News releases
Alaska Air Group reports third quarter 2020 results along with COVID-19 updates
Financial Results:
- Reported net loss for the third quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of
$431 million , or$3.49 per diluted share, compared to net income of$322 million , or$2.60 per diluted share in the third quarter of 2019. - Reported net loss for the third quarter of 2020, excluding payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of
$399 million , or$3.23 per diluted share, compared to adjusted net income of$326 million or$2.63 per diluted share, in the third quarter of 2019. - Maintained adjusted net debt of
$1.7 billion , flat fromDec. 31, 2019 . - Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 59%.
- Held
$3.8 billion in unrestricted cash and marketable securities as ofSept. 30, 2020 .
Liquidity Updates:
- Reduced cash burn to approximately
$4 million per day in the third quarter from approximately$5 million per day in the second quarter. - Obtained nearly
$1.2 billion in financing through the issuance of Enhanced Equipment Trust Certificates, secured by 42 Boeing and 19 Embraer aircraft. - Reached an agreement with the
U.S. Treasury in September to participate in the CARES Act loan program, and drew$135 million in September. TheU.S. Treasury advised inOctober 2020 that the facility will be upsized to$1.9 billion . - Held
$3.7 billion in cash and marketable securities as ofOct. 21, 2020 and total liquidity of$5.5 billion .
Operational and Guest Safety Updates:
- Extending blocking of middle seats on mainline aircraft through
Jan. 6, 2021 . - Announced today a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain business air travel.
- Permanently eliminated change fees and extended the flexible travel policy for all new ticket purchases through
Dec. 31, 2020 . - Launched a partnership with certain healthcare providers to offer rapid and standardized COVID-19 testing for those guests traveling to destinations which require a negative test result.
- Expanded the company's Next-Level Care initiative, including implementation of new technology to create a touch-free experience for guests and a partnership with essential oils brand EO to provide hand sanitizing wipes onboard.
- Strengthened face covering policy, requiring all guests over the age of two to wear a cloth mask or face covering at all times onboard.
- Initiated voluntary early-out and incentive leave programs to our frontline employee workgroups, which were accepted by more than 4,000 employees. As a result, furloughs were limited to approximately 400 employees.
- Announced 15 new routes during the third quarter, aimed at connecting
West Coast travelers to key leisure destinations, includingJackson Hole, Wyoming , andFort Myers, Florida . - Received official oneworld invitation on
July 23, 2020 . The company has announced it will officially join the alliance onMarch 31, 2021 .
"We are gaining momentum as we climb our way out of this crisis," said
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
Three Months Ended |
|||||||||||||||
2020 |
2019 |
||||||||||||||
(in millions, except per-share amounts) |
Dollars |
Diluted EPS |
Dollars |
Diluted EPS |
|||||||||||
GAAP net income (loss) and diluted EPS |
$ |
(431) |
$ |
(3.49) |
$ |
322 |
$ |
2.60 |
|||||||
Payroll support program wage offset |
(398) |
(3.22) |
— |
— |
|||||||||||
Mark-to-market fuel hedge adjustments |
(3) |
(0.02) |
— |
— |
|||||||||||
Special items - merger-related costs |
1 |
0.01 |
5 |
0.04 |
|||||||||||
Special items - impairment charges and other |
121 |
0.98 |
— |
— |
|||||||||||
Special items - restructuring charges |
322 |
2.60 |
— |
— |
|||||||||||
Income tax effect of reconciling items above |
