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Alaska Air Group reports third quarter 2021 results

SEATTLE, Oct. 21, 2021 /PRNewswire/ -- Alaska Air Group (NYSE: ALK) today reported financial results for its third quarter ending Sept. 30, 2021, and provided outlook for the fourth quarter ending Dec. 31, 2021.

The third quarter marks a significant stride forward in Alaska Air Group's path to recovery. Alaska's goal from the beginning of the pandemic has been deliberate - scaling the business back up in a measured way, leveraging the company's strong balance sheet, and running a resilient operation, all with the aim of producing consistent industry-leading financial performance.

"We are thrilled to return to profitability this quarter, leading the industry with a 12% pretax profit margin," said CEO Ben Minicucci. "Thanks to each one of our employees for running our operation and showing remarkable care for our guests, and credit to the leadership team for laying out a measured plan and executing it with discipline. We're all feeling the momentum and look forward to building on our strong foundation for growth in 2022 and beyond."

Financial Results:

  • Reported net income for the third quarter of 2021 under Generally Accepted Accounting Principles (GAAP) of $194 million, or $1.53 per share, compared to a net loss of $431 million, or $3.49 per share in the third quarter of 2020.
  • Reported net income for the third quarter of 2021, excluding special items and mark-to-market fuel hedge accounting adjustments, of $187 million, or $1.47 per share, compared to an adjusted net loss of $399 million or $3.23 per share, in the third quarter of 2020. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.30 per share.
  • Generated adjusted pre-tax margin for the third quarter of 2021 of 12%.
  • Reported a debt-to-capitalization ratio of 51%, a reduction of 10 points from Dec. 31, 2020.
  • Made a $100 million voluntary contribution to the defined benefit plan for Alaska's pilots in the third quarter, boosting estimated combined funded status of all defined benefit plans to 94%.
  • Held $3.2 billion in unrestricted cash and marketable securities as of Sept. 30, 2021.
  • Prepaid $425 million in debt from the 364-day term loan facility, bringing total debt payments to $1.2 billion for the year.

Operational Updates:

  • Exercised options for 12 Boeing 737-9 aircraft slated for delivery in 2023 and 2024, and added options for an additional 25 deliveries, bringing Alaska's total firm commitments for 737-9 aircraft to 93 and available options to 52.
  • Ratified amended wage agreement for Horizon Air pilots, represented by the International Brotherhood of Teamsters. 
  • Opened new San Francisco International Airport Lounge with 9,200 square feet of Bay-Area inspired amenities.
  • Announced new nonstop flights between San Francisco and Loreto and Ixtapa/Zihuatanejo, with service slated to begin Dec. 18. Since the onset of the pandemic, approximately 70 new markets have been announced or commenced operation.
  • Resumed and expanded inflight meals, snacks, and drinks in all classes of service.
  • Continued to exceed internal metrics for guest satisfaction, highlighting our commitment to providing our guests a smooth and safe experience throughout their journey.    
  • Near the top of the industry for on-time arrivals and completion rates in the third quarter.

Environmental, Social and Governance Updates:

  • Appointed Adrienne Lofton, vice president of global marketing at Google, to the Company's board of directors.
  • Announced formation of Alaska Star Ventures, an entity created to identify and further technologies that accelerate Alaska Airlines' path to net zero carbon emissions.
  • Supported the Afghan Humanitarian Airlift Mission and the U.S. military by operating Civil Reserve Air Fleet flights in the evacuation of individuals and families from Afghanistan.
  • Awarded $260,000 in LIFT Grants to 25 nonprofits focused on a clear vision to provide the next generation of leaders with the knowledge, skills and providing pathways for success through the Alaska Airlines Foundation.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and nine months ended Sept. 30, 2021 and 2020 to adjusted amounts.


