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Media contact: | Investor/analyst contact: | |
Media Relations | Matt Grady | |
(206) 304-0008 | Director, Investor Relations | |
(206) 392-5382 |
• | Reported net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $217 million, or $1.75 per diluted share, compared to net income of $259 million, or $2.09 per diluted share in the third quarter of 2017. As the company has recently implemented new accounting standards, including the standards relating to revenue recognition and retirement benefits, 2017 financial information has been adjusted. |
• | Reported net income for the third quarter, excluding special items such as merger-related costs and mark-to-market fuel hedge accounting adjustments, of $237 million, or $1.91 per diluted share, compared to $270 million or $2.18 per diluted share, in the third quarter of 2017. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.81 per share. |
• | Paid a $0.32 per-share quarterly cash dividend in the third quarter, a 7% increase over the dividend paid in the third quarter of 2017. |
• | Repurchased a total of 582,942 shares of common stock for approximately $37 million in the first nine months of 2018. |
• | Generated approximately $1 billion of operating cash flow in the first nine months of 2018, including merger-related costs and other special items. |
• | Held $1.4 billion in unrestricted cash and marketable securities as of September 30, 2018. |
• | Reduced debt-to-capitalization ratio to 49% as of September 30, 2018, compared to 53% as of December 31, 2017, and down from 59% immediately following our acquisition of Virgin America. Reduced long-term debt balance to $1.7 billion as of September 30, 2018 from $2.6 billion as of December 31, 2016. |
• | Updated food and beverage menus to highlight West Coast inspired fresh meals, snacks and local craft beers further enhancing the airline's onboard guest experience. |
• | Announced one new route to Columbus, Ohio, which will begin service in March 2019, and two new routes to El Paso, Texas, which will begin service in February 2019. |
• | Began our fleet-wide installation of satellite Wi-Fi, completing three Airbus aircraft during the quarter. |
• | Completed the painting of Alaska livery on 16 Airbus aircraft, and expect to have 33 completed by the end of the year. |
• | Finalized the integrated seniority list for our pilots; all groups except for aircraft technicians are now under a single contract and have an integrated seniority list. |
• | Added three Boeing 737-900ER aircraft to the mainline operating fleet and four Embraer 175 (E175) aircraft to the regional operating fleet in the third quarter of 2018. |
• | Named "Best U.S. Airline" by Condé Nast Traveler in their 2018 Reader's Choice Awards. |
• | Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the second consecutive year, receiving top scores for “corporate governance” and “efficiency.” |
• | Ranked "Best Airline" in the U.S. and Canada by KAYAK. |
• | Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the fourth consecutive year. |
• | Mileage Plan ranked in the top three airlines among traditional and low cost carriers in the 2018 J.D. Power Loyalty Program study. |
• | Ranked among Forbes' 2018 global list for "World's Best Employers" and national list for "America’s Best Employers for New Graduates." |
Three Months Ended September 30, | |||||||||||||||
2018 | 2017(a) | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
