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Alaska Air Group reports third quarter 2022 results

Delivered adjusted pretax margins of 15.6%;

Recorded record third quarter operating revenue of $2.8 billion;

Finalized new contracts with ALPA, IBT and IAM represented employees

SEATTLE, Oct. 20, 2022 /PRNewswire/ -- Alaska Air Group (NYSE: ALK) today reported financial results for the third quarter ending Sept. 30, 2022, and provided outlook for the fourth quarter ending Dec. 31, 2022.

"I am incredibly proud of our entire team for the strong results they delivered in the third quarter, through the busiest travel season in two years," said Alaska CEO Ben Minicucci. "We ran an industry-leading operation with completion rates over 99% every month. We set a new revenue record and our double-digit pretax margin will likely lead the industry. Alaska and Horizon also ratified three major labor deals. This is a strong foundation that we look forward to building on in 2023."

Financial Results for the Third Quarter:

  • Reported net income for the third quarter of 2022 under Generally Accepted Accounting Principles (GAAP) of $40 million, or $0.31 per share, compared to a net income of $194 million, or $1.53 per share, in the third quarter of 2021.
  • Reported net income for the third quarter of 2022, excluding special items and mark-to-market fuel hedge accounting adjustments, of $325 million, or $2.53 per share, compared to a net income, excluding special items and mark-to-market fuel hedge accounting adjustments, of $187 million, or $1.47 per share, in the third quarter of 2021.
  • Recorded $2.8 billion in operating revenues for the third quarter, the highest revenue-generating quarter in company history.
  • Generated RASM in the third quarter of 2022 26.8% above the third quarter 2019 result, driven by strong pricing, a robust demand environment and the execution of our commercial roadmap.
  • Reported adjusted pretax margin for the third quarter of 15.6%.

Balance Sheet and Liquidity:

  • Held $3.2 billion in unrestricted cash and marketable securities as of Sept. 30, 2022.
  • Maintained a debt-to-capitalization ratio of 49% as of Sept. 30, 2022, within the target range of 40% to 50%.
  • Generated $174 million in operating cash flow for the third quarter.

Operational Updates and Milestones:

  • First major carrier to ratify a new labor agreement with mainline pilots, recognizing Alaska's more than 3,300 ALPA-represented employees for their contributions to the company's success.
  • Ratified a pilot retention agreement in September with 700 Horizon Air pilots represented by the IBT.
  • Ratified a two-year contract extension in August with nearly 5,700 Alaska Airlines employees represented by the IAM.
  • Delivered an excellent operation, with 99% completion rates for both mainline and regional for the quarter.
  • Received five Boeing 737-9 aircraft in the third quarter, bringing the total number of 737-9s in our mainline fleet to 33.
  • Retired six Airbus A320 aircraft and nine Q400 aircraft during the quarter, progressing on our transition to single fleets. By the end of January 2023, the remaining 23 A320 aircraft and 22 Q400 aircraft are expected to be retired.
  • Began retrofit project for the 737-800 fleet to refresh interiors and add three main cabin seats.
  • Announced new nonstop service between Everett's Paine Field and Anchorage starting in November 2022.

Awards and Recognition:

  • Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the eighth consecutive year.
  • Named to Forbes' America's Best Employers for Women list, receiving the highest ranking of all airlines.
  • Named for the second year in a row to Newsweek's list of America's Best Customer Service.
  • Recognized by Fast Company as one of the Best Workplaces for Innovators.

Environmental, Social and Governance Updates:

  • Signed agreement with Gevo Inc. to purchase 185 million gallons of sustainable aviation fuel (SAF) over five years beginning in 2026.
  • Launched a new SAF initiative in partnership with Microsoft, Boeing and Washington State University to expand the use of SAF and increase education on sustainable travel topics.
  • Donated funds and miles to multiple organizations assisting disaster relief and recovery in Alaska, Florida and Puerto Rico.

The following table reconciles the company's reported GAAP net income per share (EPS) for the three and nine months ended Sept. 30, 2022, and 2021 to adjusted amounts.

