Alaska Air Group reports third quarter 2021 results

Thu, 21 Oct 2021 06:00:00 -0400 | PRNewswire

SEATTLE, Oct. 21, 2021 /PRNewswire/ -- Alaska Air Group (NYSE:ALK) today reported financial results for its third quarter ending Sept. 30, 2021, and provided outlook for the fourth quarter ending Dec. 31, 2021.

The third quarter marks a significant stride forward in Alaska Air Group's path to recovery. Alaska's goal from the beginning of the pandemic has been deliberate - scaling the business back up in a measured way, leveraging the company's strong balance sheet, and running a resilient operation, all with the aim of producing consistent industry-leading financial performance.

"We are thrilled to return to profitability this quarter, leading the industry with a 12% pretax profit margin," said CEO Ben Minicucci. "Thanks to each one of our employees for running our operation and showing remarkable care for our guests, and credit to the leadership team for laying out a measured plan and executing it with discipline. We're all feeling the momentum and look forward to building on our strong foundation for growth in 2022 and beyond."

Financial Results:

  • Reported net income for the third quarter of 2021 under Generally Accepted Accounting Principles (GAAP) of $194 million, or $1.53 per share, compared to a net loss of $431 million, or $3.49 per share in the third quarter of 2020.
  • Reported net income for the third quarter of 2021, excluding special items and mark-to-market fuel hedge accounting adjustments, of $187 million, or $1.47 per share, compared to an adjusted net loss of $399 million or $3.23 per share, in the third quarter of 2020. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.30 per share.
  • Generated adjusted pre-tax margin for the third quarter of 2021 of 12%.
  • Reported a debt-to-capitalization ratio of 51%, a reduction of 10 points from Dec. 31, 2020.
  • Made a $100 million voluntary contribution to the defined benefit plan for Alaska's pilots in the third quarter, boosting estimated combined funded status of all defined benefit plans to 94%.
  • Held $3.2 billion in unrestricted cash and marketable securities as of Sept. 30, 2021.
  • Prepaid $425 million in debt from the 364-day term loan facility, bringing total debt payments to $1.2 billion for the year.

Operational Updates:

  • Exercised options for 12 Boeing 737-9 aircraft slated for delivery in 2023 and 2024, and added options for an additional 25 deliveries, bringing Alaska's total firm commitments for 737-9 aircraft to 93 and available options to 52.
  • Ratified amended wage agreement for Horizon Air pilots, represented by the International Brotherhood of Teamsters. 
  • Opened new San Francisco International Airport Lounge with 9,200 square feet of Bay-Area inspired amenities.
  • Announced new nonstop flights between San Francisco and Loreto and Ixtapa/Zihuatanejo, with service slated to begin Dec. 18. Since the onset of the pandemic, approximately 70 new markets have been announced or commenced operation.
  • Resumed and expanded inflight meals, snacks, and drinks in all classes of service.
  • Continued to exceed internal metrics for guest satisfaction, highlighting our commitment to providing our guests a smooth and safe experience throughout their journey.    
  • Near the top of the industry for on-time arrivals and completion rates in the third quarter.

Environmental, Social and Governance Updates:

  • Appointed Adrienne Lofton, vice president of global marketing at Google, to the Company's board of directors.
  • Announced formation of Alaska Star Ventures, an entity created to identify and further technologies that accelerate Alaska Airlines' path to net zero carbon emissions.
  • Supported the Afghan Humanitarian Airlift Mission and the U.S. military by operating Civil Reserve Air Fleet flights in the evacuation of individuals and families from Afghanistan.
  • Awarded $260,000 in LIFT Grants to 25 nonprofits focused on a clear vision to provide the next generation of leaders with the knowledge, skills and providing pathways for success through the Alaska Airlines Foundation.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and nine months ended Sept. 30, 2021 and 2020 to adjusted amounts.