Three Months Ended September 30,

2021

2020

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

EPS

GAAP net income (loss) per share

$

194

$

1.53

$

(431)

$

(3.49)

Payroll support program wage offset

—

—

(398)

(3.22)

Mark-to-market fuel hedge adjustments

—

—

(3)

(0.02)

Special items - impairment charges and other

(9)

(0.07)

121

0.98

Special items - restructuring charges

—

—

322

2.60

Special items - merger-related costs

—

—

1

0.01

Income tax effect of reconciling items above

2

0.01

(11)

(0.09)

Non-GAAP adjusted net income (loss) per share

$

187

$

1.47

$

(399)

$

(3.23)









Nine Months Ended September 30,

2021

2020

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income (loss) per share

$

460

$

3.64

$

(877)

$

(7.12)

Payroll support program wage offset

(914)

(7.24)

(760)

(6.16)

Mark-to-market fuel hedge adjustments

(68)

(0.54)

—

—

Special items - impairment charges and other

5

0.04

350

2.84

Special items - restructuring charges

(12)

(0.09)

322

2.61

Special items - merger-related costs

—

—

5

0.04

Income tax effect of reconciling items above

242

1.92

20

0.16

Non-GAAP adjusted net loss per share

$

(287)

$

(2.27)

$

(940)

$

(7.63)

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 streamed online at 8:30 a.m. PDT on October 21, 2021. It can be accessed 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 update to "Air Group," "Company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

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, 2020. Some of these risks include the risks associated with contagious illnesses and contagion, such as COVID-19, 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, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance, or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines and its regional partners serve more than 120 destinations across the United States and to Mexico, Canada and Costa Rica. The airline emphasizes Next-Level Care for its guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of oneworld. With the global alliance and the airline's additional partners, guests can travel to more than 1,000 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.













Three Months Ended September 30,

Nine Months Ended September 30,

(in millions, except per-share amounts)

2021

2020

Change

2021

2020

Change

Operating Revenues:










Passenger revenue

$

1,774

$

572

210

%

$

3,785

$

2,362

60

%

Mileage Plan other revenue

120

84

43

%

332

266

25

%

Cargo and other

59

45

31

%

160

130

23

%

Total Operating Revenues

1,953

701

179

%

4,277

2,758

55

%

Operating Expenses:










Wages and benefits

578

495

17

%

1,581

1,579

—

%

Payroll support program wage offset

—

(398)

(100)

%

(914)

(760)

20

%

Variable incentive pay

42

42

—

%

109

65

68

%

Aircraft fuel, including hedging gains and losses

376

125

201

%

853

568

50

%

Aircraft maintenance

89

84

6

%

272

244

11

%

Aircraft rent

64

74

(14)

%

188

229

(18)

%

Landing fees and other rentals

141

109

29

%

414

323

28

%

Contracted services

62

36

72

%

167

138

21

%

Selling expenses

49

24

104

%

123

83

48

%

Depreciation and amortization

99

105

(6)

%

294

320

(8)

%

Food and beverage service

39

14

179

%

97

70

39

%

Third-party regional carrier expense

39

29

34

%

106

92

15

%

Other

126

89

42

%

348

310

12

%

Special items - impairment charges and other

(9)

121

(107)

%

5

350

(99)

%

Special items - restructuring charges

—

322

.

(100)

%

(12)

322

(104)

%

Special items - merger-related costs

—

1

(100)

%

—

5

(100)

%

Total Operating Expenses

1,695

1,272

33

%

3,631

3,938

(8)

%

Operating Income (Expense)

258

(571)

(145)

%

646

(1,180)

(155)

%

Nonoperating Income (Expense):










Interest income

6

7

(14)

%

19

23

(17)

%

Interest expense

(30)

(34)

(12)

%

(101)

(64)

58

%

Interest capitalized

3

4

(25)

%

9

8

13

%

Other - net

8

5

60

%

27

16

69

%

Total Nonoperating Expense

(13)

(18)

(28)

%

(46)

(17)

171

%

Income (Loss) Before Income Tax

245

(589)



600

(1,197)


Income tax expense (benefit)

51

(158)



140

(320)


Net Income (Loss)

$

194

$

(431)



$

460

$

(877)














Basic Income (Loss) Per Share:

$

1.55

$

(3.49)



$

3.69

$

(7.12)


Diluted Income (Loss) Per Share:

$

1.53

$

(3.49)



$

3.64

$

(7.12)














Shares Used for Computation:










Basic

125.250

123.647



124.846

123.255


Diluted

127.188

123.647



126.325

123.255














Cash dividend declared per share:

$

—

$

—



$

—

$

0.375














CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)


Alaska Air Group, Inc.










