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Alaska Air Group reports fourth quarter 2016 and full-year results and raises dividend 9%

SEATTLE, Feb. 8, 2017 /PRNewswire/ --

Acquisition of Virgin America Inc.:

  • Air Group completed its acquisition of Virgin America Inc. ("Virgin America") on Dec. 14, 2016.
  • Fourth quarter 2016 results reflect the results of operations and cash flows for Virgin America from Dec. 14, 2016 through Dec. 31, 2016, including the impacts associated with purchase accounting. Periods presented prior to the acquisition date do not include Virgin America's results, except in the supplementary combined comparative financial information.

Dividend Increase:

  • Announced today a 9% increase in the quarterly dividend, from $0.275 per share to $0.30 per share. This is the fourth time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 200% since that time.

Financial Highlights:

  • Reported net income for the fourth quarter and full year under Generally Accepted Accounting Principles ("GAAP") of $114 million, or $0.92 per diluted share, and $814 million, or $6.54 per diluted share, respectively. These results compared to fourth quarter 2015 net income of $191 million, or $1.51 per diluted share, and full year 2015 net income of $848 million, or $6.56 per diluted share.
  • Reported adjusted fourth quarter 2016 diluted earnings per share of $1.56, a 7% increase over the fourth quarter of 2015. Fourth quarter net income, excluding special items, was $193 million, a 4% increase from the fourth quarter of 2015. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.40 per share.
  • Reported full year 2016 net income, excluding special items, of $911 million, an 8% increase from 2015, and adjusted diluted earnings per share of $7.32, a 12% increase from 2015.
  • Paid a $0.275 per-share quarterly cash dividend in the fourth quarter, bringing total dividend payments in 2016 to $136 million.
  • Generated approximately $1.4 billion of operating cash flow and $708 million of free cash flow in 2016.
  • Achieved return on invested capital of 21% in 2016, including Virgin America's results beginning Dec. 14, 2016.
  • Grew passenger revenues by 9% compared to the fourth quarter of 2015, and by 4% compared to full-year 2015.
  • Generated full-year adjusted pretax margin of 24% in 2016, in line with 2015.
  • Lowered consolidated unit costs excluding fuel and special items for the seventh consecutive year, to the lowest level ever. Mainline unit costs excluding fuel and special items have declined 14 of the last 15 years.
  • Held $1.6 billion in unrestricted cash and marketable securities as of Dec. 31, 2016. 

2016 Accomplishments and Highlights:

Recognition and Awards - Alaska

  • Became the first major U.S. airline to receive approval from the Federal Aviation Administration for its Safety Management System.
  • Ranked best airline in the U.S. by the Wall Street Journal's "2016 Airline Scorecard" for the fourth year in a row. 
  • Ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in 2016 by J.D. Power for the ninth year in a row.
  • Ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in 2016 by J.D. Power for the third consecutive year.
  • Ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the second consecutive year.
  • Ranked among Forbes' 2016 "America's Best Employers."
  • Named No. 1 on-time carrier in North America for the seventh year in a row by FlightStats in January 2017.
  • Received the Department of Defense 2016 Freedom Award, the highest recognition given to employers by the U.S. government for their support of National Guard and Reserve members.
  • Received 15th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training.
  • Ranked first in the commercial aviation division and first place overall at the 2016 Annual International Aerospace Maintenance Competition, surpassing over 50 teams from around the world.
  • Named the No. 1 cargo carrier by Logistics Management magazine, as part of its annual Quest for Quality awards.
  • Joined Standard and Poor's 500 Index. Companies included in the S&P 500 are chosen by the S&P Index Committee based on their size, earnings history and liquidity, among other factors.
  • Ranked among the Fortune 500 for the third year in a row.
  • Ranked among the top "green companies" in the United States by Newsweek.
  • Ranked among the top 100 socially just companies in the United States by Forbes.
  • Received the Seattle-Tacoma International Airport Green Gateway Environmental Excellence Award for the second year in a row, as a result of efforts in reducing emissions, recycling and waste reduction and lowered energy consumption.

