Alaska Air Group reports third quarter 2018 results

Alaska Airlines Boeing 737-890 SSWL N589AS (msn 35686) SNA (Michael B. Ing). Image: 944063.

Financial Highlights:

  • Reported net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $217 million, or $1.75 per diluted share, compared to net income of $259 million, or $2.09 per diluted share in the third 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 net income for the third quarter, excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments, of $237 million, or $1.91 per diluted share, compared to $270 million or $2.18 per diluted share, in the third quarter of 2017. This quarter’s adjusted results compare to the First Call analyst consensus estimate of $1.81 per share.
  • Paid a $0.32 per-share quarterly cash dividend in the third quarter, a 7% increase over the dividend paid in the third quarter of 2017.
  • Repurchased a total of 582,942 shares of common stock for approximately $37 million in the first nine months of 2018.
  • Generated approximately $1 billion of operating cash flow in the first nine months of 2018, including merger-related costs and other special items.
  • Held $1.4 billion in unrestricted cash and marketable securities as of Sept. 30, 2018.
  • Reduced debt-to-capitalization ratio to 49% as of Sept. 30, 2018, compared to 53% as of Dec. 31, 2017, and down from 59% immediately following our acquisition of Virgin America. Reduced long-term debt balance to $1.7 billion as of Sept. 30, 2018 from $2.6 billion as of Dec. 31, 2016.

Operational Highlights:

  • Updated food and beverage menus to highlight West Coast inspired fresh meals, snacks and local craft beers further enhancing the airline’s onboard guest experience.
  • Announced one new route to Columbus, Ohio, which will begin service in March 2019, and two new routes to El Paso, Texas, which will begin service in February 2019.
  • Began our fleet-wide installation of satellite Wi-Fi, completing three Airbus aircraft during the quarter.
  • Completed the painting of Alaska livery on 16 Airbus aircraft, and expect to have 33 completed by the end of the year.
  • Finalized the integrated seniority list for our pilots; all groups except for aircraft technicians are now under a single contract and have an integrated seniority list.
  • Added three Boeing 737-900ER aircraft to the mainline operating fleet and four Embraer 175 (E175) aircraft to the regional operating fleet in the third quarter of 2018.

Alaska Air Group, Inc., today reported third quarter 2018 GAAP net income of $217 million, or $1.75 per diluted share, compared to $259 million, or $2.09 per diluted share in the third quarter of 2017. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $237 million, or $1.91 per diluted share, compared to $270 million, or $2.18 per diluted share, in 2017.

“In the nearly two years since our merger closed, we’ve now completed approximately 90 percent of our integration milestones,” said Alaska CEO Brad Tilden. “With that work now behind us, we are doubling down on what we do best – keeping fares low, delivering leading operational performance and offering top-rated customer service. The recent recognition by Condรฉ Nast Traveler shows what our people can accomplish when we focus on what’s most important and pull together as one team.”

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.ย 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.

Top Copyright Photo (all others by Alaska):ย Alaska Airlines Boeing 737-890 SSWL N589AS (msn 35686) SNA (Michael B. Ing). Image: 944063.

Alaska Airlines aircraft slide show:

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SAS improves the travel experience in Copenhagen Airport

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Scandinavian Airlines-SAS has issued this statement:

At Copenhagen Airport passengers traveling with SAS can now enjoy bothย upgraded lounges with innovative technology features, and new service products. The new products will make time spent in the airport more efficient and pleasant.

 

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Travelers can now beat the effects of jet lag and winter depression with light therapy, enjoy a barista-brewed coffee or try out new technology before heading off on their next trip.

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SAS is investing an amount in the double-digit million rangeย to improve the travel experience for passengers traveling to and from Copenhagen Airport. These investments include a comprehensive upgrade of the SAS Lounges, a brand-new SAS Service Point and a redesign for SAS Fast Track.

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โ€œWeโ€™ve made a large investment that takes our services at Copenhagen Airport to a new level,โ€ says Lars Sandahlย Sรธrensen, Group Director at SAS. โ€œSAS passengers can now enjoy a modern and innovative service that is among the best in the industry and spend their time at the airport doing exactly what they want and find useful, whether traveling for business or pleasure.โ€

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Room for more guests in the lounges

The SAS Lounges at Copenhagen Airport have been refurbished with brand-new, classical Scandinavian furnishings and a design that is optimized for the rising number of visitors, which is the result of more passengers traveling with SAS. The SAS Business Lounge has been given more seats and upgraded toilets and washing facilities. The furnishings also ensure that the rooms and spaces feel larger andย more airy.

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โ€œCopenhagen is a large and important SAS hub, where thousands of passengers from Denmark, Norway, Sweden and all over the world board SAS aircraft every day,โ€ย Sรธrensenย says. โ€œThey expect us to deliver the service for which we are renowned,ย and we can now make the travel experience even smoother and more comfortable, both in the airport and onboard the aircraft.โ€

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Passengers in the new SAS Gold Lounge can enjoy a barista-brewed coffee and beat the effects of jet lag and winter depression in Scandinaviaโ€™s dark, winter months using light therapy in the โ€˜Daylight Booster Zoneโ€™. In the SAS Lounge, passengers can now try outย and exploreย upcoming technologyย and digital productsย inย aย newย innovationย hub, hosted by tech giant Panasonic.

