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Alaska Air Group Reports Record Adjusted Fourth Quarter 2014 and Full-Year Results and Raises Dividend 60%

SEATTLE, Jan. 22, 2015 /PRNewswire/ --

Financial Highlights:

  • Reported record fourth quarter net income, excluding special items, of $125 million, or $0.94 per diluted share, compared to $77 million, or $0.55 per diluted share in 2013. This quarter's results compare to a First Call analyst consensus estimate of $0.93 per share. 
  • Reported record full-year net income, excluding special items, of $571 million, or $4.18 per diluted share, compared to $383 million, or $2.70 per diluted share in 2013.
  • Reported net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $148 million, or $1.11 per diluted share, compared to net income of $78 million, or $0.56 per diluted share in 2013.
  • Reported net income for the full year under GAAP of $605 million, or $4.42 per diluted share, compared to net income of $508 million, or $3.58 per diluted share in 2013.
  • Declared a $0.20 per share dividend, up 60% from the prior quarter.  The dividend will be paid on March 10, to shareholders of record as of February 24, 2015.
  • Paid $0.125 per-share quarterly cash dividend on December 3, bringing total dividend payments in 2014 to $68 million.
  • Repurchased 7,316,731 shares of common stock for an average price of $47.63 during 2014 for $348 million, or 6.9% of market capitalization at the beginning of 2014. Since 2007, Air Group has used $827 million to repurchase 49 million shares at an average price of $16.85.
  • Grew passenger revenues by 8% compared to the fourth quarter of 2013, and by 7% compared to full-year 2013.
  • Generated record full-year adjusted pretax margin of 17.2% in 2014, compared to 12.4% in 2013.
  • Achieved return on invested capital of 18.6% in 2014, compared to 13.6% in 2013.
  • Generated over $1.0 billion in operating cash flows and $344 million in free cash flows in 2014.
  • Lowered adjusted debt-to-total capitalization ratio to 31% as of Dec. 31, 2014.
  • Held $1.2 billion in unrestricted cash and marketable securities as of Dec. 31, 2014. 
  • Became one of only two U.S. airlines with investment grade credit ratings.

Year-to-date highlights of Alaska Air Group's five-year strategic plan:
Safety & Compliance

  • Launched "Ready, Safe, Go" safety campaign designed to increase safety awareness across the Air Group System.

People Focus

  • Awarded a record $116 million in incentive pay to employees for 2014, or more than one month's pay for most employees. Over the last five years, employees have earned more than $473 million in incentive pay, averaging 8.7% of annual pay.
  • Signed a five-year agreement with Alaska Airline's Flight Attendants in December 2014.
  • Signed a six-year contract with Horizon's aircraft technicians and fleet service agents in June 2014.
  • Signed a five-year contract with Alaska's clerical, office, and passenger service employees in April 2014.
  • Signed a four-year contract with Horizon's dispatchers in April 2014.
  • Completed "Gear Up" - an intensive leadership workshop for over 1,200 leaders at Alaska and Horizon.

Hassle-free Customer Experience

  • Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the seventh year in a row.
  • Ranked as the best airline in the U.S. by The Wall Street Journal's "Middle Seat" scorecard for two consecutive years.
  • Ranked highest by frequent fliers in the first-ever J.D. Power Airline Loyalty/Rewards Program Satisfaction Report.
  • Held the top spot in U.S. Department of Transportation on-time performance among the largest eight U.S. airlines for the 12 months ended November 2014.
  • Named No. 1 on-time carrier in North America for the fourth year in a row by FlightStats in February 2014.
  • Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage and Juneau.
  • Became the launch customer of Boeing's new, innovative, high-capacity 737 Space Bins, which will increase bag capacity in the cabin by 48%.

