Alaska Air Group delivers strong fourth quarter 2021 and full-year results

Thu, 27 Jan 2022 07:00:00 -0400 | PRNewswire

SEATTLE, Jan. 27, 2022 /PRNewswire/ -- Alaska Air Group Inc. (NYSE:ALK) today announced another quarter of improvement in its financial results for the fourth quarter and full year ended December 31, 2021, and provided an outlook for the first quarter ending March 31, 2022.

"While recovery in our industry is never linear, our caring and dedicated people and the strength of our competitive advantages position us for success no matter what challenges we face," said CEO Ben Minicucci. "Despite operational disruption from omicron and severe winter weather in December, our fourth quarter adjusted pre-tax margin was 2.4%, marking one of the industry's most profitable performances in Q4 and the second half of the year. We have laid a solid foundation for our return to 100% of our pre-COVID flying by summer 2022 and we're poised to grow from there."

Alaska's fourth quarter and full year 2021 results reflect a disciplined focus on cost management and a measured approach to bringing back capacity in recovery. In addition to delivering profitability in the second half of the year, Alaska's financial performance enabled the company to restore its debt-to-capitalization ratio to pre-pandemic levels in the fourth quarter, priming the airlines for profitable growth in 2022.

Financial Results for the Fourth Quarter and Full Year:

  • Reported net income for the fourth quarter and full year 2021 under Generally Accepted Accounting Principles (GAAP) of $18 million, or $0.14 per diluted share, and $478 million, or $3.77 per diluted share. These results compare to a net loss for the fourth quarter and full year 2020 of $447 million, or $3.60 per share, and $1.3 billion, or $10.72 per share.
  • Reported net income for the fourth quarter and net loss for the full year 2021, excluding special items and mark-to-market fuel hedge accounting adjustments, of $31 million, or $0.24 per diluted share, and $256 million, or $2.03 per share. These results compare to a net loss for the fourth quarter and full year 2020, excluding special items and mark-to-market fuel hedge accounting adjustments, of $316 million, or $2.54 per share, and $1.3 billion, or $10.17 per share.
  • Reported adjusted pre-tax margin for the fourth quarter of 2021 of 2.4%, marking the second profitable quarter on an adjusted basis since the onset of the pandemic.
  • Recorded $42 million and $151 million of incentive pay in the fourth quarter and full year 2021 earned by employees for meeting or exceeding cash flow, cost management, and safety goals, representing approximately three weeks pay for most employees.

Balance Sheet and Liquidity at Year End:

  • Reported a debt-to-capitalization ratio of 49%, a reduction of 12 points from December 31, 2020, and the lowest level since the first quarter of 2020.
  • For the full year, generated $138 million in operating cash flows, net of Payroll Support Program grant funds received.
  • Repaid $112 million in debt in the fourth quarter, bringing total debt payments to $1.3 billion for the year.
  • Held $3.1 billion in unrestricted cash and marketable securities as of December 31, 2021.

Operational Updates and Milestones for the Fourth Quarter:

  • Announced nonstop service between Seattle-Tacoma International Airport and Miami, marking the 100th nonstop destination from Alaska's Seattle hub. 
  • Expanded oneworld partnership with new West Coast international flights between Portland and London Heathrow on British Airways and between Seattle and Helsinki on Finnair. Expanded service will provide Alaska's guests more than 100 nonstop flights on oneworld partners from the West Coast to Europe by summer 2022.
  • Launched new MVP Gold 100k tier for Mileage Plan members, providing enhanced benefits for those traveling 100,000 miles or more in one year.
  • Named the safest U.S. airline by AirlineRatings.com in their annual Top 20 Safest Airline Report.
  • Received four 737-9 aircraft during the quarter, bringing total additions in 2021 to 11.
  • Began nonstop service to Belize from Seattle and Los Angeles in November, marking the fourth country Alaska flies to from its West Coast hubs.

