SEC Filing | Alaska Air Group Inc

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alk-20200723

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

July 23, 2020

(Date of earliest event reported)

ALASKA AIR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)


1-8957						91-1292054
(Commission File Number)						(IRS Employer Identification No.)

19300 International Boulevard

Seattle

Washington

98188

(Address of Principal Executive Offices)

(Zip Code)

(206) 392-5040

(Registrant's Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Ticker Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	ALK	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

☐ Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

This document is also available on our website at http://investor.alaskaair.com.

ITEM 2.02. Results of Operations And Financial Condition

On July 23, 2020, Alaska Air Group, Inc. (Air Group) issued a press release reporting financial results for the second quarter of 2020. The press release is furnished herein as Exhibit 99.1.

ITEM 7.01. Regulation FD Disclosure

Pursuant to 17 CFR Part 243 (Regulation FD), the Company is submitting information relating to its financial and operational outlook in an Investor Update. The Investor Update is furnished herein as Exhibit 99.2.

In accordance with General Instruction B.2 of Form 8-K, the information under this item and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

ITEM 9.01 Financial Statements and Other Exhibits


Exhibit 99.1						Second Quarter 2020 Earnings Press Release dated July 23, 2020
Exhibit 99.2						Investor Update dated July 23, 2020
104						Cover Page Interactive Data File - embedded within the Inline XBRL Document

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALASKA AIR GROUP, INC.

Registrant

Date: July 23, 2020

/s/ CHRISTOPHER M. BERRY

Christopher M. Berry

Vice President Finance and Controller

Document

Exhibit 99.1

July 23, 2020


Media contact:						Investor/analyst contact:
Media Relations						Emily Halverson
(206) 304-0008						Director, Investor Relations
						(206) 392-5908

Alaska Air Group reports second quarter 2020 results; COVID-19 updates

Alaska receives official oneworld invitation

SEATTLE -

Financial Results:

•Reported net loss for the second quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of $214 million, or $1.73 per diluted share, compared to net income of $262 million, or $2.11 per diluted share in the second quarter of 2019.

•Reported net loss for the second quarter of 2020, excluding the payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $439 million, or $3.54 per diluted share, compared to net income of $270 million or $2.17 per diluted share, in the second quarter of 2019.

•Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 51%.

Liquidity Updates:

•Lowered cash burn from an exit rate of $400 million per month in March to $120 million in June, a 70% reduction.

•Closed on an additional $164 million in secured financing in the second quarter, secured by seven aircraft.

•Held $2.8 billion in unrestricted cash and marketable securities as of June 30, 2020.

•Obtained nearly $1.2 billion in financing through the issuance of Enhanced Equipment Trust Certificates (EETC), secured by 42 Boeing and 19 Embraer aircraft, on July 2, 2020.

•Held $3.8 billion in cash and marketable securities as of July 22, 2020, including EETC funds received in July.

•Received $992 million in support for Alaska and Horizon under the Coronavirus Aid, Relief, and Economic Security (CARES) Act Payroll Support Program (PSP) in April 2020.

•Reached an agreement for McGee to receive $30 million in CARES Act PSP support, $15 million of which was received in June 2020.

•Signed a non-binding letter of intent with the U.S. Treasury to obtain up to $1.1 billion in additional CARES Act loans.

Operational Updates:

•Received official oneworld invitation on July 23, 2020. The company is working to accelerate the timeline and join the partnership by the end of 2020.

•Returned 43 mainline aircraft and all Horizon Air and SkyWest Airlines aircraft to service. As of July 22, 2020, 89 mainline aircraft remain temporarily parked.

•In July 2020, eliminated 300 management positions, initiated early-out programs for frontline workers and offered incentive leaves to pilots as we work to mitigate involuntary furloughs.

•Received FAA certification to transport cargo in the passenger cabin on five Boeing 737-900 passenger aircraft, and began cargo-only service to Unalakleet, Alaska.

•Announced expansion to year-round service to King Salmon and Dillingham, Alaska, to be flown by Horizon E175 aircraft, as well as began weekly service on Boeing 737 aircraft to Cold Bay, Alaska.

•Announced 12 new routes to be flown to various destinations from Los Angeles International Airport.