(11) |
(0.09) |
(1) |
(0.01) |
|||||||||||
Non-GAAP adjusted net income (loss) and diluted EPS |
$ |
(399) |
$ |
(3.23) |
$ |
326 |
$ |
2.63 |
|||||||
Nine Months Ended |
|||||||||||||||
2020 |
2019 |
||||||||||||||
(in millions, except per-share amounts) |
Dollars |
Diluted EPS |
Dollars |
Diluted EPS |
|||||||||||
GAAP net income (loss) and diluted EPS |
$ |
(877) |
$ |
(7.12) |
$ |
588 |
$ |
4.74 |
|||||||
Payroll support program wage offset |
(760) |
(6.16) |
— |
— |
|||||||||||
Mark-to-market fuel hedge adjustments |
— |
— |
(1) |
(0.01) |
|||||||||||
Special items - merger-related costs |
5 |
0.04 |
39 |
0.31 |
|||||||||||
Special items - impairment charges and other |
350 |
2.84 |
— |
— |
|||||||||||
Special items - restructuring charges |
322 |
2.61 |
— |
— |
|||||||||||
Income tax effect of reconciling items above |
20 |
0.16 |
(9) |
(0.07) |
|||||||||||
Non-GAAP adjusted net income (loss) and diluted EPS |
$ |
(940) |
$ |
(7.63) |
$ |
617 |
$ |
4.97 |
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
References in this news release to "
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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
|||||||||||||||||||||
|
|||||||||||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||
(in millions, except per-share amounts) |
2020 |
2019 |
Change |
2020 |
2019 |
Change |
|||||||||||||||
Operating Revenues: |
|||||||||||||||||||||
Passenger revenue |
$ |
572 |
$ |
2,211 |
(74) |
% |
$ |
2,362 |
$ |
6,038 |
(61) |
% |
|||||||||
Mileage Plan other revenue |
84 |
118 |
(29) |
% |
266 |
346 |
(23) |
% |
|||||||||||||
Cargo and other |
45 |
60 |
(25) |
% |
130 |
169 |
(23) |
% |
|||||||||||||
Total Operating Revenues |
701 |
2,389 |
(71) |
% |
2,758 |
6,553 |
(58) |
% |
|||||||||||||
Operating Expenses: |
|||||||||||||||||||||
Wages and benefits |
495 |
608 |
(19) |
% |
1,579 |
1,732 |
(9) |
% |
|||||||||||||
Payroll support program wage offset |
(398) |
— |
NM |
(760) |
— |
NM |
|||||||||||||||
Variable incentive pay |
42 |
46 |
(9) |
% |
65 |
125 |
(48) |
% |
|||||||||||||
Aircraft fuel, including hedging gains and losses |
125 |
486 |
(74) |
% |
568 |
1,408 |
(60) |
% |
|||||||||||||
Aircraft maintenance |
84 |
106 |
(21) |
% |
244 |
341 |
(28) |
% |
|||||||||||||
Aircraft rent |
74 |
82 |
(10) |
% |
229 |
247 |
(7) |
% |
|||||||||||||
Landing fees and other rentals |
109 |
143 |
(24) |
% |
323 |
388 |
(17) |
% |
|||||||||||||
Contracted services |
36 |
72 |
(50) |
% |
138 |
214 |
(36) |
% |
|||||||||||||
Selling expenses |
24 |
77 |
(69) |
% |
83 |
236 |
(65) |
% |
|||||||||||||
Depreciation and amortization |
105 |
106 |
(1) |
% |
320 |
317 |
1 |
% |
|||||||||||||
Food and beverage service |
14 |
57 |
(75) |
% |
70 |
159 |
(56) |
% |
|||||||||||||
Third-party regional carrier expense |
29 |
42 |
(31) |
% |
92 |
125 |
(26) |
% |
|||||||||||||
Other |
89 |
137 |
(35) |
% |
310 |
411 |
(25) |
% |
|||||||||||||
Special items - merger-related costs |
1 |
5 |
(80) |
% |
5 |
39 |
(87) |
% |
|||||||||||||
Special items - impairment charges and other |
121 |
— |
NM |
350 |
— |
NM |
|||||||||||||||
Special items - restructuring charges |
322 |
— |
. |
NM |
322 |
— |
NM |
||||||||||||||
Total Operating Expenses |
1,272 |
1,967 |
(35) |
% |
3,938 |
5,742 |
(31) |
% |
|||||||||||||
Operating Income (Loss) |
(571) |
422 |
(235) |
% |
(1,180) |
811 |
(245) |
% |
|||||||||||||
Nonoperating Income (Expense): |
|||||||||||||||||||||
Interest income |
7 |
11 |
(36) |
% |
23 |
31 |
(26) |
% |
|||||||||||||
Interest expense |
(34) |
(18) |
89 |
% |
(64) |
(60) |
7 |
% |
|||||||||||||
Interest capitalized |
4 |
4 |
— |
% |
8 |
11 |
(27) |
% |
|||||||||||||
Other - net |
5 |
(3) |
(267) |
% |
16 |
(20) |
(180) |
% |
