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Alaska Air Group reports Fourth Quarter 2017 and full-year results and raises dividend 7%

25-Jan-2018 Dividend Increase:

  • Announced today a 7% increase in the quarterly dividend from $0.30 per share to $0.32 per share. The dividend will be paid on March 8, to all shareholders of record as of Feb. 20, 2018. This is the fifth time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 220% since that time.

Financial Highlights:

  • Reported net income for the fourth quarter and full-year under Generally Accepted Accounting Principles ("GAAP") of $367 million, or $2.97 per diluted share, and $1.0 billion, or $8.30 per diluted share. These results compare to fourth quarter 2016 net income of $114 million, or $0.92 per diluted share, and full-year 2016 net income of $814 million, or $6.54 per diluted share. As the acquisition of Virgin America Inc. (Virgin America) closed on Dec. 14, 2016, 2017 information reflects the results of Virgin America. 2016 information reflects the results of Virgin America from Dec. 14-31, 2016.
  • Reported fourth quarter 2017 adjusted diluted earnings per share of $0.83 compared to $1.56 reported in the fourth quarter of 2016. Fourth quarter adjusted net income, excluding merger-related costs, special income tax benefits related to tax law changes, and mark-to-market fuel hedging adjustments, was $103 million compared to $193 million in the fourth quarter of 2016. This quarter's adjusted results compare to the First Call analyst consensus estimate of $0.82 per share.
  • Reported full year 2017 adjusted net income, excluding merger-related costs, the special income tax benefit, and mark-to-market fuel hedging adjustments, of $823 million, compared to $911 million in 2016. Reported 2017 adjusted diluted earnings per share of $6.64, compared to $7.32 in 2016.
  • Paid a $0.30 per-share quarterly cash dividend in the fourth quarter, bringing total dividend payments in 2017 to $148 million.
  • Repurchased a total of 981,277 shares of common stock for approximately $75 million in 2017.
  • Generated approximately $1.6 billion of operating cash flow and used approximately $1.0 billion for capital expenditures, resulting in approximately $547 million of free cash flow in 2017.
  • Grew passenger revenues by 32% compared to the fourth quarter of 2016, and by 36% compared to full-year 2016, largely enabled by our acquisition of Virgin America in December of 2016.
  • Generated full-year adjusted pretax margin of 17% in 2017.
  • Held $1.6 billion in unrestricted cash and marketable securities as of Dec. 31, 2017.
  • Reduced debt-to-capitalization ratio to 51% as of Dec. 31, 2017, compared to 59% as of Dec. 31, 2016.

2017 Accomplishments and Highlights:

Recognition and Awards - Alaska

  • Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2017 by J.D. Power for the tenth year in a row.
  • Ranked first in the U.S. News & World Report's list of Best Travel Rewards Programs for the third consecutive year.
  • Won the "Best Rewards Program" for Alaska Mileage Plan for carriers in the "Americas" region in the sixth annual FlyerTalk Award.
  • Mileage Plan ranked Best Airline Elite Status Program in the U.S. by The Points Guy.
  • Ranked among Forbes' 2017 "America's Best Employers" for the third year in a row.
  • Received 16th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training.
  • Ranked by AirlineRatings.com as one of only two U.S. airlines in the Top 20 safest airlines in the world.
  • Rated "Best Airline Staff in North America" and "Best Regional Airline in North America" by Skytrax World Airline Awards.
  • Awarded TripAdvisor's 2017 Travelers' Choice Award for second-best midsize and low-cost airlines in North America and one of the top 10 best airlines in the world.
  • Recognized by the Puget Sound Business Journal as the 2017 Board Diversity Champion, as well as by the Women Corporate Directors Global Institute for diversity among our Directors.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI), receiving perfect scores for "efficiency" and "reliability."
  • Recognized as No. 1 in fuel efficiency for U.S. airlines by the International Council on Clean Transportation for the 7th consecutive year.
  • Named one of the overall five-star major regional airlines at the Passenger Choice Awards during the APEX EXPO.
  • Ranked fifth of most engaged companies in the U.S. by Forbes Insights, which measured social media engagement, net promoter scores, and year-over-year sales growth.

Recognition and Awards - Virgin America

  • Rated Best U.S. Airline by Conde Nast Traveler in their "Annual Readers' Choice Awards" for the tenth year in a row.
  • Rated Best Domestic Airline in Travel + Leisure "World's Best Awards" for the tenth year in a row.
  • Received a five-star rating for low-cost carrier, and received a top honor with a Passenger Choice Award for "Best Seat Comfort" during the APEX EXPO.

