ALK 10-Q 2013


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 

T    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
 
OR

£    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                      to                      

Commission File Number 1-8957
ALASKA AIR GROUP, INC.
 
Delaware
 
91-1292054
(State of Incorporation)
 
(I.R.S. Employer Identification No.)

 
19300 International Boulevard, Seattle, Washington 98188

Telephone: (206) 392-5040

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes T  No £ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer   T
Accelerated filer  £ 
Non-accelerated filer   £
Smaller reporting company   £
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes £ No T
 
The registrant has 70,313,337 common shares, par value $1.00, outstanding at April 30, 2013.




ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2013

 TABLE OF CONTENTS

 

As used in this Form 10-Q, the terms “Air Group,” the "Company," “our,” “we” and "us," refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon,” respectively, and together as our “airlines.”
 

2




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of 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. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words "believe," "expect," "will," "anticipate," "intend," "estimate," "project," "assume" or other similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations. Some of the things that could cause our actual results to differ from our expectations are:

changes in our operating costs, primarily fuel, which can be volatile;
general economic conditions, including the impact of those conditions on customer travel behavior;
the competitive environment in our industry;
our ability to meet our cost reduction goals;
operational disruptions;
an aircraft accident or incident;
labor disputes and our ability to attract and retain qualified personnel;
the concentration of our revenue from a few key markets;
actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities;
our reliance on automated systems and the risks associated with changes made to those systems;
changes in laws and regulations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. 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 to our shareholders. For a discussion of these and other risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2012. Please consider our forward-looking statements in light of those risks as you read this report.


3



PART I
 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions)
March 31,
2013
 
December 31,
2012
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
95

 
$
122

Marketable securities
1,170

 
1,130

Total cash and marketable securities
1,265

 
1,252

Receivables - net
188

 
130

Inventories and supplies - net
61

 
58

Deferred income taxes
172

 
148

Fuel hedge contracts
21

 
26

Prepaid expenses and other current assets
132

 
123

Total Current Assets
1,839

 
1,737

 
 
 
 
Property and Equipment
 

 
 

Aircraft and other flight equipment
4,361

 
4,248

Other property and equipment
862

 
855

Deposits for future flight equipment
341

 
369

 
5,564

 
5,472

Less accumulated depreciation and amortization
1,925

 
1,863

Total Property and Equipment - Net
3,639

 
3,609

 
 
 
 
Fuel Hedge Contracts
23

 
39

 
 
 
 
Other Assets
143

 
120

 
 
 
 
Total Assets
$
5,644

 
$
5,505


See accompanying notes to consolidated financial statements.


4


ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in millions, except share amounts)
March 31,
2013
 
December 31,
2012
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Current Liabilities
 
 
 
Accounts payable
$
101

 
$
65

Accrued wages, vacation and payroll taxes
132

 
184

Other accrued liabilities
568

 
557

Air traffic liability
691

 
534

Current portion of long-term debt
106

 
161

Total Current Liabilities
1,598

 
1,501

 
 
 
 
Long-Term Debt, Net of Current Portion
840

 
871

Other Liabilities and Credits
 

 
 

Deferred income taxes
492

 
446

Deferred revenue
441

 
443

Obligation for pension and postretirement medical benefits
479

 
489

Other liabilities
332

 
334

 
1,744

 
1,712

Commitments and Contingencies


 


Shareholders' Equity
 

 
 

Preferred stock, $1 par value Authorized: 5,000,000 shares, none issued or outstanding

 

Common stock, $1 par value, Authorized: 100,000,000 shares, Issued: 2013 - 70,492,832 shares; 2012 - 70,376,543 shares
70

 
70

Capital in excess of par value
657

 
660

Accumulated other comprehensive loss
(429
)
 
(436
)
Retained earnings
1,164

 
1,127

 
1,462

 
1,421

Total Liabilities and Shareholders' Equity
$
5,644

 
$
5,505


See accompanying notes to consolidated financial statements.


5


ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 
Three Months Ended March 31,
(in millions, except per share amounts)
2013
 
2012
Operating Revenues
 
 
 
Passenger
 
 
 
Mainline
$
796

 
$
723

Regional
182

 
173

Total passenger revenue
978

 
896

Freight and mail
26

 
24

Other - net
129

 
119

Total Operating Revenues
1,133

 
1,039

 
 
 
 
Operating Expenses
 
 
 
Wages and benefits
264

 
257

Variable incentive pay
21

 
16

Aircraft fuel, including hedging gains and losses
381

 
319

Aircraft maintenance
66

 
50

Aircraft rent
30

 
28

Landing fees and other rentals
60

 
62

Contracted services
53

 
48

Selling expenses
38

 
41

Depreciation and amortization
69

 
64

Food and beverage service
20

 
18

Other
67

 
64

Total Operating Expenses
1,069

 
967

Operating Income
64

 
72

 
 
 
 
Nonoperating Income (Expense)
 
 
 
Interest income
4

 
5

Interest expense
(16
)
 
(17
)
Interest capitalized
5

 
5

Other - net
2

 
1

 
(5
)
 
(6
)
Income before income tax
59

 
66

Income tax expense
22

 
25

Net Income
$
37

 
$
41

 
 
 
 
Basic Earnings Per Share:
$
0.52

 
$
0.57

Diluted Earnings Per Share:
$
0.51

 
$
0.56

Shares used for computation:
 
 
 
Basic
70.431

 
71.192

Diluted
71.414

 
72.659


See accompanying notes to consolidated financial statements.

