View:
Download DOC
Download PDF
Download XLS
Document


 


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

October 25, 2017
(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):

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

o Emerging growth company

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





ITEM 2.02.  Results of Operations And Financial Condition
Alaska Air Group, Inc. today issued a press release reporting financial results for the third quarter of 2017. The press release is filed as Exhibit 99.1.

ITEM 7.01.  Regulation FD Disclosure
Pursuant to 17 CFR Part 243 (“Regulation FD”), the Company is submitting information relating to its financial and operational outlook in an Investor Update as attached in Exhibit 99.2.

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

ITEM 9.01  Financial Statements and Other Exhibits

Exhibit 99.1 Third quarter 2017 Earnings Press Release dated October 25, 2017
Exhibit 99.2 Investor Update dated October 25, 2017

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: October 25, 2017

                                                                                
Brandon S. Pedersen
Executive Vice President/Finance and Chief Financial Officer




Exhibit



Exhibit 99.1
https://cdn.kscope.io/4529a4259486fa178f41853a0a58418a-alaskaairgrouplogoa32.jpg

October 25, 2017
Media contact:
 
Investor contact:
Media Relations
 
Matt Grady
(206) 304-0008
 
Director, Investor Relations
 
 
(206) 392-5382

Alaska Air Group Reports Third Quarter 2017 Results
Financial Highlights:
•
Reported net income for the third quarter under Generally Accepted Accounting Principles ("GAAP") of $266 million or $2.14 per diluted share, compared to net income of $256 million, or $2.07 per diluted share in 2016. As the acquisition of Virgin America Inc. ("Virgin America") closed on Dec. 14, 2016, third quarter 2017 information reflects the results of Virgin America, including the impacts associated with purchase accounting. Third quarter 2016 results do not include Virgin America.
•
Reported third quarter net income, excluding merger-related costs and mark-to-market fuel hedging adjustments, of $278 million, compared to $272 million in the third quarter of 2016. Adjusted diluted earnings per share were $2.24, compared to $2.20 in the third quarter of 2016.
•
Virgin America results were accretive to EPS in the three and nine months ending September 30, 2017.
•
Paid $0.30 per-share quarterly cash dividend in the third quarter, a 9% increase over the dividend paid in the third quarter of 2016.
•
Repurchased approximately 0.6 million shares of common stock for $50 million in the first nine months of 2017.
•
Generated approximately $1.4 billion of operating cash flow and used approximately $840 million for capital expenditures, resulting in approximately $520 million of free cash flow in the first nine months of 2017.
•
Held $1.7 billion in unrestricted cash and marketable securities as of September 30, 2017.
•
Reduced debt-to-capitalization ratio to 53% as of September 30, 2017, compared to 59% as of December 31, 2016.
Operational Highlights:
•
Launched twenty new routes during the quarter, continuing the most significant network expansion in Alaska Air Group's 85-year history, bringing the total new markets since the merger to 37.
•
Overall, the integration of Virgin America is going well and a number of significant milestones are expected to be achieved in the next seven months.
•
Announced a seven-year partnership to be the official airline of the San Francisco Giants which includes, among other things, exclusive naming rights to the AT&T Park Club Level which will now be called the "Alaska Airlines Club Level."
•
Signed an exclusive multi-year partnership with Golden State Warriors star, Kevin Durant, and named him our "Advisor to the CEO."
•
Added Singapore Airlines as a global Mileage Plan partner.

