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
April 26, 2007
(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)) |
References in this report on Form 8-K 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.”
FORWARD-LOOKING INFORMATION
This report contains 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. Some of the things that could cause our actual results to differ from our expectations are:
| • | the competitive environment and other trends in our industry; |
| • | changes in our operating costs, including fuel, which can be volatile; |
| • | labor disputes and our ability to attract and retain qualified personnel; |
| • | the timing of the MD-80 fleet disposal and the amounts of potential lease termination payments with lessors and sublease payments from sublessees; |
| • | our significant indebtedness; |
| • | compliance with our financial covenants; |
| • | potential downgrades of our credit ratings and the availability of financing; |
| • | the implementation of our growth strategy; |
| • | our ability to meet our cost reduction goals; |
| • | operational disruptions; |
| • | general economic conditions, as well as economic conditions in the geographic regions we serve; |
| • | the concentration of our revenue from a few key markets; |
| • | actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; |
| • | insurance costs; |
| • | changes in laws and regulations; |
| • | increases in government fees and taxes; |
| • | our inability to achieve or maintain profitability; |
| • | fluctuations in our quarterly results; |
| • | an aircraft accident or incident; |
| • | liability and other claims asserted against us; |
| • | our reliance on automated systems; and |
| • | our reliance on third-party vendors and partners. |
For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. 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.
2
ITEM 1.01 Entry into a Material Definitive Agreement
On April 25, 2007, Alaska Airlines, Inc. executed the Second Amendment of the March 25, 2005 $160 million variable rate credit facility with a syndicate of financial institutions. The syndicate is led by Bank of America, N.A. and Citicorp USA, and includes U.S. Bank, HSH Nordbank, JPMorgan Chase Bank, Merrill Lynch Capital Corporation, RZB Finance, and Goldman Sachs Credit Partners L.P. The terms of the agreement provide that any borrowings will be secured by either aircraft or cash collateral. The Second Amendment: (i) increases the size of the facility to $185 million; (ii) improves the collateral advance rates for certain aircraft; (iii) extends the agreement by two years with a maturity date of March 31, 2010; and (iv) reprices the credit facility to reflect current market rates. The Company has no immediate plans to borrow using this credit facility.
ITEM 2.02 Results of Operations And Financial Condition
Alaska Air Group, Inc today issued a press release reporting financial results for the first quarter ended March 31, 2007. The press release is filed as Exhibit 99.1
ITEM 9.01 Financial Statements and Other Exhibits
Exhibit 99.1 Press Release dated April 26, 2007
3
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: April 26, 2007 |
| /s/ Brandon S. Pedersen |
| Brandon S. Pedersen |
| Vice President/Finance and Controller |
| /s/ Bradley D. Tilden |
| Bradley D. Tilden |
| Executive Vice President/Finance and Chief Financial Officer |
4
Exhibit 99.1
| Contact: |
Shannon Alberts | -or- | Amanda Tobin Bielawski | |||
| Investor Relations | Corporate Communications | |||||
| 206/392-5134 | 206/392-5218 | |||||
| FOR IMMEDIATE RELEASE | April 26, 2007 | |
ALASKA AIR GROUP REPORTS FIRST QUARTER RESULTS
SEATTLE – Alaska Air Group, Inc. (NYSE:ALK) today reported a first quarter net loss of $10.3 million, or $0.26 per share, compared to a net loss of $79.1 million, or $2.36 per share, in the first quarter of 2006. The prior-year results include an impairment charge of $131.1 million ($81.9 million, after tax, or $2.44 per share) resulting from the decision to retire the Company’s MD-80s earlier than originally planned in order to transition to an all-Boeing 737 fleet. Excluding the impact of mark-to-market adjustments related to fuel hedge contracts and the 2006 impairment charge, the company would have reported a net loss in the first quarter of 2007 of $15.8 million or $0.39 per share, compared to net income of $2.8 million or $0.08 per share in the first quarter of 2006.