6


ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)

 
Three Months Ended March 31,
(in millions)
2013
 
2012
 
 
 
 
Net Income
$
37

 
$
41

 
 
 
 
Other comprehensive income (loss):
 
 
 
Related to marketable securities:
 
 
 
Unrealized holding gains (losses) arising during the period
(1
)
 
4

Reclassification of (gain) loss into net income (within Nonoperating Income (Expense), Other - net)
(1
)
 
(1
)
Income tax effect
1

 
(1
)
Total
(1
)
 
2

 
 
 
 
Related to employee benefit plans:
 
 
 
Reclassification of losses into net income (within Wages & benefits)
10

 
10

Income tax effect
(4
)
 
(4
)
Total
6

 
6

 
 
 
 
Related to interest rate derivative instruments:
 
 
 
Unrealized holding gains (losses) arising during the period
3

 
1

Reclassification of (gain) loss into net income (within Aircraft rent)
1

 
2

Income tax effect
(2
)
 
(4
)
Total
2

 
(1
)
 
 
 
 
Other comprehensive income
7

 
7

 
 
 
 
Comprehensive income
$
44

 
$
48


See accompanying notes to consolidated financial statements.


7


ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
 
Three Months Ended March 31,
(in millions)
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
37

 
$
41

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
69

 
64

Stock-based compensation and other
14

 
5

Changes in certain assets and liabilities:
 
 
 
Changes in fair values of open fuel hedge contracts
24

 
(25
)
Changes in deferred income taxes
18

 
26

Increase in air traffic liability
157

 
165

Decrease in deferred revenue
(2
)
 
(4
)
Increase in other long-term liabilities
1

 
18

Other - net
(106
)
 
(107
)
Net cash provided by operating activities
212

 
183

 
 
 
 
Cash flows from investing activities:
 

 
 

Property and equipment additions:
 

 
 

Aircraft and aircraft purchase deposits
(90
)
 
(81
)
Other flight equipment
(6
)
 
(2
)
Other property and equipment
(7
)
 
(15
)
Total property and equipment additions
(103
)
 
(98
)
Assets constructed for others (Terminal 6 at LAX)

 
(24
)
Purchases of marketable securities
(280
)
 
(240
)
Sales and maturities of marketable securities
239

 
188

Proceeds from disposition of assets and changes in restricted deposits
(7
)
 
1

Net cash used in investing activities
(151
)
 
(173
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Long-term debt payments
(88
)
 
(59
)
Common stock repurchases
(19
)
 
(9
)
Proceeds and tax benefit from issuance of common stock
11

 
4

Other financing activities
8

 

Net cash used in financing activities
(88
)
 
(64
)
Net decrease in cash and cash equivalents
(27
)
 
(54
)
Cash and cash equivalents at beginning of year
122

 
102

Cash and cash equivalents at end of the period
$
95

 
$
48

 
 
 
 
Supplemental disclosure:
 

 
 

Cash paid during the period for:
 
 
 
Interest (net of amount capitalized)
$
15

 
$
16

Income taxes
6

 
(3
)
Non-cash transactions:
 
 
 
Assets constructed related to Terminal 6 at LAX

 
51

See accompanying notes to consolidated financial statements.

8



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation
 
The interim condensed consolidated financial statements include the accounts of Alaska Air Group, Inc. (Air Group or the Company) and its subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), through which the Company conducts substantially all of its operations. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in the Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments have been made that are necessary to present fairly the Company’s financial position as of March 31, 2013, as well as the results of operations for the three months ended March 31, 2013 and 2012. The adjustments made were of a normal recurring nature.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions and other factors, operating results for the three months ended March 31, 2013 are not necessarily indicative of operating results for the entire year.

Reclassifications

Certain reclassifications have been made to conform the prior-year data to the current format. During the second quarter of 2012, the Company changed the classification of ancillary revenues, such as checked-bag fees, ticket change fees, and others, from "Passenger revenue" to "Other-net" revenue to enhance comparability of passenger revenue among peers in the industry. The Company has reclassified ancillary revenues in the current period and all prior periods, with the reclassification having no impact on total revenue for any of the respective periods. The table below shows operating revenues originally reported in the Form 10-Q for the three months ended March 31, 2012 and the effect of the reclassification on the condensed consolidated statement of operations (in millions):
 
Three Months Ended March 31, 2012
 
As Reclassified
 
Reported
Operating Revenues
 
 
 
Passenger
 
 
 
Mainline
$
723

 
$
764

Regional
173

 
186

Total passenger revenue
896

 
950

Freight and mail
24

 
24

Other - net
119

 
65

Total Operating Revenues
$
1,039

 
$
1,039

 

9




NOTE 2. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

Components for cash, cash equivalents and marketable securities (in millions):
March 31, 2013
Cost Basis
 
Unrealized
Gains
 
Unrealized Losses
 
Fair Value
Cash
$
27

 
$

 
$

 
$
27

Cash equivalents
68

 