Fourth Quarter Environmental, Social, and Governance Updates:

  • Announced the appointment of Diana Birkett Rakow as senior vice president of public affairs and sustainability, emphasizing Alaska's commitment to protect the places it flies and support the communities it serves.
  • Announced collaboration with ZeroAvia to begin development on a hydrogen-electric powertrain engine capable of flying regional aircraft in excess of 500 nautical miles.
  • Expanded inflight sustainability efforts by trading plastic water bottles and cups for Boxed Water Is Better® plant-based cartons and recyclable paper cups. This change will eliminate an estimated 1.8 million pounds of single-use plastics over the next year.
  • Launched partnership with travel2change, a Hawaii-based social and environmental impact organization that connects travelers with sustainable volunteer projects while visiting Hawaii.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and twelve months ended December 31, 2021 and 2020 to adjusted amounts.



Three Months Ended December 31,



2021



2020

(in millions, except per share amounts)

Dollars



Diluted EPS



Dollars



EPS

Reported GAAP net income (loss) and diluted EPS

$                 18



$             0.14



$             (447)



$            (3.60)

Payroll support program wage offset

—



—



(22)



(0.18)

Mark-to-market fuel hedge adjustments

21



0.16



(8)



(0.06)

Special items - impairment charges and other

(6)



(0.05)



277



2.23

Special items - restructuring charges

2



0.02



(102)



(0.82)

Special items - merger-related costs

—



—



1



0.01

Special items - net non-operating

—



—



26



0.21

Income tax effect on special items and fuel hedge adjustments

(4)



(0.03)



(41)



(0.33)

Non-GAAP adjusted net income (loss) and diluted EPS

$                 31



$             0.24



$             (316)



$            (2.54)







Twelve Months Ended December 31,



2021



2020

(in millions, except per share amounts)

Dollars



Diluted EPS



Dollars



EPS

Reported GAAP net income (loss) and diluted EPS

$              478



$             3.77



$          (1,324)



$          (10.72)

Payroll support program wage offset

(914)



(7.21)



(782)



(6.33)

Mark-to-market fuel hedge adjustments

(47)



(0.37)



(8)



(0.06)

Special items - impairment charges and other

(1)



(0.01)



627



5.08

Special items - restructuring charges

(10)



(0.08)



220



1.78

Special items - merger-related costs

—



—



6



0.05

Special items - net non-operating

—



—



26



0.21

Income tax effect on special items and fuel hedge adjustments

238



1.87



(21)



(0.18)

Non-GAAP adjusted net loss and diluted EPS

$             (256)



$            (2.03)



$          (1,256)



$          (10.17)

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 streamed online at 8:30 a.m. PST on January 27, 2022. 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, the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as well as in other documents filed by the Company with the SEC after the date thereof. 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 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 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 December 31,



Twelve Months Ended December 31,

(in millions, except per share amounts)

2021



2020



Change



2021



2020



Change

Operating Revenues:























Passenger revenues

$        1,715



$           657



161 %



$        5,499



$        3,019



82 %

Mileage Plan other revenues

129



108



19 %



461



374



23 %

Cargo and other

55



43



28 %



216



173



25 %

Total Operating Revenues

1,899



808



135 %



6,176



3,566



73 %

























Operating Expenses:























Wages and benefits

637



474



34 %



2,218



2,053



8 %

Variable incentive pay

42



65



(35) %



151



130



16 %

Payroll support program wage offset

—



(22)



NM



(914)



(782)



17 %

Aircraft fuel, including hedging gains and losses

426



155



175 %



1,279



723



77 %

Aircraft maintenance

92



77



19 %



364



321



13 %

Aircraft rent

66



70



(6) %



254



299



(15) %

Landing fees and other rentals

141



94



50 %



555



417



33 %

Contracted services

68



43



58 %



235



181



30 %

Selling expenses

50



18



178 %



173



101



71 %

Depreciation and amortization

100



100



—  %



394



420



(6) %

Food and beverage service

42



20



110  %



139



90



54 %

Third-party regional carrier expense

41



36



14 %



147



128



15 %

Other

159



97



64 %



507



407



25 %

Special items - impairment charges and other

(6)