Recognition and Awards - Virgin America

  • Rated Best U.S. Airline by Conde Nast Traveler in their "Annual Readers' Choice Awards" for nine years in a row.
  • Ranked Best Domestic Airline in Travel + Leisure "World's Best Awards" for nine years in a row.
  • Rated the number one carrier in the 2016 Airline Quality Report for the fourth consecutive year, an annual analysis of airline performance metrics conducted by Wichita State University and Embry-Riddle Aeronautical University.
  • Rated "Best Airline in North America" for the second year in a row and "Best Low-Cost Airline in the U.S." for the seventh year in a row by Skytrax World Airline Awards.

Our People

  • Awarded a record $159 million in incentive pay to employees for 2016, including $32 million earned by Virgin America teammates in 2016 prior to the acquisition.
  • Reached a tentative agreement with Alaska's aircraft technicians on a new collective bargaining agreement.
  • Alaska received a perfect score of 100% for workplace equality on the 2017 Corporate Equality Index ("CEI"). Virgin America received a score of 95%.

Our Guests and Product

  • Announced enhanced benefits to the Alaska Airlines Visa Signature credit card and the Alaska Airlines Visa Business credit card including the elimination of foreign transaction fees and increased bonus miles.
  • Announced a new codeshare agreement and frequent flier partnership with Japan Airlines, providing Alaska customers seamless travel and mileage earning opportunities.
  • Launched Premium Class service on Alaska, including more legroom, complimentary alcoholic beverages, and premium snacks.
  • Flew the first three commercial flights using sustainable alcohol-to-jet biofuel made from U.S. grown corn and alternative jet fuel made from forest residuals, continuing Alaska's commitment to reduce its carbon emissions.
  • Placed an order for 33 firm Embraer 175 ("E175") regional jets to be flown by subsidiary Horizon Air, with the first delivery scheduled in 2017. An additional 30 options are available under the purchase arrangement.
  • Added 19 Boeing 737-900ERs aircraft to the operating fleet in 2016, bringing the total fleet to 155 Boeing aircraft.
  • Added 5 Airbus A320 aircraft to Virgin America's fleet in 2016, bringing the total fleet to 63 Airbus aircraft.
  • Added 17 new markets in 2016 across the Alaska Air Group and Virgin America networks.
  • Increased fuel efficiency (as measured by seat-miles per gallon) by 1.4% over 2015.

Our Communities

  • Donated over $13 million to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

Alaska Air Group, Inc. (NYSE: ALK) today reported fourth quarter 2016 GAAP net income of $114 million, or $0.92 per diluted share, compared to $191 million, or $1.51 per diluted share in 2015. Excluding the impact of special items and mark-to-market fuel hedge adjustments, the company reported record fourth quarter adjusted net income of  $193 million, or $1.56 per diluted share, compared to adjusted net income of $186 million, or $1.46 per diluted share in the fourth quarter of 2015.

The company reported full-year 2016 GAAP net income of $814 million, compared to $848 million in the prior year. Excluding the impact of special items and mark-to-market fuel hedge adjustments, the company reported record net income of $911 million, or $7.32 per diluted share for 2016, compared to adjusted net income of $842 million, or $6.51 per diluted share in 2015.

"2016 was an incredible year for Alaska in almost every way, and we are even more excited as we look forward to 2017 and beyond," said Alaska CEO Brad Tilden. "Our people are rallying around a common purpose of creating an airline people love, and we are well on our way, with benefits like reciprocal mileage and easy booking of Virgin America flights on alaskaair.com already available. I want to thank our people for providing our guests great service, and for staying focused on running a safe and reliable operation."

On Feb. 7, 2017, the board of directors of Alaska Air Group declared a quarterly cash dividend of 30 cents per share, payable March 9, 2017 to all shareholders of record as of Feb. 21, 2017.

