SEATTLE, July 24 /PRNewswire-FirstCall/ -- Alaska Air Group, Inc.
(NYSE: ALK) today reported second quarter net income of $63.1 million, or
$1.74 per diluted share, compared to net income of $46.1 million, or $1.13 per
diluted share, in the second quarter of 2007. Excluding special items, the
company reported a net loss of $14.1 million, or $0.39 per share, compared to
2007 net income of $47.2 million, or $1.16 per share, and a First Call mean
estimate loss of $0.41 per share.
The current-year results include charges associated with the transition to
single fleets at Alaska Airlines and Horizon Air of $32.1 million ($20.1
million after tax or $0.56 per diluted share). Both periods include
adjustments to reflect timing of gain or loss recognition resulting from
mark-to-market fuel hedge accounting. Because of significant recent increases
in crude oil prices, the value of the company's fuel hedge portfolio that will
benefit future periods increased dramatically, resulting in a $155.3 million
($97.3 million after tax or $2.69 per share) mark-to-market gain, compared to
a $1.8 million ($1.1 million after tax or $0.03 per share) loss in the second
quarter of 2007.
'Skyrocketing fuel prices have eclipsed the improvements we've worked so
hard to achieve in every area of our business,' said Bill Ayer, Alaska Air
Group's chairman and chief executive officer. 'Decisive action, an excellent
operation, and the genuine, caring service our employees provide will help us
survive what is shaping up to be the most difficult period in commercial
aviation history.'
The company outlined a plan that includes maintaining a strong cash
balance, cutting capacity, increasing fares and other sources of revenue,
conserving fuel and controlling non-fuel costs. Ayer announced that Alaska's
fourth-quarter mainline capacity will decline by 5 percent from 2007 levels,
and mainline capacity for 2009 will decrease by 5 percent to 10 percent,
compared with 2008.
The company is determining the full effect of the schedule reductions on
work groups and expects to have more information in early September. Alaska
Airlines announced today that management headcount would be reduced by 5
percent, effective Sept. 1. Horizon Air reduced its management workforce by 13
percent earlier this year and will further reduce operational and management
positions in connection with capacity cuts.
'We are keenly aware of the impact on our employees and regret having to
take these actions,' Ayer said. 'Current fuel prices -- which are devastating
for airlines and consumers alike -- require these measures to ensure the
viability of our company.'
Alaska Airlines' mainline passenger traffic in the second quarter
increased 1.1 percent on a capacity increase of 1.6 percent. Load factor
declined 0.4 percentage points to 78.1 percent. Alaska's mainline operating
revenue per available seat mile (ASM) increased 0.9 percent, and its operating
cost per ASM excluding fuel and the special items mentioned above increased
2.9 percent. Alaska's total pretax income for the quarter was $87.3 million,
compared to pretax income of $80.9 million in 2007. Excluding the mark-to-
market fuel hedge adjustments and fleet transition charges, Alaska would have
reported a pretax loss of $15.6 million for the quarter, compared to pretax
income of $82.4 million in the second quarter of 2007.
Horizon Air's passenger traffic in the second quarter declined 4.9 percent
on a 3.0 percent capacity decrease. Load factor decreased by 1.5 percentage
points to 73.6 percent. Horizon's operating revenue per ASM increased 9.4
percent, and its operating cost per ASM excluding fuel and the special charges
mentioned above decreased 4.2 percent. Horizon's total pretax income for the
quarter was $12.6 million, compared to a pretax loss of $4.9 million in 2007.
Excluding the mark-to-market fuel hedge adjustments and CRJ-700 fleet
transition charges, Horizon's pretax loss would have been $7.7 million for the
quarter, compared to a pretax loss of $4.6 million in the second quarter of
2007.
Alaska Air Group had cash and short-term investments at June 30, 2008, of
$1.0 billion.
A summary of financial and statistical data for Alaska Airlines and
Horizon Air, as well as a reconciliation of the reported non-GAAP financial
measures, can be found in the accompanying tables.
A conference call regarding the second quarter 2008 results will be
simulcast via the Internet at 8:30 a.m. Pacific time on July 24, 2008. It can
be accessed through the company's Web site at alaskaair.com. For those unable
to listen to the live broadcast, a replay will be available after the
conclusion of the call at alaskaair.com.
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 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 Dec. 31, 2007. Some of these risks include increased competition,
significant fuel costs, general economic conditions, labor costs and
relations, our significant indebtedness, inability to meet cost reduction
goals, terrorist attacks, seasonal fluctuations in our financial results, an
aircraft accident, laws and regulations, and government fees and taxes. All of
the forward-looking statements are qualified in their entirety by reference to
the risk factors discussed therein. These risk factors may not be exhaustive.
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 and Horizon Air together serve 95 cities through an
expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. For
reservations, visit alaskaair.com. For more news and information, visit the
Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.
Alaska Air Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
(in millions, except per share
amounts) 2008 2007 2008 2007
Operating Revenues:
Passenger $863.5 $836.2 $1,639.2 $1,532.0
Freight and mail 27.7 27.4 49.9 48.6
Other - net 39.6 40.8 81.2 83.2
Total Operating Revenues 930.8 904.4 1,770.3 1,663.8
Operating Expenses:
Wages and benefits 234.4 236.6 476.8 473.6
Variable incentive pay 5.1 3.8 8.7 14.3
Aircraft fuel, including hedging gains
and losses 182.0 227.8 464.0 412.7
Aircraft maintenance 54.2 59.0 112.2 117.5
Aircraft rent 42.3 44.7 85.9 88.0
Landing fees and other rentals 56.9 56.5 112.9 111.2
Contracted services 43.6 39.8 88.1 78.4
Selling expenses 44.1 41.1 78.6 80.1
Depreciation and amortization 51.5 43.8 100.8 85.7
Food and beverage service 13.4 12.8 25.7 24.0
Other 61.5 57.1 118.7 112.0
Fleet transition costs - MD-80 26.0 - 26.0 -
Fleet transition costs - CRJ-700 6.1 - 6.1 -
Fleet transition costs - Q200 3.2 3.7 9.0 6.7
Total Operating Expenses 824.3 826.7 1,713.5 1,604.2
Operating Income 106.5 77.7 56.8 59.6
Nonoperating Income (Expense):
Interest income 10.5 13.8 20.8 28.2
Interest expense (25.0) (22.5) (48.4) (43.5)
Interest capitalized 6.1 6.7 12.6 13.8
Other - net 0.1 (0.7) 0.3 (0.9)
(8.3) (2.7) (14.7) (2.4)
Income before income tax 98.2 75.0 42.1 57.2
Income tax expense 35.1 28.9 14.9 21.4
Net Income $63.1 $46.1 $27.2 $35.8
Basic Earnings Per Share: $1.75 $1.14 $0.75 $0.89
Diluted Earnings Per Share: $1.74 $1.13 $0.74 $0.88
Shares Used for Computation:
Basic 36.059 40.450 36.542 40.408
Diluted 36.255 40.782 36.876 40.915
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
June 30, December 31,
(in millions) 2008 2007
Cash and marketable securities $1,006 $823
Total current assets 1,734 1,391
Property and equipment-net 3,142 2,962
Other assets 220 138
Total assets $5,096 $4,491
Current liabilities $1,650 $1,374
Long-term debt 1,445 1,125
Other liabilities and credits 991 968
Shareholders' equity 1,010 1,024
Total liabilities and shareholders' equity $5,096 $4,491
Debt to Capitalization, adjusted for
operating leases 72%:28% 70%:30%
Number of common shares outstanding 36.019 38.051
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.'s net income (loss)
and amounts per share during 2008 and 2007 excluding adjustments for fleet
transition costs and to reflect the timing of gain or loss recognition
resulting from mark-to-market fuel-hedge accounting as reported in accordance
with GAAP (in millions except per share amounts):
Three Months Ended June 30,
2008 2007
Diluted Diluted
Dollars EPS Dollars EPS
Net income (loss) and diluted EPS,
excluding mark-to-market
hedging adjustments and fleet
transition costs $(14.1) $(0.39) $47.2 $1.16
Fleet transition costs - MD-80, net
of tax (16.3) (0.45) - -
Fleet transition costs - CRJ-700, net
of tax (3.8) (0.11) - -
Adjustments to reflect the timing of
gain (loss) recognition resulting
from mark-to-market fuel-hedge
accounting, net of tax 97.3 2.69 (1.1) (0.03)
Reported GAAP amounts $63.1 $1.74 $46.1 $1.13
Six Months Ended June 30,
2008 2007
Dollars Diluted Diluted
EPS Dollars EPS
Net income (loss) and diluted EPS,
excluding mark-to-market
edging adjustments and fleet
transition costs $(50.4) $(1.38) $31.4 $0.77
Fleet transition costs - MD-80, net
of tax (16.3) (0.44) - -
Fleet transition costs - CRJ-700, net
of tax (3.8) (0.10) - -
Adjustments to reflect the timing of
gain recognition resulting from
mark-to-market fuel-hedge accounting,
net of tax 97.7 2.66 4.4 0.11
Reported GAAP amounts $27.2 $0.74 $35.8 $0.88
Alaska Airlines Financial and Statistical Data
Three Months Ended June 30, Six Months Ended June 30,
Financial Data (in
millions): 2008 2007 % Change 2008 2007 % Change
Operating Revenues:
Passenger $682.7 $663.3 2.9 $1,290.0 $1,209.2 6.7
Freight and mail 26.6 26.3 1.1 47.9 47.0 1.9
Other - net 33.3 34.5 (3.5) 67.7 70.4 (3.8)
Total mainline
operating revenues 742.6 724.1 2.6 1,405.6 1,326.6 6.0
Passenger -
purchased capacity 77.8 71.0 9.6 148.2 128.3 15.5
Total Operating
Revenues 820.4 795.1 3.2 1,553.8 1,454.9 6.8
Operating Expenses:
Wages and benefits 184.3 185.6 (0.7) 374.5 372.9 0.4
Variable incentive
pay 3.3 2.1 57.1 5.9 9.8 (39.8)
Aircraft fuel,
including hedging
gains and losses 151.2 193.4 (21.8) 384.9 351.0 9.7
Aircraft maintenance 37.4 34.5 8.4 79.5 68.8 15.6
Aircraft rent 27.9 27.9 - 56.1 54.2 3.5
Landing fees and
other rentals 42.7 42.2 1.2 84.6 84.0 0.7
Contracted services 33.9 30.2 12.3 68.6 59.6 15.1
Selling expenses 36.0 33.4 7.8 62.5 65.0 (3.8)
Depreciation and
amortization 41.6 35.6 16.9 80.4 71.0 13.2
Food and beverage
service 12.6 12.0 5.0 24.3 22.6 7.5
Other 47.4 43.2 9.7 89.2 83.0 7.5
Fleet transition
costs - MD-80 26.0 - NM 26.0 - NM
Total mainline
operating expenses 644.3 640.1 0.7 1,336.5 1,241.9 7.6
Purchased capacity
costs 84.5 74.1 14.0 161.2 141.5 13.9
Total Operating
Expenses 728.8 714.2 2.0 1,497.7 1,383.4 8.3
Operating Income 91.6 80.9 56.1 71.5
Interest income 12.3 16.6 25.4 32.5
Interest expense (22.2) (22.1) (44.0) (42.5)
Interest capitalized 5.4 6.0 11.3 12.3
Other - net 0.2 (0.5) 0.6 (0.4)
(4.3) 0.0 (6.7) 1.9
Income Before Income
Tax $87.3 $80.9 $49.4 $73.4
Mainline Operating
Statistics:
Revenue passengers
(000) 4,425 4,627 (4.4) 8,505 8,489 0.2
RPMs (000,000)
'traffic' 4,872 4,820 1.1 9,398 8,886 5.8
ASMs (000,000)
'capacity' 6,238 6,140 1.6 12,322 11,834 4.1
Passenger load
factor 78.1% 78.5% (0.4)pts 76.3% 75.1% 1.2 pts
Yield per passenger
mile (in cents) 14.01 13.76 1.8 13.73 13.61 0.9
Operating revenue
per ASM (in cents) 11.90 11.79 0.9 11.41 11.21 1.8
Passenger revenue
per ASM (in cents) 10.94 10.80 1.3 10.47 10.22 2.5
Operating expense
per ASM (in cents) 10.33 10.43 (0.9) 10.85 10.49 3.4
Operating expense
per ASM excluding
fuel and fleet
transition costs(a)
(in cents) 7.49 7.28 2.9 7.51 7.53 (0.2)
GAAP fuel cost per
gallon $1.75 $2.16 (19.0) $2.23 $2.02 10.4
Economic fuel cost
per gallon (b) $3.24 $2.14 51.4 $2.98 $2.05 45.4
Fuel gallons
(000,000) 86.4 89.8 (3.8) 172.3 173.9 (0.9)
Average number of
full-time
equivalent
employees 9,880 9,748 1.4 9,881 9,645 2.4
Aircraft utilization
(blk hrs/day) 10.9 11.0 (0.9) 10.8 10.9 (0.9)
Average aircraft
stage length
(miles) 974 917 6.2 971 917 5.9
Operating fleet at
period-end 115 114 1 a/c 115 114 1 a/c
Regional Operating
Statistics:
RPMs (000,000) 302 273 10.6 569 493 15.4
ASMs (000,000) 399 352 13.4 762 668 14.1
Passenger load
factor 75.7% 77.6% (1.9)pts 74.7% 73.8% 0.9 pts
Yield per passenger
mile (in cents) 25.76 26.01 (0.9) 26.05 26.02 0.1
Operating revenue
per ASM (in cents) 19.50 20.17 (3.3) 19.45 19.21 1.3
Operating expenses
per ASM (in cents) 21.18 21.05 0.6 21.15 21.18 (0.1)
(a) See page 9 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(b) See page 11 for a reconciliation of economic fuel cost.
NM = Not Meaningful
Horizon Air Financial and Statistical Data
Three Months Ended June 30, Six Months Ended June 30,
Financial Data (in
millions): 2008 2007 % Change 2008 2007 % Change
Operating Revenues:
Passenger - brand flying $107.7 $96.8 11.3 $210.4 $183.7 14.5
Passenger - capacity
purchase arrangements(a) 78.7 78.9 (0.3) 150.1 151.4 (0.9)
Total passenger
revenue 186.4 175.7 6.1 360.5 335.1 7.6
Freight and mail 0.7 0.6 16.7 1.3 1.1 18.2
Other - net 1.8 1.7 5.9 4.3 3.4 26.5
Total Operating Revenues 188.9 178.0 6.1 366.1 339.6 7.8
Operating Expenses:
Wages and benefits 48.6 50.2 (3.2) 98.9 99.1 (0.2)
Variable incentive pay 1.8 1.7 5.9 2.8 4.5 (37.8)
Aircraft fuel, including
hedging gains and losses 30.8 34.4 (10.5) 79.1 61.7 28.2
Aircraft maintenance 16.8 24.5 (31.4) 32.7 48.7 (32.9)
Aircraft rent 14.4 16.8 (14.3) 29.8 33.8 (11.8)
Landing fees and other
rentals 14.5 14.5 - 28.9 27.7 4.3
Contracted services 6.9 6.7 3.0 14.9 12.8 16.4
Selling expenses 8.1 7.7 5.2 16.1 15.1 6.6
Depreciation and
amortization 9.6 7.9 21.5 19.8 14.1 40.4
Food and beverage service 0.8 0.8 - 1.4 1.4 -
Other 11.2 11.7 (4.3) 24.0 24.5 (2.0)
Fleet transition costs -
CRJ-700 6.1 - NM 6.1 - NM
Fleet transition costs -
Q200 3.2 3.7 NM 9.0 6.7 NM
Total Operating Expenses 172.8 180.6 (4.3) 363.5 350.1 3.8
Operating Income (Loss) 16.1 (2.6) 2.6 (10.5)
Interest income 1.3 1.3 2.7 2.3
Interest expense (5.7) (4.3) (11.4) (7.3)
Interest capitalized 0.7 0.7 1.3 1.5
Other - net 0.2 - 0.2 (0.1)
(3.5) (2.3) (7.2) (3.6)
Income (Loss) Before
Income Tax $12.6 $(4.9) $(4.6) $(14.1)
Combined Operating
Statistics: (a)
Revenue passengers (000) 1,913 1,909 0.2 3,765 3,518 7.0
RPMs (000,000) 'traffic' 695 731 (4.9) 1,353 1,358 (0.4)
ASMs (000,000) 'capacity' 944 973 (3.0) 1,886 1,898 (0.6)
Passenger load factor 73.6% 75.1% (1.5)pts 71.7% 71.5% 0.2 pts
Yield per passenger
mile (in cents) 26.82 24.04 11.6 26.64 24.68 8.0
Operating revenue
per ASM (in cents) 20.01 18.29 9.4 19.41 17.89 8.5
Passenger revenue
per ASM (in cents) 19.75 18.06 9.3 19.11 17.66 8.3
Operating expenses per
ASM (in cents) 18.31 18.56 (1.4) 19.27 18.45 4.5
Operating expense per ASM
excluding fuel and
CRJ-700 fleet transition
costs (b) (in cents) 14.40 15.03 (4.2) 14.76 15.19 (2.9)
GAAP fuel cost per gallon $1.79 $2.23 (19.7) $2.27 $2.06 10.2
Economic fuel cost per
gallon (c) $3.33 $2.21 50.7 $3.05 $2.11 44.5
Fuel gallons (000,000) 17.2 15.4 11.7 34.9 30.0 16.3
Average number of full-
time equivalent
employees 3,792 3,771 0.6 3,822 3,732 2.4
Aircraft utilization (blk
hrs/day) 8.5 8.5 - 8.4 8.6 (2.3)
Operating fleet at
period-end 65 74 (9 a/c) 65 74 (9 a/c)
NM = Not Meaningful
(a) Represents combined information for Horizon flights operated under
Capacity Purchase Agreements (CPAs) with Alaska and as Frontier Jet
Express (through November 2007). See page 10 for additional line of
business information.
(b) See page 10 for a reconciliation of these non-GAAP measures and a
discussion about why these measures may be important to investors.
(c) See page 11 for a reconciliation of economic fuel cost.
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 this measure of unit costs excluding fuel, purchased capacity
costs, and other noted items may be important to investors for the following
reasons:
-- Cost per available seat mile (ASM) excluding fuel, purchased capacity
costs, and other special items is one of the most important measures
used by managements of both Alaska and Horizon and the Air Group Board
of Directors in assessing quarterly and annual cost performance and,
for Alaska Airlines, the operating results of the 'mainline'
operation, which includes the operation of the B737 and MD80 aircraft
fleets branded in Alaska Airlines livery.
-- Cost per ASM excluding fuel, purchased capacity costs, and other items
as specified in our governing documents is an important metric in the
employee incentive plan that covers company management and executives.
-- By eliminating fuel expense from our unit cost metrics, we believe
that we have better visibility into the results of our non-fuel cost-
reduction initiatives. Our industry is highly competitive, and
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, and maintenance costs,
which are more controllable by management.
-- Cost per ASM excluding fuel and purchased capacity costs 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.
-- By eliminating the impact of certain noted items, management is
provided the ability to measure and monitor performance both with and
without these special items. Management believes that the disclosure
of the impact of certain items such as the fleet transition costs is
important to the reader as it provides information on significant
items that are not indicative of future performance. Industry analysts
and investors consistently measure the Company's performance without
these items for better comparability between periods and between other
airlines.
-- Although we disclose our 'mainline' unit revenues for Alaska to
eliminate those revenues associated with purchased capacity flying
performed by others on our behalf, we do not (nor are we able to)
present unit revenues excluding the impact that rising fuel costs have
had on ticket prices. This is a limitation of our non-GAAP measure
that excludes fuel from unit costs, as economic fuel represents
approximately 35% of our total mainline operating expenses, and
fluctuations in our fuel prices are often the driver of changes in
unit revenues in the mid-to long term. We would caution the readers of
these financial statements not to place undue reliance on unit costs
excluding fuel as a measure or predictor of future profitability.
The following tables reconcile our non-GAAP financial measures to the most
directly comparable GAAP financial measures for both Alaska Airlines, Inc. and
Horizon Air Industries, Inc.:
Alaska Airlines, Inc.
(in millions, except for per ASM unit information)
Three Months Six Months Ended
Ended June 30, June 30,
Mainline unit cost reconciliations: 2008 2007 2008 2007
Mainline operating expenses $644.3 $640.1 $1,336.5 $1,241.9
Mainline ASMs 6,238 6,140 12,322 11,834
Mainline operating expenses
per ASM (in cents) 10.33 10.43 10.85 10.49
Mainline operating expenses $644.3 $640.1 $1,336.5 $1,241.9
Less: aircraft fuel (151.2) (193.4) (384.9) (351.0)
Less: fleet transition costs - MD-80 (26.0) - (26.0) -
Mainline operating expenses
excluding fuel and fleet transition
costs $467.1 $446.7 $925.6 $890.9
Mainline ASMs 6,238 6,140 12,322 11,834
Mainline operating expenses per ASM
excluding fuel and fleet transition
costs (in cents) 7.49 7.28 7.51 7.53
Three Months Six Months Ended
Ended June 30, June 30,
Reconciliation to GAAP income before
taxes : 2008 2007 2008 2007
Income (loss) before taxes,
excluding mark-to-market hedging
gains (losses) and fleet
transition costs $(15.6) $82.4 $(53.3) $68.1
Fleet transition costs - MD-80 (26.0) - (26.0) -
Adjustments to reflect timing of
gain or loss recognition resulting
from mark-to-market accounting on
fuel hedges 128.9 (1.5) 128.7 5.3
GAAP income before taxes as reported $87.3 $80.9 $49.4 $73.4
Horizon Air Industries, Inc.
(in millions, except for per ASM unit information)
Three Months Ended Six Months Ended
June 30, June 30,
Unit cost reconciliations: 2008 2007 2008 2007
Operating expenses $172.8 $180.6 $363.5 $350.1
ASMs 944 973 1,886 1,898
Operating expenses per ASM (in cents) 18.31 18.56 19.27 18.45
Operating expenses $172.8 $180.6 $363.5 $350.1
Less: aircraft fuel (30.8) (34.4) (79.1) (61.7)
Less: fleet transition costs - CRJ-
700 (6.1) - (6.1) -
Operating expenses excluding fuel
and CRJ-700 fleet transition costs $135.9 $146.2 $278.3 $288.4
ASMs 944 973 1,886 1,898
Operating expenses per ASM excluding
fuel and CRJ-700 fleet transition
costs (in cents) 14.40 15.03 14.76 15.19
Unit cost reconciliations-excluding
all fleet transition costs:
Operating expenses $172.8 $180.6 $363.5 $350.1
Less: aircraft fuel (30.8) (34.4) (79.1) (61.7)
Less: fleet transition costs - CRJ-
700 (6.1) - (6.1) -
Less: fleet transition costs - Q200 (3.2) (3.7) (9.0) (6.7)
Operating expenses excluding fuel
and all fleet transition costs $132.7 $142.5 $269.3 $281.7
ASMs 944 973 1,886 1,898
Operating expenses per ASM excluding
fuel and all fleet transition costs
(in cents) 14.06 14.65 14.28 14.84
Reconciliation to GAAP income (loss)
before taxes:
Loss before taxes, excluding mark-
to-market fuel hedging gains
(losses) and CRJ-700 fleet
transition costs $(7.7) $(4.6) $(25.8) $(15.8)
Fleet transition costs - CRJ-700 (6.1) - (6.1) -
Adjustments to reflect timing of
gain (loss) recognition resulting
from mark-to-market accounting on
fuel hedges 26.4 (0.3) 27.3 1.7
GAAP income (loss) before taxes as
reported $12.6 $(4.9) $(4.6) $(14.1)
Line of Business Information:
Horizon brand flying includes those routes in the Horizon system not
covered by the Alaska and Frontier Capacity Purchase Agreements (CPA). Horizon
bears the revenue risk in those markets and, as a result, traffic, yield and
load factor impact revenue recorded by Horizon. In CPA arrangements, Horizon
is (or was, as was the case with the Frontier CPA which ended in November
2007) insulated from market revenue factors and is guaranteed contractual
revenue amounts based on operational capacity. As a result, yield and load
factor information is not presented.
Three Months Ended June 30, 2008
Capacity and Mix
2008 Actual 2007 Actual Change Current % Point Change
(000,000) (000,000) Y-O-Y Total Y-O-Y
Brand Flying 570 492 15.9% 60% 10
Alaska CPA 374 333 12.3% 40% 6
Frontier CPA - 148 (100.0%) 0% (16)
System Total 944 973 (3.0%) 100% -
Load Factor Yield RASM
Point Change Change Change
Actual Y-O-Y Actual Y-O-Y Actual Y-O-Y
(in cents) (in cents)
Brand Flying 71.3% (3.3) 26.52 0.3% 19.34 (4.0%)
Alaska CPA NM NM NM NM 21.02 1.6%
Frontier CPA NM NM NM NM NM NM
System Total
73.6% (1.5) 26.82 11.6% 20.01 9.4%
NM= Not Meaningful
Six Months Ended June 30, 2008
Capacity and Mix
2008 Actual 2007 Actual Change Current % Point Change
(000,000) (000,000) Y-O-Y Total Y-O-Y
Brand Flying 1,168 955 22.3% 62% 12
Alaska CPA 718 630 14.0% 38% 5
Frontier CPA - 313 (100.0%) 0% (17)
System Total 1,886 1,898 (0.6%) 100% -
Load Factor Yield RASM
Point Change Change Change
Actual Y-O-Y Actual Y-O-Y Actual Y-O-Y
(in cents) (in cents)
Brand Flying 69.2% (1.7) 26.04 (3.9%) 18.50 (6.1%)
Alaska CPA NM NM NM NM 20.89 0.4%
Frontier CPA NM NM NM NM NM NM
System Total 71.7% 0.2 26.64 8.0% 19.41 8.5%
NM= Not Meaningful
Alaska Airlines Fuel Reconciliation
(in millions, except for per gallon amounts)
Three Months Ended June 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or 'into-plane' fuel cost $326.6 $3.78 $196.9 $2.20
Minus gains during the period on
settled hedges (46.5) (0.54) (5.0) (0.06)
Economic fuel expense $280.1 $3.24 $191.9 $2.14
Minus the gain recognized during
current period for contracts
settling in future periods (151.6) (1.75) (6.0) (0.07)
Plus the reversal of cumulative gains
recognized in prior periods for
contracts settled in current period 22.7 0.26 7.5 0.09
Net adjustments (128.9) (1.49) 1.5 0.02
GAAP fuel expense $151.2 $1.75 $193.4 $2.16
Fuel gallons 86.4 89.8
Six Months Ended June 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or 'into-plane' fuel cost $584.3 $3.39 $362.8 $2.09
Minus gains during the period on
settled hedges (70.7) (0.41) (6.5) (0.04)
Economic fuel expense $513.6 $2.98 $356.3 $2.05
Minus the gain recognized during
current period for contracts
settling in future periods (173.5) (1.01) (17.0) (0.10)
Plus the reversal of cumulative gains
recognized in prior periods for
contracts settled in current period 44.8 0.26 11.7 0.07
Net adjustments (128.7) (0.75) (5.3) (0.03)
GAAP fuel expense $384.9 $2.23 $351.0 $2.02
Fuel gallons 172.3 173.9
Horizon Air Fuel Reconciliation
(in millions, except for per gallon
amounts)
Three Months Ended June 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or 'into-plane' fuel cost $66.7 $3.88 $35.0 $2.27
Minus gains during the period on
settled hedges (9.5) (0.55) (0.9) (0.06)
Economic fuel expense $57.2 $3.33 $34.1 $2.21
Minus the gain recognized during
current period for contracts
settling in future periods (31.1) (1.81) (1.2) (0.08)
Plus the reversal of cumulative gains
recognized in prior periods for
contracts settled in current period 4.7 0.27 1.5 0.10
Net adjustments (26.4) (1.54) 0.3 0.02
GAAP fuel expense $30.8 $1.79 $34.4 $2.23
Fuel gallons 17.2 15.4
Six Months Ended June 30,
2008 2007
Dollars Cost/Gal Dollars Cost/Gal
Raw or 'into-plane' fuel cost $120.9 $3.46 $64.6 $2.15
Minus gains during the period on
settled hedges (14.5) (0.41) (1.2) (0.04)
Economic fuel expense $106.4 $3.05 $63.4 $2.11
Minus the gain recognized during
current period for contracts
settling in future periods (36.2) (1.04) (4.0) (0.13)
Plus the reversal of cumulative gains
recognized in prior periods for
contracts settled in current period 8.9 0.26 2.3 0.08
Net adjustments (27.3) (0.78) (1.7) (0.05)
GAAP fuel expense $79.1 $2.27 $61.7 $2.06
Fuel gallons 34.9 30.0
SOURCE Alaska Air Group, Inc.
