Alaska Air Group reports second quarter 2021 results
Thu, 22 Jul 2021 06:00:00 -0400 | PRNewswire
SEATTLE, July 22, 2021 /PRNewswire/ --
Financial Results:
- Reported net income for the second quarter of 2021 under Generally Accepted Accounting Principles (GAAP) of $397 million, or $3.15 per share, compared to a net loss of $214 million, or $1.74 per share in the second quarter of 2020.
- Reported a net loss for the second quarter of 2021, excluding CARES Act Payroll Support Program (PSP) wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $38 million, or $0.30 per share, compared to an adjusted net loss of $439 million or $3.57 per share, in the second quarter of 2020.
- Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 56%.
- Held $4.0 billion in unrestricted cash and marketable securities as of June 30, 2021.
- Generated $840 million in operating cash flow in the second quarter, inclusive of $489 million of PSP funding, bolstered by improved advance bookings on a surge in demand for air travel. Excluding PSP funding, quarterly operating cash flows improved over $580 million from the first quarter of 2021.
Operational Updates:
- Announced plans to grow our mainline and regional fleets, exercising options for 13 Boeing 737-9 MAX with deliveries in 2023 and 2024, and nine E175 to be operated by Horizon Air with deliveries in 2022 and 2023. In addition, expanded our long-term capacity agreement with SkyWest Airlines by eight aircraft to be delivered in 2022.
- Announced new service to Central America with new routes to Belize from Seattle and Los Angeles, with service slated to begin in November 2021.
- Issued recall notices to all pilots on incentive lines for return to work by October 2021.
- Continued our history of providing meaningful incentive programs to our employees with $67 million in cash bonuses earned to date.
- Announced seven new domestic routes aimed at providing our West Coast guests more options to sun-filled destinations, including three new routes serving Boise, Idaho.
Liquidity Updates:
- Received $664 million through a combination of grants and loans from the U.S. Treasury under an extension of the PSP.
- Repaid approximately $570 million in debt, including the full $135 million loan from the U.S. Treasury made available under the CARES Act and the $363 million outstanding balance on two credit facilities.
Sustainability Updates:
- Announced five-part pathway to achieve a net zero carbon footprint by 2040, putting the airline on track to meet the annual carbon intensity target that is part of its performance-based pay program for all employees.
- First airline to implement network optimization software, Flyways, using artificial intelligence and machine learning to optimize air traffic and enable more fuel-efficient flight paths for aggregate savings of fuel, carbon emissions and time.
- Partnered with Boeing to launch a 737-9 ecoDemonstrator to test advanced technologies that can enhance the safety and sustainability of air travel. The aircraft will conduct five months of flight tests across the U.S.
- Revealed "Our Commitment" aircraft in partnership with long-time partner UNCF, a symbol of the airline's commitments to increase diverse representation in our leadership, advance education as a critical component of equity, and to make Alaska Airlines a place where everyone feels they belong.
Alaska Air Group Inc. today reported second quarter 2021 GAAP net income of $397 million, or $3.15 per share, compared to a net loss of $214 million, or $1.74 per share in the second quarter of 2020. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported an adjusted net loss of $38 million, or $0.30 per diluted share, compared to an adjusted net loss of $439 million, or $3.57 per diluted share in 2020.
"As we put the worst of last year's downturn behind us, Alaska is back on the path to profitability," said CEO Ben Minicucci. "We are executing our plan, rebuilding our network, leveraging our capacity to meet growing demand, and delivering exceptional service and value to our guests. I'm incredibly proud and grateful for how hard our employees are working and how they show up for each other and our guests every day with focus on safety, operational excellence and care."
The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2021 and 2020 to adjusted amounts.
