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Alaska Air Group reports third quarter 2020 results along with COVID-19 updates

Alaska Airlines extends blocked middle seats through Jan. 6, 2021

SEATTLE, Oct. 22, 2020 /PRNewswire/ --

Financial Results:

  • Reported net loss for the third quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of $431 million, or $3.49 per diluted share, compared to net income of $322 million, or $2.60 per diluted share in the third quarter of 2019.
  • Reported net loss for the third quarter of 2020, excluding payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $399 million, or $3.23 per diluted share, compared to adjusted net income of $326 million or $2.63 per diluted share, in the third quarter of 2019.
  • Maintained adjusted net debt of $1.7 billion, flat from Dec. 31, 2019. 
  • Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 59%.
  • Held $3.8 billion in unrestricted cash and marketable securities as of Sept. 30, 2020.

Liquidity Updates:

  • Reduced cash burn to approximately $4 million per day in the third quarter from approximately $5 million per day in the second quarter.
  • Obtained nearly $1.2 billion in financing through the issuance of Enhanced Equipment Trust Certificates, secured by 42 Boeing and 19 Embraer aircraft.
  • Reached an agreement with the U.S. Treasury in September to participate in the CARES Act loan program, and drew $135 million in September. The U.S. Treasury advised in October 2020 that the facility will be upsized to $1.9 billion.
  • Held $3.7 billion in cash and marketable securities as of Oct. 21, 2020 and total liquidity of $5.5 billion.

Operational and Guest Safety Updates:

  • Extending blocking of middle seats on mainline aircraft through Jan. 6, 2021.
  • Announced today a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain business air travel.
  • Permanently eliminated change fees and extended the flexible travel policy for all new ticket purchases through Dec. 31, 2020.
  • Launched a partnership with certain healthcare providers to offer rapid and standardized COVID-19 testing for those guests traveling to destinations which require a negative test result.
  • Expanded the company's Next-Level Care initiative, including implementation of new technology to create a touch-free experience for guests and a partnership with essential oils brand EO to provide hand sanitizing wipes onboard.
  • Strengthened face covering policy, requiring all guests over the age of two to wear a cloth mask or face covering at all times onboard.
  • Initiated voluntary early-out and incentive leave programs to our frontline employee workgroups, which were accepted by more than 4,000 employees. As a result, furloughs were limited to approximately 400 employees.
  • Announced 15 new routes during the third quarter, aimed at connecting West Coast travelers to key leisure destinations, including Jackson Hole, Wyoming, and Fort Myers, Florida.
  • Received official oneworld invitation on July 23, 2020. The company has announced it will officially join the alliance on March 31, 2021.

Alaska Air Group Inc. today reported third quarter 2020 GAAP net loss of $431 million, or $3.49 per diluted share, compared to net income of $322 million, or $2.60 per diluted share in the third quarter of 2019. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported adjusted net loss of $399 million, or $3.23 per diluted share, compared to adjusted net income of $326 million, or $2.63 per diluted share in 2019.

"We are gaining momentum as we climb our way out of this crisis," said Air Group CEO Brad Tilden. "Each of the last six months has been better than the month before in terms of flights offered and passengers carried, and to date, we've kept our net debt unchanged. Alaska has competitive advantages that continue to serve us well in this crisis, and we are fighting this battle with the most passionate and dedicated employees in the business."

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, 2020 and 2019 to adjusted amounts.


Three Months Ended September 30,

2020

2019

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income (loss) and diluted EPS

$

(431)

$

(3.49)

$

322

$

2.60

Payroll support program wage offset

(398)

(3.22)

—

—

Mark-to-market fuel hedge adjustments

(3)

(0.02)

—

—

Special items - merger-related costs

1

0.01

5

0.04

Special items - impairment charges and other

121

0.98

—

—

Special items - restructuring charges

322

2.60

—

—

Income tax effect of reconciling items above

(11)

(0.09)

(1)

(0.01)

Non-GAAP adjusted net income (loss) and diluted EPS

$

(399)

$

(3.23)

$

326

$

2.63









Nine Months Ended September 30,

2020

2019

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income (loss) and diluted EPS