277



NM



(1)



627



NM

Special items - restructuring charges

2



(102)



NM



(10)



220



NM

Special items - merger-related costs

—



1



NM



—



6



NM

Total Operating Expenses

1,860



1,403



33 %



5,491



5,341



3 %

Operating Income (Loss)

39



(595)



NM



685



(1,775)



NM

Non-operating Income (Expense):























Interest income

6



8



(25) %



25



31



(19) %

Interest expense

(27)



(34)



(21) %



(128)



(98)



31 %

Interest capitalized

2



3



(33) %



11



11



—  %

Other - net

9



1



NM



36



17



NM

Special charges - net non-operating

—



(26)



NM



—



(26)



NM

Total Non-operating Expense

(10)



(48)



(79) %



(56)



(65)



(14) %

Income (Loss) Before Income Tax

29



(643)







629



(1,840)





Income tax (benefit) expense

11



(196)







151



(516)





Net Income (Loss)

$             18



$          (447)







$           478



$      (1,324)





























Basic Earnings (Loss) Per Share

$          0.14



$        (3.60)







$          3.82



$      (10.72)





Diluted Earnings (Loss) Per Share

$          0.14



$        (3.60)







$          3.77



$      (10.72)





























Shares used for computation:























Basic

125.708



124.013







125.063



123.450





Diluted

127.284



124.013







126.775



123.450





























Cash dividend declared per share

$             —



$             —







$             —



$        0.375





 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)







Alaska Air Group, Inc.















As of December 31 (in millions)

2021



2020

ASSETS







Current Assets







Cash and cash equivalents

$                              470



$                           1,370

Marketable securities

2,646



1,976

   Total cash and marketable securities

3,116



3,346

Receivables - net

546



480

Inventories and supplies - net

62



57

Prepaid expenses, assets held-for-sale, and other current assets

196



123

Total Current Assets

3,920



4,006









Property and Equipment







Aircraft and other flight equipment

8,127



7,761

Other property and equipment

1,489



1,398

Deposits for future flight equipment

384



583



10,000



9,742

Less accumulated depreciation and amortization

3,862



3,531

Total Property and Equipment - Net

6,138



6,211









Operating lease assets

1,453



1,400

Goodwill and intangible assets

2,044



2,050

Other noncurrent assets

396



379

Other Assets

3,893



3,829









Total Assets

$                         13,951



$                         14,046









 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)







Alaska Air Group, Inc.















As of December 31 (in millions)

2021



2020

LIABILITIES AND SHAREHOLDERS' EQUITY







Current Liabilities







Accounts payable

$                            200



$                            108

Accrued wages, vacation and payroll taxes

457



527

Air traffic liability

1,163



1,073

Other accrued liabilities

625



424

Deferred revenue

912



733

Current portion of operating lease liabilities

268



290

Current portion of long-term debt

366



1,138

Total Current Liabilities

3,991



4,293









Long-Term Debt, Net of Current Portion

2,173



2,357









Noncurrent Liabilities







Long-term operating lease liabilities, net of current portion

1,279



1,268

Deferred income taxes

578



407

Deferred revenue

1,446



1,544

Obligation for pension and postretirement medical benefits

305



665

Other liabilities

378



524

 Total Noncurrent Liabilities

3,986



4,408









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: 2021 - 135,255,808 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,905,864 shares; 2020 - 124,217,590 shares

1



1

Capital in excess of par value

494



391

Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares

(674)



(674)

Accumulated other comprehensive loss

(262)



(494)

Retained earnings

4,242



3,764



3,801



2,988

Total Liabilities and Shareholders' Equity

$                      13,951



$                      14,046

 

SUMMARY CASH FLOW (unaudited)











Alaska Air Group, Inc.























