Category Archives: Alaska Air Group

Alaska Air Group reports first quarter 2020 results; COVID-19 response

Alaska Air Group issued this report:

Financial Results:

  • Reported net loss for the first quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of $232 million, or $1.87 per diluted share, compared to net income of $4 million, or $0.03 per diluted share in the first quarter of 2019.
  • Reported net loss for the first quarter of 2020, excluding impairment charges, merger-related costs and mark-to-market fuel hedge accounting adjustments, of $102 million, or $0.82 per diluted share, compared to net income of $21 million or $0.17 per diluted share, in the first quarter of 2019.
  • Reported impairment and other related charges of $160 million before tax related to certain aircraft, aircraft parts, and intangible assets.

COVID-19 Impacts and Response:
The impacts of COVID-19 on our business have been unprecedented. Demand deterioration began in February, and in March cancellations overwhelmed new bookings. Today demand remains over 90% below normal levels. Alaska Air Group’s priorities as it continues to manage through this crisis are to ensure the health and safety of guests and employees, to preserve financial strength, and to plan for the future of the company. The following are key actions taken to date:

Guests and Employees

  • Implemented enhanced cleaning procedures on aircraft, including the use of high-grade, EPA-registered disinfectants and electrostatic sanitizing spray. Additionally, all planes are equipped with hospital-grade HEPA filters.
  • Taken additional steps to ensure guest health and safety including limiting load factors and seat availability, and reducing most in-flight services and requiring flight attendants and customer service agents to utilize masks.
  • Requiring face masks for guests starting May 11 and for employees who cannot maintain six feet of social distance from guests or coworkers starting May 4. This includes pilots, flight attendants and customer service agents.
  • Extended elite Mileage Plan status to all members until Dec. 31, 2021, and offered for all 2020 qualifying miles to apply to 2021 status achievement.
  • Provided guests with a “Peace of Mind” waiver, allowing changes to ticketed travel without change or cancellation fees.
  • Utilized our dedicated fleet of cargo freighter to transport essential supplies from Seattle and throughout Alaska.
  • Donated 1 million meals to address food insecurity across our network, and 1 million LIFT miles to transport medical staff free of charge to respond to COVID-19. The airlines continue to support transportation of essential supplies through air cargo services.

Fleet and Network

  • Flown capacity in April decreased more than 80% compared to the prior year, and capacity cuts in May will also be at least 80%. We continue to expect capacity cuts in June to be significant.
  • Parked 156 mainline aircraft and 13 Horizon Air aircraft, and suspended flying for 8 SkyWest Airlines aircraft.

Cash Preservation and Expense Reduction

  • Held $2.1 billion in unrestricted cash and marketable securities as of March 31, 2020.
  • As of May 4, 2020, held $2.9 billion in cash and marketable securities, including Coronavirus Aid, Relief and Economic Security (CARES) Act Payroll Support Program (PSP) funds received in April.
  • Drew $400 million from existing credit facilities, and executed an agreement for a $425 million 364-day term loan facility.
  • Obtained an additional $50 million in secured financing on April 22, 2020.
  • Enacted a company-wide hiring freeze for all non-essential positions, reduced salaries of senior management and offered  voluntary short-term and incentive leave programs accepted by more than 5,000 employees.
  • Reduced cash burn from $400 million per month in March to $260 million in April, with the goal of reaching $200 million in June.
  • Suspended over $500 million in capital spending, largely through the deferral of pre-delivery aircraft payments and non-aircraft capital projects.
  • Negotiated payment extensions or reductions with lessors, vendors and airports.
  • Suspended stock repurchases and future dividend payments.

CARES Act Assistance

  • Reached an agreement with the U.S. Treasury to receive support under the CARES Act PSP and received $992 million in funding on April 23, 2020.
  • Applied to participate in the Loan Program of the CARES Act, which would give Air Group the option to access up to $1.1 billion in federal loans through Sept. 30, 2020.

Alaska Air Group Inc. today reported first quarter 2020 GAAP net loss of $232 million, or $1.87 per diluted share, compared to net income of $4 million, or $0.03 per diluted share in the first quarter of 2019. Excluding the impact of impairment charges,  merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net loss of $102 million, or $0.82 per diluted share, compared to adjusted net income of $21 million, or $0.17 per diluted share in 2019.

“In the face of one of the greatest challenges in the history of commercial aviation, our people at Alaska and Horizon are doing extraordinary work to respond to this crisis,” said Alaska Airlines CEO Brad Tilden. “I want to thank each of them for everything they’re doing to serve our guests and to preserve the integrity of our operation. I also want to thank our leadership team for acting swiftly and courageously to reduce our cash burn rate and give us the best chance possible to navigate through this storm and capitalize on opportunities we may see on the other side. Alaska has been here for more than 88 years, serving our customers and communities, and providing good jobs for our people. Our commitment is to ensure this continues, and to emerge from this crisis better and stronger.”

Alaska Airlines aircraft photo gallery:

Alaska Airlines pilots respond to fourth quarter and full year 2019 earnings

ALPA issued this statement:

The Alaska Airlines Master Executive Council (MEC) of the Air Line Pilots Association, Int’l (ALPA), issued the following statement in response to Alaska Air Group’s fourth quarter and 2019 full year earnings report, which stated an adjusted pretax profit of $1.054 billion, making this the airline’s eleventh consecutive year of profits.

“On behalf of all pilots of Alaska Airlines, we congratulate all fellow employees for their professionalism and hard work that earned us a 7.05 percent performance bonus payment for 2019. The pilots’ dedication and commitment to this airline was on display all year, despite a surge in contract compliance issues and operational challenges.

“The Alaska Airlines pilots have been in contract talks with management for more than nine months, as we seek long-overdue improvements to quality of life, work rules, job security, career satisfaction, and retirement and insurance. We have seen our peers at other airlines enjoy prominent gains in these areas, while the demand for commercial airline pilots only continues to grow. With profit margins above industry average, it’s time for Alaska Airlines management to recognize that to attract and retain well qualified, professional pilots, this airline must offer a market-rate contract to pilots..