Next-Level Care

•Expanded the Company's Next-Level Care initiative, including nearly 100 measures, offering layers of safety through every single stage of travel and helping guests build confidence in flying. Such measures include the following:

Covering and caring for guests

◦Flyers are required to complete a pre-travel wellness agreement at check-in. Guests aged 12 and older are required to wear a mask throughout all stages of travel.

◦Empowered flight attendants with the ability to issue "yellow card" warnings to guests refusing mask policies, with the consequence of suspension of future travel for non-compliance.

◦Provided hand sanitization stations throughout the airport, including lobby and gate areas. Personal sanitizing wipes made available onboard starting July 2020.

◦Extended "Peace-of-Mind" waiver, allowing changes to ticketed travel without change or cancellation fees for tickets booked through September 8, 2020.

Personal Safety

◦Limiting the number of guests onboard and extended blocking middle seats on mainline aircraft through September 30, 2020.

◦Reduced onboard service to limit interaction between flight crews and guests.

◦Placed floor decals throughout our airports, reminding guests to "mind their wingspan," when at ticket counters, kiosks and boarding.

◦Limited capacity of airport lounges to 50% and extended lounge memberships active as of April 1 by six months.

◦Boarding aircraft from the rear, and in smaller groups, to limit interaction between guests.

◦Working with airports to install plexiglass barriers at all guest touchpoints along their journey.

Exceeding CDC guidelines and clearing the air

◦Aircraft are equipped with hospital-grade HEPA air filters, which are designed to remove 99.95% of airborne contaminants and bring outside air on board every three minutes.

◦Exceed CDC cleaning guidelines on board and use high-grade, EPA-certified disinfectant to clean critical areas, and perform a deep-clean and sanitization of all aircraft overnight.

◦Utilizing electrostatic disinfectant sprayers, which emit a safe, high-grade EPA cleaning solution to sanitize surfaces.

Alaska Air Group Inc. today reported second quarter 2020 GAAP net loss of $214 million, or $1.73 per diluted share, compared to net income of $262 million, or $2.11 per diluted share in the second 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 $439 million, or $3.54 per diluted share, compared to adjusted net income of $270 million, or $2.17 per diluted share in 2019.

"Airlines are currently navigating the biggest demand contraction in the history of aviation," said Air Group CEO Brad Tilden. “The rest of the leadership team and I could not be more proud of how the people of Alaska and Horizon reacted quickly and decisively to adjust our operations and our business, and to help our guests feel safe when they fly with us. Being tested in moments like this reveals character, and I'm confident in our future because of the way our people are responding every day with grit, determination and perseverance. Those are the qualities that will carry our airline and our country through this crisis and beyond."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (diluted EPS) for the three and six months ended June 30, 2020 and 2019 to adjusted amounts.


	Three Months Ended June 30,
	2020						2019
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income (loss) and diluted EPS	$	(214)	$	(1.73)	$	262	$	2.11
Payroll support program wage offset	(362)		(2.92)		—		—
Mark-to-market fuel hedge adjustments	(6)		(0.05)		3		0.02
Special items - merger-related costs	1		0.01		8		0.06

Special items - impairment charges and other	69		0.56		—		—
Income tax effect of reconciling items above	73		0.59		(3)		(0.02)
Non-GAAP adjusted net income (loss) and diluted EPS	$	(439)	$	(3.54)	$	270	$	2.17

	Six Months Ended June 30,
	2020						2019
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income (loss) and diluted EPS	$	(446)	$	(3.60)	$	266	$	2.14
Payroll support program wage offset	(362)		(2.93)		—		—
Mark-to-market fuel hedge adjustments	3		0.03		(1)		(0.01)
Special items - merger-related costs	4		0.03		34		0.27
Special items - impairment charges and other	229		1.85		—		—
Income tax effect of reconciling items above	31		0.25		(8)		(0.06)
Non-GAAP adjusted net income (loss) and diluted EPS	$	(541)	$	(4.37)	$	291	$	2.34