Three Months Ended September 30,



2021



2020

(in millions, except per-share amounts)

Dollars



Diluted EPS



Dollars



EPS

GAAP net income (loss) per share

$

194





$

1.53





$

(431)





$

(3.49)



Payroll support program wage offset

—





—





(398)





(3.22)



Mark-to-market fuel hedge adjustments

—





—





(3)





(0.02)



Special items - impairment charges and other

(9)





(0.07)





121





0.98



Special items - restructuring charges

—





—





322





2.60



Special items - merger-related costs

—





—





1





0.01



Income tax effect of reconciling items above

2





0.01





(11)





(0.09)



Non-GAAP adjusted net income (loss) per share

$

187





$

1.47





$

(399)





$

(3.23)





















Nine Months Ended September 30,



2021



2020

(in millions, except per-share amounts)

Dollars



Diluted EPS



Dollars



Diluted EPS

GAAP net income (loss) per share

$

460





$

3.64





$

(877)





$

(7.12)



Payroll support program wage offset

(914)





(7.24)





(760)





(6.16)



Mark-to-market fuel hedge adjustments

(68)





(0.54)





—





—



Special items - impairment charges and other

5





0.04





350





2.84



Special items - restructuring charges

(12)





(0.09)





322





2.61



Special items - merger-related costs

—





—





5





0.04



Income tax effect of reconciling items above

242





1.92





20





0.16



Non-GAAP adjusted net loss per share

$

(287)





$

(2.27)





$

(940)





$

(7.63)



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 third quarter results will be streamed online at 8:30 a.m. PDT on October 21, 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 September 30,



Nine Months Ended September 30,

(in millions, except per-share amounts)

2021



2020



Change



2021



2020



Change

Operating Revenues:























Passenger revenue

$

1,774





$

572





210

%



$

3,785





$

2,362





60

%

Mileage Plan other revenue

120





84





43

%



332





266





25

%

Cargo and other

59





45





31

%



160





130





23

%

Total Operating Revenues

1,953





701





179

%



4,277





2,758





55

%

Operating Expenses:























Wages and benefits

578





495





17

%



1,581





1,579





—

%

Payroll support program wage offset

—





(398)





(100)

%



(914)





(760)





20

%

Variable incentive pay

42





42





—

%



109





65





68

%

Aircraft fuel, including hedging gains and losses

376





125





201

%



853





568





50

%

Aircraft maintenance

89





84





6

%



272





244





11

%

Aircraft rent

64





74





(14)

%



188





229





(18)

%

Landing fees and other rentals

141





109





29

%



414





323





28

%

Contracted services

62





36





72

%



167





138





21

%

Selling expenses

49





24





104

%



123





83





48

%

Depreciation and amortization

99





105





(6)

%



294





320





(8)

%

Food and beverage service

39





14





179

%



97





70





39

%

Third-party regional carrier expense

39





29





34

%



106





92





15

%

Other

126





89





42

%



348





310





12

%

Special items - impairment charges and other

(9)





121





(107)

%



5





350





(99)

%

Special items - restructuring charges

—





322



.

(100)

%



(12)





322





(104)

%

Special items - merger-related costs

—





1





(100)

%



—





5





(100)

%

Total Operating Expenses

1,695





1,272





33

%



3,631





3,938





(8)

%

Operating Income (Expense)

258





(571)





(145)

%



646





(1,180)





(155)

%

Nonoperating Income (Expense):























Interest income

6





7





(14)

%



19





23





(17)

%

Interest expense

(30)





(34)





(12)

%



(101)





(64)





58

%

Interest capitalized

3





4





(25)

%



9





8





13

%

Other - net

8





5





60

%



27





16





69

%

Total Nonoperating Expense

(13)





(18)





(28)

%



(46)





(17)





171

%

Income (Loss) Before Income Tax

245





(589)









600





(1,197)







Income tax expense (benefit)

51





(158)









140





(320)







Net Income (Loss)

$

194





$

(431)









$

460





$

(877)































Basic Income (Loss) Per Share:

$

1.55





$

(3.49)









$

3.69





$

(7.12)







Diluted Income (Loss) Per Share:

$

1.53





$

(3.49)









$

3.64





$

(7.12)































Shares Used for Computation:























Basic

125.250





123.647









124.846





123.255







Diluted

127.188





123.647









126.325





123.255































Cash dividend declared per share:

$

—





$

—









$

—





$

0.375































CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)







Alaska Air Group, Inc.