Three Months Ended June 30, | |||||||||||||||
2021 | 2020 | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
GAAP net income (loss) per share | $ | 397 | $ | 3.15 | $ | (214) | $ | (1.74) | |||||||
Payroll support program wage offset | (503) | (3.99) | (362) | (2.94) | |||||||||||
Mark-to-market fuel hedge adjustments | (46) | (0.37) | (6) | (0.05) | |||||||||||
Special items - impairment charges and other | (4) | (0.03) | 69 | 0.56 | |||||||||||
Special items - restructuring charges | (23) | (0.18) | — | — | |||||||||||
Special items - merger-related costs | — | — | 1 | 0.01 | |||||||||||
Income tax effect of reconciling items above | 141 | 1.12 | 73 | 0.59 | |||||||||||
Non-GAAP adjusted net loss per share | $ | (38) | $ | (0.30) | $ | (439) | $ | (3.57) | |||||||
Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
GAAP net income (loss) per share | $ | 266 | $ | 2.12 | $ | (446) | $ | (3.62) | |||||||
Payroll support program wage offset | (914) | (7.27) | (362) | (2.94) | |||||||||||
Mark-to-market fuel hedge adjustments | (68) | (0.54) | 3 | 0.02 | |||||||||||
Special items - impairment charges and other | 14 | 0.11 | 229 | 1.86 | |||||||||||
Special items - restructuring charges | (12) | (0.10) | — | — | |||||||||||
Special items - merger-related costs | — | — | 4 | 0.03 | |||||||||||
Income tax effect of reconciling items above | 240 | 1.91 | 31 | 0.25 | |||||||||||
Non-GAAP adjusted net loss per share | $ | (474) | $ | (3.77) | $ | (541) | $ | (4.40) | |||||||
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 second quarter results will be streamed online at 8:30 a.m. PDT on July 22, 2021. It can be accessed at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.
References in this update to "Air Group," "Company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.
This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Some of these risks include the risks associated with contagious illnesses and contagion, such as COVID-19, general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance, or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
Alaska Airlines and its regional partners serve more than 120 destinations across the United States and to Mexico, Canada and Costa Rica. The airline emphasizes Next-Level Care for its guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of oneworld. With the global alliance and the airline's additional partners, guests can travel to more than 1,000 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE:ALK).
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | |||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
(in millions, except per-share amounts) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||
Operating Revenues: | |||||||||||||||||||||
Passenger revenue | $ | 1,352 | $ | 309 | 338 | % | $ | 2,011 | $ | 1,790 | 12 | % | |||||||||
Mileage Plan other revenue | 118 | 73 | 62 | % | 212 | 182 | 16 | % | |||||||||||||
Cargo and other | 57 | 39 | 46 | % | 101 | 85 | 19 | % | |||||||||||||
Total Operating Revenues | 1,527 | 421 | 263 | % | 2,324 | 2,057 | 13 | % | |||||||||||||
Operating Expenses: | |||||||||||||||||||||
Wages and benefits | 510 | 472 | 8 | % | 1,003 | 1,084 | (7) | % | |||||||||||||
Payroll support program wage offset | (503) | (362) | 39 | % | (914) | (362) | 152 | % | |||||||||||||
Variable incentive pay | 34 | 16 | 113 | % | 67 | 23 | 191 | % | |||||||||||||
