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ALASKA AIR GROUP, INC. filed this Form 8-K on 04/25/2014
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ALK 8-K 4/25/2014 Earnings Release & Investor Update


 


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

April 25, 2014
(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 first quarter of 2014. 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    First Quarter 2014 Earnings Press Release dated April 25, 2014
Exhibit 99.2    Investor Update dated April 25, 2014


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: April 25, 2014

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




EX 99.1 4/25/2014 Earnings Release


Exhibit 99.1
Media contact:
Bobbie Egan
Media Relations Manager
(206) 392-5134
FOR IMMEDIATE RELEASE 
 
April 25, 2014

ALASKA AIR GROUP REPORTS RECORD FIRST QUARTER 2014 RESULTS
Financial Highlights:
Reported record first quarter net income, excluding special items, of $89 million, or $1.28 per diluted share, compared to adjusted net income of $44 million, or $0.62 per diluted share in the prior-year quarter. This quarter's results compare to a First Call analyst consensus estimate of $1.24 per share.
Recorded net income for the first quarter under Generally Accepted Accounting Principles (GAAP) of $94 million or $1.35 per diluted share, compared to net income of $37 million, or $0.51 per diluted share in 2013.
Reported record adjusted pretax margin for the first quarter of 11.8%.
Achieved trailing twelve-month return on invested capital of 14.8% compared to 13.4% in the twelve months ended March 31, 2013.
Paid a $0.25 per-share quarterly cash dividend on March 11 totaling $17 million. This is a 25% increase from the previous cash dividend payment of $0.20 per-share.
Repurchased 352,851 shares of common stock for $30 million in the first quarter of 2014.
Lowered adjusted debt-to-total-capitalization ratio by 3%, to 32%, from December 31, 2013.
Held $1.4 billion in unrestricted cash and marketable securities as of March 31, 2014.
Operational Highlights:
Held the No. 1 spot in U.S. Department of Transportation on-time performance among the 9 largest U.S. airlines for
the twelve months ended February 2014.
Named No. 1 on-time carrier in North America for the fourth year in a row from FlightStats in February 2014. For 2013, Alaska Airlines had the best on-time departure and on-time arrival statistics, which were approximately three points higher than the second place airlines in both categories.
Launched online self-tag baggage options for passengers flying from Seattle to San Diego, Anchorage, or Juneau with plans to launch at other airports later in the summer.
Reached agreement on a five-year contract with 2,500 clerical, office and passenger service employees at Alaska Airlines, represented by the International Association of Machinists and Aerospace Workers.
Reached agreement on a four-year contract with Horizon Air dispatchers, represented by the Transport Workers Union.
Began Q-400 service from Anchorage to Fairbanks and Kodiak in the state of Alaska, operated by Horizon Air.
Announced service to New Orleans, Tampa, Detroit, Baltimore, and Albuquerque from Seattle, as well as service to Kalispell from Portland.
Filed an application to begin seasonal non-stop service between Seattle and Cancun, Mexico.


1



SEATTLE — Alaska Air Group, Inc., (NYSE: ALK) today reported first quarter 2014 GAAP net income of $94 million, or $1.35 per diluted share, compared to $37 million, or $0.51 per diluted share in the first quarter of 2013. Excluding the impact of mark-to-market fuel hedge adjustments of $8 million ($5 million after tax, or $0.07 per diluted share), the company reported record adjusted net income of $89 million, or $1.28 per diluted share, compared to adjusted net income of $44 million, or $0.62 per diluted share, in 2013.
“Our record first quarter results reflect strong demand for our service and the efforts we’ve taken to improve the value we bring to our customers,” CEO Brad Tilden said. “Our solid foundation of award-winning service, excellent operational performance, low costs and low fares, and the best employees in the business will help us sustain our success in the face of increasing competition.”
The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the first quarters of 2014 and 2013 to adjusted amounts:
 
