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Alaska Air Group reports Third Quarter 2017 results

SEATTLE, Oct. 25, 2017 /PRNewswire/ --

Financial Highlights:

  • Reported net income for the third quarter under Generally Accepted Accounting Principles ("GAAP") of $266 million or $2.14 per diluted share, compared to net income of $256 million, or $2.07 per diluted share in 2016. As the acquisition of Virgin America Inc. ("Virgin America") closed on Dec. 14, 2016, third quarter 2017 information reflects the results of Virgin America, including the impacts associated with purchase accounting. Third quarter 2016 results do not include Virgin America.
  • Reported third quarter net income, excluding merger-related costs and mark-to-market fuel hedging adjustments, of $278 million, compared to $272 million in the third quarter of 2016. Adjusted diluted earnings per share were $2.24, compared to $2.20 in the third quarter of 2016.
  • Virgin America results were accretive to EPS in the three and nine months ending Sept. 30, 2017.
  • Paid $0.30 per-share quarterly cash dividend in the third quarter, a 9% increase over the dividend paid in the third quarter of 2016.
  • Repurchased approximately 0.6 million shares of common stock for $50 million in the first nine months of 2017.
  • Generated approximately $1.4 billion of operating cash flow and used approximately $840 million for capital expenditures, resulting in approximately $520 million of free cash flow in the first nine months of 2017.
  • Held $1.7 billion in unrestricted cash and marketable securities as of Sept. 30, 2017.
  • Reduced debt-to-capitalization ratio to 53% as of Sept. 30, 2017, compared to 59% as of Dec. 31, 2016.

Operational Highlights:

  • Launched twenty new routes during the quarter, continuing the most significant network expansion in Alaska Air Group's 85-year history, bringing the total new markets since the merger to 37. 
  • Overall, the integration of Virgin America is going well and a number of significant milestones are expected to be achieved in the next seven months.
  • Announced a seven-year partnership to be the official airline of the San Francisco Giants which includes, among other things, exclusive naming rights to the AT&T Park Club Level which will now be called the "Alaska Airlines Club Level."
  • Signed an exclusive multi-year partnership with Golden State Warriors star, Kevin Durant, and named him our "Advisor to the CEO."
  • Added Singapore Airlines as a global Mileage Plan partner.
  • Selected Gogo to provide next-generation satellite-based Wi-Fi across the entire Boeing and Airbus fleets, providing guests a faster and more-reliable internet connection.
  • Dropped fees for bikes, golf clubs, skis, surfboards, and other sporting equipment that exceed Alaska's normal checked baggage weight and dimensions to $25.
  • Took delivery of four Embraer 175 jets, bringing the total operated by Horizon to ten as of Sept. 30, 2017.
  • Placed the world's first Boeing 737-700 converted from a passenger plane to a freighter into service.

Recognition and Awards:

  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI), receiving perfect scores for "efficiency" and "reliability".
  • Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the third consecutive year.
  • Virgin America named "Best U.S. Airline" by Condé Nast Traveler in their 2017 Reader's Choice Awards for the 10th year in a row.
  • Ranked Best Airline in Customer Service in the 2017 worldwide SimpliFlying Awards for Excellence in Social Media.
  • Named Favorite Airline in North America for the second consecutive year by Trazee Travel.
  • Mileage Plan ranked Best Airline Elite Status Program in the U.S. by The Points Guy.
  • Recognized by the Puget Sound Business Journal as the 2017 Board Diversity Champion, for diversifying Air Group's board composition over the last five years.
  • Named one of the overall five-star major regional airlines at the Passenger Choice Awards during the APEX EXPO. Virgin America received a five-star rating for low-cost carrier, and received a top honor with a Passenger Choice Award for "Best Seat Comfort."

Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter 2017 GAAP net income of $266 million, or $2.14 per diluted share, compared to $256 million, or $2.07 per diluted share in the third quarter of 2016. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $278 million, or $2.24 per diluted share, compared to $272 million, or $2.20 per diluted share, in 2016.

