Alaska Air Group delivers record-breaking second quarter 2022 results

Thu, 21 Jul 2022 06:00:00 -0400 | PRNewswire

Content Section

Generated record quarterly revenues of $2.7 billion on improved operational performance; flew record load factor of 88% reflecting strong demand

SEATTLE, July 21, 2022 /PRNewswire/ -- Alaska Air Group (NYSE:ALK) today announced another quarter of improvement in its financial results for the second quarter ending June 30, 2022, and provided outlook for the third quarter ending Sept. 30, 2022.

"It's clear that travel is one of the things people have missed the most these past two years. They are excited to fly again and our team is delivering on the safe, reliable and caring experience they expect from us," said CEO Ben Minicucci. "Revenue in June topped $1 billion, the highest single month in our history. Our 14% adjusted pretax margin in Q2 is near the top of the industry, and our operation is on track in June with the #1 on-time performance and a schedule completion rate over 99%. I'm feeling so much gratitude for the people of Alaska, Horizon and McGee for pulling together. We have a strong platform for growth in 2023 and a lot to be optimistic about."

Financial Results for the Second Quarter:
  • Reported net income for the second quarter of 2022 under Generally Accepted Accounting Principles (GAAP) of $139 million, or $1.09 per share, compared to a net income of $397 million, or $3.13 per share, in the second quarter of 2021.
  • Reported net income for the second quarter of 2022, excluding special items and mark-to-market fuel hedge accounting adjustments, of $280 million, or $2.19 per share, compared to a net loss, excluding special items and mark-to-market fuel hedge accounting adjustments, of $38 million, or $0.30 per share, in the second quarter of 2021.
  • Reported adjusted pretax margin for the second quarter of 14%.
  • Recorded $2.7 billion in operating revenues for the second quarter, the highest revenue-generating quarter in company history.
Balance Sheet and Liquidity:
  • Generated $948 million in operating cash flow for the second quarter, inclusive of $231 million in net federal income tax refunds.
  • Held $3.4 billion in unrestricted cash and marketable securities as of June 30, 2022.
  • Maintained a debt-to-capitalization ratio of 50% as of June 30, 2022, within our target range of 40% to 50%.
Operational Updates and Milestones for the Second Quarter:
  • Flew a record load factor for the quarter of 88%, driven by high demand on reduced capacity.
  • Led the industry in on-time performance for the month of June, meeting our commitment to operational reliability.
  • Received nine Boeing 737-9 aircraft in the second quarter, bringing the total number of 737-9s in our mainline fleet to 28.
  • Ratified new contracts with Alaska Airlines dispatchers and Horizon Air aircraft technicians and fleet service agents; and reached a tentative agreement with Alaska Airlines IAM represented employees.
  • Expanded pilot training throughput by 20% from April, and added 100 active mainline pilots in the second quarter.
  • Began nonstop service to Miami and Cleveland from Seattle, bringing the total nonstop destinations served from Seattle to 100.
  • Launched $8 flat rate satellite Wi-Fi on mainline aircraft in partnership with Intelsat.
Awards and Employee Recognition:
  • Ranked as one of America's Best Employers for Diversity by Forbes, recognizing our commitment to increasing diverse leadership representation and equity initiatives.
  • Named the Best Major Airline in North America by the Airline Passenger Experience Association, highlighting Alaska's inflight experience.
  • Recognized the company's workforce for their relentless commitment to caring for our guests for 90 years by giving each employee 90,000 miles redeemable for travel anywhere in the world.
Second Quarter Environmental, Social and Governance Updates:
  • Released our 2021 Care Report, highlighting the company's progress in various environmental, social and governance areas and outlining ongoing initiatives and future goals.
  • Signed agreement with Aemetis to purchase 13 million gallons of sustainable aviation fuel to be delivered over the seven-year term of the agreement.
  • Subsequent to quarter end, announced a partnership with Microsoft and Twelve, a carbon transformation technology company, to advance the availability of sustainable aviation fuels.
  • Scored 100% in our first year participating in Disability:IN's Disability Equality Index, which benchmarks companies on their disability inclusion and equality.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2022, and 2021 to adjusted amounts.



