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Alaska Air Group Reports Record Third Quarter 2014 Results

SEATTLE, Oct. 23, 2014 /PRNewswire/ --

Financial Highlights:

  • Reported record third quarter net income, excluding special items, of $200 million - a 27% increase over the third quarter of 2013.
  • Reported adjusted earnings per share of $1.47 per diluted share, a 32% increase over the third quarter of 2013 and ahead of First Call analyst consensus estimate of $1.42 per share.
  • Earned net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $198 million or $1.45 per diluted share, compared to net income of $289 million, or $2.04 per diluted share in 2013.
  • Recorded $84 million of incentive pay through the first nine months of 2014. This includes each Air Group employee earning at least $800 by meeting or exceeding monthly customer satisfaction and operational performance goals and tracking to earn above-target payouts for full-year goals.
  • Increased fuel efficiency (as measured by seat-miles per gallon) by 2.8% as part of our effort to be the airline leader in environmental stewardship.
  • Grew passenger revenues by 7%, compared to the third quarter of 2013.
  • Generated record adjusted pretax margin in the third quarter of 21.8% compared to 18.4% in 2013.
  • Generated 15.9% pretax margin for the trailing 12-month period ended Sept. 30, 2014, compared to 11.7% for the same period in the prior year.
  • Achieved trailing 12-month after-tax return on invested capital of 17.2% compared to 13.0% in the 12-month period ended Sept. 30, 2013.
  • Repurchased 3.4 million shares of common stock for $159 million in the third quarter of 2014, and 5.3 million shares for $242 million in the first nine months of 2014, representing 3.8% of the total shares outstanding at the beginning of the year.
  • Paid a $0.125 per-share quarterly cash dividend on September 4, bringing total dividend payments so far this year to $51 million.
  • Generated $1 billion in operating cash flows for the 12-months ended Sept. 30, 2014, generating $321 million of free cash flows.
  • Lowered adjusted debt-to-total-capitalization ratio to 31%.
  • Held $1.3 billion in unrestricted cash and marketable securities as of Sept. 30, 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

  • Reached a five-year agreement in concept with Alaska's Flight Attendants.
  • Signed a six-year contract with Horizon's Aircraft Technicians and Fleet Service Agents in June 2014.
  • Signed a new five-year contract with Alaska's Clerical, Office, and Passenger Service employees (COPS) 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 Carriers" in 2014 by J.D. Power for the seventh year in a row.
  • Ranked highest by frequent fliers in the first-ever J.D. Power Airline Loyalty/Rewards Program Satisfaction Report.
  • Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage, or 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

  • Celebrated the opening of the Alaska Airlines Center sports complex at the University of Alaska Anchorage.
  • Sponsored Seattle's bike share program that is guaranteed to put 500 bikes and 50 docking stations throughout the city of Seattle.
  • Committed to $1.5 million in grants to support job training for workers at the Seattle-Tacoma airport, in addition to a voluntary wage increase to $12 per hour for certain vendors.
  • Pledged $2.5 million to Seattle'sMuseum of Flight to help create the Alaska Airlines Aerospace Education Center to guide students toward a future in science, technology, engineering and math (STEM), and sponsored Alaska Airlines Aviation Day in May 2014 to inspire youth to pursue careers in aviation.
  • Flew 12 relief flights to Los Cabos and Loreto, Mexico and transported approximately 2,000 passengers to safety following Hurricane Odile.

Low Fares, Low Costs, and Network Growth

  • Held the No. 1 spot in U.S. Department of Transportation on-time performance among the eight largest U.S. airlines for the twelve months ended August 2014.
  • Named No. 1 on-time carrier in North America for the fourth year in a row from FlightStats in February 2014.
  • Ordered ten additional Boeing 737-900ERs, which will further strengthen Alaska's fuel efficient fleet.
  • Completed 92% of the cabin improvement project, with 67 aircraft upgraded with Recaro seats, all of which will have power at every seat.
  • Added split scimitar winglets to 23 aircraft, which would improve fuel efficiency by another 1.5%.
  • New routes launched and announced in the third quarter are as follows:

New Non-Stop Routes Launched in Q3

New Non-Stop Routes Announced (Launch Dates)

Seattle to Baltimore

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

Seattle to Albuquerque, New Mexico

San Diego to Kona (03/05/15)

Seattle to Detroit, Michigan


Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter 2014 GAAP net income of $198 million, or $1.45 per diluted share, compared to $289 million, or $2.04 per diluted share in the third quarter of 2013. Excluding the impact of mark-to-market fuel hedge adjustments and a one-time special revenue item in the prior year, the company reported record adjusted net income of $200 million, or $1.47 per diluted share, compared to adjusted net income of $157 million, or $1.11 per diluted share, in 2013.