Aircraft fuel, including hedging gains and losses | 274 | 59 | 364 | % | 477 | 443 | 8 | % | |||||||||||||
Aircraft maintenance | 102 | 45 | 127 | % | 183 | 160 | 14 | % | |||||||||||||
Aircraft rent | 62 | 74 | (16) | % | 124 | 155 | (20) | % | |||||||||||||
Landing fees and other rentals | 144 | 83 | 73 | % | 273 | 214 | 28 | % | |||||||||||||
Contracted services | 54 | 30 | 80 | % | 105 | 102 | 3 | % | |||||||||||||
Selling expenses | 41 | 4 | 925 | % | 74 | 59 | 25 | % | |||||||||||||
Depreciation and amortization | 98 | 107 | (8) | % | 195 | 215 | (9) | % | |||||||||||||
Food and beverage service | 35 | 7 | 400 | % | 58 | 56 | 4 | % | |||||||||||||
Third-party regional carrier expense | 37 | 26 | 42 | % | 67 | 63 | 6 | % | |||||||||||||
Other | 117 | 78 | 50 | % | 222 | 221 | — | % | |||||||||||||
Special items - impairment charges and other | (4) | 69 | (106) | % | 14 | 229 | (94) | % | |||||||||||||
Special items - restructuring charges | (23) | — | . | NM | (12) | — | NM | ||||||||||||||
Special items - merger-related costs | — | 1 | (100) | % | — | 4 | (100) | % | |||||||||||||
Total Operating Expenses | 978 | 709 | 38 | % | 1,936 | 2,666 | (27) | % | |||||||||||||
Operating Income (Expense) | 549 | (288) | (291) | % | 388 | (609) | (164) | % | |||||||||||||
Nonoperating Income (Expense): | |||||||||||||||||||||
Interest income | 6 | 7 | (14) | % | 13 | 16 | (19) | % | |||||||||||||
Interest expense | (39) | (17) | 129 | % | (71) | (30) | 137 | % | |||||||||||||
Interest capitalized | 3 | 1 | 200 | % | 6 | 4 | 50 | % | |||||||||||||
Other - net | 9 | 6 | 50 | % | 19 | 11 | 73 | % | |||||||||||||
Total Nonoperating Income (Expense) | (21) | (3) | NM | (33) | 1 | NM | |||||||||||||||
Income (Loss) Before Income Tax | 528 | (291) | 355 | (608) | |||||||||||||||||
Income tax expense (benefit) | 131 | (77) | 89 | (162) | |||||||||||||||||
Net Income (Loss) | $ | 397 | $ | (214) | $ | 266 | $ | (446) | |||||||||||||
Basic Income (Loss) Per Share: | $ | 3.18 | $ | (1.74) | $ | 2.13 | $ | (3.62) | |||||||||||||
Diluted Income (Loss) Per Share: | $ | 3.15 | $ | (1.74) | $ | 2.12 | $ | (3.62) | |||||||||||||
Shares Used for Computation: | |||||||||||||||||||||
Basic | 124.977 | 123.296 | 124.640 | 123.058 | |||||||||||||||||
Diluted | 126.037 | 123.296 | 125.676 | 123.058 | |||||||||||||||||
Cash dividend declared per share: | $ | — | $ | — | $ | — | $ | 0.375 | |||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
Alaska Air Group, Inc. | |||||||
(in millions) | June 30, 2021 | December 31, 2020 | |||||
Cash and cash equivalents | $ | 1,025 | $ | 1,370 | |||
Marketable securities | 2,926 | 1,976 | |||||
Total cash and marketable securities | 3,951 | 3,346 | |||||
Other current assets | 820 | 660 | |||||
Current assets | 4,771 | 4,006 | |||||
Property and equipment - net | 6,128 | 6,211 | |||||
Operating lease assets | 1,375 | 1,400 | |||||
Goodwill | 1,943 | 1,943 | |||||
Intangible assets - net | 103 | 107 | |||||
Other assets | 336 | 379 | |||||
Total assets | 14,656 | 14,046 | |||||
Air traffic liability | 1,533 | 1,073 | |||||
Current portion of long-term debt | 869 | 1,138 | |||||
Current portion of operating lease liabilities | 263 | 290 | |||||
Other current liabilities | 2,181 | 1,792 | |||||
Current liabilities | 4,846 | 4,293 | |||||
Long-term debt | 2,319 | 2,357 | |||||
Long-term operating lease liabilities | 1,222 | 1,268 | |||||
Other liabilities and credits | 2,945 | 3,140 | |||||
Shareholders' equity | 3,324 | 2,988 | |||||
