Fourth Quarter Financial and Other Highlights: -- Net income
excluding special items of $4.4 million, or $0.12 per diluted
share, compared to net income excluding special items of $16.4
million, or $0.45 per diluted share, in the fourth quarter of 2008.
This compares to a First Call mean estimate of $0.32 per share. --
Net income under Generally Accepted Accounting Principles (GAAP) of
$24.1 million, or $0.67 per diluted share, compared to a net loss
of $75.2 million, or $2.08 per diluted share, in 2008. -- $1.2
billion in unrestricted cash and marketable securities as of Dec.
31, 2009. -- A $100 million contribution to Alaska's qualified
defined-benefit pension plans on Dec. 30, 2009, bringing the
full-year total to nearly $150 million. SEATTLE, Jan. 28
/PRNewswire-FirstCall/ -- Alaska Air Group, Inc. (NYSE: ALK) today
reported fourth quarter 2009 net income of $24.1 million, or $0.67
per diluted share, compared to a net loss of $75.2 million, or
$2.08 per diluted share, in the fourth quarter of 2008. Excluding
mark-to-market fuel hedge gains of $31.7 million ($19.7 million
after tax or $0.55 per diluted share), the company reported net
income of $4.4 million, or $0.12 per diluted share, in the fourth
quarter of 2009, compared to net income of $16.4 million, or $0.45
per diluted share, excluding special items in the fourth quarter of
2008. The company reported full-year 2009 net income of $121.6
million, compared to a net loss of $135.9 million in 2008.
Excluding the impact of the items noted in the table below, the
company reported 2009 net income of $88.7 million, or $2.45 per
diluted share, an $84.3 million improvement from the $4.4 million,
or $0.12 per diluted share, in 2008. "Our traffic and unit revenue
performance, driven by positive network changes, outpaced the
industry throughout the year. This performance, combined with lower
fuel costs, placed Alaska Air Group's profitability among the best
in the industry for 2009," said Bill Ayer, Alaska Air Group's
chairman and chief executive officer. "This marks our sixth
consecutive year of profits on an adjusted basis." Based on its
2009 profit and operational performance, the company will
distribute a total of $76 million from its pay-for-performance
incentive plans. "Our employees' ongoing commitment to operating
reliably and providing exceptional customer service is fundamental
to building a great company for the long term, and broad
participation in a common gain-sharing plan helps align Alaska and
Horizon employees around important performance goals," said Ayer.
"I want to thank our people for their hard work and dedication,
which contributed significantly to our 2009 results." The following
tables reconcile the company's adjusted net income and earnings per
diluted share (EPS) during the fourth quarters and full years of
2009 and 2008 to amounts as reported in accordance with GAAP (in
millions except per-share amounts): Three months ended Dec. 31,
--------------------------- 2009 2008 ---- ---- Dollars Diluted EPS
Dollars Diluted EPS ------- ----------- ------- ----------- Net
income and diluted EPS, excluding items noted below $4.4 $0.12
$16.4 $0.45 Restructuring charges, net of tax --- --- (5.8) (0.16)
Fleet transition costs - CRJ-700, net of tax --- --- (4.2) (0.12)
Adjustments to reflect the timing of gain or loss recognition
resulting from mark-to-market fuel-hedge accounting, net of tax
19.7 0.55 (50.3) (1.39) Realized losses on hedge portfolio
restructuring, net of tax --- --- (31.3) (0.86) ----- ----- ------
------ Reported GAAP net income (loss) $24.1 $0.67 $(75.2) $(2.08)
Twelve months ended Dec. 31, ---------------------------- 2009 2008
---- ---- Dollars Diluted EPS Dollars Diluted EPS -------
----------- ------- ----------- Net income and diluted EPS,
excluding items noted below $88.7 $2.45 $4.4 $0.12 Change in
Mileage Plan terms, net of tax --- --- 26.5 0.73 New pilot contract
transition costs, net of tax (22.3) (0.62) --- --- Restructuring
charges, net of tax --- --- (8.1) (0.22) Fleet transition costs -
MD-80, net of tax --- --- (29.8) (0.82) Fleet transition costs -
CRJ-700, net of tax --- --- (8.4) (0.23) Adjustments to reflect the
timing of gain or loss recognition resulting from mark-to-market
fuel-hedge accounting, net of tax 55.2 1.53 (89.2) (2.46) Realized
losses on hedge portfolio restructuring, net of tax --- --- (31.3)
(0.86) ------ ----- ------- ------ Reported GAAP net income (loss)
$121.6 $3.36 $(135.9) $(3.74) Financial and statistical data for
Alaska Airlines and Horizon Air, 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 at
the end of this release. A conference call regarding the fourth
quarter and full-year 2009 results will be simulcast via the
Internet at 8:30 a.m. Pacific time on Jan. 28, 2010. It can be
accessed through the company's Web site at alaskaair.com/investors.
For those unable to listen to the live broadcast, a replay will be
available after the conclusion of the call at
alaskaair.com/investors. References in this news release to "Air
Group," "company," "we," "us" and "our" refer to Alaska Air Group,
Inc. and its subsidiaries, unless otherwise specified. Alaska
Airlines, Inc. and Horizon Air Industries, Inc. are referred to as
"Alaska" and "Horizon," respectively, and together as our
"airlines." This news release contains forward-looking statements
subject to the safe harbor protection provided by Section 27A of
the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. These statements relate
to future events and involve known and unknown risks and
uncertainties that may cause actual outcomes to be materially
different from those indicated by any forward-looking statements.
