,000 | ||
| Less accumulated depreciation and amortization | 3,922 | 3,862 | |
| Total Property and Equipment – Net | 6,471 | 6,138 | |
| Other Assets | |||
| Operating lease assets | 1,669 | 1,453 | |
| Goodwill and intangible assets | 2,041 | 2,044 | |
| Other noncurrent assets | 387 | 396 | |
| Other Assets | 4,097 | 3,893 | |
| Total Assets | $ 14,800 | $ 13,951 |
| CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||
| Alaska Air Group, Inc. | |||
| (in millions, except share amounts) | June 30, 2022 | December 31, 2021 | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||
| Current Liabilities | |||
| Accounts payable | $ 286 | $ 200 | |
| Accrued wages, vacation and payroll taxes | 416 | 457 | |
| Air traffic liability | 1,778 | 1,163 | |
| Other accrued liabilities | 794 | 625 | |
| Deferred revenue | 1,012 | 912 | |
| Current portion of operating lease liabilities | 274 | 268 | |
| Current portion of long-term debt | 342 | 366 | |
| Total Current Liabilities | 4,902 | 3,991 | |
| Long-Term Debt, Net of Current Portion | 1,961 | 2,173 | |
| Noncurrent Liabilities | |||
| Long-term operating lease liabilities, net of current portion | 1,505 | 1,279 | |
| Deferred income taxes | 552 | 578 | |
| Deferred revenue | 1,429 | 1,446 | |
| Obligation for pension and postretirement medical benefits | 299 | 305 | |
| Other liabilities | 353 | 378 | |
| Total Noncurrent Liabilities | 4,138 | 3,986 | |
| Commitments and Contingencies | |||
| Shareholders’ Equity | |||
| Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding | — | — | |
| Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 – 136,109,649 shares; 2021 – 135,255,808 shares, Outstanding: 2022 – 126,759,705 shares; 2021 – 125,905,864 shares | 1 | 1 | |
| Capital in excess of par value | 542 | 494 | |
| Treasury stock (common), at cost: 2022 – 9,349,944 shares; 2021 – 9,349,944 shares | (674) | (674) | |
| Accumulated other comprehensive loss | (308) | (262) | |
| Retained earnings | 4,238 | 4,242 | |
| 3,799 | 3,801 | ||
| Total Liabilities and Shareholders’ Equity | $ 14,800 | $ 13,951 |
| SUMMARY CASH FLOW (unaudited) | |||||
| Alaska Air Group, Inc. | |||||
| (in millions) | Six Months Ended June 30, 2022 |
Three Months Ended March 31, 2022(a) |
Three Months Ended June 30, 2022(b) |
||
| Cash Flows from Operating Activities: | |||||
| Net income (loss) | $ (4) | $ (143) | $ 139 | ||
| Non-cash reconciling items | 447 | 182 | 265 | ||
| Changes in working capital | 792 | 248 | 544 | ||
| Net cash provided by (used in) operating activities | 1,235 | 287 | 948 | ||
| Cash Flows from Investing Activities: | |||||
| Property and equipment additions | (632) | (288) | (344) | ||
| Other investing activities | (89) | 327 | (416) | ||
| Net cash provided by (used in) investing activities | (721) | 39 | (760) | ||
| Cash Flows from Financing Activities: | (206) | (168) | (38) | ||
| Net increase (decrease) in cash and cash equivalents | 308 | 158 | 150 | ||
| Cash, cash equivalents, and restricted cash at beginning of period | 494 | 494 | 652 | ||
| Cash, cash equivalents, and restricted cash at end of the period | $ 802 | $ 652 | $ 802 |
| (a) | As reported in Form 10-Q for the first quarter of 2022. |
| (b) | Cash flows for the three months ended June 30, 2022, can be calculated by subtracting cash flows for the three months ended March 31, 2022, as reported in Form 10-Q for the first quarter 2022, from the six months ended June 30, 2022. |
| OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||
| Alaska Air Group, Inc. | |||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2022 | 2021 | Change | 2022 | 2021 | Change | ||||||
| Consolidated Operating Statistics:(a) | |||||||||||
| Revenue passengers (000) | 11,005 | 8,712 | 26.3 % | 19,700 | 13,379 | 47.2 % | |||||
| RPMs (000,000) “traffic” | 13,746 | 10,334 | 33.0 % | 24,332 | 15,727 | 54.7 % | |||||
| ASMs (000,000) “capacity” | 15,611 | 13,413 | 16.4 % | 29,394 | 23,810 | 23.5 % | |||||
| Load factor | 88.1 % | 77.0 % | 11.1 pts | 82.8 % | 66.1 % | 16.7 pts | |||||
| Yield | 17.59¢ | 13.09¢ | 34.4 % | 16.15¢ | 12.79¢ | 26.3 % | |||||
| RASM | 17.03¢ | 11.38¢ | 49.6 % | 14.76¢ | 9.76¢ | 51.2 % | |||||
| CASMex(b) | 9.92¢ | 9.20¢ | 7.8 % | 10.24¢ | 9.95¢ | 2.9 % | |||||
| Economic fuel cost per gallon(b) | $3.76 | $1.90 | 97.9 % | $3.23 | $1.85 | 74.6 % | |||||
| Fuel gallons (000,000) | 196 | 168 | 16.7 % | 368 | 294 | 25.2 % | |||||
| ASMs per gallon | 79.6 | 79.8 | (0.3) % | 79.9 | 81.0 | (1.4) % | |||||
| Average full-time equivalent employees (FTEs) | 22,603 | 19,001 | 19.0 % | 22,092 | 18,071 | 22.3 % | |||||
| Mainline Operating Statistics: | |||||||||||
| Revenue passengers (000) | 8,321 | 6,151 | 35.3 % | 14,887 | 9,302 | 60.0 % | |||||
| RPMs (000,000) “traffic” | 12,460 | 8,966 | 39.0 % | 21,972 | 13,555 | 62.1 % | |||||
| ASMs (000,000) “capacity” | 14,052 | 11,611 | 21.0 % | 26,439 | 20,464 | 29.2 % | |||||
| Load factor | 88.7 % | 77.2 % | 11.5 pts | 83.1 % | 66.2 % | 16.9 pts | |||||
| Yield | 16.28¢ | 11.96¢ | 36.1 % | 14.89¢ | 11.64¢ | 27.9 % | |||||
| RASM | 16.02¢ | 10.59¢ | 51.3 % | 13.81¢ | 9.09¢ | 51.9 % | |||||
| CASMex(b) | 8.98¢ | 8.48¢ | 5.9 % | 9.29¢ | 9.17¢ | 1.3 % | |||||
| Economic fuel cost per gallon(b) | $3.74 | $1.88 | 98.9 % | $3.21 | $1.84 | 74.4 % | |||||
| Fuel gallons (000,000) | 165 | 135 | 22.2 % | 311 | 233 | 33.5 % | |||||
| ASMs per gallon | 85.2 | 86.0 | (0.9) % | 85.0 | 87.8 | (3.2) % | |||||
| Average number of FTEs | 17,315 | 14,021 | 23.5 % | 16,825 | 13,247 | 27.0 % | |||||
| Aircraft utilization | 10.1 | 9.9 | 2.0 % | 9.8 | 9.2 | 6.5 % | |||||
| Average aircraft stage length | 1,363 | 1,320 | 3.3 % | 1,349 | 1,313 | 2.7 % | |||||
| Operating fleet(d) | 233 | 202 | 31 a/c | 233 | 202 | 31 a/c | |||||
| Regional Operating Statistics:(c) | |||||||||||
| Revenue passengers (000) | 2,685 | 2,562 | 4.8 % | 4,813 | 4,077 | 18.1 % | |||||
| RPMs (000,000) “traffic” | 1,285 | 1,367 | (6.0) % | 2,360 | 2,172 | 8.7 % | |||||
| ASMs (000,000) “capacity” | 1,559 | 1,802 | (13.5) % | 2,955 | 3,346 | (11.7) % | |||||
| Load factor | 82.4 % | 75.9 % | 6.5 pts | 79.9 % | 64.9 % | 15.0 pts | |||||
| Yield | 30.35¢ | 20.48¢ | 48.2 % | 27.88¢ | 19.95¢ | 39.7 % | |||||
| RASM | 26.04¢ | 16.41¢ | 58.7 % | 23.21¢ | 13.84¢ | 67.7 % | |||||
| Operating fleet(d) | 104 | 94 | 10 a/c | 104 | 94 | 10 a/c | |||||
| (a) | Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements. |
| (b) | See a reconciliation of this non-GAAP measure and Note A for a discussion of the importance of this measure to investors in the accompanying pages. |
| (c) | Data presented includes information for flights operated by Horizon and third-party carriers. |
| (d) | Excludes all aircraft removed from operating service. |
Given the unusual nature of 2021 and 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2022 to 2019.
