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ALASKA AIR GROUP, INC. filed this Form 8-K on 01/24/2013
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ALK 8-K Earnings Release and Investor Update 01/24/2013


 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

January 24, 2013
(Date of earliest event reported)

ALASKA AIR GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

1-8957
 
91-1292054
(Commission File Number)
 
(IRS Employer Identification No.)

19300 International Boulevard, Seattle, Washington
 
98188
(Address of Principal Executive Offices)
 
(Zip Code)

(206) 392-5040
(Registrant's Telephone Number, Including Area Code)


(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 






ITEM 2.02.  Results of Operations And Financial Condition
Alaska Air Group, Inc. today issued a press release reporting financial results for the fourth quarter and full-year results of 2012. The press release is filed as Exhibit 99.1.


ITEM 7.01.  Regulation FD Disclosure
Pursuant to 17 CFR Part 243 (“Regulation FD”), the Company is submitting information relating to its financial and operational outlook in an Investor Update as attached in Exhibit 99.2.

In accordance with General Instruction B.2 of Form 8-K, the information under this item and Exhibit 99.2 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.  This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.


ITEM 9.01  Financial Statements and Other Exhibits

Exhibit 99.1                                2012 Fourth Quarter and Full-Year Results
Exhibit 99.2                                Investor Update dated January 24, 2013


Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALASKA AIR GROUP, INC.                                                                           
Registrant

Date: January 24, 2013

/s/ Brandon S. Pedersen                                                                                
Brandon S. Pedersen
Vice President/Finance and Chief Financial Officer




ALK EX 99.1 Earnings Release 01/24/2013


Exhibit 99.1
Media contact:
 
Investor/analyst contact:
Bobbie Egan
 
Chris Berry
Media Relations Manager
 
Managing Director of Investor Relations
(206) 392-5134
 
(206) 392-5260

FOR IMMEDIATE RELEASE 
 
January 24, 2013

ALASKA AIR GROUP REPORTS RECORD ADJUSTED FOURTH QUARTER AND FULL-YEAR RESULTS
Employees earn $88 million in incentive pay

Highlights and achievements:
Record fourth quarter net income, excluding special items, of $50 million, or $0.70 per diluted share, compared to $37 million, or $0.51 per diluted share. This quarter's results compare to a First Call analyst consensus estimate of $0.71 per share.
Record full-year net income, excluding special items, of $339 million, or $4.73 per diluted share, compared to $287 million, or $3.92 per diluted share.
Net income for the fourth quarter under Generally Accepted Accounting Principles (GAAP) of $44 million, or $0.61 per diluted share, compared to net income of $64 million, or $0.88 per diluted share. Full-year GAAP net income of $316 million, or $4.40 per diluted share, compared to net income of $245 million, or $3.33 per diluted share.
Air Group employees earned $88 million in incentive pay, or more than one-month's pay for most employees. Over the last four years, employees have earned more than $325 million in incentive pay, averaging 8% of annual pay for most employees.
Ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" by J.D. Power and Associates for the fifth year in a row.
Signed an aircraft purchase agreement with The Boeing Company for 50 new 737 aircraft, including 37 of Boeing's new 737 MAX aircraft with deliveries expected in 2015 through 2024.
Carried a record number passengers in 2012 and achieved a record load factor of 85.9 percent, up 1.4 points from the prior year.
Improved employee productivity by 3.5 percent compared to the fourth quarter of 2011.
Completed renovation of Terminal 6 at Los Angeles International Airport (LAX) in March, which includes the Airport of the Future design, new common use systems, additional gates and convenient connections with international flights.
Ratified a six-year agreement in December with the International Brotherhood of Teamsters (IBT) representing Horizon's pilots.
Ratified a six-year agreement in July with the International Association of Machinists and Aerospace Workers (IAMAW) representing Alaska's ramp service and stores agents.
Repurchased 1,685,951 shares of common stock for approximately $60 million. Since 2007, Air Group has used $320 million to repurchase 18 million shares.