For a comprehensive discussion of potential risk factors, see Item
1A of the company's Annual Report on Form 10-K for the year ended
Dec. 31, 2008 and revisions in Item 1A of the Company's Quarterly
Report on Form 10-Q for the period ended Sept. 30, 2009. Some of
these risks include current economic conditions, increases in
operating costs including fuel, competition, labor costs and
relations, our significant indebtedness, inability to meet cost
reduction goals, terrorist attacks, seasonal fluctuations in our
financial results, an aircraft accident, changes in laws and
regulations, and government fees and taxes. 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
Horizon Air, subsidiaries of Alaska Air Group (NYSE: ALK), together
serve more than 90 cities through an expansive network in Alaska,
the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked
"Highest in Customer Satisfaction Among Traditional Network
Carriers" in the J.D. Power and Associates 2008 and 2009 North
America Airline Satisfaction Studies(SM). For reservations, visit
alaskaair.com. For more news and information, visit the Alaska
Airlines/Horizon Air Newsroom at alaskaair.com/newsroom. Glossary
of Financial Terms ASM - Available seat miles or "capacity."
Represents total seats available across the fleet multiplied by the
number of miles flown. RPM - Revenue passenger miles or "traffic."
The number of those available seats that were filled with paying
passengers. One passenger traveling one mile is one RPM. RASM -
Total operating revenue divided by ASMs. Operating revenue includes
all passenger revenue, freight and mail, Mileage Plan and other
ancillary revenue -- commonly called "unit revenue" and represents
the average total revenue for flying one seat one mile. PRASM -
Passenger revenue per ASM -- commonly called "passenger unit
revenue." Yield - Passenger revenue per RPM. This represents the
average revenue for flying one passenger one mile. CASM - Total
operating costs per ASM. This represents all operating expenses,
including fuel and special items -- commonly called "unit cost."
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 costs are largely out the
company's control. Economic fuel - Best estimate of the cash cost
of fuel, net of the impact of the company's fuel-hedging program.
Mainline - Represents flying on Alaska jets and all associated
revenue and costs. Purchased capacity flying - Represents
operations whereby Horizon and, to a much lesser extent, another
small carrier in the state of Alaska fly certain routes for Alaska
using Horizon's or the other carrier's fleets. Alaska Air Group,
Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months
Twelve Months Ended Ended December 31, December 31, (in millions,
except per share ------------- --------------- amounts) 2009 2008
2009 2008 ---- ---- ---- ---- Operating Revenues: Passenger $766.0
$763.8 $3,092.1 $3,355.8 Freight and mail 23.6 23.2 95.9 103.6
Other - net 56.5 40.1 211.8 160.9 Change in Mileage Plan terms - -
- 42.3 --- --- --- ---- Total Operating Revenues 846.1 827.1
3,399.8 3,662.6 ----- ----- ------- ------- Operating Expenses:
Wages and benefits 248.8 232.5 988.1 943.7 Variable incentive pay
23.8 6.4 76.0 21.4 Aircraft fuel, including hedging gains and
losses 172.5 358.8 658.1 1,398.4 Aircraft maintenance 54.1 49.2
223.1 208.8 Aircraft rent 38.3 37.0 153.7 163.1 Landing fees and
other rentals 57.3 54.0 223.2 223.7 Contracted services 38.0 37.8
150.6 166.1 Selling expenses 34.5 26.8 131.8 147.1 Depreciation and
amortization 56.9 51.7 219.2 204.6 Food and beverage service 13.4
11.7 50.1 50.9 Other 55.7 51.5 213.9 222.9 New pilot contract
transition costs - - 35.8 - Restructuring charges - 9.2 - 12.9
Fleet transition costs - MD-80 - - - 47.5 Fleet transition costs -
CRJ-700 - 6.7 - 13.5 Fleet transition costs - Q200 - 0.5 8.8 10.2
--- --- --- ---- Total Operating Expenses 793.3 933.8 3,132.4
3,834.8 ----- ----- ------- ------- Operating Income (Loss) 52.8
(106.7) 267.4 (172.2) ---- ------ ----- ------ Nonoperating Income
(Expense): Interest income 8.2 10.9 32.6 42.4 Interest expense
(22.7) (28.0) (100.5) (102.3) Interest capitalized 1.6 4.7 7.6 23.2
Other - net 2.1 (0.9) (4.2) (4.3) --- ---- ---- ---- (10.8) (13.3)
(64.5) (41.0) ----- ----- ----- ----- Income (loss) before income
tax 42.0 (120.0) 202.9 (213.2) Income tax expense (benefit) 17.9
(44.8) 81.3 (77.3) ---- ----- ---- ----- Net Income (Loss) $24.1
$(75.2) $121.6 $(135.9) ===== ====== ====== ======= Basic Earnings
(Loss) Per Share: $0.68 $(2.08) $3.39 $(3.74) Diluted Earnings