“We look forward to a timely and successful outcome that recognizes our contributions to this company’s success and are hopeful and optimistic that management will work to resolve the outstanding contract issues with us.”

Alaska Air Group reports fourth quarter 2019 and full-year results

Alaska Air Group reported its 4Q and full-year 2019 financial results:

Financial Highlights:

  • Reported net income for the fourth quarter and full year 2019 under Generally Accepted Accounting Principles (GAAP) of $181 million, or $1.46 per diluted share, and $769 million, or $6.19 per diluted share. These results compare to fourth quarter 2018 net income of $23 million, or $0.19 per diluted share, and full year 2018 net income of $437 million, or $3.52 per diluted share.
  • Reported adjusted net income, excluding merger-related costs and mark-to-market fuel hedging adjustments for the fourth quarter and full year 2019 of $181 million, or $1.46 per diluted share, and $798 million, or $6.42 per diluted share. These results compare to fourth quarter 2018 adjusted net income of $93 million, or $0.75 per diluted share, and full year 2018 adjusted net income of $554 million, or $4.46 per diluted share. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $1.41 per share.
  • Paid a $0.35 per share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2019 to $173 million.
  • Repurchased a total of 1,192,820 shares of common stock for approximately $75 million in 2019.
  • Generated approximately $1.7 billion of operating cash flow, and used approximately $696 million for capital expenditures, resulting in approximately $1 billion of free cash flow in 2019, representing free cash flow conversion of 133%.
  • Grew passenger revenues by 8% compared to the fourth quarter of 2018, and by 6% compared to full-year 2018.
  • Generated full-year adjusted pretax margin of 12% in 2019, 3.1 points higher than the 8.9% in 2018.
  • Held $1.5 billion in unrestricted cash and marketable securities as of Dec. 31, 2019.
  • Achieved the goal of 75% repayment on the $2 billion debt borrowed to fund the acquisition of Virgin America, driving our debt-to-capitalization ratio to 41% as of Dec. 31, 2019, from 47% as of Dec. 31, 2018 and 51% as of Dec. 31, 2016.
  • Reduced net adjusted debt to EBITDAR to 0.9x as of Dec. 31, 2019 from 1.7x as of Dec. 31, 2018.

2019 Accomplishments and Highlights:

Recognition and Awards

  • Ranked “Highest in Customer Satisfaction Among Traditional Carriers” in 2019 by J.D. Power for the 12th year in a row.
  • Named “Best U.S. Airline” by Condé Nast Traveler in their 2019 Readers Choice Awards for the second consecutive year, a continuation of the ten consecutive years that Virgin America received the recognition.
  • Mileage Plan™ ranked first in U.S. News & World Report’s list of Best Travel Rewards Programs for the fifth time.
  • Ranked as top U.S. airline in Newsweek’s 2020 Best Customer Service awards.
  • Named “Best Mid-Size Airline” by TripAdvisor in their 2019 Travelers Choice awards.
  • Earned top spot for customer satisfaction on the American Customer Satisfaction Index Travel Report for 2018-2019.
  • Named “Best Airline” by Kayak in their 2019 Travel Hacker Awards.
  • Ranked the best U.S. airline in Money Magazine for the second year in a row.
  • Rated as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2019 by AirlineRatings.com.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the third consecutive year.

Our People

  • Ranked among Forbes’ 2019 global list for “World’s Best Employers” for the fifth year in a row.
  • Completed Flight Path, our leader-led program aimed at informing and engaging our employees, bringing over 95% of Air Group employees together to discuss our culture and future.
  • Awarded $163 million in incentive pay for 2019, an 11% increase over 2018.
  • Alaska technicians, represented by the Aircraft Mechanics Fraternal Association, ratified an integrated seniority list and a transition agreement, including a two-year contract extension, in July 2019. This completes a major integration milestone, in that all of our workgroups are under joint agreements, less than three years from our acquisition of Virgin America.
  • Alaska’s clerical, office, and passenger service, and Alaska’s ramp and stores employees, both represented by the International Association of Machinists, each ratified new five-year agreements in August 2019.

Our Guests and Product

  • Launched commercial service from Paine Field in Everett, Washington, to 10 West Coast destinations.
  • Finished painting the Alaska Airlines livery on all Airbus aircraft.
  • Completed cabin interior renovations on the 42nd Airbus aircraft, or approximately 60% of the Airbus fleet.
  • Installed high-speed satellite Wi-Fi on the 104th mainline aircraft, or approximately 45% of the mainline fleet.
  • Opened a new 15,000+ square foot flagship lounge in the North Satellite at Sea-Tac International Airport and announced plans to build a new lounge in Terminal 2 at San Francisco International Airport.
  • Added EL AL Israel Airlines as a new global Mileage Plan partner.
  • Added four Boeing 737-900ER aircraft and two Airbus A321neo aircraft in 2019.
  • Added four Embraer 175 (E175) aircraft to the Regional operating fleet in 2019.

Our Communities

  • Launched LIFT, Alaska’s newly renamed social and environmental impact program, complete with a week of employee volunteer events in eight cities across our network.
  • Donated over $15 million and contributed more than 41,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

Alaska Air Group Inc. today reported fourth quarter 2019 GAAP net income of $181 million, or $1.46 per diluted share, compared to $23 million, or $0.19 per diluted share in 2018. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported fourth quarter adjusted net income of $181 million, or $1.46 per diluted share, compared to adjusted net income of $93 million, or $0.75 per diluted share in the fourth quarter of 2018.

The company reported full-year 2019 GAAP net income of $769 million, compared to $437 million in the prior year. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $798 million, or $6.42 per diluted share for 2019, compared to adjusted net income of $554 million, or $4.46 per diluted share in 2018.

“When we announced our intention to purchase Virgin America in the spring of 2016, we launched a body of work that was designed to make Alaska the ‘Go To’ airline for people living up and down the West Coast,” said Brad Tilden, Alaska’s CEO. “2019 was a fantastic year as we completed the majority of that work and began to see significant returns from our investment. We’re grateful to our people for pulling together to produce this strong financial performance, and proud that they are sharing in this financial success through our incentive pay program.”