Three Months Ended March 31,
 
2014
 
2013
(in millions, except per-share amounts)
Dollars
 
Diluted EPS
 
Dollars
 
Diluted EPS
Reported GAAP net income
$
94

 
$
1.35

 
$
37

 
$
0.51

Mark-to-market fuel hedge adjustments, net of tax
(5
)
 
(0.07
)
 
7

 
0.11

Non-GAAP adjusted income and per-share amounts
$
89

 
$
1.28

 
$
44

 
$
0.62

 
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 first quarter results will be simulcast via the Internet at 8:00 a.m. Pacific time on April 25, 2014. It can be accessed through the company's website at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.
###
References in this news release to “Air Group,” “company,” “we,” “us” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon,” respectively, and together as our “airlines.”
This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2013. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, 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 nearly 100 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 six consecutive years from 2008 to 2013. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines Newsroom at www.alaskaair.com/newsroom.


2



CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
 
 
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
(in millions, except per-share amounts)
2014
 
2013
 
Change
Operating Revenues:
 
 
 
 
 
Passenger
 
 
 
 
 
Mainline
$
854

 
$
796

 
7
 %
Regional
186

 
182

 
2
 %
Total passenger revenue
1,040

 
978

 
6
 %
Freight and mail
24

 
26

 
(8
)%
Other - net
158

 
129

 
22
 %
Total Operating Revenues
1,222

 
1,133

 
8
 %
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
Wages and benefits
272

 
264

 
3
 %
Variable incentive pay
25

 
21

 
19
 %
Aircraft fuel, including hedging gains and losses
358

 
381

 
(6
)%
Aircraft maintenance
51

 
66

 
(23
)%
Aircraft rent
28

 
30

 
(7
)%
Landing fees and other rentals
69

 
60

 
15
 %
Contracted services
60

 
53

 
13
 %
Selling expenses
46

 
38

 
21
 %
Depreciation and amortization
70

 
69

 
1
 %
Food and beverage service
21

 
20

 
5
 %
Other
81

 
67

 
21
 %
Total Operating Expenses
1,081

 
1,069

 
1
 %
Operating Income
141

 
64

 
120
 %
 
 
 
 
 
 
Nonoperating Income (Expense):
 
 
 
 
 
Interest income
5

 
4

 
 
Interest expense
(12
)
 
(16
)
 
 
Interest capitalized
5

 
5

 
 
Other - net
13

 
2

 
 
 
11

 
(5
)
 
 
Income Before Income Tax
152

 
59

 
 
Income tax expense
58

 
22

 
 
Net Income
$
94

 
$
37

 
 
 
 
 
 
 
 
Basic Earnings Per Share:
$
1.37

 
$
0.52

 
 
Diluted Earnings Per Share:
$
1.35

 
$
0.51

 
 
 
 
 
 
 
 
Shares Used for Computation:
 
 
 
 
 
Basic
68.667

 
70.431

 
 
Diluted
69.411

 
71.414

 
 
 
 
 
 
 
 
Cash dividend declared per share:
$
0.25

 

 
 


3



CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
(in millions)
March 31, 2014

 
December 31, 2013

Cash and marketable securities
$
1,420

 
$
1,330

 
 

 
 

Total current assets
1,934

 
1,762

Property and equipment-net
3,930

 
3,893

Other assets
197

 
183

Total assets
6,061

 
5,838

 
 
 
 
Air traffic liability
749

 
564

Current portion of long-term debt
113

 
117

Other current liabilities
893

 
899

Current liabilities
1,755

 
1,580

Long-term debt
721

 
754

Other liabilities and credits
1,490

 
1,475

Shareholders' equity
2,095

 
2,029

Total liabilities and shareholders' equity
$
6,061

 
$
5,838

 
 

 
 

Debt to Capitalization, adjusted for operating leases(a)
32%:68%

 
35%:65%

 
 

 
 

Number of common shares outstanding
68.789

 
68.746

(a) 
Calculated using the present value of remaining aircraft lease payments.