|||||||||||||
Total Nonoperating Income (Expense) |
(18) |
(6) |
200 |
% |
(17) |
(38) |
(55) |
% |
|||||||||||||
Income (Loss) Before Income Tax |
(589) |
416 |
(1,197) |
773 |
|||||||||||||||||
Income tax (benefit) expense |
(158) |
94 |
(320) |
185 |
|||||||||||||||||
Net Income (Loss) |
$ |
(431) |
$ |
322 |
$ |
(877) |
$ |
588 |
|||||||||||||
Basic Earnings (Loss) Per Share: |
$ |
(3.49) |
$ |
2.61 |
$ |
(7.12) |
$ |
4.76 |
|||||||||||||
Diluted Earnings (Loss) Per Share: |
$ |
(3.49) |
$ |
2.60 |
$ |
(7.12) |
$ |
4.74 |
|||||||||||||
Shares Used for Computation: |
|||||||||||||||||||||
Basic |
123.647 |
123.280 |
123.255 |
123.330 |
|||||||||||||||||
Diluted |
123.647 |
124.067 |
123.255 |
124.051 |
|||||||||||||||||
Cash dividend declared per share: |
$ |
— |
$ |
0.35 |
$ |
0.375 |
$ |
1.05 |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) |
|||||||
|
|||||||
(in millions) |
|
|
|||||
Cash and marketable securities |
$ |
3,759 |
$ |
1,521 |
|||
Other current assets |
706 |
516 |
|||||
Current assets |
4,465 |
2,037 |
|||||
Property and equipment - net |
6,381 |
6,902 |
|||||
Operating lease assets |
1,516 |
1,711 |
|||||
|
1,943 |
1,943 |
|||||
Intangible assets - net |
107 |
122 |
|||||
Other assets |
337 |
278 |
|||||
Total assets |
14,749 |
12,993 |
|||||
Air traffic liability |
1,071 |
900 |
|||||
Current portion of long-term debt |
1,150 |
235 |
|||||
Current portion of operating lease liabilities |
283 |
269 |
|||||
Other current liabilities |
1,703 |
1,797 |
|||||
Current liabilities |
4,207 |
3,201 |
|||||
Long-term debt |
2,672 |
1,264 |
|||||
Long-term operating lease liabilities |
1,320 |
1,439 |
|||||
Other liabilities and credits |
3,096 |
2,758 |
|||||
Shareholders' equity |
3,454 |
4,331 |
|||||
Total liabilities and shareholders' equity |
$ |
14,749 |
$ |
12,993 |
|||
Debt-to-capitalization ratio, including operating leases |
59 |
% |
41 |
% |
|||
Number of common shares outstanding |
123.661 |
123.000 |
SUMMARY CASH FLOW (unaudited)
The Company believes that cash burn is an important metric to investors in evaluating the Company's ability to maintain liquidity and manage cash on hand. We define cash burn as all cash flows, excluding the impact of any CARES Act funding or proceeds from new borrowings, one-time vendor advances, plus net activities from marketable securities.
Our daily cash burn for the three and nine months ended
(in millions) |
Nine Months Ended |
Six Months Ended |
Three Months Ended |
||||||||
Net cash provided by (used in) operating activities |
$ |
116 |
$ |
321 |
$ |
(205) |
|||||
Less: Payroll support program grant |
(753) |
(723) |
(30) |
||||||||
Adjusted net cash used in operating activities |
(637) |
(402) |
(235) |
||||||||
Net cash used in investing activities |
(767) |
(124) |
(643) |
||||||||
Net cash provided by financing activities |
2,286 |
1,091 |
1,195 |
||||||||
Adjusted net increase in cash, cash equivalents and restricted cash |
882 |
565 |
317 |
||||||||
Adjusted to remove: |
|||||||||||
Payroll support program note and equity |
298 |
284 |
14 |
||||||||
CARES Act loan program and equity |
135 |
— |
135 |
||||||||
Net secured debt issuances(c) |
1,724 |
589 |
1,135 |
||||||||
Net credit facility draws (payments)(d) |
363 |
393 |
(30) |
||||||||
Net marketable security activity(e) |
(593) |
(5) |
(588) |
||||||||
Advance vendor rebate(f) |
50 |
— |
50 |
||||||||
Total adjustments |
1,977 |
1,261 |
716 |
||||||||
Adjusted cash burn |
$ |
(1,095) |
$ |
(696) |
$ |
(399) |
|||||
Days in the period |
274 |
182 |
92 |
||||||||
Average daily cash burn |
$ |
(4) |
$ |
(4) |
$ |
(4) |
(a) |
As reported in Form 10-Q for the second quarter 2020. |
(b) |
Cash burn for the three months ended |
(c) |