“Higher fuel costs, increased competition and a softer revenue environment in the first quarter make it imperative that we continue to drive changes to keep ticket prices affordable and attract new customers,” said Bill Ayer, the company’s chairman and chief executive officer.
Alaska Airline’s passenger traffic in the first quarter decreased 0.3 percent on a capacity increase of 2.8 percent. Load factor declined 2.3 percentage points to 71.4 percent. Alaska’s mainline operating revenue per available seat mile (ASM) increased 0.1 percent and its operating costs per ASM excluding fuel and the transition-related impairment charge in 2006 decreased 1.3 percent. Alaska’s pretax loss for the quarter was $7.5 million compared to a pretax loss of $124.7 million in 2006. Excluding the fuel hedging adjustments and the fleet transition charge referenced above, Alaska’s pretax loss was $14.3 million for the quarter compared to pretax income of $7.6 million in the first quarter of 2006.
Horizon Air’s passenger traffic in the first quarter increased 1.1 percent on a 5.5 percent capacity increase. Load factor decreased by 2.9 percentage points to 67.8 percent. Horizon’s operating revenue per available seat mile (ASM) increased 4.8 percent and its operating costs per ASM excluding fuel increased 8.0 percent. Horizon’s pretax loss for the quarter was $9.2 million, compared to a pretax loss of $0.4 million in 2006. Excluding fuel-hedging adjustments, Horizon’s pretax loss was $11.2 million for the quarter compared to pretax loss of $1.6 million in the first quarter of 2006.
Alaska Air Group had cash and short-term investments at March 31, 2007 of $970 million. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 73 percent at March 31, 2007.
A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found on pages 6 through 11.
A conference call regarding the first quarter 2007 results will be simulcast via the Internet at 8:30 a.m. Pacific Time on April 26, 2007. It can be accessed through the company’s website at alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com.
References in this report 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 report contains forward-looking statements that are intended to be 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 or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “forecast,” “may,” “will,” “could,” “should,” “expect,” “plan,” “believe,” “potential” or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, and the amounts of potential lease termination payments with lessors and sublease payments from sub lessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2006. All of the forward- looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. 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 disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release 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 sister carrier, Horizon Air, together serve 90 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air newsroom at http://newsroom.alaskaair.com.
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
| Three Months Ended March 31 |
||||||||
| 2007 | 2006 | |||||||
| Operating Revenues: | ||||||||
| Passenger |
$ | 695.8 | $ | 679.5 | ||||
| Freight and mail |
21.2 | 21.4 | ||||||
| Other - net |
42.4 | 34.5 | ||||||