"This was our best quarterly result ever," said CEO Brad Tilden. "I want to thank our 13,000 employees who are keeping a focus on playing our game, and working hard every day to run a great operation, keep fares low, and deliver award winning service to our customers.  All of us at Alaska would like to thank our customers for their continued loyalty."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the third quarters of 2014 and 2013 to adjusted amounts:


Three Months Ended September 30,


2014


2013

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income

$

198



$

1.45



$

289



$

2.04


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

2



0.02



(12)



(0.08)


Special revenue item, net of tax





(120)



(0.85)


Non-GAAP adjusted income and per-share amounts

$

200



$

1.47



$

157



$

1.11


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

A conference call regarding the third quarter results will be simulcast via the Internet at 8:30 a.m. Pacific time on October 23, 2014. It can be accessed through the company's website at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. 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 Dec. 31, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, 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, serve 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/Horizon Air Newsroom at www.alaskaair.com/newsroom.

 


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)

2014



2013



Change


2014



2013



Change

Operating Revenues:



















Passenger


















Mainline

$

1,030



$

960



7%



2,858



2,651



8%


Regional

219



208



5%



605



582



4%


Total passenger revenue

1,249



1,168



7%



3,463



3,233



7%


Freight and mail

32



32



—%



88



88



—%


Other - net

184



165



12%



511



433



18%


Special mileage plan revenue



192



NM




192



NM

Total Operating Revenues

1,465



1,557



NM


4,062



3,946



NM



















Operating Expenses:



















Wages and benefits

279



285



(2)%



832



806



3%


Variable incentive pay

30



26



15%



84



68



24%


Aircraft fuel, including hedging gains and losses

394



363



9%



1,112



1,115



—%


Aircraft maintenance

58



54



7%



166



187



(11)%


Aircraft rent

27



29



(7)%



84



89



(6)%


Landing fees and other rentals

74



71



4%



207



207



—%


Contracted services

66



54



22%



188



161



17%


Selling expenses

55



47



17%



154



137



12%


Depreciation and amortization

75



67



12%



218



203



7%


Food and beverage service

24



22



9%



68



63



8%


Other

67



69



(3)%



229



202



13%


Total Operating Expenses

1,149



1,087



6%



3,342



3,238



3%


Operating Income

316



470



(33)%



720



708



2%




















Nonoperating Income (Expense):



















Interest income

5



5






15



14





Interest expense

(12)



(13)






(36)



(42)





Interest capitalized

5



6






14



15





Other - net

2



(5)






20



(4)








(7)






13



(17)





Income Before Income Tax

316



463






733



691





Income tax expense

118



174






276



261





Net Income

$

198



$

289






457



430























Basic Earnings Per Share:

$

1.47



$

2.07






$

3.35



$

3.06





Diluted Earnings Per Share:

$

1.45



$

2.04






$

3.31



$

3.02























Shares Used for Computation:



















Basic

134.865



139.559






136.482



140.304





Diluted

136.158



141.383






137.825



142.213























Cash dividend declared per share:

$

0.125



$

0.100






$

0.375



$

0.100





 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)





Alaska Air Group, Inc.












(in millions)

September 30, 2014


December 31, 2013

Cash and marketable securities

$

1,343



$

1,330








Total current assets

1,799



1,762


Property and equipment-net

4,244



3,893


Other assets

193



183


Total assets

6,236



5,838








Air traffic liability

703



564


Current portion of long-term debt

115



117


Other current liabilities

949



899


Current liabilities

1,767



1,580


Long-term debt

710



754


Other liabilities and credits

1,530



1,475


Shareholders' equity

2,229



2,029


Total liabilities and shareholders' equity

$

6,236



$

5,838








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

31%:69%


35%:65%







Number of common shares outstanding

133.469



137.492




(a)  

   Calculated using the present value of remaining aircraft lease payments.