Total liabilities and shareholders' equity | $ | 14,656 | $ | 14,046 | |||
Debt-to-capitalization ratio, including operating leases | 56 | % | 61 | % | |||
Number of common shares outstanding | 125.229 | 124.218 | |||||
SUMMARY CASH FLOW (unaudited) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
(in millions) | Six Months Ended | Three Months Ended | Three Months Ended June 30, 2021(b) | ||||||||
Cash Flows from Operating Activities: | |||||||||||
Net income (loss) | $ | 266 | $ | (131) | $ | 397 | |||||
Non-cash reconciling items | 221 | 138 | 83 | ||||||||
Changes in working capital | 520 | 160 | 360 | ||||||||
Net cash provided by (used in) operating activities | 1,007 | 167 | 840 | ||||||||
Cash Flows from Investing Activities: | |||||||||||
Property and equipment additions | (102) | (27) | (75) | ||||||||
Other investing activities | (968) | (516) | (452) | ||||||||
Net cash provided by (used in) investing activities | (1,070) | (543) | (527) | ||||||||
Cash Flows from Financing Activities: | (281) | 82 | (363) | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | (344) | $ | (294) | $ | (50) | |||||
Cash, cash equivalents, and restricted cash at beginning of period | 1,386 | 1,386 | 1,092 | ||||||||
Cash, cash equivalents, and restricted cash at end of the period | $ | 1,042 | $ | 1,092 | $ | 1,042 | |||||
(a) | As reported in Form 10-Q for the first quarter of 2021. |
(b) | Cash flows for the three months ended June 30, 2021, can be calculated by subtracting cash flows for the three months ended March 31, 2021, as reported in Form 10-Q for the first quarter 2021, from the six months ended June 30, 2021. |
OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | ||||||
Consolidated Operating Statistics:(a) | |||||||||||
Revenue passengers (000) | 8,712 | 1,485 | 486.7% | 13,379 | 10,417 | 28.4% | |||||
RPMs (000,000) "traffic" | 10,334 | 1,654 | 524.8% | 15,727 | 12,310 | 27.8% | |||||
ASMs (000,000) "capacity" | 13,413 | 4,307 | 211.4% | 23,810 | 19,612 | 21.4% | |||||
Load factor | 77.0% | 38.4% | 38.6 pts | 66.1% | 62.8% | 3.3 pts | |||||
Yield | 13.09¢ | 18.68¢ | (29.9)% | 12.79¢ | 14.54¢ | (12.0)% | |||||
RASM | 11.38¢ | 9.77¢ | 16.5% | 9.76¢ | 10.49¢ | (7.0)% | |||||
CASMex(b) | 9.20¢ | 21.87¢ | (57.9)% | 9.95¢ | 12.00¢ | (17.1)% | |||||
Economic fuel cost per gallon(b) | $1.90 | $1.20 | 58.3% | $1.85 | $1.77 | 4.5% | |||||
Fuel gallons (000,000) | 168 | 54 | 211.1% | 294 | 248 | 18.5% | |||||
ASM's per gallon | 79.8 | 79.8 | —% | 81.0 | 79.1 | 2.4% | |||||
Average number of full-time equivalent employees (FTE) | 19,001 | 15,836 | 20.0% | 18,071 | 19,115 | (5.5)% | |||||
Mainline Operating Statistics: | |||||||||||
Revenue passengers (000) | 6,151 | 905 | 579.7% | 9,302 | 7,580 | 22.7% | |||||
RPMs (000,000) "traffic" | 8,966 | 1,276 | 602.7% | 13,555 | 10,858 | 24.8% | |||||
ASMs (000,000) "capacity" | 11,611 | 3,363 | 245.3% | 20,464 | 17,060 | 20.0% | |||||
Load factor | 77.2% | 37.9% | 39.3 pts | 66.2% | 63.6% | 2.6 pts | |||||
Yield | 11.96¢ | 17.63¢ | (32.2)% | 11.64¢ | 13.44¢ | (13.4)% | |||||
RASM | 10.59¢ | 9.52¢ | 11.2% | 9.09¢ | 9.94¢ | (8.6)% | |||||
CASMex(b) | 8.48¢ | 22.19¢ | (61.8)% | 9.17¢ | 11.17¢ | (17.9)% | |||||
Economic fuel cost per gallon(b) | $1.88 | $1.20 | 56.7% | $1.84 | $1.78 | 3.4% | |||||
Fuel gallons (000,000) | 135 | 38 | 255.3% | 233 | 201 | 15.9% | |||||
ASM's per gallon | 86.0 | 88.5 | (2.8)% | 87.8 | 84.9 | 3.4% | |||||