 

Three Months Ended September 30,

2022

2021

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income per share

$                 40

$              0.31

$               194

$              1.53

Mark-to-market fuel hedge adjustments

131

1.02

—

—

Special items - fleet transition(a)

155

1.21

(9)

(0.07)

Special items - labor ratification bonus(b)

90

0.70

—

—

Income tax effect of reconciling items above

(91)

(0.71)

2

0.01

Non-GAAP adjusted net income per share

$               325

$              2.53

$               187

$              1.47









Nine Months Ended September 30,

2022

2021

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income per share

$                 36

$              0.28

$               460

$              3.64

Payroll support program grant wage offset

—

—

(914)

(7.24)

Mark-to-market fuel hedge adjustments

64

0.50

(68)

(0.54)

Special items - fleet transition(a)

376

2.94

5

0.04

Special items - labor ratification bonus(b)

90

0.70

—

—

Special items - restructuring(c)

—

—

(12)

(0.09)

Income tax effect of reconciling items above

(128)

(1.00)

242

1.92

Non-GAAP adjusted net income (loss) per share

$               438

$              3.42

$             (287)

$            (2.27)

(a)    Special items - fleet transition in the three and nine months ended September 30, 2022 is primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets by January 2023.

(b)   Special items - labor ratification bonus in the three and nine months ended September 30, 2022 is comprised of a one-time payment to Alaska pilots following ratification of a new collective bargaining agreement.

(c)   Special items - restructuring in the nine months ended September 30, 2021 is related to the estimated costs for pilot incentive leaves.  

 

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.

Alaska will hold its quarterly conference call to discuss third quarter results at 8:30 a.m. PDT on Oct. 20, 2022. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.

Fourth Quarter 2022 Forecast Information

 


Q4 Expectation(a)

Capacity (ASMs) % change versus 2019(a)

Down 7% to 10%

Passenger load factor

83% to 86%

Total revenue % change versus 2019(a)

Up 12% to 15%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2019(a)

Up 20% to 23%

Economic fuel cost per gallon

$3.50 to $3.70

Non-operating expense (benefit)

 

 

($3M) to ($5M)

 

Full Year 2022 Forecast Information

 


Full Year Expectation(a)

Prior Full Year Expectation(b)

Capacity (ASMs) % change versus 2019

Down 8% to 9%

Down 8% to 9%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2019

Up 19% to 20%

Up 15% to 17%

Adjusted Pre-tax margin

6% to 9%

6% to 9%

Capital Expenditures

~$1.5 billion

$1.6 billion to $1.7 billion

(a)    Due to the unusual nature of 2021 and 2020, all 2022 comparisons are versus the comparable period in 2019.

(b)    As filed on July 21, 2022.

 

For full year 2022, we continue to expect capacity down 8% to 9% as we prioritize our transition to single fleet and operational reliability. For the same period we expect CASMex to be up 19% to 20%, now reflecting the impacts of our three newly ratified labor agreements. Despite the impact of elevated fuel and new labor deals, we still expect to deliver a full year adjusted pre-tax margin of 6% to 9%.

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, Section 21E of the Securities Exchange Act of 1934, 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 our forward-looking statements, assumptions or beliefs. 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, 2021. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. 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 made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.

Alaska Airlines and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We emphasize low fares and award-winning customer service. Alaska is a member of the oneworld global alliance. With the alliance and our additional airline partners, our guests can travel to more than 900 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at news.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group.