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

A conference call regarding the second quarter results will be streamed online at 8:30 a.m. Pacific time on July 23, 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 March 31, 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 June 30,										Six Months Ended June 30,
(in millions, except per-share amounts)	2020		2019		Change		2020		2019		Change
Operating Revenues:
Passenger revenue	$	309	$	2,111	(85)	%	$	1,790	$	3,827	(53)	%
Mileage Plan other revenue	73		118		(38)	%	182		228		(20)	%
Cargo and other	39		59		(34)	%	85		109		(22)	%
Total Operating Revenues	421		2,288		(82)	%	2,057		4,164		(51)	%
Operating Expenses:
Wages and benefits	472		567		(17)	%	1,084		1,124		(4)	%
Payroll support program wage offset	(362)		—		NM		(362)		—		NM
Variable incentive pay	16		44		(64)	%	23		79		(71)	%
Aircraft fuel, including hedging gains and losses	59		502		(88)	%	443		922		(52)	%
Aircraft maintenance	45		115		(61)	%	160		235		(32)	%
Aircraft rent	74		82		(10)	%	155		165		(6)	%
Landing fees and other rentals	83		113		(27)	%	214		245		(13)	%
Contracted services	30		70		(57)	%	102		142		(28)	%
Selling expenses	4		87		(95)	%	59		159		(63)	%
Depreciation and amortization	107		105		2	%	215		211		2	%
Food and beverage service	7		53		(87)	%	56		102		(45)	%
Third-party regional carrier expense	26		42		(38)	%	63		83		(24)	%
Other	78		136		(43)	%	221		274		(19)	%
Special items - merger-related costs	1		8		(88)	%	4		34		(88)	%
Special items - impairment charges and other	69		—		NM		229		—		NM
Total Operating Expenses	709		1,924		(63)	%	2,666		3,775		(20)	%
Operating Income (Loss)	(288)		364		(179)	%	(609)		389		(257)	%
Nonoperating Income (Expense):
Interest income	7		11		(36)	%	16		20		(20)	%
Interest expense	(17)		(20)		(15)	%	(30)		(42)		(29)	%
Interest capitalized	1		3		(67)	%	4		7		(43)	%
Other - net	6		(7)		(186)	%	11		(17)		(165)	%
Total Nonoperating Income (Expense)	(3)		(13)		(77)	%	1		(32)		(103)	%
Income (Loss) Before Income Tax	(291)		351				(608)		357
Income tax (benefit) expense	(77)		89				(162)		91
Net Income (Loss)	$	(214)	$	262			$	(446)	$	266

Basic Earnings (Loss) Per Share:	$	(1.74)	$	2.12			$	(3.62)	$	2.15
Diluted Earnings (Loss) Per Share:	$	(1.73)	$	2.11			$	(3.60)	$	2.14

Shares Used for Computation:
Basic	123.296		123.418				123.058		123.355
Diluted	123.965		124.301				123.685		124.179

Cash dividend declared per share:	$	—	$	0.35			$	0.375	$	0.70


CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.

(in millions)	June 30, 2020			December 31, 2019
Cash and marketable securities	$	2,803		$	1,521
Other current assets	441			516
Current assets	3,244			2,037
Property and equipment - net	6,795			6,902
Operating lease assets	1,568			1,711
Goodwill	1,943			1,943
Intangible assets - net	109			122
Other assets	339			278
Total assets	13,998			12,993

Air traffic liability	1,131			900
Current portion of long-term debt	1,087			235
Current portion of operating lease liabilities	273			269
Other current liabilities	1,629			1,797
Current liabilities	4,120			3,201
Long-term debt	1,549			1,264
Long-term operating lease liabilities	1,376			1,439
Other liabilities and credits	3,092			2,758
Shareholders' equity	3,861			4,331
Total liabilities and shareholders' equity	$	13,998		$	12,993

Debt-to-capitalization ratio, including operating leases	51		%	41		%

Number of common shares outstanding	123.639			123.000


OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.

