ALASKA AIR GROUP, INC. 
By SEATTLE, Jan. 24, 2013 /PRNewswire/ --
Highlights and achievements:
-- Record fourth quarter net income, excluding special items, of $50
million, or $0.70 per diluted share, compared to $37 million, or $0.51
per diluted share. This quarter's results compare to a First Call
analyst consensus estimate of $0.71 per share.
-- Record full-year net income, excluding special items, of $339 million,
or $4.73 per diluted share, compared to $287 million, or $3.92 per
diluted share.
-- Net income for the fourth quarter under Generally Accepted Accounting
Principles (GAAP) of $44 million, or $0.61 per diluted share, compared
to net income of $64 million, or $0.88 per diluted share. Full-year GAAP
net income of $316 million, or $4.40 per diluted share, compared to net
income of $245 million, or $3.33 per diluted share.
-- Air Group employees earned $88 million in incentive pay, or more than
one-month's pay for most employees. Over the last four years, employees
have earned more than $325 million in incentive pay, averaging 8% of
annual pay for most employees.
-- Ranked "Highest in Customer Satisfaction Among Traditional Network
Carriers" by J.D. Power and Associates for the fifth year in a row.
-- Signed an aircraft purchase agreement with The Boeing Company for 50 new
737 aircraft, including 37 of Boeing's new 737 MAX aircraft with
deliveries expected in 2015 through 2024.
-- Carried a record number passengers in 2012 and achieved a record load
factor of 85.9 percent, up 1.4 points from the prior year.
-- Improved employee productivity by 3.5 percent compared to the fourth
quarter of 2011.
-- Completed renovation of Terminal 6 at Los Angeles International Airport
(LAX) in March, which includes the Airport of the Future design, new
common use systems, additional gates and convenient connections with
international flights.
-- Ratified a six-year agreement in December with the International
Brotherhood of Teamsters (IBT) representing Horizon's pilots.
-- Ratified a six-year agreement in July with the International Association
of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp
service and stores agents.
-- Repurchased 1,685,951 shares of common stock for approximately $60
million. Since 2007, Air Group has used $320 million to repurchase 18
million shares.
-- Lowered adjusted debt-to-total capitalization ratio by 8 points to 54
percent since Dec. 31, 2011 and by 27 points from 81 percent at the end
of 2008.
-- Held $1.3 billion in unrestricted cash and marketable securities as of
December 31, 2012.
-- Achieved twelve-month return on invested capital of 13 percent,
surpassing the 10 percent goal for the third year in a row.
-- Contributed $110 million to the defined-benefit pension plans during
2012, bringing the total over four years to approximately $540 million,
despite having no required contribution.
New routes:
-- Began new service from San Diego to Orlando, Portland to Lihue,
Bellingham to Maui, and Anchorage to Kona in the fourth quarter,
bringing the full year up to 21 new routes.
-- Announced service from San Diego to Boston and Lihue, and from Seattle
to Salt Lake City beginning in 2013.
Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2012 GAAP net income of $44 million, or $0.61 per diluted share, compared to GAAP net income of $64 million, or $0.88 per diluted share in 2011. Excluding mark-to-market fuel hedge losses of $10 million ($6 million after tax, or $0.09 per diluted share), the company reported record fourth quarter 2012 net income of $50 million, or $0.70 per diluted share, compared to net income excluding mark-to-market fuel hedge gains of $37 million, or $0.51 per diluted share, in 2011.
The company reported full-year 2012 GAAP net income of $316 million, compared to $245 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $339 million, or $4.73 per diluted share for 2012, compared to net income of $287 million, or $3.92 per diluted share in 2011. This marks the company's ninth consecutive year of adjusted profits and the third year in a row the company has exceeded its goal of a 10 percent return on invested capital.
"We're very pleased with our strong performance in 2012, and we are moving ahead in 2013 to make Alaska a great business as well as a great airline," Chief Executive Officer Brad Tilden said. "I want to thank our 13,000 employees who are dedicated to providing our award-winning service, along with our loyal customers for their business and our investors who continue to put their trust in our company and our future."