(in millions)

Year Ended

December 31, 2021



Nine Months Ended

September 30, 2021(a)



Three Months Ended

December 31, 2021(b)

Cash Flows from Operating Activities:











Net income

$                           478



$                               460



$                                  18

Non-cash reconciling items

434



322



112

Changes in working capital

118



119



(1)

Net cash provided by operating activities

1,030



901



129













Cash Flows from Investing Activities:











Property and equipment additions

(292)



(190)



(102)

Other investing activities

(716)



(753)



37

Net cash used in investing activities

(1,008)



(943)



(65)













Cash Flows used in Financing Activities:

(914)



(825)



(89)













Net decrease in cash and cash equivalents

(892)



(867)



(25)

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

1,386



1,386



519

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

$                           494



$                               519



$                               494













Net cash provided by operating activities

$                        1,030









Payroll support program grant funds received(c)

(892)









Net cash provided by operating activities, ex. PSP grant funds received

$                           138











(a)

As reported in Form 10-Q for the third quarter of 2021.

(b)

Cash flows for the three months ended December 31, 2021, can be calculated by subtracting cash flows for the nine months ended September 30, 2021, as reported in Form 10-Q for the third quarter 2021, from the year ended December 31, 2021.

(c) 

As reported in Note 2 in Form 10-Q for the third quarter of 2021.

 

OPERATING STATISTICS SUMMARY (unaudited)

















Alaska Air Group, Inc.

















































Three Months Ended December 31,



Twelve Months Ended December 31,



2021



2020



Change



2021



2020



Change

Consolidated Operating Statistics:(a)























Revenue passengers (000)

9,196



3,916



134.8%



32,407



17,927



80.8%

RPMs (000,000) "traffic"

11,279



4,366



158.3%



38,598



20,493



88.3%

ASMs (000,000) "capacity"

14,207



9,631



47.5%



52,445



37,114



41.3%

Load factor

79.4%



45.3%



34.1 pts



73.6%



55.2%



18.4 pts

Yield

15.20¢



15.06¢



0.9%



14.25¢



14.73¢



(3.3)%

RASM

13.36¢



8.39¢



59.2%



11.78¢



9.61¢



22.6%

CASMex(b)

10.12¢



11.35¢



(10.8)%



9.80¢



12.25¢



(20.0)%

Economic fuel cost per gallon(b)

$2.26



$1.39



62.6%



$2.02



$1.58



27.8%

Fuel gallons (000,000)

179



117



53.0%



656



461



42.3%

ASMs per gallon

79.4



82.3



(3.6)%



79.9



80.5



(0.7)%

Average full-time equivalent employees (FTEs)

21,043



16,050



31.1%



19,375



17,596



10.1%

Mainline Operating Statistics:























Revenue passengers (000)

6,900



2,545



171.1%



23,268



12,280



89.5%

RPMs (000,000) "traffic"

10,078



3,622



178.2%



33,755



17,438



93.6%

ASMs (000,000) "capacity"

12,737



8,047



58.3%



45,741



31,387



45.7%

Load factor

79.1%



45.0%



34.1 pts



73.8%



55.6%



18.2 pts

Yield

13.97¢



13.54¢



3.2%



13.07¢



13.48¢



(3.0)%

RASM

12.39¢



7.73¢



60.3%



10.99¢



9.01¢



22.0%

CASMex(b)

9.14¢



10.60¢



(13.8)%



8.96¢



11.57¢



(22.6)%

Economic fuel cost per gallon(b)

$2.25



$1.37



64.2%



$2.01



$1.59



26.4%

Fuel gallons (000,000)