Alaska Airlines introduces a new uniform designed to top safety standards

Alaska Airlines is rolling out its new Luly Yang custom-designed uniform collection certified to STANDARD 100 by OEKO-TEX®, the highest industry standard for safety, making Alaska and Horizon Air the first U.S. airlines to achieve this certification.

“This is a major milestone that was years in the making. Before the designs, before the first stitch, before the first button sewn, we took steps to ensure that employee uniforms were safe and of the best quality,” said Sangita Woerner, Alaska Airlines’ senior vice president of marketing and guest experience. “It was important to take our time and to collaborate with our union partners to create a uniform that was safe, stylish, high quality and functional for all aspects of our business.”

STANDARD 100 by OEKO-TEX® ensures that garments meet or exceed global safety standards with regards to harmful substances. The finished garment and each of its components are certified, down to the material, thread and dyes.

Since the collection first debuted in 2018, the design has been refined and adjusted with input from more than 175 employees who put the uniform through the paces with on-the-job wear tests. The new uniforms are being rolled out to employees through early 2020, with Horizon Air and Alaska Lounge concierges already donning the new uniforms.

Alaska started the process almost four years ago by surveying thousands of uniformed employees and followed up with focus groups and work-site visits to understand the features different workgroups wanted to see in their new uniforms. Overwhelmingly, the top requests from employees were more pockets and designs that look great on all body shapes and sizes, and were suited for a wide range of climates.

Additionally, more than 1,200 safety tests were conducted on the uniforms for over 165 unique color combinations. In total, Alaska’s custom uniforms incorporate more than 100,000 zippers, 1 million buttons, 500,000 yards of fabric and use well over 30 million yards of thread.

Using this employee research, Yang spent two years designing and creating a signature silhouette for the Alaska collection. Her focus on fit and function enabled additional touches including water-resistant materials, active wear fabrics, longer shirt tails that don’t untuck from skirts and trousers, and flexible textiles that move with the body.

“The STANDARD 100 by OEKO-TEX® certification is a first for our uniforms,” Jeff Peterson, Alaska Airlines Master Executive Council president of the Association of Flight Attendants. “The association is very pleased that our partnership with management has resulted in a high standard of safety that will help flight attendants feel confident in wearing their uniform.”

In order to achieve this standard, Alaska worked in partnership with Unisync Group Limited of Toronto, one of the largest uniform suppliers in North America. Together, Alaska, Yang and Unisync produced custom fabrics, buttons and signature accessories for the new program, ensuring the garments provide optimal on-the-job performance and earned the STANDARD 100 by OEKO-TEX® certification.

“Alaska Airlines created a strong partnership with us from the beginning – that’s the biggest reason for their success in earning the STANDARD 100 by OEKO-TEX® label,” said Ben Mead, OEKO-TEX® representative. “Achieving certification is incredibly challenging, and their commitment to leading with safety has been unwavering.”

STANDARD 100 by OEKO-TEX® was developed in 1992 by an international consortium of textile research and testing institutes. OEKO-TEX® now includes 18 institutes in Europe and Japan with offices in more than 60 countries. STANDARD 100 by OEKO-TEX® testing is known for ensuring that textiles are tested for potentially harmful substances and allergens. This standard is used by many retailers including Pottery Barn, Calvin Klein, Target, Macy’s and children’s-wear company Hanna Andersson.

From the Alaska Airlines blog:

Photos by Ingrid Barrentine

A day in the life of an airline uniform is hard. They brush through bustling airport crowds. They stretch to close overhead bins. They stand up to scorching heat and arctic cold as baggage is loaded, bolts are turned and fuel is measured.

And then they’re washed, dried, and expected to do it again. And again. And again.

So, when we set out to update our uniforms in partnership with Seattle designer Luly Yang in 2016, it wasn’t just a matter of picking a handful of colors and materials.

It was the start of a four-year journey in creating the perfect balance of quality, and form and function to achieve a U.S. airline industry first: a custom-designed uniform collection certified to STANDARD 100 certification by OEKO-TEX®, the highest industry standard for safety.

To meet the rigorous standard, more than 1,200 safety tests on fabrics, zippers, buttons, thread, linings and more were conducted.

Step 1: Asking the right questions

How do you get to the bottom of what more than 20,000 employees need from their uniforms? Well, you ask them. Over the past two years, we conducted surveys, focus groups and work-site visits to get the feedback they needed.

The answers? More pockets to accommodate all the odds and ends that come with keeping an airline in motion. Designs that look great on people of all shapes and sizes. And materials with the perfect amount of elasticity and breathability to keep a crew feeling comfortable and looking polished from the time they take off from Honolulu and land in Anchorage.

Step 2: Creating the look

With the research finished, it was Luly Yang’s time to shine. The designer got to work creating a signature silhouette for the Alaska collection, reviewing designs with employees, gathering feedback and making refinements to meet the needs of Alaska’s pilots, flight attendants, maintenance & engineering teams and more.

“This was the ultimate puzzle for a designer,” Yang said, in an interview with CNBC. “In this case it was more than 20,000 clients, employees with hundreds of body shapes, 13 work groups and sometimes 45 sizes per garment. It was complicated, which is why I loved it.”

The collection, featuring more than 90 garments and accessories, debuted at an employee fashion show in January 2018, hosted in the airline’s Sea-Tac hangar.

But the work was far from finished.

Step 3: From runway to jetway

They looked good, they felt good, but the only way to know if the new uniforms were up to the job was to see how they held up to the pressure of packing, unpacking, bending, lifting, scuffs, spills and spin cycles.

Alaska selected 175 employees to participate in 60 day “wear tests” of the new uniform and report back on performance. Following the first wear test, refinements were made and then a second, abbreviated wear test took place to validate the improvements and quality standards.

Step 5: Ready for lift off

After four years of research, design, feedback and testing, Alaska’s new uniforms launched, making Alaska and Horizon Air the first U.S. airlines to earn the Standard 100 by Oeko-Tex rating for its custom garments.

As the new uniforms continue their rollout in early 2020, with Horizon Air and Alaska Lounge concierges already donning the new look, they have also stood up to scrutiny from one of the toughest panels on the planet: anonymous social media users.