The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2012 and 2011 to amounts as reported in accordance with GAAP:
Three Months Ended December 31,
-------------------------------
2012 2011
---- ----
(in millions,
except per share
amounts) Dollars Diluted EPS Dollars Diluted EPS
------- ----------- ------- -----------
Reported GAAP net
income $44 $0.61 $64 $0.88
Mark-to-market
fuel hedge
adjustments, net
of tax 6 0.09 (27) (0.37)
--- ---- --- -----
Non-GAAP
adjusted income
and per share
amounts $50 $0.70 $37 $0.51
=== ===== === =====
Twelve Months Ended December 31,
--------------------------------
2012 2011
---- ----
(in millions,
except per share
amounts) Dollars Diluted EPS Dollars Diluted EPS
------- ----------- ------- -----------
Reported GAAP net
income $316 $4.40 $245 $3.33
Fleet transition
costs, net of
tax - - 24 0.33
Mark-to-market
fuel hedge
adjustments, net
of tax 23 0.33 18 0.26
Non-GAAP
adjusted income
and per share
amounts $339 $4.73 $287 $3.92
==== ===== ==== =====
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 fourth quarter and full year results will be simulcast via the Internet at 9:30 a.m. Pacific time on January 24, 2013. 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 may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2011. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves 95 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates North America Airline Satisfaction Study(SM) for five consecutive years from 2008 to 2012. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines newsroom at www.alaskaair.com/newsroom.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
Three Months Ended December 31, Twelve Months Ended December 31,
------------------------------- --------------------------------
(in millions, except
per share amounts) 2012 2011 Change 2012 2011 Change
---- ---- ------ ---- ---- ------
Operating Revenues:
Passenger
Mainline $793 $726 9% $3,284 $2,995 10%
Regional 188 176 7% 746 713 5%
--- --- --- ---
Total passenger
revenue 981 902 9% 4,030 3,708 9%
Freight and mail 26 25 4% 111 109 2%
Other - net 125 117 7% 516 501 3%
Total Operating
Revenues 1,132 1,044 8% 4,657 4,318 8%
----- ----- ----- -----
Operating Expenses:
Wages and benefits 267 253 6% 1,038 991 5%
Variable incentive pay 27 19 42% 88 72 22%
Aircraft fuel,
including hedging
gains and losses 372 286 30% 1,459 1,298 12%
Aircraft maintenance 61 53 15% 222 206 8%
Aircraft rent 30 28 7% 116 116 -
Landing fees and other
rentals 59 58 2% 243 238
2%
Contracted services 51 49 4% 200 185 8%
Selling expenses 37 42 (12)% 168 175 (4)%
Depreciation and
amortization 69 63 10% 264 247 7%
Food and beverage
service 21 17 24% 79 67 18%
Other 64 62 3% 248 235 6%
Fleet transition costs - - NM - 39 NM
--- --- --- ---
Total Operating
Expenses 1,058 930 14% 4,125 3,869 7%
Operating Income 74 114 (35)% 532 449 18%
--- --- --- ---
Nonoperating Income
(Expense):
Interest income 5 4 19 22
Interest expense (15) (18) (64) (87)
Interest capitalized 5 7 18 12
Other - net 3 (6) 9 (2)
(2) (13) (18) (55)
Income Before Income
Tax 72 101 (29)% 514 394 30%
Income tax expense 28 37 198 149
Net Income $44 $64 (31)% $316 $245 29%
=== === ==== ====
Basic Earnings Per
Share: $0.62 $0.90 $4.47 $3.41
Diluted Earnings Per
Share: $0.61 $0.88 $4.40 $3.33
Shares Used for
Computation:
Basic 71.112 71.122 70.708 71.755
Diluted 72.149 72.635 71.784 73.421
NM - Not Meaningful
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group,
Inc.