1



Lowered adjusted debt-to-total capitalization ratio by 8 points to 54 percent since December 31, 2011 and by 27 points from 81 percent at the end of 2008.
Held $1.3 billion in unrestricted cash and marketable securities as of December 31, 2012.
Achieved twelve-month return on invested capital of 13 percent, surpassing the 10 percent goal for the third year in a row.
Contributed $110 million to the defined-benefit pension plans during 2012, bringing the total over four years to approximately $540 million, despite having no required contribution.
New routes:
Began new service from San Diego to Orlando, Portland to Lihue, Bellingham to Maui, and Anchorage to Kona in the fourth quarter, bringing the full year up to 21 new routes.
Announced service from San Diego to Boston and Lihue, and from Seattle to Salt Lake City beginning in 2013.

SEATTLE - Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2012 GAAP net income of $44 million, or $0.61 per diluted share, compared to GAAP net income of $64 million, or $0.88 per diluted share in 2011. Excluding mark-to-market fuel hedge losses of $10 million ($6 million after tax, or $0.09 per diluted share), the company reported record fourth quarter 2012 net income of $50 million, or $0.70 per diluted share, compared to net income excluding mark-to-market fuel hedge gains of $37 million, or $0.51 per diluted share, in 2011.
The company reported full-year 2012 GAAP net income of $316 million, compared to $245 million in the prior year. Excluding the impact of the items noted in the table below, the company reported record net income of $339 million, or $4.73 per diluted share for 2012, compared to net income of $287 million, or $3.92 per diluted share in 2011. This marks the company’s ninth consecutive year of adjusted profits and the third year in a row the company has exceeded its goal of a 10 percent return on invested capital.
"We're very pleased with our strong performance in 2012, and we are moving ahead in 2013 to make Alaska a great business as well as a great airline," Chief Executive Officer Brad Tilden said. "I want to thank our 13,000 employees who are dedicated to providing our award-winning service, along with our loyal customers for their business and our investors who continue to put their trust in our company and our future."


2



The following table reconciles the Company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2012 and 2011 to amounts as reported in accordance with GAAP:
 
Three Months Ended December 31,
 
2012
 
2011
(in millions, except per share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Reported GAAP net income
$
44

 
$
0.61

 
$
64

 
$
0.88

Mark-to-market fuel hedge adjustments, net of tax
6

 
0.09

 
(27
)
 
(0.37
)
Non-GAAP adjusted income and per share amounts
$
50

 
$
0.70

 
$
37

 
$
0.51

 
 
 
 
 
 
 
 
 
Twelve Months Ended December 31,
 
2012
 
2011
(in millions, except per share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Reported GAAP net income
$
316

 
$
4.40

 
$
245

 
$
3.33

Fleet transition costs, net of tax

 

 
24

 
0.33

Mark-to-market fuel hedge adjustments, net of tax
23

 
0.33

 
18

 
0.26

Non-GAAP adjusted income and per share amounts
$
339

 
$
4.73

 
$
287

 
$
3.92

 
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 simulcast via the Internet at 9:30 a.m. Pacific time on January 24, 2013. It can be accessed through the company's Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors.

###
References in this news release to “Air Group,” “company,” “we,” “us” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon,” respectively, and together as our “airlines.”
This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2011. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant 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, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves 95 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines has ranked “Highest in Customer Satisfaction Among Traditional Network Carriers” in the J.D. Power and Associates North America Airline Satisfaction StudySM for five consecutive years from 2008 to 2012. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines newsroom at www.alaskaair.com/newsroom.