Average number of FTE's | 14,021 | 12,340 | 13.6% | 13,247 | 14,579 | (9.1)% | |||||
Aircraft utilization | 9.9 | 5.6 | 76.8% | 9.2 | 8.8 | 4.5% | |||||
Average aircraft stage length | 1,320 | 1,144 | 15.4% | 1,313 | 1,270 | 3.4% | |||||
Operating fleet(d) | 202 | 225 | (23) a/c | 202 | 225 | (23) a/c | |||||
Regional Operating Statistics:(c) | |||||||||||
Revenue passengers (000) | 2,562 | 580 | 341.7% | 4,077 | 2,837 | 43.7% | |||||
RPMs (000,000) "traffic" | 1,367 | 378 | 261.6% | 2,172 | 1,452 | 49.6% | |||||
ASMs (000,000) "capacity" | 1,802 | 945 | 90.7% | 3,346 | 2,552 | 31.1% | |||||
Load factor | 75.9% | 40.0% | 35.9 pts | 64.9% | 56.9% | 8.0 pts | |||||
Yield | 20.48¢ | 22.12¢ | (7.4)% | 19.95¢ | 22.80¢ | (12.5)% | |||||
RASM | 16.41¢ | 10.63¢ | 54.4% | 13.84¢ | 14.07¢ | (1.6)% | |||||
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 the importance of this measure to investors in the accompanying pages. |
(c) | Data presented includes information for flights operated by Horizon and third-party carriers. |
(d) | Excludes all aircraft removed from operating service. |
Given the unusual nature of 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2021 to 2019.
FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited) | |||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||
2021 | 2019 | Change | 2021 | 2019 | Change | ||||||||||||||||
Passenger revenue | $ | 1,352 | $ | 2,111 | (36) | % | $ | 2,011 | $ | 3,827 | (47) | % | |||||||||
Mileage plan other revenue | 118 | 118 | — | % | 212 | 228 | (7) | % | |||||||||||||
Cargo and other | 57 | 59 | (3) | % | 101 | 109 | (7) | % | |||||||||||||
Total operating revenues | $ | 1,527 | $ | 2,288 | (33) | % | $ | 2,324 | $ | 4,164 | (44) | % | |||||||||
Operating expense, excluding fuel and special items | $ | 1,234 | $ | 1,414 | (13) | % | $ | 2,371 | $ | 2,819 | (16) | % | |||||||||
Economic fuel | 274 | 502 | (45) | % | 477 | 922 | (48) | % | |||||||||||||
Special items | (530) | 8 | NM | (912) | 34 | NM | |||||||||||||||
Total operating expenses | $ | 978 | $ | 1,924 | (49) | % | $ | 1,936 | $ | 3,775 | (49) | % | |||||||||
Consolidated Operating Statistics(a): | |||||||||||||||||||||
Revenue passengers (000) | 8,712 | 12,026 | (28) | % | 13,379 | 22,442 | (40) | % | |||||||||||||
RPMs (000,000) "traffic" | 10,334 | 14,638 | (29) | % | 15,727 | 27,087 | (42) | % | |||||||||||||
ASMs (000,000) "capacity" | 13,413 | 16,980 | (21) | % | 23,810 | 32,487 | (27) | % | |||||||||||||
Load Factor | 77.0% | 86.2% | (9.2) | pts | 66.1% | 83.4% | (17.3) | pts | |||||||||||||
Yield | 13.09¢ | 14.43¢ | (9) | % | 12.79¢ | 14.13¢ | (9) | % | |||||||||||||
RASM | 11.38¢ | 13.48¢ | (16) | % | 9.76¢ | 12.82¢ | (24) | % | |||||||||||||
CASMex | 9.20¢ | 8.33¢ | 10 | % | 9.95¢ | 8.68¢ | 15 | % | |||||||||||||
FTEs | 19,001 | 21,921 | (13) | % | 18,071 | 21,876 | (17) | % | |||||||||||||
(a) | 2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our second quarter 2019 Form 10-Q |
OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group | Special | Consolidated | ||||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 1,072 | $ | 280 | $ | — | $ | — | $ | 1,352 | $ | — | $ | 1,352 | |||||||||||||
CPA revenues | — | — | 111 | (111) | — | — | — | ||||||||||||||||||||
Mileage Plan other revenue | 102 | 16 | — | — | 118 | — | 118 | ||||||||||||||||||||
Cargo and other | 55 | — | — | 2 | 57 | — | 57 | ||||||||||||||||||||