| Total Operating Revenues | 759.4 | 735.4 | ||||||
| Operating Expenses: | ||||||||
| Wages and benefits |
237.0 | 223.2 | ||||||
| Variable incentive pay |
10.5 | 8.5 | ||||||
| Contracted services |
38.6 | 36.7 | ||||||
| Aircraft fuel, including hedging gains and losses |
184.9 | 163.1 | ||||||
| Aircraft maintenance |
58.5 | 61.2 | ||||||
| Aircraft rent |
43.3 | 46.6 | ||||||
| Food and beverage service |
11.2 | 11.5 | ||||||
| Selling expenses |
39.0 | 40.0 | ||||||
| Depreciation and amortization |
41.9 | 36.9 | ||||||
| Landing fees and other rentals |
54.7 | 49.0 | ||||||
| Other |
54.9 | 52.8 | ||||||
| Fleet transition costs - Alaska |
— | 131.1 | ||||||
| Fleet transition costs - Horizon |
3.0 | — | ||||||
| Total Operating Expenses | 777.5 | 860.6 | ||||||
| Operating Loss | (18.1 | ) | (125.2 | ) | ||||
| Nonoperating Income (Expense): | ||||||||
| Interest income |
14.4 | 11.1 | ||||||
| Interest expense |
(21.0 | ) | (19.1 | ) | ||||
| Interest capitalized |
7.1 | 4.7 | ||||||
| Other - net |
(0.2 | ) | (0.9 | ) | ||||
| 0.3 | (4.2 | ) | ||||||
| Loss before income tax |
(17.8 | ) | (129.4 | ) | ||||
| Income tax benefit |
(7.5 | ) | (50.3 | ) | ||||
| Net Loss | $ | (10.3 | ) | $ | (79.1 | ) | ||
| Basic and Diluted Loss Per Share | $ | (0.26 | ) | $ | (2.36 | ) | ||
| Shares Used for Computation: | ||||||||
| Basic and Diluted |
40.365 | 33.464 | ||||||
4
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| (In Millions) |
March 31, 2007 |
December 31, 2006 | ||||
| Cash and marketable securities |
$ | 970 | $ | 1,014 | ||
| Total current assets |
$ | 1,538 | $ | 1,572 | ||
| Property and equipment-net |
2,571 | 2,359 | ||||
| Other assets |
178 | 146 | ||||
| Total assets |
$ | 4,287 | $ | 4,077 | ||
| Current liabilities |
$ | 1,324 | $ | 1,236 | ||
| Long-term debt |
1,171 | 1,032 | ||||
| Other liabilities and credits |
908 | 923 | ||||
| Shareholders’ equity |
884 | 886 | ||||
| Total liabilities and shareholders’ equity |
$ | 4,287 | $ | 4,077 | ||
5
Alaska Airlines Financial and Statistical Data
| Quarter Ended March 31 |
|||||||||||
| Financial Data (in millions): | 2007 | 2006 | % Change |
||||||||
| Operating Revenues: | |||||||||||
| Passenger revenue – Mainline |
$ | 545.9 | $ | 536.8 | 1.7 | ||||||
| Passenger revenue – Regional flying |
57.3 | 4.4 | NM | ||||||||
| Freight and mail |
20.7 | 20.5 | 1.0 | ||||||||
| Other – net |
35.9 | 28.3 | 26.9 | ||||||||
| Total Operating Revenues | 659.8 | 590.0 | 11.8 | ||||||||
| Operating Expenses: | |||||||||||
| Wages and benefits |
187.3 | 175.7 | 6.6 | ||||||||
| Variable incentive pay |
7.7 | 6.4 | 20.3 | ||||||||
| Contracted services |
29.4 | 28.0 | 5.0 | ||||||||
| Regional flying costs |
67.4 | 3.9 | NM | ||||||||
| Aircraft fuel, including hedging gains and losses |
157.6 | 142.0 | 11.0 | ||||||||
| Aircraft maintenance |
34.3 | 44.3 | (22.6 | ) | |||||||
| Aircraft rent |
26.3 | 29.3 | (10.2 | ) | |||||||
| Food and beverage service |
10.6 | 10.8 | (1.9 | ) | |||||||
| Selling expenses |
31.6 | 33.2 | (4.8 | ) | |||||||
| Depreciation and amortization |
35.4 | 32.2 | 9.9 | ||||||||
| Landing fees and other rentals |
41.8 | 38.4 | 8.9 | ||||||||
| Other |
39.8 | 39.0 | 2.1 | ||||||||
| Fleet transition |
— | 131.1 | NM | ||||||||
| Total Operating Expenses | 669.2 | 714.3 | (6.3 | ) | |||||||