Secured debt issuances are presented net of related issuance costs and collateral-based prepayments. |
(d) |
Credit facility draws are presented net of collateral-based prepayments. |
(e) |
Net marketable security activity represents net purchases and sales activity of marketable securities, plus any unrealized gains or losses on outstanding securities. |
(f) |
In the third quarter of 2020, the Company received an advance payment of a vendor rebate. This rebate will be recognized into earnings over the next 12 month period. |
OPERATING STATISTICS SUMMARY (unaudited) |
|||||||||||
|
|||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||
2020 |
2019 |
Change |
2020 |
2019 |
Change |
||||||
Consolidated Operating Statistics:(a) |
|||||||||||
Revenue passengers (000) |
3,595 |
12,574 |
(71.4)% |
14,012 |
35,018 |
(60.0)% |
|||||
RPMs (000,000) "traffic" |
3,817 |
15,026 |
(74.6)% |
16,127 |
42,113 |
(61.7)% |
|||||
ASMs (000,000) "capacity" |
7,871 |
17,519 |
(55.1)% |
27,483 |
50,006 |
(45.0)% |
|||||
Load factor |
48.5% |
85.8% |
(37.3) pts |
58.7% |
84.2% |
(25.5) pts |
|||||
Yield |
14.99¢ |
14.71¢ |
1.9% |
14.65¢ |
14.34¢ |
2.1% |
|||||
RASM |
8.90¢ |
13.64¢ |
(34.8)% |
10.04¢ |
13.10¢ |
(23.4)% |
|||||
CASMex(b) |
14.00¢ |
8.43¢ |
66.1% |
12.57¢ |
8.59¢ |
46.3% |
|||||
Economic fuel cost per gallon(b) |
|
|
(38.0)% |
|
|
(24.3)% |
|||||
Fuel gallons (000,000) |
97 |
227 |
(57.4)% |
344 |
646 |
(46.7)% |
|||||
ASM's per gallon |
81.3 |
77.2 |
5.3% |
79.9 |
77.4 |
3.2% |
|||||
Average number of full-time equivalent employees (FTE) |
16,027 |
22,247 |
(28.0)% |
18,112 |
22,000 |
(17.7)% |
|||||
Mainline Operating Statistics: |
|||||||||||
Revenue passengers (000) |
2,156 |
9,655 |
(77.7)% |
9,736 |
26,725 |
(63.6)% |
|||||
RPMs (000,000) "traffic" |
2,958 |
13,538 |
(78.2)% |
13,816 |
37,917 |
(63.6)% |
|||||
ASMs (000,000) "capacity" |
6,280 |
15,702 |
(60.0)% |
23,339 |
44,816 |
(47.9)% |
|||||
Load factor |
47.1% |
86.2% |
(39.1) pts |
59.2% |
84.6% |
(25.4) pts |
|||||
Yield |
13.56¢ |
13.66¢ |
(0.7)% |
13.46¢ |
13.29¢ |
1.3% |
|||||
RASM |
8.14¢ |
12.83¢ |
(36.6)% |
9.46¢ |
12.30¢ |
(23.1)% |
|||||
CASMex(b) |
13.88¢ |
7.81¢ |
77.7% |
11.90¢ |
7.91¢ |
50.4% |
|||||
Economic fuel cost per gallon(b) |
|
|
(38.5)% |
|
|
(23.5)% |
|||||
Fuel gallons (000,000) |
69 |
193 |
(64.2)% |
270 |
549 |
(50.8)% |
|||||
ASM's per gallon |
91.0 |
81.4 |
11.8% |
86.4 |
81.6 |
5.9% |
|||||
Average number of FTE's |
12,032 |
16,789 |
(28.3)% |
13,730 |
16,599 |
(17.3)% |
|||||
Aircraft utilization |
7.3 |
11.3 |
(35.4)% |
8.3 |
10.9 |
(23.9)% |
|||||
Average aircraft stage length |
1,244 |
1,281 |
(2.9)% |
1,263 |
1,298 |
(2.7)% |
|||||
Operating fleet(d) |
217 |
238 |
(21) a/c |
217 |
238 |
(21) a/c |
|||||
Regional Operating Statistics:(c) |
|||||||||||
Revenue passengers (000) |
1,439 |
2,919 |
(50.7)% |
4,276 |
8,293 |
(48.4)% |
|||||
RPMs (000,000) "traffic" |
859 |
1,488 |
(42.3)% |
2,311 |
4,196 |
(44.9)% |
|||||
ASMs (000,000) "capacity" |
1,592 |
1,817 |
(12.4)% |
4,143 |
5,190 |
(20.2)% |
|||||
Load factor |
54.0% |
81.9% |
(27.9) pts |
55.8% |
80.8% |
(25.0) pts |
|||||
Yield |
19.89¢ |
24.23¢ |
(17.9)% |
21.72¢ |
23.81¢ |
(8.8)% |
|||||
RASM |
11.91¢ |
20.51¢ |
(41.9)% |
13.24¢ |
19.93¢ |
(33.6)% |
|||||
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 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) |
Excludes 20 Airbus aircraft permanently parked in the first nine months of 2020. |
OPERATING SEGMENTS (unaudited) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) |
Mainline |
Regional |
Horizon |
Consolidating |
|
Special |
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) |
||||||||||||||||||||||||||||||||||||||||||