(Loss) Per Share: $0.67 $(2.08) $3.36 $(3.74) Shares Used for
Computation: Basic 35.323 36.225 35.815 36.343 Diluted 35.844
36.225 36.154 36.343 Alaska Air Group, Inc. CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited) (in millions) December 31, 2009 December
31, 2008 ----------------- ----------------- Cash and marketable
securities $1,192 $1,077 ====== ====== Total current assets 1,634
1,509 Property and equipment-net 3,168 3,168 Other assets 183 159
--- --- Total assets $4,985 $4,836 ====== ====== Current
liabilities $1,258 $1,361 Long-term debt 1,699 1,596 Other
liabilities and credits 1,156 1,217 Shareholders' equity 872 662
--- --- Total liabilities and shareholders' equity $4,985 $4,836
====== ====== Debt to Capitalization, adjusted for operating leases
76%:24% 81%:19% ====== ====== Number of common shares outstanding
35.591 36.275 ====== ====== Air Group Net Income (Loss) and EPS
Reconciliation: ---------------------------------------------------
The following table reconciles Alaska Air Group, Inc.'s net income
(loss) and amounts per share during 2009 and 2008 excluding certain
noted items to the most directly related amounts as reported in
accordance with GAAP (in millions except per share amounts): Three
Months Ended December 31, ------------------------------- 2009 2008
---- ---- Dollars Diluted EPS Dollars Diluted EPS -------
----------- ------- ----------- Net income and diluted EPS,
excluding the items noted below $4.4 $0.12 $16.4 $0.45
Restructuring charges, net of tax - - (5.8) (0.16) Fleet transition
costs - CRJ-700, net of tax - - (4.2) (0.12) Adjustments to reflect
the timing of gain or loss recognition resulting from
mark-to-market fuel-hedge accounting, net of tax 19.7 0.55 (50.3)
(1.39) Realized losses on hedge portfolio restructuring, net of tax
- - (31.3) (0.86) --- --- ----- ----- Reported GAAP amounts $24.1
$0.67 $(75.2) $(2.08) ===== ===== ====== ====== Twelve Months Ended
December 31, --------------------------------- 2009 2008 ---- ----
Dollars Diluted EPS Dollars Diluted EPS ------- ----------- -------
----------- Net income and diluted EPS, excluding the items noted
below $88.7 $2.45 $4.4 $0.12 Change in Mileage Plan terms, net of
tax - - 26.5 0.73 New pilot contract transition costs, net of tax
(22.3) (0.62) - - Restructuring charges, net of tax - - (8.1)
(0.22) Fleet transition costs - MD-80, net of tax - - (29.8) (0.82)
Fleet transition costs - CRJ-700, net of tax - - (8.4) (0.23)
Adjustments to reflect the timing of gain or loss recognition
resulting from mark-to-market fuel-hedge accounting, net of tax
55.2 1.53 (89.2) (2.46) Realized losses on hedge portfolio
restructuring, net of tax - - (31.3) (0.86) --- --- ----- -----
Reported GAAP amounts $121.6 $3.36 $(135.9) $(3.74) ====== =====
======= ====== Note 1: Diluted EPS, excluding special items was
calculated using diluted weighted-average shares outstanding of
36.568 million and 36.657 million for the three and twelve months
ended December 31, 2008, respectively. Note 2: Adjusted items are
presented net of tax at our incremental tax rate of 37.8% for 2009
and 37.5% for 2008. Alaska Airlines Financial and Statistical Data
Three Months Ended December 31, -------------------------------
Financial Data (in millions): 2009 2008 % Change ---- ---- --------
Operating Revenues: Passenger $594.5 $602.5 (1.3) Freight and mail
22.5 22.2 1.4 Other - net 50.8 34.0 49.4 Change in Mileage Plan
terms - - NM --- --- Total mainline operating revenues 667.8 658.7
1.4 Passenger - purchased capacity 77.0 66.9 15.1 ---- ---- Total
Operating Revenues 744.8 725.6 2.6 ----- ----- Operating Expenses:
Wages and benefits 197.7 183.8 7.6 Variable incentive pay 17.6 5.0
252.0 Aircraft fuel, including hedging gains and losses 143.1 298.4
(52.0) Aircraft maintenance 40.5 38.5 5.2 Aircraft rent 27.2 23.8
14.3 Landing fees and other rentals 42.4 40.8 3.9 Contracted
services 30.3 29.7 2.0 Selling expenses 27.9 20.4 36.8 Depreciation
and amortization 45.9 42.7 7.5 Food and beverage service 12.8 11.2
14.3 Other 41.9 40.1 4.5 New pilot contract transition costs - - NM
Restructuring charges - 9.2 NM Fleet transition costs - MD-80 - -
NM --- --- Total mainline operating expenses 627.3 743.6 (15.6)
----- ----- Purchased capacity costs 75.2 66.9 12.4 ---- ---- Total
Operating Expenses 702.5 810.5 ----- ----- Operating Income (Loss)
42.3 (84.9) NM ---- ----- Interest income 9.4 13.1 Interest expense
(20.6) (25.0) Interest capitalized 1.6 4.1 Other - net 2.5 (0.7)