"Our people delivered very strong results again this quarter," said CEO Brad Tilden. "At roughly the halfway point in our integration with Virgin America, and despite some unrelated challenges in our regional operation, our business is performing well, and we are very happy with the response we've seen in California and throughout the West to our expanding network, our focus on hospitality, and to our industry-leading mileage plan. I want to thank our talented people for their commitment and dedication."

The following table reconciles the company's reported GAAP net income and earnings per diluted share ("diluted EPS") for the three and nine months ended Sept. 30, 2017, and 2016 to adjusted amounts:

 

Three Months Ended September 30,
 

2017

  

2016

(in millions, except per-share amounts)

Dollars

  

Diluted EPS

  

Dollars

  

Diluted EPS

Reported GAAP net income and diluted EPS

$

266

    

$

2.14

    

$

256

    

$

2.07

  

Mark-to-market fuel hedge adjustments

(5)

    

(0.04)

    

3

    

0.02

  

Special items—merger-related costs

24

    

0.20

    

22

    

0.18

  

Income tax effect on special items and fuel hedge adjustments

(7)

    

(0.06)

    

(9)

    

(0.07)

  

Non-GAAP adjusted net income and diluted EPS

$

278

    

$

2.24

    

$

272

    

$

2.20

  
   
 

Nine Months Ended September 30,
 

2017

  

2016

(in millions, except per-share amounts)

Dollars

  

Diluted EPS

  

Dollars

  

Diluted EPS

Reported GAAP net income and diluted EPS

$

661

    

$

5.31

    

$

700

    

$

5.63

  

Mark-to-market fuel hedge adjustments

7

    

0.06

    

(9)

    

(0.07)

  

Special items—merger-related costs

88

    

0.70

    

36

    

0.29

  

Income tax effect on special items and fuel hedge adjustments

(35)

    

(0.28)

    

(10)

    

(0.08)

  

Non-GAAP adjusted net income and diluted EPS

$

721

    

$

5.79

    

$

717

    

$

5.77

  

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 third quarter results will be simulcast online at 8:30 a.m. Pacific time on October 25, 2017. It can be accessed through the company's website 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 news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as "Alaska," "Horizon," and "Virgin America" respectively, and together as our "airlines."

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 Dec. 31, 2016, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include 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, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. 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, together with Virgin America and its regional partners, flies 40 million guests a year to 118 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada, Costa Rica and Cuba. With Alaska and Alaska Global Partners, guests can earn and redeem miles on flights to more than 900 destinations worldwide. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America Satisfaction Study for 10 consecutive years from 2008 to 2017. Learn more about Alaska's award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.
                       

As the acquisition closed on December 14, 2016, amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
                       
 

Three Months Ended September 30,

  

Nine Months Ended September 30,

(in millions, except per-share amounts)

2017

  

2016

  

Change(a)

  

2017

  

2016

  

Change(a)

Operating Revenues:

                      

Passenger

                      

Mainline

$

1,562

    

$

1,073

    

46

%

  

$

4,390

    

$

3,036

    

45

%

Regional

262

    

249

    

5

%

  

725

    

682

    

6

%

Total passenger revenue

1,824

    

1,322

    

38

%

  

5,115

    

3,718

    

38

%

Freight and mail

32

    

31

    

3

%

  

88

    

82

    

7

%

Other—net

264

    

213

    

24

%

  

768

    

607

    

27

%

Total Operating Revenues

2,120

    

1,566

    

35

%

  

5,971

    

4,407

    

35

%
                       

Operating Expenses:

                      

Wages and benefits

475

    

340

    

40

%

  

1,392

    

1,008

    

38

%

Variable incentive pay

40

    

31

    

29

%

  

98

    

95

    

3

%

Aircraft fuel, including hedging gains and losses

368

    

225

    

64

%

  

1,051

    

593

    

77

%

Aircraft maintenance

88

    

64

    

38

%

  

271

    

197

    

38

%

Aircraft rent

70

    

25

    

180

%

  

204

    

80

    

155

%

Landing fees and other rentals

124

    

89

    

39

%

  

338

    

232

    

46

%

Contracted services

76

    

63

    

