Alaska Air Group Reports Record Second Quarter 2016 Results

• Reported record second quarter net income, excluding special items, of $263 million, a 14% increase over the second quarter of 2015. Adjusted diluted earnings per share of $2.12 was a 20% increase over the second quarter of 2015. This quarter's results exceed First Call analyst consensus estimate of $2.09 per share.
• Reported net income for the second quarter under Generally Accepted Accounting Principles (GAAP) of $260 million or $2.10 per diluted share, compared to net income of $234 million, or $1.79 per diluted share in 2015.
• Paid $0.275 per-share quarterly cash dividend in the second quarter, a 38% increase over the dividend paid in the second quarter of 2015.
• Generated approximately $900 million of operating cash flow and $560 million of free cash flow in the first six months of 2016.
• Grew passenger revenues by 3% compared to the second quarter of 2015.
• Expanded adjusted pre-tax margins from 25.7% in the second quarter of 2015, to 28.4% in the second quarter of 2016.
• Achieved 25.3% adjusted pre-tax margin on a trailing twelve month basis.
• Achieved return on invested capital of 25.9% for the 12-month period ending June 30, 2016, compared to 22.0% for the 12-month period ending June 30, 2015.
• Lowered adjusted debt-to-capitalization ratio to 25% as of June 30, 2016.
• Held $1.6 billion in unrestricted cash and marketable securities as of June 30, 2016.

Planned Acquisition of Virgin America:

• Announced proposed acquisition of Virgin America, Inc. (Virgin America) on April 4, 2016.
• Announced Peter Hunt, currently Virgin America's senior vice president and chief financial officer, as the president of the planned Virgin America subsidiary upon transaction close, expected in the fourth quarter this year.
• Recorded special items of $14 million in the second quarter for merger-related costs.

Operational Highlights:

• Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2016 by J.D. Power for the ninth year in a row.
• Ranked "Highest in Customer Satisfactions With Airline Loyalty Rewards Programs" in 2016 by J.D. Power for the third consecutive year.
• Joined the Standard & Poors 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.
• 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.
• Held the No. 1 spot in U.S. Department of Transportation on-time performance among the six largest U.S. airlines for the 12 months ended May 2016.
• Ranked in the Top 200 in the 2016 Forbes "America's Best Employers" survey.
• Ranked among the Fortune 500 for the third year in a row.
• Announced a new codeshare agreement and frequent flier partnership with Japan Airlines, providing Alaska customers seamless travel and mileage earning opportunities.
• Flew the first commercial flight using sustainable alcohol-to-jet biofuel made from U.S. grown corn, continuing Alaska's commitment to reduce its carbon emissions.
• 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 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.
• Received 15th Diamond Awards of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training.
• Earned first place in the commercial aviation division and first place overall at the 2016 Annual International Aerospace Maintenance Competition, surpassing over 50 teams from around the globe.

New routes launched and announced in the second quarter are as follows:

Alaska Air Group, Inc., (NYSE: ALK) today reported second quarter 2016 GAAP net income of $260 million, or $2.10 per diluted share, compared to $234 million, or $1.79 per diluted share in the second quarter of 2015. Excluding the impact of mark-to-market fuel hedge adjustments and merger costs, the company reported record adjusted net income of $263 million, or $2.12 per diluted share, compared to adjusted net income of $230 million, or $1.76 per diluted share, in 2015.

"This was a great quarter for us. From strong operational and financial performance to a growing customer base, our team delivered," said chief executive officer Brad Tilden. "I want to thank our terrific people, who were once again recognized by J.D. Power for having the highest customer satisfaction among traditional network airlines for the 9th consecutive year. All of us at Alaska are enthusiastically looking forward to our merger with Virgin America and creating a larger national reach while fortifying our presence along the entire West Coast."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (Diluted EPS) during the second quarters of 2016 and 2015 to adjusted amounts:

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.

Refer to full documentation in attachments box, located at the top left, below the headline.