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Alaska Air Group Reports Second Quarter Results
SEATTLE--(BUSINESS WIRE)--July 22, 2002--Alaska Air Group, Inc. (NYSE:ALK) today reported a second quarter net loss of $4.5 million, or $0.17 per share, compared with net income of $3.9 million, or $0.15 per share, for last year's second quarter.
Operating revenues for the quarter were $574.1 million, down $5.2 million, while operating expenses were $580.9 million, up $11.9 million. The operating loss for the quarter was $6.8 million, compared with an operating income of $10.3 million a year earlier.
"Both Alaska and Horizon realized capacity and traffic growth in the quarter, which was encouraging, but lower passenger yields at both carriers continued to reflect a lower mix of business versus leisure travelers," said John F. Kelly, Chairman and CEO of Alaska Air Group. "Nevertheless, it's hard to complain given our performance relative to the industry in general," he added. "Although we intend to do all possible to work the revenue side of the equation, our prime focus will continue to be on cost management. In fact, we have developed specific cost per available seat mile targets in conjunction with our long-term growth plan."
Alaska Airlines' passenger traffic increased 2.5 percent on a capacity increase of 5.2 percent. Its load factor fell 1.9 points to
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68.4 percent. The airline's operating revenue per available seat mile (ASM) decreased 3.8 percent, while its operating cost per ASM excluding fuel increased 2.2 percent. Alaska's pretax loss was $2.7 million compared to pretax income of $8.7 million a year earlier.
Horizon Air's passenger traffic increased 4.6 percent on a 5.5 percent capacity increase. Its load factor decreased 0.5 points to
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61.7 percent. The airline's operating revenue per ASM decreased 14.3 percent, while its operating cost per ASM decreased 11.3 percent. Excluding fuel, its cost per ASM decreased 7.8 percent. Horizon's pretax loss was $3.0 million, compared to a pretax loss of $0.8 million a year earlier.
Alaska Air Group continues to have a strong cash position and ended the June 2002 quarter with over $700 million in cash and marketable securities. The company's debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 73 percent.
Separately, the company announced today that it will be revising its accounting practices relating to accounting for (i) leased aircraft return costs, and (ii) the cost of internally-developed software. These changes are being implemented following a consultation with the company's new independent auditors, who were appointed in May 2002. The company will be restating its financial statements and related filings with the Securities and Exchange Commission. The restatements will change the periods in which certain expenses are recognized, as more fully described below. As a result of the restatements, the company expects to report an increase in shareholders' equity of approximately $29 million as of June 30, 2002 and to generally report modestly better results from those previously reported. However, for the first and second quarters of 2001, operating expenses are slightly higher than those previously reported and the operating result is slightly lower.
Leased Aircraft Return Costs. The company has had a long-standing policy of capitalizing airframe and engine overhauls and amortizing these amounts over the expected lives of the overhauls. Separately the company has accrued for the costs of returning leased aircraft on a straight-line basis over the life of the lease. These costs have included cash payments expected to be made to lessors upon return and the remaining net book values of any overhauls upon return. The accompanying results have been restated to eliminate that portion of the accrual related to the net book value of overhauls and to amortize those overhauls over the shorter of the expected life of the overhaul or the remaining lease term. The effect of this change will be to decrease maintenance costs early in the life of a leased airplane and to increase maintenance costs later in the life of a leased airplane. Additional background on this change will be available at www.alaskaair.com in the Investor Information section of the web site.
Internally-Developed Software. The company's historical policy has been to expense the cost of internally-developed software as incurred. Under the new policy, these costs will be capitalized and amortized over the expected life of the software.
For future periods, both of these changes may affect timing and amounts of the company's reported operating expenses.
Operating expenses for the first two quarters of 2001 and the first quarter of 2002 have been restated as follows:
(In Millions) As Originally Reported Restated
---------------------- --------
Quarter ended March 31, 2001 $565.5 $568.2
Quarter ended June 30, 2001 $568.0 $569.0
Quarter ended March 31, 2002 $548.3 $548.0
The company expects to complete the revisions to its historical financial statements and file appropriate amendments with the SEC as soon as practicable.
This report may contain forward-looking statements that are based on the best information currently available to management. These forward-looking statements 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. Forward-looking statements are indicated by phrases such as "will," "should," "the company believes," "we expect" or any other language indicating a prediction of future events. There can be no assurance that actual developments will be those anticipated by the company. Actual results could differ materially from those projected as a result of a number of factors, some of which the company cannot predict or control. For a discussion of these factors, please see Item 1 of the company's annual report on Form 10-K for the year ended December 31, 2001.