3



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)
2012
 
2011
 
Change
 
2012
 
2011
 
Change
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
793

 
$
726

 
9
 %
 
$
3,284

 
$
2,995

 
10
 %
Regional
188

 
176

 
7
 %
 
746

 
713

 
5
 %
Total passenger revenue
981

 
902

 
9
 %
 
4,030

 
3,708

 
9
 %
Freight and mail
26

 
25

 
4
 %
 
111

 
109

 
2
 %
Other - net
125

 
117

 
7
 %
 
516

 
501

 
3
 %
Total Operating Revenues
1,132

 
1,044

 
8
 %
 
4,657

 
4,318

 
8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
Wages and benefits
267

 
253

 
6
 %
 
1,038

 
991

 
5
 %
Variable incentive pay
27

 
19

 
42
 %
 
88

 
72

 
22
 %
Aircraft fuel, including hedging gains and losses
372

 
286

 
30
 %
 
1,459

 
1,298

 
12
 %
Aircraft maintenance
61

 
53

 
15
 %
 
222

 
206

 
8
 %
Aircraft rent
30

 
28

 
7
 %
 
116

 
116

 
 %
Landing fees and other rentals
59

 
58

 
2
 %
 
243

 
238

 
2
 %
Contracted services
51

 
49

 
4
 %
 
200

 
185

 
8
 %
Selling expenses
37

 
42

 
(12
)%
 
168

 
175

 
(4
)%
Depreciation and amortization
69

 
63

 
10
 %
 
264

 
247

 
7
 %
Food and beverage service
21

 
17

 
24
 %
 
79

 
67

 
18
 %
Other
64

 
62

 
3
 %
 
248

 
235

 
6
 %
Fleet transition costs

 

 
NM

 

 
39

 
NM

Total Operating Expenses
1,058

 
930

 
14
 %
 
4,125

 
3,869

 
7
 %
Operating Income
74

 
114

 
(35
)%
 
532

 
449

 
18
 %
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
Interest income
5

 
4

 
 
 
19

 
22

 
 
Interest expense
(15
)
 
(18
)
 
 
 
(64
)
 
(87
)
 
 
Interest capitalized
5

 
7

 
 
 
18

 
12

 
 
Other - net
3

 
(6
)
 
 
 
9

 
(2
)
 
 
 
(2
)
 
(13
)
 
 
 
(18
)
 
(55
)
 
 
Income Before Income Tax
72

 
101

 
(29
)%
 
514

 
394

 
30
 %
Income tax expense
28

 
37

 
 
 
198

 
149

 
 
Net Income
$
44

 
$
64

 
(31
)%
 
$
316

 
$
245

 
29
 %
 
 
 
 
 
 
 
 
 
 
 
 
Basic Earnings Per Share:
$
0.62

 
$
0.90

 
 
 
$
4.47

 
$
3.41

 
 
Diluted Earnings Per Share:
$
0.61

 
$
0.88

 
 
 
$
4.40

 
$
3.33

 
 
Shares Used for Computation:
 
 
 
 
 
 
 
 
 
 
 
Basic
71.112

 
71.122

 
 
 
70.708

 
71.755

 
 
Diluted
72.149

 
72.635

 
 
 
71.784

 
73.421

 
 

NM - Not Meaningful

4



CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
(in millions)
December 31, 2012

 
December 31, 2011

Cash and marketable securities
$
1,252

 
$
1,141

 
 

 
 

Total current assets
1,737

 
1,596

Property and equipment-net
3,609

 
3,373

Other assets
159

 
198

Total assets
$
5,505

 
$
5,167

 
 

 
 

Current liabilities
$
1,501

 
$
1,510

Long-term debt
871

 
1,099

Other liabilities and credits
1,712

 
1,384

Shareholders' equity
1,421

 
1,174

Total liabilities and shareholders' equity
$
5,505

 
$
5,167

 
 

 
 

Debt to Capitalization, adjusted for operating leases
54%:46%

 
62%:38%

 
 

 
 

Number of common shares outstanding
70.377

 
70.950




5



OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2012
 
2011
 
Change
 
2012
 
2011
 
Change
Consolidated Operating Statistics:(a)
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
6,387