| FINANCIAL INFORMATION AND OPERATING STATISTICS – 2022 Compared to 2019 (unaudited) | |||||||||||
| Alaska Air Group, Inc. | |||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
| 2022 | 2019 | Change | 2022 | 2019 | Change | ||||||
| Passenger revenue | $ 2,418 | $ 2,111 | 15 % | $ 3,929 | $ 3,827 | 3 % | |||||
| Mileage plan other revenue | 175 | 118 | 48 % | 287 | 228 | 26 % | |||||
| Cargo and other | 65 | 59 | 10 % | 123 | 109 | 13 % | |||||
| Total Operating Revenues | 2,658 | 2,288 | 16 % | 4,339 | 4,164 | 4 % | |||||
| Operating expenses, excluding fuel and special items | 1,549 | 1,414 | 10 % | 3,010 | 2,819 | 7 % | |||||
| Aircraft fuel, including hedging gains and losses | 776 | 502 | 55 % | 1,123 | 922 | 22 % | |||||
| Special items | 146 | 8 | NM | 221 | 34 | NM | |||||
| Total Operating Expenses | 2,471 | 1,924 | 28 % | 4,354 | 3,775 | 15 % | |||||
| Total Non-operating Expense | (2) | (13) | (85) % | (6) | (32) | (81) % | |||||
| Income (Loss) Before Income Tax | $ 185 | $ 351 | (47) % | $ (21) | $ 357 | (106) % | |||||
| Consolidated Operating Statistics: | |||||||||||
| Revenue passengers (000) | 11,005 | 12,026 | (8) % | 19,700 | 22,442 | (12) % | |||||
| RPMs (000,000) “traffic” | 13,746 | 14,638 | (6) % | 24,332 | 27,087 | (10) % | |||||
| ASMs (000,000) “capacity” | 15,611 | 16,980 | (8) % | 29,394 | 32,487 | (10) % | |||||
| Load Factor | 88.1 % | 86.2 % | 1.9 pts | 82.8 % | 83.4 % | (0.6) pts | |||||
| Yield | 17.59¢ | 14.43¢ | 22 % | 16.15¢ | 14.13¢ | 14 % | |||||
| RASM | 17.03¢ | 13.48¢ | 26 % | 14.76¢ | 12.82¢ | 15 % | |||||
| CASMex | 9.92¢ | 8.33¢ | 19 % | 10.24¢ | 8.68¢ | 18 % | |||||
| FTEs | 22,603 | 21,921 | 3 % | 22,092 | 21,876 | 1 % | |||||
| OPERATING SEGMENTS (unaudited) | |||||||||||||
| Alaska Air Group, Inc. | |||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) |
Air Group Adjusted(b) |
Special Items(c) |
Consolidated | ||||||
| Operating Revenues | |||||||||||||
| Passenger revenues | $ 2,028 | $ 390 | $ — | $ — | $ 2,418 | $ — | $ 2,418 | ||||||
| CPA revenues | — | — | 101 | (101) | — | — | — | ||||||
| Mileage Plan other revenue | 159 | 16 | — | — | 175 | — | 175 | ||||||
| Cargo and other | 64 | — | — | 1 | 65 | — | 65 | ||||||
| Total Operating Revenues | 2,251 | 406 | 101 | (100) | 2,658 | — | 2,658 | ||||||
| Operating Expenses | |||||||||||||
| Operating expenses, excluding fuel | 1,262 | 289 | 98 | (100) | 1,549 | 146 | 1,695 | ||||||
| Fuel expense | 617 | 119 | — | — | 736 | 40 | 776 | ||||||
| Total Operating Expenses | 1,879 | 408 | 98 | (100) | 2,285 | 186 | 2,471 | ||||||
| Non-operating Income (Expense) | 3 | — | (5) | — | (2) | — | (2) | ||||||
| Income (Loss) Before Income Tax | $ 375 | $ (2) | $ (2) | $ — | $ 371 | $ (186) | $ 185 | ||||||
| Pretax Margin | 14.0 % | 7.0 % | |||||||||||
| Three Months Ended June 30, 2021 | |||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) |
Air Group Adjusted(b) |
Special Items(c) |
Consolidated | ||||||
| Operating Revenues | |||||||||||||
| Passenger revenues | $ 1,072 | $ 280 | $ — | $ — | $ 1,352 | $ — | $ 1,352 | ||||||
| CPA revenues | — | — | 111 | (111) | — | — | — | ||||||
| Mileage Plan other revenue | 102 | 16 | — | — | 118 | — | 118 | ||||||
| Cargo and other | 55 | — | — | 2 | 57 | — | 57 | ||||||
| Total Operating Revenues | 1,229 | 296 | 111 | (109) | 1,527 | — | 1,527 | ||||||
| Operating Expenses | |||||||||||||
| Operating expenses, excluding fuel | 984 | 286 | 91 | (127) | 1,234 | (530) | 704 | ||||||
| Fuel expense | 253 | 66 | — | 1 | 320 | (46) | 274 | ||||||
| Total Operating Expenses | 1,237 | 352 | 91 | (126) | 1,554 | (576) | 978 | ||||||
| Non-operating Income (Expense) | (16) | — | (5) | — | (21) | — | (21) | ||||||
| Income (Loss) Before Income Tax | $ (24) | $ (56) | $ 15 | $ 17 | $ (48) | $ 576 | $ 528 | ||||||