1


•
Selected Gogo to provide next-generation satellite-based Wi-Fi across the entire Boeing and Airbus fleets, providing guests a faster and more-reliable internet connection.
•
Dropped fees for bikes, golf clubs, skis, surfboards, and other sporting equipment that exceed Alaska’s normal checked baggage weight and dimensions to $25.
•
Took delivery of four Embraer 175 jets, bringing the total operated by Horizon to ten as of September 30, 2017.
•
Placed the world's first Boeing 737-700 converted from a passenger plane to a freighter into service.
Recognition and Awards:
•
Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI), receiving perfect scores for “efficiency” and “reliability”.
•
Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the third consecutive year.
•
Virgin America named “Best U.S. Airline” by Condé Nast Traveler in their 2017 Reader’s Choice Awards for the 10th year in a row.
•
Ranked Best Airline in Customer Service in the 2017 worldwide SimpliFlying Awards for Excellence in Social Media.
•
Named Favorite Airline in North America for the second consecutive year by Trazee Travel.
•
Mileage Plan ranked Best Airline Elite Status Program in the U.S. by The Points Guy.
•
Recognized by the Puget Sound Business Journal as the 2017 Board Diversity Champion, for diversifying Air Group's board composition over the last five years.
•
Named one of the overall five-star major regional airlines at the Passenger Choice Awards during the APEX EXPO. Virgin America received a five-star rating for low-cost carrier, and received a top honor with a Passenger Choice Award for “Best Seat Comfort.”
SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter 2017 GAAP net income of $266 million, or $2.14 per diluted share, compared to $256 million, or $2.07 per diluted share in the third quarter of 2016. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $278 million, or $2.24 per diluted share, compared to $272 million, or $2.20 per diluted share, in 2016.
“Our people delivered very strong results again this quarter,” said CEO Brad Tilden.  “At roughly the halfway point in our integration with Virgin America, and despite some unrelated challenges in our regional operation, our business is performing well, and we are very happy with the response we’ve seen in California and throughout the West to our expanding network, our focus on hospitality, and to our industry-leading mileage plan.  I want to thank our talented people for their commitment and dedication.”
The following table reconciles the company's reported GAAP net income and earnings per diluted share ("diluted EPS") for the three and nine months ended September 30, 2017, and 2016 to adjusted amounts:
 
Three Months Ended September 30,
 
2017
 
2016
(in millions, except per-share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Reported GAAP net income and diluted EPS
$
266

 
$
2.14

 
$
256

 
$
2.07

Mark-to-market fuel hedge adjustments
(5
)
 
(0.04
)
 
3

 
0.02

Special items—merger-related costs
24

 
0.20

 
22

 
0.18

Income tax effect on special items and fuel hedge adjustments
(7
)
 
(0.06
)
 
(9
)
 
(0.07
)
Non-GAAP adjusted net income and diluted EPS
$
278

 
$
2.24

 
$
272

 
$
2.20


2


 
Nine Months Ended September 30,
 
2017
 
2016
(in millions, except per-share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Reported GAAP net income and diluted EPS
$
661

 
$
5.31

 
$
700

 
$
5.63

Mark-to-market fuel hedge adjustments
7

 
0.06

 
(9
)
 
(0.07
)
Special items—merger-related costs
88

 
0.70

 
36

 
0.29

Income tax effect on special items and fuel hedge adjustments
(35
)
 
(0.28
)
 
(10
)
 
(0.08
)
Non-GAAP adjusted net income and diluted EPS
$
721

 
$
5.79

 
$
717

 
$
5.77

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 online at 8:30 a.m. Pacific time on October 25, 2017. 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., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as “Alaska,” “Horizon,” and "Virgin America" 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, 2016, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance, or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines, together with Virgin America and its regional partners, flies 40 million guests a year to 118 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada, Costa Rica and Cuba. With Alaska and Alaska Global Partners, guests can earn and redeem miles on flights to more than 900 destinations worldwide. Alaska Airlines ranked “Highest in Customer Satisfaction Among Traditional Carriers in North America” in the J.D. Power North America Satisfaction Study for 10 consecutive years from 2008 to 2017. Learn more about Alaska’s award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).
###

3


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
As the acquisition closed on December 14, 2016, amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except per-share amounts)
2017
 
2016
 
Change(a)
 