Three Months Ended |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) |
Mainline |
Regional |
Horizon |
Consolidating |
|
Special |
Consolidated |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Passenger revenues |
$ |
1,850 |
$ |
361 |
$ |
— |
$ |
— |
$ |
2,211 |
$ |
— |
$ |
2,211 |
||||||||||||||||||||||||||||||||||||||||||
CPA revenues |
— |
— |
112 |
(112) |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||||||||||||||
Mileage Plan other revenue |
107 |
11 |
— |
— |
118 |
— |
118 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Cargo and other |
58 |
1 |
— |
1 |
60 |
— |
60 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Revenues |
2,015 |
373 |
112 |
(111) |
2,389 |
— |
2,389 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses, excluding fuel |
1,226 |
275 |
94 |
(119) |
1,476 |
5 |
1,481 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Economic fuel |
411 |
75 |
— |
— |
486 |
— |
486 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expenses |
1,637 |
350 |
94 |
(119) |
1,962 |
5 |
1,967 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Nonoperating Income (Expense) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
17 |
— |
— |
(6) |
11 |
— |
11 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(18) |
— |
(7) |
7 |
(18) |
— |
(18) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest capitalized |
4 |
— |
— |
— |
4 |
— |
4 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Other - net |
(3) |
— |
— |
— |
(3) |
— |
(3) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Nonoperating Income (Expense) |
— |
— |
(7) |
1 |
(6) |
— |
(6) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) Before Income Tax |
$ |
378 |
$ |
23 |
$ |
11 |
$ |
9 |
$ |
421 |
$ |
(5) |
$ |
416 |
||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) |
Mainline |
Regional |
Horizon |
Consolidating |
|
Special |
Consolidated |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Passenger revenues |
$ |
1,860 |
$ |
502 |
$ |
— |
$ |
— |
$ |
2,362 |
$ |
— |
$ |
2,362 |
||||||||||||||||||||||||||||||||||||||||||
CPA revenues |
— |
— |
281 |
(281) |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||||||||||||||
Mileage Plan other revenue |
219 |
47 |
— |
— |
266 |
— |
266 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Cargo and other |
128 |
— |
— |
2 |
130 |
— |
130 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Revenues |
2,207 |
549 |
281 |
(279) |
2,758 |
— |
2,758 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses, excluding fuel |
2,777 |
727 |
238 |
(288) |
3,454 |
(83) |
3,371 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Economic fuel |
448 |
120 |
— |
— |
568 |
— |
568 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expenses |
3,225 |
847 |
238 |
(288) |
4,022 |
(83) |
3,939 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Nonoperating Income (Expense) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
33 |
— |
— |
(10) |
23 |
— |
23 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(58) |
— |
(16) |
10 |
(64) |
— |
(64) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest capitalized |
8 |
— |
— |
— |
8 |
— |
8 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Other - net |
16 |
— |
— |
— |
16 |
— |
16 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Nonoperating Income (Expense) |
(1) |
— |
(16) |
— |
(17) |
— |
(17) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) Before Income Tax |
$ |
(1,019) |
$ |
(298) |
$ |
27 |
$ |
9 |
$ |
(1,281) |
$ |
83 |
$ |
(1,198) |
||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions) |
Mainline |
Regional |
Horizon |
Consolidating |
|
Special |
Consolidated |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Passenger revenues |
$ |
5,039 |
$ |
999 |
$ |