	Three Months Ended June 30,					Six Months Ended June 30,
	2020	2019	Change	2020	2019	Change
Consolidated Operating Statistics:^(a)
Revenue passengers (000)	1,485	12,026	(87.7)%	10,417	22,442	(53.6)%
RPMs (000,000) "traffic"	1,654	14,638	(88.7)%	12,310	27,087	(54.6)%
ASMs (000,000) "capacity"	4,307	16,980	(74.6)%	19,612	32,487	(39.6)%
Load factor	38.4%	86.2%	(47.8) pts	62.8%	83.4%	(20.6) pts
Yield	18.68¢	14.43¢	29.5%	14.54¢	14.13¢	2.9%
RASM	9.77¢	13.48¢	(27.5)%	10.49¢	12.82¢	(18.2)%
CASMex^(b)	21.87¢	8.33¢	162.5%	12.00¢	8.68¢	38.2%
Economic fuel cost per gallon^(b)	$1.20	$2.27	(47.1)%	$1.77	$2.20	(19.5)%
Fuel gallons (000,000)	54	220	(75.5)%	248	419	(40.8)%
ASM's per gallon	79.8	77.2	3.4%	79.1	77.5	2.1%
Average number of full-time equivalent employees (FTE)	15,836	21,921	(27.8)%	19,155	21,876	(12.4)%
Mainline Operating Statistics:
Revenue passengers (000)	905	9,206	(90.2)%	7,580	17,070	(55.6)%
RPMs (000,000) "traffic"	1,276	13,207	(90.3)%	10,858	24,379	(55.5)%
ASMs (000,000) "capacity"	3,363	15,241	(77.9)%	17,060	29,114	(41.4)%
Load factor	37.9%	86.7%	(48.8) pts	63.6%	83.7%	(20.1) pts
Yield	17.63¢	13.38¢	31.8%	13.44¢	13.08¢	2.8%
RASM	9.52¢	12.66¢	(24.8)%	9.94¢	12.02¢	(17.3)%
CASMex^(b)	22.19¢	7.65¢	190.1%	11.17¢	7.96¢	40.3%
Economic fuel cost per gallon^(b)	$1.20	$2.26	(46.9)%	$1.78	$2.19	(18.7)%
Fuel gallons (000,000)	38	187	(79.7)%	201	356	(43.5)%
ASM's per gallon	88.5	81.5	8.6%	84.9	81.8	3.8%
Average number of FTE's	12,340	16,551	(25.4)%	14,579	16,504	(11.7)%
Aircraft utilization	5.6	11.1	(49.5)%	8.8	10.7	(17.8)%
Average aircraft stage length	1,144	1,311	(12.7)%	1,270	1,308	(2.9)%
Operating fleet^(d)	225	238	(13) a/c	225	238	(13) a/c
Regional Operating Statistics:^(c)
Revenue passengers (000)	580	2,820	(79.4)%	2,837	5,372	(47.2)%
RPMs (000,000) "traffic"	378	1,431	(73.6)%	1,452	2,708	(46.4)%
ASMs (000,000) "capacity"	945	1,739	(45.7)%	2,552	3,373	(24.3)%
Load factor	40.0%	82.3%	(42.3) pts	56.9%	80.3%	(23.4) pts
Yield	22.12¢	24.06¢	(8.1)%	22.80¢	23.57¢	(3.3)%
RASM	10.63¢	20.51¢	(48.2)%	14.07¢	19.62¢	(28.3)%
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 12 aircraft that were permanently parked in March 2020.


OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.

	Three Months Ended June 30, 2020
(in millions)	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating Revenues
Passenger revenues	$	225	$	84	$	—	$	—	$	309	$	—	$	309
CPA revenues	—		—		81		(81)		—		—		—
Mileage Plan other revenue	56		17		—		—		73		—		73
Cargo and other	39		—		—		—		39		—		39
Total Operating Revenues	320		101		81		(81)		421		—		421
Operating Expenses
Operating expenses, excluding fuel	746		210		68		(82)		942		(292)		650
Economic fuel	45		20		—		—		65		(6)		59
Total Operating Expenses	791		230		68		(82)		1,007		(298)		709
Nonoperating Income (Expense)
Interest income	11		—		—		(4)		7		—		7
Interest expense	(18)		—		(5)		6		(17)		—		(17)
Interest capitalized	1		—		—		—		1		—		1
Other - net	6		—		—		—		6		—		6
Total Nonoperating Income (Expense)	—		—		(5)		2		(3)		—		(3)
Income (Loss) Before Income Tax	$	(471)	$	(129)	$	8	$	3	$	(589)	$	298	$	(291)