| Pretax Margin | (3.1) % | 34.6 % | |||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) |
Air Group Adjusted(b) |
Special Items(c) |
Consolidated | ||||||
| Operating Revenues | |||||||||||||
| Passenger revenues | $ 3,271 | $ 658 | $ — | $ — | $ 3,929 | $ — | $ 3,929 | ||||||
| CPA revenues | — | — | 195 | (195) | — | — | — | ||||||
| Mileage Plan other revenue | 259 | 28 | — | — | 287 | — | 287 | ||||||
| Cargo and other | 121 | — | — | 2 | 123 | — | 123 | ||||||
| Total Operating Revenues | 3,651 | 686 | 195 | (193) | 4,339 | — | 4,339 | ||||||
| Operating Expenses | |||||||||||||
| Operating expenses, excluding fuel | 2,456 | 551 | 197 | (194) | 3,010 | 221 | 3,231 | ||||||
| Fuel expense | 998 | 192 | — | — | 1,190 | (67) | 1,123 | ||||||
| Total Operating Expenses | 3,454 | 743 | 197 | (194) | 4,200 | 154 | 4,354 | ||||||
| Non-operating Income (Expense) | 4 | — | (10) | — | (6) | — | (6) | ||||||
| Income (Loss) Before Income Tax | $ 201 | $ (57) | $ (12) | $ 1 | $ 133 | $ (154) | $ (21) | ||||||
| Pretax Margin | 3.1 % | (0.5) % | |||||||||||
| Six Months Ended June 30, 2021 | |||||||||||||
| (in millions) | Mainline | Regional | Horizon | Consolidating & Other(a) |
Air Group Adjusted(b) |
Special Items(c) |
Consolidated | ||||||
| Operating Revenues | |||||||||||||
| Passenger revenues | $ 1,578 | $ 433 | $ — | $ — | $ 2,011 | $ — | $ 2,011 | ||||||
| CPA revenues | — | — | 215 | (215) | — | — | — | ||||||
| Mileage Plan other revenue | 182 | 30 | — | — | 212 | — | 212 | ||||||
| Cargo and other | 99 | — | — | 2 | 101 | — | 101 | ||||||
| Total Operating Revenues | 1,859 | 463 | 215 | (213) | 2,324 | — | 2,324 | ||||||
| Operating Expenses | |||||||||||||
| Operating expenses, excluding fuel | 1,877 | 551 | 179 | (236) | 2,371 | (912) | 1,459 | ||||||
| Fuel expense | 427 | 118 | — | — | 545 | (68) | 477 | ||||||
| Total Operating Expenses | 2,304 | 669 | 179 | (236) | 2,916 | (980) | 1,936 | ||||||
| Non-operating Income (Expense) | (23) | — | (10) | — | (33) | — | (33) | ||||||
| Income (Loss) Before Income Tax | $ (468) | $ (206) | $ 26 | $ 23 | $ (625) | $ 980 | $ 355 | ||||||
| Pretax Margin | (26.9) % | 15.3 % | |||||||||||
| (a) | Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units. |
| (b) | The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information. |
| (c) | Includes payroll support program grant wage offsets, special items, and mark-to-market fuel hedge accounting adjustments. |
| GAAP TO NON-GAAP RECONCILIATIONS (unaudited) | |||||||
| Alaska Air Group, Inc. | |||||||
| CASM Excluding Fuel and Special Items Reconciliation | |||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||
| (in cents) | 2022 | 2021 | 2022 | 2021 | |||
| Consolidated: | |||||||
| CASM | 15.84 ¢ | 7.29 ¢ | 14.81 ¢ | 8.13 ¢ | |||
| Less the following components: | |||||||
| Payroll Support Program grant wage offset | — | (3.75) | — | (3.84) | |||
| Aircraft fuel, including hedging gains and losses | 4.98 | 2.04 | 3.82 | 2.00 | |||
| Special items – fleet transition and related charges(a) | 0.94 | (0.03) | 0.75 | 0.07 | |||
| Special items – restructuring charges(b) | — | (0.17) | — | (0.05) | |||
| CASM excluding fuel and special items | 9.92 ¢ | 9.20 ¢ | 10.24 ¢ | 9.95 ¢ | |||
| Mainline: | |||||||
| CASM | 15.06 ¢ | 6.24 ¢ | 13.69 ¢ | 6.72 ¢ | |||
| Less the following components: | |||||||
| Payroll Support Program grant wage offset | — | (3.79) | — | (4.21) | |||
| Aircraft fuel, including hedging gains and losses | 5.06 | 1.78 | 3.84 | 1.75 | |||
| Special items – fleet transition and related charges(a) | 1.02 | (0.03) | 0.56 | 0.07 | |||
| Special items – restructuring charges(b) | — | (0.20) | — | (0.06) | |||
