Alaska Air : delivers strong fourth quarter 2021 and full-year results - Form 8-K
January 27, 2022 at 06:19 am EST
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Alaska Air Group delivers strong fourth quarter 2021 and full-year results
Achieved adjusted pre-tax margin of 2.4% and debt-to-cap ratio of 49%
SEATTLE - 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.
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•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.
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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
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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).
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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
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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
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.
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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.
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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)
%
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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)
%
10
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.
11
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.
12
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.
13
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)
14
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.
15
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
16
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Alaska Air Group Inc. published this content on 27 January 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 January 2022 11:18:12 UTC.
Alaska Air Group, Inc. is engaged in operating airlines. The Company operates two airlines, Alaska, and Horizon. It also includes McGee Air Services, an aviation services provider. It operates through three segments: Mainline, Regional and Horizon. The Mainline segment includes scheduled air transportation on Alaska's Boeing 737 (B737) aircraft for passengers and cargo throughout the United States, and in parts of Mexico, Costa Rica, Belize, the Bahamas, and Guatemala. The Regional segment includes Horizon's and other third-party carriers scheduled air transportation on Embraer E175 (E175) aircraft for passengers across a shorter distance network within the United States, Canada, and Mexico under capacity purchase agreements (CPA). The Horizon segment includes the capacity sold to Alaska under a CPA. With its regional partners, it flies to more than 120 destinations throughout North America. It provides its guests with global access to more than 900 destinations in 170 territories.