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Theย lamps and light fittings in the lounges are LED-based and energy-saving. All light installationsย haveย beenย designedย centredย aroundย circular economy. This means, parts and material can be recycled and upcycled.

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SAS customers can also experience a new and updated range of wines in the lounges and those who are in a hurry can now enjoy the โ€˜On the Goโ€™ food bar, a concept adapted to modern travelers, who visit the lounge a short time before departure.

The Kids Room in the SAS Lounge has also been renovated, with a new, child-friendly design. Here, children can watch an animated film, relax, read a book, build a train track or a tower of bricks and create a chalk drawing on the wall. Passengers can take children under the age of two with them into the lounge free of charge.

Brand-new SAS Service Point

A brand-new SAS Service Point has also opened in Terminal 3, where SAS check-in and Bag Drop are located. The SAS Service Point has a recognizable SAS identity and, among other things, will provide computers for booking tickets, check-in, charging points for mobiles, tablets, etc. and personal service from SAS staff, who can help if problems arise with the customerโ€™s journey.

SAS Fast Track, whichย is located inย Terminal 3, has also been given a visual refresh and an interior in line with SASโ€™ updated design concept, which is characterized by subdued color tones and long-lasting materials such as leather, metal and wood.

All photos by SAS. ย  ย  ย  ย  ย  ย  ย  ย  ย  ย ย 

Chorus Aviation announces multi-aircraft leasing transaction with the Lion Air Group

Wings Air (Indonesia)-Lion Group ATR 72-212A (ATR 72-600) PK-WHP (msn 1290) DPS (Pascal Simon). Image: 944060.

Chorus Aviation Inc. announced today an agreement to lease four new ATR 72-600s to the Lion Air Group.

The first of these aircraft is scheduled for delivery in the fourth quarter of 2018, with the remaining three scheduled for delivery in the first and second quarters of 2019. It is anticipated that the aircraft will be operated by members of the Lion Air Group in Indonesia and Malaysia.

This transaction marks the second multi-aircraft leasing transaction in the fast-growing Southeast Asia region, expanding Chorus’ leasing business to 12 lessees in 12 countries and a total of 78 aircraft.

Upon completing the transaction contemplated by this announcement, Chorus Aviation Capital’s customers will comprise: Aeromexico Connect; Air Nostrum; Azul Airlines; CityJet; Ethiopian Airlines; Flybe; Falcon Aviation Services; KLM Cityhopper; Lion Air Group; Philippine Airlines; Virgin Australia; and its Chorus affiliate, Jazz Aviation.

Top Copyright Photo:ย Wings Air (Indonesia)-Lion Group ATR 72-212A (ATR 72-600) PK-WHP (msn 1290) DPS (Pascal Simon). Image: 944060.

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American Airlines Group reports third quarter 2018 profit

American Airlines Boeing 787-9 Dreamliner N830AN (msn 40650) LAX (Michael B. Ing). Image: 944058.

American Airlines Group Inc. (American Airlines) today reported its third-quarter results, including these highlights:

  • Reported a third-quarter 2018 pretax profit of $456 million, or $688 million excluding net special items1, and a third-quarter net profit of $341 million, or $523 million excluding net special items
  • Third-quarter 2018 earnings were $0.74 per diluted share, or $1.13 per diluted share excluding net special items
  • Returned $46 million to shareholders in the form of dividends during the third quarter

โ€œStrong demand for Americanโ€™s service led to record revenue in the third quarter and our eighth consecutive quarter of unit revenue growth. Our team continues to do an outstanding job of taking care of our customers, including during difficult situations such as Hurricanes Florence and Michael,โ€ said Chairman and CEO Doug Parker. โ€œUnfortunately, higher fuel prices increased our expenses by approximately $750 million versus the third quarter of 2017, which led to a decline in earnings.

โ€œWe have moved quickly to adapt to the higher cost environment with lower planned capacity growth, the cancellation of unprofitable flying, deferral of new aircraft deliveries and continued aggressive cost management. We have significant revenue growth opportunities through initiatives such as expanded product segmentation, harmonization of aircraft configurations and high-margin growth prospects in our most profitable hubs. We are confident these actions will return American to both revenue outperformance and earnings growth in 2019 and beyond, and we remain very bullish on the future of American Airlines.โ€

Third-Quarter Revenue and Expenses

Pretax earnings excluding net special items for the third quarter of 2018 were $688 million, a $485 million decrease from the third quarter of 2017, driven by higher fuel prices. In addition, the companyโ€™s third-quarter pretax earnings were negatively impacted by Hurricane Florence by approximately $50 million.