2017
 
2016
 
Change(a)
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
1,562

 
$
1,073

 
46
 %
 
$
4,390

 
$
3,036

 
45
 %
Regional
262

 
249

 
5
 %
 
725

 
682

 
6
 %
Total passenger revenue
1,824

 
1,322

 
38
 %
 
5,115

 
3,718

 
38
 %
Freight and mail
32

 
31

 
3
 %
 
88

 
82

 
7
 %
Other—net
264

 
213

 
24
 %
 
768

 
607

 
27
 %
Total Operating Revenues
2,120

 
1,566

 
35
 %
 
5,971

 
4,407

 
35
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
Wages and benefits
475

 
340

 
40
 %
 
1,392

 
1,008

 
38
 %
Variable incentive pay
40

 
31

 
29
 %
 
98

 
95

 
3
 %
Aircraft fuel, including hedging gains and losses
368

 
225

 
64
 %
 
1,051

 
593

 
77
 %
Aircraft maintenance
88

 
64

 
38
 %
 
271

 
197

 
38
 %
Aircraft rent
70

 
25

 
180
 %
 
204

 
80

 
155
 %
Landing fees and other rentals
124

 
89

 
39
 %
 
338

 
232

 
46
 %
Contracted services
76

 
63

 
21
 %
 
234

 
183

 
28
 %
Selling expenses
91

 
58

 
57
 %
 
269

 
162

 
66
 %
Depreciation and amortization
95

 
101

 
(6
)%
 
275

 
281

 
(2
)%
Food and beverage service
50

 
31

 
61
 %
 
145

 
93

 
56
 %
Third-party regional carrier expense
30

 
25

 
20
 %
 
84

 
72

 
17
 %
Special items—merger-related costs
24

 
22

 
9
 %
 
88

 
36

 
144
 %
Other
150

 
92

 
63
 %
 
424

 
267

 
59
 %
Total Operating Expenses
1,681

 
1,166

 
44
 %
 
4,873

 
3,299

 
48
 %
Operating Income
439

 
400

 
10
 %
 
1,098

 
1,108

 
(1
)%
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
9

 
7

 
 
 
25

 
20

 
 
Interest expense
(26
)
 
(11
)
 
 
 
(77
)
 
(33
)
 
 
Interest capitalized
5

 
6

 
 
 
13

 
21

 
 
Other—net
—

 
—

 
 
 
(1
)
 
(2
)
 
 
Total Nonoperating Income (Expense)
(12
)
 
2

 
 
 
(40
)
 
6

 
 
Income Before Income Tax
427

 
402

 
 
 
1,058

 
1,114

 
 
Income tax expense
161

 
146

 
 
 
397

 
414

 
 
Net Income
$
266

 
$
256

 
 
 
$
661

 
$
700

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic Earnings Per Share:
$
2.15

 
$
2.08

 
 
 
$
5.35

 
$
5.66

 
 
Diluted Earnings Per Share:
$
2.14

 
$
2.07

 
 
 
$
5.31

 
$
5.63

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Used for Computation:
 
 
 
 
 
 
 
 
 
 
 
Basic
123.467

 
123.149

 
 
 
123.501

 
123.648

 
 
Diluted
124.220

 
123.833

 
 
 
124.341

 
124.393

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividend declared per share:
$
0.300

 
$
0.275

 
 
 
$
0.900

 
$
0.825

 
 
(a)
See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.

4


CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
(in millions)
September 30, 2017
 
December 31, 2016
Cash and marketable securities
$
1,740

 
$
1,580

 
 

 
 

Total current assets
2,214

 
2,050

Property and equipment—net
6,230

 
5,666

Goodwill
1,934

 
1,934

Intangible assets
135

 
143

Other assets
226

 
169

Total assets
10,739

 
9,962

 
 
 
 
Air traffic liability
1,103

 
849

Current portion of long-term debt
334

 
319

Other current liabilities
1,328

 
1,367

Current liabilities
2,765

 
2,535

Long-term debt
2,367

 
2,645

Other liabilities and credits
2,116

 
1,851

Shareholders' equity
3,491

 
2,931

Total liabilities and shareholders' equity
$
10,739

 
$
9,962

 
 

 
 

Debt-to-capitalization ratio, adjusted for operating leases(a)
53
%
 
59
%
 
 

 
 

Number of common shares outstanding
123.387

 
123.328

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



5


OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
Change(d)
 
2017
 
2016
 
Change(d)
Consolidated Operating Statistics:(a)
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
11,645
 
9,054
 
28.6%
 
33,063
 
25,536
 
29.5%
RPMs (000,000) "traffic"
13,811
 
9,601
 
43.8%
 
39,073
 
27,569
 
41.7%
ASMs (000,000) "capacity"
16,164
 
11,212
 
44.2%
 
46,170
 
32,728
 
41.1%
Load factor
85.4%
 
85.6%
 
(0.2) pts
 
84.6%
 
84.2%
 
0.4 pts
Yield
13.21¢
 
13.77¢
 
(4.1)%
 
13.09¢
 
13.49¢
 
(3.0)%
PRASM
11.29¢
 
11.79¢
 
(4.2)%
 
11.08¢
 
11.36¢
 
(2.5)%
RASM
13.12¢
 
13.97¢
 
(6.1)%
 
12.93¢
 
13.47¢
 
(4.0)%
CASMex(b)
7.98¢
 
8.20¢
 
(2.7)%
 
8.09¢
 
8.16¢
 
(0.9)%
Economic fuel cost per gallon(b)
$1.80
 
$1.58
 
13.9%
 
$1.76
 
$1.47
 
19.7%
Fuel gallons (000,000)
207
 
140
 
47.9%
 
592
 
410
 
44.4%
ASM's per gallon
78.1
 
80.1
 
(2.5)%
 
78.0
 
79.8
 
(2.3)%
Average number of full-time equivalent employees (FTE)
20,743
 
14,674
 
41.4%
 
19,723
 
14,500
 
36.0%
 
 
 