(in millions)

September 30, 2021



December 31, 2020

ASSETS







Current Assets







Cash and cash equivalents

$

495





$

1,370



Marketable securities

2,700





1,976



   Total cash and marketable securities

3,195





3,346



Receivables - net

536





480



Inventories and supplies - net

62





57



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

208





123



Total Current Assets

4,001





4,006











Property and Equipment







Aircraft and other flight equipment

8,076





7,761



Other property and equipment

1,446





1,398



Deposits for future flight equipment

378





583





9,900





9,742



Less accumulated depreciation and amortization

3,780





3,531



Total Property and Equipment - Net

6,120





6,211











Operating lease assets

1,370





1,400



Goodwill

1,943





1,943



Intangible assets - net

102





107



Other noncurrent assets

346





379



Other Assets

3,761





3,829











Total Assets

$

13,882





$

14,046















CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)



(in millions, except share amounts)

September 30, 2021



December 31, 2020

LIABILITIES AND SHAREHOLDERS' EQUITY







Current Liabilities







Accounts payable

$

181





$

108



Accrued wages, vacation and payroll taxes

441





527



Air traffic liability

1,225





1,073



Other accrued liabilities

587





424



Deferred revenue

904





733



Current portion of operating lease liabilities

275





290



Current portion of long-term debt

425





1,138



Total Current Liabilities

4,038





4,293











Long-Term Debt, Net of Current Portion

2,225





2,357











Noncurrent Liabilities







Long-term operating lease liabilities, net of current portion

1,191





1,268



Deferred income taxes

501





407



Deferred revenue

1,446





1,544



Obligation for pension and postretirement medical benefits

558





665



Other liabilities

392





524





4,088





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 - 134,655,235 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,305,291 shares; 2020 - 124,217,590 shares

1





1



Capital in excess of par value

462





391



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

(674)





(674)



Accumulated other comprehensive loss

(482)





(494)



Retained earnings

4,224





3,764





3,531





2,988



Total Liabilities and Shareholders' Equity

$

13,882





$

14,046







































SUMMARY CASH FLOW (unaudited)











Alaska Air Group, Inc.























(in millions)

Nine Months Ended

September 30, 2021



Six Months Ended

June 30, 2021(a)



Three Months Ended

September 30, 2021(b)

Cash Flows from Operating Activities:











Net income

$

460





$

266





$

194



Non-cash reconciling items

322





221





101



Changes in working capital

119





520





(401)



Net cash provided by (used in) operating activities

901





1,007





(106)















Cash Flows from Investing Activities:











Property and equipment additions

(190)





(102)





(88)



Other investing activities

(753)





(968)





215



Net cash provided by (used in) investing activities

(943)





(1,070)





127















Cash Flows from Financing Activities:

(825)





(281)





(544)















Net decrease in cash and cash equivalents

$

(867)





$

(344)





$

(523)



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

1,386





1,386





1,042



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

$

519





$

1,042





$

519







(a) 

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

(b) 

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













OPERATING STATISTICS SUMMARY (unaudited)













Alaska Air Group, Inc.

















































Three Months Ended September 30,



Nine Months Ended September 30,



2021



2020



Change



2021



2020



Change

Consolidated Operating Statistics:(a)























Revenue passengers (000)

9,832



3,595



173.5%



23,211



14,012



65.7%

RPMs (000,000) "traffic"

11,592



3,817



203.7%



27,319



16,127



69.4%

ASMs (000,000) "capacity"

14,429



7,871



83.3%



38,238



27,483



39.1%

Load factor

80.3%



48.5%



31.8 pts



71.4%



58.7%



12.7 pts

Yield

15.30¢



14.99¢



2.1%



13.85¢



14.65¢



(5.5)%

RASM

13.54¢



8.90¢



52.1%



11.19¢



10.04¢



11.5%

CASMex(b)

9.21¢



14.00¢



(34.2)%



9.67¢



12.57¢



(23.1)%

Economic fuel cost per gallon(b)

$2.05



$1.32



55.3%



$1.93



$1.65



17.0%

Fuel gallons (000,000)

183



97



88.7%



477



344



38.7%

ASM's per gallon

78.8



81.3



(3.1)%



80.2



79.9



0.4%

Average number of full-time equivalent employees (FTE)

20,315



16,027



26.8%



18,819



18,112



3.9%

Mainline Operating Statistics:























Revenue passengers (000)

7,065



2,156



227.7%



16,367



9,736



68.1%

RPMs (000,000) "traffic"

10,122



2,958



242.2%



23,677



13,816



71.4%

ASMs (000,000) "capacity"

12,540



6,280



99.7%



33,004



23,339



41.4%

Load factor

80.7%



47.1%



33.6 pts



71.7%



59.2%



12.5 pts

Yield

14.08¢



13.56¢



3.8%



12.68¢



13.46¢



(5.8)%

RASM

12.66¢



8.14¢



55.5%



10.44¢



9.46¢



10.4%

CASMex(b)

8.45¢



13.88¢



(39.1)%



8.90¢



11.90¢



(25.2)%

Economic fuel cost per gallon(b)

$2.03



$1.31



55.0%



$1.91



$1.66



15.1%

Fuel gallons (000,000)

147



69



113.0%



380



270



40.7%

ASM's per gallon

85.3



91.0



(6.3)%



86.9



86.4



0.6%

Average number of FTE's

15,116



12,032



25.6%



13,870



13,730



1.0%

Aircraft utilization

10.2



7.3



39.7%



9.6



8.3



15.7%

Average aircraft stage length

1,313



1,244



5.5%



1,313



1,263



4.0%

Operating fleet(d)

210



217



(7) a/c



210



217



(7) a/c

Regional Operating Statistics:(c)























Revenue passengers (000)

2,767



1,439



92.3%



6,843



4,276



60.0%

RPMs (000,000) "traffic"

1,470



859



71.1%



3,642



2,311



57.6%

ASMs (000,000) "capacity"

1,889



1,592



18.7%



5,235



4,143



26.4%

Load factor

77.8%



54.0%



23.8 pts



69.6%



55.8%



13.8 pts

Yield

23.72¢



19.89¢



19.3%



21.47¢



21.72¢



(1.2)%

RASM

19.26¢



11.91¢



61.7%



15.80¢



13.24¢



19.3%

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 September 30,



Nine Months Ended September 30,



2021



2019



Change



2021



2019



Change

Passenger revenue

$

1,774





$

2,211





(20)

%



$

3,785





$

6,038





(37)

%

Mileage plan other revenue

120





118





2

%



332





346





(4)

%

Cargo and other

59





60





(2)

%



160





169





(5)

%

Total operating revenues

$

1,953





$

2,389





(18)

%



$

4,277





$

6,553





(35)

%

























Operating expense, excluding fuel and special items

$

1,328





$

1,476





(10)

%



$

3,699





$

4,295





(14)

%

Economic fuel

376





486





(23)

%



853





1,408





(39)

%

Special items

(9)





5





(280)

%



(921)





39





NM

Total operating expenses

$

1,695





$

1,967





(14)

%



$

3,631





$

5,742





(37)

%

























Consolidated Operating Statistics(a):























Revenue passengers (000)

9,832





12,574





(22)

%



23,211





35,018





(34)

%

RPMs (000,000) "traffic"

11,592





15,026





(23)

%



27,319





42,113





(35)

%

ASMs (000,000) "capacity"

14,429





17,519





(18)

%



38,238





50,006





(24)

%

Load Factor

80.3%





85.8%





(5.5)

 pts



71.4%





84.2%





(12.8)

 pts

Yield

15.30¢





14.71¢





4

%



13.85¢





14.34¢





(3)

%

RASM

13.54¢





13.64¢





(1)

%



11.19¢





13.10¢





(15)

%

CASMex

9.21¢





8.43¢





9

%



9.67¢





8.59¢





13

%

FTEs

20,315





22,247





(9)

%



18,819





22,000





(14)

%





(a) 

2019 comparative operating statistics have been recalculated using the information presented above, and as filed in our third quarter 2019 Form 10-Q













OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

























































Three Months Ended September 30, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$

1,425





$

349





$

—





$

—





$

1,774





$

—





$

1,774



CPA revenues

—





—





107





(107)





—





—





—



Mileage Plan other revenue

105





15





—





—





120





—





120



Cargo and other

58





—





—





1





59





—





59



Total Operating Revenues

1,588





364





107





(106)





1,953





—





1,953



Operating Expenses



























Operating expenses, excluding fuel

1,060





288





93





(113)