The following tables reconcile the company's adjusted net income and earnings per diluted share ("EPS") during the full year and fourth quarters of 2016 and 2015 to amounts as reported in accordance with GAAP. The amounts include financial results for Virgin America for the period Dec. 14, 2016 through Dec. 31, 2016, including impacts associated with purchase accounting as of Dec. 14, 2016:


Three Months Ended December 31,


2016


2015

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income and diluted EPS

$

114



$

0.92



$

191



$

1.51


Mark-to-market fuel hedge adjustments

(4)



(0.03)



1



0.01


Special items - merger-related costs and other

81



0.65



32



0.25


Income tax effect on special items and fuel hedge adjustments(a)

(15)



(0.12)



(12)



(0.09)


Special tax (benefit)/expense(b)

17



0.14



(26)



(0.22)


Non-GAAP adjusted net income and diluted EPS

$

193



$

1.56



$

186



$

1.46


 


Twelve Months Ended December 31,


2016


2015

(in millions, except per share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

Reported GAAP net income and diluted EPS

$

814



$

6.54



$

848



$

6.56


Mark-to-market fuel hedge adjustments

(13)



(0.11)






Special items - merger-related costs and other

117



0.94



32



0.25


Income tax effect on special items and fuel hedge adjustments(a)

(24)



(0.19)



(12)



(0.10)


Special tax (benefit)/expense(b)

17



0.14



(26)



(0.20)


Non-GAAP adjusted net income and diluted EPS

$

911



$

7.32



$

842



$

6.51




(a)

Certain merger-related costs are non-deductible for tax purposes, resulting in a smaller income tax effect for current year adjusting items.

(b) 

Special tax (benefit)/expense represents the discrete impacts of adjustments to the Company's position on income sourcing in various states.

Statistical data, as well as a reconciliation of other 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 online at 8:30 a.m. Pacific time on Feb. 8, 2017. 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., Horizon Air Industries, Inc., and Virgin America Inc. are referred to as "Alaska," "Horizon," and "Virgin America" 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, 2015, as well as in other documents filed by Alaska Air Group with the SEC after the date thereof. 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, together with Virgin America and its regional partners, flies 40 million customers a year to 118 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada, Costa Rica and Cuba. With Alaska and Alaska Global Partners, customers can earn and redeem miles on flights to more than 900 destinations worldwide. Learn more about Alaska's award-winning service and unmatched reliability at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.











Amounts below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016.






Three Months Ended December 31,


Twelve Months Ended December 31,

(in millions, except per share amounts)

2016


2015


Change


2016


2015


Change

Operating Revenues:












Passenger












Mainline

$

1,062



$

962



10

%


$

4,098



$

3,939



4

%

Regional

226



216



5

%


908



854



6

%

Total passenger revenue

1,288



1,178



9

%


5,006



4,793



4

%

Freight and mail

26



25



4

%


108



108



%

Other - net

210



174



21

%


817



697



17

%

Total Operating Revenues

1,524



1,377



11

%


5,931



5,598



6

%













Operating Expenses:












Wages and benefits

374



331



13

%


1,382



1,254



10

%

Variable incentive pay

32



30



7

%


127



120



6

%

Aircraft fuel, including hedging gains and losses

238



213



12

%


831



954



(13)

%

Aircraft maintenance

73



71



3

%


270



253



7

%

Aircraft rent

34



27



26

%


114



105



9

%

Landing fees and other rentals

88



79



11

%


320



296



8

%

Contracted services

64



57



12

%


247



214



15

%

Selling expenses

63



51



24

%


225



211



7

%

Depreciation and amortization

82



84



(2)

%


363



320



13

%

Food and beverage service

33



30



10

%


126



113



12

%

Third-party regional carrier expense

21



20



5

%


95



72



32

%

Other

100



97



3

%


365



356



3

%

Special items - merger-related costs and other

81



32



153

%


117



32



266

%

Total Operating Expenses

1,283



1,122



14

%


4,582



4,300



7

%

Operating Income

241



255



(5)