| CASM excluding fuel and special items | 8.98 ¢ | 8.48 ¢ | 9.29 ¢ | 9.17 ¢ | |||
| (a) | Special items – fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023. |
| (b) | Special items – restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves. |
| Fuel Reconciliation | |||||||
| Three Months Ended June 30, | |||||||
| 2022 | 2021 | ||||||
| (in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||
| Raw or “into-plane” fuel cost | $ 824 | $ 4.20 | $ 330 | $ 1.96 | |||
| Losses (gains) on settled hedges | (88) | (0.44) | (10) | (0.06) | |||
| Consolidated economic fuel expense | 736 | 3.76 | 320 | 1.90 | |||
| Mark-to-market fuel hedge adjustment | 40 | 0.20 | (46) | (0.27) | |||
| GAAP fuel expense | $ 776 | $ 3.96 | $ 274 | $ 1.63 | |||
| Fuel gallons | 196 | 168 | |||||
| Six Months Ended June 30, | |||||||
| 2022 | 2021 | ||||||
| (in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||
| Raw or “into-plane” fuel cost | $ 1,328 | $ 3.61 | $ 552 | $ 1.87 | |||
| Losses (gains) on settled hedges | (138) | (0.38) | (7) | (0.02) | |||
| Consolidated economic fuel expense | 1,190 | 3.23 | 545 | 1.85 | |||
| Mark-to-market fuel hedge adjustment | (67) | (0.18) | (68) | (0.23) | |||
| GAAP fuel expense | $ 1,123 | $ 3.05 | $ 477 | $ 1.62 | |||
| Fuel gallons | 368 | 294 | |||||
| Debt-to-capitalization, including operating leases | |||
| (in millions) | June 30, 2022 | December 31, 2021 | |
| Long-term debt, net of current portion | $ 1,961 | $ 2,173 | |
| Long-term and current capitalized operating leases | 1,779 | 1,547 | |
| Adjusted debt, net of current portion of long-term debt | 3,740 | 3,720 | |
| Shareholders’ equity | 3,799 | 3,801 | |
| Total Invested Capital | $ 7,539 | $ 7,521 | |
| Debt-to-capitalization ratio, including operating leases | 50 % | 49 % | |
| Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent and special items | |||
| (in millions) | June 30, 2022 | December 31, 2021 | |
| Current portion of long-term debt | $ 342 | $ 366 | |
| Current portion of operating lease liabilities | 274 | 268 | |
| Long-term debt | 1,961 | 2,173 | |
| Long-term operating lease liabilities, net of current portion | 1,505 | 1,279 | |
| Total adjusted debt | 4,082 | 4,086 | |
| Less: Total cash and marketable securities | (3,425) | (3,116) | |
| Adjusted net debt | $ 657 | $ 970 | |
| (in millions) | Twelve Months Ended June 30, 2022 |
Twelve Months Ended December 31, 2021 |
|
| GAAP Operating Income(a) | $ 282 | $ 685 | |
| Adjusted for: | |||
| Payroll Support Program grant wage offset and special items | 208 | (925) | |
| Mark-to-market fuel hedge adjustments | (46) | (47) | |
| Depreciation and amortization | 405 | 394 | |
| Aircraft rent | 276 | 254 | |
| EBITDAR | $ 1,125 | $ 361 | |
| Adjusted net debt to EBITDAR | 0.6x | 2.7x | |
| (a) | Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC. |
Note A: Pursuant to Regulation G, we are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:
- By eliminating fuel expense and certain special items (including Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges) from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
- Cost per ASM (CASM) excluding fuel and certain special items, such as Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
- Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee incentive plan, which covers the majority of Air Group employees.
- CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.
- Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of these items as noted above. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
- Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.
Top Copyright Photo: Alaska Airlines Boeing 737-900 ER SSWL N298AK (msn 60583) IAH (Jarrod Wilkening). Image: 958261.
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