21

%

  

234

    

183

    

28

%

Selling expenses

91

    

58

    

57

%

  

269

    

162

    

66

%

Depreciation and amortization

95

    

101

    

(6)%

    

275

    

281

    

(2)%

  

Food and beverage service

50

    

31

    

61

%

  

145

    

93

    

56

%

Third-party regional carrier expense

30

    

25

    

20

%

  

84

    

72

    

17

%

Special items—merger-related costs

24

    

22

    

9

%

  

88

    

36

    

144

%

Other

150

    

92

    

63

%

  

424

    

267

    

59

%

Total Operating Expenses

1,681

    

1,166

    

44

%

  

4,873

    

3,299

    

48

%

Operating Income

439

    

400

    

10

%

  

1,098

    

1,108

    

(1)%

  
                       

Nonoperating Income (Expense):

                      

Interest income

9

    

7

        

25

    

20

      

Interest expense

(26)

    

(11)

        

(77)

    

(33)

      

Interest capitalized

5

    

6

        

13

    

21

      

Other—net

—

    

—

        

(1)

    

(2)

      

Total Nonoperating Income (Expense)

(12)

    

2

        

(40)

    

6

      

Income Before Income Tax

427

    

402

        

1,058

    

1,114

      

Income tax expense

161

    

146

        

397

    

414

      

Net Income

$

266

    

$

256

        

$

661

    

$

700

      
                       

Basic Earnings Per Share:

$

2.15

    

$

2.08

        

$

5.35

    

$

5.66

      

Diluted Earnings Per Share:

$

2.14

    

$

2.07

        

$

5.31

    

$

5.63

      
                       

Shares Used for Computation:

                      

Basic

123.467

    

123.149

        

123.501

    

123.648

    

Diluted

124.220

    

123.833

        

124.341

    

124.393

    
                       

Cash dividend declared per share:

$

0.300

    

$

0.275

        

$

0.900

    

$

0.825

      
   

(a)

See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

      

Alaska Air Group, Inc.

      
       

(in millions)

September 30, 2017

  

December 31, 2016

Cash and marketable securities

$

1,740

    

$

1,580

  
       

Total current assets

2,214

    

2,050

  

Property and equipment—net

6,230

    

5,666

  

Goodwill

1,934

    

1,934

  

Intangible assets

135

    

143

  

Other assets

226

    

169

  

Total assets

10,739

    

9,962

  
       

Air traffic liability

1,103

    

849

  

Current portion of long-term debt

334

    

319

  

Other current liabilities

1,328

    

1,367

  

Current liabilities

2,765

    

2,535

  

Long-term debt

2,367

    

2,645

  

Other liabilities and credits

2,116

    

1,851

  

Shareholders' equity

3,491

    

2,931

  

Total liabilities and shareholders' equity

$

10,739

    

$

9,962

  
       

Debt-to-capitalization ratio, adjusted for operating leases(a)

53

%

  

59

%
       

Number of common shares outstanding

123.387

    

123.328

  
   

(a)

Calculated using the present value of remaining aircraft lease payments.

 

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.
                       

As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
                       
 

Three Months Ended September 30,

  

Nine Months Ended September 30,
 

2017

  

2016

  

Change(d)

  

2017

  

2016

  

Change(d)

Consolidated Operating Statistics:(a)

                      

Revenue passengers (000)

11,645

  

9,054

  

28.6%

  

33,063

  

25,536

  

29.5%

RPMs (000,000) "traffic"

13,811

  

9,601

  

43.8%

  

39,073

  

27,569

  

41.7%

ASMs (000,000) "capacity"

16,164

  

11,212

  

44.2%

  

46,170

  

32,728

  

41.1%

Load factor

85.4%

  

85.6%

  

(0.2) pts

  

84.6%

  

84.2%

  

0.4 pts

Yield

13.21¢

  

13.77¢

  

(4.1)%

  

13.09¢

  

13.49¢

  

(3.0)%

PRASM

11.29¢

  

11.79¢

  

(4.2)%

  

11.08¢

  

11.36¢

  