$

(877)

$

(7.12)

$

588

$

4.74

Payroll support program wage offset

(760)

(6.16)

—

—

Mark-to-market fuel hedge adjustments

—

—

(1)

(0.01)

Special items - merger-related costs

5

0.04

39

0.31

Special items - impairment charges and other

350

2.84

—

—

Special items - restructuring charges

322

2.61

—

—

Income tax effect of reconciling items above

20

0.16

(9)

(0.07)

Non-GAAP adjusted net income (loss) and diluted EPS

$

(940)

$

(7.63)

$

617

$

4.97

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 streamed online at 8:30 a.m. PDT on Oct. 22, 2020. 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 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. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," 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 December 31, 2019, the Company's Quarterly Report on Form 10-Q for the year ended June 30, 2020, as amended, as well as in other documents filed by the Company with the SEC after the date thereof.  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, 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 and its regional partners serve more than 115 destinations across the United States and North America, providing essential air service for our guests along with moving crucial cargo shipments, such as food, medicine, mail and e-commerce deliveries. With hubs in Seattle; San Francisco; Los Angeles; Portland, Oregon; and Anchorage, Alaska, the airline is known for low fares, award-winning customer service and sustainability efforts. With Alaska and its Global Partners, guests can earn and redeem miles on flights to more than 800 destinations worldwide. Learn 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 September 30,

Nine Months Ended September 30,

(in millions, except per-share amounts)

2020

2019

Change

2020

2019

Change

Operating Revenues:










Passenger revenue

$

572

$

2,211

(74)

%

$

2,362

$

6,038

(61)

%

Mileage Plan other revenue

84

118

(29)

%

266

346

(23)

%

Cargo and other

45

60

(25)

%

130

169

(23)

%

Total Operating Revenues

701

2,389

(71)

%

2,758

6,553

(58)

%

Operating Expenses:










Wages and benefits

495

608

(19)

%

1,579

1,732

(9)

%

Payroll support program wage offset

(398)

—

NM

(760)

—

NM

Variable incentive pay

42

46

(9)

%

65

125

(48)

%

Aircraft fuel, including hedging gains and losses

125

486

(74)

%

568

1,408

(60)

%

Aircraft maintenance

84

106

(21)

%

244

341

(28)

%

Aircraft rent

74

82

(10)

%

229

247

(7)

%

Landing fees and other rentals

109

143

(24)

%

323

388

(17)

%

Contracted services

36

72

(50)

%

138

214

(36)

%

Selling expenses

24

77

(69)

%

83

236

(65)

%

Depreciation and amortization

105

106

(1)

%

320

317

1

%

Food and beverage service

14

57

(75)

%

70

159

(56)

%

Third-party regional carrier expense

29

42

(31)

%

92

125

(26)

%

Other

89

137

(35)

%

310

411

(25)

%

Special items - merger-related costs

1

5

(80)

%

5

39

(87)

%

Special items - impairment charges and other

121

—

NM

350

—

NM

Special items - restructuring charges

322

—

.

NM

322

—

NM

Total Operating Expenses

1,272

1,967

(35)

%

3,938

5,742

(31)

%

Operating Income (Loss)

(571)

422

(235)

%

(1,180)

811

(245)

%

Nonoperating Income (Expense):










Interest income

7

11

(36)

%

23

31

(26)

%

Interest expense

(34)

(18)

89

%

(64)

(60)

7

%

Interest capitalized

4

4

—

%

8

11

(27)

%

Other - net

5

(3)

(267)

%

16

(20)

(180)

%

Total Nonoperating Income (Expense)

(18)

(6)

200

%

(17)

(38)

(55)

%

Income (Loss) Before Income Tax

(589)

416



(1,197)

773


Income tax (benefit) expense

(158)

94



(320)

185


Net Income (Loss)

$

(431)

$

322



$

(877)

$

588














Basic Earnings (Loss) Per Share:

$

(3.49)

$

2.61



$

(7.12)

$

4.76


Diluted Earnings (Loss) Per Share:

$

(3.49)

$

2.60



$

(7.12)

$

4.74














Shares Used for Computation:










Basic

123.647

123.280



123.255

123.330


Diluted

123.647

124.067



123.255

124.051














Cash dividend declared per share:

$

—

$

0.35



$

0.375

$

1.05


 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.