Our People

  • Awarded $135 million in incentive pay to employees for 2017.
  • Awarded employees a $1,000 bonus in January 2018 in connection with the passing of the Tax Cuts and Jobs Act, amounting to approximately $25 million to be paid on Jan. 29, 2018.
  • Granted "Single Carrier Determination" by the National Mediation Board ("NMB") for Alaska Airlines and Virgin America, paving the way for labor integration and union representation. The NMB officially certified the Association of Flight Attendants as the union representative for Virgin America inflight teammates and the International Association of Machinists and Aerospace Workers as the union representative for Virgin America clerical, office and passenger service employees.
  • Entered into an agreement with the International Brotherhood of Teamsters to amend the eight-year contract with Horizon's pilots, providing Horizon the ability to attract and retain the best pilots in the regional industry.
  • Alaska received a perfect score of 100% for workplace equality on the 2018 Corporate Equality Index ("CEI"). Virgin America received a score of 95%.

Our Guests and Product

  • Launched various new in-flight amenities, including Free Chat, upgraded food and beverage options and Premium Class service.
  • Selected Gogo to provide next-generation satellite-based Wi-Fi across the entire Boeing and Airbus fleets, providing guests a faster and more-reliable internet connection.
  • Dropped fees for bikes, golf clubs, skis, surfboards, and other sporting equipment that exceed Alaska's normal checked baggage weight and dimensions to $25.
  • Added Condor Airlines, Finnair, and Singapore Airlines as global Mileage Plan partners.
  • Announced plans to fly 13 daily departures from Paine Field-Snohomish County Airport in Everett, Washington to eight West Coast markets starting in fall 2018.
  • Announced a seven-year partnership to be the official airline of the San Francisco Giants which includes, among other things, exclusive naming rights to the AT&T Park Club Level which will now be called the "Alaska Airlines Club Level."
  • Signed an exclusive multi-year partnership with Golden State Warriors star Kevin Durant naming him "Advisor to the CEO," and extended our partnership with Russell Wilson and Ciara.
  • Converted the world's first Boeing 737-700 from a passenger plane to a freighter and placed it into revenue service.
  • Added 14 Boeing 737-900ER aircraft and 4 Airbus A321neo aircraft to the operating fleet in 2017, bringing the total Mainline fleet to 221 aircraft.
  • Added 10 Embraer 175 (E175) regional jets to Horizon Air's fleet in 2017.
  • Added 44 new markets in 2017 across the Alaska Air Group and Virgin America networks.

Our Communities

  • Donated over $14 million and contributed more than 32,000 volunteer hours 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 2017 GAAP net income of $367 million, or $2.97 per diluted share, compared to $114 million, or $0.92 per diluted share in 2016. Excluding the impact of merger-related costs, the special income tax benefit, and mark-to-market fuel hedge adjustments, the company reported fourth quarter adjusted net income of $103 million, or $0.83 per diluted share, compared to adjusted net income of $193 million, or $1.56 per diluted share in the fourth quarter of 2016.

The company reported full-year 2017 GAAP net income of $1,028 million, compared to $814 million in the prior year. Excluding the impact of merger-related costs, the special income tax benefit, and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $823 million, or $6.64 per diluted share for 2017, compared to adjusted net income of $911 million, or $7.32 per diluted share in 2016.

"2017 was a great year - we invested in our route network, our fleet, our product, and laid the foundation for our future," said Brad Tilden, Alaska's CEO. "We added 44 new routes to our network (in addition to the 38 added through Virgin America), grew membership in our loyalty program, and made great progress on our integration of Virgin America. By early spring, we'll have the bulk of the integration behind us, and working with our people to do more of what Alaska does best - running a highly reliable operation and offering our guests outstanding customer service."