 

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)

2022

2021

Change

2022

2021

Change

Operating Revenues










Passenger revenue

$        2,615

$        1,774

47 %

$        6,544

$        3,785

73 %

Mileage Plan other revenue

146

120

22 %

433

332

30 %

Cargo and other

67

59

14 %

190

160

19 %

Total Operating Revenues

2,828

1,953

45 %

7,167

4,277

68 %












Operating Expenses










Wages and benefits

686

578

19 %

1,931

1,581

22 %

Variable incentive pay

48

42

14 %

140

109

28 %

Payroll Support Program grant wage offset

—

—

NM

—

(914)

NM

Aircraft fuel, including hedging gains and losses

877

376

133 %

2,000

853

134 %

Aircraft maintenance

92

89

3 %

331

272

22 %

Aircraft rent

76

64

19 %

222

188

18 %

Landing fees and other rentals

161

141

14 %

435

414

5 %

Contracted services

83

62

34 %

243

167

46 %

Selling expenses

82

49

67 %

218

123

77 %

Depreciation and amortization

104

99

5 %

310

294

5 %

Food and beverage service

52

39

33 %

143

97

47 %

Third-party regional carrier expense

53

39

36 %

145

106

37 %

Other

207

126

64 %

536

348

54 %

Special items - fleet transition

155

(9)

NM

376

5

NM

Special items - labor ratification bonus

90

—

NM

90

—

NM

Special items - restructuring

—

—

.

NM

—

(12)

NM

Total Operating Expenses

2,766

1,695

63 %

7,120

3,631

96 %

Operating Income

62

258

(76) %

47

646

(93) %

Non-operating Income (Expense)










Interest income

17

6

183 %

35

19

84 %

Interest expense

(31)

(30)

3 %

(84)

(101)

(17) %

Interest capitalized

3

3

— %

8

9

(11) %

Other - net

14

8

75 %

38

27

41 %

Total Non-operating Income (Expense)

3

(13)

(123) %

(3)

(46)

(93) %

Income Before Income Tax

65

245


44

600

Income tax expense

25

51


8

140

Net Income

$             40

$           194


$             36

$           460













Basic Earnings Per Share

$          0.32

$          1.55


$          0.28

$          3.69

Diluted Earnings Per Share

$          0.31

$          1.53


$          0.28

$          3.64













Shares used for computation:










Basic

126.783

125.250


126.440

124.846

Diluted

128.370

127.188


128.087

126.325

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


Alaska Air Group, Inc.






(in millions)

September 30, 2022

December 31, 2021

ASSETS


Current Assets


Cash and cash equivalents

$                            688

$                            470

Marketable securities

2,462

2,646

   Total cash and marketable securities

3,150

3,116

Receivables - net

345

546

Inventories and supplies - net

94

62

Prepaid expenses and other current assets

221

196

Total Current Assets

3,810

3,920




Property and Equipment


Aircraft and other flight equipment

8,811

8,127

Other property and equipment

1,589

1,489

Deposits for future flight equipment

300

384

10,700

10,000

Less accumulated depreciation and amortization

4,046

3,862

Total Property and Equipment - Net

6,654

6,138




Other Assets


Operating lease assets

1,605

1,453

Goodwill and intangible assets

2,040

2,044

Other noncurrent assets

422

396

Other Assets

4,067

3,893




Total Assets

$                      14,531

$                      13,951

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


Alaska Air Group, Inc.






(in millions, except share amounts)

September 30, 2022

December 31, 2021

LIABILITIES AND SHAREHOLDERS' EQUITY


Current Liabilities


Accounts payable

$                      202

$                       200

Accrued wages, vacation and payroll taxes

583

457

Air traffic liability

1,467

1,163

Other accrued liabilities

805

625

Deferred revenue

1,068

912

Current portion of operating lease liabilities

263

268

Current portion of long-term debt

321

366

Total Current Liabilities

4,709

3,991




Long-Term Debt, Net of Current Portion

1,889

2,173




Noncurrent Liabilities


Long-term operating lease liabilities, net of current portion

1,482

1,279

Deferred income taxes

571

578

Deferred revenue

1,413

1,446

Obligation for pension and postretirement medical benefits

296

305

Other liabilities

345

378

Total Noncurrent Liabilities

4,107

3,986




Commitments and Contingencies






Shareholders' Equity


Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding

—

—

Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,184,043 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,834,099 shares; 2021 - 125,905,864 shares

1

1

Capital in excess of par value

549

494

Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares

(674)

(674)

Accumulated other comprehensive loss

(328)

(262)

Retained earnings

4,278

4,242

3,826

3,801

Total Liabilities and Shareholders' Equity

$                 14,531

$               13,951

 

SUMMARY CASH FLOW (unaudited)




Alaska Air Group, Inc.