 
6,083

 
5.0
 %
 
25,896

 
24,790

 
4.5
 %
RPMs (000,000) "traffic"
6,720

 
6,183

 
8.7
 %
 
27,007

 
25,032

 
7.9
 %
ASMs (000,000) "capacity"
7,870

 
7,298

 
7.8
 %
 
31,428

 
29,627

 
6.1
 %
Load factor
85.4
%
 
84.7
%
 
0.7
 pts
 
85.9
%
 
84.5
%
 
1.4
 pts
Yield

14.59
¢
 

14.59
¢
 
 %
 

14.92
¢
 

14.81
¢
 
0.7
 %
PRASM

12.46
¢
 

12.36
¢
 
0.8
 %
 

12.82
¢
 

12.51
¢
 
2.5
 %
RASM

14.39
¢
 

14.31
¢
 
0.6
 %
 

14.82
¢
 

14.57
¢
 
1.7
 %
CASM excluding fuel and fleet transition costs(b)

8.72
¢
 

8.83
¢
 
(1.2
)%
 

8.48
¢
 

8.55
¢
 
(0.8
)%
Economic fuel cost per gallon(c) 
$
3.43

 
$
3.34

 
2.7
 %
 
$
3.37

 
$
3.18

 
6.0
 %
Fuel gallons (000,000)
105

 
99

 
6.1
 %
 
422

 
398

 
6.0
 %
Average number of full-time equivalent employees
11,984

 
11,807

 
1.5
 %
 
11,955

 
11,840

 
1.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Mainline Operating Statistics:
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
4,513

 
4,331

 
4.2
 %
 
18,526

 
17,810

 
4.0
 %
RPMs (000,000) "traffic"
6,065

 
5,575

 
8.8
 %
 
24,417

 
22,586

 
8.1
 %
ASMs (000,000) "capacity"
7,056

 
6,526

 
8.1
 %
 
28,180

 
26,517

 
6.3
 %
Load factor
86.0
%
 
85.4
%
 
0.6
 pts
 
86.6
%
 
85.2
%
 
1.4
 pts
Yield

13.08
¢
 

13.01
¢
 
0.5
 %
 

13.45
¢
 

13.26
¢
 
1.4
 %
PRASM

11.24
¢
 

11.12
¢
 
1.1
 %
 

11.65
¢
 

11.29
¢
 
3.2
 %
RASM

13.15
¢
 

13.04
¢
 
0.8
 %
 

13.62
¢
 

13.31
¢
 
2.3
 %
CASM excluding fuel(b)

7.77
¢
 

7.89
¢
 
(1.5
)%
 

7.56
¢
 

7.60
¢
 
(0.5
)%
Economic fuel cost per gallon(c)
$
3.43

 
$
3.33

 
3.0
 %
 
$
3.36

 
$
3.18

 
5.7
 %
Fuel gallons (000,000)
92

 
86

 
7.0
 %
 
368

 
346

 
6.4
 %
Average number of full-time equivalent employees
9,228

 
8,920

 
3.5
 %
 
9,178

 
8,916

 
2.9
 %
Aircraft utilization
10.5

 
10.2

 
2.9
 %
 
10.7

 
10.5

 
1.9
 %
Average aircraft stage length
1,189

 
1,129

 
5.3
 %
 
1,161

 
1,114

 
4.2
 %
Mainline operating fleet
124

 
117

 
7
 a/c
 
124

 
117

 
7
 a/c
 
 
 
 
 
 
 
 
 
 
 
 
Regional Operating Statistics:(d)
 
 
 
 
 
 
 
 
 
 
 
Revenue passengers (000)
1,873

 
1,752

 
6.9
 %
 
7,371

 
6,980

 
5.6
 %
RPMs (000,000) "traffic"
655

 
608

 
7.7
 %
 
2,590

 
2,446

 
5.9
 %
ASMs (000,000) "capacity"
814

 
772

 
5.4
 %
 
3,247

 
3,110

 
4.4
 %
Load factor
80.4
%
 
78.8
%
 
1.6
 pts
 
79.8
%
 
78.6
%
 
1.2
 pts
Yield

28.64
¢
 

28.82
¢
 
(0.6
)%
 

28.81
¢
 

29.13
¢
 
(1.1
)%
PRASM

23.03
¢
 

22.84
¢
 
0.8
 %
 

22.98
¢
 

22.94
¢
 
0.2
 %
Operating fleet (Horizon only)
48

 
48

 

 
48

 
48

 

(a) 
Except for full-time equivalent employees, 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 why these measures may be important to investors in the accompanying pages.
(c) 
See a reconciliation of economic fuel cost in the accompanying pages.
(d) 
Data presented includes information related to flights operated by Horizon Air and third-party carriers.