(2.5)%

RASM

13.12¢

  

13.97¢

  

(6.1)%

  

12.93¢

  

13.47¢

  

(4.0)%

CASMex(b)

7.98¢

  

8.20¢

  

(2.7)%

  

8.09¢

  

8.16¢

  

(0.9)%

Economic fuel cost per gallon(b)

$1.80

  

$1.58

  

13.9%

  

$1.76

  

$1.47

  

19.7%

Fuel gallons (000,000)

207

  

140

  

47.9%

  

592

  

410

  

44.4%

ASM's per gallon

78.1

  

80.1

  

(2.5)%

  

78.0

  

79.8

  

(2.3)%

Average number of full-time equivalent employees (FTE)

20,743

  

14,674

  

41.4%

  

19,723

  

14,500

  

36.0%
                       

Mainline Operating Statistics:

                      

Revenue passengers (000)

9,142

  

6,507

  

40.5%

  

25,875

  

18,432

  

40.4%

RPMs (000,000) "traffic"

12,694

  

8,595

  

47.7%

  

36,046

  

24,767

  

45.5%

ASMs (000,000) "capacity"

14,796

  

9,987

  

48.2%

  

42,398

  

29,216

  

45.1%

Load factor

85.8%

  

86.1%

  

(0.3) pts

  

85.0%

  

84.8%

  

0.2 pts

Yield

12.31¢

  

12.49¢

  

(1.4)%

  

12.18¢

  

12.26¢

  

(0.7)%

PRASM

10.56¢

  

10.75¢

  

(1.8)%

  

10.36¢

  

10.39¢

  

(0.3)%

RASM

12.40¢

  

12.96¢

  

(4.3)%

  

12.22¢

  

12.53¢

  

(2.5)%

CASMex(b)

7.28¢

  

7.28¢

  

—%

  

7.32¢

  

7.21¢

  

1.5%

Economic fuel cost per gallon(b)

$1.79

  

$1.57

  

14.0%

  

$1.76

  

$1.46

  

20.5%

Fuel gallons (000,000)

183

  

119

  

53.8%

  

526

  

350

  

50.3%

ASM's per gallon

80.9

  

83.9

  

(3.6)%

  

80.6

  

83.5

  

(3.5)%

Average number of FTE's

15,862

  

11,397

  

39.2%

  

15,439

  

11,260

  

37.1%

Aircraft utilization

16.1

  

10.6

  

51.9%

  

15.7

  

10.7

  

46.7%

Average aircraft stage length

1,300

  

1,203

  

8.1%

  

1,296

  

1,218

  

6.4%

Operating fleet

218

  

154

  

64 a/c

  

218

  

154

  

64 a/c
                       

Regional Operating Statistics:(c)

                      

Revenue passengers (000)

2,503

  

2,547

  

(1.7)%

  

7,188

  

7,105

  

1.2%

RPMs (000,000) "traffic"

1,117

  

1,006

  

11.0%

  

3,027

  

2,801

  

8.1%

ASMs (000,000) "capacity"

1,368

  

1,225

  

11.7%

  

3,772

  

3,512

  

7.4%

Load factor

81.7%

  

82.1%

  

(0.4) pts

  

80.2%

  

79.8%

  

0.4 pts

Yield

23.48¢

  

24.75¢

  

(5.1)%

  

23.95¢

  

24.35¢

  

(1.6)%

PRASM

19.17¢

  

20.32¢

  

(5.7)%

  

19.22¢

  

19.43¢

  

(1.1)%

Operating fleet

83

  

69

  

14 a/c

  

83

  

69

  

14 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 potential importance of this measure to investors in the accompanying pages.

(c)

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

(d)

See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.
 

SUPPLEMENTARY COMBINED COMPARATIVE FINANCIAL AND OPERATING INFORMATION (unaudited)

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons. The table below provides "Combined Comparative" results for the three and nine months ended September 30, 2016, determined as the sum of the historical consolidated results of Air Group and of Virgin America. Virgin America's financial information has been conformed to reflect Air Group's historical financial statement presentation for each period presented. This information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented.