(in millions)

 

Nine Months
Ended
September 30,
2022

Six Months
Ended June 30,
2022(a)

Three Months
Ended
September 30,
2022(b)

Cash Flows from Operating Activities:




Net income (loss)

$                          36

$                          (4)

$                          40

Non-cash reconciling items

719

447

272

Changes in working capital

654

792

(138)

Net cash provided by (used in) operating activities

1,409

1,235

174






Cash Flows from Investing Activities:




Property and equipment additions

(947)

(632)

(315)

Other investing activities

59

(89)

148

Net cash provided by (used in) investing activities

(888)

(721)

(167)






Cash Flows from Financing Activities:

(296)

(206)

(90)






Net increase (decrease) in cash and cash equivalents

225

308

(83)

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

494

494

802

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

$                        719

$                        802

$                        719

(a)  As reported in Form 10-Q for the second quarter of 2022.

(b) Cash flows for the three months ended September 30, 2022, can be calculated by subtracting cash flows for the six months ended June 30, 2022, as reported in Form 10-Q for the second quarter 2022, from the nine months ended September 30, 2022.

 

OPERATING STATISTICS SUMMARY (unaudited)





Alaska Air Group, Inc.























Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

Change

2022

2021

Change

Consolidated Operating Statistics:(a)










Revenue passengers (000)

11,437

9,832

16.3 %

31,137

23,211

34.1 %

RPMs (000,000) "traffic"

14,143

11,592

22.0 %

38,475

27,319

40.8 %

ASMs (000,000) "capacity"

16,349

14,429

13.3 %

45,743

38,238

19.6 %

Load factor

86.5 %

80.3 %

6.2 pts

84.1 %

71.4 %

12.7 pts

Yield

18.48¢

15.30¢

20.8 %

17.01¢

13.85¢

22.8 %

RASM

17.30¢

13.54¢

27.8 %

15.67¢

11.19¢

40.0 %

CASMex(b)

10.05¢

9.21¢

9.1 %

10.17¢

9.67¢

5.2 %

Economic fuel cost per gallon(b)

$3.66

$2.05

78.5 %

$3.38

$1.93

75.1 %

Fuel gallons (000,000)

204

183

11.5 %

573

477

20.1 %

ASMs per gallon

80.1

78.8

1.6 %

79.8

80.2

(0.5) %

Average full-time equivalent employees (FTEs)

22,878

20,315

12.6 %

22,354

18,819

18.8 %

Mainline Operating Statistics:










Revenue passengers (000)

8,671

7,065

22.7 %

23,557

16,367

43.9 %

RPMs (000,000) "traffic"

12,846

10,122

26.9 %

34,818

23,677

47.1 %

ASMs (000,000) "capacity"

14,782

12,540

17.9 %

41,221

33,004

24.9 %

Load factor

86.9 %

80.7 %

6.2 pts

84.5 %

71.7 %

12.8 pts

Yield

17.26¢

14.08¢

22.6 %

15.76¢

12.68¢

24.3 %

RASM

16.34¢

12.66¢

29.1 %

14.72¢

10.44¢

41.0 %

CASMex(b)

9.15¢

8.45¢

8.3 %

9.24¢

8.90¢

3.8 %

Economic fuel cost per gallon(b)

$3.61

$2.03

77.8 %

$3.35

$1.91

75.4 %

Fuel gallons (000,000)

173

147

17.7 %

484

380

27.4 %

ASMs per gallon

85.4

85.3

0.1 %

85.2

86.9

(2.0) %

Average number of FTEs

17,453

15,116

15.5 %

17,035

13,870

22.8 %

Aircraft utilization

10.5

10.2

2.9 %

10.4

9.6

8.3 %

Average aircraft stage length

1,347

1,313

2.6 %

1,348

1,313

2.7 %

Operating fleet(d)