| Operating Loss | (9.4 | ) | (124.3 | ) | NM | ||||||
| Interest income |
15.9 | 11.8 | |||||||||
| Interest expense |
(20.4 | ) | (15.8 | ) | |||||||
| Interest capitalized |
6.3 | 4.3 | |||||||||
| Other – net |
0.1 | (0.7 | ) | ||||||||
| 1.9 | (0.4 | ) | |||||||||
| Loss Before Income Tax | $(7.5) | $ | (124.7 | ) | NM | ||||||
| Mainline Operating Statistics: | |||||||||||
| Revenue passengers (000) |
3,862 | 3,905 | (1.1 | ) | |||||||
| RPMs (000,000) |
4,066 | 4,080 | (0.3 | ) | |||||||
| ASMs (000,000) |
5,694 | 5,539 | 2.8 | ||||||||
| Passenger load factor |
71.4 | % | 73.7 | % | (2.3)pts | ||||||
| Yield per passenger mile |
13.43 | ¢ | 13.16 | ¢ | 2.0 | ||||||
| Operating revenue per ASM |
10.58 | ¢ | 10.57 | ¢ | 0.1 | ||||||
| Passenger revenue per ASM |
9.59 | ¢ | 9.69 | ¢ | (1.1 | ) | |||||
| Operating expenses per ASM (a) |
10.57 | ¢ | 12.83 | ¢ | (17.6 | ) | |||||
| Operating expense per ASM excluding fuel and fleet transition costs (a) |
7.80 | ¢ | 7.90 | ¢ | (1.3 | ) | |||||
| GAAP fuel cost per gallon (a) |
$ | 1.87 | $ | 1.68 | 11.4 | ||||||
| Economic fuel cost per gallon (a) |
$ | 1.95 | $ | 1.67 | 16.8 | ||||||
| Fuel gallons (000,000) |
84.2 | 84.5 | (0.4 | ) | |||||||
| Average number of full-time equivalent employees |
9,542 | 8,988 | 6.2 | ||||||||
| Aircraft utilization (blk hrs/day) |
10.8 | 11.0 | (1.8 | ) | |||||||
| Average aircraft stage length (miles) |
917 | 921 | (0.4 | ) | |||||||
| Operating fleet at period-end |
114 | 113 | 1 a/c | ||||||||
| Regional Operating Statistics: | |||||||||||
| Revenue passengers (000) |
578 | 13 | NM | ||||||||
| RPMs (000,000) |
220 | 11 | NM | ||||||||
| ASMs (000,000) |
316 | 18 | NM | ||||||||
| NM = Not Meaningful |
|||||||||||
| (a) See Note A on page 8. |
|||||||||||
6
Horizon Air Financial and Statistical Data
| Quarter Ended March 31 |
|||||||||||
| Financial Data (in millions): | 2007 | 2006 | % Change |
||||||||
| Operating Revenues: | |||||||||||
| Passenger |
$ | 159.4 | $ | 143.8 | 10.8 | ||||||
| Freight and mail |
0.5 | 0.9 | (44.4 | ) | |||||||
| Other – net |
1.7 | 1.5 | 13.3 | ||||||||
| Total Operating Revenues | 161.6 | 146.2 | 10.5 | ||||||||
| Operating Expenses: |
|||||||||||
| Wages and benefits |
48.9 | 46.5 | 5.2 | ||||||||
| Variable incentive pay |
2.8 | 2.1 | 33.3 | ||||||||
| Contracted services |
6.1 | 6.1 | 0.0 | ||||||||
| Aircraft fuel, including hedging gains and losses |
27.3 | 21.1 | 29.4 | ||||||||
| Aircraft maintenance |
24.2 | 16.9 | 43.2 | ||||||||
| Aircraft rent |
17.0 | 17.3 | (1.7 | ) | |||||||
| Food and beverage service |
0.6 | 0.7 | (14.3 | ) | |||||||
| Selling expenses |
7.4 | 8.1 | (8.6 | ) | |||||||
| Depreciation and amortization |
6.2 | 4.4 | 40.9 | ||||||||
| Landing fees and other rentals |
13.2 | 10.9 | 21.1 | ||||||||
| Other |
12.8 | 11.8 | 8.5 | ||||||||
| Fleet transition |
3.0 | — | NM | ||||||||
| Total Operating Expenses | 169.5 | 145.9 | 16.2 | ||||||||
| Operating Income (Loss) | (7.9 | ) | 0.3 | NM | |||||||
| Interest income |
1.0 | 0.7 | |||||||||
| Interest expense |
(3.0 | ) | (1.8 | ) | |||||||
| Interest capitalized |
0.8 | 0.4 | |||||||||
| Other – net |
(0.1 | ) | — | ||||||||
| (1.3 | ) | (0.7 | ) | ||||||||
| Loss Before Income Tax | $ | (9.2 | ) | $ | (0.4 | ) | NM | ||||
| Operating Statistics: | |||||||||||