%


1,349



1,298



4

%













Nonoperating Income (Expense):












Interest income

7



5





27



21




Interest expense

(22)



(10)





(55)



(42)




Interest capitalized

4



9





25



34




Other - net

1







(1)



1




Total Nonoperating Income (Expense)

(10)



4





(4)



14




Income Before Income Tax

231



259



(11)

%


1,345



1,312



3

%

Income tax expense

117



68





531



464




Net Income

$

114



$

191



(40)

%


$

814



$

848



(4)

%













Basic Earnings Per Share:

$

0.92



$

1.52



(39)

%


$

6.59



$

6.61



%

Diluted Earnings Per Share:

$

0.92



$

1.51



(39)

%


$

6.54



$

6.56



%













Shares Used for Computation:












Basic

123.286



125.900



(2)

%


123.557



128.373



(4)

%

Diluted

124.102



126.818



(2)

%


124.389



129.372



(4)

%













Cash dividend declared per share

$

0.275



$

0.200





$

1.100



$

0.800




 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)




Alaska Air Group, Inc.




Amounts below for December 31, 2016 reflect the acquisition of Virgin America, including impacts associated with purchase accounting.





(in millions)

December 31, 2016 (b)


December 31, 2015

Cash and marketable securities

$

1,580



$

1,328






Total current assets

2,050



1,663


Property and equipment-net

5,686



4,802


Goodwill

1,917




Intangible assets

155




Other assets

169



65


Total assets

$

9,977



$

6,530






Air traffic liability

849



669


Current portion of long-term debt

318



114


Other current liabilities

1,370



1,022


Current liabilities

$

2,537



$

1,805


Long-term debt

2,637



569


Other liabilities and credits

1,872



1,745


Shareholders' equity

2,931



2,411


Total liabilities and shareholders' equity

$

9,977



$

6,530






Debt to Capitalization, adjusted for operating leases(a)

59%



27%






Number of common shares outstanding

123.328



125.175




(a) 

Calculated using the present value of remaining aircraft lease payments for aircraft that are in our operating fleet as of the balance sheet date.

(b) 

The impacts of purchase accounting included in these balances were determined on a preliminary basis and are subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. Any adjustments to the purchase price allocation will be made as soon as practicable but no later than December 14, 2017.

 

OPERATING STATISTICS SUMMARY (unaudited)







Alaska Air Group, Inc.











Consolidated and Mainline amounts presented below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016.














Three Months Ended December 31,


Twelve Months Ended December 31,


2016


2015


Change


2016


2015


Change

Consolidated Operating Statistics:(a)












Revenue passengers (PAX) (000)

8,752


7,927


10.4%


34,289


31,883


7.5%

RPMs (000,000) "traffic"

9,640


8,526


13.1%


37,209


33,578


10.8%

ASMs (000,000) "capacity"

11,407


10,340


10.3%


44,135


39,914


10.6%

Load factor

84.5%


82.5%


2.0 pts


84.3%


84.1%


0.2 pts

Yield

13.36¢


13.82¢


(3.3)%


13.45¢


14.27¢


(5.7)%

PRASM

11.29¢


11.39¢


(0.9)%


11.34¢


12.01¢


(5.6)%

RASM

13.36¢


13.32¢


0.3%


13.44¢


14.03¢


(4.2)%

CASM excluding fuel and special items(b)

8.45¢


8.48¢


(0.4)%


8.23¢


8.30¢


(0.8)%

Economic fuel cost per gallon(c)

$1.68


$1.62


3.7%


$1.52


$1.88


(19.1)%

Fuel gallons (000,000)

144


131


9.9%


554


508


9.1%

ASM's per gallon

79.2


78.9


0.4%


79.7


78.6


1.4%

Average full-time equivalent employees (FTEs)