 

 
68

Cash and cash equivalents
95

 

 

 
95

U.S. government and agency securities
290

 
1

 

 
291

Foreign government bonds
33

 

 

 
33

Asset-back securities
73

 
1

 

 
74

Mortgage-back securities
131

 
1

 
(1
)
 
131

Corporate notes and bonds
612

 
7

 

 
619

Municipal securities
22

 

 

 
22

Marketable securities
1,161

 
10

 
(1
)
 
1,170

Total
$
1,256

 
$
10

 
$
(1
)
 
$
1,265


December 31, 2012
Cost Basis
 
Unrealized
Gains
 
Unrealized Losses
 
Fair Value
Cash
$
28

 
$

 
$

 
$
28

Cash equivalents
94

 

 

 
94

Cash and cash equivalents
122

 

 

 
122

U.S. government and agency securities
271

 
1

 

 
272

Foreign government bonds
50

 
1

 

 
51

Asset-back securities
61

 
1

 

 
62

Mortgage-back securities
137

 
1

 
(1
)
 
137

Corporate notes and bonds
577

 
8

 

 
585

Municipal securities
23

 

 

 
23

Marketable securities
1,119

 
12

 
(1
)
 
1,130

Total
$
1,241

 
$
12

 
$
(1
)
 
$
1,252


Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of March 31, 2013.

Activity for marketable securities (in millions):  
 
Three Months Ended March 31,
 
2013
 
2012
Proceeds from sales and maturities
$
239

 
$
188

Gross realized gains
2

 
2

Gross realized losses
(1
)
 
(1
)
 
Marketable securities maturities (in millions):
March 31, 2013
Cost Basis
 
Fair Value
Due in one year or less
$
250

 
$
250

Due after one year through five years
904

 
913

Due after five years through 10 years
7

 
7

Total
$
1,161

 
$
1,170



10



NOTE 3. DERIVATIVE INSTRUMENTS

Fuel Hedge Contracts

The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into call options for crude oil and swap agreements for jet fuel refining margins.

As of March 31, 2013, the Company had fuel hedge contracts outstanding covering 461 million gallons of crude oil that will be settled from April 2013 to March 2016. Refer to the contractual obligations and commitments section of Item 2 for further information.

Interest Rate Swap Agreements

The Company has interest rate swap agreements with a third party designed to hedge the volatility of the underlying variable interest rate in the Company's aircraft lease agreements for six Boeing 737-800 aircraft. The agreements stipulate that the Company pay a fixed interest rate over the term of the contract and receive a floating interest rate. All significant terms of the swap agreement match the terms of the lease agreements, including interest-rate index, rate reset dates, termination dates and underlying notional values. The agreements expire from February 2020 through March 2021 to coincide with the lease termination dates.

Fair Values of Derivative Instruments

Fair values of derivative instruments on the consolidated balance sheet (in millions):
 
March 31,
2013
 
December 31,
2012
Derivative Instruments Not Designated as Hedges
 
 
 
Fuel hedge contracts
 
 
 
Fuel hedge contracts, current assets
$
21

 
$
26

Fuel hedge contracts, noncurrent assets
23

 
39

Fuel hedge contracts, current liabilities
(4
)
 
(1
)
 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
Interest rate swaps
 
 
 
Other accrued liabilities
(6
)
 
(6
)
Other liabilities
(23
)
 
(27
)
Losses in accumulated other comprehensive loss (AOCL)
(29
)
 
(33
)

The net cash received (paid) for new positions and settlements was nil and $(6) million during the three months ended March 31, 2013 and 2012, respectively.

Pretax effect of derivative instruments on earnings (in millions):
 
Three Months Ended March 31,
 
2013
 
2012
Derivative Instruments Not Designated as Hedges
 
 
 
Fuel hedge contracts
 
 
 
Gains (losses) recognized in aircraft fuel expense
$
(24
)
 
$
19

 
 
 
 
Derivative Instruments Designated as Hedges
 
 
 
Interest rate swaps
 
 
 
Losses recognized in aircraft rent
(1
)
 
(2
)
Gains (losses) recognized in other comprehensive income (OCI)
3

 
2



11



The amounts shown as recognized in aircraft rent for cash flow hedges (interest rate swaps) represent the realized losses transferred out of AOCL to aircraft rent. The amounts shown as recognized in OCI are prior to the losses recognized in aircraft rent during the period. The Company expects $6 million to be reclassified from OCI to aircraft rent within the next twelve months.

Credit Risk and Collateral

The Company is exposed to credit losses in the event of non-performance by counterparties to these derivative instruments. To mitigate exposure, the Company periodically reviews the counterparties' nonperformance by monitoring the absolute exposure levels and credit ratings. The Company maintains security agreements with a number of its counterparties which may require the Company to post collateral if the fair value of the selected derivative instruments fall below specified mark-to-market thresholds. The posted collateral does not offset the fair value of the derivative instruments and is included in "Prepaid expenses and other current assets" on the consolidated balance sheet.

The Company posted collateral of $16 million and $15 million as of March 31, 2013 and December 31, 2012, respectively. The collateral was provided to one counterparty associated with the net liability position of the interest rate swap agreements offset by the net asset position of the fuel hedge contracts under a master netting arrangement.