| Revenue passengers (000) |
1,609 | 1,594 | 0.9 | ||||||||
| RPMs (000,000) |
627 | 620 | 1.1 | ||||||||
| ASMs (000,000) |
925 | 877 | 5.5 | ||||||||
| Passenger load factor |
67.8 | % | 70.7 | % | (2.9 | )pts | |||||
| Yield per passenger mile |
25.42 | ¢ | 23.19 | ¢ | 9.6 | ||||||
| Operating revenue per ASM |
17.47 | ¢ | 16.67 | ¢ | 4.8 | ||||||
| Passenger revenue per ASM |
17.23 | ¢ | 16.40 | ¢ | 5.1 | ||||||
| Operating expenses per ASM (a) |
18.32 | ¢ | 16.64 | ¢ | 10.1 | ||||||
| Operating expense per ASM excluding fuel (a) |
15.37 | ¢ | 14.23 | ¢ | 8.0 | ||||||
| Operating expense per ASM excluding fuel and fleet transition (a) |
15.05 | ¢ | 14.23 | ¢ | 5.8 | ||||||
| GAAP fuel cost per gallon (a) |
$ | 1.87 | $ | 1.64 | 14.0 | ||||||
| Economic fuel cost per gallon (a) |
$ | 2.01 | $ | 1.73 | 16.1 | ||||||
| Fuel gallons (000,000) |
14.6 | 12.9 | 13.2 | ||||||||
| Average number of full-time equivalent employees |
3,694 | 3,538 | 4.4 | ||||||||
| Aircraft utilization (blk hrs/day) |
8.7 | 8.8 | (1.1 | ) | |||||||
| Operating fleet at period-end |
71 | 69 | 2 a/c | ||||||||
| NM = Not Meaningful |
|||||||||||
| (a) See Note A on page 8. |
|||||||||||
7
Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate) and fleet transition costs. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without fleet transition costs is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.
The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
| Alaska Airlines, Inc.: | ||||||||
| ($ in millions)
|
Three Months Ended March 31, |
|||||||
| Unit cost reconciliations: |
2007 | 2006 | ||||||
| Total operating expenses |
$ | 669.2 | $ | 714.3 | ||||
| Less: Regional flying costs |
(67.4 | ) | (3.9 | ) | ||||
| Mainline operating expenses |
601.8 | 710.4 | ||||||
| Mainline ASMs (000,000) |
5,694 | 5,539 | ||||||
| Mainline operating expenses per ASM |
10.57 | ¢ | 12.83 | ¢ | ||||
| Total operating expenses |
$ | 669.2 | $ | 714.3 | ||||
| Less: regional flying costs |
(67.4 | ) | (3.9 | ) | ||||
| Less: aircraft fuel |
(157.6 | ) | (142.0 | ) | ||||
| Less: fleet transition costs |
— | (131.1 | ) | |||||
| Mainline Operating expenses excluding fuel and fleet transition costs |
$ | 444.2 | $ | 437.3 | ||||
| Mainline ASMs (000,000) |
5,694 | 5,539 | ||||||
| Mainline Operating expenses per ASM excluding fuel and fleet transition costs |
7.80 | ¢ | 7.90 | ¢ | ||||
| Reconciliation to GAAP income (loss) before taxes |
||||||||
| Income (loss) before taxes, excluding mark-to-market fuel hedging gains (losses) and fleet transition costs |
$ | (14.3 | ) | $ | 7.6 | |||
| Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting |
6.8 | (1.2 | ) | |||||
| Less: fleet transition costs |
— | (131.1 | ) | |||||
| GAAP loss before taxes as reported |
$ | (7.5 | ) | $ | (124.7 | ) | ||
| Aircraft fuel reconciliations: |
Three Months Ended March 31, | |||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Cost/Gal | Cost/Gal | |||||||||||||||
| Raw or “into-plane” fuel cost |
$ | 165.9 | $ | 1.97 | $ | 166.6 | $ | 1.98 | ||||||||
| Less: gains on settled hedges |
(1.5 | ) | (0.02 | ) | (25.8 | ) | (0.31 | ) | ||||||||
| Economic fuel expense | 164.4 | 1.95 | 140.8 | 1.67 | ||||||||||||
| Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting |
(6.8 | ) | (0.08 | ) | 1.2 | 0.01 | ||||||||||