232

210

22 a/c

232

210

22 a/c

Regional Operating Statistics:(c)










Revenue passengers (000)

2,767

2,767

— %

7,579

6,843

10.8 %

RPMs (000,000) "traffic"

1,297

1,470

(11.8) %

3,657

3,642

0.4 %

ASMs (000,000) "capacity"

1,567

1,889

(17.0) %

4,522

5,235

(13.6) %

Load factor

82.8 %

77.8 %

5.0 pts

80.9 %

69.6 %

11.3 pts

Yield

30.69¢

23.72¢

29.4 %

28.88¢

21.47¢

34.5 %

RASM

26.23¢

19.26¢

36.2 %

24.26¢

15.80¢

53.5 %

Operating fleet(d)

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 2021 and 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 2022 to 2019.

 

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)

Alaska Air Group, Inc.























Three Months Ended September 30,

Nine Months Ended September 30,

2022

2019

Change

2022

2019

Change

Passenger revenue

$        2,615

$        2,211

18 %

$        6,544

$        6,038

8 %

Mileage plan other revenue

146

118

24 %

433

346

25 %

Cargo and other

67

60

12 %

190

169

12 %

Total Operating Revenues

2,828

2,389

18 %

7,167

6,553

9 %












Operating expenses, excluding fuel and special items

1,644

1,476

11 %

4,654

4,295

8 %

Aircraft fuel, including hedging gains and losses

877

486

80 %

2,000

1,408

42 %

Special items

245

5

NM

466

39

NM

Total Operating Expenses

2,766

1,967

41 %

7,120

5,742

24 %












Total Non-operating Expense

3

(6)

(150) %

(3)

(38)

(92) %

Income Before Income Tax

$              65

$            416

(84) %

$              44

$            773

(94) %












Consolidated Operating Statistics:










Revenue passengers (000)

11,437

12,574

(9) %

31,137

35,018

(11) %

RPMs (000,000) "traffic"

14,143

15,026

(6) %

38,475

42,113

(9) %

ASMs (000,000) "capacity"

16,349

17,519

(7) %

45,743

50,006

(9) %

Load Factor

86.5 %

85.8 %

         0.7 pts

84.1 %

84.2 %

       (0.1) pts

Yield

18.48¢

14.71¢

26 %

17.01¢

14.34¢

19 %

RASM

17.30¢

13.64¢

27 %

15.67¢

13.10¢

20 %

CASMex

10.05¢

8.43¢

19 %

10.17¢

8.59¢

18 %

FTEs

22,878

22,247

3 %

22,354

22,000

2 %

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.



























Three Months Ended September 30, 2022

(in millions)

Mainline

Regional

Horizon

Consolidating & Other(a)

Air Group Adjusted(b)

Special Items(c)

Consolidated

Operating Revenues












Passenger revenues

$     2,217

$        398

$          —

$                  —

$     2,615

$          —

$        2,615

CPA revenues

—

—

93

(93)

—

—

—

Mileage Plan other revenue

133

13

—

—

146

—

146

Cargo and other

65

—

—

2

67

—

67

Total Operating Revenues

2,415

411

93

(91)

2,828

—

2,828

Operating Expenses












Operating expenses, excluding fuel

1,352

292

94

(94)

1,644

245

1,889

Fuel expense

625

121

—

—

746

131

877

Total Operating Expenses

1,977

413

94

(94)

2,390

376

2,766

Non-operating Income (Expense)

8

—

(5)

—

3

—

3

Income (Loss) Before Income Tax

$        446

$          (2)

$          (6)

$                    3

$        441

$      (376)

$             65

Pretax Margin







15.6 %


2.3 %















Three Months Ended September 30, 2021

(in millions)

Mainline

Regional

Horizon

Consolidating & Other(a)

Air Group Adjusted(b)

Special Items(c)

Consolidated

Operating Revenues












Passenger revenues

$     1,425

$        349

$          —

$                  —

$     1,774

$          —

$        1,774

CPA revenues

—

—

107

(107)