NOTE 4. FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments on a Recurring Basis

Fair values of financial instruments on the consolidated balance sheet (in millions):
March 31, 2013
Level 1
 
Level 2
 
Total
Assets
 
 
 
 
 
Marketable securities
 
 
 
 
 
U.S. government and agency securities
$
291

 
$

 
$
291

Foreign government bonds

 
33

 
33

Asset-back securities

 
74

 
74

Mortgage-back securities

 
131

 
131

Corporate notes and bonds

 
619

 
619

Municipal securities

 
22

 
22

Derivative instruments
 
 
 
 
 
Call options

 
44

 
44

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Derivative instruments
 
 
 
 
 
Swap agreements

 
(4
)
 
(4
)
Interest rate swap agreements

 
(29
)
 
(29
)


12



December 31, 2012
Level 1
 
Level 2
 
Total
Assets
 
 
 
 
 
Marketable securities
 
 
 
 
 
U.S. government and agency securities
$
272

 
$

 
$
272

Foreign government bonds

 
51

 
51

Asset-back securities

 
62

 
62

Mortgage-back securities

 
137

 
137

Corporate notes and bonds

 
585

 
585

Municipal securities

 
23

 
23

Derivative instruments
 
 
 
 
 
Call options

 
65

 
65

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Derivative instruments
 
 
 
 
 
Fuel hedge contracts

 
(1
)
 
(1
)
Interest rate swap agreements

 
(33
)
 
(33
)

The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities are Level 1 as the fair value is based on quoted prices in active markets. Foreign government's bonds, asset-back securities, mortgage-back securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on industry standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. Fuel hedge contracts that are not traded on a public exchange are Level 2 as the fair value is primarily based on inputs which are readily available in active markets or can be derived from information available in active markets. The fair value for call options is determined utilizing an option pricing model based on inputs that are readily available in active markets, or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. The fair value of jet fuel refining margins (fuel hedge contracts) is determined based on inputs readily available in public markets and provided by brokers who regularly trade these contracts. Interest rate swap agreements are Level 2 as the fair value of these contracts is determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end, multiplied by the total notional value.

The Company has no financial assets that are measured at fair value on a nonrecurring basis at March 31, 2013.

Fair Value of Other Financial Instruments

The Company used the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash and Cash Equivalents: Carried at amortized cost, which approximates fair value.

Debt: The carrying amount of the Company's variable-rate debt approximates fair values. For fixed-rate debt, the Company uses the income approach to determine the estimated fair value, by using discounted cash flow using borrowing rates for comparable debt over the weighted life of the outstanding debt. The estimated fair value of the fixed-rate debt is Level 3 as certain inputs used are unobservable.

Fixed-rate debt that is not carried at fair value on the consolidated balance sheet and the estimated fair value of long-term fixed-rate debt (in millions):
 
March 31,
2013
 
December 31,
2012
Carrying amount
$
764

 
$
844

Fair value
826

 
915


13




NOTE 5. MILEAGE PLAN

Alaska's Mileage Plan liabilities and deferrals on the consolidated balance sheets (in millions):
 
March 31,
2013
 
December 31,
2012
Current Liabilities:
 
 
 
Other accrued liabilities
$
310

 
$
285

Other Liabilities and Credits:
 
 
 
Deferred revenue
427

 
428

Other liabilities
16

 
17

Total
$
753

 
$
730

 
Alaska's Mileage Plan revenue included in the consolidated statements of operations (in millions):
 
Three Months Ended March 31,
 
2013
 
2012
Passenger revenues
$
46

 
$
43

Other-net revenues
54

 
47

Total
$
100

 
$
90


NOTE 6. LONG-TERM DEBT
 
Long-term debt obligations on the consolidated balance sheet (in millions):
 
March 31,
2013
 
December 31,
2012
Fixed-rate notes payable due through 2024
$
764

 
$
844

Variable-rate notes payable due through 2023
182

 
188

Long-term debt
946

 
1,032

Less current portion
106

 
161

Total
$
840

 
$
871

 
 
 
 
Weighted-average fixed-interest rate
5.8
%
 
5.8
%
Weighted-average variable-interest rate
1.8
%
 
2.0
%

During the three months ended March 31, 2013, the Company made debt payments of $88 million.

At March 31, 2013, long-term debt principal payments for the next five years and thereafter are as follows (in millions):
 
Total
Remainder of 2013
$
74

2014
117

2015
113

2016
111

2017
116

Thereafter
415

Total
$
946

 
Bank Lines of Credit
 
The Company has two $100 million credit facilities. Both facilities have variable interest rates based on LIBOR plus a specified margin. One of the $100 million facilities, which expires in August 2015, is secured by aircraft. The other $100 million facility, which expires in March 2016, is secured by certain accounts receivable, spare engines, spare parts and ground

14



service equipment. The Company has no immediate plans to borrow using either of these facilities. These facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. The Company is in compliance with this covenant at March 31, 2013.