 

Three Months Ended September 30,

  

Nine Months Ended September 30,

(in millions, except operating statistics)

2017

As Reported

  

2016

Combined

  

Change

  

 

 

2017
As Reported

  

 

 

2016
Combined

  

Change

Combined Comparative Operating Results

Passenger revenue

$

1,824

    

$

1,724

    

6%

  

$

5,115

    

$

4,833

    

6%

Other revenue

296

    

288

    

3%

  

856

    

808

    

6%

Total Operating Revenues

2,120

    

2,012

    

5%

  

5,971

    

5,641

    

6%

Non-fuel operating expense

1,313

    

1,216

    

8%

  

3,822

    

3,518

    

9%

Fuel expense

368

    

306

    

20%

  

1,051

    

822

    

28%

Total Operating Expenses

1,681

    

1,522

    

10%

  

4,873

    

4,340

    

12%

Operating Income

439

    

490

    

(10)%

  

1,098

    

1,301

    

(16)%

Nonoperating income (expense)

(12)

    

(3)

    

300%

  

(40)

    

(8)

    

400%

Income Before Tax

427

    

487

    

(12)%

  

1,058

    

1,293

    

(18)%

Special items—merger-related costs

24

    

24

    

—%

  

88

    

44

    

100%

Mark-to-market fuel hedge adjustments

(5)

    

3

    

(267)%

  

7

    

(11)

    

(164)%

Adjusted Income Before Tax

$

446

    

$

514

    

(13)%

  

$

1,153

    

$

1,326

    

(13)%
                       

Combined Comparative Operating Statistics

Revenue passengers (000)

11,645

  

11,229

  

3.7%

  

33,063

  

31,565

  

4.7%

RPMs (000,000)

13,811

  

12,922

  

6.9%

  

39,073

  

36,670

  

6.6%

ASMs  (000,000)

16,164

  

15,079

  

7.2%

  

46,170

  

43,549

  

6.0%

Load Factor

85.4%

  

85.7%

  

(0.3) pts

  

84.6%

  

84.2%

  

0.4 pts

PRASM

11.29¢

  

11.43¢

  

(1.2)%

  

11.08¢

  

11.10¢

  

(0.2)%

RASM

13.12¢

  

13.34¢

  

(1.6)%

  

12.93¢

  

12.95¢

  

(0.2)%

CASMex

7.98¢

  

7.90¢

  

1.0%

  

8.09¢

  

7.98¢

  

1.4%

2016 Combined Comparative Operating Results and Statistics

Refer to our Investor Update issued on April 12, 2017 on Form 8-K for combined comparative operating results and statistics for each of the quarters, including the the calculation of the three and nine months ended September 30, 2016 combined data, and full year 2016.

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

                          
                           

As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
                           
 

Three Months Ended September 30, 2017

(in millions)

Mainline

  

Regional

  

Horizon

  

Consolidating
& Other

  

Air Group
Adjusted(a)

  

Special
Items(b)

  

Consolidated

Operating revenues

                          

Passenger

                          

Mainline

$

1,562

    

$

—

    

$

—

    

$

—

    

$

1,562

    

$

—

    

$

1,562

  

Regional

—

    

262

    

—

    

—

    

262

    

—

    

262

  

  Total passenger revenues

1,562

    

262

    

—

    

—

    

1,824

    

—

    

1,824

  

CPA revenues

—

    

—

    

112

    

(112)

    

—

    

—

    

—

  

Freight and mail

30

    

1

    

1

    

—

    

32

    

—

    

32

  

Other—net

242

    

21

    

1

    

—

    

264

    

—

    

264

  

Total operating revenues

1,834

    

284

    

114

    

(112)

    

2,120

    

—

    

2,120

  

Operating expenses

                          

Operating expenses, excluding fuel

1,077

    

219

    

105

    

(112)

    

1,289

    

24

    

1,313

  

Economic fuel

328

    

45

    

—

    

—

    

373

    

(5)

    

368

  

Total operating expenses

1,405

    

264

    

105

    

(112)

    

1,662

    

19

    

1,681

  