Energetic & Compelling Brand

  • Launched Alaska Beyond™ in-flight experience featuring gourmet Tom Douglas signature meals, new streaming in-flight entertainment, and power at every seat on Alaska's 737-800/900/900ER aircraft.
  • Received the 2014 Community Impact Award from Seattle Business Magazine.
  • Celebrated the opening of the Alaska Airlines Center sports complex at the University of Alaska Anchorage.
  • Committed over $7 million to support local communities, including job training for workers at the Seattle-Tacoma airport, STEM-focused education programs at Seattle'sMuseum of Flight, and Seattle's new bicycle sharing program.
  • Flew 13 relief flights to Los Cabos, Loreto, and Mazatlan, Mexico and transported approximately 2,000 passengers to safety following Hurricane Odile.

Low Fares, Low Costs, and Network Growth

  • Ordered ten additional Boeing 737-900ERs, which will further strengthen Alaska's fuel-efficient fleet.
  • Exercised options for two Q400 aircraft to be delivered in 2017.
  • Completed 100% of the cabin improvement project, adding new Recaro seats and power at every seat for 95 aircraft.
  • Increased fuel efficiency (as measured by seat-miles per gallon) by 2.1% over 2013.
  • Added split-scimitar winglets to 48 planned aircraft, which are expected to improve fuel efficiency by about 1.5% per aircraft.
  • Lowered unit costs excluding fuel and special items for the fifth consecutive year, to the lowest level ever.
  • Grew Seattle departures by 4% in 2014 and committed to growing Seattle departures by 10% in 2015.
  • Added 16 routes during 2014.  New routes launched and announced in the fourth quarter are as follows:

New Non-Stop Routes Launched in Q4

New Non-Stop Routes (Launch Date)

Portland to Puerto Vallarta

Las Vegas to Mammoth Lakes (1/15/2015)

Seattle to Cancun

San Diego to Kona (3/5/2015)

Portland to Los Cabos

Seattle to Washington D.C. (Dulles) (3/11/2015)


Seattle to Milwaukee (7/1/2015)


Seattle to Oklahoma City (7/1/2015)


Portland to St. Louis (7/1/2015)

Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2014 GAAP net income of $148 million, or $1.11 per diluted share, compared to GAAP net income of $78 million, or $0.56 per diluted share in 2013. Excluding mark-to-market fuel hedge gains of $6 million ($4 million after tax, or $0.03 per diluted share), a benefit related to the curtailment of certain postretirement benefit plans and a one-time gain associated with the settlement of a legal matter for $30 million in aggregate ($19 million after tax, or $0.14 per diluted share), the company reported record fourth quarter 2014 net income of $125 million, or $0.94 per diluted share, compared to net income, excluding mark-to-market fuel hedge gains, of $77 million, or $0.55 per diluted share, in 2013.         

The company reported full-year 2014 GAAP net income of $605 million, compared to $508 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $571 million, or $4.18 per diluted share for 2014, compared to net income of $383 million, or $2.70 per diluted share in 2013.

"Record earnings and the number one airline ranking in The Wall Street Journal for the second year in a row are proof that our 13,000 employees continue to do a great job serving our customers and running a reliable operation," said CEO Brad Tilden. "The substantial increase in the dividend underscores our commitment to shareholders and our confidence in the future."

The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2014 and 2013 to amounts as reported in accordance with GAAP:


Three Months Ended December 31,


2014


2013

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income

$

148



$

1.11



$

78



$

0.56


Mark-to-market fuel hedge adjustments, net of tax

(4)



(0.03)



(1)



(0.01)


Special items, net of tax

(19)



(0.14)






Non-GAAP adjusted income and per share amounts

$

125



$

0.94



$

77



$

0.55





Twelve Months Ended December 31,


2014


2013

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income

$

605



$

4.42



$

508



$

3.58


Mark-to-market fuel hedge adjustments, net of tax

(15)



(0.11)



(5)



(0.03)


Special items, net of tax

(19)



(0.13)






Special mileage plan revenue, net of tax

$



$



$

(120)



$

(0.85)


Non-GAAP adjusted income and per share amounts

$

571



$

4.18



$

383



$

2.70


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 fourth quarter and full year results will be simulcast via the Internet at 8:30 a.m. Pacific time on Jan. 22, 2015. It can be accessed through the company's Web site 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, 2013. Some of these risks include competition, labor costs and relations, general economic conditions, increases in operating costs including fuel, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers" in the J.D. Power North American Airline Satisfaction Study for seven consecutive years from 2008 to 2014. Alaska Airlines' Mileage Plan also ranked highest in the J.D. Power 2014 Airline Loyalty/Rewards Program Satisfaction Report. For reservations, visit www.alaskaair.com . For more news and information, visit the Alaska Airlines Newsroom at www.alaskaair.com/newsroom.