 
 
 
 
 
 
 
 
 
Mainline Operating Statistics:
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
9,142
 
6,507
 
40.5%
 
25,875
 
18,432
 
40.4%
RPMs (000,000) "traffic"
12,694
 
8,595
 
47.7%
 
36,046
 
24,767
 
45.5%
ASMs (000,000) "capacity"
14,796
 
9,987
 
48.2%
 
42,398
 
29,216
 
45.1%
Load factor
85.8%
 
86.1%
 
(0.3) pts
 
85.0%
 
84.8%
 
0.2 pts
Yield
12.31¢
 
12.49¢
 
(1.4)%
 
12.18¢
 
12.26¢
 
(0.7)%
PRASM
10.56¢
 
10.75¢
 
(1.8)%
 
10.36¢
 
10.39¢
 
(0.3)%
RASM
12.40¢
 
12.96¢
 
(4.3)%
 
12.22¢
 
12.53¢
 
(2.5)%
CASMex(b)
7.28¢
 
7.28¢
 
—%
 
7.32¢
 
7.21¢
 
1.5%
Economic fuel cost per gallon(b)
$1.79
 
$1.57
 
14.0%
 
$1.76
 
$1.46
 
20.5%
Fuel gallons (000,000)
183
 
119
 
53.8%
 
526
 
350
 
50.3%
ASM's per gallon
80.9
 
83.9
 
(3.6)%
 
80.6
 
83.5
 
(3.5)%
Average number of FTE's
15,862
 
11,397
 
39.2%
 
15,439
 
11,260
 
37.1%
Aircraft utilization
16.1
 
10.6
 
51.9%
 
15.7
 
10.7
 
46.7%
Average aircraft stage length
1,300
 
1,203
 
8.1%
 
1,296
 
1,218
 
6.4%
Operating fleet
218
 
154
 
64 a/c
 
218
 
154
 
64 a/c
 
 
 
 
 
 
 
 
 
 
 
 
Regional Operating Statistics:(c)
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
2,503
 
2,547
 
(1.7)%
 
7,188
 
7,105
 
1.2%
RPMs (000,000) "traffic"
1,117
 
1,006
 
11.0%
 
3,027
 
2,801
 
8.1%
ASMs (000,000) "capacity"
1,368
 
1,225
 
11.7%
 
3,772
 
3,512
 
7.4%
Load factor
81.7%
 
82.1%
 
(0.4) pts
 
80.2%
 
79.8%
 
0.4 pts
Yield
23.48¢
 
24.75¢
 
(5.1)%
 
23.95¢
 
24.35¢
 
(1.6)%
PRASM
19.17¢
 
20.32¢
 
(5.7)%
 
19.22¢
 
19.43¢
 
(1.1)%
Operating fleet
83
 
69
 
14 a/c
 
83
 
69
 
14 a/c
(a)
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
(b)
See a reconciliation of this non-GAAP measure and Note A for a discussion of potential importance of this measure to investors in the accompanying pages.
(c)
Data presented includes information related to flights operated by Horizon and third-party carriers.
(d)
See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.

6


SUPPLEMENTARY COMBINED COMPARATIVE FINANCIAL AND OPERATING INFORMATION (unaudited)

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons. The table below provides "Combined Comparative" results for the three and nine months ended September 30, 2016, determined as the sum of the historical consolidated results of Air Group and of Virgin America. Virgin America's financial information has been conformed to reflect Air Group's historical financial statement presentation for each period presented. This information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
 
 
2017
 
2016
 
 
(in millions, except operating statistics)
As Reported
 
Combined
 
Change
 
As Reported
 
Combined
 
Change
Combined Comparative Operating Results
Passenger revenue
$
1,824

 
$
1,724

 
6%
 
$
5,115

 
$
4,833

 
6%
Other revenue
296

 
288

 
3%
 
856

 
808

 
6%
Total Operating Revenues
2,120

 
2,012

 
5%
 
5,971

 
5,641

 
6%
Non-fuel operating expense
1,313

 
1,216

 
8%
 
3,822

 
3,518

 
9%
Fuel expense
368

 
306

 
20%
 
1,051

 
822

 
28%
Total Operating Expenses
1,681

 
1,522

 
10%
 
4,873

 
4,340

 
12%
Operating Income
439

 
490

 
(10)%
 
1,098

 
1,301

 
(16)%
Nonoperating income (expense)
(12
)
 