6



OPERATING SEGMENTS (unaudited)
 
 
 
 
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2012
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
793

 
$

 
$

 
$

 
$
793

 
$

 
$
793

Regional

 
188

 

 

 
188

 

 
188

Total passenger revenues
793

 
188

 

 

 
981

 

 
981

Revenue from CPA with Alaska

 

 
97

 
(97
)
 

 

 

Freight and mail
25

 
1

 

 

 
26

 

 
26

Other-net
110

 
14

 
1

 

 
125

 

 
125

Total operating revenues
928

 
203

 
98

 
(97
)
 
1,132

 

 
1,132

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
548

 
145

 
90

 
(97
)
 
686

 

 
686

Economic fuel
315

 
47

 

 

 
362

 
10

 
372

Total operating expenses
863

 
192

 
90

 
(97
)
 
1,048

 
10

 
1,058

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
5

 

 

 

 
5

 

 
5

Interest expense
(11
)
 

 
(4
)
 

 
(15
)
 

 
(15
)
Other
8

 

 
1

 
(1
)
 
8

 

 
8

 
2

 

 
(3
)
 
(1
)
 
(2
)
 

 
(2
)
Income (loss) before income tax
$
67

 
$
11

 
$
5

 
$
(1
)
 
$
82

 
$
(10
)
 
$
72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31, 2011
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
726

 
$

 
$

 
$

 
$
726

 
$

 
$
726

Regional

 
176

 

 

 
176

 

 
176

Total passenger revenues
726

 
176

 

 

 
902

 

 
902

Revenue from CPA with Alaska

 

 
90

 
(90
)
 

 

 

Freight and mail
24

 
1

 

 

 
25

 

 
25

Other-net
101

 
14

 
2

 

 
117

 

 
117

Total operating revenues
851

 
191

 
92

 
(90
)
 
1,044

 

 
1,044

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
515

 
135

 
83

 
(89
)
 
644

 

 
644

Economic fuel
285

 
44

 

 

 
329

 
(43
)
 
286

Total operating expenses
800

 
179

 
83

 
(89
)
 
973

 
(43
)
 
930

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
3

 

 

 
1

 
4

 

 
4

Interest expense
(14
)
 

 
(4
)
 

 
(18
)
 

 
(18
)
Other
1

 

 

 

 
1

 

 
1

 
(10
)
 

 
(4
)
 
1

 
(13
)
 

 
(13
)
Income (loss) before income tax
$
41

 
$
12

 
$
5

 
$

 
$
58

 
$
43

 
$
101


7



OPERATING SEGMENTS (unaudited)
 
 
 
 
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2012
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
3,284

 
$

 
$

 
$

 
$
3,284

 
$

 
$
3,284

Regional

 
746

 

 

 
746

 

 
746

Total passenger revenues
3,284

 
746

 

 

 
4,030

 

 
4,030

Revenue from CPA with Alaska

 

 
369

 
(369
)
 

 

 

Freight and mail
107

 
4

 

 

 
111

 

 
111

Other-net
448

 
61

 
7

 

 
516

 

 
516

Total operating revenues
3,839

 
811

 
376

 
(369
)
 
4,657

 

 
4,657

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
2,131

 
566

 
338

 
(369
)
 
2,666

 

 
2,666

Economic fuel
1,238

 
183

 

 

 
1,421

 
38

 
1,459

Total operating expenses
3,369

 
749

 
338

 
(369
)
 
4,087

 
38

 
4,125

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
19

 

 

 

 
19

 

 
19

Interest expense
(47
)
 

 
(16
)
 
(1
)
 
(64
)
 

 
(64
)
Other
24

 

 
2

 
1

 
27

 

 
27

 
(4
)
 

 
(14
)
 

 
(18
)
 