--- ---- (7.1) (8.5) ---- ---- Income (Loss) Before Income Tax
$35.2 $(93.4) ===== ====== Mainline Operating Statistics: Revenue
passengers (000) 3,765 3,772 (0.2) RPMs (000,000) "traffic" 4,550
4,302 5.8 ASMs (000,000) "capacity" 5,675 5,590 1.5 Passenger load
factor 80.2% 77.0% 3.2pts Yield per passenger mile (in cents) 13.07
14.01 (6.7) Operating revenue per ASM "RASM" (in cents) 11.77 11.78
(0.1) Change in Mileage Plan terms per ASM (in cents) 0.00 0.00 NM
---- ---- RASM excluding change in Mileage Plan terms (in cents)
11.77 11.78 (0.1) Passenger revenue per ASM (in cents) 10.48 10.78
(2.8) Operating expense per ASM (in cents) 11.05 13.30 (16.9)
Operating expense per ASM excluding fuel, new pilot contract
transition costs, restructuring charges and fleet transition costs
(a) (in cents) 8.53 7.80 9.4 GAAP fuel cost per gallon $1.91 $3.95
(51.6) Economic fuel cost per gallon (b) $2.26 $2.52 (10.3) Fuel
gallons (000,000) 75.0 75.5 (0.7) Average number of full-time
equivalent employees 8,701 9,156 (5.0) Aircraft utilization (blk
hrs/ day) 9.3 10.0 (7.0) Average aircraft stage length (miles)
1,058 995 6.3 Operating fleet at period-end 115 110 5 a/c Purchased
Capacity Operating Statistics: RPMs (000,000) 276 227 21.6 ASMs
(000,000) 373 316 18.0 Passenger load factor 74.0% 71.8% 2.2pts
Yield per passenger mile (in cents) 27.90 29.47 (5.3) Operating
revenue per ASM (in cents) 20.64 21.17 (2.5) Operating expenses per
ASM (in cents) 20.16 21.17 (4.8) Twelve Months Ended December 31,
------------------- Financial Data (in millions): 2009 2008 %
Change ---- ---- -------- Operating Revenues: Passenger $2,438.8
$2,643.7 (7.8) Freight and mail 91.5 99.3 (7.9) Other - net 187.3
135.2 38.5 Change in Mileage Plan terms - 42.3 NM --- ---- Total
mainline operating revenues 2,717.6 2,920.5 (6.9) Passenger -
purchased capacity 288.4 300.8 (4.1) ----- ----- Total Operating
Revenues 3,006.0 3,221.3 (6.7) ------- ------- Operating Expenses:
Wages and benefits 792.6 742.7 6.7 Variable incentive pay 61.6 15.8
289.9 Aircraft fuel, including hedging gains and losses 549.0
1,162.4 (52.8) Aircraft maintenance 169.9 150.6 12.8 Aircraft rent
109.0 106.2 2.6 Landing fees and other rentals 166.8 167.7 (0.5)
Contracted services 118.9 130.2 (8.7) Selling expenses 104.7 116.0
(9.7) Depreciation and amortization 178.5 165.9 7.6 Food and
beverage service 47.7 48.3 (1.2) Other 161.2 170.3 (5.3) New pilot
contract transition costs 35.8 - NM Restructuring charges - 12.9 NM
Fleet transition costs - MD-80 - 47.5 NM --- ---- Total mainline
operating expenses 2,495.7 3,036.5 (17.8) ------- ------- Purchased
capacity costs 281.5 313.7 (10.3) ----- ----- Total Operating
Expenses 2,777.2 3,350.2 ------- ------- Operating Income (Loss)
228.8 (128.9) NM ----- ------ Interest income 38.6 51.3 Interest
expense (88.1) (92.5) Interest capitalized 7.3 20.2 Other - net
(2.8) (3.4) ---- ---- (45.0) (24.4) ----- ----- Income (Loss)
Before Income Tax $183.8 $(153.3) ====== ======= Mainline Operating
Statistics: Revenue passengers (000) 15,561 16,809 (7.4) RPMs
(000,000) "traffic" 18,362 18,712 (1.9) ASMs (000,000) "capacity"
23,144 24,218 (4.4) Passenger load factor 79.3% 77.3% 2.0pts Yield
per passenger mile (in cents) 13.28 14.13 (6.0) Operating revenue
per ASM "RASM" (in cents) 11.74 12.06 (2.7) Change in Mileage Plan
terms per ASM (in cents) 0.00 0.17 NM ---- ---- RASM excluding
change in Mileage Plan terms (in cents) 11.74 11.89 (1.3) Passenger
revenue per ASM (in cents) 10.54 10.92 (3.5) Operating expense per
ASM (in cents) 10.78 12.54 (14.0) Operating expense per ASM (in
cents) excluding fuel, new pilot contract transition costs,
restructuring charges and fleet transition costs (a) (in cents)
8.26 7.49 10.2 GAAP fuel cost per gallon $1.81 $3.48 (48.0)
Economic fuel cost per gallon (b) $2.05 $3.00 (31.7) Fuel gallons
(000,000) 304.9 333.8 (8.7) Average number of full-time equivalent
employees 8,915 9,628 (7.4) Aircraft utilization (blk hrs/day) 9.8
10.6 (7.5) Average aircraft stage length (miles) 1,034 979 5.6
Operating fleet at period-end 115 110 5 a/c Purchased Capacity
Operating Statistics: RPMs (000,000) 1,053 1,100 (4.3) ASMs
(000,000) 1,431 1,469 (2.6) Passenger load factor 73.6% 74.9%
(1.3)pts Yield per passenger mile (in cents) 27.39 27.35 0.1
Operating revenue per ASM (in cents) 20.15 20.48 (1.6) Operating
expenses per ASM (in cents) 19.67 21.35 (7.9) NM = Not Meaningful
(a) See page 10 for a reconciliation of these non-GAAP measures and
a discussion about why these measures may be important to
investors. (b) See page 12 for a reconciliation of economic fuel