150



88



69.7%



530



358



48.0%

ASMs per gallon

84.8



90.9



(6.8)%



86.2



87.7



(1.7)%

Average number of FTEs

15,855



11,665



35.9%



14,366



13,214



8.7%

Aircraft utilization

10.0



8.3



20.5%



9.7



8.3



16.9%

Average aircraft stage length

1,356



1,298



4.5%



1,324



1,272



4.1%

Operating fleet(d)

217



197



20 a/c



217



197



20 a/c

Regional Operating Statistics:(c)























Revenue passengers (000)

2,296



1,371



67.5%



9,139



5,647



61.8%

RPMs (000,000) "traffic"

1,201



744



61.3%



4,842



3,055



58.5%

ASMs (000,000) "capacity"

1,469



1,584



(7.3)%



6,704



5,727



17.1%

Load factor

81.7%



47.0%



34.7 pts



72.2%



53.3%



18.9 pts

Yield

25.57¢



22.47¢



13.8%



22.49¢



21.90¢



2.7%

RASM

21.82¢



11.71¢



86.3%



17.12¢



12.82¢



33.5%

Operating Fleet

94



94



— a/c



94



94



— a/c



(a)

Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)

See a reconciliation of this non-GAAP measure and Note A for a discussion of potential importance of this measure to investors in the accompanying pages.

(c)

Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)

Excludes 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 - 2021 Compared with 2019 (unaudited)

Alaska Air Group, Inc.

















































Three Months Ended December 31,



Year Ended December 31,



2021



2019



Change



2021



2019



Change

Passenger revenues

$        1,715



$        2,057



(17)   %



$        5,499



$        8,095



(32)   %

Mileage plan other revenue

129



119



8    %



461



465



(1)   %

Cargo and other

55



52



6    %



216



221



(2)   %

Total operating revenues

$        1,899



$        2,228



(15)   %



$        6,176



$        8,781



(30)   %

























Operating expense, excluding fuel and special items

$        1,438



$        1,500



(4)   %



$        5,137



$        5,796



(11)   %

Economic fuel

405



476



(15)   %



1,326



1,884



(30)   %

Special items

17



—



NM



(972)



38



NM

Total operating expenses

$        1,860



$        1,976



(6)   %



$        5,491



$        7,718



(29)   %

























Total nonoperating expense

$            (10)



$               (9)



11    %



$            (56)



$            (47)



19    %

Income before income tax

29



243



(88)   %



$            629



$        1,016



(38)   %

























Consolidated Operating Statistics:























Revenue passengers (000)

9,196



11,715



(22)   %



32,407



46,733



(31)   %

RPMs (000,000) "traffic"

11,279



13,928



(19)   %



38,598



56,040



(31)   %

ASMs (000,000) "capacity"

14,207



16,648



(15)   %



52,445



66,654



(21)   %

Load Factor

79.4%



83.7%



       (4.3) pts



73.6%



84.1%



  (10.5) pts

Yield

15.20¢



14.77¢



3    %



14.25¢



14.45¢



(1)   %

RASM

13.36¢



13.38¢



—    %



11.78¢



13.17¢



(11)   %

CASMex

10.12¢



9.01¢



12    %



9.80¢



8.70¢



13    %

FTEs

21,043



22,506



(7)   %



19,375



22,126



(12)   %

 

OPERATING SEGMENTS (unaudited)













Alaska Air Group, Inc.

























































Three Months Ended December 31, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating revenues



























Passenger revenues

$        1,408



$        307



$          —



$                  —



$       1,715



$           —



$        1,715

CPA revenues

—



—



84



(84)



—



—



—

Mileage Plan other revenue

115



14



—



—



129



—



129

Cargo and other

55



—



—



—



55



—



55

Total Operating Revenues

1,578



321



84



(84)



1,899



—



1,899

Operating Expenses



























Non-fuel operating expenses

1,164



258



101



(85)



1,438



(4)



1,434

Fuel expense

339



66



—



—



405



21



426

Total Operating Expenses

1,503



324



101



(85)