(3
)
 
300%
 
(40
)
 
(8
)
 
400%
Income Before Tax
427

 
487

 
(12)%
 
1,058

 
1,293

 
(18)%
Special items—merger-related costs
24

 
24

 
—%
 
88

 
44

 
100%
Mark-to-market fuel hedge adjustments
(5
)
 
3

 
(267)%
 
7

 
(11
)
 
(164)%
Adjusted Income Before Tax
$
446

 
$
514

 
(13)%
 
$
1,153

 
$
1,326

 
(13)%
 
 
 
 
 
 
 
 
 
 
 
 
Combined Comparative Operating Statistics
Revenue passengers (000)
11,645
 
11,229
 
3.7%
 
33,063
 
31,565
 
4.7%
RPMs (000,000)
13,811
 
12,922
 
6.9%
 
39,073
 
36,670
 
6.6%
ASMs (000,000)
16,164
 
15,079
 
7.2%
 
46,170
 
43,549
 
6.0%
Load Factor
85.4%
 
85.7%
 
(0.3) pts
 
84.6%
 
84.2%
 
0.4 pts
PRASM
11.29¢
 
11.43¢
 
(1.2)%
 
11.08¢
 
11.10¢
 
(0.2)%
RASM
13.12¢
 
13.34¢
 
(1.6)%
 
12.93¢
 
12.95¢
 
(0.2)%
CASMex
7.98¢
 
7.90¢
 
1.0%
 
8.09¢
 
7.98¢
 
1.4%


2016 Combined Comparative Operating Results and Statistics

Refer to our Investor Update issued on April 12, 2017 on Form 8-K for combined comparative operating results and statistics for each of the quarters, including the the calculation of the three and nine months ended September 30, 2016 combined data, and full year 2016.

7


OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As the acquisition closed on December 14, 2016, Consolidated and Mainline amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior periods.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2017
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating & Other
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
1,562

 
$
—

 
$
—

 
$
—

 
$
1,562

 
$
—

 
$
1,562

Regional
—

 
262

 
—

 
—

 
262

 
—

 
262

Total passenger revenues
1,562

 
262

 
—

 
—

 
1,824

 
—

 
1,824

CPA revenues
—

 
—

 
112

 
(112
)
 
—

 
—

 
—

Freight and mail
30

 
1

 
1

 
—

 
32

 
—

 
32

Other—net
242

 
21

 
1

 
—

 
264

 
—

 
264

Total operating revenues
1,834

 
284

 
114

 
(112
)
 
2,120

 
—

 
2,120

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
1,077

 
219

 
105

 
(112
)
 
1,289

 
24

 
1,313

Economic fuel
328

 
45

 
—

 
—

 
373

 
(5
)
 
368

Total operating expenses
1,405

 
264

 
105

 
(112
)
 
1,662

 
19

 
1,681

Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
11

 
—

 
—

 
(2
)
 
9

 
—

 
9

Interest expense
(23
)
 
—

 
(4
)
 
1

 
(26
)
 
—

 
(26
)
Other
5

 
—

 
—

 
—

 
5

 
—

 
5

Total Nonoperating income (expense)
(7
)
 
—

 
(4
)
 
(1
)
 
(12
)
 
—

 
(12
)
Income (loss) before income tax
$
422

 
$
20

 
$
5

 
$
(1
)
 
$
446

 
$
(19
)
 
$
427

 
Three Months Ended September 30, 2016
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating & Other
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
1,073

 
$
—

 
$
—

 
$
—

 
$
1,073

 
$
—

 
$
1,073

Regional
—

 
249

 
—

 
—

 
249

 
—

 
249

Total passenger revenues
1,073

 
249

 
—

 
—

 
1,322

 
—

 
1,322

CPA revenues
—

 
—

 
109

 
(109
)
 
—

 
—

 
—

Freight and mail
30

 
1

 
—

 
—

 
31

 
—

 
31

Other—net
190

 
21

 
1

 
1

 
213

 
—

 
213

Total operating revenues
1,293

 
271

 
110

 
(108
)
 
1,566

 
—

 
1,566

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
727

 
202

 
99

 
(109
)
 
919

 
22

 
941

Economic fuel
188

 
34

 
—

 
—

 
222

 
3

 
225

Total operating expenses
915

 
236

 
99

 
(109
)
 
1,141

 
25

 
1,166

Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
7

 
—

 
—

 
—

 
7

 
—

 
7

Interest expense
(7
)
 
—

 
(2
)
 
(2
)
 
(11
)
 
—

 
(11
)
Other
5

 
—

 
—

 
1

 
6

 
—

 
6

Total Nonoperating income (expense)
5

 
—

 
(2
)
 
(1
)
 
2

 
—

 
2

Income (loss) before income tax
$
383

 
$
35

 
$
9

 
$
—

 
$
427

 
$
(25
)
 
$
402

(a)
The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.
(b)
Includes merger-related costs and mark-to-market fuel hedge accounting adjustments.