NOTE 7. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs recognized included the following components (in millions): 
 
Three Months Ended March 31,
 
Qualified
 
Nonqualified
 
Postretirement Medical
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Service cost
$
11

 
$
9

 
$

 
$

 
$
1

 
$
1

Interest cost
18

 
18

 
1

 
1

 
1

 
2

Expected return on assets
(27
)
 
(23
)
 

 

 

 

Amortization of prior service cost

 

 

 

 

 

Curtailment loss

 

 

 

 

 

Recognized actuarial loss
10

 
10

 

 

 

 

Total
$
12

 
$
14

 
$
1

 
$
1

 
$
2

 
$
3


NOTE 8. COMMITMENTS

Future minimum fixed payments for commitments (in millions):
March 31, 2013
Aircraft Leases
 
Facility Leases
 
Aircraft Commitments
 
Capacity Purchase Agreements
 
Engine Maintenance
Remainder of 2013
$
57

 
$
45

 
$
293

 
$
28

 
$
24

2014
126

 
42

 
403

 
38

 
25

2015
105

 
31

 
259

 
31

 
9

2016
82

 
23

 
221

 
18

 

2017
51

 
19

 
329

 
19

 

Thereafter
79

 
130

 
1,461

 
8

 

Total
$
500

 
$
290

 
$
2,966

 
$
142

 
$
58


Lease Commitments

At March 31, 2013, the Company had lease contracts for 63 aircraft, which have remaining noncancelable lease terms ranging from 2013 to 2021. Of these aircraft, 14 are non-operating (i.e. not in the Company's fleet) and subleased to third-party carriers. The majority of airport and terminal facilities are also leased. Rent expense was $70 million and $70 million for the three months ended March 31, 2013 and 2012, respectively.

Aircraft Commitments
 
In 2012, the Company entered into a new agreement and modified an existing agreement with Boeing to acquire 50 B737 aircraft. As of March 31, 2013, the Company is committed to purchasing 68 B737 aircraft, including 31 B737-900ER aircraft and 37 B737 MAX aircraft, with deliveries in 2013 through 2022. In addition, the Company has options to purchase an additional 69 B737 aircraft and 10 Q400 aircraft.

Capacity Purchase Agreements (CPAs)
 
At March 31, 2013, Alaska had CPAs with three carriers, including the Company's wholly-owned subsidiary, Horizon. Horizon sells 100% of its capacity to Alaska under a CPA, which is eliminated upon consolidation. In addition, Alaska has CPAs with SkyWest Airlines, Inc. (SkyWest) to fly certain routes and Peninsula Airways, Inc. (PenAir) to fly in the state of Alaska. Under these agreements, Alaska pays the third-party carriers an amount which is based on a determination of their cost of operating those flights and other factors. The costs paid by Alaska to Horizon are based on similar data and are intended to approximate market rates for those services. Future payments (excluding Horizon) are based on minimum levels of flying by the third-party

15



carriers, which could differ materially due to variable payments based on actual levels of flying and certain costs associated with operating flights such as fuel.

Engine Maintenance
 
The Company had power-by-the-hour maintenance agreements for all B737-400, B737-700, and B737-900 engines at March 31, 2013. These agreements transfer risk to third-party service providers and fix the amount the Company pays per flight hour in exchange for maintenance and repairs under a predefined maintenance program. Future payments are based on minimum flight hours. Accordingly, payments could differ materially based on actual flight hours.

NOTE 9. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In September 2012, the Board of Directors authorized a $250 million share repurchase program, which does not have an expiration date, but is expected to be completed by December 2014. In February 2012, the Board of Directors authorized a $50 million share repurchase program, which was completed in September 2012. In June 2011, the Board of Directors authorized a $50 million share repurchase program, which was completed in January 2012.
Share repurchase activity (in millions, except share amounts):
 
Three Months Ended March 31,
 
2013
 
2012
 
Shares
 
Amount
 
Shares
 
Amount
2012 Repurchase Program - $250 million
373,185

 
$
19

 

 
$

2012 Repurchase Program - $50 million

 

 
203,000

 
7

2011 Repurchase Program - $50 million

 

 
46,340

 
2

Total
373,185

 
$
19

 
249,340

 
$
9

 
Accumulated Other Comprehensive Loss
 
Components of accumulated other comprehensive income (loss) (in millions):
 
March 31,
2013
 
December 31,
2012
Marketable securities
$
6

 
$
7

Employee benefit plans
(417
)
 
(423
)
Interest rate derivatives
(18
)
 
(20
)
Total
$
(429
)
 
$
(436
)


Earnings Per Share

Diluted EPS is calculated by dividing net income by the average common shares outstanding plus additional common shares that would have been outstanding assuming the exercise of in-the-money stock options and restricted stock units, using the treasury-stock method. For the three months ended March 31, 2013 and 2012, antidilutive shares excluded from the calculation of EPS were not material.
 