1,843



17



1,860

Total Non-operating Income (Expense)

(7)



—



(5)



2



(10)



—



(10)

Income (Loss) Before Income Tax

$             68



$           (3)



$         (22)



$                    3



$            46



$          (17)



$            29

Pre-tax Margin

















2.4     %







1.5     %































Three Months Ended December 31, 2020

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating revenues



























Passenger revenues

$           490



$        167



$          —



$                  —



$          657



$           —



$           657

CPA revenues

—



—



105



(105)



—



—



—

Mileage Plan other revenue

90



18



—



—



108



—



108

Cargo and other

42



—



—



1



43



—



43

Total Operating Revenues

622



185



105



(104)



808



—



808

Operating Expenses



























Non-fuel operating expenses

853



266



85



(110)



1,094



154



1,248

Fuel expense

121



42



—



—



163



(8)



155

Total Operating Expenses

974



308



85



(110)



1,257



146



1,403

Total Non-operating Income (Expense)

(18)



—



(6)



2



(22)



(26)



(48)

Income (Loss) Before Income Tax

$          (370)



$       (123)



$          14



$                    8



$         (471)



$        (172)



$         (643)

Pre-tax Margin

















(58.3)          %







(79.6)          %

 

OPERATING SEGMENTS (unaudited)













Alaska Air Group, Inc.

























































Twelve Months Ended December 31, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating revenues



























Passenger revenues

$        4,411



$     1,088



$          —



$                  —



$       5,499



$           —



$        5,499

CPA revenues

—



—



406



(406)



—



—



—

Mileage Plan other revenue

402



59



—



—



461



—



461

Cargo and other

212



—



—



4



216



—



216

Total Operating Revenues

5,025



1,147



406



(402)



6,176



—



6,176

Operating Expenses



























Non-fuel operating expenses

4,101



1,096



373



(433)



5,137



(925)



4,212

Fuel expense

1,065



261



—



—



1,326



(47)



1,279

Total Operating Expenses

5,166



1,357



373



(433)



6,463



(972)



5,491

Total Non-operating Income (Expense)

(38)



—



(21)



3



(56)



—



(56)

Income (Loss) Before Income Tax

$          (179)



$       (210)



$          12



$                  34



$         (343)



$         972



$           629

Pre-tax Margin

















(5.6) %







10.2 %































Twelve Months Ended December 31, 2020

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating revenues



























Passenger revenues

$        2,350



$        669



$          —



$                  —



$       3,019



$           —



$        3,019

CPA revenues

—



—



386



(386)



—



—



—

Mileage Plan other revenue

309



65



—



—



374



—



374

Cargo and other

170



—



—



3



173



—



173

Total Operating Revenues

2,829



734



386



(383)



3,566



—



3,566

Operating Expenses



























Non-fuel operating expenses

3,630



993



323



(399)



4,547



71



4,618

Fuel expense

569



162



—



—



731



(8)



723

Total Operating Expenses

4,199



1,155



323



(399)



5,278



63



5,341

Total Non-operating Income (Expense)

(19)



—



(22)



2



(39)



(26)



(65)

Income (Loss) Before Income Tax

$       (1,389)



$       (421)



$          41



$                  18



$      (1,751)



$          (89)



$       (1,840)

Pre-tax Margin

















(49.1)          %







(51.6)          %



(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 December 31,



Twelve Months Ended December 31,

(in cents)

2021



2020



2021



2020

Consolidated:















CASM

                  13.09 ¢



                  14.57 ¢



                  10.47 ¢



                  14.39 ¢

Less the following components:















Payroll support program wage offset

—



(0.23)



(1.75)



(2.11)

Aircraft fuel, including hedging gains and losses

3.00



1.61



2.44



1.95

Special items - impairment charges and other(a)

(0.04)



2.89



—



1.69

Special items - restructuring charges(b)

0.01



(1.06)



(0.02)