Three Months Ended June 30,



2022



2021

(in millions, except per-share amounts)

Dollars



Diluted EPS



Dollars



Diluted EPS

GAAP net income per share

$               139



$              1.09



$               397



$              3.13

Payroll Support Program grant wage offset





(503)



(3.97)

Mark-to-market fuel hedge adjustments

40



0.31



(46)



(0.36)

Special items - fleet transition and related charges(a)

146



1.14



(4)



(0.03)

Special items - restructuring charges(b)





(23)



(0.18)

Income tax effect of reconciling items above

(45)



(0.35)



141



1.11

Non-GAAP adjusted net income (loss) per share

$               280



$              2.19



$               (38)



$            (0.30)



















Six Months Ended June 30,



2022



2021

(in millions, except per-share amounts)

Dollars



Diluted EPS



Dollars



Diluted EPS

GAAP net income (loss) per share

$                  (4)



$            (0.03)



$               266



$              2.10

Payroll support program grant wage offset





(914)



(7.23)

Mark-to-market fuel hedge adjustments

(67)



(0.53)



(68)



(0.54)

Special items - fleet transition and related charges(a)

221



1.75



14



0.11

Special items - restructuring charges(b)





(12)



(0.09)

Income tax effect of reconciling items above

(37)



(0.30)



240



1.90

Non-GAAP adjusted net income (loss) per share

$               113



$              0.89



$             (474)



$            (3.75)





(a)   

Special items - fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023.





(b)   

Special items - restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves.

 

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.

Alaska will hold its quarterly conference call to discuss second quarter results at 8:30 a.m. PDT on July 21, 2022. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.

Third Quarter and Full Year 2022 Outlook





Q3 Expectation(a)

Capacity (ASMs) % change versus 2019(a)



Down 5% to 8%

Revenue passengers % change versus 2019(a)



Down 8% to 10%

Passenger load factor



85% to 88%

Total revenue % change versus 2019(a)



Up 16% to 19%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2019(a)



Up 16% to 19%

Economic fuel cost per gallon



$3.79 to $3.89

Non-operating expense



$2 million to $4 million

Adjusted tax rate



24% to 25%





(a)

Due to the unusual nature of 2021 and 2020, all 2022 comparisons are versus the third quarter of 2019.

 

For full year 2022, we expect our capacity to be down 8% to 9% versus 2019, and expect our CASMex to be up 15% to 17% versus 2019. We continue to expect our full year adjusted pre-tax margin to be between 6% and 9%.

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, Section 21E of the Securities Exchange Act of 1934, 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 our forward-looking statements, assumptions or beliefs. 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, 2021. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. 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 made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.

Alaska Airlines and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We emphasize Next-Level Care for our guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of the oneworld global alliance. With the alliance and our additional airline 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 news.alaskair.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)

2022



2021



Change



2022



2021



Change

Operating Revenues























Passenger revenue

$        2,418



$        1,352



79 %



$        3,929



$        2,011



95 %

Mileage Plan other revenue

175



118



48 %



287



212



35 %

Cargo and other

65



57



14 %



123



101



22 %

Total Operating Revenues

2,658



1,527



74 %



4,339



2,324



87 %

























Operating Expenses























Wages and benefits

639



510



25 %



1,245



1,003



24 %

Variable incentive pay

56



34



65 %



92



67



37 %

Payroll Support Program grant wage offset



(503)



NM





(914)



NM

Aircraft fuel, including hedging gains and losses

776



274



183 %



1,123



477



135 %

Aircraft maintenance

104



102



2 %



239



183



31 %

Aircraft rent

73



62



18 %



146



124



18 %

Landing fees and other rentals

136



144



(6) %



274



273



— %

Contracted services

82



54



52 %



160



105



52 %

Selling expenses

78



41



90 %



136



74



84 %

Depreciation and amortization

104



98



6 %



206



195



6 %

Food and beverage service

50



35



43 %



91



58



57 %

Third-party regional carrier expense

50



37



35 %



92



67



37 %

Other

177



117



51 %



329



222



48 %

Special items - fleet transition and related charges

146



(4)



NM



221



14



NM

Special items - restructuring charges



(23)

.