8


 
Nine Months Ended September 30, 2017
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating & Other
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
4,390

 
$
—

 
$
—

 
$
—

 
$
4,390

 
$
—

 
$
4,390

Regional
—

 
725

 
—

 
—

 
725

 
—

 
725

Total passenger revenues
4,390

 
725

 
—

 
—

 
5,115

 
—

 
5,115

CPA revenues
—

 
—

 
317

 
(317
)
 
—

 
—

 
—

Freight and mail
84

 
3

 
1

 
—

 
88

 
—

 
88

Other—net
708

 
57

 
3

 
—

 
768

 
—

 
768

Total operating revenues
5,182

 
785

 
321

 
(317
)
 
5,971

 
—

 
5,971

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
3,101

 
625

 
324

 
(316
)
 
3,734

 
88

 
3,822

Economic fuel
924

 
120

 
—

 
—

 
1,044

 
7

 
1,051

Total operating expenses
4,025

 
745

 
324

 
(316
)
 
4,778

 
95

 
4,873

Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
27

 
—

 
—

 
(2
)
 
25

 
—

 
25

Interest expense
(68
)
 
—

 
(9
)
 
—

 
(77
)
 
—

 
(77
)
Other
11

 
—

 
1

 
—

 
12

 
—

 
12

Total Nonoperating income (expense)
(30
)
 
—

 
(8
)
 
(2
)
 
(40
)
 
—

 
(40
)
Income (loss) before income tax
$
1,127

 
$
40

 
$
(11
)
 
$
(3
)
 
$
1,153

 
$
(95
)
 
$
1,058

 
Nine Months Ended September 30, 2016
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating & Other
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
3,036

 
$
—

 
$
—

 
$
—

 
$
3,036

 
$
—

 
$
3,036

Regional
—

 
682

 
—

 
—

 
682

 
—

 
682

Total passenger revenues
3,036

 
682

 
—

 
—

 
3,718

 
—

 
3,718

CPA revenues
—

 
—

 
322

 
(322
)
 
—

 
—

 
—

Freight and mail
79

 
3

 
—

 
—

 
82

 
—

 
82

Other—net
546

 
57

 
3

 
1

 
607

 
—

 
607

Total operating revenues
3,661

 
742

 
325

 
(321
)
 
4,407

 
—

 
4,407

Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
2,107

 
580

 
305

 
(322
)
 
2,670

 
36

 
2,706

Economic fuel
512

 
90

 
—

 
—

 
602

 
(9
)
 
593

Total operating expenses
2,619

 
670

 
305

 
(322
)
 
3,272

 
27

 
3,299

Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
19

 
—

 
1

 
—

 
20

 
—

 
20

Interest expense
(23
)
 
—

 
(7
)
 
(3
)
 
(33
)
 
—

 
(33
)
Other
15

 
—

 
—

 
4

 
19

 
—

 
19

Total Nonoperating income (expense)
11

 
—

 
(6
)
 
1

 
6

 
—

 
6

Income (loss) before income tax
$
1,053

 
$
72

 
$
14

 
$
2

 
$
1,141

 
$
(27
)
 
$
1,114

(a)
The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.
(b)
Includes merger-related costs and mark-to-market fuel hedge accounting adjustments.


9


GAAP TO NON-GAAP RECONCILIATIONS (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As the acquisition closed on December 14, 2016, amounts presented below include Virgin America results for the three and nine months ended September 30, 2017 but not for the prior period.
 