cost. Horizon Air Financial and Statistical Data Three Months Ended
December 31, ------------------ Financial Data (in millions): 2009
2008 % Change ---- ---- -------- Operating Revenues: Passenger -
brand flying $98.2 $98.5 (0.3) Passenger - Alaska capacity purchase
arrangement 70.5 62.5 12.8 ---- ---- Total passenger revenue 168.7
161.0 4.8 Freight and mail 0.7 0.6 16.7 Other - net 2.1 2.1 - ---
--- Total Operating Revenues 171.5 163.7 4.8 ----- ----- Operating
Expenses: Wages and benefits 48.2 46.9 2.8 Variable incentive pay
6.2 1.4 342.9 Aircraft fuel, including hedging gains and losses
29.4 60.4 (51.3) Aircraft maintenance 13.6 10.7 27.1 Aircraft rent
11.1 13.2 (15.9) Landing fees and other rentals 15.3 13.6 12.5
Contracted services 8.3 7.1 16.9 Selling expenses 6.6 6.4 3.1
Depreciation and amortization 10.7 8.7 23.0 Food and beverage
service 0.6 0.5 20.0 Other 10.4 9.0 15.6 Fleet transition costs -
CRJ-700 - 6.7 NM Fleet transition costs - Q200 - 0.5 NM --- ---
Total Operating Expenses 160.4 185.1 (13.3) ----- ----- Operating
Income (Loss) 11.1 (21.4) NM ---- ----- Interest income 0.5 1.6
Interest expense (3.7) (6.7) Interest capitalized - 0.7 Other - net
(0.2) 0.1 ---- --- (3.4) (4.3) ---- ---- Income (Loss) Before
Income Tax $7.7 $(25.7) ==== ====== Combined Operating Statistics:
(a) Revenue passengers (000) 1,704 1,636 4.2 RPMs (000,000)
"traffic" 609 561 8.6 ASMs (000,000) "capacity" 822 786 4.6
Passenger load factor 74.1% 71.4% 2.7pts Yield per passenger mile
(in cents) 27.70 28.70 (3.5) Operating revenue per ASM (RASM) (in
cents) 20.86 20.83 0.1 Passenger revenue per ASM (in cents) 20.52
20.48 0.2 Operating expense per ASM (in cents) 19.51 23.55 (17.2)
Operating expense per ASM excluding fuel and CRJ-700 fleet
transition costs (b) (in cents) 15.94 15.01 6.2 GAAP fuel cost per
gallon $1.96 $4.08 (52.0) Economic fuel cost per gallon (c) $2.32
$2.58 (10.1) Fuel gallons (000,000) 15.0 14.8 1.4 Average number of
full-time equivalent employees 3,275 3,466 (5.5) Aircraft
utilization (blk hrs/day) 8.1 8.0 1.3 Average aircraft stage length
(miles) 330 315 4.8 Operating fleet at period-end 58 59 (1) a/c
Twelve Months Ended December 31, -------------------------
Financial Data (in millions): 2009 2008 % Change ---- ---- --------
Operating Revenues: Passenger - brand flying $381.9 $429.2 (11.0)
Passenger - Alaska capacity purchase arrangement 261.7 293.7 (10.9)
----- ----- Total passenger revenue 643.6 722.9 (11.0) Freight and
mail 2.7 2.7 - Other - net 8.1 8.3 (2.4) --- --- Total Operating
Revenues 654.4 733.9 (10.8) ----- ----- Operating Expenses: Wages
and benefits 185.2 194.1 (4.6) Variable incentive pay 14.4 5.6
157.1 Aircraft fuel, including hedging gains and losses 109.1 236.0
(53.8) Aircraft maintenance 53.2 58.2 (8.6) Aircraft rent 44.7 56.9
(21.4) Landing fees and other rentals 57.7 57.2 0.9 Contracted
services 32.1 29.1 10.3 Selling expenses 27.1 31.1 (12.9)
Depreciation and amortization 39.5 37.5 5.3 Food and beverage
service 2.4 2.6 (7.7) Other 39.4 42.7 (7.7) Fleet transition costs
- CRJ-700 - 13.5 NM Fleet transition costs - Q200 8.8 10.2 NM ---
---- Total Operating Expenses 613.6 774.7 (20.8) ----- -----
Operating Income (Loss) 40.8 (40.8) NM ---- ----- Interest income
2.0 5.4 Interest expense (19.9) (23.6) Interest capitalized 0.3 3.0
Other - net (0.4) 0.2 ---- --- (18.0) (15.0) ----- ----- Income
(Loss) Before Income Tax $22.8 $(55.8) ===== ====== Combined
Operating Statistics: (a) Revenue passengers (000) 6,759 7,390
(8.5) RPMs (000,000) "traffic" 2,408 2,635 (8.6) ASMs (000,000)
"capacity" 3,292 3,617 (9.0) Passenger load factor 73.1% 72.9%
0.2pts Yield per passenger mile (in cents) 26.73 27.43 (2.6)
Operating revenue per ASM (RASM) (in cents) 19.88 20.29 (2.0)
Passenger revenue per ASM (in cents) 19.55 19.99 (2.2) Operating
expense per ASM (in cents) 18.64 21.42 (13.0) Operating expense per
ASM excluding fuel and CRJ-700 fleet transition costs (b) (in
cents) 15.33 14.52 5.5 GAAP fuel cost per gallon $1.82 $3.53 (48.4)
Economic fuel cost per gallon (c) $2.07 $3.05 (32.1) Fuel gallons
(000,000) 60.1 66.9 (10.2) Average number of full-time equivalent
employees 3,308 3,699 (10.6) Aircraft utilization (blk hrs/day) 8.3
8.3 - Average aircraft stage length (miles) 327 322 1.6 Operating
fleet at period-end 58 59 (1) a/c NM = Not Meaningful (a)
Represents combined information for Horizon flights, including
those operated under a Capacity Purchase Agreement (CPA) with
Alaska. See page 11 for additional line of business information.