NM





(12)



NM

Total Operating Expenses

2,471



978



153 %



4,354



1,936



125 %

Operating Income (Loss)

187



549



(66) %



(15)



388



(104) %

Non-operating Income (Expense)























Interest income

11



6



100 %



18



13



38 %

Interest expense

(26)



(39)



(33) %



(53)



(71)



(25) %

Interest capitalized

3



3



7 %



5



6



(17) %

Other - net

10



9



10 %



24



19



25 %

Total Non-operating Income (Expense)

(2)



(21)



(90) %



(6)



(33)



(82) %

Income (Loss) Before Income Tax

185



528







(21)



355





Income tax expense (benefit)

46



131







(17)



89





Net Income (Loss)

$           139



$           397







$              (4)



$           266





























Basic Earnings (Loss) Per Share

$          1.10



$          3.18







$        (0.03)



$          2.13





Diluted Earnings (Loss) Per Share

$          1.09



$          3.13







$        (0.03)



$          2.10





























Shares used for computation:























Basic

126.543



124.977







126.265



124.640





Diluted

127.795



126.825







126.265



126.388





 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)







Alaska Air Group, Inc.















(in millions)

June 30, 2022



December 31, 2021

ASSETS







Current Assets







Cash and cash equivalents

$                            778



$                            470

Marketable securities

2,647



2,646

   Total cash and marketable securities

3,425



3,116

Receivables - net

401



546

Inventories and supplies - net

93



62

Prepaid expenses and other current assets

313



196

Total Current Assets

4,232



3,920









Property and Equipment







Aircraft and other flight equipment

8,569



8,127

Other property and equipment

1,532



1,489

Deposits for future flight equipment

292



384



10,393



10,000

Less accumulated depreciation and amortization

3,922



3,862

Total Property and Equipment - Net

6,471



6,138









Other Assets







Operating lease assets

1,669



1,453

Goodwill and intangible assets

2,041



2,044

Other noncurrent assets

387



396

Other Assets

4,097



3,893









Total Assets

$                      14,800



$                      13,951

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)







Alaska Air Group, Inc.















(in millions, except share amounts)

June 30, 2022



December 31, 2021

LIABILITIES AND SHAREHOLDERS' EQUITY







Current Liabilities







Accounts payable

$                            286



$                            200

Accrued wages, vacation and payroll taxes

416



457

Air traffic liability

1,778



1,163

Other accrued liabilities

794



625

Deferred revenue

1,012



912

Current portion of operating lease liabilities

274



268

Current portion of long-term debt

342



366

Total Current Liabilities

4,902



3,991









Long-Term Debt, Net of Current Portion

1,961



2,173









Noncurrent Liabilities







Long-term operating lease liabilities, net of current portion

1,505



1,279

Deferred income taxes

552



578

Deferred revenue

1,429



1,446

Obligation for pension and postretirement medical benefits

299



305

Other liabilities

353



378

Total Noncurrent Liabilities

4,138



3,986









Commitments and Contingencies















Shareholders' Equity







Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding



Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,109,649 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,759,705 shares; 2021 - 125,905,864 shares

1



1

Capital in excess of par value

542



494

Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares

(674)



(674)

Accumulated other comprehensive loss

(308)



(262)

Retained earnings

4,238



4,242



3,799



3,801

Total Liabilities and Shareholders' Equity

$                      14,800



$                      13,951

 

SUMMARY CASH FLOW (unaudited)











Alaska Air Group, Inc.











(in millions)

Six Months

Ended

June 30, 2022



Three Months Ended

March 31,

2022(a)



Three Months Ended

June 30,

2022(b)

Cash Flows from Operating Activities:











Net income (loss)

$                           (4)



$                      (143)



$                        139

Non-cash reconciling items

447



182



265

Changes in working capital

792



248



544

Net cash provided by (used in) operating activities

1,235



287



948













Cash Flows from Investing Activities:











Property and equipment additions

(632)



(288)



(344)

Other investing activities

(89)



327



(416)

Net cash provided by (used in) investing activities

(721)



39



(760)













Cash Flows from Financing Activities:

(206)



(168)



(38)













Net increase (decrease) in cash and cash equivalents

308



158



150

Cash, cash equivalents, and restricted cash at beginning of period

494



494



652

Cash, cash equivalents, and restricted cash at end of the period

$                        802



$                        652



$                        802





(a) 

As reported in Form 10-Q for the first quarter of 2022.