1,328





(9)





1,319



Economic fuel

299





77





—





—





376





—





376



Total Operating Expenses

1,359





365





93





(113)





1,704





(9)





1,695



Nonoperating Income (Expense)



























Interest income

7





—





—





(1)





6





—





6



Interest expense

(25)





—





(6)





1





(30)





—





(30)



Interest capitalized

2





—





—





1





3





—





3



Other - net

8





—





—





—





8





—





8



Total Nonoperating Expense

(8)





—





(6)





1





(13)





—





(13)



Income (Loss) Before Income Tax

$

221





$

(1)





$

8





$

8





$

236





$

9





$

245



































Three Months Ended September 30, 2020

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$

401





$

171





$

—





$

—





$

572





$

—





$

572



CPA revenues

—





—





95





(95)





—





—





—



Mileage Plan other revenue

65





19





—





—





84





—





84



Cargo and other

45





—





—





—





45





—





45



Total Operating Revenues

511





190





95





(95)





701





—





701



Operating Expenses



























Operating expenses, excluding fuel

872





248





78





(97)





1,101





46





1,147



Economic fuel

90





38





—





—





128





(3)





125



Total Operating Expenses

962





286





78





(97)





1,229





43





1,272



Nonoperating Income (Expense)



























Interest income

8





—





—





(1)





7





—





7



Interest expense

(28)





—





(6)





—





(34)





—





(34)



Interest capitalized

4





—





—





—





4





—





4



Other - net

4





—





—





1





5





—





5



Total Nonoperating Income (Expense)

(12)





—





(6)





—





(18)





—





(18)



Income (Loss) Before Income Tax

$

(463)





$

(96)





$

11





$

2





$

(546)





$

(43)





$

(589)









Nine Months Ended September 30, 2021

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$

3,003





$

782





$

—





$

—





$

3,785





$

—





$

3,785



CPA revenues

—





—





322





(322)





—





—





—



Mileage Plan other revenue

287





45





—





—





332





—





332



Cargo and other

157





—





—





3





160





—





160



Total Operating Revenues

3,447





827





322





(319)





4,277





—





4,277



Operating Expenses



























Operating expenses, excluding fuel

2,937





839





272





(349)





3,699





(921)





2,778



Economic fuel

726





195





—





—





921





(68)





853



Total Operating Expenses

3,663





1,034





272





(349)





4,620





(989)





3,631



Nonoperating Income (Expense)



























Interest income

20





—





—





(1)





19





—





19



Interest expense

(86)





—





(16)





1





(101)





—





(101)



Interest capitalized

8





—





—





1





9





—





9



Other - net

27





—





—





—





27





—





27



Total Nonoperating Expense

(31)





—





(16)





1





(46)





—





(46)



Income (Loss) Before Income Tax

$

(247)





$

(207)





$

34





$

31





$

(389)





$

989





$

600



































Nine Months Ended September 30, 2020

(in millions)

Mainline



Regional



Horizon



Consolidating

& Other(a)



Air Group

Adjusted(b)



Special

Items(c)



Consolidated

Operating Revenues



























Passenger revenues

$

1,860





$

502





$

—





$

—





$

2,362





$

—





$

2,362



CPA revenues

—





—





281





(281)





—





—





—



Mileage Plan other revenue

219





47





—





—





266





—





266



Cargo and other

128





—





—





2





130





—





130



Total Operating Revenues

2,207





549





281





(279)





2,758





—





2,758



Operating Expenses



























Operating expenses, excluding fuel

2,777





727





238





(289)





3,453





(83)





3,370



Economic fuel

448





120





—





—





568





—





568



Total Operating Expenses

3,225





847





238





(289)





4,021





(83)





3,938



Nonoperating Income (Expense)



























Interest income

33





—





—





(10)





23





—





23



Interest expense

(58)





—





(16)





10





(64)





—





(64)



Interest capitalized

8





—





—





—





8





—





8



Other - net

16





—





—





—





16





—





16



Total Nonoperating Income (Expense)

(1)





—





(16)





—





(17)





—





(17)



Income (Loss) Before Income Tax

$

(1,019)





$

(298)





$

27





$

10





$

(1,280)





$

83





$

(1,197)