The following tables reconcile the company's adjusted net income and earnings per diluted share ("EPS") during the full year and fourth quarters of 2017 and 2016 to amounts as reported in accordance with GAAP:

 

Three Months Ended December 31,

 

2017

 

2016

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income and diluted EPS

$

367

   

$

2.97

   

$

114

   

$

0.92

 

Mark-to-market fuel hedge adjustments

(14)

   

(0.11)

   

(4)

   

(0.03)

 

Special items—merger-related costs

30

   

0.24

   

81

   

0.65

 

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

(6)

   

(0.05)

   

(15)

   

(0.12)

 

Special tax (benefit)/expense(b)

(274)

   

(2.22)

   

17

   

0.14

 

Non-GAAP adjusted net income and diluted EPS

$

103

   

$

0.83

   

$

193

   

$

1.56

 
 
 

Twelve Months Ended December 31,

 

2017

 

2016

(in millions, except per share amounts)

Dollars

 

Diluted EPS

 

Dollars

 

Diluted EPS

Reported GAAP net income and diluted EPS

$

1,028

   

$

8.30

   

$

814

   

$

6.54

 

Mark-to-market fuel hedge adjustments

(7)

   

(0.06)

   

(13)

   

(0.11)

 

Special items—merger-related costs

118

   

0.95

   

117

   

0.94

 

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

(42)

   

(0.34)

   

(24)

   

(0.19)

 

Special tax (benefit)/expense(b)

(274)

   

(2.21)

   

17

   

0.14

 

Non-GAAP adjusted net income and diluted EPS

$

823

   

$

6.64

   

$

911

   

$

7.32

 
   

(a)

Certain merger-related costs in 2016 were non-deductible for tax purposes, resulting in a smaller income tax effect for prior year adjusting items.

(b)

The special tax benefit in 2017 is due to the remeasurement of deferred tax liabilities as a result of the Tax Cuts and Jobs Act signed into law on December 22, 2017, offset by certain state tax law enactments. The resulting net tax benefit is excluded from our adjusted non-GAAP earnings.

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 Jan. 25, 2018. 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 Dec. 31, 2016, as well as in other documents filed by the Company 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 indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. 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 44 million guests a year to 115 destinations with an average of 1,200 daily flights across the United States and to Mexico, Canada, and Costa Rica. With Alaska and Alaska Global Partners, guests can earn and redeem miles on flights to more than 900 destinations worldwide. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North America Satisfaction Study for 10 consecutive years from 2008 to 2017. Learn more about Alaska's award-winning service at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines, Virgin America and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.

                     

Amounts below reflect the results of operations for Virgin America for the three and twelve months ended December 31, 2017 and 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)

2017

 

2016

 

Change

 

2017

 

2016

 

Change

Operating Revenues:

                     

Passenger

                     

Mainline

$

1,468

   

$

1,062

   

38

%

 

$

5,858

   

$

4,098

   

43

%

Regional

235

   

226

   

4

%

 

960

   

908

   

6

%

Total passenger revenue

1,703

   

1,288

   

32

%

 

6,818

   

5,006

   

36

%

Freight and mail

26

   

26

   

%

 

114

   

108

   

6

%

Other - net

233

   

210

   

11

%

 

1,001

   

817

   

23

%

Total Operating Revenues

1,962

   

1,524

   

29

%

 

7,933

   

5,931

   

34

%

                       

Operating Expenses:

                     

Wages and benefits

532

   

374

   

42

%

 

1,924

   

1,382

   

39

%

Variable incentive pay

37

   

32

   

16

%

 

135

   

127

   

6

%

Aircraft fuel, including hedging gains and losses

396

   

238

   

66

%

 

1,447

   

831

   

74

%

Aircraft maintenance

120

   

73

   

64

%

 

391

   

270

   

45

%

Aircraft rent

70

   

34

   

106

%

 

274

   

114

   

140

%

Landing fees and other rentals

122

   

88

   

39

%

 

460

   

320

   

44

%

Contracted services

80

   

64

   

25

%

 

314

   

247

   

27

%

Selling expenses

88

   

63

   

40

%

 

357

   

225

   

59

%

Depreciation and amortization

97

   

82

   

18

%

 

372

   

363

   

2

%

Food and beverage service

50

   

33

   

52

%

 

195

   

126

   

55

%

Third-party regional carrier expense

37

   

21

   

76

%

 

121

   

95

   

27

%

Other

141

   

100

   

41

%

 

565

   

365

   

55

%

Special items—merger-related costs

30

   

81

   

(63)

%

 

118

   

117

   

1

%

Total Operating Expenses

1,800

   

1,283

   

40

%

 

6,673

   

4,582

   

46

%

Operating Income

162

   

241

   

(33)

%

 

1,260

   

1,349

   

(7)

%

                       

Nonoperating Income (Expense):

                     