	Three Months Ended June 30, 2019
(in millions)	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,767	$	344	$	—	$	—	$	2,111	$	—	$	2,111
CPA revenues	—		—		112		(112)		—		—		—
Mileage Plan other revenue	105		13		—		—		118		—		118
Cargo and other	57		—		—		2		59		—		59
Total Operating Revenues	1,929		357		112		(110)		2,288		—		2,288
Operating Expenses
Operating expenses, excluding fuel	1,167		268		95		(116)		1,414		8		1,422
Economic fuel	422		77		—		—		499		3		502
Total Operating Expenses	1,589		345		95		(116)		1,913		11		1,924
Nonoperating Income (Expense)
Interest income	17		—		—		(6)		11		—		11
Interest expense	(19)		—		(7)		6		(20)		—		(20)
Interest capitalized	3		—		—		—		3		—		3
Other - net	(7)		—		—		—		(7)		—		(7)
Total Nonoperating Income (Expense)	(6)		—		(7)		—		(13)		—		(13)
Income (Loss) Before Income Tax	$	334	$	12	$	10	$	6	$	362	$	(11)	$	351


	Six Months Ended June 30, 2020
(in millions)	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating Revenues
Passenger revenues	$	1,459	$	331	$	—	$	—	$	1,790	$	—	$	1,790
CPA revenues	—		—		186		(186)		—		—		—
Mileage Plan other revenue	154		28		—		—		182		—		182
Cargo and other	83		—		—		2		85		—		85
Total Operating Revenues	1,696		359		186		(184)		2,057		—		2,057
Operating Expenses
Operating expenses, excluding fuel	1,905		479		160		(192)		2,352		(129)		2,223
Economic fuel	358		82		—		—		440		3		443
Total Operating Expenses	2,263		561		160		(192)		2,792		(126)		2,666
Nonoperating Income (Expense)
Interest income	25		—		—		(9)		16		—		16
Interest expense	(30)		—		(10)		10		(30)		—		(30)
Interest capitalized	4		—		—		—		4		—		4
Other - net	12		—		—		(1)		11		—		11
Total Nonoperating Income (Expense)	11		—		(10)		—		1		—		1
Income (Loss) Before Income Tax	$	(556)	$	(202)	$	16	$	8	$	(734)	$	126	$	(608)

	Six Months Ended June 30, 2019
(in millions)	Mainline		Regional		Horizon		Consolidating & Other^(a)		Air Group Adjusted^(b)		Special Items^(c)		Consolidated
Operating Revenues
Passenger revenues	$	3,189	$	638	$	—	$	—	$	3,827	$	—	$	3,827
CPA revenues	—		—		228		(228)		—		—		—
Mileage Plan other revenue	205		23		—		—		228		—		228
Cargo and other	105		1		1		2		109		—		109
Total Operating Revenues	3,499		662		229		(226)		4,164		—		4,164
Operating Expenses
Operating expenses, excluding fuel	2,319		542		192		(234)		2,819		34		2,853
Economic fuel	780		143		—		—		923		(1)		922
Total Operating Expenses	3,099		685		192		(234)		3,742		33		3,775
Nonoperating Income (Expense)
Interest income	33		—		—		(13)		20		—		20
Interest expense	(40)		—		(15)		13		(42)		—		(42)
Interest capitalized	7		—		—		—		7		—		7
Other - net	(17)		—		—		—		(17)		—		(17)
Total Nonoperating Income (Expense)	(17)		—		(15)		—		(32)		—		(32)
Income (Loss) Before Income Tax	$	383	$	(23)	$	22	$	8	$	390	$	(33)	$	357

(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 June 30,						Six Months Ended June 30, 2019
	2020		2019		2020		2019
Consolidated:
CASM	16.46	¢	11.33	¢	13.59	¢	11.62	¢
Less the following components:
Payroll support program wage offset	(8.40)		—		(1.85)		—
Aircraft fuel, including hedging gains and losses	1.37		2.96		2.26		2.84
Special items - merger-related costs	0.02		0.04		0.01		0.10
Special items - impairment charges and other	1.60		—		1.17		—
CASM excluding fuel and special items	21.87	¢	8.33	¢	12.00	¢	8.68	¢

Mainline:
CASM	15.79	¢	10.50	¢	12.39	¢	10.76	¢
Less the following components:
Payroll support program wage offset	(9.69)		—		(1.91)		—
Aircraft fuel, including hedging gains and losses	1.16		2.79		2.12		2.68
Special items - merger-related costs	0.02		0.06		0.02		0.12
Special items - impairment charges and other	2.11		—		0.99		—
CASM excluding fuel and special items	22.19	¢	7.65	¢