— |
$ |
— |
$ |
6,038 |
$ |
— |
$ |
6,038 |
||||||||||||||||||||||||||||||||||||||||||
CPA revenues |
— |
— |
340 |
(340) |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||||||||||||||
Mileage Plan other revenue |
312 |
34 |
— |
— |
346 |
— |
346 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Cargo and other |
163 |
2 |
1 |
3 |
169 |
— |
169 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Revenues |
5,514 |
1,035 |
341 |
(337) |
6,553 |
— |
6,553 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses, excluding fuel |
3,545 |
817 |
286 |
(353) |
4,295 |
39 |
4,334 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Economic fuel |
1,191 |
218 |
— |
— |
1,409 |
(1) |
1,408 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Operating Expenses |
4,736 |
1,035 |
286 |
(353) |
5,704 |
38 |
5,742 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Nonoperating Income (Expense) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
50 |
— |
— |
(19) |
31 |
— |
31 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(58) |
— |
(22) |
20 |
(60) |
— |
(60) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Interest capitalized |
11 |
— |
— |
— |
11 |
— |
11 |
|||||||||||||||||||||||||||||||||||||||||||||||||
Other - net |
(20) |
— |
— |
— |
(20) |
— |
(20) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Total Nonoperating Income (Expense) |
(17) |
— |
(22) |
1 |
(38) |
— |
(38) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) Before Income Tax |
$ |
761 |
$ |
— |
$ |
33 |
$ |
17 |
$ |
811 |
$ |
(38) |
$ |
773 |
||||||||||||||||||||||||||||||||||||||||||
(a) |
Includes consolidating entries, |
(b) |
The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information. |
(c) |
Includes payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments. |
GAAP TO NON-GAAP RECONCILIATIONS (unaudited) |
|||||||||||
|
|||||||||||
CASM Excluding Fuel and Special Items Reconciliation |
|||||||||||
Three Months Ended September |
Nine Months Ended September |
||||||||||
2020 |
2019 |
2020 |
2019 |
||||||||
Consolidated: |
|||||||||||
CASM |
16.16 |
¢ |
11.23 |
¢ |
14.33 |
¢ |
11.48 |
¢ |
|||
Less the following components: |
|||||||||||
Payroll support program wage offset |
(5.06) |
— |
(2.77) |
— |
|||||||
Aircraft fuel, including hedging gains and losses |
1.59 |
2.77 |
2.07 |
2.82 |
|||||||
Special items - merger-related costs |
0.01 |
0.03 |
0.02 |
0.08 |
|||||||
Special items - impairment charges and other(a) |
1.53 |
— |
1.27 |
— |
|||||||
Special items - restructuring charges(b) |
4.09 |
— |
1.17 |
— |
|||||||
CASM excluding fuel and special items |
14.00 |
¢ |
8.43 |
¢ |
12.57 |
¢ |
8.59 |
¢ |
|||
Mainline: |
|||||||||||
CASM |
16.80 |
¢ |
10.46 |
¢ |
13.56 |
¢ |
10.65 |
¢ |
|||
Less the following components: |
|||||||||||
Payroll support program wage offset |
(5.56) |
— |
(2.89) |
— |
|||||||
Aircraft fuel, including hedging gains and losses |
1.43 |
2.62 |
1.92 |
2.65 |
|||||||
Special items - merger-related costs |
0.02 |
0.03 |
0.02 |
0.09 |
|||||||
Special items - impairment charges and other(a) |
1.93 |
— |
1.24 |
— |
|||||||
Special items - restructuring charges(b) |
5.10 |
— |
1.37 |
— |
|||||||
CASM excluding fuel and special items |
13.88 |
¢ |
7.81 |
¢ |
11.90 |
¢ |
7.91 |
¢ |
(a) |
Special items - impairment charges and other in the nine months ended |
(b) |
Special items - restructuring charges, are comprised of costs for certain payments and ongoing benefits coverage offered to those employees accepting furlough mitigation programs, as well as costs for involuntary furloughs and management reductions. |
Fuel Reconciliation |
|||||||||||||||
Three Months Ended |
|||||||||||||||
2020 |
2019 |
||||||||||||||
(in millions, except for per-gallon amounts) |