| GAAP fuel expense |
$ | 157.6 | $ | 1.87 | $ | 142.0 | $ | 1.68 | ||||||||
| Fuel gallons (000,000) |
84.2 | 84.5 | ||||||||||||||
8
| Horizon Air Industries, Inc. | ||||||||
| ($ in millions)
|
Three Months Ended March 31, |
|||||||
| Unit cost reconciliations |
2007 | 2006 | ||||||
| Operating expenses |
$ | 169.5 | $ | 145.9 | ||||
| ASMs (000,000) |
925 | 877 | ||||||
| Operating expenses per ASM |
18.32 | ¢ | 16.64 | ¢ | ||||
| Operating expenses |
$ | 169.5 | $ | 145.9 | ||||
| Less: aircraft fuel |
(27.3 | ) | (21.1 | ) | ||||
| Operating expenses excluding fuel |
$ | 142.2 | $ | 124.8 | ||||
| ASMs (000,000) |
925 | 877 | ||||||
| Operating expenses per ASM excluding fuel |
15.37 | ¢ | 14.23 | ¢ | ||||
| Unit cost reconciliations-excluding fleet transition costs |
||||||||
| Operating expenses |
$ | 169.5 | $ | 145.9 | ||||
| Less: aircraft fuel |
(27.3 | ) | (21.1) | |||||
| Less: fleet transition costs |
(3.0 | ) | — | |||||
| Operating expenses excluding fuel and fleet transition costs |
$ | 139.2 | $ | 124.8 | ||||
| ASMs (000,000) |
925 | 877 | ||||||
| Operating expenses per ASM excluding fuel and fleet transition costs |
15.05 | ¢ | 14.23 | ¢ | ||||
| Reconciliation to GAAP loss before taxes |
||||||||
| Loss before taxes, excluding mark-to-market fuel hedging adjustments |
$ | (11.2 | ) | $ | (1.6 | ) | ||
| Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting | 2.0 | 1.2 | ||||||
| GAAP loss before taxes as reported |
$ | (9.2 | ) | $ | (0.4 | ) | ||
| Aircraft fuel reconciliations: |
Three Months Ended March 31, | |||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Cost/Gal | Cost/Gal | |||||||||||||||
| Raw or “into-plane” fuel cost |
$ | 29.6 | $ | 2.03 | $ | 26.4 | $ | 2.05 | ||||||||
| Less: gains on settled hedges |
(0.3 | ) | (0.02 | ) | (4.1 | ) | (0.32 | ) | ||||||||
| Economic fuel expense |
29.3 | 2.01 | 22.3 | 1.73 | ||||||||||||
| Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting | (2.0 | ) | (0.14 | ) | (1.2 | ) | (0.09 | ) | ||||||||
| GAAP fuel expense |
$ | 27.3 | $ | 1.87 | $ | 21.1 | $ | 1.64 | ||||||||
| Fuel gallons (000,000) |
14.6 | 12.9 | ||||||||||||||
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Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.’s net income (loss) and earnings (loss) per share during 2007 and 2006 excluding adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting, and the fleet transition costs related to the impairment of MD-80 in the prior year, as reported in accordance with GAAP (in millions except per share amounts):
| Three Months Ended March 31, | ||||||||||||||||
| 2007 | 2006 | |||||||||||||||
| Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||||
| Net income (loss) and diluted EPS, excluding mark-to-market hedging adjustments, and Alaska fleet transition costs |
$ | (15.8 | ) | $ | (0.39 | ) | $ | 2.8 | $ | 0.08 | ||||||
| Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting, net of tax |
5.5 | 0.13 | — | — | ||||||||||||
| Alaska fleet transition costs, net of tax |
— | — | (81.9 | ) | (2.44 | ) | ||||||||||
| Reported GAAP amounts |
$ | (10.3 | ) | $ | (0.26 | ) | $ | (79.1 | ) | $ | (2.36 | ) | ||||
Air Group Capacity Guidance:
The following table summarizes Alaska’s and Horizon’s expected change in capacity as measured in available seat miles for the rest of 2007.