Horizon Air flight attendant Parisjat Banomyong posted a video of her before/after uniform transformation on TikTok, earning more than 140,000 likes.

“My daughter and I just did it for fun and then it blew up,” said Banomyong. “I heard so much ‘you look amazing’ and ‘I can’t wait to see these uniforms on my flight.’ It was really fun to see the reaction.”

Alaska Air Group reports third quarter 2019 results

Alaska Airlines has issued this financial report:

Financial Highlights:

  • Reported net income for the third quarter of 2019 under Generally Accepted Accounting Principles (GAAP) of $322 million, or $2.60 per diluted share, compared to net income of $217 million, or $1.75 per diluted share in the third quarter of 2018.
  • Reported net income for the third quarter of 2019, excluding merger-related costs and mark-to-market fuel hedge accounting adjustments, of $326 million, or $2.63 per diluted share, compared to $237 million or $1.91 per diluted share, in the third quarter of 2018. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $2.52 per share.
  • Paid a $0.35 per-share cash dividend in the third quarter, a 9% increase over the dividend paid in the third quarter of 2018.
  • Repurchased a total of 874,019 shares of common stock for approximately $53 million in the first nine months of 2019.
  • Generated $1.4 billion of operating cash flow in the first nine months of 2019.
  • Made a voluntary contribution of $65 million to defined benefit pension plans in the third quarter.
  • Held $1.6 billion in unrestricted cash and marketable securities as of Sept. 30, 2019.
  • Reduced debt-to-capitalization ratio to 42% as of Sept. 30, 2019 compared to 47% as of Dec. 31, 2018.

Operational Highlights:

  • Alaska’s clerical, office, passenger service, ramp and stores employees, represented by the International Association of Machinists, ratified a new five-year agreement in August.
  • Opened a new 15,000+ square foot flagship lounge in the North Satellite at Sea-Tac International Airport in July.
  • Reallocated flying to expand offerings between the Pacific Northwest and California, increasing network utility and providing more non-stop service on the West Coast.
  • Completed cabin interior renovations of the 25th Airbus aircraft during the third quarter.
  • Installed high-speed satellite Wi-Fi on the 54th mainline aircraft.

Recognition and Awards:

  • Named “Best U.S. Airline” by Condé Nast Traveler for the second consecutive year.
  • Ranked as top U.S. airline in Newsweek’s 2020 Best Customer Service awards.
  • Mileage Plan ranked first in the U.S. News & World Report’s list of Best Airline Rewards Programs for the fifth consecutive year.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index for the third consecutive year.
  • Ranked among Forbes’ 2019 global list for “World’s Best Employers.”

Alaska Air Group Inc. reported third quarter 2019 GAAP net income of $322 million, or $2.60 per diluted share, compared to $217 million, or $1.75 per diluted share in the third quarter of 2018. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $326 million, or $2.63 per diluted share, compared to $237 million, or $1.91 per diluted share in 2018.

“Our teams at Alaska, Horizon and McGee delivered industry-leading customer service and operational reliability that helped drive strong third quarter results,” said Alaska Air Group CEO Brad Tilden. “Our adjusted pretax profit margin of nearly 18% was 3.6 percentage points higher than last year – fueled by our commitment to keep costs low and by the impressive 8% revenue growth that our commercial team delivered. I want to thank our employees for everything they’re doing to make Alaska what we are today – and for helping us shape what we’re going to be in the future. They are the best in the industry, and I believe these results demonstrate that.”

The following table reconciles the company’s reported GAAP net income and earnings per diluted share (diluted EPS) for the three and nine months ended Sept. 30, 2019 and 2018 to adjusted amounts.

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 Airlines aircraft photo gallery (Boeing):

Alaska Air Group returns two Q400 to service due to the 737 MAX 9 delays

Alaska Horizon (Horizon Air) Bombardier DHC-8-402 (Q400) N447QX (msn 4364) SEA (Michael B. Ing). Image: 947263.

The Alaska Air Group has announced in its filing that two of the three Boeing 737-MAX 9 aircraft that were originally scheduled for delivery in 2019 have been shifted to 2020 in light of the recent MAX grounding, based on the best estimate of the expected delivery dates.

Two Bombardier Q400 aircraft (above) that were previously removed from the operating fleet will be returning to revenue service. The expect changes are expected to occur in late 2019.

The Group also updated and outlined its fleet plans in the filing below:

The Alaska Air Groups, Inc. quarterly report to the United States Securities and Exchange Commission:

At June 30, 2019, the Company had operating leases for 10 Boeing 737 (B737), 62 Airbus, and 9 Bombardier Q400 aircraft. Additionally, the Company operates 32 Embraer 175 (E175) aircraft through its capacity purchase arrangement with SkyWest Airlines, Inc. (SkyWest). Remaining lease terms for these aircraft extend up to 12 years, with options to extend, subject to negotiation at the end of the term. As extension is not certain, and rates are highly likely to be renegotiated, the extended term is only capitalized when it is reasonably determinable. While aircraft rent is primarily fixed, certain leases contain rental adjustments throughout the lease term which would be recognized as variable expense as incurred. Variable lease expense for aircraft was $1 million and $2 million for the three and six months ended June 30, 2019, respectively.

Capacity purchase agreements with aircraft (CPA aircraft)

At June 30, 2019, Alaska had CPAs with three carriers, including the Company’s wholly-owned subsidiary, Horizon. Horizon sells 100% of its capacity under a CPA with Alaska. Alaska also has CPAs with SkyWest to fly certain routes in the Lower 48 and Canada, and with Peninsula Aviation Services, Inc., (PenAir) to fly certain routes in the state of Alaska. Under these agreements, Alaska pays the carriers an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. As Horizon is a wholly-owned subsidiary, intercompany leases between Alaska and Horizon have not been recognized under the standard. The agreement with PenAir does not contain a leasing arrangement, resulting in no asset or liability recognized.

Remaining lease terms for CPA aircraft range from 8 years to 11 years. Financial arrangements of the CPAs include a fixed component, representing the costs to operate each aircraft and is capitalized under the new lease accounting standard. CPAs also include variable rent based on actual levels of flying, which is expensed as incurred. Variable lease expense for CPA aircraft for the three and six months ended June 30, 2019 was not material.