GAAP Non-GAAP1
3Q18
3Q17
3Q18
3Q17
Total operating revenues ($ mil) $ ย 11,559 $ ย 10,965 $ ย 11,559 $ ย 10,965
Total operating expenses ($ mil) 10,910 9,709 ย 10,693 9,602
Operating income ($ mil) ย  649 ย  1,256 ย  866 ย  1,363
Pre-tax income ($ mil) ย  456 ย  1,063 ย  688 ย  1,173
Pre-tax margin 3.9 % 9.7 % 6.0 % 10.7 %
Net income ($ mil) ย  341 ย  661 ย  523 ย  729
Earnings per diluted share $ ย  0.74 $ ย  1.36 $ ย  1.13 $ ย  1.50

 

Strong demand for air travel drove a 5.4 percent year-over-year increase in third-quarter 2018 total revenue, to a record $11.6 billion. Passenger revenue per available seat mile (PRASM) grew 1.8 percent, driven by a 2.2 percent increase in passenger yields. Cargo revenue was up 16.4 percent to $260 million due to a 12.1 percent increase in yield and a 3.8 percent increase in volume. Other revenue was up 14.5 percent to $738 million due primarily to higher loyalty revenue. Third-quarter total revenue per available seat mile (TRASM) increased by 2.6 percent compared to the third quarter 2017 on a 2.7 percent increase in total available seat miles.

The improvement in revenue was offset by the significant increase in fuel prices.ย Total third-quarter 2018 operating expenses were $10.9 billion, up 12.4 percent year-over-year, driven by a 42.6 percent increase in consolidated fuel expense. Had fuel prices remained unchanged versus the third quarter of 2017, total third-quarter 2018 expenses would have been approximately $750 million lower. Total third-quarter 2018 cost per available seat mile (CASM) was 14.54 cents, up 9.4 percent from third quarter 2017. Excluding fuel and special items, consolidated third-quarter CASM was 10.60 cents, up 0.8 percent year-over-year.

Strategic Objectives

American is focused on four strategic objectives to ensure a healthy, competitive company for the long-term that includes world-class service, a focus on its team, revenue and cost initiatives, and innovative thinking. The company continued to deliver on these objectives in the third quarter.

Create a World-Class Customer Experience

Delivering a world-class customer experience includes operating reliably, building a strong network, continually raising the bar on product offerings and making it easy for customers to do business with American. During the third quarter, American:

  • Expanded the worldโ€™s largest network to even more destinations. American announced planned service to Berlin (TXL); Bologna, Italy (BLQ); and Dubrovnik, Croatia (DBV). American will be the only airline to serve Bologna and Dubrovnik from North America.
  • Made significant improvements in onboard technology by:
    • Activating live TV on domestic aircraft, with 12 free channels available in all cabins. Live TV is rolling out throughout the airlineโ€™s domestic mainline fleet in 2019. American already offers live TV on its long-haul international flights, the only U.S. airline to do so.
    • With 380 aircraft complete, just over half of Americanโ€™s domestic mainline aircraft now offer high-speed Wi-Fi. The entire long-term mainline fleet will be complete by mid-2019.
  • Continued updating food offerings to reflect evolving consumer tastes. American entered into an exclusive partnership with Zoรซs Kitchen to offer healthy choices beginning Dec. 1 and added a vegan option on transcontinental flights.
  • Received APEX recognition as a Five Star Global Airline. The Airline Passenger Experience Association, which bases its awards on anonymous passenger feedback on overall flight experience, awarded American its highest rating for in-seat comfort, cabin service, food and beverage, entertainment and Wi-Fi connectivity.

Make Culture a Competitive Advantage

Taking care of team members translates into better customer care. Americanโ€™s culture reflects its emphasis on providing the right tools, training, and care for its frontline team members. During the third quarter, American:

  • Fully integrated the best flight attendant team in the business. With its largest and most complex integration project to-date now complete, flight attendants are now able to fully intermix across the entire fleet. This integration creates improved scheduling options for flight attendants and the airline, and provides greater flexibility and service recovery during irregular operations.
  • Accrued $43 million in profit sharing during the third quarter and $135 million for the first nine months of 2018.
  • Reopened the newly redesigned CR Smith Museum to showcase the men and women who make American run and to encourage young people to aspire to careers in aviation. The museumโ€™s interactive displays include an MD-80 cockpit, an Airline Command Center where visitors make operational decisions and a baggage loader where visitors can try their hand at loading bags in record time.
  • Supported relief partner efforts after recent hurricanes. The American Red Cross and the North Carolina Community Foundation Disaster Relief Fund received $300,000 each as American and its customers stepped forward to ease the burdens of Carolinians impacted by Hurricane Florence. In addition, team members in Miami and Chicago have planned large-scale assembly projects that will send 5,000 hygiene comfort kits and 75,000 pounds of food to areas impacted by the recent natural disasters.
  • Celebrated being an inclusive and diverse employer by honoring four team members with the 10th annual Earl G. Graves Award for Leadership in Diversity & Inclusion. American also awarded Morgan State University in Baltimore a $10,000 education grant as part of the 10th anniversary commemoration. For the third year in a row, the airline was named among the 2018 DEI Best Places to Work for Disability Inclusion and received the top score of 100 on the 2018 Disability Equality Index.
  • Supported the Stand Up To Cancer telecast with 94 team members, all of whom have been personally impacted by cancer. These team members from around the world came together at our Los Angeles maintenance hangar to film a music video that aired during the telecast, which raised $123.6 million.