(b)

Cash flows for the three months ended June 30, 2022, can be calculated by subtracting cash flows for the three months ended March 31,

2022, as reported in Form 10-Q for the first quarter 2022, from the six months ended June 30, 2022.





 

OPERATING STATISTICS SUMMARY (unaudited)













Alaska Air Group, Inc.

















































Three Months Ended June 30,



Six Months Ended June 30,



2022



2021



Change



2022



2021



Change

Consolidated Operating Statistics:(a)























Revenue passengers (000)

11,005



8,712



26.3 %



19,700



13,379



47.2 %

RPMs (000,000) "traffic"

13,746



10,334



33.0 %



24,332



15,727



54.7 %

ASMs (000,000) "capacity"

15,611



13,413



16.4 %



29,394



23,810



23.5 %

Load factor

88.1 %



77.0 %



11.1 pts



82.8 %



66.1 %



16.7 pts

Yield

17.59¢



13.09¢



34.4 %



16.15¢



12.79¢



26.3 %

RASM

17.03¢



11.38¢



49.6 %



14.76¢



9.76¢



51.2 %

CASMex(b)

9.92¢



9.20¢



7.8 %



10.24¢



9.95¢



2.9 %

Economic fuel cost per gallon(b)

$3.76



$1.90



97.9 %



$3.23



$1.85



74.6 %

Fuel gallons (000,000)

196



168



16.7 %



368



294



25.2 %

ASMs per gallon

79.6



79.8



(0.3) %



79.9



81.0



(1.4) %

Average full-time equivalent employees (FTEs)

22,603



19,001



19.0 %



22,092



18,071



22.3 %

Mainline Operating Statistics:























Revenue passengers (000)

8,321



6,151



35.3 %



14,887



9,302



60.0 %

RPMs (000,000) "traffic"

12,460



8,966



39.0 %



21,972



13,555



62.1 %

ASMs (000,000) "capacity"

14,052



11,611



21.0 %



26,439



20,464



29.2 %

Load factor

88.7 %



77.2 %



11.5 pts



83.1 %



66.2 %



16.9 pts

Yield

16.28¢



11.96¢



36.1 %



14.89¢



11.64¢



27.9 %

RASM

16.02¢



10.59¢



51.3 %



13.81¢



9.09¢



51.9 %

CASMex(b)

8.98¢



8.48¢



5.9 %



9.29¢



9.17¢



1.3 %

Economic fuel cost per gallon(b)

$3.74



$1.88



98.9 %



$3.21



$1.84



74.4 %

Fuel gallons (000,000)

165



135



22.2 %



311



233



33.5 %

ASMs per gallon

85.2



86.0



(0.9) %



85.0



87.8



(3.2) %

Average number of FTEs

17,315



14,021



23.5 %



16,825



13,247



27.0 %

Aircraft utilization

10.1



9.9



2.0 %



9.8



9.2



6.5 %

Average aircraft stage length

1,363



1,320



3.3 %



1,349



1,313



2.7 %

Operating fleet(d)

233



202



31 a/c



233



202



31 a/c

Regional Operating Statistics:(c)























Revenue passengers (000)

2,685



2,562



4.8 %



4,813



4,077



18.1 %

RPMs (000,000) "traffic"

1,285



1,367



(6.0) %



2,360



2,172



8.7 %

ASMs (000,000) "capacity"

1,559



1,802



(13.5) %



2,955



3,346



(11.7) %

Load factor

82.4 %



75.9 %



6.5 pts



79.9 %



64.9 %



15.0 pts

Yield

30.35¢



20.48¢



48.2 %



27.88¢



19.95¢



39.7 %

RASM

26.04¢



16.41¢



58.7 %



23.21¢



13.84¢



67.7 %

Operating fleet(d)

104



94



10 a/c



104



94



10 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 2021 and 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 2022 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)

Alaska Air Group, Inc.

















