 


OPERATING STATISTICS SUMMARY (unaudited)










Alaska Air Group, Inc.



































Three Months Ended September 30,


Nine Months Ended September 30,


2014


2013


Change


2014


2013


Change

Consolidated Operating Statistics:(a)



















Revenue passengers (000)

7,994



7,395



8.1%



21,996



20,720



6.2%


RPMs (000,000) "traffic"

8,245



7,671



7.5%



23,078



21,852



5.6%


ASMs (000,000) "capacity"

9,582



8,868



8.1%



26,922



25,397



6.0%


Load factor

86.0%



86.5%



(0.5pts)



85.7%



86.0%



(0.3pts)


Yield

15.14¢



15.23¢



(0.6%)



15.00¢



14.80¢



1.4%


PRASM

13.03¢



13.17¢



(1.1%)



12.86¢



12.73¢



1.0%


RASM(b)

15.28¢



15.39¢



(0.7%)



15.09¢



14.78¢



2.1%


CASM excluding fuel(b)

7.87¢



8.16¢



(3.6%)



8.28¢



8.36¢



(1.0%)


Economic fuel cost per gallon(c)

$

3.15



$

3.24



(2.8%)



$

3.22



$

3.33



(3.3%)


Fuel gallons (000,000)

124



118



5.1%



351



337



4.2%


ASM's per gallon

77.3



75.2



2.8%



76.7



75.4



1.7%


Average number of full-time equivalent employees (FTE)

12,998



12,295



5.7%



12,633



12,122



4.2%




















Mainline Operating Statistics:



















Revenue passengers (000)

5,752



5,366



7.2%



15,796



14,973



5.5%


RPMs (000,000) "traffic"

7,440



6,963



6.9%



20,871



19,864



5.1%


ASMs (000,000) "capacity"

8,607



8,027



7.2%



24,197



22,973



5.3%


Load factor

86.4%



86.7%



(0.3pts)



86.3%



86.5%



(0.2pts)


Yield

13.84¢



13.78¢



0.4%



13.69¢



13.35¢



2.5%


PRASM

11.97¢



11.96¢



0.1%



11.81¢



11.54¢



2.3%


RASM(b)

14.18¢



14.14¢



0.3%



14.01¢



13.56¢



3.3%


CASM excluding fuel(b)

7.02¢



7.33¢



(4.2%)



7.37¢



7.42¢



(0.7%)


Economic fuel cost per gallon(c)

$

3.15



$

3.24



(2.8%)



$

3.22



$

3.32



(3.0%)


Fuel gallons (000,000)

108



104



3.8%



305



297



2.7%


ASM's per gallon

79.7



77.2



3.2%



79.3



77.4



2.5%


Average number of FTE's

10,153



9,645



5.3%



9,837



9,484



3.7%


Aircraft utilization

10.8



11.0



(1.8%)



10.5



10.8



(2.8%)


Average aircraft stage length

1,161



1,157



0.3%



1,180



1,177



0.3%


Operating fleet

136



128



8a/c



136



128



8a/c




















Regional Operating Statistics:(d)



















Revenue passengers (000)

2,242



2,029



10.5%



6,200



5,747



7.9%


RPMs (000,000) "traffic"

806



708



13.8%



2,206



1,988



11.0%


ASMs (000,000) "capacity"

975



841



15.9%



2,725



2,424



12.4%


Load factor

82.7%



84.2%



(1.5pts)



81.0%



82.0%



(1.0pts)


Yield

27.17¢



29.41¢



(7.6%)



27.41¢



29.27¢



(6.4%)


PRASM

22.46¢



24.77¢



(9.3%)



22.19¢



24.00¢



(7.5%)


Operating fleet (Horizon only)

51



48



3a/c



51



48



3a/c




(a)  

Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements. Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements.

(b)  

See a reconciliation of revenue excluding special items related to accounting changes, operating expenses excluding fuel, and Note A, in the accompanying pages, for a discussion of why these measures may be important to investors.