(in millions) December 31, December 31,
2012 2011
------------- -------------
Cash and
marketable
securities $1,252 $1,141
====== ======
Total current
assets 1,737 1,596
Property and
equipment-net 3,609 3,373
Other assets 159 198
--- ---
Total assets $5,505 $5,167
====== ======
Current
liabilities $1,501 $1,510
Long-term debt 871 1,099
Other liabilities
and credits 1,712 1,384
Shareholders'
equity 1,421 1,174
----- -----
Total liabilities
and
shareholders'
equity $5,505 $5,167
====== ======
Debt to
Capitalization,
adjusted for
operating leases 54%:46% 62%:38%
====== ======
Number of common
shares
outstanding 70.377 70.950
====== ======
OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
Three Months Ended December 31, Twelve Months Ended December 31,
------------------------------- --------------------------------
2012 2011 Change 2012 2011 Change
---- ---- ------ ---- ---- ------
Consolidated Operating
Statistics:(a)
Revenue passengers
(000) 6,387 6,083 5.0% 25,896 24,790 4.5%
RPMs (000,000)
"traffic" 6,720 6,183 8.7% 27,007 25,032 7.9%
ASMs (000,000)
"capacity" 7,870 7,298 7.8% 31,428 29,627 6.1%
Load factor 85.4% 84.7% 0.7 pts 85.9% 84.5% 1.4 pts
Yield 14.59¢ 14.59¢ - 14.92¢ 14.81¢ 0.7%
PRASM 12.46¢ 12.36¢ 0.8% 12.82¢ 12.51¢ 2.5%
RASM 14.39¢ 14.31¢ 0.6% 14.82¢ 14.57¢ 1.7%
CASM excluding fuel
and fleet transition
costs(b) 8.72¢ 8.83¢ (1.2)% 8.48¢ 8.55¢ (0.8)%
Economic fuel cost per
gallon(c) $3.43 $3.34 2.7% $3.37 $3.18 6.0%
Fuel gallons (000,000) 105 99 6.1% 422 398 6.0%
Average number of
full-time equivalent
employees 11,984 11,807 1.5% 11,955 11,840 1.0%
Mainline Operating
Statistics:
Revenue passengers
(000) 4,513 4,331 4.2% 18,526 17,810 4.0%
RPMs (000,000)
"traffic" 6,065 5,575 8.8% 24,417 22,586 8.1%
ASMs (000,000)
"capacity" 7,056 6,526 8.1% 28,180 26,517 6.3%
Load factor 86.0% 85.4% 0.6 pts 86.6% 85.2% 1.4 pts
Yield 13.08¢ 13.01¢ 0.5% 13.45¢ 13.26¢ 1.4%
PRASM 11.24¢ 11.12¢ 1.1% 11.65¢ 11.29¢ 3.2%
RASM 13.15¢ 13.04¢ 0.8% 13.62¢ 13.31¢ 2.3%
CASM excluding fuel(b) 7.77¢ 7.89¢ (1.5)% 7.56¢ 7.60¢ (0.5)%
Economic fuel cost per
gallon(c) $3.43 $3.33 3.0% $3.36 $3.18 5.7%
Fuel gallons (000,000) 92 86 7.0% 368 346 6.4%
Average number of
full-time equivalent
employees 9,228 8,920 3.5% 9,178 8,916 2.9%
Aircraft utilization 10.5 10.2 2.9% 10.7 10.5 1.9%
Average aircraft stage
length 1,189 1,129 5.3% 1,161 1,114 4.2%
Mainline operating
fleet 124 117 7 a/c 124 117 7 a/c
Regional Operating
Statistics:(d)
Revenue passengers
(000) 1,873 1,752 6.9% 7,371 6,980 5.6%
RPMs (000,000)
"traffic" 655 608 7.7% 2,590 2,446 5.9%
ASMs (000,000)
"capacity" 814 772 5.4% 3,247 3,110 4.4%
Load factor 80.4% 78.8% 1.6 pts 79.8% 78.6% 1.2 pts
Yield 28.64¢ 28.82¢ (0.6)% 28.81¢ 29.13¢ (1.1)%
PRASM 23.03¢ 22.84¢ 0.8% 22.98¢ 22.94¢ 0.2%
Operating fleet
(Horizon only) 48 48 - 48 48 -
(a) Except for full-time equivalent
employees, 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 why these measures
may be important to investors in
the accompanying pages.
(c) See a reconciliation of economic
fuel cost in the accompanying
pages.
(d) Data presented includes information
related to flights operated by
Horizon Air and third-party
carriers.
OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
Three Months Ended December 31, 2012
------------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air Group
Adjusted(a) Special Items Consolidated
-------- -------- ------- ------------- ------------ ------------- ------------
Operating revenues
Passenger
Mainline $793 $ - $ - $ - $793 $ - $793
Regional - 188 - - 188 - 188
--- --- --- --- --- --- ---
Total passenger
revenues 793 188 - - 981 - 981
Revenue from CPA with
Alaska - - 97 (97) - - -
Freight and mail 25 1 - - 26 - 26
Other-net 110 14 1 - 125 - 125
--- --- --- --- --- --- ---
Total operating
revenues 928 203 98 (97) 1,132 - 1,132
--- --- --- --- ----- --- -----
Operating expenses
Operating expenses,
excluding fuel 548 145 90 (97) 686 - 686
Economic fuel 315 47 - - 362 10 372
---
Total operating
expenses 863 192 90 (97) 1,048 10 1,058
--- --- --- --- ----- --- -----
Nonoperating income
(expense)
Interest income 5 - - - 5 - 5
Interest expense (11) - (4) - (15) - (15)
Other 8 - 1 (1) 8 - 8
--- --- --- --- --- --- ---
2 - (3) (1) (2) - (2)
Income (loss) before
income tax $67 $11 $5 $(1) $82 $(10) $72
=== === === === === ==== ===
Three Months Ended December 31, 2011
------------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air Group
Adjusted(a) Special Items Consolidated
-------- -------- ------- ------------- ------------ ------------- ------------
Operating revenues
Passenger
Mainline $726 $ - $ - $ - $726 $ - $726
Regional - 176 - - 176 - 176
--- --- --- --- --- --- ---
Total passenger
revenues 726 176 - - 902 - 902
Revenue from CPA with
Alaska - - 90 (90) - - -
Freight and mail 24 1 - - 25 - 25
Other-net 101 14 2 - 117 - 117
--- --- --- --- --- --- ---
Total operating
revenues 851 191 92 (90) 1,044 - 1,044
--- --- --- --- ----- --- -----
Operating expenses
Operating expenses,
excluding fuel 515 135 83 (89) 644 - 644
Economic fuel 285 44 - - 329 (43) 286
---
Total operating
expenses 800 179 83 (89) 973 (43) 930
--- --- --- --- --- --- ---
Nonoperating income
(expense)
Interest income 3 - - 1 4 - 4
Interest expense (14) - (4) - (18) - (18)
Other 1 - - - 1 - 1
--- --- --- --- --- --- ---
(10) - (4) 1 (13) - (13)
Income (loss) before
income tax $41 $12 $5 $ - $58 $43 $101
=== === === === === === === ====
OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
Twelve Months Ended December 31, 2012
-------------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air Group
Adjusted(a) Special Items Consolidated
-------- -------- ------- ------------- ------------ ------------- ------------
Operating revenues
Passenger
Mainline $3,284 $ - $ - $ - $3,284 $ - $3,284
Regional - 746 - - 746 - 746
--- --- --- --- --- --- ---
Total passenger
revenues 3,284 746 - - 4,030 - 4,030
Revenue from CPA with
Alaska - - 369 (369) - - -
Freight and mail 107 4 - - 111 - 111
Other-net 448 61 7 - 516 - 516
--- --- --- --- --- --- ---
Total operating
revenues 3,839 811 376 (369) 4,657 - 4,657
----- --- --- ---- ----- --- -----
Operating expenses
Operating expenses,
excluding fuel 2,131 566 338 (369) 2,666 - 2,666
Economic fuel 1,238 183 - - 1,421 38 1,459
-----
Total operating
expenses 3,369 749 338 (369) 4,087 38 4,125
----- --- --- ---- ----- --- -----
Nonoperating income
(expense)
Interest income 19 - - - 19 - 19
Interest expense (47) - (16) (1) (64) - (64)
Other 24 - 2 1 27 - 27
--- --- --- --- --- --- ---
(4) - (14) - (18) - (18)
Income (loss) before
income tax $466 $62 $24 $ - $552 $(38) $514
==== === === === === ==== ==== ====
Twelve Months Ended December 31, 2011
-------------------------------------
Alaska
------
(in millions) Mainline Regional Horizon Consolidating Air Group
Adjusted(a) Special Items Consolidated
-------- -------- ------- ------------- ------------ ------------- ------------
Operating revenues
Passenger
Mainline $2,995 $ - $ - $ - $2,995 $ - $2,995
Regional - 713 - - 713 - 713
--- --- --- --- --- --- ---
Total passenger
revenues 2,995 713 - - 3,708 - 3,708
Revenue from CPA with
Alaska - - 369 (369) - - -
Freight and mail 105 4 - - 109 - 109
Other-net 431 62 8 - 501 - 501
--- --- --- --- --- --- ---
Total operating
revenues 3,531 779 377 (369) 4,318 - 4,318
----- --- --- ---- ----- --- -----
Operating expenses
Operating expenses,
excluding fuel(b) 2,015 544 340 (367) 2,532 39 2,571
Economic fuel 1,101 167 - - 1,268 30 1,298
-----
Total operating
expenses 3,116 711 340 (367) 3,800 69 3,869
----- --- --- ---- ----- --- -----
Nonoperating income
(expense)
Interest income 24 - - (2) 22 - 22
Interest expense (72) - (17) 2 (87) - (87)
Other 8 - 2 10 - 10
--- --- --- --- --- ---
(40) - (15) - (55) - (55)
Income (loss) before
income tax $375 $68 $22 $(2) $463 $(69) $394
==== === === === ==== ==== ====
(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.