As of June 30, 2019, the Company has one scheduled lease delivery of an A321neo aircraft remaining in 2019, valued at $52 million. We also had three scheduled lease deliveries of E175 aircraft in 2021 to be operated by SkyWest. Subsequent to June 30, 2019, the Company canceled these aircraft deliveries through an amendment to the capacity purchase agreement. All future lease contracts have remaining non-cancelable lease terms ranging from 2019 to 2033.

Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines.

As of June 30, 2019, the Company had commitments to purchase 32 Boeing 737 MAX 9 aircraft, with deliveries in the remainder of 2019 through 2023. Future minimum contractual payments for these aircraft have been updated to reflect the most current anticipated delivery timing for Boeing 737 MAX 9 aircraft, which has been delayed as a result of the grounding order mandated by the FAA on March 13, 2019.

The Company also has commitments to purchase five E175 aircraft with deliveries in the remainder of 2019 through 2021 and has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2023 through 2025. In addition, the Company has options to purchase 37 B737 MAX aircraft from 2021 through 2024 and 30 E175 aircraft from 2021 through 2023. The Company also has the option to increase capacity flown by SkyWest with eight additional E175 aircraft with deliveries from 2021 to 2022.

Aircraft Commitments

As of June 30, 2019, we have firm orders to purchase or lease 41 aircraft. We also have cancelable purchase commitments for 30 Airbus A320neo with deliveries from 2023 through 2025. We could incur a loss of pre-delivery payments and credits as a cancellation fee. We also have options to acquire 37 B737 aircraft with deliveries from 2021 through 2024 and 30 E175 aircraft with deliveries from 2021 through 2023. In addition to the 32 E175 aircraft currently operated by SkyWest in our regional fleet, we have options in future periods to add regional capacity by E175 aircraft.

The following table summarizes expected fleet activity by year as of June 30, 2019, and are subject to change:

Top Copyright Photo: Alaska Horizon (Horizon Air) Bombardier DHC-8-402 (Q400) N447QX (msn 4364) SEA (Michael B. Ing). Image: 947263.

Alaska Horizon aircraft slide show:


Alaska Air Group reports its second quarter 2019 results

Alaska Airlines Airbus A320-214 N842VA (msn 4805) SNA (Michael B. Ing). Image: 947163.

Financial Highlights:

  • Reported net income for the second quarter of 2019 under Generally Accepted Accounting Principles (GAAP) of $262 million, or $2.11 per diluted share, compared to net income of $193 million, or $1.56 per diluted share in the second quarter of 2018.
  • Reported net income for the second quarter of 2019, excluding merger-related costs and mark-to-market fuel hedge accounting adjustments of $270 million, or $2.17 per diluted share, compared to $206 million or $1.66 per diluted share, in the second quarter of 2018. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $2.13 per share.
  • Paid a $0.35 per-share quarterly cash dividend in the second quarter, a 9% increase over the dividend paid in the second quarter of 2018.
  • Repurchased a total of 408,665 shares of common stock for approximately $25 million in the first six months of 2019.
  • Generated $1 billion of operating cash flow in the first six months of 2019, including merger-related costs.
  • Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2019.
  • Reduced debt-to-capitalization ratio to 45% as of June 30, 2019, compared to 47% as of Dec. 31, 2018.

Operational Highlights:

  • Alaska technicians, represented by the Aircraft Mechanics Fraternal Association, ratified an integrated seniority list and a transition agreement, including a two-year contract extension, in July 2019.
  • Reached a tentative agreement with the International Association of Machinists on a new five-year contract for Alaska’s clerical, office, passenger service, ramp and stores employees.
  • Added EL AL Israel Airlines as a new global Mileage Plan partner.
  • Announced a new route connecting Paine Field in Everett, Washington, to Palm Springs, California.
  • Finished painting the Alaska Airlines livery on all Airbus aircraft.
  • Completed cabin interior renovations of 14 Airbus aircraft and 11 737-700 aircraft.
  • Installed high-speed satellite Wi-Fi on the 44th mainline aircraft.

Recognition and Awards:

  • Ranked “Highest in Customer Satisfaction Among Traditional Carriers” in 2019 by J.D. Power for the 12th year in a row.
  • Earned top spot for customer satisfaction on the American Customer Satisfaction Index Travel Report for 2018 – 2019.
  • Ranked as the best U.S. airline by Wallethub.
  • Named as No. 2 Domestic Airline by Travel & Leisure “World’s Best Awards.”

Alaska Air Group Inc. has reported second quarter 2019 GAAP net income of $262 million, or $2.11 per diluted share, compared to $193 million, or $1.56 per diluted share in the second quarter of 2018. Excluding the impact of merger-related costs, mark-to-market fuel hedge adjustments and other special items, the company reported adjusted net income of $270 million, or $2.17 per diluted share, compared to $206 million, or $1.66 per diluted share in 2018.

“The three-percentage point improvement in our adjusted pretax margin shows that our revenue initiatives and cost management efforts are paying off. We set an ambitious plan and are executing it,” said Alaska CEO Brad Tilden. “But what our people really do best is provide genuine, caring service for our guests, and that’s why they earned our 12th-straight J.D. Power award this year. From all of us on the leadership team, thank you to our employees for your fantastic performance. We’re all looking forward to building on this momentum in the months and years ahead.”

The following table reconciles the company’s reported GAAP net income and earnings per diluted share (diluted EPS) for the three and six months ended June 30, 2019, and 2018 to adjusted amounts.

 

Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables.

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Top Copyright Photo (all others by the airline): Alaska Airlines Airbus A320-214 N842VA (msn 4805) SNA (Michael B. Ing). Image: 947163.

Alaska Airlines aircraft slide show (Airbus):

Alaska Air Group reports its first quarter 2019 results

Alaska Horizon (Horizon Air) Embraer ERJ 170-200LR (ERJ 175) N636QX (msn 17000749) PAE (Nick Dean). Image: 946086.