(in millions)

September 30, 2021

December 31, 2020

ASSETS


Current Assets


Cash and cash equivalents

$

495

$

1,370

Marketable securities

2,700

1,976

   Total cash and marketable securities

3,195

3,346

Receivables - net

536

480

Inventories and supplies - net

62

57

Prepaid expenses, assets held-for-sale, and other current assets

208

123

Total Current Assets

4,001

4,006




Property and Equipment


Aircraft and other flight equipment

8,076

7,761

Other property and equipment

1,446

1,398

Deposits for future flight equipment

378

583

9,900

9,742

Less accumulated depreciation and amortization

3,780

3,531

Total Property and Equipment - Net

6,120

6,211




Operating lease assets

1,370

1,400

Goodwill

1,943

1,943

Intangible assets - net

102

107

Other noncurrent assets

346

379

Other Assets

3,761

3,829




Total Assets

$

13,882

$

14,046






CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except share amounts)

September 30, 2021

December 31, 2020

LIABILITIES AND SHAREHOLDERS' EQUITY


Current Liabilities


Accounts payable

$

181

$

108

Accrued wages, vacation and payroll taxes

441

527

Air traffic liability

1,225

1,073

Other accrued liabilities

587

424

Deferred revenue

904

733

Current portion of operating lease liabilities

275

290

Current portion of long-term debt

425

1,138

Total Current Liabilities

4,038

4,293




Long-Term Debt, Net of Current Portion

2,225

2,357




Noncurrent Liabilities


Long-term operating lease liabilities, net of current portion

1,191

1,268

Deferred income taxes

501

407

Deferred revenue

1,446

1,544

Obligation for pension and postretirement medical benefits

558

665

Other liabilities

392

524

4,088

4,408

Commitments and Contingencies


Shareholders' Equity


Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding

—

—

Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 134,655,235 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,305,291 shares; 2020 - 124,217,590 shares

1

1

Capital in excess of par value

462

391

Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares

(674)

(674)

Accumulated other comprehensive loss

(482)

(494)

Retained earnings

4,224

3,764

3,531

2,988

Total Liabilities and Shareholders' Equity

$

13,882

$

14,046


















SUMMARY CASH FLOW (unaudited)




Alaska Air Group, Inc.










(in millions)

Nine Months Ended
September 30, 2021

Six Months Ended
June 30, 2021(a)

Three Months Ended

September 30, 2021(b)

Cash Flows from Operating Activities:




Net income

$

460

$

266

$

194

Non-cash reconciling items

322

221

101

Changes in working capital

119

520

(401)

Net cash provided by (used in) operating activities

901

1,007

(106)






Cash Flows from Investing Activities:




Property and equipment additions

(190)

(102)

(88)

Other investing activities

(753)

(968)

215

Net cash provided by (used in) investing activities

(943)

(1,070)

127






Cash Flows from Financing Activities:

(825)

(281)

(544)






Net decrease in cash and cash equivalents

$

(867)

$

(344)

$

(523)

Cash, cash equivalents, and restricted cash at beginning of period

1,386

1,386

1,042

Cash, cash equivalents, and restricted cash at end of the period

$

519

$

1,042

$

519


(a) 

As reported in Form 10-Q for the second quarter of 2021.

(b) 

Cash flows for the three months ended September 30, 2021, can be calculated by subtracting cash flows for the six months ended June 30, 2021, as reported in Form 10-Q for the second quarter 2021, from the nine months ended September 30, 2021.







OPERATING STATISTICS SUMMARY (unaudited)





Alaska Air Group, Inc.























Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

Change

2021

2020

Change

Consolidated Operating Statistics:(a)










Revenue passengers (000)

9,832

3,595

173.5%

23,211

14,012

65.7%

RPMs (000,000) "traffic"

11,592

3,817

203.7%

27,319

16,127

69.4%

ASMs (000,000) "capacity"

14,429

7,871

83.3%

38,238

27,483

39.1%

Load factor

80.3%

48.5%

31.8 pts

71.4%

58.7%

12.7 pts

Yield

15.30¢

14.99¢

2.1%

13.85¢

14.65¢

(5.5)%

RASM

13.54¢

8.90¢

52.1%

11.19¢

10.04¢

11.5%

CASMex(b)

9.21¢

14.00¢

(34.2)%

9.67¢

12.57¢

(23.1)%

Economic fuel cost per gallon(b)

$2.05

$1.32

55.3%

$1.93

$1.65

17.0%

Fuel gallons (000,000)

183

97

88.7%

477

344

38.7%

ASM's per gallon

78.8

81.3

(3.1)%

80.2

79.9

0.4%

Average number of full-time equivalent employees (FTE)

20,315

16,027

26.8%

18,819

18,112

3.9%

Mainline Operating Statistics:










Revenue passengers (000)

7,065

2,156

227.7%

16,367

9,736

68.1%

RPMs (000,000) "traffic"

10,122

2,958

242.2%

23,677

13,816

71.4%

ASMs (000,000) "capacity"

12,540

6,280

99.7%

33,004

23,339

41.4%

Load factor

80.7%

47.1%

33.6 pts

71.7%

59.2%

12.5 pts

Yield

14.08¢

13.56¢

3.8%

12.68¢

13.46¢

(5.8)%

RASM

12.66¢

8.14¢

55.5%

10.44¢

9.46¢

10.4%

CASMex(b)

8.45¢

13.88¢

(39.1)%

8.90¢

11.90¢

(25.2)%

Economic fuel cost per gallon(b)

$2.03

$1.31

55.0%

$1.91

$1.66

15.1%

Fuel gallons (000,000)

147

69

113.0%

380

270

40.7%

ASM's per gallon

85.3

91.0

(6.3)%

86.9

86.4

0.6%

Average number of FTE's

15,116

12,032

25.6%

13,870

13,730

1.0%

Aircraft utilization

10.2

7.3

39.7%

9.6

8.3

15.7%

Average aircraft stage length

1,313

1,244

5.5%

1,313

1,263

4.0%

Operating fleet(d)

210

217

(7) a/c

210

217

(7) a/c

Regional Operating Statistics:(c)










Revenue passengers (000)

2,767

1,439

92.3%

6,843

4,276

60.0%

RPMs (000,000) "traffic"

1,470

859

71.1%

3,642

2,311

57.6%

ASMs (000,000) "capacity"

1,889

1,592

18.7%

5,235

4,143

26.4%

Load factor

77.8%

54.0%

23.8 pts

69.6%

55.8%

13.8 pts

Yield

23.72¢

19.89¢

19.3%

21.47¢

21.72¢

(1.2)%

RASM

19.26¢

11.91¢

61.7%

15.80¢

13.24¢

19.3%

Operating fleet

94

94

— a/c

94

94

— 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 the importance of this measure to investors in the accompanying pages.

(c) 

Data presented includes information for flights operated by Horizon and third-party carriers.

(d) 

Excludes all aircraft removed from operating service.

Given the unusual nature of 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2021 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited)

Alaska Air Group, Inc.























Three Months Ended September 30,

Nine Months Ended September 30,

2021

2019

Change

2021

2019

Change

Passenger revenue

$

1,774

$

2,211

(20)

%

$

3,785

$

6,038

(37)

%

Mileage plan other revenue

120

118

2

%

332

346

(4)

%

Cargo and other

59

60

(2)

%

160

169

(5)

%

Total operating revenues

$

1,953

$

2,389

(18)

%

$

4,277

$

6,553

(35)

%












Operating expense, excluding fuel and special items

$

1,328

$

1,476

(10)

%

$

3,699

$

4,295

(14)

%

Economic fuel

376

486

(23)

%

853

1,408

(39)

%

Special items

(9)

5

(280)

%

(921)

39

NM

Total operating expenses

$

1,695

$

1,967

(14)

%

$

3,631

$

5,742

(37)

%












Consolidated Operating Statistics(a):










Revenue passengers (000)

9,832

12,574

(22)

%

23,211

35,018

(34)

%

RPMs (000,000) "traffic"

11,592

15,026

(23)

