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Alaska Air Group reports second quarter 2021 results

SEATTLE, July 22, 2021 /PRNewswire/ --

Financial Results:

  • Reported net income for the second quarter of 2021 under Generally Accepted Accounting Principles (GAAP) of $397 million, or $3.15 per share, compared to a net loss of $214 million, or $1.74 per share in the second quarter of 2020.
  • Reported a net loss for the second quarter of 2021, excluding CARES Act Payroll Support Program (PSP) wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $38 million, or $0.30 per share, compared to an adjusted net loss of $439 million or $3.57 per share, in the second quarter of 2020.
  • Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 56%.
  • Held $4.0 billion in unrestricted cash and marketable securities as of June 30, 2021.
  • Generated $840 million in operating cash flow in the second quarter, inclusive of $489 million of PSP funding, bolstered by improved advance bookings on a surge in demand for air travel. Excluding PSP funding, quarterly operating cash flows improved over $580 million from the first quarter of 2021.

Operational Updates:

  • Announced plans to grow our mainline and regional fleets, exercising options for 13 Boeing 737-9 MAX with deliveries in 2023 and 2024, and nine E175 to be operated by Horizon Air with deliveries in 2022 and 2023. In addition, expanded our long-term capacity agreement with SkyWest Airlines by eight aircraft to be delivered in 2022.
  • Announced new service to Central America with new routes to Belize from Seattle and Los Angeles, with service slated to begin in November 2021.
  • Issued recall notices to all pilots on incentive lines for return to work by October 2021.
  • Continued our history of providing meaningful incentive programs to our employees with $67 million in cash bonuses earned to date.
  • Announced seven new domestic routes aimed at providing our West Coast guests more options to sun-filled destinations, including three new routes serving Boise, Idaho.

Liquidity Updates:

  • Received $664 million through a combination of grants and loans from the U.S. Treasury under an extension of the PSP.
  • Repaid approximately $570 million in debt, including the full $135 million loan from the U.S. Treasury made available under the CARES Act and the $363 million outstanding balance on two credit facilities.

Sustainability Updates:

  • Announced five-part pathway to achieve a net zero carbon footprint by 2040, putting the airline on track to meet the annual carbon intensity target that is part of its performance-based pay program for all employees.
  • First airline to implement network optimization software, Flyways, using artificial intelligence and machine learning to optimize air traffic and enable more fuel-efficient flight paths for aggregate savings of fuel, carbon emissions and time.
  • Partnered with Boeing to launch a 737-9 ecoDemonstrator to test advanced technologies that can enhance the safety and sustainability of air travel.  The aircraft will conduct five months of flight tests across the U.S.
  • Revealed "Our Commitment" aircraft in partnership with long-time partner UNCF, a symbol of the airline's commitments to increase diverse representation in our leadership, advance education as a critical component of equity, and to make Alaska Airlines a place where everyone feels they belong.

Alaska Air Group Inc. today reported second quarter 2021 GAAP net income of $397 million, or $3.15 per share, compared to a net loss of $214 million, or $1.74 per share in the second quarter of 2020. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported an adjusted net loss of $38 million, or $0.30 per diluted share, compared to an adjusted net loss of $439 million, or $3.57 per diluted share in 2020.

"As we put the worst of last year's downturn behind us, Alaska is back on the path to profitability," said CEO Ben Minicucci. "We are executing our plan, rebuilding our network, leveraging our capacity to meet growing demand, and delivering exceptional service and value to our guests. I'm incredibly proud and grateful for how hard our employees are working and how they show up for each other and our guests every day with focus on safety, operational excellence and care."

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2021 and 2020 to adjusted amounts.