Ensure Long-Term Financial Strength

Long-term strength is realized by capturing merger efficiencies, improving unit revenue performance, and increasing margin performance. During the third quarter, American:

  • Returned $46 million in dividends to shareholders and declared a dividend of $0.10 per share on Oct. 25, 2018, to be paid on Nov. 20, 2018, to stockholders of record as of Nov. 6, 2018.
  • Updated the youngest fleet of the network airlines with more aircraft deliveries, including three new more efficient Boeing 787-9 aircraft (top) and four new Boeing 737 MAX 8s.
  • Lowered planned capital expenditures in 2019, 2020, and 2021 by $1.2 billion, by deferring delivery of 22 Airbus A321neos.
  • Evolved its segmentation strategy by:
    • Removing the carry-on bag restriction from domestic and short-haul international Basic Economy fare rules. This action makes the airlineโ€™s Basic Economy product more competitive and enables the airline to offer it on more flights.
    • Continuing the installation of Premium Economy, now on 92 widebody aircraft with expected completion by mid-2019. Main Cabin customers continue to select this highly differentiated product and the company expects to drive more value from this product with new revenue management and merchandising initiatives in 2019.

Think Forward, Lead Forward

Along with executing the day-to-day operation, the airline has a focus on moving new products to market more quickly and embracing technological advancements. In the third quarter, American:

  • Enabled the worldโ€™s largest mobile and online payment platform, Alipay, on aa.com in China. Alipay is the preferred method of payment for more than half of consumers in China and has more than 870 million users worldwide.
  • Opened up new ways to earn miles with its Citi AAdvantage MileUp card, a new no-annual-fee credit card for consumers to turn everyday spending into travel.
  • Enhanced aviation security for team members and customers by partnering with the Transportation Security Administration to add a state-of-the-art computed tomography scanner at John F. Kennedy International Airportโ€™s Terminal 8 security checkpoint.
  • Furthered the airlineโ€™s commitment to reduce environmental waste by beginning to replace plastic straws and stir sticks with biodegradable, eco-friendly alternatives.

Guidance and Investor Update

American expects its fourth-quarter 2018 TRASM to increase approximately 1.5 to 3.5 percent year-over-year. The company also expects its fourth-quarter 2018 pretax margin excluding special items to be between 4.5 and 6.5 percent.2 Based on todayโ€™s guidance, American continues to expect its 2018 diluted earnings per share excluding net special items to be between $4.50 and $5.00.2

Notes

  1. In the third quarter, the company recognized $232 million in net special items before the effect of income taxes. Third-quarter operating special items of $217 million principally included $109 million of fleet restructuring expenses and $68 million of merger integration expenses. The company also recognized nonoperating special items of $15 million primarily related to mark-to-market net unrealized losses associated with certain of the companyโ€™s equity investments. See the accompanying notes in the Financial Tables section of this press release for further explanation, including a reconciliation of all GAAP to non-GAAP financial information.
  2. American is unable to reconcile certain forward-looking projections to GAAP, as the nature or amount of special items cannot be determined at this time.

Top Copyright Photo:ย American Airlines Boeing 787-9 Dreamliner N830AN (msn 40650) LAX (Michael B. Ing). Image: 944058.

American aircraft slide show:

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Spring Airlines takes delivery of its first Airbus A320neo

 

Spring Airlines on October 22, 2018 took delivery of its first Airbus A320neo (B-303U, msn 8395).

The airliner flew from Toulouse, France, to Shanghai Pudong International Airport on delivery.

Above Copyright Photo: Gerd Beilfuss.

On December 3, 2015 the airline ordered 45 Airbus A320neo and 15 A321neo aircraft.

The airline currently operates 80 standard Airbus A320-200s.

Photos: Spring Airlines.

Southwest reports a third quarter profit

Southwest Airlines Boeing 737-8 MAX 8 N8705Q (msn 42558) LAX (Michael B. Ing). Image: 944056.

Southwest Airlines Company today reported its third quarter 2018 results:

 

  • Record third quarter net income of $615 million
  • Net income of $614 million, excluding special items1
  • Record third quarter earnings per diluted share of $1.08
  • Operating income of $798 million, or $796 million, excluding special items
  • Operating margin2 of 14.3 percent, and net margin3 of 11.0 percent
  • Operating cash flow of $1.3 billion, and free cash flow1 of $817 million
  • Returned $591 million to Shareholders through a combination of share repurchases and dividends
  • Return on invested capital (ROIC)1 pre-tax of 23.4 percent for the 12 months ended September 30, 2018, or 18.1 percent on an after-tax basis

 

Gary C. Kelly, Chairman of the Board and Chief Executive Officer, stated, “I want to congratulate our Employees on an excellent third quarter 2018 performance, resulting in record third quarter earnings per diluted share. The significant increase in our third quarter 2018 earnings per diluted share was driven by record third quarter operating revenues, lower federal income taxes, and a 4.8 percent year-over-year reduction in share count. Despite higher jet fuel prices and other cost pressures, we grew our third quarter 2018 net margin, year-over-year, which is a notable accomplishment.