16




NOTE 10. OPERATING SEGMENT INFORMATION
 
Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams. Horizon sells 100% of its capacity to Alaska under a CPA, which is eliminated upon consolidation. In addition, Alaska has CPAs with SkyWest to fly certain routes and PenAir to fly in the state of Alaska. The Company attributes revenue between Mainline and Regional based on the coupon fare in effect on the date of issuance relative to the origin and destination of each flight segment. To manage the two operating airlines and the revenues and expenses associated with the CPAs, management views the business in three operating segments.
Alaska Mainline - The Boeing 737 part of Alaska's business.
Alaska Regional - Alaska's CPAs with Horizon, SkyWest and Penair. In this segment, Alaska 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 CPAs. Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.
Horizon - Horizon operates turboprop Q400 aircraft. All of Horizon's capacity is sold to Alaska under a CPA.  Expenses include those typically borne by regional airlines such as crew costs, ownership costs, and maintenance costs. The results of Horizon's operations are eliminated upon consolidation.
Additionally, the following table reports “Air Group adjusted”, which is not a measure determined in accordance with GAAP. The Company's chief operating decision-makers and others in management use this measure to evaluate operational performance and determine resources allocations. Adjustments are further explained below in reconciling to consolidated GAAP results. Operating segment information is as follows (in millions):
 
Three Months Ended March 31, 2013
 
Alaska
 
 
 
 
 
 
 
 
 
 
 
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
796

 
$

 
$

 
$

 
$
796

 
$

 
$
796

Regional

 
182

 

 

 
182

 

 
182

Total passenger revenues
796

 
182

 

 

 
978

 

 
978

CPA revenues

 

 
94

 
(94
)
 

 

 

Freight and mail
25

 
1

 

 

 
26

 

 
26

Other-net
113

 
14

 
2

 

 
129

 

 
129

Total operating revenues
934

 
197

 
96

 
(94
)
 
1,133

 

 
1,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
547

 
147

 
89

 
(95
)
 
688

 

 
688

Economic fuel(b)
323

 
46

 

 

 
369

 
12

 
381

Total operating expenses
870

 
193

 
89

 
(95
)
 
1,057

 
12

 
1,069

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
4

 

 

 

 
4

 

 
4

Interest expense
(11
)
 

 
(3
)
 
(2
)
 
(16
)
 

 
(16
)
Other
6

 

 

 
1

 
7

 

 
7

 
(1
)
 

 
(3
)
 
(1
)
 
(5
)
 

 
(5
)
Income (loss) before income tax
$
63

 
$
4

 
$
4

 
$

 
$
71

 
$
(12
)
 
$
59



17



 
Three Months Ended March 31, 2012
 
Alaska
 
 
 
 
 
 
 
 
 
 
 
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
723

 
$

 
$

 
$

 
$
723

 
$

 
$
723

Regional

 
173

 

 

 
173

 

 
173

Total passenger revenues
723

 
173

 

 

 
896

 

 
896

CPA revenues

 

 
87

 
(87
)
 

 

 

Freight and mail
23

 
1

 

 

 
24

 

 
24

Other-net
103

 
14

 
2

 

 
119

 

 
119

Total operating revenues
849

 
188

 
89

 
(87
)
 
1,039

 

 
1,039

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
520

 
137

 
78

 
(87
)
 
648

 

 
648

Economic fuel(b)
294

 
45

 

 

 
339

 
(20
)
 
319

Total operating expenses
814

 
182

 
78

 
(87
)
 
987

 
(20
)
 
967

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
5

 

 

 

 
5

 

 
5

Interest expense
(13
)
 

 
(4
)
 

 
(17
)
 

 
(17
)
Other
6

 

 

 

 
6

 

 
6

 
(2
)
 

 
(4
)
 

 
(6
)
 

 
(6
)
Income (loss) before income tax
$
33

 
$
6

 
$
7

 
$

 
$
46

 
$
20

 
$
66

(a) 
The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain charges.
(b) 
Represents adjustments to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting.

Total assets were as follows (in millions):
 
March 31,
2013
 
December 31,
2012
Alaska(a)
$
5,346

 
$
5,177

Horizon
825

 
823

Parent company
1,891

 
1,832

Elimination of inter-company accounts
(2,418
)
 
(2,327
)
Consolidated
$
5,644

 
$
5,505

(a) 
There are no assets associated with purchased capacity flying at Alaska.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the Company, our segment operations and our present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in Item 1A. "Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012. This overview summarizes the MD&A, which includes the following sections:

18



 
First Quarter Review—highlights from the first quarter of 2013 outlining some of the major events that happened during the period and how they affected our financial performance.
 
Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three months ended March 31, 2013. To the extent material to the understanding of segment profitability we more fully describe the segment expenses per financial statement line-item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of 2013
  
Liquidity and Capital Resources—an overview of our financial position, analysis of cash flows, and contractual obligations and commitments.

FIRST QUARTER REVIEW

Our consolidated pretax income was $59 million during the first quarter of 2013, compared to $66 million in the first quarter of 2012. The decrease of $7 million was primarily due to the increased aircraft fuel expense of $62 million and the increased non-fuel operating expenses of $40 million, partially offset by increased revenues of $94 million. The increase in fuel costs was due to a 6.6% increase in consumption, a current period net realized cost of hedging of $12 million, and unrealized mark-to-market fuel hedge loss of $12 million, compared to an unrealized benefit of $20 million in the prior period. The improvement in revenues was primarily due to increased passenger revenues of $82 million on a 9.0% increase in traffic and relatively flat ticket yields.

See “Results of Operations” below for further discussion of changes in revenues and operating expenses and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure.