Three Months Ended June 30,



Six Months Ended June 30,



2022



2019



Change



2022



2019



Change

Passenger revenue

$        2,418



$        2,111



15 %



$        3,929



$        3,827



3 %

Mileage plan other revenue

175



118



48 %



287



228



26 %

Cargo and other

65



59



10 %



123



109



13 %

Total Operating Revenues

2,658



2,288



16 %



4,339



4,164



4 %

























Operating expenses, excluding fuel and special items

1,549



1,414



10 %



3,010



2,819



7 %

Aircraft fuel, including hedging gains and losses

776



502



55 %



1,123



922



22 %

Special items

146



8



NM



221



34



NM

Total Operating Expenses

2,471



1,924



28 %



4,354



3,775



15 %

























Total Non-operating Expense

(2)



(13)



(85) %



(6)



(32)



(81) %

Income (Loss) Before Income Tax

$            185



$            351



(47) %



$            (21)



$            357



(106) %

























Consolidated Operating Statistics:























Revenue passengers (000)

11,005



12,026



(8) %



19,700



22,442



(12) %

RPMs (000,000) "traffic"

13,746



14,638



(6) %



24,332



27,087



(10) %

ASMs (000,000) "capacity"

15,611



16,980



(8) %



29,394



32,487



(10) %

Load Factor

88.1 %



86.2 %



         1.9 pts



82.8 %



83.4 %



       (0.6) pts

Yield

17.59¢



14.43¢



22 %



16.15¢



14.13¢



14 %

RASM

17.03¢



13.48¢



26 %



14.76¢



12.82¢



15 %

CASMex

9.92¢



8.33¢



19 %



10.24¢



8.68¢



18 %

FTEs

22,603



21,921



3 %



22,092



21,876



1 %

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

























































Three Months Ended June 30, 2022

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$     2,028



$        390



$          —



$                  —



$     2,418



$          —



$        2,418

CPA revenues





101



(101)







Mileage Plan other revenue

159



16







175





175

Cargo and other

64







1



65





65

Total Operating Revenues

2,251



406



101



(100)



2,658





2,658

Operating Expenses



























Operating expenses, excluding fuel

1,262



289



98



(100)



1,549



146



1,695

Fuel expense

617



119







736



40



776

Total Operating Expenses

1,879



408



98



(100)



2,285



186



2,471

Non-operating Income (Expense)

3





(5)





(2)





(2)

Income (Loss) Before Income Tax

$        375



$           (2)



$           (2)



$                  —



$        371



$       (186)



$           185

Pretax Margin

















14.0 %







7.0 %































Three Months Ended June 30, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



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

Fuel expense

253



66





1



320



(46)



274

Total Operating Expenses

1,237



352



91



(126)



1,554



(576)



978

Non-operating Income (Expense)

(16)





(5)





(21)





(21)

Income (Loss) Before Income Tax

$         (24)



$         (56)



$          15



$                  17



$         (48)



$        576



$           528

Pretax Margin

















(3.1) %







34.6 %

 





Six Months Ended June 30, 2022

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$     3,271



$        658



$          —



$                  —



$    3,929



$          —



$        3,929

CPA revenues





195



(195)







Mileage Plan other revenue

259



28







287





287

Cargo and other

121







2



123





123

Total Operating Revenues

3,651



686



195



(193)



4,339





4,339

Operating Expenses



























Operating expenses, excluding fuel

2,456



551



197



(194)



3,010



221



3,231

Fuel expense

998



192







1,190



(67)



1,123

Total Operating Expenses

3,454



743



197



(194)



4,200



154



4,354

Non-operating Income (Expense)

4





(10)





(6)





(6)

Income (Loss) Before Income Tax

$        201



$         (57)



$         (12)



$                    1



$       133



$       (154)



$            (21)

Pretax Margin

















3.1 %







(0.5) %































Six Months Ended June 30, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



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

Fuel expense

427



118







545



(68)



477

Total Operating Expenses

2,304



669



179



(236)



2,916



(980)



1,936

Non-operating Income (Expense)

(23)





(10)





(33)





(33)

Income (Loss) Before Income Tax

$       (468)



$       (206)



$          26



$                  23



$      (625)