(b) See page 11 for a reconciliation of these non-GAAP measures and
a discussion about why these measures may be important to
investors. (c) See page 12 for a reconciliation of economic fuel
cost. Note A: Pursuant to Regulation G, we are providing disclosure
of the reconciliation of reported non-GAAP financial measures to
their most directly comparable financial measures reported on a
GAAP basis. We believe that consideration of this measure of unit
costs excluding fuel, purchased capacity costs, and other noted
items may be important to investors for the following reasons: --
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 cost-reduction initiatives. Our industry is
highly competitive and is characterized by high fixed costs, so
even a small reduction in non-fuel operating costs can result in a
significant improvement in operating results. In addition, we
believe that all domestic carriers are similarly impacted by
changes in jet fuel costs over the long run, so it is important for
management (and thus investors) to understand the impact of (and
trends in) company-specific cost drivers such as labor rates and
productivity, airport costs, maintenance costs, etc., which are
more controllable by management. -- Cost per ASM excluding fuel and
certain special items is one of the most important measures used by
managements of both Alaska and Horizon and by the Air Group Board
of Directors in assessing quarterly and annual cost performance. --
Cost per ASM excluding fuel (and other items as specified in our
plan documents) is an important metric for the employee incentive
plan that covers company management and the majority of other
employee groups. -- Cost per ASM excluding fuel and certain special
items is a measure commonly used by industry analysts, and we
believe it is the basis by which they compare our airlines to
others in the industry. The measure is also the subject of frequent
questions from investors. -- Disclosure of the individual impact of
certain noted items provides investors the ability to measure and
monitor performance both with and without these special items. We
believe that disclosing the impact of certain items, such as new
pilot contract transition costs and fleet transition costs, is
important because it provides information on significant items that
are not necessarily indicative of future performance. Industry
analysts and investors consistently measure our performance without
these items for better comparability between periods and among
other airlines. -- Although we disclose our "mainline" passenger
unit revenues for Alaska, we do not (nor are we able to) evaluate
mainline unit revenues excluding the impact that changes in fuel
costs have had on ticket prices. Fuel expense represents a large
percentage of our total mainline 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. Alaska Airlines, Inc. (in millions, except for per
ASM unit information) Three Months Twelve Months Ended Ended
December 31, December 31, -------------- --------------- Mainline
unit cost reconciliations: 2009 2008 2009 2008
----------------------------------- ---- ---- ---- ---- Mainline
operating expenses $627.3 $743.6 $2,495.7 $3,036.5 Mainline ASMs
5,675 5,590 23,144 24,218 ----- ----- ------ ------ Mainline
operating expenses per ASM (in cents) 11.05 13.30 10.78 12.54 =====
===== ===== ===== Mainline operating expenses $627.3 $743.6
$2,495.7 $3,036.5 Less: aircraft fuel, including hedging gains and
losses (143.1) (298.4) (549.0) (1,162.4) Less: new pilot contract
transition costs - - (35.8) - Less: restructuring charges - (9.2) -
(12.9) Less: fleet transition costs - MD-80 - - - (47.5) --- ---
--- ----- Mainline operating expenses excluding fuel and other
noted items $484.2 $436.0 $1,910.9 $1,813.7 Mainline ASMs 5,675
5,590 23,144 24,218 ----- ----- ------ ------ Mainline operating
expenses per ASM excluding fuel and other noted items (in cents)
8.53 7.80 8.26 7.49 ==== ==== ==== ==== Three Months Twelve Months
Ended Ended December 31, December 31, Reconciliation to GAAP income
(loss) -------------- --------------- before taxes : 2009 2008 2009
2008 ------------------------------------ ---- ---- ---- ----
Income before taxes, excluding items noted below $8.9 $23.8 $145.9
$25.2 Change in Mileage Plan terms - - - 42.3 New pilot contract
transition costs - - (35.8) - Restructuring charges - (9.2) -
(12.9) Fleet transition costs - MD-80 - - - (47.5) Adjustments to
reflect timing of gain or loss recognition resulting from
mark-to-market accounting on fuel hedges 26.3 (66.5) 73.7 (118.9)
Realized losses on hedge portfolio restructuring - (41.5) - (41.5)
--- ----- --- ----- GAAP income (loss) before taxes as reported
$35.2 $(93.4) $183.8 $(153.3) ===== ====== ====== ======= Note:
Mainline operating expenses per ASM excluding fuel and other noted
items was higher than our most recent cost guidance provided in our
December 22, 2009 Investor Update. The increase was primarily due
to final adjustments to our incentive pay expense,
higher-than-expected employee medical costs, the write-off of
certain discontinued capital projects, and higher costs associated
with environmental remediation, legal costs, and winter operations.