Operations Performance

In the first quarter of 2013, Alaska was awarded the 2012 On-Time Performance Service Award among major North American Airlines by FlightStats.com. Additionally, both Alaska and Horizon continued their strong on-time performance, reporting 87.6% and 89.2% of their flights arrived on time, respectively.

Update on Labor Negotiations

We are currently in negotiations with Horizon's flight attendants, represented by the Association of Flight Attendants (AFA), whose contracts became amendable in December 2011. We are also in negotiations with Alaska's pilots, represented by the Airline Pilots Association (ALPA), whose contract became amendable in April 2013. Additionally, we are in negotiations with the International Association of Machinists and Aerospace Workers (IAM) who represent Horizon's maintenance store employees, and Alaska's clerical, operations, and passenger services employees, whose contract becomes amendable December 31, 2013.

On May 2, 2013, Alaska Airlines flight attendants, represented by the Association of Flight Attendants-(AFA), filed for mediation with the National Mediation Board (NMB). The contract became amendable a year ago. Negotiations started in November 2011, and have been on-going for the past 18 months.

New Markets
 
We began service between San Diego and Boston and between Seattle and Salt Lake City. In June 2013, we will begin seasonal service between Portland and Fairbanks and new service between San Diego and Lihue. In the third quarter, we will begin new daily service between Portland and Atlanta and between Portland and Dallas.

Stock Repurchase

During the first quarter of 2013, we repurchased 373,185 shares of our common stock for $19 million under our $250 million repurchase program authorized by our Board of Directors in September 2012. Since 2007, we have repurchased 19 million shares of common stock under such programs for $340 million for an average price of $18 per share. During the month of April we repurchased 183,376 shares of our common stock for $11 million, resulting in 70,313,337 shares outstanding at April 30, 2013.
 

19



Cabin Investment Program

On April 23, 2013, we announced our cabin investment program that will improve our customers' onboard experience and make us more competitive. We will modify all of our 737-800s and -900s to include the same Recaro seats installed on our 737-900ERs; have power at every seat, including our -900ERs; and provide enhanced inflight entertainment. The slimmer Recaro seat and other cabin reconfigurations enable Alaska to add six seats to our 737-800s and nine seats to our -900s without sacrificing personal space. When complete, we will increase our seats by approximately 2.4%. We will be the only domestic airline to offer 110-volt and USB power at every seat and the outlets will be easily accessible rather than located beneath the seat. Modifications will start later in 2013 and continue through most of 2014.
 
Outlook

Unit revenues for the month of April will be impacted by excess capacity in our California to Hawaii markets, new Transcon and Midcon routes are still in the development phase and are not yet producing system-average revenues, pricing actions by competitors are negatively affecting close-in fares, as well as the potential demand impact from government sequestration and the shift in the timing of Easter. These factors are pressuring April unit revenues and will result in negative comps for the month, likely at levels exceeding 2.1%. Additionally, for the full-year we are seeing increased competitive pressure in many of our markets and, as a result, some pricing that is having a negative impact on yields. For example, on an ASM-basis, competitive capacity for the second quarter is up over 50% in the state of Alaska long-haul markets as competitors have added service to Anchorage and to a lesser extent Fairbanks from both Seattle and their own hubs. In aggregate, more than 30% of our ASMs are experiencing negative yields due to competitive pressure.

Our advance bookings suggest our load factors will be down a point in May and down a point in June compared to the same periods in 2012 on an expected 7.5% increase in capacity in the second quarter of 2013.

Our current expectations for capacity and CASM excluding fuel and special items are summarized below:
 
Forecast
Q2 2013
 
Change
Y-O-Y
 
Forecast
Full Year 2013
 
Change
Y-O-Y
Consolidated:
 
 
 
 
 
 
 
ASMs (000,000) "capacity"
8,525 - 8,575
 
7.5
%
 
33,600 - 34,100

 
7.5
 %
CASM excluding fuel (cents)
8.35 - 8.40
 
~ flat

 
8.35

 
(1.5
)%
 
 
 
 
 
 
 
 
Mainline:
 
 
 
 
 
 
 
ASMs (000,000) "capacity"
7,725 - 7,775
 
8.5
%
 
30,150 - 30,650

 
8.0
 %
CASM excluding fuel (cents)
7.43 - 7.48
 
~ flat

 
7.50

 
(1.0
)%

20




RESULTS OF OPERATIONS
 
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO THREE MONTHS ENDED MARCH 31, 2012

Our consolidated net income for the first quarter of 2013 was $37 million, or $0.51 per diluted share, compared to net income of $41 million, or $0.56 per diluted share, in the first quarter of 2012. Both periods include adjustments to reflect the timing of unrealized mark-to-market adjustments related to our fuel hedge positions. For the first quarter of 2013, we recognized mark-to-market unrealized losses of $12 million ($7 million after tax, or $0.11 per share) compared to unrealized gains of $20 million ($13 million after tax, or $0.17 per share) in the first quarter of 2012.

ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS

We believe disclosure of earnings excluding the impact of mark-to-market gains or losses or other individual revenues or expenses is useful information to investors because:

We believe it is the basis by which we are evaluated by industry analysts;

By eliminating fuel expense and certain special items from our unit cost metrics, we believe that we have better visibility into the results of our non-fuel continuing operations.  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.