—

—

—

Mileage Plan other revenue

105

15

—

—

120

—

120

Cargo and other

58

—

—

1

59

—

59

Total Operating Revenues

1,588

364

107

(106)

1,953

—

1,953

Operating Expenses












Operating expenses, excluding fuel

1,060

288

93

(113)

1,328

(9)

1,319

Fuel expense

299

77

—

—

376

—

376

Total Operating Expenses

1,359

365

93

(113)

1,704

(9)

1,695

Non-operating Income (Expense)

(8)

—

(6)

1

(13)

—

(13)

Income (Loss) Before Income Tax

$        221

$          (1)

$            8

$                    8

$        236

$            9

$           245

Pretax Margin







12.1 %


12.5 %

 

Nine Months Ended September 30, 2022

(in millions)

Mainline

Regional

Horizon

Consolidating & Other(a)

Air Group Adjusted(b)

Special Items(c)

Consolidated

Operating Revenues












Passenger revenues

$     5,488

$     1,056

$          —

$                  —

$    6,544

$          —

$        6,544

CPA revenues

—

—

288

(288)

—

—

—

Mileage Plan other revenue

392

41

—

—

433

—

433

Cargo and other

186

—

—

4

190

—

190

Total Operating Revenues

6,066

1,097

288

(284)

7,167

—

7,167

Operating Expenses












Operating expenses, excluding fuel

3,808

843

291

(288)

4,654

466

5,120

Fuel expense

1,623

313

—

—

1,936

64

2,000

Total Operating Expenses

5,431

1,156

291

(288)

6,590

530

7,120

Non-operating Income (Expense)

12

—

(15)

—

(3)

—

(3)

Income (Loss) Before Income Tax

$        647

$         (59)

$         (18)

$                   4

$       574

$       (530)

$             44

Pretax Margin







8.0 %


0.6 %















Nine Months Ended September 30, 2021

(in millions)

Mainline

Regional

Horizon

Consolidating & Other(a)

Air Group Adjusted(b)

Special Items(c)

Consolidated

Operating Revenues












Passenger revenues

$     3,003

$        782

$          —

$                  —

$    3,785

$          —

$        3,785

CPA revenues

—

—

322

(322)

—

—

—

Mileage Plan other revenue

287

45

—

—

332

—

332

Cargo and other

157

—

—

3

160

—

160

Total Operating Revenues

3,447

827

322

(319)

4,277

—

4,277

Operating Expenses












Operating expenses, excluding fuel

2,937

839

272

(349)

3,699

(921)

2,778

Fuel expense

726

195

—

—

921

(68)

853

Total Operating Expenses

3,663

1,034

272

(349)

4,620

(989)

3,631

Non-operating Income (Expense)

(31)

—

(16)

1

(46)

—

(46)

Income (Loss) Before Income Tax

$       (247)

$       (207)

$          34

$                  31

$      (389)

$        989

$           600

Pretax Margin







(9.1) %


14.0 %

(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 grant 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,

(in cents)

2022

2021

2022

2021

Consolidated:






CASM

                16.91 ¢

                11.75  ¢

                15.56 ¢

                  9.50 ¢

Less the following components:






Payroll Support Program grant wage offset

—

—

—

(2.39)

Aircraft fuel, including hedging gains and losses

5.36

2.60

4.37

2.24

Special items - fleet transition(a)

0.95

(0.06)

0.82

0.01

Special items - labor ratification bonus(b)

0.55

—

0.20

—

Special items - restructuring(c)

—

—

—

(0.03)

CASM excluding fuel and special items

                10.05 ¢

                  9.21 ¢

                10.17 ¢

                  9.67 ¢








Mainline:






CASM

                16.20 ¢

                10.77 ¢

                14.59 ¢

                  8.26 ¢

Less the following components:






Payroll Support Program grant wage offset

—

—

—

(2.61)

Aircraft fuel, including hedging gains and losses

5.52

2.39

4.44

1.99

Special items - fleet transition(a)

0.92

(0.07)

0.69

0.02

Special items - labor ratification bonus(b)

0.61

—

0.22

—

Special items - restructuring(c)

—

—

—

(0.04)

CASM excluding fuel and special items

                  9.15 ¢

                  8.45 ¢

                  9.24 ¢

                  8.90 ¢

(a)   Special items - fleet transition in the three and nine months ended September 30, 2022 is primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets by January 2023.

(b)   Special items - labor ratification bonus in the three and nine months ended September 30, 2022 is comprised of a one-time payment to Alaska pilots following ratification of a new collective bargaining agreement.

(c)   Special items - restructuring in the nine months ended September 30, 2021 is related to the estimated costs for pilot incentive leaves.

 

Fuel Reconciliation

Three Months Ended September 30,

2022

2021

(in millions, except for per-gallon amounts)

Dollars

Cost/Gallon

Dollars

Cost/Gallon

Raw or "into-plane" fuel cost

$                   775

$                  3.80

$                   397

$                  2.16

Losses (gains) on settled hedges

(29)

(0.14)

(21)

(0.11)

Consolidated economic fuel expense

746

3.66

376

2.05

Mark-to-market fuel hedge adjustment

131

0.64

—

—

GAAP fuel expense

$                   877

$                  4.30

$                   376

$                  2.05

Fuel gallons

204


183









Nine Months Ended September 30,

2022

2021

(in millions, except for per gallon amounts)

Dollars

Cost/Gallon

Dollars

Cost/Gallon

Raw or "into-plane" fuel cost

$                2,103

$                  3.67

$                   949

$                  1.99

Losses (gains) on settled hedges

(167)

(0.29)

(28)

(0.06)

Consolidated economic fuel expense

1,936

3.38

921

1.93

Mark-to-market fuel hedge adjustment

64

0.11

(68)

(0.14)

GAAP fuel expense

$                2,000

$                  3.49

$                   853

$                  1.79

Fuel gallons

573


477

 

Debt-to-capitalization, including operating leases

(in millions)

September 30, 2022

December 31, 2021

Long-term debt, net of current portion

$                           1,889

$                            2,173

Long-term and current capitalized operating leases

1,745

1,547

Adjusted debt, net of current portion of long-term debt

3,634

3,720

Shareholders' equity

3,826

3,801

Total Invested Capital

$                           7,460

$                            7,521




Debt-to-capitalization ratio, including operating leases

49 %

49 %

 

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent and special items

(in millions)

September 30, 2022

December 31, 2021

Current portion of long-term debt

$                                   321

$                                   366

Current portion of operating lease liabilities

263

268

Long-term debt

1,889

2,173

Long-term operating lease liabilities, net of current portion

1,482

1,279

Total adjusted debt

3,955

4,086

Less: Total cash and marketable securities

(3,150)

(3,116)

Adjusted net debt

$                                   805

$                                   970




(in millions)

Twelve Months Ended
September 30, 2022

Twelve Months Ended
December 31, 2021

GAAP Operating Income(a)

$                                     86

$                                   685

Adjusted for:


Payroll Support Program grant wage offset and special items

462

(925)

Mark-to-market fuel hedge adjustments

85

(47)

Depreciation and amortization

410

394

Aircraft rent

288

254

EBITDAR

$                               1,331

$                                   361

Adjusted net debt to EBITDAR

0.6x

2.7x

(a)      Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.

 

Note A: Pursuant to Regulation G, we are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

  • By eliminating fuel expense and certain other items (such as the Payroll Support Program grant wage offset and other special items) from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.

  • Cost per ASM (CASM) excluding fuel and certain other items, such as the Payroll Support Program grant wage offset and other special items, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
  • Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee incentive plan, which covers the majority of Air Group employees.

  • CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.

  • Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of these items as noted above. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

  • Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

GLOSSARY OF TERMS

Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 and Airbus 321neo family jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

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SOURCE Alaska Air Group

Media contact: Media Relations, (206) 304-0008; Investor/analyst contact: Emily Halverson, VP Finance and Controller, (206) 392-5908