GAAP net income and diluted EPS | $ | 217 | $ | 1.75 | $ | 259 | $ | 2.09 | |||||||
Mark-to-market fuel hedge adjustments | 5 | 0.04 | (5 | ) | (0.04 | ) | |||||||||
Special items—merger-related costs | 22 | 0.18 | 23 | 0.19 | |||||||||||
Income tax effect of reconciling items above | (7 | ) | (0.06 | ) | (7 | ) | (0.06 | ) | |||||||
Non-GAAP adjusted net income and diluted EPS | $ | 237 | $ | 1.91 | $ | 270 | $ | 2.18 |
Nine Months Ended September 30, | |||||||||||||||
2018 | 2017(a) | ||||||||||||||
(in millions, except per-share amounts) | Dollars | Diluted EPS | Dollars | Diluted EPS | |||||||||||
GAAP net income and diluted EPS | $ | 414 | $ | 3.34 | $ | 645 | $ | 5.19 | |||||||
Mark-to-market fuel hedge adjustments | (30 | ) | (0.24 | ) | 7 | 0.06 | |||||||||
Special items—employee tax reform bonus | 25 | 0.20 | — | — | |||||||||||
Special items—merger-related costs | 67 | 0.54 | 86 | 0.69 | |||||||||||
Income tax effect of reconciling items above | (15 | ) | (0.12 | ) | (35 | ) | (0.28 | ) | |||||||
Non-GAAP adjusted net income and diluted EPS | $ | 461 | $ | 3.72 | $ | 703 | $ | 5.66 |
(a) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
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) | 2018 | 2017(a) | Change | 2018 | 2017(a) | Change | |||||||||||||||
Operating Revenues: | |||||||||||||||||||||
Passenger revenue | $ | 2,043 | $ | 1,958 | 4 | % | $ | 5,725 | $ | 5,505 | 4 | % | |||||||||
Mileage Plan other revenue | 114 | 105 | 9 | % | 329 | 314 | 5 | % | |||||||||||||
Cargo and other | 55 | 47 | 17 | % | 146 | 133 | 10 | % | |||||||||||||
Total Operating Revenues | 2,212 | 2,110 | 5 | % | 6,200 | 5,952 | 4 | % | |||||||||||||
Operating Expenses: | |||||||||||||||||||||
Wages and benefits | 549 | 477 | 15 | % | 1,629 | 1,397 | 17 | % | |||||||||||||
Variable incentive pay | 27 | 40 | (33 | )% | 104 | 98 | 6 | % | |||||||||||||
Aircraft fuel, including hedging gains and losses | 513 | 368 | 39 | % | 1,397 | 1,051 | 33 | % | |||||||||||||
Aircraft maintenance | 107 | 88 | 22 | % | 320 | 271 | 18 | % | |||||||||||||
Aircraft rent | 82 | 70 | 17 | % | 233 | 204 | 14 | % | |||||||||||||
Landing fees and other rentals | 135 | 124 | 9 | % | 371 | 338 | 10 | % | |||||||||||||
Contracted services | 70 | 76 | (8 | )% | 227 | 234 | (3 | )% | |||||||||||||
Selling expenses | 79 | 92 | (14 | )% | 245 | 277 | (12 | )% | |||||||||||||
Depreciation and amortization | 99 | 95 | 4 | % | 290 | 275 | 5 | % | |||||||||||||
Food and beverage service | 53 | 50 | 6 | % | 158 | 145 | 9 | % | |||||||||||||
Third-party regional carrier expense | 38 | 30 | 27 | % | 114 | 84 | 36 | % | |||||||||||||
Other | 141 | 150 | (6 | )% | 423 | 421 | — | % | |||||||||||||
Special items—merger-related costs | 22 | 23 | (4 | )% | 67 | 86 | (22 | )% | |||||||||||||
Special items—other | — | — | — | % | 25 | — | NM | ||||||||||||||
Total Operating Expenses | 1,915 | 1,683 | 14 | % | 5,603 | 4,881 | 15 | % | |||||||||||||
Operating Income | 297 | 427 | (30 | )% | 597 | 1,071 | (44 | )% | |||||||||||||
Nonoperating Income (Expense): | |||||||||||||||||||||
Interest income | 11 | 9 | 29 | 25 | |||||||||||||||||
Interest expense | (22 | ) | (26 | ) | (71 | ) | (77 | ) | |||||||||||||
Interest capitalized | 5 | 5 | 14 | 13 | |||||||||||||||||
Other—net | (7 | ) | 2 | (20 | ) | 1 | |||||||||||||||
Total Nonoperating Income (Expense) | (13 | ) | (10 | ) | (48 | ) | (38 | ) | |||||||||||||
Income (Loss) Before Income Tax | 284 | 417 | 549 | 1,033 | |||||||||||||||||
Income tax expense | 67 | 158 | 135 | 388 | |||||||||||||||||