Three Months Ended June 30,


2021


2020

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) per share

$

397



$

3.15



$

(214)



$

(1.74)


Payroll support program wage offset

(503)



(3.99)



(362)



(2.94)


Mark-to-market fuel hedge adjustments

(46)



(0.37)



(6)



(0.05)


Special items - impairment charges and other

(4)



(0.03)



69



0.56


Special items - restructuring charges

(23)



(0.18)






Special items - merger-related costs





1



0.01


Income tax effect of reconciling items above

141



1.12



73



0.59


Non-GAAP adjusted net loss per share

$

(38)



$

(0.30)



$

(439)



$

(3.57)











Six Months Ended June 30,


2021


2020

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) per share

$

266



$

2.12



$

(446)



$

(3.62)


Payroll support program wage offset

(914)



(7.27)



(362)



(2.94)


Mark-to-market fuel hedge adjustments

(68)



(0.54)



3



0.02


Special items - impairment charges and other

14



0.11



229



1.86


Special items - restructuring charges

(12)



(0.10)






Special items - merger-related costs





4



0.03


Income tax effect of reconciling items above

240



1.91



31



0.25


Non-GAAP adjusted net loss per share

$

(474)



$

(3.77)



$

(541)



$

(4.40)


Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.

A conference call regarding the second quarter results will be streamed online at 8:30 a.m. PDT on July 22, 2021. It can be accessed at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

References in this update to "Air Group," "Company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements.  For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Some of these risks include the risks associated with contagious illnesses and contagion, such as COVID-19, general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance, or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines and its regional partners serve more than 120 destinations across the United States and to Mexico, Canada and Costa Rica. The airline emphasizes Next-Level Care for its guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of oneworld. With the global alliance and the airline's additional partners, guests can travel to more than 1,000 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.













Three Months Ended June 30,


Six Months Ended June 30,

(in millions, except per-share amounts)

2021


2020


Change


2021


2020


Change

Operating Revenues:












Passenger revenue

$

1,352



$

309



338

%


$

2,011



$

1,790



12

%

Mileage Plan other revenue

118



73



62

%


212



182



16

%

Cargo and other

57



39



46

%


101



85



19

%

Total Operating Revenues

1,527



421



263

%


2,324



2,057



13

%

Operating Expenses:












Wages and benefits

510



472



8

%


1,003



1,084



(7)

%

Payroll support program wage offset

(503)



(362)



39

%


(914)



(362)



152

%

Variable incentive pay

34



16



113

%


67



23



191

%

Aircraft fuel, including hedging gains and losses

274



59



364

%


477



443



8

%

Aircraft maintenance

102



45



127

%


183



160



14

%

Aircraft rent

62



74



(16)

%


124



155



(20)

%

Landing fees and other rentals

144



83



73

%


273



214



28

%

Contracted services

54



30



80

%


105



102



3

%

Selling expenses

41



4



925

%


74



59



25

%

Depreciation and amortization

98



107



(8)

%


195



215



(9)

%

Food and beverage service

35



7



400

%


58



56



4

%

Third-party regional carrier expense

37



26



42

%


67



63



6

%

Other

117



78



50

%


222



221



%

Special items - impairment charges and other

(4)



69



(106)

%


14



229



(94)

%

Special items - restructuring charges

(23)




.

NM



(12)





NM


Special items - merger-related costs



1



(100)

%




4



(100)

%

Total Operating Expenses

978



709



38

%


1,936



2,666



(27)

%

Operating Income (Expense)

549



(288)



(291)

%


388



(609)



(164)

%

Nonoperating Income (Expense):












Interest income

6



7



(14)

%


13



16



(19)

%

Interest expense

(39)



(17)



129

%


(71)



(30)



137

%

Interest capitalized

3



1



200

%


6



4



50

%

Other - net

9



6



50

%


19



11



73

%

Total Nonoperating Income (Expense)

(21)



(3)



NM



(33)



1



NM


Income (Loss) Before Income Tax

528



(291)





355



(608)




Income tax expense (benefit)

131



(77)





89



(162)




Net Income (Loss)

$

397



$

(214)





$

266



$

(446)
















Basic Income (Loss) Per Share:

$

3.18



$

(1.74)





$

2.13



$

(3.62)




Diluted Income (Loss) Per Share:

$

3.15



$

(1.74)





$

2.12



$

(3.62)
















Shares Used for Computation:












Basic

124.977



123.296





124.640



123.058




Diluted

126.037



123.296





125.676



123.058
















Cash dividend declared per share:

$



$





$



$

0.375




 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)




Alaska Air Group, Inc.