Total Operating Revenues | 1,229 | 296 | 111 | (109) | 1,527 | — | 1,527 | ||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 984 | 286 | 91 | (127) | 1,234 | (530) | 704 | ||||||||||||||||||||
Economic fuel | 253 | 66 | — | 1 | 320 | (46) | 274 | ||||||||||||||||||||
Total Operating Expenses | 1,237 | 352 | 91 | (126) | 1,554 | (576) | 978 | ||||||||||||||||||||
Nonoperating Income (Expense) | |||||||||||||||||||||||||||
Interest income | 6 | — | — | — | 6 | — | 6 | ||||||||||||||||||||
Interest expense | (34) | — | (5) | — | (39) | — | (39) | ||||||||||||||||||||
Interest capitalized | 3 | — | — | — | 3 | — | 3 | ||||||||||||||||||||
Other - net | 9 | — | — | — | 9 | — | 9 | ||||||||||||||||||||
Total Nonoperating Expense | (16) | — | (5) | — | (21) | — | (21) | ||||||||||||||||||||
Income (Loss) Before Income Tax | $ | (24) | $ | (56) | $ | 15 | $ | 17 | $ | (48) | $ | 576 | $ | 528 | |||||||||||||
Three Months Ended June 30, 2020 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group | Special | Consolidated | ||||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 225 | $ | 84 | $ | — | $ | — | $ | 309 | $ | — | $ | 309 | |||||||||||||
CPA revenues | — | — | 81 | (81) | — | — | — | ||||||||||||||||||||
Mileage Plan other revenue | 56 | 17 | — | — | 73 | — | 73 | ||||||||||||||||||||
Cargo and other | 39 | — | — | — | 39 | — | 39 | ||||||||||||||||||||
Total Operating Revenues | 320 | 101 | 81 | (81) | 421 | — | 421 | ||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 746 | 210 | 68 | (82) | 942 | (292) | 650 | ||||||||||||||||||||
Economic fuel | 45 | 20 | — | — | 65 | (6) | 59 | ||||||||||||||||||||
Total Operating Expenses | 791 | 230 | 68 | (82) | 1,007 | (298) | 709 | ||||||||||||||||||||
Nonoperating Income (Expense) | |||||||||||||||||||||||||||
Interest income | 11 | — | — | (4) | 7 | — | 7 | ||||||||||||||||||||
Interest expense | (18) | — | (5) | 6 | (17) | — | (17) | ||||||||||||||||||||
Interest capitalized | 1 | — | — | — | 1 | — | 1 | ||||||||||||||||||||
Other - net | 6 | — | — | — | 6 | — | 6 | ||||||||||||||||||||
Total Nonoperating Income (Expense) | — | — | (5) | 2 | (3) | — | (3) | ||||||||||||||||||||
Income (Loss) Before Income Tax | $ | (471) | $ | (129) | $ | 8 | $ | 3 | $ | (589) | $ | 298 | $ | (291) | |||||||||||||
Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group | Special | Consolidated | ||||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 1,578 | $ | 433 | $ | — | $ | — | $ | 2,011 | $ | — | $ | 2,011 | |||||||||||||
CPA revenues | — | — | 215 | (215) | — | — | — | ||||||||||||||||||||
Mileage Plan other revenue | 182 | 30 | — | — | 212 | — | 212 | ||||||||||||||||||||
Cargo and other | 99 | — | — | 2 | 101 | — | 101 | ||||||||||||||||||||
Total Operating Revenues | 1,859 | 463 | 215 | (213) | 2,324 | — | 2,324 | ||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,877 | 551 | 179 | (236) | 2,371 | (912) | 1,459 | ||||||||||||||||||||
Economic fuel | 427 | 118 | — | — | 545 | (68) | 477 | ||||||||||||||||||||
Total Operating Expenses | 2,304 | 669 | 179 | (236) | 2,916 | (980) | 1,936 | ||||||||||||||||||||
Nonoperating Income (Expense) | |||||||||||||||||||||||||||
Interest income | 13 | — | — | — | 13 | — | 13 | ||||||||||||||||||||
Interest expense | (61) | — | (10) | — | (71) | — | (71) | ||||||||||||||||||||
Interest capitalized | 6 | — | — | — | 6 | — | 6 | ||||||||||||||||||||
Other - net | 19 | — | — | — | 19 | — | 19 | ||||||||||||||||||||