“I am grateful to our People for their hard work and resilience, as we continue to consistently deliver stellar margins and returns. With these results, we accrued an additional $135 million in profitsharing for the benefit of our Employees and provided $591 million of share buybacks and dividends for our Shareholders.

“As we finish the year, our revenue momentum has continued into fourth quarter 2018, thus far. Unit revenue trends are stable and have recovered nicely from first half 2018. We are particularly pleased with the performance of our new revenue management tools. With our new reservation system in place since last year, we have more capabilities and are well-positioned to drive revenue growth. We expect $80 million to $90 million of year-over-year improvement in fourth quarter 2018 pre-tax results from these enhanced capabilities, which is in line with our annual 2018 pre-tax goal of $200 million.

“On the cost side, our third quarter 2018 unit cost performance was in line with our expectations. Our fuel hedge portfolio mitigated a significant portion of market jet fuel price increases, and we are pleased with the fuel hedge in place for both fourth quarter 2018 and annual 2019. Based on current trends, we continue to expect modest year-over-year inflation in our annual 2018 unit costs, excluding fuel and oil expense and profitsharing expense.

“Based on our second half 2018 revenue trends, we are well-positioned for year-over-year unit revenue growth in 2019, with easier year-over-year comparisons in first half. We also will continue to experience year-over-year unit cost inflation in 2019, excluding fuel and oil expense and profitsharing expense, of at least three percent, as we continue investing in and deploying new operations, technology, and airport infrastructure to support future growth. With the 2017 retirement of our Boeing 737-300 Classic fleet, launch of the 737 MAX, and implementation of our new reservation system, we continue with our efforts to modernize our fleet, optimize our network, and pursue additional revenue opportunities. Given our healthy revenue outlook, and despite expected cost increases, our 2019 goal is to expand margins year-over-year. We are refocusing our efforts to control costs and drive efficiency, and, as ever, we remain steadfast in our efforts to produce industry-leading margins and superior returns in excess of our cost of capital.

“For next year, Hawaii is our expansion focus, and we continue to expect 2019 available seat miles (ASMs, or capacity) to increase no more than five percent, year-over-year.”

Revenue Results and Outlook
The Company’s third quarter 2018 total operating revenues increased 5.1 percent, year-over-year, to a third quarter record $5.6 billion. Third quarter 2018 operating revenue per ASM (RASM, or unit revenues) increased 1.2 percent, year-over-year, driven largely by a passenger revenue yield increase of 2.3 percent, year-over-year, offset slightly by a load factor decline of 0.9 points, year-over-year, to 83.9 percent. Third quarter 2018 RASM also included an approximate one-half point year-over-year positive impact as a result of approximately 2,200 flight cancellations in third quarter 2018, due to thunderstorms and weather-related disruptions (the “weather cancellations”).

Based on current bookings and yield trends, the Company expects fourth quarter 2018 RASM to increase in the one to two percent range, compared with fourth quarter 2017 RASM of 13.88 cents, as recast in accordance with Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (or the “New Revenue Standard”). The Company adopted the New Revenue Standard effective January 1, 2018, and utilized the full retrospective method of adoption allowed by the standard. As such, results for the three and nine months ended Septemberย 30, 2017, have been recast under the new standard in order to be comparable with current period results in the accompanying unaudited Condensed Consolidated Statement of Income. The Company’s third quarter 2018 year-over-year RASM increase included an approximate one point headwind from the change in the Rapid Rewards revenue recognition method as a result of the Company’s adoption of the New Revenue Standard. The Company continues to expect an immaterial impact to its fourth quarter and annual 2018 year-over-year RASM trends as a result of the New Revenue Standard.

Cost Performance and Outlook
Third quarter 2018 total operating expenses increased 7.2 percent, year-over-year, to $4.8 billion. Total operating expenses per ASM (CASM, or unit costs) increased 3.1 percent, as compared with third quarter 2017. Excluding special items in both periods, third quarter 2018 total operating expenses increased 8.1 percent to $4.8 billion, or 4.1 percent on a unit basis, year-over-year.

Effective January 1, 2018, the Company early adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The new standard eliminated ineffectiveness for all derivatives designated in a hedge for accounting purposes, as well as changed the Company’s classification of premium expense associated with fuel hedges from Other (gains) and losses, net, to Fuel and oil expense within the unaudited Condensed Consolidated Statement of Income. As such, the classification of premium expense for the three and nine months ended Septemberย 30, 2017, has been recast under the new standard to be comparable with current period results.

