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MarketScreener Homepage  >  Equities  >  Nyse  >  Alaska Air Group, Inc.    ALK

ALASKA AIR GROUP, INC.

(ALK)
  Report
Delayed Quote. Delayed Nyse - 11/25 04:10:00 pm
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Alaska Air Group : reports third quarter 2020 results along with COVID-19 updates

10/22/2020 | 08:02am EST

SEATTLE, Oct. 22, 2020 /PRNewswire/ --

Financial Results:

  • Reported net loss for the third quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of $431 million, or $3.49 per diluted share, compared to net income of $322 million, or $2.60 per diluted share in the third quarter of 2019.
  • Reported net loss for the third quarter of 2020, excluding payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $399 million, or $3.23 per diluted share, compared to adjusted net income of $326 million or $2.63 per diluted share, in the third quarter of 2019.
  • Maintained adjusted net debt of $1.7 billion, flat from Dec. 31, 2019. 
  • Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 59%.
  • Held $3.8 billion in unrestricted cash and marketable securities as of Sept. 30, 2020.

Liquidity Updates:

  • Reduced cash burn to approximately $4 million per day in the third quarter from approximately $5 million per day in the second quarter.
  • Obtained nearly $1.2 billion in financing through the issuance of Enhanced Equipment Trust Certificates, secured by 42 Boeing and 19 Embraer aircraft.
  • Reached an agreement with the U.S. Treasury in September to participate in the CARES Act loan program, and drew $135 million in September. The U.S. Treasury advised in October 2020 that the facility will be upsized to $1.9 billion.
  • Held $3.7 billion in cash and marketable securities as of Oct. 21, 2020 and total liquidity of $5.5 billion.

Operational and Guest Safety Updates:

  • Extending blocking of middle seats on mainline aircraft through Jan. 6, 2021.
  • Announced today a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain business air travel.
  • Permanently eliminated change fees and extended the flexible travel policy for all new ticket purchases through Dec. 31, 2020.
  • Launched a partnership with certain healthcare providers to offer rapid and standardized COVID-19 testing for those guests traveling to destinations which require a negative test result.
  • Expanded the company's Next-Level Care initiative, including implementation of new technology to create a touch-free experience for guests and a partnership with essential oils brand EO to provide hand sanitizing wipes onboard.
  • Strengthened face covering policy, requiring all guests over the age of two to wear a cloth mask or face covering at all times onboard.
  • Initiated voluntary early-out and incentive leave programs to our frontline employee workgroups, which were accepted by more than 4,000 employees. As a result, furloughs were limited to approximately 400 employees.
  • Announced 15 new routes during the third quarter, aimed at connecting West Coast travelers to key leisure destinations, including Jackson Hole, Wyoming, and Fort Myers, Florida.
  • Received official oneworld invitation on July 23, 2020. The company has announced it will officially join the alliance on March 31, 2021.

Alaska Air Group Inc. today reported third quarter 2020 GAAP net loss of $431 million, or $3.49 per diluted share, compared to net income of $322 million, or $2.60 per diluted share in the third quarter of 2019. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported adjusted net loss of $399 million, or $3.23 per diluted share, compared to adjusted net income of $326 million, or $2.63 per diluted share in 2019.

"We are gaining momentum as we climb our way out of this crisis," said Air Group CEO Brad Tilden. "Each of the last six months has been better than the month before in terms of flights offered and passengers carried, and to date, we've kept our net debt unchanged. Alaska has competitive advantages that continue to serve us well in this crisis, and we are fighting this battle with the most passionate and dedicated employees in the business."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (diluted EPS) for the three and nine months ended Sept. 30, 2020 and 2019 to adjusted amounts.


Three Months Ended September 30,


2020


2019

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) and diluted EPS

$

(431)



$

(3.49)



$

322



$

2.60


Payroll support program wage offset

(398)



(3.22)






Mark-to-market fuel hedge adjustments

(3)



(0.02)






Special items - merger-related costs

1



0.01



5



0.04


Special items - impairment charges and other

121



0.98






Special items - restructuring charges

322



2.60






Income tax effect of reconciling items above

(11)



(0.09)



(1)



(0.01)


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

$

(399)



$

(3.23)



$

326



$

2.63











Nine Months Ended September 30,


2020


2019

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) and diluted EPS

$

(877)



$

(7.12)



$

588



$

4.74


Payroll support program wage offset

(760)



(6.16)






Mark-to-market fuel hedge adjustments





(1)



(0.01)


Special items - merger-related costs

5



0.04



39



0.31


Special items - impairment charges and other

350



2.84






Special items - restructuring charges

322



2.61






Income tax effect of reconciling items above

20



0.16



(9)



(0.07)


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

$

(940)



$

(7.63)



$

617



$

4.97


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 Oct. 22, 2020. 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 news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements.  For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, the Company's Quarterly Report on Form 10-Q for the year ended June 30, 2020, as amended, 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, changes in laws and regulations, and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. 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 115 destinations across the United States and North America, providing essential air service for our guests along with moving crucial cargo shipments, such as food, medicine, mail and e-commerce deliveries. With hubs in Seattle; San Francisco; Los Angeles; Portland, Oregon; and Anchorage, Alaska, the airline is known for low fares, award-winning customer service and sustainability efforts. With Alaska and its Global Partners, guests can earn and redeem miles on flights to more than 800 destinations worldwide. Learn 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)

2020


2019


Change


2020


2019


Change

Operating Revenues:












Passenger revenue

$

572



$

2,211



(74)

%


$

2,362



$

6,038



(61)

%

Mileage Plan other revenue

84



118



(29)

%


266



346



(23)

%

Cargo and other

45



60



(25)

%


130



169



(23)

%

Total Operating Revenues

701



2,389



(71)

%


2,758



6,553



(58)

%

Operating Expenses:












Wages and benefits

495



608



(19)

%


1,579



1,732



(9)

%

Payroll support program wage offset

(398)





NM



(760)





NM


Variable incentive pay

42



46



(9)

%


65



125



(48)

%

Aircraft fuel, including hedging gains and losses

125



486



(74)

%


568



1,408



(60)

%

Aircraft maintenance

84



106



(21)

%


244



341



(28)

%

Aircraft rent

74



82



(10)

%


229



247



(7)

%

Landing fees and other rentals

109



143



(24)

%


323



388



(17)

%

Contracted services

36



72



(50)

%


138



214



(36)

%

Selling expenses

24



77



(69)

%


83



236



(65)

%

Depreciation and amortization

105



106



(1)

%


320



317



1

%

Food and beverage service

14



57



(75)

%


70



159



(56)

%

Third-party regional carrier expense

29



42



(31)

%


92



125



(26)

%

Other

89



137



(35)

%


310



411



(25)

%

Special items - merger-related costs

1



5



(80)

%


5



39



(87)

%

Special items - impairment charges and other

121





NM



350





NM


Special items - restructuring charges

322




.

NM



322





NM


Total Operating Expenses

1,272



1,967



(35)

%


3,938



5,742



(31)

%

Operating Income (Loss)

(571)



422



(235)

%


(1,180)



811



(245)

%

Nonoperating Income (Expense):












Interest income

7



11



(36)

%


23



31



(26)

%

Interest expense

(34)



(18)



89

%


(64)



(60)



7

%

Interest capitalized

4



4



%


8



11



(27)

%

Other - net

5



(3)



(267)

%


16



(20)



(180)

%

Total Nonoperating Income (Expense)

(18)



(6)



200

%


(17)



(38)



(55)

%

Income (Loss) Before Income Tax

(589)



416





(1,197)



773




Income tax (benefit) expense

(158)



94





(320)



185




Net Income (Loss)

$

(431)



$

322





$

(877)



$

588
















Basic Earnings (Loss) Per Share:

$

(3.49)



$

2.61





$

(7.12)



$

4.76




Diluted Earnings (Loss) Per Share:

$

(3.49)



$

2.60





$

(7.12)



$

4.74
















Shares Used for Computation:












Basic

123.647



123.280





123.255



123.330




Diluted

123.647



124.067





123.255



124.051
















Cash dividend declared per share:

$



$

0.35





$

0.375



$

1.05




 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.