Alaska Air Group is the parent company of Alaska Airlines, Inc. and Horizon Air Industries, Inc.
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share amounts)
Quarter Six Months
Ended June 30 Ended June 30
------------------- ---------------------------
Restated Restated
2001 2002 2001 2002
Operating Revenues: ---- ---- ---- ----
Passenger $ 534.3 $525.4 $ 1,014.1 $ 981.5
Freight and mail 24.1 21.3 44.7 38.4
Other – net 20.9 27.4 36.5 51.1
------ ----- ------- ------
Total Operating
Revenues 579.3 574.1 1,095.3 1,071.0
------ ----- ------- ------
Operating Expenses:
Wages and benefits 193.0 212.4 383.8 415.8
Contracted services 20.7 22.3 41.4 45.0
Aircraft fuel 89.8 75.1 179.5 139.8
Aircraft maintenance 46.9 42.4 100.4 85.5
Aircraft rent 46.3 46.8 92.5 93.3
Food and beverage
service 15.4 17.0 29.4 31.3
Commissions 16.3 11.5 31.8 23.9
Other selling expenses 32.8 33.5 64.6 63.7
Depreciation and
amortization 32.3 34.2 62.8 66.8
Loss (gain) on sale
of assets 0.4 0.0 1.2 (0.6)
Landing fees and
other rentals 30.7 36.1 59.0 66.2
Other 44.4 49.6 90.8 98.2
------ ----- ------- ------
Total Operating
Expenses 569.0 580.9 1,137.2 1,128.9
------ ----- ------- ------
Operating Income (Loss) 10.3 (6.8) (41.9) (57.9)
------ ----- ------- ------
Interest income 5.7 5.8 13.8 10.2
Interest expense (10.6) (11.6) (22.7) (23.5)
Interest capitalized 2.3 0.5 5.9 0.7
Other – net (0.6) 5.6 (2.0) 11.0
------ ----- ------- ------
(3.2) 0.3 (5.0) (1.6)
Income (Loss) Before
Income Tax 7.1 (6.5) (46.9) (59.5)
Income tax expense
(credit) 3.2 (2.0) (16.1) (20.9)
------ ----- ------- ------
Net Income (Loss) $ 3.9 $ (4.5) $ (30.8) $ (38.6)
====== ===== ======= ======
Basic Earnings (Loss)
Per Share $ 0.15 $ (0.17) $ (1.16) $ (1.45)
====== ===== ======= ======
Diluted Earnings
(Loss) Per Share: $ 0.15 $ (0.17) $ (1.16) $ (1.45)
====== ===== ======= ======
Shares used for computation:
Basic 26.481 26.548 26.476 26.540
Diluted 26.526 26.548 26.476 26.540
ALASKA AIR GROUP, INC.
CONSOLIDATED BALANCE SHEET December 31 December 31
(In millions) 2001 2001 June 30
as originally reported restated 2002
---------------------- -------- ----
Cash and
marketable securities $ Â 661 $ Â 661 $ Â 707
===== ===== =====
Total assets $2,934 $2,958 $3,030
===== ===== =====
Liabilities $2,114 $2,109 $2,210
Shareholders' equity 820 849 820
----- ----- -----
Total liabilities and equity $2,934 $2,958 $3,030
===== ===== =====
Alaska Airlines Financial and Statistical Data
Quarter Ended June 30
---------------------------------
Financial Data Restated %
(in millions): 2001 2002 Change
---- ---- ------
Operating Revenues:
Passenger $434.7 $433.6 (0.3)
Freight and mail 21.4 20.0 (6.5)
Other - net 15.2 23.3 53.3
----- -----
Total Operating
Revenues 471.3 476.9 1.2
----- -----
Operating Expenses:
Wages and
benefits 156.4 175.2 12.0
Contracted
services 18.0 19.2 6.7
Aircraft fuel 74.1 64.2 (13.4)
Aircraft
maintenance 32.2 36.1 12.1
Aircraft rent 35.0 31.8 (9.1)
Food and beverage
service 14.7 16.2 10.2
Commissions 18.2 14.2 (22.0)
Other selling
expenses 26.6 27.8 4.5
Depreciation and
amortization 25.3 28.8 13.8
Loss on sale of
assets 0.3 0.1 NM
Landing fees and
other rentals 23.3 28.4 21.9
Other 35.7 37.1 3.9
----- -----