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.



























Three Months Ended December 31,


Twelve Months Ended December 31,

(in millions, except per share amounts)

2014


2013


Change


2014


2013


Change

Operating Revenues:


















Passenger


















Mainline

$

916



$

839



9

%


$

3,774



$

3,490



8

%

Regional

200



195



3

%


805



777



4

%

Total passenger revenue

1,116



1,034



8

%


4,579



4,267



7

%

Freight and mail

26



25



4

%


114



113



1

%

Other - net

164



151



9

%


675



584



16

%

Special mileage plan revenue





NM




192



NM

Total Operating Revenues

1,306



1,210



8

%


5,368



5,156



4

%



















Operating Expenses:


















Wages and benefits

304



280



9

%


1,136



1,086



5

%

Variable incentive pay

32



37



(14)

%


116



105



10

%

Aircraft fuel, including hedging gains and losses

306



352



(13)

%


1,418



1,467



(3)

%

Aircraft maintenance

63



60



5

%


229



247



(7)

%

Aircraft rent

26



30



(13)

%


110



119



(8)

%

Landing fees and other rentals

72



55



31

%


279



262



6

%

Contracted services

66



60



10

%


254



221



15

%

Selling expenses

45



42



7

%


199



179



11

%

Depreciation and amortization

76



67



13

%


294



270



9

%

Food and beverage service

25



21



19

%


93



84



11

%

Other

79



76



4

%


308



278



11

%

Special items

(30)





NM


(30)





NM

Total Operating Expenses

1,064



1,080



(1)

%


4,406



4,318



2

%

Operating Income

242



130



86

%


962



838



15

%



















Nonoperating Income (Expense):


















Interest income

6



4






21



18





Interest expense

(12)



(14)






(48)



(56)





Interest capitalized

6



6






20



21





Other - net



(1)






20



(5)








(5)






13



(22)





Income Before Income Tax

242



125



94

%


975



816



19

%

Income tax expense

94



47






370



308





Net Income

$

148



$

78



90

%


$

605



$

508



19

%



















Basic Earnings Per Share:

$

1.12



$

0.56






$

4.47



$

3.63





Diluted Earnings Per Share:

$

1.11



$

0.56






$

4.42



$

3.58























Shares Used for Computation:


















Basic

132.368



138.670






135.445



139.910





Diluted

133.705



140.484






136.801



141.878























Cash dividend declared per share

$

0.125



0.100






$

0.500



0.200





NM - Not Meaningful



















CONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)


Alaska Air Group, Inc.








(in millions)

December 31, 2014


December 31, 2013

Cash and marketable securities

$

1,217



$

1,330








Total current assets

1,756



1,762


Property and equipment-net

4,299



3,893


Other assets

126



183


Total assets

$

6,181



$

5,838








Air traffic liability

631



564


Current portion of long-term debt

117



117


Other current liabilities

923



899


Current liabilities

$

1,671



$

1,580


Long-term debt

686



754


Other liabilities and credits

1,697



1,475


Shareholders' equity

2,127



2,029


Total liabilities and shareholders' equity

$

6,181



$

5,838








Debt to Capitalization, adjusted for operating leases(a)

31%:69%



35%:65%








Number of common shares outstanding

131.481



137.492


(a)         Calculated using the present value of remaining aircraft lease payments.




OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.