Net Income (Loss) | $ | 217 | $ | 259 | $ | 414 | $ | 645 | |||||||||||||
Basic Earnings (Loss) Per Share: | $ | 1.76 | $ | 2.10 | $ | 3.36 | $ | 5.22 | |||||||||||||
Diluted Earnings (Loss) Per Share: | $ | 1.75 | $ | 2.09 | $ | 3.34 | $ | 5.19 | |||||||||||||
Shares Used for Computation: | |||||||||||||||||||||
Basic | 123.224 | 123.467 | 123.216 | 123.501 | |||||||||||||||||
Diluted | 123.864 | 124.220 | 123.804 | 124.341 | |||||||||||||||||
Cash dividend declared per share: | $ | 0.320 | $ | 0.300 | $ | 0.960 | $ | 0.900 |
(a) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | |||||||
Alaska Air Group, Inc. | |||||||
(in millions) | September 30, 2018 | December 31, 2017(a) | |||||
Cash and marketable securities | $ | 1,397 | $ | 1,621 | |||
Total current assets | 2,056 | 2,152 | |||||
Property and equipment—net | 6,495 | 6,284 | |||||
Goodwill | 1,943 | 1,943 | |||||
Intangible assets | 128 | 133 | |||||
Other assets | 271 | 234 | |||||
Total assets | 10,893 | 10,746 | |||||
Air traffic liability | 950 | 806 | |||||
Current portion of long-term debt | 345 | 307 | |||||
Other current liabilities | 1,593 | 1,573 | |||||
Current liabilities | 2,888 | 2,686 | |||||
Long-term debt | 1,684 | 2,262 | |||||
Other liabilities and credits | 2,530 | 2,338 | |||||
Shareholders' equity | 3,791 | 3,460 | |||||
Total liabilities and shareholders' equity | $ | 10,893 | $ | 10,746 | |||
Debt-to-capitalization ratio, adjusted for aircraft operating leases(b) | 49 | % | 53 | % | |||
Number of common shares outstanding | 123.361 | 123.061 |
(a) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
(b) | Calculated using the present value of remaining aircraft lease payments. |
OPERATING STATISTICS SUMMARY (unaudited) | |||||||||||
Alaska Air Group, Inc. | |||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | ||||||
Consolidated Operating Statistics:(a) | |||||||||||
Revenue passengers (000) | 12,128 | 11,639 | 4.2% | 34,685 | 33,038 | 5.0% | |||||
RPMs (000,000) "traffic" | 14,386 | 13,811 | 4.2% | 41,272 | 39,072 | 5.6% | |||||
ASMs (000,000) "capacity" | 16,943 | 16,164 | 4.8% | 49,256 | 46,169 | 6.7% | |||||
Load factor | 84.9% | 85.4% | (0.5) pts | 83.8% | 84.6% | (0.8) pts | |||||
Yield(d) | 14.20¢ | 14.18¢ | 0.1% | 13.87¢ | 14.10¢ | (1.6)% | |||||
RASM(d) | 13.05¢ | 13.06¢ | (0.1)% | 12.59¢ | 12.89¢ | (2.3)% | |||||
CASMex(b)(d) | 8.15¢ | 8.00¢ | 1.9% | 8.35¢ | 8.11¢ | 3.0% | |||||
Economic fuel cost per gallon(b) | $2.33 | $1.80 | 29.4% | $2.26 | $1.76 | 28.4% | |||||
Fuel gallons (000,000) | 218 | 207 | 5.3% | 631 | 592 | 6.6% | |||||
ASM's per gallon | 77.7 | 78.1 | (0.5)% | 78.1 | 78.0 | 0.1% | |||||
Average number of full-time equivalent employees (FTE) | 21,804 | 20,743 | 5.1% | 21,575 | 19,723 | 9.4% | |||||
Mainline Operating Statistics: | |||||||||||
Revenue passengers (000) | 9,435 | 9,136 | 3.3% | 27,107 | 25,850 | 4.9% | |||||
RPMs (000,000) "traffic" | 13,096 | 12,694 | 3.2% | 37,677 | 36,045 | 4.5% | |||||
ASMs (000,000) "capacity" | 15,343 | 14,796 | 3.7% | 44,730 | 42,397 | 5.5% | |||||
Load factor | 85.4% | 85.8% | (0.4) pts | 84.2% | 85.0% | (0.8) pts | |||||
Yield(d) | 13.18¢ | 13.23¢ | (0.4)% | 12.95¢ | 13.13¢ | (1.4)% | |||||
RASM(d) | 12.28¢ | 12.35¢ | (0.6)% | 11.90¢ | 12.19¢ | (2.4)% | |||||
CASMex(b)(d) | 7.34¢ | 7.30¢ | 0.5% | 7.58¢ | 7.34¢ | 3.3% | |||||
Economic fuel cost per gallon(b) | $2.32 | $1.79 | 29.6% | $2.25 | $1.76 | 27.8% | |||||
Fuel gallons (000,000) | 189 | 183 | 3.3% | 549 | 526 | 4.4% | |||||
ASM's per gallon | 81.2 | 80.9 | 0.4% | 81.5 | 80.6 | 1.1% | |||||