(in millions)

September 30, 2020

December 31, 2019

Cash and marketable securities

$

3,759

$

1,521

Other current assets

706

516

Current assets

4,465

2,037

Property and equipment - net

6,381

6,902

Operating lease assets

1,516

1,711

Goodwill

1,943

1,943

Intangible assets - net

107

122

Other assets

337

278

Total assets

14,749

12,993




Air traffic liability

1,071

900

Current portion of long-term debt

1,150

235

Current portion of operating lease liabilities

283

269

Other current liabilities

1,703

1,797

Current liabilities

4,207

3,201

Long-term debt

2,672

1,264

Long-term operating lease liabilities

1,320

1,439

Other liabilities and credits

3,096

2,758

Shareholders' equity

3,454

4,331

Total liabilities and shareholders' equity

$

14,749

$

12,993




Debt-to-capitalization ratio, including operating leases

59

%

41

%




Number of common shares outstanding

123.661

123.000

SUMMARY CASH FLOW (unaudited)
Alaska Air Group, Inc.

The Company believes that cash burn is an important metric to investors in evaluating the Company's ability to maintain liquidity and manage cash on hand. We define cash burn as all cash flows, excluding the impact of any CARES Act funding or proceeds from new borrowings, one-time vendor advances, plus net activities from marketable securities.

Our daily cash burn for the three and nine months ended September 30, 2020, is reconciled from our statement of cash flows as follows:

(in millions)

Nine Months Ended
September 30, 2020

Six Months Ended
June 30, 2020(a)

Three Months Ended
September 30, 2
020(b)

Net cash provided by (used in) operating activities

$

116

$

321

$

(205)

Less: Payroll support program grant

(753)

(723)

(30)

Adjusted net cash used in operating activities

(637)

(402)

(235)

Net cash used in investing activities

(767)

(124)

(643)

Net cash provided by financing activities

2,286

1,091

1,195

Adjusted net increase in cash, cash equivalents and restricted cash

882

565

317






Adjusted to remove:




Payroll support program note and equity

298

284

14

CARES Act loan program and equity

135

—

135

Net secured debt issuances(c)

1,724

589

1,135

Net credit facility draws (payments)(d)

363

393

(30)

Net marketable security activity(e) 

(593)

(5)

(588)

Advance vendor rebate(f)

50

—

50

Total adjustments

1,977

1,261

716






Adjusted cash burn

$

(1,095)

$

(696)

$

(399)

Days in the period

274

182

92

Average daily cash burn

$

(4)

$

(4)

$

(4)

(a)

As reported in Form 10-Q for the second quarter 2020.

(b)

Cash burn for the three months ended September 30, 2020, can be calculated by subtracting cash flows for the six months ended June 30, 2020, as previously reported in Form 10-Q for the second quarter 2020, from the nine months ended September 30, 2020.

(c)

Secured debt issuances are presented net of related issuance costs and collateral-based prepayments.

(d)

Credit facility draws are presented net of collateral-based prepayments.

(e) 

Net marketable security activity represents net purchases and sales activity of marketable securities, plus any unrealized gains or losses on outstanding securities.

(f) 

In the third quarter of 2020, the Company received an advance payment of a vendor rebate. This rebate will be recognized into earnings  over the next 12 month period.

 

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.























Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

Change

2020

2019

Change

Consolidated Operating Statistics:(a)










Revenue passengers (000)

3,595

12,574

(71.4)%

14,012

35,018

(60.0)%

RPMs (000,000) "traffic"

3,817

15,026

(74.6)%

16,127

42,113

(61.7)%

ASMs (000,000) "capacity"

7,871

17,519

(55.1)%

27,483

50,006

(45.0)%

Load factor

48.5%

85.8%

(37.3) pts

58.7%

84.2%

(25.5) pts

Yield

14.99¢

14.71¢

1.9%

14.65¢

14.34¢

2.1%

RASM

8.90¢

13.64¢

(34.8)%

10.04¢

13.10¢

(23.4)%

CASMex(b)