$        980



$           355

Pretax Margin

















(26.9) %







15.3 %





(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 grant 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,

(in cents)

2022



2021



2022



2021

Consolidated:















CASM

                15.84 ¢



                  7.29 ¢



                14.81 ¢



                  8.13 ¢

Less the following components:















Payroll Support Program grant wage offset



(3.75)





(3.84)

Aircraft fuel, including hedging gains and losses

4.98



2.04



3.82



2.00

Special items - fleet transition and related charges(a)

0.94



(0.03)



0.75



0.07

Special items - restructuring charges(b)



(0.17)





(0.05)

CASM excluding fuel and special items

                  9.92 ¢



                  9.20 ¢



                10.24 ¢



                  9.95 ¢

















Mainline:















CASM

                15.06 ¢



                  6.24 ¢



                13.69 ¢



                  6.72 ¢

Less the following components:















Payroll Support Program grant wage offset



(3.79)





(4.21)

Aircraft fuel, including hedging gains and losses

5.06



1.78



3.84



1.75

Special items - fleet transition and related charges(a)

1.02



(0.03)



0.56



0.07

Special items - restructuring charges(b)



(0.20)





(0.06)

CASM excluding fuel and special items

                  8.98 ¢



                  8.48 ¢



                  9.29 ¢



                  9.17 ¢





(a)   

Special items - fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023.

(b)   

Special items - restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves.

 

Fuel Reconciliation



Three Months Ended June 30,



2022



2021

(in millions, except for per-gallon amounts)

Dollars



Cost/Gallon



Dollars



Cost/Gallon

Raw or "into-plane" fuel cost

$                   824



$                  4.20



$                   330



$                  1.96

Losses (gains) on settled hedges

(88)



(0.44)



(10)



(0.06)

Consolidated economic fuel expense

736



3.76



320



1.90

Mark-to-market fuel hedge adjustment

40



0.20



(46)



(0.27)

GAAP fuel expense

$                   776



$                  3.96



$                   274



$                  1.63

Fuel gallons





196







168



















Six Months Ended June 30,



2022



2021

(in millions, except for per gallon amounts)

Dollars



Cost/Gallon



Dollars



Cost/Gallon

Raw or "into-plane" fuel cost

$                1,328



$                  3.61



$                   552



$                  1.87

Losses (gains) on settled hedges

(138)



(0.38)



(7)



(0.02)

Consolidated economic fuel expense

1,190



3.23



545



1.85

Mark-to-market fuel hedge adjustment

(67)



(0.18)



(68)



(0.23)

GAAP fuel expense

$                1,123



$                  3.05



$                   477



$                  1.62

Fuel gallons





368







294

 

Debt-to-capitalization, including operating leases

(in millions)

June 30, 2022



December 31, 2021

Long-term debt, net of current portion

$                           1,961



$                            2,173

Long-term and current capitalized operating leases

1,779



1,547

Adjusted debt, net of current portion of long-term debt

3,740



3,720

Shareholders' equity

3,799



3,801

Total Invested Capital

$                           7,539



$                            7,521









Debt-to-capitalization ratio, including operating leases

50 %



49 %

 

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent and special items

(in millions)

June 30, 2022



December 31, 2021

Current portion of long-term debt

$                                   342



$                                   366

Current portion of operating lease liabilities

274



268

Long-term debt

1,961



2,173

Long-term operating lease liabilities, net of current portion

1,505



1,279

Total adjusted debt

4,082



4,086

Less: Total cash and marketable securities

(3,425)



(3,116)

Adjusted net debt

$                                   657



$                                   970









(in millions)

Twelve Months Ended

June 30, 2022



Twelve Months Ended

December 31, 2021

GAAP Operating Income(a)

$                                   282



$                                   685

Adjusted for:







Payroll Support Program grant wage offset and special items

208



(925)

Mark-to-market fuel hedge adjustments

(46)



(47)

Depreciation and amortization

405



394

Aircraft rent

276



254

EBITDAR

$                               1,125



$                                   361

Adjusted net debt to EBITDAR

0.6x



2.7x





(a)

Operating income 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 Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges) from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.





  • Cost per ASM (CASM) excluding fuel and certain special items, such as Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges, 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