Average number of FTE's | 16,499 | 15,862 | 4.0% | 16,330 | 15,439 | 5.8% | |||||
Aircraft utilization | 11.4 | 11.4 | —% | 11.4 | 11.1 | 2.7% | |||||
Average aircraft stage length | 1,291 | 1,300 | (0.7)% | 1,293 | 1,296 | (0.2)% | |||||
Operating fleet | 231 | 218 | 13 a/c | 231 | 218 | 13 a/c | |||||
Regional Operating Statistics:(c) | |||||||||||
Revenue passengers (000) | 2,693 | 2,503 | 7.6% | 7,578 | 7,188 | 5.4% | |||||
RPMs (000,000) "traffic" | 1,290 | 1,117 | 15.5% | 3,595 | 3,027 | 18.8% | |||||
ASMs (000,000) "capacity" | 1,600 | 1,368 | 17.0% | 4,526 | 3,772 | 20.0% | |||||
Load factor | 80.6% | 81.7% | (1.1) pts | 79.4% | 80.2% | (0.8) pts | |||||
Yield(d) | 24.50¢ | 25.15¢ | (2.6)% | 23.49¢ | 25.65¢ | (8.4)% | |||||
RASM(d) | 20.41¢ | 20.61¢ | (1.0)% | 19.32¢ | 20.67¢ | (6.5)% | |||||
Operating fleet | 89 | 83 | 6 a/c | 89 | 83 | 6 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) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
OPERATING SEGMENTS (unaudited) | |||||||||||||||||||||||||||
Alaska Air Group, Inc. | |||||||||||||||||||||||||||
Three Months Ended September 30, 2018 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 1,727 | $ | 316 | $ | — | $ | — | $ | 2,043 | $ | — | $ | 2,043 | |||||||||||||
CPA revenues | — | — | 128 | (128 | ) | — | — | — | |||||||||||||||||||
Mileage Plan other revenue | 104 | 10 | — | — | 114 | — | 114 | ||||||||||||||||||||
Cargo and other | 53 | — | 2 | — | 55 | — | 55 | ||||||||||||||||||||
Total operating revenues | 1,884 | 326 | 130 | (128 | ) | 2,212 | — | 2,212 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,126 | 267 | 118 | (131 | ) | 1,380 | 22 | 1,402 | |||||||||||||||||||
Economic fuel | 438 | 70 | — | — | 508 | 5 | 513 | ||||||||||||||||||||
Total operating expenses | 1,564 | 337 | 118 | (131 | ) | 1,888 | 27 | 1,915 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 15 | — | — | (4 | ) | 11 | — | 11 | |||||||||||||||||||
Interest expense | (20 | ) | — | (6 | ) | 4 | (22 | ) | — | (22 | ) | ||||||||||||||||
Interest capitalized | 4 | — | 1 | — | 5 | — | 5 | ||||||||||||||||||||
Other | (5 | ) | (2 | ) | — | — | (7 | ) | — | (7 | ) | ||||||||||||||||
Total Nonoperating income (expense) | (6 | ) | (2 | ) | (5 | ) | — | (13 | ) | — | (13 | ) | |||||||||||||||
Income (loss) before income tax | $ | 314 | $ | (13 | ) | $ | 7 | $ | 3 | $ | 311 | $ | (27 | ) | $ | 284 |
Three Months Ended September 30, 2017(c) | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 1,677 | $ | 281 | $ | — | $ | — | $ | 1,958 | $ | — | $ | 1,958 | |||||||||||||
CPA revenues | — | — | 112 | (112 | ) | — | — | — | |||||||||||||||||||
Mileage Plan other revenue | 97 | 8 | — | — | 105 | — | 105 | ||||||||||||||||||||
Cargo and other | 46 | — | 1 | — | 47 | — | 47 | ||||||||||||||||||||
Total operating revenues | 1,820 | 289 | 113 | (112 | ) | 2,110 | — | 2,110 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 1,081 | 219 | 104 | (112 | ) | 1,292 | 23 | 1,315 | |||||||||||||||||||
Economic fuel | 328 | 45 | — | — | 373 | (5 | ) | 368 | |||||||||||||||||||
Total operating expenses | 1,409 | 264 | 104 | (112 | ) | 1,665 | 18 | 1,683 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 12 | — | — | (3 | ) | 9 | — | 9 | |||||||||||||||||||
Interest expense | (25 | ) | — | (4 | ) | 3 | (26 | ) | — | (26 | ) | ||||||||||||||||
Interest capitalized | 5 | — | — | — | 5 | — | 5 | ||||||||||||||||||||
Other | 2 | — | — | — | 2 | — | 2 | ||||||||||||||||||||
Total Nonoperating income (expense) | (6 | ) | — | (4 | ) | — | (10 | ) | — | (10 | ) | ||||||||||||||||