Total Operating
Expenses 459.8 479.1 4.2
----- -----
Operating Income
(Loss) 11.5 (2.2) NM
----- -----
Interest income 6.8 6.1
Interest expense (10.6) (11.6)
Interest
capitalized 1.2 0.4
Other - net (0.2) 4.6
----- -----
(2.8) (0.5)
----- -----
Income (Loss)
Before Income
Tax $ 8.7 $ (2.7) NM
===== =====
Operating Statistics:
Revenue
passengers (000) 3,698 3,616 (2.2)
RPMs (000,000) 3,290 3,372 2.5
ASMs (000,000) 4,683 4,929 5.2
Passenger load
factor 70.3% 68.4% (1.9) pts
Breakeven load
factor 69.9% 70.0% 0.1 pts
Yield per
passenger mile 13.21 (cents) 12.86 (cents) (2.7)
Operating
revenue
per ASM 10.06 (cents) 9.68 (cents) (3.8)
Operating expenses
per ASM 9.82 (cents) 9.72 (cents) (1.0)
Expense per ASM
excluding fuel 8.23 (cents) 8.42 (cents) 2.2
Fuel cost per
gallon 92.3 (cents) 78.0 (cents) (15.5)
Fuel gallons
(000,000) 80.3 82.3 2.5
Average number
of employees 10,201 10,222 0.2
Aircraft
utilization
(blk hrs/day) 11.1 10.8 (2.7)
Operating fleet
at period-end 100 102 2.0
Six Months Ended June 30
-----------------------------------
Financial Data Restated %
(in millions): 2001 2002 Change
---- ---- ------
Operating Revenues:
Passenger $819.8 $807.8 (1.5)
Freight and mail 39.7 35.9 (9.6)
Other - net 29.9 42.1 40.8
---- ----
Total Operating
Revenues 889.4 885.8 (0.4)
---- ----
Operating Expenses:
Wages and
benefits 310.5 341.3 9.9
Contracted
services 35.7 39.0 9.2
Aircraft fuel 148.1 119.4 (19.4)
Aircraft
maintenance 67.5 71.7 6.2
Aircraft rent 70.3 63.6 (9.5)
Food and beverage
service 27.9 30.1 7.9
Commissions 34.1 28.5 (16.4)
Other selling
expenses 52.6 52.7 0.2
Depreciation and
amortization 49.0 57.3 16.9
Loss on sale of
assets 1.2 0.2 NM
Landing fees and
other rentals 44.8 52.1 16.3
Other 72.1 72.5 0.6
---- ----
Total Operating
Expenses 913.8 928.4 1.6
---- ----
Operating Income
(Loss) (24.4) (42.6) 74.6
---- ----
Interest income 16.3 11.1
Interest expense (22.7) (23.5)
Interest
capitalized 3.8 0.5
Other - net (1.4) 9.3
---- ----
(4.0) (2.6)
---- ----
Income (Loss)
Before Income
Tax $ (28.4) $ (45.2) 66.2
===== =====
Operating Statistics:
Revenue
passengers (000) 6,896 6,809 (1.3)
RPMs (000,000) 6,185 6,349 2.7
ASMs (000,000) 9,111 9,396 3.1
Passenger load
factor 67.9% 67.6% (0.3) pts
Breakeven load
factor 71.9% 72.9% 1.0 pts
Yield per
passenger mile 13.25 (cents) 12.72 (cents) (4.0)
Operating
revenue
per ASM 9.76 (cents) 9.43 (cents) (3.4)
Operating expenses
per ASM 10.03 (cents) 9.88 (cents) (1.5)
Expense per ASM
excluding fuel 8.40 (cents) 8.61 (cents) 2.5
Fuel cost per
gallon 94.6 (cents) 75.9 (cents) (19.8)
Fuel gallons
(000,000) 156.5 157.3 0.5
Average number
of employees 10,202 10,019 (1.8)
Aircraft
utilization
(blk hrs/day) 11.0 10.4 (5.5)
Operating fleet
at period-end 100 102 2.0
Horizon Air Financial and Statistical Data
Quarter Ended June 30
------------------------------------
Restated %
Financial Data (in millions): 2001 2002 Change
---- ---- ------
Operating Revenues:
Passenger $ 104.4 $ 96.4 (7.7)
Freight and mail 2.6 1.2 (53.8)
Other -- net 6.9 5.5 (20.3)
-------- ---------
Total Operating Revenues 113.9 103.1 (9.5)
-------- ---------
Operating Expenses:
Wages and benefits 36.6 37.2 1.6
Contracted services 3.4 4.2 23.5
Aircraft fuel 15.7 11.0 (29.9)