(in millions)

September 30, 2020


December 31, 2019

Cash and marketable securities

$

3,759



$

1,521


Other current assets

706



516


Current assets

4,465



2,037


Property and equipment - net

6,381



6,902


Operating lease assets

1,516



1,711


Goodwill

1,943



1,943


Intangible assets - net

107



122


Other assets

337



278


Total assets

14,749



12,993






Air traffic liability

1,071



900


Current portion of long-term debt

1,150



235


Current portion of operating lease liabilities

283



269


Other current liabilities

1,703



1,797


Current liabilities

4,207



3,201


Long-term debt

2,672



1,264


Long-term operating lease liabilities

1,320



1,439


Other liabilities and credits

3,096



2,758


Shareholders' equity

3,454



4,331


Total liabilities and shareholders' equity

$

14,749



$

12,993






Debt-to-capitalization ratio, including operating leases

59

%


41

%





Number of common shares outstanding

123.661



123.000



SUMMARY CASH FLOW (unaudited)
Alaska Air Group, Inc.

The Company believes that cash burn is an important metric to investors in evaluating the Company's ability to maintain liquidity and manage cash on hand. We define cash burn as all cash flows, excluding the impact of any CARES Act funding or proceeds from new borrowings, one-time vendor advances, plus net activities from marketable securities.

Our daily cash burn for the three and nine months ended September 30, 2020, is reconciled from our statement of cash flows as follows:

(in millions)

Nine Months Ended
September 30, 2020


Six Months Ended
June 30, 2020(a)


Three Months Ended
September 30, 2
020(b)

Net cash provided by (used in) operating activities

$

116



$

321



$

(205)


Less: Payroll support program grant

(753)



(723)



(30)


Adjusted net cash used in operating activities

(637)



(402)



(235)


Net cash used in investing activities

(767)



(124)



(643)


Net cash provided by financing activities

2,286



1,091



1,195


Adjusted net increase in cash, cash equivalents and restricted cash

882



565



317








Adjusted to remove:






Payroll support program note and equity

298



284



14


CARES Act loan program and equity

135





135


Net secured debt issuances(c)

1,724



589



1,135


Net credit facility draws (payments)(d)

363



393



(30)


Net marketable security activity(e)

(593)



(5)



(588)


Advance vendor rebate(f)

50





50


Total adjustments

1,977



1,261



716








Adjusted cash burn

$

(1,095)



$

(696)



$

(399)


Days in the period

274



182



92


Average daily cash burn

$

(4)



$

(4)



$

(4)



(a)

As reported in Form 10-Q for the second quarter 2020.

(b)

Cash burn for the three months ended September 30, 2020, can be calculated by subtracting cash flows for the six months ended June 30, 2020, as previously reported in Form 10-Q for the second quarter 2020, from the nine months ended September 30, 2020.

(c)

Secured debt issuances are presented net of related issuance costs and collateral-based prepayments.

(d)

Credit facility draws are presented net of collateral-based prepayments.

(e) 

Net marketable security activity represents net purchases and sales activity of marketable securities, plus any unrealized gains or losses on outstanding securities.

(f) 

In the third quarter of 2020, the Company received an advance payment of a vendor rebate. This rebate will be recognized into earnings  over the next 12 month period.

 

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

























Three Months Ended September 30,


Nine Months Ended September 30,


2020


2019


Change


2020


2019


Change

Consolidated Operating Statistics:(a)












Revenue passengers (000)

3,595


12,574


(71.4)%


14,012


35,018


(60.0)%

RPMs (000,000) "traffic"

3,817


15,026


(74.6)%


16,127


42,113


(61.7)%

ASMs (000,000) "capacity"

7,871


17,519


(55.1)%


27,483


50,006


(45.0)%

Load factor

48.5%


85.8%


(37.3) pts


58.7%


84.2%


(25.5) pts

Yield

14.99¢


14.71¢


1.9%


14.65¢


14.34¢


2.1%

RASM

8.90¢


13.64¢


(34.8)%


10.04¢


13.10¢


(23.4)%

CASMex(b)

14.00¢


8.43¢


66.1%


12.57¢


8.59¢


46.3%

Economic fuel cost per gallon(b)

$1.32


$2.13


(38.0)%


$1.65


$2.18


(24.3)%

Fuel gallons (000,000)

97


227


(57.4)%


344


646


(46.7)%

ASM's per gallon

81.3


77.2


5.3%


79.9


77.4


3.2%

Average number of full-time equivalent employees (FTE)

16,027


22,247


(28.0)%


18,112


22,000


(17.7)%

Mainline Operating Statistics:












Revenue passengers (000)

2,156


9,655


(77.7)%


9,736


26,725


(63.6)%

RPMs (000,000) "traffic"

2,958


13,538


(78.2)%


13,816


37,917


(63.6)%

ASMs (000,000) "capacity"