See Note A for further information
in the accompanying pages.
(b) Special charges related to CRJ-700
fleet transitions costs.
FUEL RECONCILIATIONS (unaudited)
Alaska Air Group, Inc.
Three Months Ended December 31,
-------------------------------
2012 2011
---- ----
(in millions, except
for per gallon
amounts) Dollars Cost/Gal Dollars Cost/Gal
------- -------- ------- --------
Raw or "into-plane"
fuel cost $351 $3.33 $320 $3.24
(Gains) losses on
settled hedges 11 0.10 9 0.10
--- ---- --- ----
Consolidated economic
fuel expense $362 $3.43 $329 $3.34
---- ----- ---- -----
Mark-to-market fuel
hedge adjustments 10 0.10 (43) (0.44)
GAAP fuel expense $372 $3.53 $286 $2.90
==== ===== ==== =====
Fuel gallons 105 99
=== ===
Twelve Months Ended December 31,
--------------------------------
2012 2011
---- ----
(in millions, except
for per gallon
amounts) Dollars Cost/Gal Dollars Cost/Gal
------- -------- ------- --------
Raw or "into-plane"
fuel cost $1,397 $3.31 $1,289 $3.24
(Gains) losses on
settled hedges 24 0.06 (21) (0.06)
--- ---- --- -----
Consolidated economic
fuel expense $1,421 $3.37 $1,268 $3.18
------ ----- ------ -----
Mark-to-market fuel
hedge adjustments 38 0.09 30 0.08
GAAP fuel expense $1,459 $3.46 $1,298 $3.26
====== ===== ====== =====
Fuel gallons 422 398
=== ===
Breakout of Fuel Expense:
Three Months Ended December 31, Twelve Months Ended December 31,
------------------------------- --------------------------------
(in millions) 2012 2011 2012 2011
---- ---- ---- ----
Mainline economic fuel
expense $315 $285 $1,238 $1,101
Regional economic fuel
expense 47 44 183 167
Consolidated economic
fuel expense $362 $329 $1,421 $1,268
==== ==== ====== ======
Mainline Economic Cost per Gallon Reconciliation:
Three Months Ended December 31, Twelve Months Ended December 31,
------------------------------- --------------------------------
(in millions, except
for per gallon
amounts) 2012 2011 2012 2011
---- ---- ---- ----
Mainline economic fuel
expense $315 $285 $1,238 $1,101
Mainline fuel gallons 92 86 368 346
--- --- --- ---
Mainline economic cost
per gallon $3.43 $3.33 $3.36 $3.18
===== ===== ===== =====
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 these non-GAAP financial measures may be important to investors for the following reasons:
-- By eliminating fuel expense and certain special items from our cost and
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.
-- Cost per ASM (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.
-- Adjusted Income before Income Taxes and CASM excluding fuel (and other
items as specified in our plan documents) are important metrics for the
employee incentive plan that covers all 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
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 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 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.
Note B: Air Group's operations are treated as an integrated route network intended to maximize the results of the company. However, the Company has historically had two primary operating and reporting segments, consisting of Alaska Airlines and Horizon Air, for which separate financial information is available and regularly evaluated by our chief operating decision maker in deciding how to allocate resources and assess performance.
Alaska operates a fleet of passenger jets ("mainline operations") and contracts with affiliated (Horizon) and non-affiliated third party carriers for regional capacity under which Alaska receives all passenger revenue from those flights. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (the Horizon CPA). The Horizon CPA reflects what the Company believes are current market rates received by other regional carriers for similar flying. Amounts paid by Alaska to Horizon are for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs.
All inter-company revenues and expenses are eliminated in consolidation.
Glossary of Terms
Mainline - represents flying on Alaska jets and all associated revenues and costs
Regional - represents operations whereby Horizon, SkyWest, and another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets
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
ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown
Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers
Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile
PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"
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
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
Economic fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program
Aircraft Utilization - block hours per day; this represents the average number of hours our aircraft are flying
Aircraft Stage Length - represents the average miles flown per aircraft departure
Diluted Earnings per Share - represents earnings per share 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
Productivity - number of revenue passengers per full-time equivalent employee
SOURCE Alaska Air Group, Inc.