Nonoperating income (expense)

                          

Interest income

11

    

—

    

—

    

(2)

    

9

    

—

    

9

  

Interest expense

(23)

    

—

    

(4)

    

1

    

(26)

    

—

    

(26)

  

Other

5

    

—

    

—

    

—

    

5

    

—

    

5

  

Total Nonoperating income (expense)

(7)

    

—

    

(4)

    

(1)

    

(12)

    

—

    

(12)

  

Income (loss) before income tax

$

422

    

$

20

    

$

5

    

$

(1)

    

$

446

    

$

(19)

    

$

427

  
   
 

Three Months Ended September 30, 2016

(in millions)

Mainline

  

Regional

  

Horizon

  

Consolidating
& Other

  

Air Group
Adjusted(a)

  

Special
Items(b)

  

Consolidated

Operating revenues

                          

Passenger

                          

Mainline

$

1,073

    

$

—

    

$

—

    

$

—

    

$

1,073

    

$

—

    

$

1,073

  

Regional

—

    

249

    

—

    

—

    

249

    

—

    

249

  

  Total passenger revenues

1,073

    

249

    

—

    

—

    

1,322

    

—

    

1,322

  

CPA revenues

—

    

—

    

109

    

(109)

    

—

    

—

    

—

  

Freight and mail

30

    

1

    

—

    

—

    

31

    

—

    

31

  

Other—net

190

    

21

    

1

    

1

    

213

    

—

    

213

  

Total operating revenues

1,293

    

271

    

110

    

(108)

    

1,566

    

—

    

1,566

  

Operating expenses

                          

Operating expenses, excluding fuel

727

    

202

    

99

    

(109)

    

919

    

22

    

941

  

Economic fuel

188

    

34

    

—

    

—

    

222

    

3

    

225

  

Total operating expenses

915

    

236

    

99

    

(109)

    

1,141

    

25

    

1,166

  

Nonoperating income (expense)

                          

Interest income

7

    

—

    

—

    

—

    

7

    

—

    

7

  

Interest expense

(7)

    

—

    

(2)

    

(2)

    

(11)

    

—

    

(11)

  

Other

5

    

—

    

—

    

1

    

6

    

—

    

6

  

Total Nonoperating income (expense)

5

    

—

    

(2)

    

(1)

    

2

    

—

    

2

  

Income (loss) before income tax

$

383

    

$

35

    

$

9

    

$

—

    

$

427

    

$

(25)

    

$

402

  
   

(a)    

The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.

(b) 

Includes merger-related costs and mark-to-market fuel hedge accounting adjustments.

 

 

Nine Months Ended September 30, 2017

(in millions)

Mainline

  

Regional

  

Horizon

  

Consolidating
& Other

  

Air Group
Adjusted(a)

  

Special
Items(b)

  

Consolidated

Operating revenues

                          

Passenger

                          

Mainline

$

4,390

    

$

—

    

$

—

    

$

—

    

$

4,390

    

$

—

    

$

4,390

  

Regional

—

    

725

    

—

    

—

    

725

    

—

    

725

  

  Total passenger revenues

4,390

    

725

    

—

    

—

    

5,115

    

—

    

5,115

  

CPA revenues

—

    

—

    

317

    

(317)

    

—

    

—

    

—

  

Freight and mail

84

    

3

    

1

    

—

    

88

    

—

    

88

  

Other—net

708

    

57

    

3

    

—

    

768

    

—

    

768

  

Total operating revenues

5,182

    

785

    

321

    

(317)

    

5,971

    

—

    

5,971

  

Operating expenses

                          

Operating expenses, excluding fuel

3,101

    

625

    

324

    

(316)

    

3,734

    

88

    

3,822

  

Economic fuel

924

    

120

    

—

    

—

    

1,044

    

7

    

1,051

  

Total operating expenses

4,025

    

745

    

324

    

(316)

    

4,778

    

95

    

4,873

  

Nonoperating income (expense)

                          

Interest income

27

    

—

    

—

    

(2)

    

25

    

—

    

25

  

Interest expense

(68)

    

—

    

