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
August
16, 2005
(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)
|
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):
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
1
FORWARD-LOOKING
INFORMATION
This
report may contain forward-looking statements that are intended to be subject
to
the safe harbor protection provided by Section 27A of the Securities Act
of 1933
and Section 21E of the Securities Exchange Act of 1934. 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:
changes in our operating costs including fuel, which can be volatile; the
competitive environment and other trends in our industry; our ability to
meet
our cost reduction goals; labor disputes; economic conditions; our reliance
on
automated systems; increases in government fees and taxes; actual or threatened
terrorist attacks; global instability and potential U.S. military actions
or
activities; insurance costs; changes in laws and regulations; liability and
other claims asserted against us; operational disruptions; compliance with
financial covenants; our ability to attract and retain qualified personnel;
third-party vendors and partners; continuing operating losses; our significant
indebtedness; downgrades of our credit ratings and the availability of
financing. For a discussion of these and other risk factors, see Item 7 of
the
Company’s Annual Report for the year ended December 31, 2004 on Form 10-K. 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 report to conform them to actual results.
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 for 2005. This report includes
information regarding forecasts of available seat miles (ASMs), cost per
available seat mile (CASM) excluding fuel consumption and restructuring charges,
as well as certain actual results for revenue passenger miles (RPMs), load
factor and revenue per available seat mile (RASM), for its subsidiaries Alaska
Airlines, Inc. and Horizon Air. Our disclosure of operating cost per available
seat mile, excluding fuel and restructuring charges provides us the ability
to
measure and monitor our performance without these items. The most directly
comparable GAAP measure is total operating expense per available seat mile.
However, due to the large fluctuations in fuel prices, we are unable to predict
total operating expense for any future period with any degree of certainty.
In
addition, we believe the disclosure of financial performance without
mark-to-market hedging gains is useful to investors in evaluating our ongoing
operational performance. Please see the cautionary statement under
“Forward-Looking Information.”
In
accordance with General Instruction B.2 of Form 8-K, the following information
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.
2
References
in this report on Form 8-K to “Air Group,”“the 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.”
Third
Quarter 2005
During
the second quarter of 2005, Alaska announced a reduction in its 2005 summer
flight schedule in order to improve operational reliability, reduce
cancellations, and increase on-time performance by eliminating eight round
trip
flights per day. The reductions represented approximately 3.5% of original
planned capacity in the third quarter. This schedule reduction is included
in
the forecasts below for ASMs and corresponding costs per ASM.
|
Forecast
|
Change
|
||
|
Q3
|
Yr/Yr
|
||
|
Alaska
Airlines
|
|||
|
Capacity
(ASMs in millions)
|
5,807
|
(3.4)%
|
|
|
Fuel
gallons (000,000)
|
92.8
|
(3.2)%
|
|
|
Cost
per ASM as reported on
|
|||
|
a
GAAP basis (cents)*
|
10.4
|
5.7%
|
|
|
Less:
Fuel cost per ASM (cents)*
|
3.0
|
39.2%
|
|
|
Cost
per ASM excluding fuel (cents)*
|
7.4
|
0.5%
|
Alaska
Airlines' July traffic decreased 2.1% to 1.633 billion RPMs from 1.668 billion
flown a year earlier. Capacity during July was 1.986 billion ASMs, 5.5% lower
than the 2.102 billion in July 2004. The passenger load factor (the percentage
of available seats occupied by fare-paying passengers) for the month was
82.2%,
compared to 79.4% in July 2004. The airline carried 1,633,500 passengers
compared to 1,652,500 in July 2004.
In
July
2005, RASM increased 11.3% compared to July 2004 due to higher load factors
(caused in part by a decrease in capacity) and an increase in yields per
RPM.
*For
Alaska, our forecasts of cost per ASM and fuel cost per ASM are based on
forward-looking estimates which will likely differ from actual results due
to
the volatility of fuel prices. There are several factors impacting our estimates
including, but not limited to, the volatility of fuel prices and the
finalization of labor agreements. As we are unable to apply “hedge accounting”,
the majority of the benefit we realize from settled fuel hedge contracts
is
classified in other non-operating income on our statement of operations and
is
thus not reflected in fuel cost per ASM above. See page 6 for additional
information regarding fuel costs.
3
|
Forecast
|
Change
|
||
|
Q3
|
Yr/Yr
|
||
|
Horizon
Air
|
|||
|
Capacity
(ASMs in millions)
|
914
|
10.1%
|
|
|
Fuel
gallons (000,000)
|
14.0
|
8.4%
|
|
|
Cost
per ASM as reported on
|
|||
|
a
GAAP basis (cents)*
|
15.3
|
3.6%
|
|
|
Less:
Fuel cost per ASM (cents)*
|
3.0
|
38.8%
|
|
|
Cost
per ASM excluding fuel (cents)*
|
12.3
|
(2.5%)
|
Horizon
Air's July traffic increased 11.3% to 237.7 million RPMs from 213.5 million
flown a year earlier. Capacity for July was 309.8 million ASMs, 8.7% higher
than
the 284.9 million in July 2004. The passenger load factor for the month was
76.7%, compared to 74.9% in July 2004. The airline carried 610,200 passengers
compared to 565,800 in July 2004.
In
July
2005, RASM increased 1.6% compared to July 2004, due to increased load factors.