14.00¢

8.43¢

66.1%

12.57¢

8.59¢

46.3%

Economic fuel cost per gallon(b)

$1.32

$2.13

(38.0)%

$1.65

$2.18

(24.3)%

Fuel gallons (000,000)

97

227

(57.4)%

344

646

(46.7)%

ASM's per gallon

81.3

77.2

5.3%

79.9

77.4

3.2%

Average number of full-time equivalent employees (FTE)

16,027

22,247

(28.0)%

18,112

22,000

(17.7)%

Mainline Operating Statistics:










Revenue passengers (000)

2,156

9,655

(77.7)%

9,736

26,725

(63.6)%

RPMs (000,000) "traffic"

2,958

13,538

(78.2)%

13,816

37,917

(63.6)%

ASMs (000,000) "capacity"

6,280

15,702

(60.0)%

23,339

44,816

(47.9)%

Load factor

47.1%

86.2%

(39.1) pts

59.2%

84.6%

(25.4) pts

Yield

13.56¢

13.66¢

(0.7)%

13.46¢

13.29¢

1.3%

RASM

8.14¢

12.83¢

(36.6)%

9.46¢

12.30¢

(23.1)%

CASMex(b)

13.88¢

7.81¢

77.7%

11.90¢

7.91¢

50.4%

Economic fuel cost per gallon(b)

$1.31

$2.13

(38.5)%

$1.66

$2.17

(23.5)%

Fuel gallons (000,000)

69

193

(64.2)%

270

549

(50.8)%

ASM's per gallon

91.0

81.4

11.8%

86.4

81.6

5.9%

Average number of FTE's

12,032

16,789

(28.3)%

13,730

16,599

(17.3)%

Aircraft utilization

7.3

11.3

(35.4)%

8.3

10.9

(23.9)%

Average aircraft stage length

1,244

1,281

(2.9)%

1,263

1,298

(2.7)%

Operating fleet(d)

217

238

(21) a/c

217

238

(21) a/c

Regional Operating Statistics:(c)










Revenue passengers (000)

1,439

2,919

(50.7)%

4,276

8,293

(48.4)%

RPMs (000,000) "traffic"

859

1,488

(42.3)%

2,311

4,196

(44.9)%

ASMs (000,000) "capacity"

1,592

1,817

(12.4)%

4,143

5,190

(20.2)%

Load factor

54.0%

81.9%

(27.9) pts

55.8%

80.8%

(25.0) pts

Yield

19.89¢

24.23¢

(17.9)%

21.72¢

23.81¢

(8.8)%

RASM

11.91¢

20.51¢

(41.9)%

13.24¢

19.93¢

(33.6)%

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 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) 

Excludes 20 Airbus aircraft permanently parked in the first nine months of 2020.

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.
















Three Months Ended September 30, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues













Passenger revenues

$

401

$

171

$

—

$

—

$

572

$

—

$

572

CPA revenues

—

—

95

(95)

—

—

—

Mileage Plan other revenue

65

19

—

—

84

—

84

Cargo and other

45

—

—

—

45

—

45

Total Operating Revenues

511

190

95

(95)

701

—

701

Operating Expenses













Operating expenses, excluding fuel

872

248

78

(97)

1,101

46

1,147

Economic fuel

90

38

—

—

128

(3)

125

Total Operating Expenses

962

286

78

(97)

1,229

43

1,272

Nonoperating Income (Expense)













Interest income

8

—

—

(1)

7

—

7

Interest expense

(28)

—

(6)

—

(34)

—

(34)

Interest capitalized

4

—

—

—

4

—

4

Other - net

4

—

—

1

5

—

5

Total Nonoperating Income (Expense)

(12)

—

(6)

—

(18)

—

(18)

Income (Loss) Before Income Tax

$

(463)

$

(96)

$

11

$

2

$

(546)

$

(43)

$

(589)






Three Months Ended September 30, 2019

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

1,850

$

361

$

—

$

—

$

2,211

$

—

$

2,211

CPA revenues

—

—

112

(112)

—

—

—

Mileage Plan other revenue

107

11

—

—

118

—

118

Cargo and other

58

1

—

1

60

—

60

Total Operating Revenues

2,015

373

112

(111)