Total Nonoperating Expense | (23) | — | (10) | — | (33) | — | (33) | ||||||||||||||||||||
Income (Loss) Before Income Tax | $ | (468) | $ | (206) | $ | 26 | $ | 23 | $ | (625) | $ | 980 | $ | 355 | |||||||||||||
Six Months Ended June 30, 2020 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating | Air Group | Special | Consolidated | ||||||||||||||||||||
Operating Revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 1,459 | $ | 331 | $ | — | $ | — | $ | 1,790 | $ | — | $ | 1,790 | |||||||||||||
CPA revenues | — | — | 186 | (186) | — | — | — | ||||||||||||||||||||
Mileage Plan other revenue | 154 | 28 | — | — | 182 | — | 182 | ||||||||||||||||||||
Cargo and other | 83 | — | — | 2 | 85 | — | 85 | ||||||||||||||||||||
Total Operating Revenues | 1,696 | 359 | 186 | (184) | 2,057 | — | 2,057 | ||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,905 | 479 | 160 | (192) | 2,352 | (129) | 2,223 | ||||||||||||||||||||
Economic fuel | 358 | 82 | — | — | 440 | 3 | 443 | ||||||||||||||||||||
Total Operating Expenses | 2,263 | 561 | 160 | (192) | 2,792 | (126) | 2,666 | ||||||||||||||||||||
Nonoperating Income (Expense) | |||||||||||||||||||||||||||
Interest income | 25 | — | — | (9) | 16 | — | 16 | ||||||||||||||||||||
Interest expense | (30) | — | (10) | 10 | (30) | — | (30) | ||||||||||||||||||||
Interest capitalized | 4 | — | — | — | 4 | — | 4 | ||||||||||||||||||||
Other - net | 12 | — | — | (1) | 11 | — | 11 | ||||||||||||||||||||
Total Nonoperating Income (Expense) | 11 | — | (10) | — | 1 | — | 1 | ||||||||||||||||||||
Income (Loss) Before Income Tax | $ | (556) | $ | (202) | $ | 16 | $ | 8 | $ | (734) | $ | 126 | $ | (608) | |||||||||||||
(a) | Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units. |
(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) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
CASM Excluding Fuel and Special Items Reconciliation | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||
Consolidated: | |||||||||||
CASM | 7.29 | ¢ | 16.46 | ¢ | 8.13 | ¢ | 13.59 | ¢ | |||
Less the following components: | |||||||||||
Payroll support program wage offset (benefit) | (3.75) | (8.40) | (3.84) | (1.85) | |||||||
Aircraft fuel, including hedging gains and losses | 2.04 | 1.37 | 2.00 | 2.26 | |||||||
Special items - impairment charges and other(a) | (0.03) | 1.60 | 0.07 | 1.17 | |||||||
Special items - restructuring charges(b) | (0.17) | — | (0.05) | — | |||||||
Special items - merger-related costs | — | 0.02 | — | 0.01 | |||||||
CASM excluding fuel and special items | 9.20 | ¢ | 21.87 | ¢ | 9.95 | ¢ | 12.00 | ¢ | |||
Mainline: | |||||||||||
CASM | 6.24 | ¢ | 15.79 | ¢ | 6.72 | ¢ | 12.39 | ¢ | |||
Less the following components: | |||||||||||
Payroll support program wage offset (benefit) | (3.79) | (9.69) | (4.21) | (1.91) | |||||||
Aircraft fuel, including hedging gains and losses | 1.78 | 1.16 | 1.75 | 2.12 | |||||||
Special items - impairment charges and other(a) | (0.03) | 2.11 | 0.07 | 0.99 | |||||||
Special items - restructuring charges(b) | (0.20) | — | (0.06) | — | |||||||
Special items - merger-related costs | — | 0.02 | — | 0.02 | |||||||
CASM excluding fuel and special items | 8.48 | ¢ | 22.19 | ¢ | 9.17 | ¢ | 11.17 | ¢ | |||
(a) | Special items - impairment charges and other in the three and six months ended June 30, 2021 are primarily comprised of updated estimates of cost associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned to the lessor. |