Third quarter 2018 economic fuel costs1 were $2.25 per gallon and included $.06 per gallon in premium expense and $.10 per gallon in favorable cash settlements from fuel derivative contracts, compared with $2.07 per gallon in third quarter 2017, as recast, which included $.06 per gallon in premium expense and $.31 per gallon in unfavorable cash settlements from fuel derivative contracts. Third quarter 2018 ASMs per gallon, or fuel efficiency, improved 1.1 percent year-over-year, driven primarily by the retirement of the Classic fleet and the addition of more fuel-efficient 737-800 and 737 MAX 8 aircraft.

Based on the Company’s existing fuel derivative contracts and market prices as of October 19, 2018, fourth quarter 2018 economic fuel costs are estimated to be in the range of $2.30 to $2.35 per gallon4, including $.07 per gallon in premium expense and an estimated $.14 per gallon in favorable cash settlements from fuel derivative contracts, compared with $2.16 per gallon in fourth quarter 2017, as recast, which included $.07per gallon in premium expense and $.19 per gallon in unfavorable cash settlements from fuel derivative contracts. As of October 19, 2018, the fair market value of the Company’s fuel derivative contracts settling in fourth quarter 2018 was an asset of approximately $82 million, and the fair market value of the hedge portfolio settling in 2019 and beyond was an asset of approximately $521 million.

Based on the Company’s existing fuel derivative contracts and market prices as of October 19, 2018, annual 2019 economic fuel costs are estimated to be in the range of $2.35 to $2.40 per gallon4, including $.04 per gallon in premium expense and an estimated $.08 per gallon in favorable cash settlements from fuel derivative contracts. Additional information regarding the Company’s fuel derivative contracts is included in the accompanying tables.

Excluding fuel and oil expense and special items in both periods, third quarter 2018 operating expenses increased 7.0 percent, as compared with third quarter 2017. Third quarter 2018 profitsharing expense was $135 million, as compared with $127 million in third quarter 2017. Excluding fuel and oil expense, profitsharing expense, and special items, third quarter 2018 operating expenses also increased 7.0 percent, or 3.0 percent on a unit basis, year-over-year. This increase was due primarily to shifting of spending from first half 2018 into third quarter 2018, higher maintenance and advertising expenses, and a nearly one-point year-over-year negative impact as a result of the third quarter 2018 weather cancellations.

Based on current cost trends, the Company estimates fourth quarter 2018 CASM, excluding fuel and oil expense and profitsharing expense, to be flat to up one percent, compared with fourth quarter 2017’s 8.82 cents, as recast, which excluded fuel and oil expense, profitsharing expense, and special items. The Company continues to estimate annual 2018 CASM, excluding fuel and oil expense and profitsharing expense, to be flat to up one percent, compared with annual 2017’s 8.47 cents, as recast, which excluded fuel and oil expense, profitsharing expense, and special items.

Third Quarter Results
Third quarter 2018 netย income was a third quarter record $615 million, or a record third quarter $1.08 per diluted share, compared with third quarter 2017 net income of $528 million, or $.88 per diluted share. Excluding special items, third quarter 2018 net income was $614 million, or a third quarter record $1.08 per diluted share, compared with third quarter 2017 net income of $554 million, or $.93 per diluted share, and compared with First Call third quarter 2018 consensus estimate of $1.06 per diluted share.

The Company estimates its effective tax rate to be approximately 23 percent for annual 2018. For annual 2019, the Company estimates its effective tax rate to be approximately 23.5 percent.

Liquidity and Capital Deployment
As of Septemberย 30, 2018, the Company had approximately $3.8 billion in cash and short-term investments, and a fully available unsecured revolving credit line of $1 billion. Net cash provided by operations during third quarter 2018 was $1.3 billion, capital expenditures were $454 million, and free cash flow was $817 million. The Company repaid $98 million in debt and capital lease obligations during third quarter 2018, and expects to repay approximately $87 million in debt and capital lease obligations during fourth quarter 2018.

During third quarter 2018, the Company returned $591 million to its Shareholders through the repurchase of $500 million in common stock and the payment of $91 million in dividends. The Company repurchased 8.2 million shares of common stock pursuant to a $500 million accelerated share repurchase program (ASR) launched during third quarterย 2018 and completed earlier this month. The Company’s third quarter ASR completed the remaining $350 million of its previous $2.0 billion share repurchase program that had been authorized by its Board of Directors in May 2017, and initiated the $2.0 billion share repurchase program authorized by its Board of Directors in May 2018. The Company has $1.85 billion remaining under its current authorization.

For the nine months ended September 30, 2018, net cash provided by operations was approximately $3.9 billion. Capital expenditures, including net proceeds from assets constructed for others, were approximately $1.3 billion, and free cash flow was $2.6 billion. This enabled the Company to return approximately $1.8 billion to Shareholders through the repurchase of $1.5 billion in common stock and the payment of $332 million in dividends.

The Company continues to estimate its annual 2018 capital expenditures to be in the $2.0 to $2.1 billion range. For annual 2019, capital expenditures are expected to be similar to 2018 levels.