Dollars |
Cost/Gallon |
Dollars |
Cost/Gallon |
|||||||||||
Raw or "into-plane" fuel cost |
$ |
123 |
$ |
1.27 |
$ |
481 |
$ |
2.11 |
|||||||
Losses on settled hedges |
5 |
0.05 |
5 |
0.02 |
|||||||||||
Consolidated economic fuel expense |
128 |
1.32 |
486 |
2.13 |
|||||||||||
Mark-to-market fuel hedge adjustment |
(3) |
(0.03) |
— |
— |
|||||||||||
GAAP fuel expense |
$ |
125 |
$ |
1.29 |
$ |
486 |
$ |
2.13 |
|||||||
Fuel gallons |
97 |
227 |
|||||||||||||
Nine Months Ended |
|||||||||||||||
2020 |
2019 |
||||||||||||||
(in millions, except for per gallon amounts) |
Dollars |
Cost/Gallon |
Dollars |
Cost/Gallon |
|||||||||||
Raw or "into-plane" fuel cost |
$ |
553 |
$ |
1.61 |
$ |
1,397 |
$ |
2.16 |
|||||||
Losses on settled hedges |
15 |
0.04 |
12 |
0.02 |
|||||||||||
Consolidated economic fuel expense |
$ |
568 |
$ |
1.65 |
$ |
1,409 |
$ |
2.18 |
|||||||
Mark-to-market fuel hedge adjustment |
— |
— |
(1) |
— |
|||||||||||
GAAP fuel expense |
$ |
568 |
$ |
1.65 |
$ |
1,408 |
$ |
2.18 |
|||||||
Fuel gallons |
344 |
646 |
Debt-to-capitalization, adjusted for operating leases |
|||||||
(in millions) |
|
|
|||||
Long-term debt |
$ |
2,672 |
$ |
1,264 |
|||
Capitalized operating leases |
1,603 |
1,708 |
|||||
COVID-19 related borrowings(a) |
769 |
— |
|||||
Adjusted debt, net of current portion of long-term debt |
5,044 |
2,972 |
|||||
Shareholders' equity |
3,454 |
4,331 |
|||||
|
$ |
8,498 |
$ |
7,303 |
|||
Debt-to-capitalization ratio, including operating leases |
59 |
% |
41 |
% |
(a) |
To best reflect our leverage at |
Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items |
|||||||
(in millions) |
|
|
|||||
Current portion of long-term debt |
$ |
1,150 |
$ |
235 |
|||
Current portion of operating lease liabilities |
283 |
269 |
|||||
Long-term debt |
2,672 |
1,264 |
|||||
Long-term operating lease liabilities |
1,320 |
1,439 |
|||||
Total adjusted debt |
5,425 |
3,207 |
|||||
Less: Cash and marketable securities |
(3,759) |
(1,521) |
|||||
Adjusted net debt |
$ |
1,666 |
$ |
1,686 |
|||
(in millions) |
Last Twelve Months |
Last Twelve Months |
|||||
GAAP Operating Income (Loss)(a) |
$ |
(928) |
$ |
1,063 |
|||
Adjusted for: |
|||||||
Special items |
(78) |
44 |
|||||
Mark-to-market fuel hedge adjustments |
(5) |
(6) |
|||||
Depreciation and amortization |
426 |
423 |
|||||
Aircraft rent |
313 |
331 |
|||||
EBITDAR |
$ |
(272) |
$ |
1,855 |
|||
Adjusted net debt to EBITDAR |
(6.1x) |
0.9x |
(a) |
Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the |
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 the payroll support program wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. 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 the payroll support program wage offset, impairment and restructuring charges and 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 have historically compared our airline 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 these items as noted above. 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.
GLOSSARY OF TERMS
Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities
Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)
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 capitalized operating lease liabilities) 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
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, Airbus 320 and Airbus 321neo family jets and all associated revenues and costs
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
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
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SOURCE
Media Relations: (206) 304-0008, Investor/analyst contact: Emily Halverson, Director, Investor Relations, (206) 392-5908