(b) | Special items - restructuring charges in the three and six months ended June 30, 2021 represent adjustments to total cost for pilot incentive leaves as a result of updated recall timing from what was previously anticipated due to schedule changes, training limitations and other factors. |
Fuel Reconciliation | |||||||||||||||
Three Months Ended June 30, | |||||||||||||||
2021 | 2020 | ||||||||||||||
(in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 330 | $ | 1.96 | $ | 60 | $ | 1.11 | |||||||
Losses (gains) on settled hedges | (10) | (0.06) | 5 | 0.09 | |||||||||||
Consolidated economic fuel expense | 320 | 1.90 | 65 | 1.20 | |||||||||||
Mark-to-market fuel hedge adjustment | (46) | (0.27) | (6) | (0.11) | |||||||||||
GAAP fuel expense | $ | 274 | $ | 1.63 | $ | 59 | $ | 1.09 | |||||||
Fuel gallons | 168 | 54 | |||||||||||||
Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 552 | $ | 1.87 | $ | 430 | $ | 1.73 | |||||||
Losses (gains) on settled hedges | (7) | (0.02) | 10 | 0.04 | |||||||||||
Consolidated economic fuel expense | $ | 545 | $ | 1.85 | $ | 440 | $ | 1.77 | |||||||
Mark-to-market fuel hedge adjustment | (68) | (0.23) | 3 | 0.01 | |||||||||||
GAAP fuel expense | $ | 477 | $ | 1.62 | $ | 443 | $ | 1.78 | |||||||
Fuel gallons | 294 | 248 | |||||||||||||
Debt-to-capitalization, adjusted for operating leases | |||||||
(in millions) | June 30, 2021 | December 31, 2020 | |||||
Long-term debt, net of current portion | $ | 2,319 | $ | 2,357 | |||
Capitalized operating leases | 1,485 | 1,558 | |||||
COVID-19 related borrowings(a) | 425 | 734 | |||||
Adjusted debt, net of current portion of long-term debt | 4,229 | 4,649 | |||||
Shareholders' equity | 3,324 | 2,988 | |||||
Total Invested Capital | $ | 7,553 | $ | 7,637 | |||
Debt-to-capitalization ratio, including operating leases | 56 | % | 61 | % | |||
(a) | To best reflect our leverage we included the remaining short-term borrowings stemming from the COVID-19 pandemic which are classified as current liabilities in the consolidated balance sheets. |
Adjusted net debt to earnings before interest, taxes, depreciation, amortization and special items | |||||||
(in millions) | June 30, 2021 | December 31, 2020 | |||||
Current portion of long-term debt | $ | 869 | $ | 1,138 | |||
Current portion of operating lease liabilities | 263 | 290 | |||||
Long-term debt, net of current portion | 2,319 | 2,357 | |||||
Long-term operating lease liabilities, net of current portion | 1,222 | 1,268 | |||||
Total adjusted debt | 4,673 | 5,053 | |||||
Less: Cash and marketable securities | (3,951) | (3,346) | |||||
Adjusted net debt | $ | 722 | $ | 1,707 | |||
(in millions) | Twelve Months Ended | Twelve Months Ended | |||||
GAAP Operating Loss(a) | $ | (778) | $ | (1,775) | |||
Adjusted for: | |||||||
Payroll Support Program grant wage offset and special items | (712) | 71 | |||||
Mark-to-market fuel hedge adjustments | (79) | (8) | |||||
Depreciation and amortization | 400 | 420 | |||||
Aircraft rent | 268 | 299 | |||||
EBITDAR | $ | (901) | $ | (993) | |||
Adjusted net debt to EBITDAR | (0.8x) | (1.7x) | |||||
(a) | Operating loss can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC. |
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 other items as specified in our plan documents) is an important metric 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 Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.
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 Alaska Air Group