6,280


15,702


(60.0)%


23,339


44,816


(47.9)%

Load factor

47.1%


86.2%


(39.1) pts


59.2%


84.6%


(25.4) pts

Yield

13.56¢


13.66¢


(0.7)%


13.46¢


13.29¢


1.3%

RASM

8.14¢


12.83¢


(36.6)%


9.46¢


12.30¢


(23.1)%

CASMex(b)

13.88¢


7.81¢


77.7%


11.90¢


7.91¢


50.4%

Economic fuel cost per gallon(b)

$1.31


$2.13


(38.5)%


$1.66


$2.17


(23.5)%

Fuel gallons (000,000)

69


193


(64.2)%


270


549


(50.8)%

ASM's per gallon

91.0


81.4


11.8%


86.4


81.6


5.9%

Average number of FTE's

12,032


16,789


(28.3)%


13,730


16,599


(17.3)%

Aircraft utilization

7.3


11.3


(35.4)%


8.3


10.9


(23.9)%

Average aircraft stage length

1,244


1,281


(2.9)%


1,263


1,298


(2.7)%

Operating fleet(d)

217


238


(21) a/c


217


238


(21) a/c

Regional Operating Statistics:(c)












Revenue passengers (000)

1,439


2,919


(50.7)%


4,276


8,293


(48.4)%

RPMs (000,000) "traffic"

859


1,488


(42.3)%


2,311


4,196


(44.9)%

ASMs (000,000) "capacity"

1,592


1,817


(12.4)%


4,143


5,190


(20.2)%

Load factor

54.0%


81.9%


(27.9) pts


55.8%


80.8%


(25.0) pts

Yield

19.89¢


24.23¢


(17.9)%


21.72¢


23.81¢


(8.8)%

RASM

11.91¢


20.51¢


(41.9)%


13.24¢


19.93¢


(33.6)%

Operating fleet

94


94


— a/c


94


94


— a/c


(a) 

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

(b) 

See a reconciliation of this non-GAAP measure and Note A for a discussion of 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 20 Airbus aircraft permanently parked in the first nine months of 2020.

 

OPERATING SEGMENTS (unaudited)


Alaska Air Group, Inc.

















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)








Three Months Ended September 30, 2019

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

1,850



$

361



$



$



$

2,211



$



$

2,211


CPA revenues





112



(112)








Mileage Plan other revenue

107



11







118





118


Cargo and other

58



1





1



60





60


Total Operating Revenues

2,015



373



112



(111)



2,389





2,389


Operating Expenses














Operating expenses, excluding fuel

1,226



275



94



(119)



1,476



5



1,481


Economic fuel

411



75







486





486


Total Operating Expenses

1,637



350



94



(119)



1,962



5



1,967


Nonoperating Income (Expense)














Interest income

17







(6)



11





11


Interest expense

(18)





(7)



7



(18)





(18)


Interest capitalized

4









4





4


Other - net

(3)









(3)





(3)


Total Nonoperating Income (Expense)





(7)



1



(6)





(6)


Income (Loss) Before Income Tax

$

378



$

23



$

11



$

9



$

421



$

(5)



$

416































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



(288)



3,454



(83)



3,371


Economic fuel

448



120







568





568


Total Operating Expenses

3,225



847



238



(288)



4,022



(83)



3,939


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



$

9



$

(1,281)



$

83



$

(1,198)































Nine Months Ended September 30, 2019

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(a)


Air Group
Adjusted(b)


Special
Items(c)


Consolidated

Operating Revenues














Passenger revenues

$

5,039



$

999



$



$



$

6,038



$



$

6,038


CPA revenues





340



(340)








Mileage Plan other revenue

312



34







346





346


Cargo and other

163



2



1



3



169





169


Total Operating Revenues

5,514



1,035



341



(337)



6,553





6,553


Operating Expenses














Operating expenses, excluding fuel

3,545



817



286



(353)



4,295



39



4,334


Economic fuel

1,191



218







1,409



(1)



1,408


Total Operating Expenses

4,736



1,035



286



(353)



5,704



38



5,742


Nonoperating Income (Expense)














Interest income

50







(19)



31





31


Interest expense

(58)





(22)



20



(60)





(60)


Interest capitalized

11









11





11


Other - net

(20)









(20)





(20)


Total Nonoperating Income (Expense)

(17)