4



OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
2014
 
2013
 
Change
Consolidated Operating Statistics:(a)
 
 
 
 
 
Revenue passengers (000)
6,649

 
6,346

 
4.8
%
RPMs (000,000) "traffic"
7,078

 
6,796

 
4.1
%
ASMs (000,000) "capacity"
8,352

 
7,983

 
4.6
%
Load factor
84.7
%
 
85.1
%
 
(0.4 pts
)
Yield

14.70
¢
 

14.38
¢
 
2.2
%
PRASM

12.45
¢
 

12.24
¢
 
1.7
%
RASM

14.64
¢
 

14.19
¢
 
3.2
%
CASM excluding fuel(b)

8.66
¢
 

8.62
¢
 
0.5
%
Economic fuel cost per gallon(c)
$
3.32

 
$
3.48

 
(4.6
%)
Fuel gallons (000,000)
110

 
106

 
3.8
%
Average number of full-time equivalent employees
12,386

 
12,013

 
3.1
%
 
 
 
 
 
 
Mainline Operating Statistics:
 
 
 
 
 
Revenue passengers (000)
4,737

 
4,534

 
4.5
%
RPMs (000,000) "traffic"
6,402

 
6,172

 
3.7
%
ASMs (000,000) "capacity"
7,495

 
7,203

 
4.1
%
Load factor
85.4
%
 
85.7
%
 
(0.3 pts
)
Yield

13.34
¢
 

12.90
¢
 
3.4
%
PRASM

11.40
¢
 

11.05
¢
 
3.2
%
RASM

13.57
¢
 

12.97
¢
 
4.6
%
CASM excluding fuel(b)

7.68
¢
 

7.59
¢
 
1.2
%
Economic fuel cost per gallon(c)
$
3.32

 
$
3.47

 
(4.3
%)
Fuel gallons (000,000)
96

 
93

 
3.2
%
Average number of full-time equivalent employees
9,591

 
9,351

 
2.6
%
Aircraft utilization
10.2

 
10.6

 
(3.8
%)
Average aircraft stage length
1,201

 
1,203

 
(0.2
%)
Operating fleet
133

 
127

 
6 a/c

 
 
 
 
 
 
Regional Operating Statistics:(d)
 
 
 
 
 
Revenue passengers (000)
1,912

 
1,812

 
5.5
%
RPMs (000,000) "traffic"
675

 
624

 
8.2
%
ASMs (000,000) "capacity"
857

 
780

 
9.9
%
Load factor
78.8
%
 
80.0
%
 
(1.2 pts
)
Yield

27.53
¢
 

29.09
¢
 
(5.4
%)
PRASM

21.69
¢
 

23.27
¢
 
(6.8
%)
Operating fleet (Horizon only)
51

 
48

 
3
 a/c
(a) 
Except for full-time equivalent employees, data includes information related to third-party regional capacity purchase flying arrangements.
(b) 
See a reconciliation of operating expenses excluding fuel 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.

5



OPERATING SEGMENTS (unaudited)
 
 
 
 
 
 
 
Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2014
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
854

 
$

 
$

 
$

 
$
854

 
$

 
$
854

Regional

 
186

 

 

 
186

 

 
186

Total passenger revenues
854

 
186

 

 

 
1,040

 

 
1,040

CPA revenues

 

 
91

 
(91
)
 

 

 

Freight and mail
23

 
1

 

 

 
24

 

 
24

Other-net
140

 
17

 
1

 

 
158

 

 
158

Total operating revenues
1,017

 
204

 
92

 
(91
)
 
1,222

 

 
1,222

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
576

 
151

 
86

 
(90
)
 
723

 

 
723

Economic fuel
318

 
48

 

 

 
366

 
(8
)
 
358

Total operating expenses
894

 
199

 
86

 
(90
)
 
1,089

 
(8
)
 
1,081

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
5

 

 

 

 
5

 