Three Months Ended December 31,


Twelve Months Ended December 31,


2014


2013


Change


2014


2013


Change

Consolidated Operating Statistics:(a)












Revenue passengers (PAX) (000)

7,282


6,694


8.8%


29,278


27,414


6.8%

RPMs (000,000) "traffic"

7,640


6,980


9.5%


30,718


28,833


6.5%

ASMs (000,000) "capacity"

9,156


8,275


10.6%


36,078


33,672


7.1%

Load factor

83.4%


84.4%


(1.0) pts


85.1%


85.6%


(0.5) pts

Yield

14.61¢


14.80¢


(1.3)%


14.91¢


14.80¢


0.7%

PRASM

12.19¢


12.49¢


(2.4)%


12.69¢


12.67¢


0.2%

RASM

14.27¢


14.62¢


(2.4)%


14.88¢


14.74¢


0.9%

CASM excluding fuel and special items(b)

8.60¢


8.81¢


(2.4)%


8.36¢


8.47¢


(1.3)%

Economic fuel cost per gallon(c)

$2.64


$3.21


(17.8)%


$3.08


$3.30


(6.7)%

Fuel gallons (000,000)

118


110


7.3%


469


447


4.9%

ASM's per gallon

77.6


75.2


3.2%


76.9


75.3


2.1%

Average number of full-time equivalent employees (FTEs)

13,059


12,284


6.3%


12,739


12,163


4.7%

Employee productivity (PAX/FTEs/months)

185.9


181.6


2.4%


191.5


187.8


2.0%













Mainline Operating Statistics:












Revenue passengers (PAX) (000)

5,177


4,764


8.7%


20,972


19,737


6.3%

RPMs (000,000) "traffic"

6,907


6,308


9.5%


27,778


26,172


6.1%

ASMs (000,000) "capacity"

8,233


7,438


10.7%


32,430


30,411


6.6%

Load factor

83.9%


84.8%


(0.9) pts


85.7%


86.1%


(0.4) pts

Yield

13.25¢


13.29¢


(0.3)%


13.58¢


13.33¢


1.9%

PRASM

11.12¢


11.27¢


(1.3)%


11.64¢


11.48¢


1.4%

RASM

13.18¢


13.40¢


(1.6)%


13.80¢


13.52¢


2.1%

CASM excluding fuel and special items(b)

7.70¢


7.91¢


(2.7)%


7.45¢


7.54¢


(1.2)%

Economic fuel cost per gallon(c)

$2.64


$3.21


(17.8)%


$3.07


$3.30


(7.0)%

Fuel gallons (000,000)

102


96


6.3%


407


393


3.6%

ASM's per gallon

80.7


77.5


4.1%


79.7


77.4


3.0%

Average number of FTEs

10,171


9,519


6.8%


9,910


9,493


4.4%

Employee productivity (PAX/FTEs/months)

169.7


166.8


1.7%


176.4


173.3


1.8%

Aircraft utilization

10.3


10.1


2.0%


10.5


10.6


(0.9)%

Average aircraft stage length

1,190


1,177


1.1%


1,182


1,177


0.4%













Regional Operating Statistics:(d)












Revenue passengers (PAX) (000)

2,106


1,930


9.1%


8,306


7,677


8.2%

RPMs (000,000) "traffic"

734


673


9.1%


2,940


2,661


10.5%

ASMs (000,000) "capacity"

923


837


10.3%


3,648


3,261


11.9%

Load factor

79.5%


80.4%


(0.9) pts


80.6%


81.6%


(1.0) pts

Yield

27.38¢


28.99¢


(5.6)%


27.40¢


29.20¢


(6.2)%

PRASM

21.76¢


23.32¢


(6.7)%


22.08¢


23.83¢


(7.3)%

(a)

Except for full-time equivalent employees, 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 why these measures may be important to investors in the accompanying pages.

(c)

See a reconciliation of economic fuel cost in the accompanying pages.

(d)

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

 

OPERATING SEGMENTS (unaudited)






Alaska Air Group, Inc.






