Alaska Air Group made this announcement today:

Financial Highlights:

  • Reported net income under Generally Accepted Accounting Principles (GAAP) of $4 million, or $0.03 per diluted share for the first quarter of 2019 and 2018.
  • Reported net income for the first quarter of 2019, excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments, of $21 million, or $0.17 per diluted share, compared to $18 million or $0.14 per diluted share, in the first quarter of 2018. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $0.12 per share.
  • Paid a $0.35 per-share quarterly cash dividend in the first quarter, a 9% increase over the dividend paid in the first quarter of 2018.
  • Repurchased a total of 214,891 shares of common stock for approximately $13 million in the first three months of 2019.
  • Generated approximately $470 million of operating cash flow in the first three months of 2019, including merger-related costs.
  • Held $1.4 billion in unrestricted cash and marketable securities as of March 31, 2019.
  • Maintained debt-to-capitalization ratio of 47% as of March 31, 2019, similar to the 47% as of Dec. 31, 2018.

Operational Highlights:

  • Launched commercial service from Paine Field in Everett, Washington, to eight West Coast destinations and began service from Seattle to Columbus, Ohio, and El Paso, Texas.
  • Completed painting 25 Airbus aircraft in Alaska livery, and expect to complete the remainder of the fleet in the second quarter.
  • Announced plans to build a new Alaska Lounge in Terminal 2 at San Francisco International Airport.
  • Introduced a new Alaska Airlines Visa Signature Card sign-up promotion offering up to 40,000 miles to new cardholders.
  • Added four Boeing 737-900ER aircraft to the mainline operating fleet in the first quarter of 2019.

Recognition and Awards:

  • Ranked the best U.S. Airline by Money Magazine for the second year in a row.
  • Named “Best Mid-Size Airline” by TripAdvisor in their 2019 Travelers Choice awards.
  • Ranked as the No. 2 Airline in America by The Points Guy.

Alaska Air Group Inc., today reported first quarter 2019 GAAP net income of $4 million, or $0.03 per diluted share, compared to $4 million, or $0.03per diluted share in the first quarter of 2018. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $21 million, or $0.17 per diluted share, compared to $18 million, or $0.14 per diluted share, in 2018.

“We performed well in the first quarter despite severe winter storms in the Pacific Northwest,” said Alaska CEO Brad Tilden. “The leadership team and I want to thank our employees for running the operation safely, and as smoothly as possible, and for taking great care of our guests throughout the quarter. Our margin improvement initiatives gained traction despite the storms, and we are optimistic about the rest of 2019.”

The following table reconciles the company’s reported GAAP net income and earnings per diluted share (diluted EPS) for the three months ended March 31, 2019 and 2018 to adjusted amounts.

Top Copyright Photo (all others by the airline): Alaska Horizon (Horizon Air) Embraer ERJ 170-200LR (ERJ 175) N636QX (msn 17000749) PAE (Nick Dean). Image: 946086.

Alaska Horizon aircraft slide show:

Alaska Air Group reports fourth quarter 2018 and full-year results

Alaska Airlines Airbus A319-112 N530VA (msn 3686) LAX (Michael B. Ing). Image: 945344.

Alaska Air Group has issued this report:

Dividend Increase:

  • Announced today a 9% increase in the quarterly dividend, from $0.32 per share to $0.35 per share. This is the sixth time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 250% since that time. The dividend will be paid on March 7, 2019, to all shareholders of record as of Feb. 19, 2019. Dividends are financed from operating cash flow and cash on hand.

Financial Highlights:

  • Reported net income for the fourth quarter and full year 2018 under Generally Accepted Accounting Principles (GAAP) of $23 million, or $0.19per diluted share, and $437 million, or $3.52 per diluted share. These results compare to fourth quarter 2017 net income of $315 million, or $2.55 per diluted share, and full year 2017 net income of $960 million, or $7.75 per diluted share. The 2017 financial information has been adjusted to reflect changes associated with the implementation of new revenue recognition and retirement benefits accounting standards that became effective Jan. 1, 2018.
  • Reported adjusted net income, excluding merger-related costs, special charges, and mark-to-market fuel hedging adjustments for the fourth quarter and full year 2018 of $93 million, or $0.75 per diluted share, and $554 million, or $4.46 per diluted share. These results compare to fourth quarter 2017 adjusted net income of $88 million, or $0.71 per diluted share, and full year 2017 adjusted net income of $791 million, or $6.38 per diluted share. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $0.71 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2018 to $158 million.
  • Repurchased a total of 776,186 shares of common stock for approximately $50 million in 2018.
  • Generated approximately $1.2 billion of operating cash flow, and used approximately $960 million for capital expenditures, resulting in approximately $240 million of free cash flow in 2018.
  • Grew passenger revenues by 6% compared to the fourth quarter of 2017, and by 5% compared to full-year 2017.
  • Generated full-year adjusted pretax margin of 8.9% in 2018.
  • Held $1.2 billion in unrestricted cash and marketable securities as of Dec. 31, 2018.
  • Reduced debt-to-capitalization ratio to 47% as of Dec. 31, 2018, compared to 53% as of Dec. 31, 2017.

2018 Accomplishments and Highlights:

Recognition and Awards

  • Ranked “Highest in Customer Satisfaction Among Traditional Carriers” in 2018 by J.D. Power for the 11th year in a row.
  • Named “Best U.S. Airline” by Condé Nast Traveler in their 2018 Readers Choice Awards.
  • Mileage Plan™ ranked first in U.S. News & World Report’s list of Best Travel Rewards Programs for the fourth time.
  • Ranked among the best U.S. airlines by Consumer Reports for economy flights and overall satisfaction by passengers.
  • Ranked No. 1 for performance and quality in the Airline Quality Rating study for the second year in a row.
  • Won the “Best Rewards Program” for Mileage Plan™ for carriers in the Americas region in the annual FlyerTalk Award for the second year in a row.
  • Top-ranked airline in America for the second year in a row by The Points Guy.
  • Received 17th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon’s aircraft technicians for their commitment to training.
  • Ranked as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2018 by AirlineRatings.com.
  • Rated “Best Airline Staff in North America” & “Best Regional Airline in North America” by Skytrax.
  • Won the 2018 APEX Passenger Choice Award for Best Food and Beverage in the Americas.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the second consecutive year, receiving top scores for “corporate governance” and “efficiency.”