%

27,319

42,113

(35)

%

ASMs (000,000) "capacity"

14,429

17,519

(18)

%

38,238

50,006

(24)

%

Load Factor

80.3%

85.8%

(5.5)

 pts

71.4%

84.2%

(12.8)

 pts

Yield

15.30¢

14.71¢

4

%

13.85¢

14.34¢

(3)

%

RASM

13.54¢

13.64¢

(1)

%

11.19¢

13.10¢

(15)

%

CASMex

9.21¢

8.43¢

9

%

9.67¢

8.59¢

13

%

FTEs

20,315

22,247

(9)

%

18,819

22,000

(14)

%


(a) 

2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our third quarter 2019 Form 10-Q






OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.



























Three Months Ended September 30, 2021

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

1,425

$

349

$

—

$

—

$

1,774

$

—

$

1,774

CPA revenues

—

—

107

(107)

—

—

—

Mileage Plan other revenue

105

15

—

—

120

—

120

Cargo and other

58

—

—

1

59

—

59

Total Operating Revenues

1,588

364

107

(106)

1,953

—

1,953

Operating Expenses












Operating expenses, excluding fuel

1,060

288

93

(113)

1,328

(9)

1,319

Economic fuel

299

77

—

—

376

—

376

Total Operating Expenses

1,359

365

93

(113)

1,704

(9)

1,695

Nonoperating Income (Expense)












Interest income

7

—

—

(1)

6

—

6

Interest expense

(25)

—

(6)

1

(30)

—

(30)

Interest capitalized

2

—

—

1

3

—

3

Other - net

8

—

—

—

8

—

8

Total Nonoperating Expense

(8)

—

(6)

1

(13)

—

(13)

Income (Loss) Before Income Tax

$

221

$

(1)

$

8

$

8

$

236

$

9

$

245
















Three Months Ended September 30, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

401

$

171

$

—

$

—

$

572

$

—

$

572

CPA revenues

—

—

95

(95)

—

—

—

Mileage Plan other revenue

65

19

—

—

84

—

84

Cargo and other

45

—

—

—

45

—

45

Total Operating Revenues

511

190

95

(95)

701

—

701

Operating Expenses












Operating expenses, excluding fuel

872

248

78

(97)

1,101

46

1,147

Economic fuel

90

38

—

—

128

(3)

125

Total Operating Expenses

962

286

78

(97)

1,229

43

1,272

Nonoperating Income (Expense)












Interest income

8

—

—

(1)

7

—

7

Interest expense

(28)

—

(6)

—

(34)

—

(34)

Interest capitalized

4

—

—

—

4

—

4

Other - net

4

—

—

1

5

—

5

Total Nonoperating Income (Expense)

(12)

—

(6)

—

(18)

—

(18)

Income (Loss) Before Income Tax

$

(463)

$

(96)

$

11

$

2

$

(546)

$

(43)

$

(589)



Nine Months Ended September 30, 2021

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

3,003

$

782

$

—

$

—

$

3,785

$

—

$

3,785

CPA revenues

—

—

322

(322)

—

—

—

Mileage Plan other revenue

287

45

—

—

332

—

332

Cargo and other

157

—

—

3

160

—

160

Total Operating Revenues

3,447

827

322

(319)

4,277

—

4,277

Operating Expenses












Operating expenses, excluding fuel

2,937

839

272

(349)

3,699

(921)

2,778

Economic fuel

726

195

—

—

921

(68)

853

Total Operating Expenses

3,663

1,034

272

(349)

4,620

(989)

3,631

Nonoperating Income (Expense)












Interest income

20

—

—

(1)

19

—

19

Interest expense

(86)

—

(16)

1

(101)

—

(101)

Interest capitalized

8

—

—

1

9

—

9

Other - net

27

—

—

—

27

—

27

Total Nonoperating Expense

(31)

—

(16)

1

(46)

—

(46)

Income (Loss) Before Income Tax

$

(247)

$

(207)

$

34

$

31

$

(389)

$

989

$

600
















Nine Months Ended September 30, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating Revenues












Passenger revenues

$

1,860

$

502

$

—

$

—

$

2,362