Interest income

9

   

7

       

34

   

27

     

Interest expense

(26)

   

(22)

       

(103)

   

(55)

     

Interest capitalized

4

   

4

       

17

   

25

     

Other - net

   

1

       

(1)

   

(1)

     

Total Nonoperating Income (Expense)

(13)

   

(10)

       

(53)

   

(4)

     

Income Before Income Tax

149

   

231

       

1,207

   

1,345

     

Income tax expense

56

   

100

       

453

   

514

     

Special income tax benefit

(274)

   

17

       

(274)

   

17

     

Total Income Tax Expense/(Benefit)

$

(218)

   

$

117

       

$

179

   

$

531

     

Net Income

$

367

   

$

114

       

$

1,028

   

$

814

     
                       

Basic Earnings Per Share:

$

2.98

   

$

0.92

       

$

8.34

   

$

6.59

     

Diluted Earnings Per Share:

$

2.97

   

$

0.92

       

$

8.30

   

$

6.54

     
                       

Shares Used for Computation:

                     

Basic

123.147

   

123.286

       

123.211

   

123.557

     

Diluted

123.670

   

124.102

       

123.854

   

124.389

     
                       

Cash dividend declared per share

$

0.300

   

$

0.275

       

$

1.200

   

$

1.100

     

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.

     
       

(in millions)

December 31, 2017

 

December 31, 2016

Cash and marketable securities

$

1,621

   

$

1,580

 
       

Total current assets

2,128

   

2,050

 

Property and equipment-net

6,284

   

5,666

 

Goodwill

1,943

   

1,934

 

Intangible assets-net

133

   

143

 

Other assets

234

   

169

 

Total assets

$

10,722

   

$

9,962

 
       

Air traffic liability

937

   

849

 

Current portion of long-term debt

307

   

319

 

Other current liabilities

1,456

   

1,367

 

Current liabilities

$

2,700

   

$

2,535

 

Long-term debt

2,262

   

2,645

 

Other liabilities and credits

2,045

   

1,851

 

Shareholders' equity

3,715

   

2,931

 

Total liabilities and shareholders' equity

$

10,722

   

$

9,962

 
       

Debt to Capitalization, adjusted for operating leases(a)

51%

   

59%

 
       

Number of common shares outstanding

123.061

   

123.328

 
   

(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.

 

OPERATING STATISTICS SUMMARY (unaudited)

           

Alaska Air Group, Inc.

               

Consolidated and Mainline amounts presented below reflect the results of operations for Virgin America for the three and twelve months ended December 31, 2017 and 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,

 

2017

 

2016

 

Change(d)

 

2017

 

2016

 

Change(d)

Consolidated Operating Statistics:(a)

                     

Revenue passengers (000)

10,971

 

8,752

 

25.4%

 

44,034

 

34,289

 

28.4%

RPMs (000,000) "traffic"

13,265

 

9,640

 

37.6%

 

52,338

 

37,209

 

40.7%

ASMs (000,000) "capacity"

15,901

 

11,407

 

39.4%

 

62,072

 

44,135

 

40.6%

Load factor

83.4%

 

84.5%

 

(1.1) pts

 

84.3%

 

84.3%

 

— pts

Yield

12.84¢

 

13.36¢

 

(3.9)%

 

13.03¢

 

13.45¢

 

(3.1)%

PRASM

10.71¢

 

11.29¢

 

(5.1)%

 

10.98¢

 

11.34¢

 

(3.2)%

RASM

12.34¢

 

13.36¢

 

(7.6)%

 

12.78¢

 

13.44¢

 

(4.9)%

CASMex(b)

8.64¢

 

8.45¢

 

2.2%

 

8.23¢

 

8.23¢

 

—%

Economic fuel cost per gallon(b)

$2.00

 

$1.68

 

19.0%

 

$1.82

 

$1.52

 

19.7%

Fuel gallons (000,000)

205

 

144

 

42.4%

 

797

 

554

 

43.9%

ASM's per gallon

77.6

 

79.2

 

(2.0)%

 

77.9

 

79.7

 

(2.3)%

Average full-time equivalent employees (FTEs)

21,561

 

15,566

 

38.5%

 

20,183

 

14,760

 

36.7%

Employee productivity (PAX/FTEs/months)

169.6

 

187.4

 

(9.5)%

 

181.8

 

193.6

 

(6.1)%

Mainline Operating Statistics:

                     

Revenue passengers (000)

8,664

 

6,406

 

35.2%

 

34,539

 

24,838

 

39.1%

RPMs (000,000) "traffic"

12,191

 

8,722

 

39.8%

 

48,238

 

33,489

 

44.0%

ASMs (000,000) "capacity"

14,547

 

10,257

 

41.8%

 

56,945

 

39,473

 

44.3%

Load factor

83.8%

 

85.0%

 

(1.2) pts

 

84.7%

 

84.8%

 

(0.1) pts

Yield

12.04¢

 

12.17¢

 

(1.1)%

 

12.14¢

 

12.24¢

 

(0.8)%

PRASM

10.09¢

 

10.35¢

 

(2.5)%

 

10.29¢

 

10.38¢

 

(0.9)%

RASM

11.74¢

 

12.46¢

 

(5.8)%

 

12.10¢

 

12.51¢

 

(3.3)%

CASMex(b)

7.94¢

 

7.57¢

 

4.9%

 

7.47¢

 

7.30¢

 

2.3%

Economic fuel cost per gallon(b)

$1.99

 

$1.67

 

19.2%

 

$1.82

 

$1.52

 

19.7%

Fuel gallons (000,000)

180

 

124

 

45.2%

 

706

 

474

 

48.9%

ASM's per gallon

80.8

 

82.7

 

(2.3)%

 

80.7

 

83.3

 

(3.1)%

Average number of FTEs

16,295

 

12,037

 

35.4%

 

15,653

 

11,447

 

36.7%

Aircraft utilization

11.5

 

10.1

 

13.9%

 

11.2

 

10.5

 

6.7%

Average aircraft stage length

1,316

 

1,243

 

5.9%

 

1,301

 

1,225

 

6.2%

Operating fleet

221

 

218

 

3 a/c

 

221

 

218

 

3 a/c

Regional Operating Statistics:(c)

                     

Revenue passengers (000)

2,307

 

2,346

 

(1.7)%

 

9,495

 

9,452

 

0.5%

RPMs (000,000) "traffic"

1,074

 

918

 

17.0%

 

4,101

 

3,720

 

10.2%

ASMs (000,000) "capacity"

1,354

 

1,150

 

17.7%

 

5,127

 

4,662

 

10.0%

Load factor

79.3%

 

79.8%

 

(0.5) pts

 

80.0%

 

79.8%

 

0.2 pts

Yield

21.87¢

 

24.64¢

 

(11.2)%

 

23.41¢

 

24.42¢

 

(4.1)%

PRASM

17.35¢

 

19.67¢

 

(11.8)%

 

18.72¢

 

19.49¢

 

(4.0)%

Operating Fleet

83

 

67

 

16 a/c

 

83

 

67

 

16 a/c

   

(a)

Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)

See a reconciliation of this non-GAAP measure and Note A for a discussion of potential importance of this measure to investors in the accompanying pages.

(c)

Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)

See Combined Comparative information in the accompanying pages for year-over-year comparisons including Virgin America.

SUPPLEMENTARY COMBINED COMPARATIVE FINANCIAL AND OPERATING INFORMATION (unaudited)

We believe that analysis of specific financial and operational results on a combined basis provides more meaningful year-over-year comparisons. The table below provides "Combined Comparative" results for the three and twelve months ended December 31, 2016, determined as the sum of the historical consolidated results of Air Group and of Virgin America. Virgin America's financial information has been conformed to reflect Air Group's historical financial statement presentation for each period presented. 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,

 

Twelve Months Ended December 31,

 

2017

 

2016

     

2017

 

2016

   

(in millions, except operating statistics)

As Reported

 

Combined

 

Change

 

As Reported

 

Combined

 

Change

Combined Comparative Operating Results

Passenger revenue

$

1,703

   

$

1,587

   

7%

 

$

6,818

   

$

6,420

   

6%

Other revenue

259

   

267

   

(3)%

 

1,115

   

1,075

   

4%

Total Operating Revenues

1,962

   

1,854

   

6%

 

7,933

   

7,495

   

6%

Non-fuel operating expense

1,404

   

1,282

   

10%

 

5,226

   

4,800

   

9%

Fuel expense

396

   

302

   

31%

 

1,447

   

1,124

   

29%

Total Operating Expenses

1,800

   

1,584

   

14%

 

6,673

   

5,924

   

13%

Operating Income

162

   