15,566


14,360


8.4%


14,760


13,858


6.5%

Employee productivity (PAX/FTEs/months)

187.4


184.0


1.8%


193.6


191.7


1.0%

Mainline Operating Statistics:












Revenue passengers (PAX) (000)

6,406


5,676


12.9%


24,838


22,869


8.6%

RPMs (000,000) "traffic"

8,722


7,707


13.2%


33,489


30,340


10.4%

ASMs (000,000) "capacity"

10,257


9,303


10.3%


39,473


35,912


9.9%

Load factor

85.0%


82.8%


2.2 pts


84.8%


84.5%


0.3 pts

Yield

12.17¢


12.48¢


(2.5)%


12.24¢


12.98¢


(5.7)%

PRASM

10.35¢


10.34¢


0.1%


10.38¢


10.97¢


(5.4)%

RASM

12.46¢


12.28¢


1.5%


12.51¢


12.98¢


(3.6)%

CASM excluding fuel and special items(b)

7.57¢


7.54¢


0.4%


7.30¢


7.39¢


(1.2)%

Economic fuel cost per gallon(c)

$1.67


$1.60


4.4%


$1.52


$1.87


(18.7)%

Fuel gallons (000,000)

124


113


9.7%


474


439


8.0%

ASM's per gallon

82.7


82.3


0.5%


83.3


81.8


1.8%

Average number of FTEs

12,037


11,069


8.7%


11,447


10,750


6.5%

Employee productivity (PAX/FTEs/months)

177.4


170.9


3.8%


180.8


177.3


2.0%

Aircraft utilization

10.1


10.7


(5.6)%


10.5


10.8


(2.8)%

Average aircraft stage length

1,243


1,225


1.5%


1,225


1,195


2.5%

Regional Operating Statistics:(d)












Revenue passengers (PAX) (000)

2,346


2,253


4.1%


9,452


9,015


4.8%

RPMs (000,000) "traffic"

918


819


12.1%


3,720


3,238


14.9%

ASMs (000,000) "capacity"

1,150


1,037


10.9%


4,662


4,002


16.5%

Load factor

79.8%


79.0%


0.8 pts


79.8%


80.9%


(1.1) pts

Yield

24.64¢


26.37¢


(6.6)%


24.42¢


26.37¢


(7.4)%

PRASM

19.67¢


20.83¢


(5.6)%


19.49¢


21.34¢


(8.7)%



(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 and third-party carriers.

 

OPERATING SEGMENTS (unaudited)







Alaska Air Group, Inc.













Amounts below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016.
















Three Months Ended December 31, 2016

(in millions)

Mainline(a)


Regional


Horizon


Consolidating
& Other(b)


Air Group
Adjusted(c)


Special
Items(d)


Consolidated

Operating revenues














Passenger














Mainline

$

1,062



$



$



$



$

1,062



$



$

1,062


Regional



226







226





226


Total passenger revenues

1,062



226







1,288





1,288


Revenue from CPA with Alaska





102



(102)








Freight and mail

25



2





(1)



26





26


Other-net

192



17



1





210





210


Total operating revenues

1,279



245



103



(103)



1,524





1,524


Operating expenses














Non-fuel operating expenses

776



189



102



(103)



964



81



1,045


Fuel expense

207



35







242



(4)



238


Total operating expenses

983



224



102



(103)



1,206



77



1,283


Nonoperating income (expense)














Interest income

7









7





7


Interest expense

(19)





(2)



(1)



(22)





(22)


Other

4





1





5





5


Total nonoperating income (expense)

(8)





(1)



(1)



(10)





(10)


Income (loss) before income tax

$

288



$

21



$



$

(1)



$

308



$

(77)



$

231

















Three Months Ended December 31, 2015

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(b)


Air Group
Adjusted(c)


Special
Items(d)