(in millions)

June 30, 2021


December 31, 2020

Cash and cash equivalents

$

1,025



$

1,370


Marketable securities

2,926



1,976


   Total cash and marketable securities

3,951



3,346


Other current assets

820



660


Current assets

4,771



4,006


Property and equipment - net

6,128



6,211


Operating lease assets

1,375



1,400


Goodwill

1,943



1,943


Intangible assets - net

103



107


Other assets

336



379


Total assets

14,656



14,046






Air traffic liability

1,533



1,073


Current portion of long-term debt

869



1,138


Current portion of operating lease liabilities

263



290


Other current liabilities

2,181



1,792


Current liabilities

4,846



4,293


Long-term debt

2,319



2,357


Long-term operating lease liabilities

1,222



1,268


Other liabilities and credits

2,945



3,140


Shareholders' equity

3,324



2,988


Total liabilities and shareholders' equity

$

14,656



$

14,046






Debt-to-capitalization ratio, including operating leases

56

%


61

%





Number of common shares outstanding

125.229



124.218


 

SUMMARY CASH FLOW (unaudited)






Alaska Air Group, Inc.












(in millions)

Six Months Ended
June 30, 2021


Three Months Ended
March 31, 2021(a)


Three Months Ended

June 30, 2021(b)

Cash Flows from Operating Activities:






Net income (loss)

$

266



$

(131)



$

397


Non-cash reconciling items

221



138



83


Changes in working capital

520



160



360


Net cash provided by (used in) operating activities

1,007



167



840








Cash Flows from Investing Activities:






Property and equipment additions

(102)



(27)



(75)


Other investing activities

(968)



(516)



(452)


Net cash provided by (used in) investing activities

(1,070)



(543)



(527)








Cash Flows from Financing Activities:

(281)



82



(363)








Net increase (decrease) in cash and cash equivalents

$

(344)



$

(294)



$

(50)


Cash, cash equivalents, and restricted cash at beginning of period

1,386



1,386



1,092


Cash, cash equivalents, and restricted cash at end of the period

$

1,042



$

1,092



$

1,042



(a)

As reported in Form 10-Q for the first quarter of 2021. 

(b)

Cash flows for the three months ended June 30, 2021, can be calculated by subtracting cash flows for the three months ended March 31, 2021, as reported in Form 10-Q for the first quarter 2021, from the six months ended June 30, 2021.

 

OPERATING STATISTICS SUMMARY (unaudited)







Alaska Air Group, Inc.

























Three Months Ended June 30,


Six Months Ended June 30,


2021


2020


Change


2021


2020


Change

Consolidated Operating Statistics:(a)












Revenue passengers (000)

8,712


1,485


486.7%


13,379


10,417


28.4%

RPMs (000,000) "traffic"

10,334


1,654


524.8%


15,727


12,310


27.8%

ASMs (000,000) "capacity"

13,413


4,307


211.4%


23,810


19,612


21.4%

Load factor

77.0%


38.4%


38.6 pts


66.1%


62.8%


3.3 pts

Yield

13.09¢


18.68¢


(29.9)%


12.79¢


14.54¢


(12.0)%

RASM

11.38¢


9.77¢


16.5%


9.76¢


10.49¢


(7.0)%

CASMex(b)

9.20¢


21.87¢


(57.9)%


9.95¢


12.00¢


(17.1)%

Economic fuel cost per gallon(b)

$1.90


$1.20


58.3%


$1.85


$1.77


4.5%

Fuel gallons (000,000)