270

   

(40)%

 

1,260

   

1,571

   

(20)%

Nonoperating income (expense)

(13)

   

(15)

   

(13)%

 

(53)

   

(23)

   

130%

Income Before Tax

149

   

255

   

(42)%

 

1,207

   

1,548

   

(22)%

Special items—merger-related costs

30

   

94

   

(68)%

 

118

   

138

   

(14)%

Mark-to-market fuel hedge adjustments

(14)

   

(4)

   

250%

 

(7)

   

(15)

   

(53)%

Adjusted Income Before Tax

$

165

   

$

345

   

(52)%

 

$

1,318

   

$

1,671

   

(21)%

                       

Combined Comparative Operating Statistics

Revenue passengers (000)

10,971

 

10,382

 

5.7%

 

44,034

 

41,947

 

5.0%

RPMs (000,000)

13,265

 

12,084

 

9.8%

 

52,338

 

48,754

 

7.4%

ASMs  (000,000)

15,901

 

14,404

 

10.4%

 

62,072

 

57,953

 

7.1%

Load Factor

83.4%

 

83.9%

 

(0.5) pts

 

84.3%

 

84.1%

 

0.2 pts

PRASM

10.71¢

 

11.02¢

 

(2.8)%

 

10.98¢

 

11.08¢

 

(0.9)%

RASM

12.34¢

 

12.87¢

 

(4.1)%

 

12.78¢

 

12.93¢

 

(1.2)%

CASMex

8.64¢

 

8.25¢

 

4.7%

 

8.23¢

 

8.04¢

 

2.4%

OPERATING SEGMENTS (unaudited)

           

Alaska Air Group, Inc.

                   

Amounts below reflect the results of operations for Virgin America for the three and twelve months ended December 31, 2017 and 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, 2017

(in millions)

Mainline

 

Regional

 

Horizon

 

Consolidating
& Other

 

Air Group
Adjusted(b)

 

Special
Items(c)

 

Consolidated

Operating revenues

                         

Passenger

                         

Mainline

$

1,468

   

$

   

$

   

$

   

$

1,468

   

$

   

$

1,468

 

Regional

   

235

   

   

   

235

   

   

235

 

  Total passenger revenues

1,468

   

235

   

   

   

1,703

   

   

1,703

 

Revenue from CPA with Alaska

   

   

109

   

(109)

   

   

   

 

Freight and mail

26

   

1

   

   

(1)

   

26

   

   

26

 

Other-net

214

   

17

   

1

   

1

   

233

   

   

233

 

Total operating revenues

1,708

   

253

   

110

   

(109)

   

1,962

   

   

1,962

 

Operating expenses

                         

Non-fuel operating expenses

1,156

   

226

   

104

   

(112)

   

1,374

   

30

   

1,404

 

Fuel expense

358

   

52

   

   

   

410

   

(14)

   

396

 

Total operating expenses

1,514

   

278

   

104

   

(112)

   

1,784

   

16

   

1,800

 

Nonoperating income (expense)

                         

Interest income

12

   

   

   

(3)

   

9

   

   

9

 

Interest expense

(24)

   

   

(4)

   

2

   

(26)

   

   

(26)

 

Other

3

   

   

   

1

   

4

   

   

4

 

Total Nonoperating income (expense)

(9)

   

   

(4)

   

   

(13)

   

   

(13)

 

Income (loss) before income tax

$

185

   

$

(25)

   

$

2

   

$

3

   

$

165

   

$

(16)

   

$

149

 
                           
 

Three Months Ended December 31, 2016

(in millions)

Mainline(a)

 

Regional

 

Horizon

 

Consolidating
& Other

 

Air Group
Adjusted(b)

 

Special
Items(c)

 

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

 

 

OPERATING SEGMENTS (unaudited)

           

Alaska Air Group, Inc.