Horizon Air Industries, Inc. (in millions, except for per ASM unit
information) Three Months Twelve Months Ended Ended December 31,
December 31, -------------- -------------- Unit cost
reconciliations: 2009 2008 2009 2008 --------------------------
---- ---- ---- ---- Operating expenses $160.4 $185.1 $613.6 $774.7
ASMs 822 786 3,292 3,617 --- --- ----- ----- Operating expenses per
ASM (in cents) 19.51 23.55 18.64 21.42 ===== ===== ===== =====
Operating expenses $160.4 $185.1 $613.6 $774.7 Less: aircraft fuel,
including hedging gains and losses (29.4) (60.4) (109.1) (236.0)
Less: fleet transition costs - CRJ-700 - (6.7) - (13.5) --- ----
--- ----- Operating expenses excluding fuel and CRJ-700 fleet
transition costs $131.0 $118.0 $504.5 $525.2 ASMs 822 786 3,292
3,617 --- --- ----- ----- Operating expenses per ASM excluding fuel
and CRJ-700 fleet transition costs (in cents) 15.94 15.01 15.33
14.52 ===== ===== ===== ===== Unit cost reconciliations-excluding
all fleet transition costs: ------------------------------------
Operating expenses $160.4 $185.1 $613.6 $774.7 Less: aircraft fuel,
including hedging gains and losses (29.4) (60.4) (109.1) (236.0)
Less: fleet transition costs - CRJ-700 - (6.7) - (13.5) Less: fleet
transition costs - Q200 - (0.5) (8.8) (10.2) --- ---- ---- -----
Operating expenses excluding fuel and all fleet transition costs
$131.0 $117.5 $495.7 $515.0 ASMs 822 786 3,292 3,617 --- --- -----
----- Operating expenses per ASM excluding fuel and all fleet
transition costs (in cents) 15.94 14.95 15.06 14.24 ===== =====
===== ===== Reconciliation to GAAP income (loss) before taxes:
-------------------------------------------------- Income (loss)
before taxes, excluding items noted below $2.3 $3.2 $7.7 $(10.4)
Fleet transition costs - CRJ-700 - (6.7) - (13.5) Adjustments to
reflect timing of gain or loss recognition resulting from
mark-to-market accounting on fuel hedges 5.4 (13.7) 15.1 (23.4)
Realized losses on hedge portfolio restructuring - (8.5) - (8.5)
--- ---- --- ---- GAAP income (loss) before taxes as reported $7.7
$(25.7) $22.8 $(55.8) ==== ====== ===== ====== Line of Business
Information: ----------------------------- Horizon brand flying
includes those routes in the Horizon system not covered by the
Alaska Capacity Purchase Agreement (CPA). Horizon bears the revenue
risk in those markets and, as a result, traffic, yield and load
factor impact revenue recorded by Horizon. In the CPA arrangement,
Horizon is insulated from market revenue factors and is guaranteed
contractual revenue amounts based on operational capacity. As a
result, yield and load factor information is not presented. Three
Months Ended December 31, 2009 ------------------------------------
Capacity and Mix ---------------- 2009 Actual 2008 Actual Change
Current % (000,000) (000,000) Y-O-Y Total ----------- ------------
-------- ----- Brand Flying 464 485 (4.3%) 56% Alaska CPA 358 301
18.9% 44% --- --- ---- --- System Total 822 786 4.6% 100% === ===
=== === Load Factor Yield RASM ----------- ----- ---- Point Change
Actual Change Actual Change Actual Y-O-Y (in cents) Y-O-Y (in
cents) Y-O-Y ------ ----- -------- ----- -------- ----- Brand
Flying 73.5% 2.6 28.78 0.5% 21.74 4.1% Alaska CPA NM NM NM NM 19.69
(5.2%) System Total -- -- -- --- ------ ------ 74.1% 2.7 27.70
(3.5%) 20.86 0.1% ==== === ===== ===== === ==== NM = Not Meaningful
Twelve Months Ended December 31, 2009
------------------------------------- Capacity and Mix
---------------- 2009 Actual 2008 Actual Change Current % (000,000)
(000,000) Y-O-Y Total ----------- ------------ -------- ----- Brand
Flying 1,927 2,221 (13.2%) 59% Alaska CPA 1,365 1,396 (2.2%) 41%
------ ---- ----- --- System Total 3,292 3,617 (9.0%) 100% ======
==== ==== ==== Load Factor Yield RASM ----------- ----- ---- Point
Change Actual Change Actual Change Actual Y-O-Y (in cents) Y-O-Y
(in cents) Y-O-Y ------ ----- -------- ----- -------- ----- Brand
