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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

(3