Income (loss) before income tax | $ | 405 | $ | 25 | $ | 5 | $ | — | $ | 435 | $ | (18 | ) | $ | 417 |
Nine Months Ended September 30, 2018 | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 4,880 | $ | 845 | $ | — | $ | — | $ | 5,725 | $ | — | $ | 5,725 | |||||||||||||
CPA revenues | — | — | 375 | (375 | ) | — | — | — | |||||||||||||||||||
Mileage Plan other revenue | 301 | 28 | — | — | 329 | — | 329 | ||||||||||||||||||||
Cargo and other | 141 | 1 | 4 | — | 146 | — | 146 | ||||||||||||||||||||
Total operating revenues | 5,322 | 874 | 379 | (375 | ) | 6,200 | — | 6,200 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 3,392 | 755 | 345 | (378 | ) | 4,114 | 92 | 4,206 | |||||||||||||||||||
Economic fuel | 1,237 | 190 | — | — | 1,427 | (30 | ) | 1,397 | |||||||||||||||||||
Total operating expenses | 4,629 | 945 | 345 | (378 | ) | 5,541 | 62 | 5,603 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 39 | — | — | (10 | ) | 29 | — | 29 | |||||||||||||||||||
Interest expense | (64 | ) | — | (16 | ) | 9 | (71 | ) | — | (71 | ) | ||||||||||||||||
Interest capitalized | 12 | — | 2 | — | 14 | — | 14 | ||||||||||||||||||||
Other | (9 | ) | (11 | ) | — | — | (20 | ) | — | (20 | ) | ||||||||||||||||
Total Nonoperating income (expense) | (22 | ) | (11 | ) | (14 | ) | (1 | ) | (48 | ) | — | (48 | ) | ||||||||||||||
Income (loss) before income tax | $ | 671 | $ | (82 | ) | $ | 20 | $ | 2 | $ | 611 | $ | (62 | ) | $ | 549 |
Nine Months Ended September 30, 2017(c) | |||||||||||||||||||||||||||
(in millions) | Mainline | Regional | Horizon | Consolidating & Other | Air Group Adjusted(a) | Special Items(b) | Consolidated | ||||||||||||||||||||
Operating revenues | |||||||||||||||||||||||||||
Passenger revenues | $ | 4,729 | $ | 776 | $ | — | $ | — | $ | 5,505 | $ | — | $ | 5,505 | |||||||||||||
CPA revenues | — | — | 317 | (317 | ) | — | — | — | |||||||||||||||||||
Mileage Plan other revenue | 291 | 23 | — | — | 314 | — | 314 | ||||||||||||||||||||
Cargo and other | 127 | 3 | 3 | — | 133 | — | 133 | ||||||||||||||||||||
Total operating revenues | 5,147 | 802 | 320 | (317 | ) | 5,952 | — | 5,952 | |||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||
Operating expenses, excluding fuel | 3,111 | 625 | 323 | (315 | ) | 3,744 | 86 | 3,830 | |||||||||||||||||||
Economic fuel | 924 | 120 | — | — | 1,044 | 7 | 1,051 | ||||||||||||||||||||
Total operating expenses | 4,035 | 745 | 323 | (315 | ) | 4,788 | 93 | 4,881 | |||||||||||||||||||
Nonoperating income (expense) | |||||||||||||||||||||||||||
Interest income | 29 | — | — | (4 | ) | 25 | — | 25 | |||||||||||||||||||
Interest expense | (72 | ) | — | (9 | ) | 4 | (77 | ) | — | (77 | ) | ||||||||||||||||
Interest capitalized | 12 | — | 1 | — | 13 | — | 13 | ||||||||||||||||||||
Other | 1 | — | — | — | 1 | — | 1 | ||||||||||||||||||||
Total Nonoperating income (expense) | (30 | ) | — | (8 | ) | — | (38 | ) | — | (38 | ) | ||||||||||||||||
Income (loss) before income tax | $ | 1,082 | $ | 57 | $ | (11 | ) | $ | (2 | ) | $ | 1,126 | $ | (93 | ) | $ | 1,033 |
(a) | The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information. |
(b) | Includes merger-related costs, an employee bonus awarded in January in connection with the Tax Cuts and Jobs Act, and mark-to-market fuel hedge accounting adjustments. |
(c) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
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, | ||||||||||||||
2018 | 2017(b) | 2018 | 2017(b) | ||||||||||||
Consolidated: | |||||||||||||||