Three Months Ended December 31, 2014


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group Adjusted(a)


Special Items(b)


Consolidated

Operating revenues





















Passenger





















Mainline

$

916



$



$



$



$

916



$



$

916


Regional



200







200





200


   Total passenger revenues

916



200







1,116





1,116


Revenue from CPA with Alaska





94



(94)








Freight and mail

25



1







26





26


Other-net

144



19



1





164





164


Total operating revenues

1,085



220



95



(94)



1,306





1,306























Operating expenses





















Operating expenses, excluding fuel

634



159



92



(97)



788



(30)



758


Economic fuel

271



41







312



(6)



306


Total operating expenses

905



200



92



(97)



1,100



(36)



1,064























Nonoperating income (expense)





















Interest income

5







1



6





6


Interest expense

(7)



1



(2)



(4)



(12)





(12)


Other

5



(1)



2





6





6



3







(3)








Income (loss) before income tax

$

183



$

20



$

3



$



$

206



$

36



$

242
























Three Months Ended December 31, 2013


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group Adjusted(a)


Special Items(b)


Consolidated

Operating revenues





















Passenger





















Mainline

$

839



$



$



$



$

839



$



$

839


Regional



195







195





195


   Total passenger revenues

839



195







1,034





1,034


Revenue from CPA with Alaska





94



(94)








Freight and mail

24



1







25





25


Other-net

133



17



1





151





151


Total operating revenues

996



213



95



(94)



1,210





1,210























Operating expenses





















Operating expenses, excluding fuel

589



145



88



(94)



728





728


Economic fuel

307



47







354



(2)



352


Total operating expenses

896



192



88



(94)



1,082



(2)



1,080























Nonoperating income (expense)





















Interest income

4









4





4


Interest expense

(8)





(4)



(2)



(14)





(14)


Other

6



(3)



1



1



5





5



2



(3)



(3)



(1)



(5)





(5)


Income (loss) before income tax

$

102



$

18



$

4



$

(1)



$

123



$

2



$

125
































OPERATING SEGMENTS (unaudited)










Alaska Air Group, Inc.

































Twelve Months Ended December 31, 2014


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group Adjusted(a)


Special Items(b)


Consolidated

Operating revenues





















Passenger





















Mainline

$

3,774



$



$



$



$

3,774



$



$

3,774


Regional



805







805





805


   Total passenger revenues

3,774



805







4,579





4,579


Revenue from CPA with Alaska





371



(371)








Freight and mail

109



5








114





114


Other-net

592



78



5






675






675


Total operating revenues

4,475



888



376



(371)



5,368





5,368























Operating expenses





















Operating expenses, excluding fuel

2,417



623



349



(371)



3,018



(30)



2,988


Economic fuel

1,251



190







1,441



(23)



1,418


Total operating expenses

3,668



813



349



(371)



4,459



(53)



4,406























Nonoperating income (expense)





















Interest income

20







1



21





21


Interest expense

(32)





(12)



(4)



(48)





(48)


Other

39



(1)



2





40





40



27



(1)



(10)



(3)



13





13


Income (loss) before income tax

$

834



$

74



$

17



$

(3)



$

922



$

53



$

975
























Twelve Months Ended December 31, 2013


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group Adjusted(a)


Special Items(b)


Consolidated

Operating revenues





















Passenger





















Mainline

$

3,490



$



$



$



$

3,490



$



$

3,490


Regional



777







777





777


   Total passenger revenues

3,490



777







4,267





4,267


Revenue from CPA with Alaska





368



(368)








Freight and mail

109



4








113





113


Other-net

513



66



5






584



192



776


Total operating revenues

4,112



847



373



(368)



4,964



192



5,156























Operating expenses





















Operating expenses, excluding fuel

2,293



585



341



(368)



2,851





2,851


Economic fuel

1,294



181







1,475



(8)



1,467


Total operating expenses

3,587



766



341



(368)



4,326



(8)



4,318























Nonoperating income (expense)





















Interest income

18









18





18


Interest expense

(38)





(14)



(4)



(56)





(56)


Other

25



(12)



2



1



16





16



5



(12)



(12)



(3)



(22)





(22)


Income (loss) before income tax

$

530



$

69



$

20



$

(3)



$

616



$

200



$

816


(a)

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

(b)

Includes accounting adjustments related to special mileage plan revenue, mark-to-market fuel-hedge accounting charges, non-cash curtailment gain, and a one-time gain related to a legal matter.