Flying 72.4% 1.3 27.36 0.6% 20.38 2.8% Alaska CPA NM NM NM NM 19.17
(8.9%) -- -- -- --- -- ----- ---- System Total 73.1% 0.2 26.73
(2.6%) 19.88 (2.0%) ==== === ===== ===== ===== ==== NM Not
Meaningful Alaska Airlines Fuel Reconciliation
----------------------------------- (in millions, except for per
gallon amounts) Three Months Ended December 31,
------------------------------- 2009 2008 ---- ---- Dollars
Cost/Gal Dollars Cost/Gal ------- -------- ------- -------- Raw or
"into-plane" fuel cost $161.7 $2.16 $185.0 $2.45 Minus gains, or
plus the losses, during the period on settled hedges 7.7 0.10 5.4
0.07 --- ---- --- ---- Economic fuel expense $169.4 $2.26 $190.4
$2.52 ------ ----- ------ ----- Adjustments to reflect timing of
(gain) or loss recognition resulting from mark-to-market accounting
(26.3) (0.35) 66.5 0.88 Plus net realized losses on hedge portfolio
restructuring* - - 41.5 0.55 --- --- ---- ---- Total adjustments
(26.3) (0.35) 108.0 1.43 ----- ----- ----- ---- GAAP fuel expense
$143.1 $1.91 $298.4 $3.95 ====== ===== ====== ===== Fuel gallons
75.0 75.5 ==== ==== Twelve Months Ended December 31,
-------------------------------- 2009 2008 ---- ---- Dollars
Cost/Gal Dollars Cost/Gal ------- -------- ------- -------- Raw or
"into-plane" fuel cost $572.3 $1.88 $1,103.8 $3.31 Minus gains, or
plus the losses, during the period on settled hedges 50.4 0.17
(101.8) (0.30) ---- ---- ------ ----- Economic fuel expense $622.7
$2.05 $1,002.0 $3.00 ------ ----- -------- ----- Adjustments to
reflect timing of (gain) or loss recognition resulting from
mark-to-market accounting (73.7) (0.24) 118.9 0.36 Plus net
realized losses on hedge portfolio restructuring* - - 41.5 0.12 ---
--- ---- ---- Total adjustments (73.7) (0.24) 160.4 0.48 -----
----- ----- ---- GAAP fuel expense $549.0 $1.81 $1,162.4 $3.48
====== ===== ======== ===== Fuel gallons 304.9 333.8 ===== =====
Horizon Air Fuel Reconciliation ------------------------------- (in
millions, except for per gallon amounts) Three Months Ended
December 31, ------------------------------- 2009 2008 ---- ----
Dollars Cost/Gal Dollars Cost/Gal ------- -------- ------- --------
Raw or "into-plane" fuel cost $33.2 $2.21 $37.1 $2.51 Minus gains,
or plus the losses, during the period on settled hedges 1.6 0.11
1.1 0.07 --- ---- --- ---- Economic fuel expense $34.8 $2.32 $38.2
$2.58 ----- ----- ----- ----- Adjustments to reflect timing of
(gain) or loss recognition resulting from mark-to-market accounting
(5.4) (0.36) 13.7 0.93 Plus net realized losses on hedge portfolio
restructuring* - - 8.5 0.57 --- --- --- ---- Total adjustments
(5.4) (0.36) 22.2 1.50 ---- ----- ---- ---- GAAP fuel expense $29.4
$1.96 $60.4 $4.08 ===== ===== ===== ===== Fuel gallons 15.0 14.8
==== ==== Twelve Months Ended December 31,
-------------------------------- 2009 2008 ---- ---- Dollars
Cost/Gal Dollars Cost/Gal ------- -------- ------- -------- Raw or
"into-plane" fuel cost $113.9 $1.90 $225.0 $3.36 Minus gains, or
plus the losses, during the period on settled hedges 10.3 0.17
(20.9) (0.31) ---- ---- ----- ----- Economic fuel expense $124.2
$2.07 $204.1 $3.05 ------ ----- ------ ----- Adjustments to reflect
timing of (gain) or loss recognition resulting from mark-to-market
accounting (15.1) (0.25) 23.4 0.35 Plus net realized losses on
hedge portfolio restructuring* - - 8.5 0.13 --- --- --- ---- Total
adjustments (15.1) (0.25) 31.9 0.48 ----- ----- ---- ---- GAAP fuel
expense $109.1 $1.82 $236.0 $3.53 ====== ===== ====== ===== Fuel
gallons 60.1 66.9 ==== ==== * In 2008, these amounts represent
losses on the early termination of hedge contracts originally
scheduled to settle in 2009 and 2010. DATASOURCE: Alaska Air Group,
Inc. CONTACT: Media, Bobbie Egan of Alaska Airlines,
+1-206-392-5101, or Dan Russo of Horizon Air, +1-206-392-0218; or
Investor/analyst, Shannon Alberts of Alaska Air Group,
+1-206-392-5218 Web Site: http://www.alaskaair.com/
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