2,389

—

2,389

Operating Expenses












Operating expenses, excluding fuel

1,226

275

94

(119)

1,476

5

1,481

Economic fuel

411

75

—

—

486

—

486

Total Operating Expenses

1,637

350

94

(119)

1,962

5

1,967

Nonoperating Income (Expense)












Interest income

17

—

—

(6)

11

—

11

Interest expense

(18)

—

(7)

7

(18)

—

(18)

Interest capitalized

4

—

—

—

4

—

4

Other - net

(3)

—

—

—

(3)

—

(3)

Total Nonoperating Income (Expense)

—

—

(7)

1

(6)

—

(6)

Income (Loss) Before Income Tax

$

378

$

23

$

11

$

9

$

421

$

(5)

$

416





























Nine Months Ended September 30, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

1,860

$

502

$

—

$

—

$

2,362

$

—

$

2,362

CPA revenues

—

—

281

(281)

—

—

—

Mileage Plan other revenue

219

47

—

—

266

—

266

Cargo and other

128

—

—

2

130

—

130

Total Operating Revenues

2,207

549

281

(279)

2,758

—

2,758

Operating Expenses












Operating expenses, excluding fuel

2,777

727

238

(288)

3,454

(83)

3,371

Economic fuel

448

120

—

—

568

—

568

Total Operating Expenses

3,225

847

238

(288)

4,022

(83)

3,939

Nonoperating Income (Expense)












Interest income

33

—

—

(10)

23

—

23

Interest expense

(58)

—

(16)

10

(64)

—

(64)

Interest capitalized

8

—

—

—

8

—

8

Other - net

16

—

—

—

16

—

16

Total Nonoperating Income (Expense)

(1)

—

(16)

—

(17)

—

(17)

Income (Loss) Before Income Tax

$

(1,019)

$

(298)

$

27

$

9

$

(1,281)

$

83

$

(1,198)





























Nine Months Ended September 30, 2019

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

5,039

$

999

$

—

$

—

$

6,038

$

—

$

6,038

CPA revenues

—

—

340

(340)

—

—

—

Mileage Plan other revenue

312

34

—

—

346

—

346

Cargo and other

163

2

1

3

169

—

169

Total Operating Revenues

5,514

1,035

341

(337)

6,553

—

6,553

Operating Expenses












Operating expenses, excluding fuel

3,545

817

286

(353)

4,295

39

4,334

Economic fuel

1,191

218

—

—

1,409

(1)

1,408

Total Operating Expenses

4,736

1,035

286

(353)

5,704

38

5,742

Nonoperating Income (Expense)












Interest income

50

—

—

(19)

31

—

31

Interest expense

(58)

—

(22)

20

(60)

—

(60)

Interest capitalized

11

—

—

—

11

—

11

Other - net

(20)

—

—

—

(20)

—

(20)

Total Nonoperating Income (Expense)

(17)

—

(22)

1

(38)

—

(38)

Income (Loss) Before Income Tax

$

761

$

—

$

33

$

17

$

811

$

(38)

$

773

























































(a)

Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.

(b)

The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information.

(c) 

Includes payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments.

 

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)

Alaska Air Group, Inc.








CASM Excluding Fuel and Special Items Reconciliation

Three Months Ended September
30,

Nine Months Ended September
30,

2020

2019

2020

2019

Consolidated:






CASM

16.16

¢

11.23

¢

14.33

¢

11.48

¢

Less the following components:






Payroll support program wage offset

(5.06)

—

(2.77)

—

Aircraft fuel, including hedging gains and losses

1.59

2.77

2.07

2.82

Special items - merger-related costs

0.01

0.03

0.02

0.08

Special items - impairment charges and other(a)

1.53

—

1.27

—

Special items - restructuring charges(b)

4.09

—

1.17

—

CASM excluding fuel and special items

14.00

¢

8.43

¢

12.57

¢

8.59

¢








Mainline:






CASM

16.80

¢

10.46

¢

13.56

¢

10.65

¢

Less the following components:






Payroll support program wage offset

(5.56)

—