168


54


211.1%


294


248


18.5%

ASM's per gallon

79.8


79.8


—%


81.0


79.1


2.4%

Average number of full-time equivalent employees (FTE)

19,001


15,836


20.0%


18,071


19,115


(5.5)%

Mainline Operating Statistics:












Revenue passengers (000)

6,151


905


579.7%


9,302


7,580


22.7%

RPMs (000,000) "traffic"

8,966


1,276


602.7%


13,555


10,858


24.8%

ASMs (000,000) "capacity"

11,611


3,363


245.3%


20,464


17,060


20.0%

Load factor

77.2%


37.9%


39.3 pts


66.2%


63.6%


2.6 pts

Yield

11.96¢


17.63¢


(32.2)%


11.64¢


13.44¢


(13.4)%

RASM

10.59¢


9.52¢


11.2%


9.09¢


9.94¢


(8.6)%

CASMex(b)

8.48¢


22.19¢


(61.8)%


9.17¢


11.17¢


(17.9)%

Economic fuel cost per gallon(b)

$1.88


$1.20


56.7%


$1.84


$1.78


3.4%

Fuel gallons (000,000)

135


38


255.3%


233


201


15.9%

ASM's per gallon

86.0


88.5


(2.8)%


87.8


84.9


3.4%

Average number of FTE's

14,021


12,340


13.6%


13,247


14,579


(9.1)%

Aircraft utilization

9.9


5.6


76.8%


9.2


8.8


4.5%

Average aircraft stage length

1,320


1,144


15.4%


1,313


1,270


3.4%

Operating fleet(d)

202


225


(23) a/c


202


225


(23) a/c

Regional Operating Statistics:(c)












Revenue passengers (000)

2,562


580


341.7%


4,077


2,837


43.7%

RPMs (000,000) "traffic"

1,367


378


261.6%


2,172


1,452


49.6%

ASMs (000,000) "capacity"

1,802


945


90.7%


3,346


2,552


31.1%

Load factor

75.9%


40.0%


35.9 pts


64.9%


56.9%


8.0 pts

Yield

20.48¢


22.12¢


(7.4)%


19.95¢


22.80¢


(12.5)%

RASM

16.41¢


10.63¢


54.4%


13.84¢


14.07¢


(1.6)%

Operating fleet

94


94


— a/c


94


94


— a/c


(a)

Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)

See a reconciliation of this non-GAAP measure and Note A for a discussion of the importance of this measure to investors in the accompanying pages.

(c)

Data presented includes information for flights operated by Horizon and third-party carriers.

(d)

Excludes all aircraft removed from operating service.

Given the unusual nature of 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2021 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited)

Alaska Air Group, Inc.

























Three Months Ended June 30,


Six Months Ended June 30,


2021


2019


Change


2021


2019


Change

Passenger revenue

$

1,352



$

2,111



(36)

%


$

2,011



$

3,827



(47)

%

Mileage plan other revenue

118



118



%


212



228



(7)

%

Cargo and other

57



59



(3)

%


101



109



(7)

%

Total operating revenues

$

1,527



$

2,288



(33)

%


$

2,324



$

4,164



(44)

%













Operating expense, excluding fuel and special items

$

1,234



$

1,414



(13)

%


$

2,371



$

2,819



(16)

%

Economic fuel

274



502



(45)

%


477



922



(48)

%

Special items

(530)



8



NM



(912)



34



NM


Total operating expenses

$

978



$

1,924



(49)

%


$

1,936



$

3,775



(49)

%













Consolidated Operating Statistics(a):












Revenue passengers (000)

8,712



12,026



(28)

%


13,379



22,442



(40)

%

RPMs (000,000) "traffic"

10,334



14,638



(29)

%


15,727



27,087



(42)

%

ASMs (000,000) "capacity"

13,413



16,980



(21)

%


23,810



32,487



(27)

%

Load Factor

77.0%



86.2%



(9.2)

 pts


66.1%



83.4%



(17.3)

 pts

Yield

13.09¢



14.43¢



(9)

%


12.79¢



14.13¢



(9)

%

RASM

11.38¢



13.48¢



(16)

%


9.76¢



12.82¢



(24)

%

CASMex

9.20¢



8.33¢



10

%


9.95¢



8.68¢



15

%

FTEs

19,001



21,921



(13)

%


18,071



21,876



(17)

%


(a)

2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our second quarter 2019 Form 10-Q

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.





