Aircraft maintenance 14.7 6.2 (57.8)
Aircraft rent 11.3 14.9 31.9
Food and beverage service 0.7 0.8 14.3
Commissions 3.1 2.1 (32.3)
Other selling expenses 6.3 5.7 (9.5)
Depreciation and amortization 6.7 5.1 (23.9)
Loss (gain) on sale of assets 0.1 (0.1) NM
Landing fees and other rentals 7.3 7.8 6.8
Other 8.7 12.3 41.4
-------- ---------
Total Operating Expenses 114.6 107.2 (6.5)
-------- ---------
Operating Loss (0.7) (4.1) NM
-------- ---------
Interest expense (1.0) (0.5)
Interest capitalized 1.0 0.1
Other -- net (0.1) 1.5
-------- ---------
(0.1) 1.1
-------- ---------
Loss Before Income Tax $ (0.8) $ (3.0) NM
======== =========
Operating Statistics:
Revenue passengers (000) 1,250 1,192 (4.6)
RPMs (000,000) 358 374 4.6
ASMs (000,000) 575 607 5.5
Passenger load factor 62.2% 61.7% (0.5)pts
Breakeven load factor 62.6% 64.0% 1.4 pts
Yield per passenger mile 29.19 (cent) 25.79 (cent) (11.7)
Operating revenue per ASM 19.79 (cent) 16.97 (cent) (14.3)
Operating expenses per ASM 19.90 (cent) 17.65 (cent) (11.3)
Expense per ASM excluding fuel 17.17 (cent) 15.84 (cent) (7.8)
Fuel cost per gallon 98.4 (cent) 80.8 (cent) (17.9)
Fuel gallons (000,000) 16.0 13.6 (15.0)
Average number of employees 3,786 3,417 (9.7)
Aircraft utilization (blk hrs/day) 8.1 7.5 (7.4)
Operating fleet at period-end 63 62 (1.6)
Six Months Ended June 30
--------------------------------
Restated %
Financial Data (in millions): 2001 2002 Change
---- ---- ------
Operating Revenues:
Passenger $ 202.6 $ 182.7 (9.8)
Freight and mail 4.9 2.4 (51.0)
Other -- net 8.4 11.2 33.3
-------- --------
Total Operating Revenues 215.9 196.3 (9.1)
-------- --------
Operating Expenses:
Wages and benefits 73.3 74.5 1.6
Contracted services 7.1 8.1 14.1
Aircraft fuel 31.4 20.5 (34.7)
Aircraft maintenance 32.9 13.8 (58.1)
Aircraft rent 22.3 29.7 33.2
Food and beverage service 1.5 1.2 (20.0)
Commissions 6.0 4.4 (26.7)
Other selling expenses 12.1 11.0 (9.1)
Depreciation and amortization 13.1 9.0 (31.3)
Loss (gain) on sale of assets 0.0 (0.7) NM
Landing fees and other rentals 14.2 14.2 0.0
Other 18.6 25.0 34.4
-------- --------
Total Operating Expenses 232.5 210.7 (9.3)
-------- --------
Operating Loss (16.6) (14.4) (13.3)
-------- --------
Interest expense (2.1) (1.0)
Interest capitalized 2.1 0.3
Other -- net (0.5) 2.1
-------- --------
(0.5) 1.4
-------- --------
Loss Before Income Tax $ (17.1) $ (13.0) (24.0)
======== ========
Operating Statistics:
Revenue passengers (000) 2,427 2,287 (5.8)
RPMs (000,000) 693 703 1.4
ASMs (000,000) 1,119 1,138 1.7
Passenger load factor 62.0% 61.8% (0.2)pts
Breakeven load factor 67.6% 67.0% (0.6)pts
Yield per passenger mile 29.21 (cent) 25.98 (cent)(11.1)
Operating revenue per ASM 19.30 (cent) 17.25 (cent)(10.6)
Operating expenses per ASM 20.78 (cent) 18.51 (cent)(10.9)
Expense per ASM excluding fuel 17.97 (cent) 16.71 (cent) (7.0)
Fuel cost per gallon 99.2 (cent) 79.1 (cent)(20.3)
Fuel gallons (000,000) 31.6 25.9 (18.0)
Average number of employees 3,855 3,435 (10.9)
Aircraft utilization (blk hrs/day) 8.1 7.3 (9.9)
Operating fleet at period-end 63 62 (1.6)
--30--ATR/se BRM/se
| CONTACT: | Alaska Air Group, Inc. |
|---|---|
| Brad Tilden, 206/433-3362 | |
| or | |
| Lou Cancelmi, 206/433-3170 | |