*For
Horizon, our forecasts of cost per ASM and fuel cost per ASM are based on
forward-looking estimates, which will likely differ significantly from actual
results. There are several factors impacting our estimates including, but
not
limited to, the volatility of fuel prices. As we are unable to apply hedge
accounting, the majority of the benefit we realize from settled fuel hedge
contracts is classified in other non-operating income on our statement of
operations and is thus not reflected in fuel cost per ASM above. See page
6 for
additional information regarding fuel costs.
Other
Financial Information
Liquidity
and Capital Resources
Cash
and
short-term investments totaled approximately $699 million at July 31, 2005
compared to $726 million at June 30, 2005. The decrease is primarily due
to the
delivery payment for a B737-800 aircraft that was delivered on July 1,
2005.
4
Operating
Fleet Plan
The
following table provides a fleet summary for Alaska and Horizon for actual
airplanes on hand as of the date of this report. There are no expected changes
during the remainder of 2005:
|
Alaska
Airlines
|
Seats
|
On
Hand
August
16, 2005
|
|
|
B737-200C
|
111
|
7
|
|
|
B737-400
|
144
|
40
|
|
|
B737-700
|
120
|
22
|
|
|
B737-800
|
160
|
3
|
|
|
B737-900
|
172
|
12
|
|
|
MD-80
|
140
|
26
|
|
|
Total
|
110
|
||
|
Horizon
Air
|
||
|
Q200
|
37
|
28
|
|
Q400
|
74
|
18
|
|
CRJ
700
|
70
|
19
|
|
Total
|
65
|
The
following table summarizes aircraft commitments for Alaska (B737-800) and
Horizon (CRJ 700) by year:
|
2006
|
2007
|
2008
|
2009
|
2010
|
Thereafter
|
Total
|
|
|
B737-800
|
10
|
8
|
5
|
3
|
6
|
3
|
35
|
|
CRJ
700
|
2
|
2
|
2
|
2
|
-
|
-
|
8
|
|
Totals
|
12
|
10
|
7
|
5
|
6
|
3
|
43
|
Fuel
Hedging
We
are
providing unaudited information about fuel price movements and the impact
of our
hedging program on our financial results. Management believes it is useful
to
compare results between periods that exclude the mark-to-market hedging
gains/losses associated with contracts that settle recorded on a GAAP basis
and
include the cash received or due on hedge positions settled during the period
(although the related impact may have been recognized for financial reporting
purposes in a prior period). We refer to this as the comparison of “economic
fuel cost”, which is presented below for July 2005.
5
Calculation
of Economic Fuel Cost Per Gallon
|
July
2005
(unaudited)
|
Alaska
Airlines
(000s)
|
Alaska
Airlines Cost/Gal
|
Horizon
Air
(000s)
|
Horizon
Air Cost/Gal (cents)
|
|||||||||
|
Fuel
expense before hedge activities (“raw fuel”)
|
$
|
57,315
|
$
|
1.85
|
$
|
8,876
|
$
|
1.89
|
|||||
|
Gains
on settled hedges included in fuel expense
|
981
|
.03
|
147
|
.03
|
|||||||||
|
GAAP
fuel expense
|
$
|
56,334
|
$
|
1.82
|
$
|
8,729
|
$
|
1.86
|
|||||
|
Gains
on settled hedges included in non-operating income*
|
10,034
|
.33
|
1,499
|
.33
|
|||||||||
|
Economic
fuel expense
|
$
|
46,300
|
$
|
1.49
|
$
|
7,230
|
$
|
1.53
|
|||||
|
%
Change from prior year
|
12.8
|
%
|
21.7
|
%
|
30.1
|
%
|
21.9
|
%
|
|||||
Mark-to-Market
Adjustment Related to Unsettled Hedges
|
Mark-to-market
gains included in non-operating income related to hedges that settle
in
future periods
|
$
|
16,611
|
NM
|
$
|
2,482
|
NM
|
*Amounts
may include mark-to-market hedging gains (losses) recognized in non-operating
income (expense) in previous periods.
6
Alaska
Air Group’s future hedge positions are as follows:
|
Approximate
% of Expected
Fuel
Requirements
|
Approximate
Crude
Oil
Price per Barrel
|
|
|
Third
Quarter 2005
|
50%
|
$28.81
|
|
Fourth
Quarter 2005
|
50%
|
$31.85
|
|
First
Quarter 2006
|
50%
|
$35.70
|
|
Second
Quarter 2006
|
50%
|
$39.76
|
|
Third
Quarter 2006
|
40%
|
$41.58
|
|
Fourth
Quarter 2006
|
30%
|
$42.70
|
|
First
Quarter 2007
|
20%
|
$43.09
|
|
Second
Quarter 2007
|
19%
|
$45.11
|
|
Third
Quarter 2007
|
22%
|
$45.27
|
|
Fourth
Quarter 2007
|
17%
|
$47.89
|
|
First
Quarter 2008
|
11%
|
$50.44
|
|
Second
Quarter 2008
|
6%
|
$49.26
|
|
Third
Quarter 2008
|
6%
|
$48.97
|
|
Fourth
Quarter 2008
|
5%
|
$48.68
|
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:
August 16, 2005
/s/
Brandon S. Pedersen
Brandon
S. Pedersen
Staff
Vice President/Finance and Controller
/s/
Bradley D. Tilden
Bradley
D. Tilden
Executive
Vice President/Finance and Chief Financial Officer
7