Three Months Ended June 30, 2021

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

1,072



$

280



$



$



$

1,352



$



$

1,352


CPA revenues





111



(111)








Mileage Plan other revenue

102



16







118





118


Cargo and other

55







2



57





57


Total Operating Revenues

1,229



296



111



(109)



1,527





1,527


Operating Expenses














Operating expenses, excluding fuel

984



286



91



(127)



1,234



(530)



704


Economic fuel

253



66





1



320



(46)



274


Total Operating Expenses

1,237



352



91



(126)



1,554



(576)



978


Nonoperating Income (Expense)














Interest income

6









6





6


Interest expense

(34)





(5)





(39)





(39)


Interest capitalized

3









3





3


Other - net

9









9





9


Total Nonoperating Expense

(16)





(5)





(21)





(21)


Income (Loss) Before Income Tax

$

(24)



$

(56)



$

15



$

17



$

(48)



$

576



$

528

















Three Months Ended June 30, 2020

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

225



$

84



$



$



$

309



$



$

309


CPA revenues





81



(81)








Mileage Plan other revenue

56



17







73





73


Cargo and other

39









39





39


Total Operating Revenues

320



101



81



(81)



421





421


Operating Expenses














Operating expenses, excluding fuel

746



210



68



(82)



942



(292)



650


Economic fuel

45



20







65



(6)



59


Total Operating Expenses

791



230



68



(82)



1,007



(298)



709


Nonoperating Income (Expense)














Interest income

11







(4)



7





7


Interest expense

(18)





(5)



6



(17)





(17)


Interest capitalized

1









1





1


Other - net

6









6





6


Total Nonoperating Income (Expense)





(5)



2



(3)





(3)


Income (Loss) Before Income Tax

$

(471)



$

(129)



$

8



$

3



$

(589)



$

298



$

(291)




Six Months Ended June 30, 2021

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

1,578



$

433



$



$



$

2,011



$



$

2,011


CPA revenues





215



(215)








Mileage Plan other revenue

182



30







212





212


Cargo and other

99







2



101





101


Total Operating Revenues

1,859



463



215



(213)



2,324





2,324


Operating Expenses














Operating expenses, excluding fuel

1,877



551



179



(236)



2,371



(912)



1,459


Economic fuel

427



118







545



(68)



477


Total Operating Expenses

2,304



669



179



(236)



2,916



(980)



1,936


Nonoperating Income (Expense)














Interest income

13









13





13


Interest expense

(61)





(10)





(71)





(71)


Interest capitalized

6









6





6


Other - net

19









19





19


Total Nonoperating Expense

(23)





(10)





(33)





(33)


Income (Loss) Before Income Tax

$

(468)



$

(206)



$

26



$

23



$

(625)



$

980



$

355

















Six Months Ended June 30, 2020

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

1,459



$

331



$



$



$

1,790



$



$

1,790


CPA revenues





186



(186)








Mileage Plan other revenue

154



28







182





182


Cargo and other

83







2



85





85


Total Operating Revenues

1,696



359



186



(184)



2,057





2,057


Operating Expenses














Operating expenses, excluding fuel

1,905



479



160



(192)



2,352



(129)



2,223


Economic fuel

358



82







440



3



443


Total Operating Expenses

2,263



561



160



(192)



2,792



(126)



2,666


Nonoperating Income (Expense)














Interest income

25







(9)



16





16


Interest expense

(30)





(10)



10



(30)





(30)


Interest capitalized

4