(22)



1



(38)





(38)


Income (Loss) Before Income Tax

$

761



$



$

33



$

17



$

811



$

(38)



$

773



























































(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,


2020


2019


2020


2019

Consolidated:








CASM

16.16

¢


11.23

¢


14.33

¢


11.48

¢

Less the following components:








Payroll support program wage offset

(5.06)





(2.77)




Aircraft fuel, including hedging gains and losses

1.59



2.77



2.07



2.82


Special items - merger-related costs

0.01



0.03



0.02



0.08


Special items - impairment charges and other(a)

1.53





1.27




Special items - restructuring charges(b)

4.09





1.17




CASM excluding fuel and special items

14.00

¢


8.43

¢


12.57

¢


8.59

¢









Mainline:








CASM

16.80

¢


10.46

¢


13.56

¢


10.65

¢

Less the following components:








Payroll support program wage offset

(5.56)





(2.89)




Aircraft fuel, including hedging gains and losses

1.43



2.62



1.92



2.65


Special items - merger-related costs

0.02



0.03



0.02



0.09


Special items - impairment charges and other(a)

1.93





1.24




Special items - restructuring charges(b)

5.10





1.37




CASM excluding fuel and special items

13.88

¢


7.81

¢


11.90

¢


7.91

¢


(a)

Special items - impairment charges and other in the nine months ended September 30, 2020 are primarily comprised of impairment charges for those Airbus aircraft which are expected to be retired prior to the end of their originally anticipated useful life, costs to return impaired leased aircraft, and the write-down of our owned Q400 fleet to fair value.

(b) 

Special items - restructuring charges, are comprised of costs for certain payments and ongoing benefits coverage offered to those employees accepting furlough mitigation programs, as well as costs for involuntary furloughs and management reductions.

 

Fuel Reconciliation


Three Months Ended September 30,


2020


2019

(in millions, except for per-gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or "into-plane" fuel cost

$

123



$

1.27



$

481



$

2.11


Losses on settled hedges

5



0.05



5



0.02


Consolidated economic fuel expense

128



1.32



486



2.13


Mark-to-market fuel hedge adjustment

(3)



(0.03)






GAAP fuel expense

$

125



$

1.29



$

486



$

2.13


Fuel gallons

97





227













Nine Months Ended September 30,


2020


2019

(in millions, except for per gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or "into-plane" fuel cost

$

553



$

1.61



$

1,397



$

2.16


Losses on settled hedges

15



0.04



12



0.02


Consolidated economic fuel expense

$

568



$

1.65



$

1,409



$

2.18


Mark-to-market fuel hedge adjustment





(1)




GAAP fuel expense

$

568



$

1.65



$

1,408



$

2.18


Fuel gallons

344





646




 

Debt-to-capitalization, adjusted for operating leases

(in millions)

September 30, 2020


December 31, 2019

Long-term debt

$

2,672



$

1,264


Capitalized operating leases

1,603



1,708


COVID-19 related borrowings(a)

769




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

5,044



2,972


Shareholders' equity

3,454



4,331


Total Invested Capital

$

8,498



$

7,303






Debt-to-capitalization ratio, including operating leases

59

%


41

%


(a)

To best reflect our leverage at September 30, 2020, we included the short-term borrowings stemming from the COVID-19 pandemic in our above calculation.

 

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

(in millions)

September 30, 2020


December 31, 2019

Current portion of long-term debt

$

1,150



$

235


Current portion of operating lease liabilities

283



269


Long-term debt

2,672



1,264


Long-term operating lease liabilities

1,320



1,439


Total adjusted debt

5,425



3,207


Less: Cash and marketable securities

(3,759)



(1,521)


Adjusted net debt

$

1,666



$

1,686






(in millions)

Last Twelve Months
Ended September 30,
2020


Last Twelve Months
Ended December 31,
2019

GAAP Operating Income (Loss)(a)

$

(928)



$

1,063


Adjusted for:




Special items

(78)



44


Mark-to-market fuel hedge adjustments

(5)



(6)


Depreciation and amortization

426



423


Aircraft rent

313



331


EBITDAR

$

(272)



$

1,855






Adjusted net debt to EBITDAR

(6.1x)



0.9x



(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 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 CASM excluding fuel (and other items as specified in our plan documents) are important metrics 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, SkyWest and PenAir. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir 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
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SOURCE Alaska Air Group


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