 
5

Interest expense
(8
)
 

 
(4
)
 

 
(12
)
 

 
(12
)
Other
18

 
(1
)
 
1

 

 
18

 

 
18

 
15

 
(1
)
 
(3
)
 

 
11

 

 
11

Income (loss) before income tax
$
138

 
$
4

 
$
3

 
$
(1
)
 
$
144

 
$
8

 
$
152

 
Three Months Ended March 31, 2013
 
Alaska
 
 
 
 
 
 
 
 
 
 
(in millions)
Mainline
 
Regional
 
Horizon
 
Consolidating
 
Air Group Adjusted(a)
 
Special Items(b)
 
Consolidated
Operating revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger
 
 
 
 
 
 
 
 
 
 
 
 
 
Mainline
$
796

 
$

 
$

 
$

 
$
796

 
$

 
$
796

Regional

 
182

 

 

 
182

 

 
182

Total passenger revenues
796

 
182

 

 

 
978

 

 
978

CPA revenues

 

 
94

 
(94
)
 

 

 

Freight and mail
25

 
1

 

 

 
26

 

 
26

Other-net
113

 
14

 
2

 

 
129

 

 
129

Total operating revenues
934

 
197

 
96

 
(94
)
 
1,133

 

 
1,133

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, excluding fuel
547

 
147

 
89

 
(95
)
 
688

 

 
688

Economic fuel
323

 
46

 

 

 
369

 
12

 
381

Total operating expenses
870

 
193

 
89

 
(95
)
 
1,057

 
12

 
1,069

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonoperating income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
4

 

 

 

 
4

 

 
4

Interest expense
(11
)
 

 
(3
)
 
(2
)
 
(16
)
 

 
(16
)
Other
6

 

 

 
1

 
7

 

 
7

 
(1
)
 

 
(3
)
 
(1
)
 
(5
)
 

 
(5
)
Income (loss) before income tax
$
63

 
$
4

 
$
4

 
$

 
$
71

 
$
(12
)
 
$
59

(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 revenues/charges. See Note A for further information in the accompanying pages.
(b) 
Includes mark-to-market fuel-hedge accounting charges.

6



Alaska Air Group, Inc.
 
 
 
 
 
 
 
 
CASM EXCLUDING FUEL RECONCILIATION (unaudited)
 
Three Months Ended March 31,
(in cents)
2014
 
2013
Consolidated:
 
 
 
CASM

12.94
¢
 

13.39
¢
Less the following components:
 
 
 

Aircraft fuel, including hedging gains and losses
4.28

 
4.77

CASM excluding fuel

8.66
¢
 

8.62
¢
 
 
 
 
Mainline:
 
 
 
CASM

11.82
¢
 

12.24
¢
Less the following components:
 
 
 

Aircraft fuel, including hedging gains and losses
4.14

 
4.65

CASM excluding fuel

7.68
¢
 

7.59
¢
FUEL RECONCILIATIONS (unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
(in millions, except for per-gallon amounts)
Dollars
 
Cost/Gallon
 
Dollars
 
Cost/Gallon
Raw or "into-plane" fuel cost
$
348

 
$
3.16

 
$
357

 
$
3.37

(Gains) losses on settled hedges
18

 
0.16

 
12

 
0.11

Consolidated economic fuel expense
366

 
3.32

 
369

 
3.48

Mark-to-market fuel hedge adjustment
(8
)
 
(0.07
)
 
12

 
0.11

GAAP fuel expense
$
358

 
$
3.25

 
$
381

 
$
3.59

Fuel gallons
110

 
 
 
106

 
 

7




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 unit metrics, we believe that we have better visibility into the results of operations without the consideration of accounting changes or 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 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 or special revenues, 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 has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams primarily in operational roles. To manage the two operating airlines, management views the business in three operating segments. Alaska operates a fleet of passenger jets (Alaska Mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights (Alaska Regional). Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (Horizon). The Company believes the amounts paid by Alaska to Horizon approximate current market rates received by other regional carriers for similar flying and are available to pay for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs. All inter-company revenues and expenses between Alaska and Horizon are eliminated in consolidation.