 
(18
)
Income (loss) before income tax
$
466

 
$
62

 
$
24

 
$

 
$
552

 
$
(38
)
 
$
514

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended December 31, 2011
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
2,995

 
$

 
$

 
$

 
$
2,995

 
$

 
$
2,995

Regional

 
713

 

 

 
713

 

 
713

Total passenger revenues
2,995

 
713

 

 

 
3,708

 

 
3,708

Revenue from CPA with Alaska

 

 
369

 
(369
)
 

 

 

Freight and mail
105

 
4

 

 

 
109

 

 
109

Other-net
431

 
62

 
8

 

 
501

 

 
501

Total operating revenues
3,531

 
779

 
377

 
(369
)
 
4,318

 

 
4,318

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel(b)
2,015

 
544

 
340

 
(367
)
 
2,532

 
39

 
2,571

Economic fuel
1,101

 
167

 

 

 
1,268

 
30

 
1,298

Total operating expenses
3,116

 
711

 
340

 
(367
)
 
3,800

 
69

 
3,869

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
24

 

 

 
(2
)
 
22

 

 
22

Interest expense
(72
)
 

 
(17
)
 
2

 
(87
)
 

 
(87
)
Other
8

 

 
2

 

 
10

 

 
10

 
(40
)
 

 
(15
)
 

 
(55
)
 

 
(55
)
Income (loss) before income tax
$
375

 
$
68

 
$
22

 
$
(2
)
 
$
463

 
$
(69
)
 
$
394

(a) 
The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain charges. See Note A for further information in the accompanying pages.
(b) 
Special charges related to CRJ-700 fleet transitions costs.

8




FUEL RECONCILIATIONS (unaudited)
 
 
 
 
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
2012
 
2011
(in millions, except for per gallon amounts)
Dollars
 
Cost/Gal
 
Dollars
 
Cost/Gal
Raw or "into-plane" fuel cost
$
351

 
$
3.33

 
$
320

 
$
3.24

(Gains) losses on settled hedges
11

 
0.10

 
9

 
0.10

Consolidated economic fuel expense
$
362

 
$
3.43

 
$
329

 
$
3.34

Mark-to-market fuel hedge adjustments
10

 
0.10

 
(43
)
 
(0.44
)
GAAP fuel expense
$
372

 
$
3.53

 
$
286

 
$
2.90

Fuel gallons
105

 
 
 
99

 
 
 
 
 
 
 
 
 
 
 
Twelve Months Ended December 31,
 
2012
 
2011
(in millions, except for per gallon amounts)
Dollars
 
Cost/Gal
 
Dollars
 
Cost/Gal
Raw or "into-plane" fuel cost
$
1,397

 
$
3.31

 
$
1,289

 
$
3.24

(Gains) losses on settled hedges
24

 
0.06

 
(21
)
 
(0.06
)
Consolidated economic fuel expense
$
1,421

 
$
3.37

 
$
1,268

 
$
3.18

Mark-to-market fuel hedge adjustments
38

 
0.09

 
30

 
0.08

GAAP fuel expense
$
1,459

 
$
3.46

 
$
1,298

 
$
3.26

Fuel gallons
422

 
 
 
398

 
 
 
 
 
 
 
 
 
 
Breakout of Fuel Expense:
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in millions)
2012
 
2011
 
2012
 
2011
Mainline economic fuel expense
$
315

 
$
285

 
$
1,238

 
$
1,101

Regional economic fuel expense
47

 
44

 
183

 
167

Consolidated economic fuel expense
$
362

 
$
329

 
$
1,421

 
$
1,268

 
 
 
 
 
 
 
 
Mainline Economic Cost per Gallon Reconciliation:
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
(in millions, except for per gallon amounts)
2012
 
2011
 
2012
 
2011
Mainline economic fuel expense
$
315

 
$
285

 
$
1,238

 
$
1,101

Mainline fuel gallons
92

 
86

 
368

 
346

Mainline economic cost per gallon
$
3.43

 
$
3.33

 
$
3.36

 
$
3.18




9




Note A: Pursuant to Regulation G, we are providing disclosure of the reconciliation 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 from our cost and unit cost metrics, we believe that we have better visibility into the results of 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.

