Alaska Air Group reports third quarter 2021 results

SEATTLE - Alaska Air Group (NYSE: ALK) today reported financial results for its third quarter ending September 30, 2021 and provided outlook for the fourth quarter ending December 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 December 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 September 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.
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•Announced new nonstop flights between San Francisco and Loreto and Ixtapa/Zihuatanejo, with service slated to begin December 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.

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The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and nine months ended September 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.

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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).
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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

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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

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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
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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
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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.

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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.

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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 - 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
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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)

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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.

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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.
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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.
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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.

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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.

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GLOSSARY OF TERMS

Adjusted net debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 and Airbus 321neo family jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

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Alaska Air Group Inc. published this content on 21 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 October 2021 10:13:13 UTC.