| Alaska | Horizon | ||||
| Second quarter 2007 |
4%-5% | 10 | % | ||
| Third quarter 2007 |
3%-4% | 18 | % | ||
| Fourth quarter 2007 |
6%-7% | 9 | % | ||
| Full year 2007 |
4%-5% | 11 | % |
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Forecasted Unit Costs
During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for 2007. This forecasted unit cost information includes non-GAAP unit cost estimates which are summarized in the following table together with the most directly comparable GAAP unit cost for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
| Alaska Airlines- Mainline |
Horizon Air | |||||||||||
| Forecast of cost |
Forecast of
fuel |
Forecast of total |
Forecast of cost per |
Forecast of
fuel |
Forecast of total | |||||||
| Second quarter 2007 |
7.5 | 3.0 | 10.5 | 14.8 | 3.3 | 18.1 | ||||||
| Full year 2007 |
7.5-7.6 | 3.0 | 10.5-10.6 | 14.2 | 3.4 | 17.6 | ||||||
Our forecast of fuel costs is based on anticipated gallons consumed and estimated fuel cost per gallon. The estimate also includes the expected benefit from settled hedges. Given the volatility of fuel prices and the mark-to-market adjustments on our fuel hedge portfolio, readers should be cautioned that actual fuel expense will likely differ from the forecast above.
Air Group fuel hedge positions
| Approximate % of Expected Fuel Requirements |
Approximate Crude Oil Price per Barrel | ||||
| Second quarter 2007 |
53% | $ | 57.31 | ||
| Third quarter 2007 |
49% | $ | 56.98 | ||
| Fourth quarter 2007 |
41% | $ | 59.67 | ||
| First quarter 2008 |
36% | $ | 61.92 | ||
| Second quarter 2008 |
29% | $ | 63.53 | ||
| Third quarter 2008 |
21% | $ | 63.94 | ||
| Fourth quarter 2008 |
23% | $ | 64.20 | ||
| First quarter 2009 |
5% | $ | 67.68 | ||
| Second quarter 2009 |
5% | $ | 67.50 | ||
| Third quarter 2009 |
6% | $ | 68.25 | ||
Air Group operating fleet
The following table displays the currently anticipated fleet count for Alaska and Horizon as of the end of each quarter in 2007 and as of December 31, 2008:
| 30-Jun-07 | 30-Sept-07 | 31-Dec-07 | 31-Dec-08 | |||||
| Alaska Airlines |
||||||||
| MD80 |
20 | 17 | 15 | — | ||||
| 737-400 |
35 | 35 | 34 | 34 | ||||
| 737-400F** |
1 | 1 | 1 | 1 | ||||
| 737-400C** |
4 | 4 | 5 | 5 | ||||
| 737-700 |
20 | 20 | 20 | 20 | ||||
| 737-800* |
22 | 25 | 29 | 42 | ||||
| 737-900 |
12 | 12 | 12 | 12 | ||||
| Totals |
114 | 114 | 116 | 114 | ||||
| Horizon Air |
||||||||
| Q200 |
23 | 20 | 17 | 12 | ||||
| Q400 |
32 | 33 | 33 | 36 | ||||
| CRJ-700 |
21 | 20 | 20 | 20 | ||||
| Totals |
76 | 73 | 70 | 68 | ||||
| * | The total assumes Alaska will identify one airplane for delivery in 2008 from the manufacturer or a lessor. |
| ** | F=Freighter; C=Combination freighter/passenger |
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