                       
                           
 

Twelve Months Ended December 31, 2017

(in millions)

Mainline

 

Regional

 

Horizon

 

Consolidating
& Other

 

Air Group
Adjusted(b)

 

Special
Items(c)

 

Consolidated

Operating revenues

                         

Passenger

                         

Mainline

$

5,858

   

$

   

$

   

$

   

$

5,858

   

$

   

$

5,858

 

Regional

   

960

   

   

   

960

   

   

960

 

  Total passenger revenues

5,858

   

960

   

   

   

6,818

   

   

6,818

 

Revenue from CPA with Alaska

   

   

426

   

(426)

   

   

   

 

Freight and mail

110

   

4

   

   

   

114

   

   

114

 

Other-net

922

   

74

   

4

   

1

   

1,001

   

   

1,001

 

Total operating revenues

6,890

   

1,038

   

430

   

(425)

   

7,933

   

   

7,933

 

Operating expenses

                         

Non-fuel operating expenses

4,257

   

851

   

427

   

(427)

   

5,108

   

118

   

5,226

 

Fuel expense

1,282

   

172

   

   

   

1,454

   

(7)

   

1,447

 

Total operating expenses

5,539

   

1,023

   

427

   

(427)

   

6,562

   

111

   

6,673

 

Nonoperating income (expense)

                         

Interest income

39

   

   

   

(5)

   

34

   

   

34

 

Interest expense

(92)

   

   

(13)

   

2

   

(103)

   

   

(103)

 

Other

14

   

   

2

   

   

16

   

   

16

 

Total Nonoperating income (expense)

(39)

   

   

(11)

   

(3)

   

(53)

   

   

(53)

 

Income (loss) before income tax

$

1,312

   

$

15

   

$

(8)

   

$

(1)

   

$

1,318

   

$

(111)

   

$

1,207

 
                           
 

Twelve Months Ended December 31, 2016

(in millions)

Mainline(a)

 

Regional

 

Horizon

 

Consolidating
& Other

 

Air Group
Adjusted(b)

 

Special
Items(c)

 

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

 
   

(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)

The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and does not include certain charges. See Note A in the accompanying pages for further information.

(c)

Includes merger-related costs and mark-to-market fuel-hedge accounting charges.

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)

Alaska Air Group, Inc.

Consolidated and Mainline amounts presented below reflect the results of operations for Virgin America for the three and twelve months ended December 31, 2017 and 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)

2017

 

2016

 

2017

 

2016

Consolidated:

             

Total operating expenses per ASM (CASM)

11.32

¢

 

11.25

¢

 

10.75

¢

 

10.38

¢

Less the following components:

             

Aircraft fuel, including hedging gains and losses

2.49

   

2.09

   

2.33

   

1.88

 

Special items—merger-related costs

0.19

   

0.71

   

0.19

   

0.27

 

CASM, excluding fuel and special items

8.64

¢

 

8.45

¢

 

8.23

¢

 

8.23

¢

               

Mainline:

             

Total operating expenses per ASM (CASM)

10.52

¢

 

10.33

¢

 

9.92

¢

 

9.39

¢

Less the following components:

             

Aircraft fuel, including hedging gains and losses

2.37

   

1.98

   

2.24

   

1.79

 

Special items—merger-related costs

0.21

   

0.78

   

0.21

   

0.30

 

CASM, excluding fuel and special items

7.94

¢

 

7.57

¢

 

7.47

¢

 

7.30

¢

               

Fuel Reconciliations (unaudited)

             
               
 

Three Months Ended December 31,

 

2017

 

2016

(in millions, except for per gallon amounts)

Dollars

 

Cost/Gal

 

Dollars

 

Cost/Gal

Raw or "into-plane" fuel cost

$

406

   

$

1.98

   

$

238

   

$

1.65

 

Losses on settled hedges

4

   

0.02

   

4

   

0.03

 

Consolidated economic fuel expense

$

410

   

$

2.00

   

$

242

   

$

1.68

 

Mark-to-market fuel hedge adjustments

(14)

   

(0.07)

   

(4)

   

(0.03)

 

GAAP fuel expense

$

396

   

$

1.93

   

$

238

   

$

1.65

 

Fuel gallons

205

       

144

     
               
 

Twelve Months Ended December 31,

 

2017

 

2016

(in millions, except for per gallon amounts)

Dollars

 

Cost/Gal

 

Dollars

 

Cost/Gal

Raw or "into-plane" fuel cost

$

1,437

   

$

1.80

   

$

828

   

$

1.49

 

Losses on settled hedges

17

   

0.02

   

16

   

0.03

 

Consolidated economic fuel expense

$

1,454

   

$

1.82

   

$

844

   

$

1.52

 

Mark-to-market fuel hedge adjustments

(7)

   

   

(13)

   

(0.02)

 

GAAP fuel expense

$

1,447

   

$

1.82

   

$

831

   

$

1.50

 

Fuel gallons

797

       

554