Fleet and Capacity
The Company ended third quarter 2018 with 742 aircraft in its fleet. This reflects the third quarter delivery of five new 737-800s and seven new 737 MAX 8s. The Company continues to expect to end 2018 with 751 aircraft in its fleet based on the current aircraft delivery schedule. Additional information regarding the Company’s aircraft delivery schedule is included in the accompanying tables:

The Company now expects its annualย 2018 year-over-year ASM growth to be approximately four percent, slightly lower than previously expected, due primarily to the third quarter 2018 weather cancellations. The Company now expects fourth quarterย 2018 year-over-year ASM growth to be in the 6.0 to 6.5 percent range.

1See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items, free cash flow, and ROIC. In addition, information regarding special items, ROIC, and economic results is included in the accompanying reconciliation tables.
2Operating margin is calculated as operating income divided by operating revenues.
3Net margin is calculated as net income divided by operating revenues.
4Based on the Company’s existing fuel derivative contracts and market prices as of October 19, 2018, fourth quarter 2018 fuel costs per gallon on a GAAP and economic basis are both estimated to be in the $2.30 to $2.35 range, and annual 2019 fuel costs per gallon on a GAAP and economic basis are both estimated to be in the $2.35 to $2.40 range.ย See Note Regarding Use of Non-GAAP Financial Measures.

Top Copyright Photo (all others by Southwest):ย Southwest Airlines Boeing 737-8 MAX 8 N8705Q (msn 42558) LAX (Michael B. Ing). Image: 944056.

Southwest aircraft slide show:

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Delta removes single-use plastics onboard, in clubs

Delta Air Lines is continuing the removal of a variety of single-use plastic items, including stir sticks, wrappers, utensils and straws from its aircraft and Delta Sky Clubs. The ongoing effort comes on the heels of the global airline’s leading move to remove plastic wrap from international Main Cabin cutlery in April, and is expected to eliminate more than 300,000 pounds in plastic waste annually โ€“ that’s more than the weight of two Boeing 757 aircraft.

Other moves contributing to Delta’s long-time sustainability efforts include the elimination of unnecessary plastic wrapping from Delta One amenity kits, and reducing Styrofoam in the cafeterias at Delta’s Atlanta headquarters in favor of compostable and/or reusable alternatives. Delta’s Minneapolis office campus ditched Styrofoโ€‹am altogether in 2015.

Additionally, Delta has formed a Youth Advisory Council to help guide the airline’s efforts to minimize the use of single-use plastics and support other sustainability initiatives. Initial members include Georgia natives Carter and Olivia Ries, who founded One More Generation, and California resident Shelby O’Neil, who founded Jr Ocean Guardians. Carter, Olivia and Shelby have been instrumental over the past year in driving sustainability efforts on Delta’s campuses, including No-Straw November during which they spoke to employees about the importance of reducing single-use plastics. Emma Kavanaugh, founder and president of a Surfrider Youth Club at St. Thomas Aquinas High School in Florida will join the trio as an initial member, while a partnership with the Captain Planet Foundation will seek additional members through an application process launching in November that seeks diversity in geographic location and eco-passions. The council will complement the airline’s employee-led GreenUp group that connects with Delta employees to find meaningful ways for the airline to positively impact the environment.

Delta replaces plastics

“We’re looking broadly at how we can adjust our sourcing and behaviors to have greater impact on the local and global communities where we live, work and serve,” said Christine Boucher, Managing Director โ€“ Global Environment, Sustainability & Compliance. “Reducing single-use plastics is a natural extension of the work we’ve been doing for years to lead the industry in efforts to reduce our impact on the environment, and we’re looking forward to working with young thought leaders like Carter, Emma, Olivia and Shelby to build an even more creative and impactful approach.”โ€‹

Delta customers will already notice red plastic straws and stir sticks being replaced in Delta Sky Clubs with environmentally friendly bamboo drink stirrers and birch stir sticks, and customers onboard will see the elimination of red plastic straws and stir sticks in favor of the same alternatives starting in mid-2019. Together, the changes will eliminate more than 183 million plastic straws and stir sticks from Delta’s aircraft and clubs. Compostable straws will be available in clubs for customers upon request.

Delta Sky Clubs have also started moving toward compostable alternatives for service ware. Delta has partnered with the airports in Seattle and Minneapolis since 2016 and 2017, respectively, to help manage those clubs’ compostable waste, and the airline is now identifying the best ways to expand composting at all 51 airports that feature its clubs.

Customers are already starting to see these sustainable changes happening at Delta Sky Clubs:

  • Non-compostable plates, utensils, bowls and buffet dishware are currently being replaced with compostable alternatives (started in Seattle in 2016)
  • Plastic stir sticks are currently being replaced with bamboo stirrers for cold beverages, birch wood stirrers for hot beverages
  • Plastic straws are currently being replaced with bamboo stirrers for cold beverages, birch wood stirrers for hot beverages (compostable straws are available upon request).

Customers can watch for these sustainable improvements coming to their onboard Delta experience starting in mid-2019:

  • Delta One Tumi amenity kits will no longer have outer plastic wrappers
  • Plastic stir sticks are being replaced with bamboo stirrers for cold beverages, birch wood stirrers for hot beverages.
  • Plastic straws are being replaced with bamboo stirrers for cold beverages, birch wood stirrers for hot beverages.