8



Glossary of Terms

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

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 the present value of future operating lease payments) divided by total equity plus adjusted debt

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

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 jets and all associated revenues and costs

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

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

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

Regional - represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir. In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Alaska 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







9
EX 99.2 4/25/2014 Investor Update


Exhibit 99.2
Investor Update - April 25, 2014

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 mainline and consolidated 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, 2013. Some of these risks include 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 - MAINLINE
Forecast Information
 
Forecast
Q2 2014
 
Change
Y-O-Y
 
Forecast
Full Year 2014
 
Change
Y-O-Y
 
Prior Guidance
March 14, 2014
Capacity (ASMs in millions)
8,025 - 8,075
 
~ 4%
 
32,000 - 32,500
 
~ 6%
 
31,750 - 32,250
Cost per ASM excluding fuel and special items (cents)
7.46¢ - 7.51¢
 
~ 2%
 
7.53¢ - 7.58¢
 
~ flat
 
7.57¢ - 7.62¢
Fuel gallons (000,000)
101
 
~ 1%
 
403
 
~ 2.5%
 
400
Economic fuel cost per gallon(a)
$3.26
 
~ (0.5)%
 
(a) 
 
(a) 
 
(a) 
(a) 
Our economic fuel cost per gallon estimate for the second quarter includes the following per-gallon assumptions:  crude oil cost - $2.43 ($102 per barrel), refining margin - 58 cents, cost of settled hedges - 6 cents, with the remaining difference due to taxes and other into-plane costs. Because of volatility of fuel prices, we do not give full-year economic fuel estimates.

Changes in Advance Booked Load Factors (percentage of ASMs that are sold)(a) 
 
April
 
May
 
June
Point Change Y-O-Y
flat
 
+0.5 pts
 
flat
Prior Guidance Mar. 14, 2014 - Point Change Y-O-Y
+0.5 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
Q2 2014
 
Change
Y-O-Y
 
Forecast
Full Year 2014
 
Change
Y-O-Y
 
Prior Guidance
March 14, 2014
Capacity (ASMs in millions)
8,925 - 8,975
 
~ 4.5%
 
35,600 - 36,100
 
~ 6.5%
 
35,500 - 36,000
Cost per ASM excluding fuel and special items (cents)
8.41¢ - 8.46¢
 
~ 1.5%
 
8.43¢ - 8.48¢
 
~ flat
 
8.47¢ - 8.52¢
Fuel gallons (000,000)
116
 
~ 2.5%
 
465
 
~ 4%
 
465
Economic fuel cost per gallon(a)
$3.26
 
~ (0.5)%
 
(a) 
 
(a) 
 
(a) 
(a) 
Please see note(a) in Mainline.

Changes in Advance Booked Load Factors (percentage of ASMs that are sold)(a) 
 
April
 
May
 
June
Point Change Y-O-Y
flat
 
+0.5 pts
 
flat
Prior Guidance Mar. 14, 2014 - Point Change Y-O-Y
+0.5 pts
 
+0.5 pts
 
N/A
(a) 
Percentage point change compared to the same point in time last year.

Nonoperating Income
We expect that our consolidated nonoperating income will be approximately $1 million in the second quarter of 2014.




AIR GROUP - CONSOLIDATED (continued)
Capital Expenditures(a) 
Total expected capital expenditures are as follows (in millions): 
 
2014
 
2015
 
2016
 
2017
Aircraft and aircraft purchase deposits - firm
$
290

 
$
335

 
$
270

 
$
330

Replacement options expected to be exercised
10

 
75

 
60

 

Other flight equipment
125

 
35

 
35

 
25

Other property and equipment
105

 
80

 
75

 
75

Total property and equipment additions
$
530

 
$
525

 
$
440

 
$
430

Other aircraft and aircraft deposits, if exercised(b)
$
25

 
$
195

 
$
250

 
$
300

(a) 
Preliminary estimate, subject to change.
(b) 
Alaska has options to acquire 62 737 aircraft with deliveries from 2016 through 2024. Horizon has options to acquire 7 Q400 aircraft with deliveries from 2015 through 2018.