Our People

  • Ranked among Forbes’ 2018 “America’s Best Employers” for the fourth year in a row.
  • Awarded $147 million in incentive pay for 2018.
  • Reached joint agreements for all work groups except aircraft technicians.
  • Women Inc. magazine recognized Alaska’s female board members as five of the Most Influential Corporate Directors.
  • Launched Flight Path, a workshop for every Alaska and Horizon Air employee that includes a mix of presentations, open-and-honest dialogue and interactive activities focused on Alaska’s culture and future.

Our Guests and Product

  • Obtained a single operating certificate from the Federal Aviation Administration for Alaska Airlines and Virgin America, recognizing us as one airline.
  • Transitioned to a single Passenger Service System, enabling us to provide one reservation system, one website, and one inventory of flights to our guests.
  • Completed Premium Class rollout on our Boeing 737-800, 900 and 900ER fleets.
  • Began installation of next-generation Gogo inflight satellite-based Wi-Fi across the mainline fleet.
  • Added partnerships with Japan Airlines, Fiji Airways, Aer Lingus and Finnair.
  • Added 8 Boeing 737-900ER aircraft and 4 Airbus A321neo aircraft in 2018, bringing the total mainline operating fleet to 233 aircraft.
  • Added 25 Embraer 175 (E175) aircraft to the regional operating fleet in 2018.

Our Communities

  • Donated over $17 million and contributed more than 44,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

Alaska Air Group Inc. today reported fourth quarter 2018 GAAP net income of $23 million, or $0.19 per diluted share, compared to $315 million, or $2.55 per diluted share in 2017. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported fourth quarter adjusted net income of $93 million, or $0.75 per diluted share, compared to adjusted net income of $88 million, or $0.71 per diluted share in the fourth quarter of 2017.

The company reported full-year 2018 GAAP net income of $437 million, compared to $960 million in the prior year. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $554 million, or $4.46per diluted share for 2018, compared to adjusted net income of $791 million, or $6.38 per diluted share in 2017.

“In 2018, we achieved the vast majority of our integration milestones and passed through an inflection point in our financial performance,” said Alaska CEO Brad Tilden. “Our employees have shown great resilience through the integration, and thanks to their skill and dedication, we have strong momentum and a lot of optimism heading into 2019.”

Dividend Increase:

  • Announced today a 9% increase in the quarterly dividend, from $0.32 per share to $0.35 per share. This is the sixth time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 250% since that time. The dividend will be paid on March 7, 2019, to all shareholders of record as of Feb. 19, 2019. Dividends are financed from operating cash flow and cash on hand.

Financial Highlights:

  • Reported net income for the fourth quarter and full year 2018 under Generally Accepted Accounting Principles (GAAP) of $23 million, or $0.19per diluted share, and $437 million, or $3.52 per diluted share. These results compare to fourth quarter 2017 net income of $315 million, or $2.55 per diluted share, and full year 2017 net income of $960 million, or $7.75 per diluted share. The 2017 financial information has been adjusted to reflect changes associated with the implementation of new revenue recognition and retirement benefits accounting standards that became effective Jan. 1, 2018.
  • Reported adjusted net income, excluding merger-related costs, special charges, and mark-to-market fuel hedging adjustments for the fourth quarter and full year 2018 of $93 million, or $0.75 per diluted share, and $554 million, or $4.46 per diluted share. These results compare to fourth quarter 2017 adjusted net income of $88 million, or $0.71 per diluted share, and full year 2017 adjusted net income of $791 million, or $6.38 per diluted share. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $0.71 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2018 to $158 million.
  • Repurchased a total of 776,186 shares of common stock for approximately $50 million in 2018.
  • Generated approximately $1.2 billion of operating cash flow, and used approximately $960 million for capital expenditures, resulting in approximately $240 million of free cash flow in 2018.
  • Grew passenger revenues by 6% compared to the fourth quarter of 2017, and by 5% compared to full-year 2017.
  • Generated full-year adjusted pretax margin of 8.9% in 2018.
  • Held $1.2 billion in unrestricted cash and marketable securities as of Dec. 31, 2018.
  • Reduced debt-to-capitalization ratio to 47% as of Dec. 31, 2018, compared to 53% as of Dec. 31, 2017.

2018 Accomplishments and Highlights:

Recognition and Awards

  • Ranked “Highest in Customer Satisfaction Among Traditional Carriers” in 2018 by J.D. Power for the 11th year in a row.
  • Named “Best U.S. Airline” by Condé Nast Traveler in their 2018 Readers Choice Awards.
  • Mileage Plan™ ranked first in U.S. News & World Report’s list of Best Travel Rewards Programs for the fourth time.
  • Ranked among the best U.S. airlines by Consumer Reports for economy flights and overall satisfaction by passengers.
  • Ranked No. 1 for performance and quality in the Airline Quality Rating study for the second year in a row.
  • Won the “Best Rewards Program” for Mileage Plan™ for carriers in the Americas region in the annual FlyerTalk Award for the second year in a row.
  • Top-ranked airline in America for the second year in a row by The Points Guy.
  • Received 17th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon’s aircraft technicians for their commitment to training.
  • Ranked as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2018 by AirlineRatings.com.
  • Rated “Best Airline Staff in North America” & “Best Regional Airline in North America” by Skytrax.
  • Won the 2018 APEX Passenger Choice Award for Best Food and Beverage in the Americas.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the second consecutive year, receiving top scores for “corporate governance” and “efficiency.”

Our People

  • Ranked among Forbes’ 2018 “America’s Best Employers” for the fourth year in a row.
  • Awarded $147 million in incentive pay for 2018.
  • Reached joint agreements for all work groups except aircraft technicians.
  • Women Inc. magazine recognized Alaska’s female board members as five of the Most Influential Corporate Directors.
  • Launched Flight Path, a workshop for every Alaska and Horizon Air employee that includes a mix of presentations, open-and-honest dialogue and interactive activities focused on Alaska’s culture and future.