(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 September 30, 2014


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group

Adjusted(a)


Special

Items(b)


Consolidated

Operating revenues






















Passenger





















Mainline

$

1,030



$



$



$



$

1,030



$



$

1,030


Regional



219







219





219


   Total passenger revenues

1,030



219







1,249





1,249


CPA revenues





99



(99)








Freight and mail

30



2







32





32


Other-net

161



22



1





184





184


Total operating revenues

1,221



243



100



(99)



1,465





1,465























Operating expenses






















Operating expenses, excluding fuel

605



162



85



(97)



755





755


Economic fuel

338



52







390



4



394


Total operating expenses

943



214



85



(97)



1,145



4



1,149























Nonoperating income (expense)






















Interest income

5









5





5


Interest expense

(8)





(4)





(12)





(12)


Other

7









7





7



4





(4)










Income (loss) before income tax

$

282



$

29



$

11



$

(2)



$

320



$

(4)



$

316


 


Three Months Ended September 30, 2013


Alaska
















(in millions)

Mainline


Regional


Horizon


Consolidating


Air Group

Adjusted(a)


Special

Items(b)


Consolidated

Operating revenues






















Passenger





















Mainline

$

960



$



$



$



$

960



$



$

960


Regional



208







208





208


   Total passenger revenues

960



208







1,168





1,168


CPA revenues





88



(88)








Freight and mail

31



1







32





32


Other-net

145



19



1





165



192



357


Total operating revenues

1,136



228



89



(88)



1,365



192



1,557























Operating expenses






















Operating expenses, excluding fuel

588



144



80



(88)



724





724


Economic fuel

337



46







383



(20)



363


Total operating expenses

925



190



80



(88)



1,107



(20)



1,087























Nonoperating income (expense)






















Interest income

5









5





5


Interest expense

(9)





(4)





(13)





(13)


Other

8



(8)



1





1





1



4



(8)



(3)





(7)





(7)


Income (loss) before income tax

$

215



$

30



$

6



$



$

251



$

212



$

463


 


Nine Months Ended September 30, 2014


Alaska

















Mainline


Regional


Horizon


Consolidating


Air Group

Adjusted(a)


Special

Items(b)


Consolidated

Operating revenues






















Passenger





















Mainline

$

2,858



$



$



$



$

2,858



$



$

2,858


Regional



605







605





605


   Total passenger revenues

2,858



605







3,463





3,463


CPA revenues





277



(277)








Freight and mail

84



4







88





88


Other - net

448



59



4





511





511


Total operating revenues

3,390



668



281



(277)



4,062





4,062























Operating expenses






















Operating expenses, excluding fuel

1,783



464



257



(274)



2,230





2,230


Economic fuel

980



149







1,129



(17)



1,112


Total operating expenses

2,763



613



257



(274)



3,359



(17)



3,342























Nonoperating income (expense)






















Interest income

15









15





15


Interest expense

(25)



(1)



(10)





(36)





(36)


Other

34









34





34



24



(1)



(10)





13





13


Income (loss) before income tax

$

651



$

54



$

14



$

(3)



$

716



$

17



$

733


 


Nine Months Ended September 30, 2013


Alaska

















Mainline


Regional


Horizon


Consolidating


Air Group

Adjusted(a)


Special

Items(b)


Consolidated

Operating revenues






















Passenger





















Mainline

$

2,651



$



$



$



$

2,651



$



$

2,651


Regional



582







582





582


   Total passenger revenues

2,651



582







3,233





3,233


CPA revenues





274



(274)








Freight and mail

85



3







88





88


Other - net

380



49



4





433



192



625


Total operating revenues

3,116



634



278



(274)



3,754



192



3,946























Operating expenses






















Operating expenses, excluding fuel

1,704



440



253



(274)



2,123





2,123


Economic fuel

987



135







1,122



(7)



1,115


Total operating expenses

2,691



575



253



(274)



3,245



(7)



3,238























Nonoperating income (expense)






















Interest income

14









14





14


Interest expense

(30)





(10)



(2)



(42)





(42)


Other

19



(9)



1





11





11



3



(9)



(9)



(2)



(17)





(17)


Income (loss) before income tax

$

428



$

50



$

16



$

(2)



$

492



$

199



$

691




(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 revenues/charges.  See Note A in the accompanying pages for further information .

(b)  

Includes mark-to-market fuel-hedge accounting charges and accounting adjustments related to Special mileage plan revenue.

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