0.59

Special items - merger-related costs

—



0.01



—



0.02

CASM excluding fuel and special items

                  10.12 ¢



                  11.35  ¢



                    9.80 ¢



                  12.25 ¢

















Mainline:















CASM

                  11.77  ¢



                  14.11  ¢



                    9.52 ¢



                  13.66 ¢

Less the following components:















Payroll support program wage offset

—



(0.07)



(1.75)



(2.17)

Aircraft fuel, including hedging gains and losses

2.66



1.40



2.33



1.79

Special items - impairment charges and other(a)

(0.05)



3.44



—



1.80

Special items - restructuring charges(b)

0.02



(1.27)



(0.02)



0.65

Special items - merger-related costs

—



0.01



—



0.02

CASM excluding fuel and special items

                    9.14 ¢



                  10.60 ¢



                    8.96 ¢



                  11.57  ¢



















(a)

Special items - impairment charges and other in the three and twelve months ended December 31, 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 twelve months ended December 31, 2021 represent adjustments to total estimated 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 December 31,



2021



2020

(in millions, except for per gallon amounts)

Dollars



Cost/Gal



Dollars



Cost/Gal

Raw or "into-plane" fuel cost

$                     434



$                    2.42



$                     159



$                    1.36

Losses (gains) on settled hedges

(29)



(0.16)



4



0.03

Consolidated economic fuel expense

$                     405



$                    2.26



$                     163



$                    1.39

Mark-to-market fuel hedge adjustments

21



0.12



(8)



(0.07)

GAAP fuel expense

$                     426



$                    2.38



$                     155



$                    1.32

Fuel gallons





179







117



















Twelve Months Ended December 31,



2021



2020

(in millions, except for per gallon amounts)

Dollars



Cost/Gal



Dollars



Cost/Gal

Raw or "into-plane" fuel cost

$                  1,383



$                    2.11



$                     713



$                    1.54

Losses (gains) on settled hedges

(57)



(0.09)



18



0.04

Consolidated economic fuel expense

$                  1,326



$                    2.02



$                     731



$                    1.58

Mark-to-market fuel hedge adjustments

(47)



(0.07)



(8)



(0.01)

GAAP fuel expense

$                  1,279



$                    1.95



$                     723



$                    1.57

Fuel gallons





656







461

















Debt-to-capitalization, including operating leases

(in millions)

December 31, 2021



December 31, 2020

Long-term debt, net of current portion

$                              2,173



$                              2,357

Long-term and current capitalized operating leases

1,547



1,558

COVID-19 Related Borrowings(a)

—



734

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

$                              3,720



$                              4,649

Shareholders' equity

3,801



2,988

Total Invested Capital

$                              7,521



$                              7,637









Debt-to-capitalization ratio, including operating leases

49%



61%



(a)

To best reflect our leverage we included the short-term borrowings stemming from the COVID-19 pandemic which are classified as current liabilities in the above calculation. As of December 31, 2021 no such borrowings were outstanding.

 

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

(in millions)

December 31, 2021



December 31, 2020

Current portion of long-term debt

$                                 366



$                              1,138

Current portion of operating lease liabilities

268



290

Long-term debt

2,173



2,357

Long-term operating lease liabilities, net of current portion

1,279



1,268

Total adjusted debt

4,086



5,053

Less: Total cash and marketable securities

(3,116)



(3,346)

Adjusted net debt

$                                 970



$                              1,707









(in millions)

Year Ended December

31, 2021



Year Ended December

31, 2020

GAAP Operating Income (Loss)

$                                 685



$                             (1,775)

Adjusted for:







Payroll Support Program wage offset and special items

(925)



71

Mark-to-market fuel hedge adjustments

(47)



(8)

Depreciation and amortization

394



420

Aircraft rent

254



299

EBITDAR

$                                 361



$                                (993)

Adjusted net debt to EBITDAR

2.7x



(1.7x)

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