Our Guests and Product

  • Obtained a single operating certificate from the Federal Aviation Administration for Alaska Airlines and Virgin America, recognizing us as one airline.
  • Transitioned to a single Passenger Service System, enabling us to provide one reservation system, one website, and one inventory of flights to our guests.
  • Completed Premium Class rollout on our Boeing 737-800, 900 and 900ER fleets.
  • Began installation of next-generation Gogo inflight satellite-based Wi-Fi across the mainline fleet.
  • Added partnerships with Japan Airlines, Fiji Airways, Aer Lingus and Finnair.
  • Added 8 Boeing 737-900ER aircraft and 4 Airbus A321neo aircraft in 2018, bringing the total mainline operating fleet to 233 aircraft.
  • Added 25 Embraer 175 (E175) aircraft to the regional operating fleet in 2018.

Our Communities

  • Donated over $17 million and contributed more than 44,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

Alaska Air Group Inc. today reported fourth quarter 2018 GAAP net income of $23 million, or $0.19 per diluted share, compared to $315 million, or $2.55 per diluted share in 2017. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported fourth quarter adjusted net income of $93 million, or $0.75 per diluted share, compared to adjusted net income of $88 million, or $0.71 per diluted share in the fourth quarter of 2017.

The company reported full-year 2018 GAAP net income of $437 million, compared to $960 million in the prior year. Excluding the impact of merger-related costs, other special items, and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $554 million, or $4.46per diluted share for 2018, compared to adjusted net income of $791 million, or $6.38 per diluted share in 2017.

“In 2018, we achieved the vast majority of our integration milestones and passed through an inflection point in our financial performance,” said Alaska CEO Brad Tilden. “Our employees have shown great resilience through the integration, and thanks to their skill and dedication, we have strong momentum and a lot of optimism heading into 2019.”

Top Copyright Photo: Alaska Airlines Airbus A319-112 N530VA (msn 3686) LAX (Michael B. Ing). Image: 945344.

Alaska Airlines aircraft slide show (Airbus):

Fleet:

Route Map:

Alaska Air Group reports second quarter 2018 results

Alaska Airlines Boeing 737-900 ER WL N283AK (msn 36358) PAE (Nick Dean). Image: 940240.

Financial Highlights:

  • Reported net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $193 million, or $1.56 per diluted share, compared to net income of $293 million, or $2.36 per diluted share in the second quarter of 2017. As the company has recently implemented new accounting standards, including the standards relating to revenue recognition and retirement benefits, 2017 financial information has been adjusted.
  • Reported second quarter 2018 adjusted diluted earnings per share of $1.66 compared to $2.48 reported in the second quarter of 2017. Second quarter adjusted net income excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments was $206 million compared to $309 million in the second quarter of 2017. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $1.63 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the second quarter, a 7% increase over the dividend paid in the second quarter of 2017.
  • Repurchased a total of 389,739 shares of common stock for approximately $25 million in the first six months of 2018.
  • Generated approximately $725 million of operating cash flow, including merger-related costs and other special items.
  • Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2018.

Operational Highlights:

  • Transitioned to a single Passenger Service System (PSS) in April 2018, enabling us to provide one reservation system, one website and one inventory of flights to our guests.
  • Reached a merger transition agreement with the Transport Workers Union (TWU) to combine Boeing and Airbus dispatchers into a single group.
  • Completed Premium Class rollout on our Boeing 737-800, 900 and 900ER fleets.
  • Added Aer Lingus as a global Mileage Plan partner.
  • Added two Boeing 737-900ER aircraft and two Airbus A321neo aircraft to the mainline operating fleet in the second quarter of 2018. Added four Embraer 175 (E175) regional jets to Horizon Air’s fleet in the second quarter of 2018 and four E175 aircraft operated by SkyWest Airlines.

Recognition and Awards:

  • Ranked “Highest in Customer Satisfaction Among Traditional Carriers” in 2018 by J.D. Power for the 11th year in a row.
  • Received top honors in three Skytrax World Airline Awards categories including “Best Regional Airline in North America,” “Best Airline Staff in North America,” and “Best Cabin Crew in the USA.”
  • Virgin America was rated Best Domestic Airline in Travel + Leisure “World’s Best Awards” for 11 years in a row.
  • Ranked among Forbes’ 2018 “America’s Best Employers” for the fourth year in a row.
  • Awarded “Best Food and Beverage in the Americas” by Airline Passenger Service Experience Association (APEX) passenger choice awards for 2018.
  • Received 17th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon’s aircraft technicians for their commitment to training.

Alaska Air Group, Inc., today reported second quarter 2018 GAAP net income of $193 million, or $1.56 per diluted share, compared to $293 million, or $2.36 per diluted share in the second quarter of 2017. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $206 million, or $1.66 per diluted share, compared to $309 million, or $2.48 per diluted share, in 2017.

“In the last year and half, we’ve made tremendous progress bringing Alaska Airlines and Virgin America together,” said CEO Brad Tilden. “We’re on very solid footing today thanks to the fantastic efforts of our employees, who delivered exceptional on-time performance and earned our 11th consecutive J.D. Power award for highest in customer satisfaction – all while completing the most complex part of our integration.”

The following table reconciles the company’s reported GAAP net income and earnings per diluted share (diluted EPS) for the three and six months ended June 30, 2018 and 2017 to adjusted amounts.

 

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.

 

 

 

 

 

 

 

 

 

 

 

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 merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. 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 merger-related costs, 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 CASM excluding fuel (and other items as specified in our plan documents) are important metrics 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 compare our airlines 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 certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. 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.

 

GLOSSARY OF TERMS

Aircraft Utilization – block hours per day; this represents the average number of hours per day our aircraft are in transit

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 (EPS) 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

Free Cash Flow – total operating cash flow generated less cash paid for capital expenditures

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 and Airbus 320 family jets and all associated revenues and costs

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, 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, 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

Copyright Photo: Alaska Airlines Boeing 737-900 ER WL N283AK (msn 36358) PAE (Nick Dean). Image: 940240.

Alaska Airlines aircraft slide show (Boeing):