Cost per ASM (CASM) excluding fuel and certain special items 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 Taxes and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan that covers all 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 fleet transition costs, 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.

Note B: Air Group's operations are treated as an integrated route network intended to maximize the results of the company. However, the Company has historically had two primary operating and reporting segments, consisting of Alaska Airlines and Horizon Air, for which separate financial information is available and regularly evaluated by our chief operating decision maker in deciding how to allocate resources and assess performance.

Alaska operates a fleet of passenger jets ("mainline operations") and contracts with affiliated (Horizon) and non-affiliated third party carriers for regional capacity under which Alaska receives all passenger revenue from those flights. Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (the Horizon CPA). The Horizon CPA reflects what the Company believes are current market rates received by other regional carriers for similar flying. Amounts paid by Alaska to Horizon are for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs.

All inter-company revenues and expenses are eliminated in consolidation.

10



Glossary of Terms

Mainline - represents flying on Alaska jets and all associated revenues and costs

Regional - represents operations whereby Horizon, SkyWest, and another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets

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

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

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

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

PRASM - passenger revenue per ASM; commonly called “passenger unit revenue”

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

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

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

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

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

Diluted Earnings per Share - represents earnings per share 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

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



11
ALK EX 99.2 Investor Update 01/24/2013


 
Exhibit 99.2
Investor Update - January 24, 2013

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 update includes forecasted operational and financial information for our consolidated and mainline operations. Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expenses per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expenses for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

We are providing information about estimated fuel prices and our hedging program. Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.


Forward-Looking Information
This update contains 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, 2011. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant 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 - MAINLINE
Forecast Information
 
Forecast
Q1 2013
 
Change
Y-O-Y
 
Forecast
Full Year 2013
 
Change
Y-O-Y
Capacity (ASMs in millions)(a)
7,150 - 7,200
 
~ 9%
 
30,150 - 30,650
 
~ 8%
Cost per ASM excluding fuel and special items (cents)
7.88 - 7.93
 
flat
 
7.50 - 7.55
 
~ (0.5)%
Fuel gallons (000,000)
93
 
~ 7.5%
 
390 - 395
 
~ 6.5%
Economic fuel cost per gallon(b)
$3.45
 
~ 1.5%
 
(b) 
 
(b) 
(a) 
For the second, third and fourth quarters, mainline capacity is expected to increase by approximately 8%, 7%, and 7%, respectively, compared to the prior-year quarters.
(b) 
Our economic fuel cost per gallon estimate for the first quarter includes the following per-gallon assumptions:  crude oil cost - $2.26 ($95 per barrel); refining margin - 85 cents; cost of settled hedges - 13 cents, with the remaining difference due to taxes and other into-plane costs. Because of the volatility of fuel prices, we do not provide full-year economic fuel estimates.

Changes in Advance Booked Load Factors (percentage of ASMs that are sold)(a) 
 
January
 
February
 
March
Point Change Y-O-Y
flat
 
+ 0.5 pts
 
flat
Prior Guidance Dec 14, 2012 - Point Change Y-O-Y
+ 3.0 pts
 
+ 0.5 pts
 
N/A
(a) 
Percentage point change compared to the same point in time last year.

AIR GROUP - CONSOLIDATED
Forecast Information
 
Forecast
Q1 2013
 
Change
Y-O-Y
 
Forecast
Full Year 2013
 
Change
Y-O-Y
Capacity (ASMs in millions)(a)
7,950 - 8,000
 
~ 8.5%
 
33,600 - 34,100
 
~ 7.5%
Cost per ASM excluding fuel and special items (cents)
8.79 - 8.84
 
flat
 
8.35 - 8.40
 
~ (1)%
Fuel gallons (000,000)
106
 
~ 6.5%
 
445 - 450
 
~ 6%
Economic fuel cost per gallon
$3.45
 
~ 1.5%
 
(b) 
 
(b)