Consolidated

Operating revenues














Passenger














Mainline

$

962



$



$



$



$

962



$



$

962


Regional



216







216





216


Total passenger revenues

962



216







1,178





1,178


Revenue from CPA with Alaska





105



(105)








Freight and mail

24



1







25





25


Other-net

156



17



1





174





174


Total operating revenues

1,142



234



106



(105)



1,377





1,377


Operating expenses














Non-fuel operating expenses

702



181



101



(107)



877



32



909


Fuel expense

182



30







212



1



213


Total operating expenses

884



211



101



(107)



1,089



33



1,122


Nonoperating income (expense)














Interest income

4







1



5





5


Interest expense

(7)





(2)



(1)



(10)





(10)


Other

7





1



1



9





9


Total nonoperating income (expense)

4





(1)



1



4





4


Income (loss) before income tax

$

262



$

23



$

4



$

3



$

292



$

(33)



$

259


 

OPERATING SEGMENTS (unaudited)







Alaska Air Group, Inc.




























Twelve Months Ended December 31, 2016

(in millions)

Mainline(a)


Regional


Horizon


Consolidating
& Other(b)


Air Group
Adjusted(c)


Special
Items(d)


Consolidated

Operating revenues














Passenger














Mainline

$

4,098



$



$



$



$

4,098



$



$

4,098


Regional



908







908





908


Total passenger revenues

4,098



908







5,006





5,006


Revenue from CPA with Alaska





424



(424)








Freight and mail

104



5





(1)



108





108


Other-net

738



74



4



1



817





817


Total operating revenues

4,940



987



428



(424)



5,931





5,931


Operating expenses














Non-fuel operating expenses

2,883



769



407



(425)



3,634



117



3,751


Fuel expense

719



125







844



(13)



831


Total operating expenses

3,602



894



407



(425)



4,478



104



4,582


Nonoperating income (expense)














Interest income

26





1





27





27


Interest expense

(42)





(9)



(4)



(55)





(55)


Other

19





1



4



24





24


Total nonoperating income (expense)

3





(7)





(4)





(4)


Income (loss) before income tax

$

1,341



$

93



$

14



$

1



$

1,449



$

(104)



$

1,345

















Twelve Months Ended December 31, 2015

(in millions)

Mainline


Regional


Horizon


Consolidating
& Other(b)


Air Group
Adjusted(c)


Special
Items(d)


Consolidated

Operating revenues














Passenger














Mainline

$

3,939



$



$



$



$

3,939



$



$

3,939


Regional



854







854





854


Total passenger revenues

3,939



854







4,793





4,793


Revenue from CPA with Alaska





408



(408)








Freight and mail

103



5







108





108


Other-net

621



72



4





697





697


Total operating revenues

4,663



931



412



(408)



5,598





5,598


Operating expenses














Non-fuel operating expenses

2,653



695



375



(409)



3,314



32



3,346


Fuel expense

823



131







954





954


Total operating expenses

3,476



826



375



(409)



4,268



32



4,300


Nonoperating income (expense)














Interest income

19







2



21





21


Interest expense

(28)





(10)



(4)



(42)





(42)


Other

28





1



6



35





35


Total nonoperating income (expense)

19





(9)



4



14





14


Income (loss) before income tax

$

1,206



$

105



$

28



$

5



$

1,344



$

(32)



$

1,312




(a) 

Includes Alaska activity for the full period, and Virgin America financial results for the period December 14, 2016 through December 31, 2016, and the impacts associated with purchase accounting as of December 14, 2016.

(b) 

Includes consolidating entries, Parent Company, and other immaterial business units.

(c) 

Air Group Adjusted excludes certain charges. See Note A on the accompanying pages for further information.

(d) 

Includes merger-related costs, mark-to-market fuel-hedge accounting charges, and other special items described previously.

 

GAAP TO NON-GAAP RECONCILIATIONS

Alaska Air Group, Inc.