(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

September 30,



Nine Months Ended

September 30,



2021



2020



2021



2020

Consolidated:















CASM

11.75

¢



16.16

¢



9.50

¢



14.33

¢

Less the following components:















Payroll support program wage offset (benefit)

—





(5.06)





(2.39)





(2.77)



Aircraft fuel, including hedging gains and losses

2.60





1.59





2.24





2.07



Special items - impairment charges and other(a)

(0.06)





1.53





0.01





1.27



Special items - restructuring charges(b)

—





4.09





(0.03)





1.17



Special items - merger-related costs

—





0.01





—





0.02



CASM excluding fuel and special items

9.21

¢



14.00

¢



9.67

¢



12.57

¢

















Mainline:















CASM

10.77

¢



16.80

¢



8.26

¢



13.56

¢

Less the following components:















Payroll support program wage offset (benefit)

—





(5.56)





(2.61)





(2.89)



Aircraft fuel, including hedging gains and losses

2.39





1.43





1.99





1.92



Special items - impairment charges and other(a)

(0.07)





1.93





0.02





1.24



Special items - restructuring charges(b)

—





5.10





(0.04)





1.37



Special items - merger-related costs

—





0.02





—





0.02



CASM excluding fuel and special items

8.45

¢



13.88

¢



8.90

¢



11.90

¢





(a)

Special items - impairment charges and other in the three and nine months ended September 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 nine months ended September 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 September 30,



2021



2020

(in millions, except for per-gallon amounts)

Dollars



Cost/Gallon



Dollars



Cost/Gallon

Raw or "into-plane" fuel cost

$

397





$

2.16





$

123





$

1.27



Losses (gains) on settled hedges

(21)





(0.11)





5





0.05



Consolidated economic fuel expense

376





2.05





128





1.32



Mark-to-market fuel hedge adjustment

—





—





(3)





(0.03)



GAAP fuel expense

$

376





$

2.05





$

125





$

1.29



Fuel gallons

183









97



























Nine Months Ended September 30,



2021



2020

(in millions, except for per gallon amounts)

Dollars



Cost/Gallon



Dollars



Cost/Gallon

Raw or "into-plane" fuel cost

$

949





$

1.99





$

553





$

1.61



Losses (gains) on settled hedges

(28)





(0.06)





15





0.04



Consolidated economic fuel expense

$

921





$

1.93





$

568





$

1.65



Mark-to-market fuel hedge adjustment

(68)





(0.14)





—





—



GAAP fuel expense

$

853





$

1.79





$

568





$

1.65



Fuel gallons

477









344











Debt-to-capitalization, adjusted for operating leases



(in millions)

September 30, 2021



December 31, 2020

Long-term debt, net of current portion

$

2,225





$

2,357



Capitalized operating leases

1,466





1,558



COVID-19 related borrowings(a)

—





734



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

3,691





4,649



Shareholders' equity

3,531





2,988



Total Invested Capital

$

7,222





$

7,637











Debt-to-capitalization ratio, including operating leases

51

%



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. As of September 30, 2021, no such borrowings were outstanding.













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



(in millions)

September 30, 2021



December 31, 2020

Current portion of long-term debt

$

425





$

1,138



Current portion of operating lease liabilities

275





290



Long-term debt, net of current portion

2,225





2,357



Long-term operating lease liabilities, net of current portion

1,191





1,268



Total adjusted debt

4,116





5,053



Less: Cash and marketable securities

(3,195)





(3,346)



Adjusted net debt

$

921





$

1,707











(in millions)

Twelve Months Ended

September 30, 2021



Twelve Months Ended

December 31, 2020

GAAP Operating Income (Loss)(a)

$

51





$

(1,775)



Adjusted for:







Payroll Support Program grant wage offset and special items

(767)





71



Mark-to-market fuel hedge adjustments

(76)





(8)



Depreciation and amortization

394





420



Aircraft rent

258





299



EBITDAR

$

(140)





$

(993)











Adjusted net debt to EBITDAR

(6.6x)





(1.7x)







(a)

Operating income (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

 

Cision View original content:https://www.prnewswire.com/news-releases/alaska-air-group-reports-third-quarter-2021-results-301405450.html

SOURCE Alaska Air Group