 
 
 
 
 
 
 
CASM Excluding Fuel and Special Items Reconciliation
 
 
 
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Consolidated:
 
 
 
 
 
 
 
CASM

10.40
¢
 

10.40
¢
 

10.55
¢
 

10.08
¢
Less the following components:
 
 
 

 
 
 
 
Aircraft fuel, including hedging gains and losses
2.27

 
2.01

 
2.27

 
1.81

Special items—merger-related costs
0.15

 
0.19

 
0.19

 
0.11

CASM excluding fuel and special items

7.98
¢
 

8.20
¢
 

8.09
¢
 

8.16
¢
 
 
 
 
 
 
 
 
Mainline:
 
 
 
 
 
 
 
CASM

9.63
¢
 

9.41
¢
 

9.72
¢
 

9.06
¢
Less the following components:
 
 
 

 
 
 
 
Aircraft fuel, including hedging gains and losses
2.19

 
1.91

 
2.19

 
1.72

Special items—merger-related costs
0.16

 
0.22

 
0.21

 
0.13

CASM excluding fuel and special items

7.28
¢
 

7.28
¢
 

7.32
¢
 

7.21
¢
Fuel Reconciliation
 
Three Months Ended September 30,
 
2017
 
2016
(in millions, except for per-gallon amounts)
Dollars
 
Cost/Gallon
 
Dollars
 
Cost/Gallon
Raw or "into-plane" fuel cost
$
368

 
$
1.78

 
$
218

 
$
1.55

Losses on settled hedges
5

 
0.02

 
4

 
0.03

Consolidated economic fuel expense
373

 
1.80

 
222

 
1.58

Mark-to-market fuel hedge adjustment
(5
)
 
(0.02
)
 
3

 
0.02

GAAP fuel expense
$
368

 
$
1.78

 
$
225

 
$
1.60

Fuel gallons
207

 
 
 
140

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
2017
 
2016
(in millions, except for per gallon amounts)
Dollars
 
Cost/Gallon
 
Dollars
 
Cost/Gallon
Raw or "into-plane" fuel cost
$
1,030

 
$
1.74

 
$
590

 
$
1.44

Losses on settled hedges
14

 
0.02

 
12

 
0.03

Consolidated economic fuel expense
$
1,044

 
$
1.76

 
$
602

 
$
1.47

Mark-to-market fuel hedge adjustment
7

 
0.01

 
(9
)
 
(0.02
)
GAAP fuel expense
$
1,051

 
$
1.77

 
$
593

 
$
1.45

Fuel gallons
592

 
 
 
410

 
 


10



Note A: Pursuant to Regulation G, we are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

•
By eliminating fuel expense and certain special items (including merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.

•
Cost per ASM (CASM) excluding fuel and certain special items, such as merger-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.

•
Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees.

•
CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.

•
Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

•
Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.


11


GLOSSARY OF TERMS

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share ("EPS") using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Free Cash Flow - total operating cash flow generated less cash paid for capital expenditures

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737 and Airbus 320 family jets and all associated revenues and costs

PRASM - passenger revenue per ASM; commonly called “passenger unit revenue”

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon, SkyWest and PenAir. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile


12
Exhibit


Exhibit 99.2
https://cdn.kscope.io/4529a4259486fa178f41853a0a58418a-alaskaairgrouplogoa33.jpg

Investor Update - October 25, 2017

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This update includes forecasted operational and financial information for our mainline and consolidated operations. Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expenses per available seat mile. However, due to the fluctuations in fuel prices, we are unable to predict total operating expenses for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

We are providing information about estimated fuel prices and our hedging program. Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.

Forward-Looking Information
This update 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. 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, 2016, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.




AIR GROUP - CONSOLIDATED

Forecast Information
For the purposes of comparison, the consolidated operating and financial statistics in the historical periods of the table below are on a "Combined Comparative" basis, and include operations for Alaska Air Group and Virgin America Inc. (Virgin America) for the periods prior to the acquisition date of December 14, 2016. Virgin America's historical operating statistics included in the Combined Comparative presentation below have been conformed to Alaska Air Group's presentation where appropriate.
 
Forecast
Q4 2017
 
Q4 2016 Combined Comparative(c)
 
% Change
 
Q4 2016 As Reported (b)
 
Prior Guidance September 14, 2017
Capacity (ASMs in millions)
15,950 - 16,000
 
14,404
 
~ 11%
 
11,407
 
n/a
Cost per ASM excluding fuel and special items (cents) 
8.35¢ - 8.40¢
 
8.25¢
 
~ 1.5%
 
8.45¢
 
n/a
Fuel gallons (millions)
204
 
184
 
~ 11%
 
144
 
n/a
Economic fuel cost per gallon(a)
$1.95
 
$1.66
 
~ 17.5%
 
$1.68
 
n/a
 
Forecast
Full Year 2017
 
2016 Combined Comparative(c)
 
% Change
 
2016 As Reported (b)
 
Prior Guidance September 14, 2017
Capacity (ASMs in millions)
62,130 - 62,160
 
57,953
 
~ 7.2%
 
44,135
 
62,260 - 62,415
Cost per ASM excluding fuel and special items (cents) (d)
8.15¢ - 8.17¢
 