Projected Fleet Count(a) 
 
Actual Fleet Count
 
Expected Fleet Activity(b)
Aircraft
Dec 31, 2013
 
Mar 31, 2014
 
Remaining2014
 
Dec 31, 2014
 
2015 Changes
 
Dec 31, 2015
737 Freighters & Combis
6

 
6

 

 
6

 

 
6

737 Passenger Aircraft
125

 
127

 
1

 
128

 
1

 
129

Total Mainline Fleet
131

 
133

 
1

 
134

 
1

 
135

Q400
51

 
51

 

 
51

 

 
51

Total
182

 
184

 
1

 
185

 
1

 
186

(a) 
The expected fleet counts at December 31, 2014 and 2015 are subject to change.
(b) 
Expected fleet activity includes aircraft deliveries, net of planned retirements and lease returns.

Future Fuel Hedge Positions(a) 
We use both call options on crude oil futures and swap instruments on LA Jet refining margins to hedge against price volatility of future jet fuel consumption. We have refining margin swaps in place for approximately 50% of our second quarter of 2014 estimated jet fuel purchases at an average price of 57 cents cents per gallon. Our crude oil positions are as follows:
 
Approximate % of Expected Fuel Requirements
 
Weighted-Average Crude Oil Price per Barrel
 
Average Premium Cost per Barrel
Second Quarter 2014
50
%
 
$103
 
$8
Third Quarter 2014
50
%
 
$104
 
$7
Fourth Quarter 2014
40
%
 
$104
 
$7
   Full Year 2014
47
%
 
$104
 
$8
First Quarter 2015
30
%
 
$104
 
$6
Second Quarter 2015
22
%
 
$103
 
$6
Third Quarter 2015
17
%
 
$106
 
$5
Fourth Quarter 2015
11
%
 
$106
 
$5
Full Year 2015
20
%
 
$104
 
$6
First Quarter 2016
6
%
 
$105
 
$4
Full Year 2016
1
%
 
$105
 
$4
(a)
All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. With call options, we benefit from a decline in crude oil prices, as there is no cash outlay other than the premiums we pay to enter into the contracts.






AIR GROUP - CONSOLIDATED (continued)

Fuel Price Sensitivity
The following table depicts a forward-looking sensitivity of our full year 2014 economic fuel price per gallon given actual economic costs incurred to date, our current crude oil and refining margin positions, and a range of possible future crude oil and refining margin prices:
 
 
 
Crude Price per Barrel
 
 
 
 
 
$
70

 
$
80

 
$
90

 
$
100

 
$
110

 
$
120

Refining Margin
(cents per Gallon)
40

 
$
2.60

 
$
2.78

 
$
2.96

 
$
3.13

 
$
3.27

 
$
3.37

50

 
$
2.66

 
$
2.84

 
$
3.02

 
$
3.19

 
$
3.33

 
$
3.43

60

 
$
2.73

 
$
2.91

 
$
3.09

 
$
3.25

 
$
3.40

 
$
3.50

70

 
$
2.79

 
$
2.97

 
$
3.15

 
$
3.32

 
$
3.46

 
$
3.56

80

 
$
2.85

 
$
3.03

 
$
3.21

 
$
3.38

 
$
3.53

 
$
3.62

90

 
$
2.92

 
$
3.10

 
$
3.28

 
$
3.45

 
$
3.59

 
$
3.69



AAG Annual Cash Distributions
Based on improved cash flow from operations, lower debt levels and higher pension funded status, an increasing portion of capital has shifted toward shareholders.


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