As of April 2018, international Main Cabin plastic-wrapped utensils no longer have an outer plastic wrapper and are rolled in a napkin instead.

Delta’s move to reduce unnecessary single-use plastics is part of its industry-leading sustainability strategy that drove a route analysis to better align the amount of food, beverage and other items on board with customer demand, resulting in significant reductions in waste and emissions. It also positioned Delta as the first U.S. airline to offer carbon offsets to customers and the only airline to voluntarily cap carbon emissions at 2012 levels by purchasing carbon offsets โ€“ more than 2.5 million in 2017 alone, and almost 9 million carbon offsets since it started. Delta was the first U.S. airline to recycle aluminum cans, plastic bottles and cups, newspapers and magazines from aircraft and has recycled more than 3 million pounds of aluminum from onboard waste โ€“ equivalent to 22 Boeing 747s โ€“ over 10 years. The funds from that program and recycling oil and scrap metal in Tech Ops have been used to construct 12 of the 264 homes Delta has built with Habitat for Humanity globally. In 2018 Delta sought out opportunities to upcycle its frontline uniformsas part of its new uniform launch, and developed first-of-their-kind partnerships with Duke University Athletics and the Seattle Seahawks to offset travel with local benefits. These kinds of efforts and more speak to why Delta was selected as Keep America Beautiful’ s 2017 Vision For America Awardย recipient, and has been named to the Dow Jones Sustainability North America Index for eight consecutive years and the FTSE4Good Index for four consecutive years.

Air Canada expands in North Carolina with a new route and enhanced services from Raleigh/Durham and Charlotte

Air Canada Express (Sky Regional Airlines) Embraer ERJ 170-200SU (ERJ 175) C-FRQM (msn 17000137) BWI (Brian McDonough). Image: 942608.

Air Canada announced today it will enhance services to North Carolina beginning next spring, including with the launch of a new, nonstop daily flight between Raleigh/Durham and Montreal.

The airline will also deploy larger aircraft on flights between Toronto and Raleigh/Durham and Charlotte to increase capacity on these routes and introduce Business Class service.

New Raleigh–Montreal daily, nonstop service begins June 3, 2019 using a 50-seat Canadair Regional Jet (CRJ200).

From Toronto, starting May 1, 2019, three-times daily flights to Raleigh and twice-daily service to Charlotte will be upgauged to a 76-seat, Embraer E175 from a CRJ.

Flight

Departs

Arrives

Flight

Departs

Arrives

AC7691

Toronto 8:20

Raleigh 10:08

AC7692

Raleigh 06:00

Toronto 07:56

AC7693

Toronto 16:05

Raleigh 17:53

AC7694

Raleigh 10:45

Toronto 12:41

AC7695

Toronto 20:55

Raleigh 22:43

AC7696

Raleigh 18:30

Toronto 20:26

AC7582

Toronto 09:05

Charlotte 11:04

AC7583

Charlotte 11:40

Toronto 13:38

AC7584

Toronto 16:00

Charlotte 17:59

AC7585

Charlotte 18:35

Toronto 20:33

AC8178

Montreal 13:35

Raleigh 15:45

AC8179

Raleigh 16:15

Montreal 18:20

Top Copyright Photo:ย Air Canada Express (Sky Regional Airlines) Embraer ERJ 170-200SU (ERJ 175) C-FRQM (msn 17000137) BWI (Brian McDonough). Image: 942608.

Air Canada Express-Sky Regional aircraft slide show:

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GECAS delivers a special Breast Cancer Awareness A320 to Viva Air Colombia

"Claudia Obando" for cancer awareness

GECAS has delivered the third of 10 new Airbus A320ceo (HK-5273, msn 8519) aircraft to Viva Air Colombia.

Named “Claudia Obando”, the aircraft has a special pink livery for Breast Cancer Awareness.

The aircraft was delivered from Hamburg to Bogota, Colombia via Keflavik and Bangor.

Top Copyright Photo (all others by GECAS and Viva Air Colombia):ย Vivaair.com (Viva Air Colombia) Airbus A320-214 WL D-AXAF (HK-5273) (msn 8519) (Tocate) XFW (Gerd Beilfuss). Image: 943932.

Viva Air Colombia aircraft slide show:

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GECAS leases 7 Airbus A320neo aircraft to Vistara

GECAS has announced the signing of a lease contract for seven Airbus A320neos to enter service with Vistara, the India based full-service carrier and joint venture of Tata Sons and Singapore Airlines, following deliveries from Airbus in the latter part of 2019 and continuing into 2020.

Commencing operations in January 2015 as one of Indiaโ€™s premier operators, Vistara, with its hub at Delhiโ€™s Indira Gandhi International Airport, has flown over 11 million customers.ย  Operating an all-A320 fleet (with both 200s & neos), Vistara is the first airline in India to introduce premium economy class on domestic routes.

Photo: GECAS.