CASM | 11.30 | ¢ | 10.41 | ¢ | 11.38 | ¢ | 10.57 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 3.02 | 2.27 | 2.84 | 2.27 | |||||||||||
Special items—merger-related costs and other(a) | 0.13 | 0.14 | 0.19 | 0.19 | |||||||||||
CASM excluding fuel and special items | 8.15 | ¢ | 8.00 | ¢ | 8.35 | ¢ | 8.11 | ¢ | |||||||
Mainline: | |||||||||||||||
CASM | 10.37 | ¢ | 9.64 | ¢ | 10.49 | ¢ | 9.74 | ¢ | |||||||
Less the following components: | |||||||||||||||
Aircraft fuel, including hedging gains and losses | 2.89 | 2.18 | 2.70 | 2.20 | |||||||||||
Special items—merger-related costs and other(a) | 0.14 | 0.16 | 0.21 | 0.20 | |||||||||||
CASM excluding fuel and special items | 7.34 | ¢ | 7.30 | ¢ | 7.58 | ¢ | 7.34 | ¢ |
(a) | Special items include merger-related costs and an employee bonus awarded in January in connection with the Tax Cuts and Jobs Act. |
(b) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
Fuel Reconciliation | |||||||||||||||
Three Months Ended September 30, | |||||||||||||||
2018 | 2017 | ||||||||||||||
(in millions, except for per-gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 520 | $ | 2.38 | $ | 368 | $ | 1.78 | |||||||
(Gains) losses on settled hedges | (12 | ) | (0.05 | ) | 5 | 0.02 | |||||||||
Consolidated economic fuel expense | 508 | 2.33 | 373 | 1.80 | |||||||||||
Mark-to-market fuel hedge adjustment | 5 | 0.02 | (5 | ) | (0.02 | ) | |||||||||
GAAP fuel expense | $ | 513 | $ | 2.35 | $ | 368 | $ | 1.78 | |||||||
Fuel gallons | 218 | 207 | |||||||||||||
Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | ||||||||||||||
(in millions, except for per gallon amounts) | Dollars | Cost/Gallon | Dollars | Cost/Gallon | |||||||||||
Raw or "into-plane" fuel cost | $ | 1,450 | $ | 2.30 | $ | 1,030 | $ | 1.74 | |||||||
(Gains) losses on settled hedges | (23 | ) | (0.04 | ) | 14 | 0.02 | |||||||||
Consolidated economic fuel expense | $ | 1,427 | $ | 2.26 | $ | 1,044 | $ | 1.76 | |||||||
Mark-to-market fuel hedge adjustment | (30 | ) | (0.05 | ) | 7 | 0.01 | |||||||||
GAAP fuel expense | $ | 1,397 | $ | 2.21 | $ | 1,051 | $ | 1.77 | |||||||
Fuel gallons | 631 | 592 |
Debt-to-capitalization, adjusted for aircraft operating leases | |||||||
(in millions) | September 30, 2018 | December 31, 2017(a) | |||||
Long-term debt | $ | 1,684 | $ | 2,262 | |||
Capitalization of aircraft operating leases(b) | 1,887 | 1,671 | |||||
Adjusted debt | 3,571 | 3,933 | |||||
Shareholders' equity | 3,791 | 3,460 | |||||
Total Invested Capital | $ | 7,362 | $ | 7,393 | |||
Debt-to-capitalization ratio, adjusted for aircraft operating leases | 49 | % | 53 | % |
(a) | Certain historical information has been adjusted to reflect the adoption of new accounting standards. |
(b) | Calculated using the present value of remaining aircraft lease payments. |
• | By eliminating fuel expense and certain special items (including merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. 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 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 compare our airlines 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 certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. 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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Ticker: ALKEvents:
CIK: 766421
Form Type: 8-K Corporate News
Accession Number: 0000766421-18-000056
Submitted to the SEC: Wed Oct 24 2018 7:39:00 PM EST
Accepted by the SEC: Thu Oct 25 2018
Period: Thursday, October 25, 2018
Industry: Air Transportation Scheduled