Consolidated and Mainline amounts presented below reflect the results of operations for Virgin America for the period December 14, 2016 through December 31, 2016, including impacts associated with purchase accounting as of December 14, 2016.


CASM Excluding Fuel and Special Items Reconciliation (unaudited)










Three Months Ended December 31,


Twelve Months Ended December 31,

(in cents)

2016


2015


2016


2015

Consolidated:








Total operating expenses per ASM (CASM)

11.25

¢


10.85

¢


10.38

¢


10.77

¢

Less the following components:








Aircraft fuel, including hedging gains and losses

2.09



2.06



1.88



2.39


Special items - merger-related costs and other

0.71



0.31



0.27



0.08


CASM, excluding fuel and special items

8.45

¢


8.48

¢


8.23

¢


8.30

¢









Mainline:








Total operating expenses per ASM (CASM)

10.33

¢


9.86

¢


9.39

¢


9.77

¢

Less the following components:








Aircraft fuel, including hedging gains and losses

1.98



1.97



1.79



2.29


Special items - merger-related costs and other

0.78



0.35



0.30



0.09


CASM, excluding fuel and special items

7.57

¢


7.54

¢


7.30

¢


7.39

¢









Fuel Reconciliations (unaudited)

















Three Months Ended December 31,


2016


2015

(in millions, except for per gallon amounts)

Dollars


Cost/Gal


Dollars


Cost/Gal

Raw or "into-plane" fuel cost

$

238



$

1.65



$

208



$

1.59


Losses on settled hedges

4



0.03



4



0.03


Consolidated economic fuel expense

$

242



$

1.68



$

212



$

1.62


Mark-to-market fuel hedge adjustments

(4)



(0.03)



1




GAAP fuel expense

$

238



$

1.65



$

213



$

1.62


Fuel gallons

144





131













Twelve Months Ended December 31,


2016


2015

(in millions, except for per gallon amounts)

Dollars


Cost/Gal


Dollars


Cost/Gal

Raw or "into-plane" fuel cost

$

828



$

1.49



$

935



$

1.84


Losses on settled hedges

16



0.03



19



0.04


Consolidated economic fuel expense

$

844



$

1.52



$

954



$

1.88


Mark-to-market fuel hedge adjustments

(13)



(0.02)






GAAP fuel expense

$

831



$

1.50



$

954



$

1.88


Fuel gallons

554





508




 

SUPPLEMENTARY COMBINED COMPARATIVE FINANCIAL INFORMATION (unaudited)

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons, and have presented combined results in the tables that follow. Financial and operational information on a combined basis is the sum of the historical consolidated financial results of the Company through December 31, 2016 and of Virgin America for the periods prior to the acquisition date of December 14, 2016. It includes the impact of purchase accounting only for the period following the acquisition. This information does not purport to reflect what our financial and operational results would have been had the acquisition been consummated at the beginning of the periods presented.


Three months ended December 31, 2016


Three months ended December 31, 2015



(in millions)

Alaska Air
Group

(as reported)

Virgin America

(as conformed)

Combined


Alaska Air
Group

(as reported)

Virgin America

(as reported
and
conformed)

Combined


Combined
% Change

Passenger revenue

$

1,288


293


$

1,581



$

1,178


$

347


$

1,525



3.7

%

Other revenue(a)

236


37


273



199


43


242



12.8

%

Total Operating Revenues

1,524


330


1,854



1,377


390


1,767



4.9

%

Non-fuel operating expense

1,045


237


1,282



909


288


1,197



7.1

%

Fuel expense

238


64


302



213


82


295



2.4

%

Total Operating Expenses

1,283


301


1,584



1,122


370


1,492



6.2

%

Operating Income

241


29


270



255


20


275



(1.8)

%

Nonoperating income (expense)

(10)


(5)


(15)



4


(3)


1



NM

Income Before Tax

231


24


255



259


17


276



(7.6)

%

Special items - merger-related and other

81


13