(9)

    

—

    

(77)

    

—

    

(77)

  

Other

11

    

—

    

1

    

—

    

12

    

—

    

12

  

Total Nonoperating income (expense)

(30)

    

—

    

(8)

    

(2)

    

(40)

    

—

    

(40)

  

Income (loss) before income tax

$

1,127

    

$

40

    

$

(11)

    

$

(3)

    

$

1,153

    

$

(95)

    

$

1,058

  
   
 

Nine Months Ended September 30, 2016

(in millions)

Mainline

  

Regional

  

Horizon

  

Consolidating
& Other

  

Air Group
Adjusted(a)

  

Special
Items(b)

  

Consolidated

Operating revenues

                          

Passenger

                          

Mainline

$

3,036

    

$

—

    

$

—

    

$

—

    

$

3,036

    

$

—

    

$

3,036

  

Regional

—

    

682

    

—

    

—

    

682

    

—

    

682

  

  Total passenger revenues

3,036

    

682

    

—

    

—

    

3,718

    

—

    

3,718

  

CPA revenues

—

    

—

    

322

    

(322)

    

—

    

—

    

—

  

Freight and mail

79

    

3

    

—

    

—

    

82

    

—

    

82

  

Other—net

546

    

57

    

3

    

1

    

607

    

—

    

607

  

Total operating revenues

3,661

    

742

    

325

    

(321)

    

4,407

    

—

    

4,407

  

Operating expenses

                          

Operating expenses, excluding fuel

2,107

    

580

    

305

    

(322)

    

2,670

    

36

    

2,706

  

Economic fuel

512

    

90

    

—

    

—

    

602

    

(9)

    

593

  

Total operating expenses

2,619

    

670

    

305

    

(322)

    

3,272

    

27

    

3,299

  

Nonoperating income (expense)

                          

Interest income

19

    

—

    

1

    

—

    

20

    

—

    

20

  

Interest expense

(23)

    

—

    

(7)

    

(3)

    

(33)

    

—

    

(33)

  

Other

15

    

—

    

—

    

4

    

19

    

—

    

19

  

Total Nonoperating income (expense)

11

    

—

    

(6)

    

1

    

6

    

—

    

6

  

Income (loss) before income tax

$

1,053

    

$

72

    

$

14

    

$

2

    

$

1,141

    

$

(27)

    

$

1,114

  
   

(a)     

The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.

(b)   

Includes merger-related costs and mark-to-market fuel hedge accounting adjustments.

 

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)

Alaska Air Group, Inc.

              
               

As the acquisition closed on December 14, 2016, amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior period.
               

CASM Excluding Fuel and Special Items Reconciliation

        
 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,
 

2017

  

2016

  

2017

  

2016

Consolidated:

              

CASM

10.40

¢

  

10.40

¢

  

10.55

¢

  

10.08

¢

Less the following components:

              

Aircraft fuel, including hedging gains and losses

2.27

    

2.01

    

2.27

    

1.81

  

Special items—merger-related costs

0.15

    

0.19

    

0.19

    

0.11

  

CASM excluding fuel and special items

7.98

¢

  

8.20

¢

  

8.09

¢

  

8.16

¢
               

Mainline:

              

CASM

9.63

¢

  

9.41

¢

  

9.72

¢

  

9.06

¢

Less the following components:

              

Aircraft fuel, including hedging gains and losses

2.19

    

1.91

    

2.19

    

1.72

  

Special items—merger-related costs

0.16

    

0.22

    

0.21

    

0.13

  

CASM excluding fuel and special items

7.28

¢

  

7.28

¢

  

7.32

¢

  

7.21

¢

 

Fuel Reconciliation
 

Three Months Ended September 30,
 

2017

  

2016

(in millions, except for per-gallon amounts)

Dollars

  

Cost/Gallon

  

Dollars

  

Cost/Gallon

Raw or "into-plane" fuel cost

$

368

    

$

1.78

    

$

218

    

$

1.55

  

Losses on settled hedges

5

    

0.02

    

4

    

0.03

  

Consolidated economic fuel expense

373