8.04¢
 
~ 1.5%
 
8.23¢
 
8.09¢ - 8.13¢
Fuel gallons (millions)
795
 
739
 
~ 7.5%
 
554
 
800
Economic fuel cost per gallon
$1.81
 
$1.54
 
~ 17.5%
 
$1.52
 
n/a
(a) 
Our economic fuel cost per gallon estimate for the fourth quarter includes the following per-gallon assumptions: crude oil cost—$1.24 (approximately $52 per barrel), refining margin—50 cents, cost of settled hedges—2 cents, with the remaining difference due to taxes and other into-plane costs.
(b) 
Actual financial and operational data reported in prior year excludes Virgin America information prior to December 14, 2016 acquisition.
(c) 
Refer to our Investor Update issued on April 12, 2017 on Form 8-K for further details of the calculation of the three and twelve months ended December 31, 2016 combined data.
(d) 
CASM guidance does not include potential cost increases related to a new pilot contract as we do not yet know the timing or amount. However, our position for arbitration will result in an estimated annual increase for the Company of approximately $140 million.

Nonoperating Expense

We expect that our consolidated nonoperating expense will be approximately $12 million in the fourth quarter of 2017.

Capital Expenditures(a)

The table below reflects the full-year expectation for total capital expenditures and additional expenditures if options were exercised. These options will be exercised only if we believe return on invested capital targets can be met.
(in millions)
2017
 
2018
 
2019
Aircraft and aircraft purchase deposits—firm
$
780

 
$
820

 
$
635

Other property & flight equipment
270

 
375

 
375

Total property and equipment additions
$
1,050

 
$
1,195

 
$
1,010

Option aircraft and aircraft deposits, if exercised (b)
$
—

 
$
170

 
$
665

(a)
Preliminary estimate, subject to change. Excludes capitalized interest.
(b)  
We have options to acquire 37 B737 aircraft with deliveries from 2020 through 2024, and options to acquire 30 E175 aircraft with deliveries in 2019 to 2021. Amounts above also include payments toward cancelable purchase commitments for 30 A320neo aircraft with deliveries from 2020 through 2022.



Projected Fleet Count
 
Actual Fleet
 
 
 
Expected Fleet Activity
 
Aircraft
September 30, 2017
 
Q4 2017 Additions
 
Q4 2017 Removals
 
December 31, 2017
 
2018-2019 Changes
 
December 31, 2019
B737 Freighters & Combis (a)
5

 
2

 
(3
)
 
4

 
(1
)
 
3

B737 Passenger Aircraft
148

 
4

 
(1
)
 
151

 
19

 
170

A319/A320/A321 Passenger Aircraft
65

 
3

 
—

 
68

 
4

 
72

Total Mainline Fleet
218

 
9

 
(4
)
 
223

 
22

 
245

Q400 operated by Horizon
52

 
—

 
—

 
52

 
(15
)
 
37

E-175 operated by Horizon (b)
10

 
—

 
—

 
10

 
23

 
33

E-175 operated by third party (c)
21

 
2

 
—

 
23

 
12

 
35

Total Regional Fleet
83

 
2

 
—

 
85

 
20

 
105

Total
301

 
11

 
(4
)
 
308

 
42

 
350

(a)
Remaining 2017 changes reflect the retirement of three combis and the reintroduction of two B737-700 aircraft as freighters.
(b)
Reflects deferral of three aircraft from 2017 to 2018.
(c)
Reflects an additional ten aircraft to be flown by SkyWest under capacity purchase agreement, to be delivered in 2017 and 2018.

Future Fuel Hedge Positions

All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. With call options, we are hedged against volatile crude oil price increases; and, during a period of decline in crude oil prices, we only forfeit cash previously paid for the hedge premiums. Our crude oil positions are as follows:
Hedge Period
Approximate % of Expected Fuel Requirements
 
Weighted-Average Crude Oil Price per Barrel
 
Average Premium Cost per Barrel
Fourth Quarter 2017
50
%
 
$
61

 
$
2

First Quarter 2018
50
%
 
62

 
2

Second Quarter 2018
40
%
 
61

 
2

Third Quarter 2018
30
%
 
60

 
2

Fourth Quarter 2018
20
%
 
60

 
2

Full Year 2018
35
%
 
61

 
2

First Quarter 2019
10
%
 
62

 
2

Total 2019
2
%
 
62

 
2