CASM excluding fuel and certain special items 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.

Our results excluding fuel expense and certain special items serve as the basis for our various employee incentive plans, thus the information allows investors to better understand the changes in variable incentive pay expense in our consolidated statements of operations; and

It is useful to monitor performance without these items as it improves a reader’s ability to compare our results to those of other airlines.

Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude these amounts are non-recurring, infrequent, or unusual in nature.

Excluding the impact of mark-to-market fuel hedge adjustments, our adjusted consolidated net income for the first quarter of 2013 was $44 million, or $0.62 per diluted share, compared to an adjusted consolidated net income of $28 million, or $0.39 per share, in the first quarter of 2012.
 
Three Months Ended March 31,
 
2013
 
2012
(in millions, except per share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Net income and diluted EPS as reported
$
37

 
$
0.51

 
$
41

 
$
0.56

Mark-to-market fuel hedge adjustments, net of tax
7

 
0.11

 
(13
)
 
(0.17
)
Non-GAAP adjusted income and per share amounts
$
44

 
$
0.62

 
$
28

 
$
0.39



21



Our operating costs per ASM are summarized below:
 
Three Months Ended March 31,
(in cents)
2013
 
2012
 
% Change
Consolidated:
 
 
 
 
 
CASM

13.39
¢
 

13.17
¢
 
1.7

Less the following components:
 
 
 

 
 

Aircraft fuel, including hedging gains and losses
4.77

 
4.35

 
9.7

CASM excluding fuel

8.62
¢
 

8.82
¢
 
(2.3
)
 
 
 
 
 
 
Mainline:
 
 
 
 
 
CASM

12.24
¢
 

12.08
¢
 
1.3

Less the following components:
 
 
 

 
 

Aircraft fuel, including hedging gains and losses
4.65

 
4.18

 
11.2

CASM excluding fuel

7.59
¢
 

7.90
¢
 
(3.9
)


22



OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.

Below are operating statistics we use to measure operating performance. We often refer to unit revenues and adjusted unit costs, which is a non-GAAP measure.
 
Three Months Ended March 31,
 
2013
 
2012
 
Change
Consolidated Operating Statistics:(a)
 
 
 
 
 
Revenue passengers (000)
6,346

 
5,995

 
5.8
%
Revenue passenger miles (RPM) (000,000) "traffic"
6,796

 
6,232

 
9.0
%
Available seat miles (ASM) (000,000) "capacity"
7,983

 
7,344

 
8.7
%
Load factor
85.1
%
 
84.9
%
 
0.2 pts

Yield

14.38
¢
 

14.38
¢
 
%
Passenger revenue per ASM (PRASM)

12.24
¢
 

12.20
¢
 
0.3
%
Revenue per ASM (RASM)

14.19
¢
 

14.15
¢
 
0.3
%
Operating expense per ASM (CASM) excluding fuel(b)

8.62
¢
 

8.82
¢
 
(2.3
%)
Economic fuel cost per gallon(b)
$
3.48

 
$
3.41

 
2.1
%
Fuel gallons (000,000)
106

 
99

 
6.6
%
Average number of full-time equivalent employees (FTEs)
12,013

 
11,832

 
1.5
%
 
 
 
 
 
 
Mainline Operating Statistics:
 
 
 
 
 
Revenue passengers (000)
4,534

 
4,275

 
6.1
%
RPMs (000,000) "traffic"
6,172

 
5,637

 
9.5
%
ASMs (000,000) "capacity"
7,203

 
6,575

 
9.6
%
Load factor
85.7
%
 
85.7
%
 

Yield

12.90
¢
 

12.83
¢
 
0.5
%
PRASM

11.05
¢
 

11.00
¢
 
0.4
%
RASM

12.97
¢
 

12.92
¢
 
0.4
%
CASM excluding fuel(b)

7.59
¢
 

7.90
¢
 
(3.9
%)
Economic fuel cost per gallon(b)
$
3.47

 
$
3.40

 
2.1
%
Fuel gallons (000,000)
93

 
87

 
6.9
%
Average number of FTEs
9,351

 
9,010

 
3.8
%
Aircraft utilization
10.6

 
10.2

 
3.9
%
Average aircraft stage length
1,203

 
1,152

 
4.4
%
Mainline operating fleet at period-end
127

 
119

 
8 a/c

 
 
 
 
 
 
Regional Operating Statistics:(c)
 
 
 
 
 
Revenue passengers (000)
1,812

 
1,720

 
5.3
%
RPMs (000,000) "traffic"
624

 
595

 
4.9
%
ASMs (000,000) "capacity"
780

 
769

 
1.5
%
Load factor
80.0
%
 
77.4
%
 
2.6 pts

Yield

29.09
¢
 

29.07
¢
 
0.1
%
PRASM

23.27
¢
 

22.49
¢
 
3.5
%
Operating fleet (Horizon only)
48

 
48

 

(a) 
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
(b) 
See reconciliation of this measure to the most directly related GAAP measure in the "Results of Operations" section.
(c) 
Data presented includes information related to regional CPAs.

23



OPERATING REVENUES

Total operating revenues increased $94 million, or 9%, during the first quarter of 2013 compared to the same period in 2012. The changes are summarized in the following table: