ALASKA AIR GROUP, INC. 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 Air Group Special Consolidated
& Other(b) Adjusted(c) Items(d)
---
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 Air Group Special Consolidated
& Other(b) Adjusted(c) Items(d)
---
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 Air Group Special Consolidated
& Other(b) Adjusted(c) Items(d)
--------- ---------- -------
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 Air Group Special Consolidated
& Other(b) Adjusted(c) Items(d)
--------- ---------- -------
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 Virgin America Combined Alaska Air Virgin America Combined Combined
Group Group % Change
(as conformed) (as reported
(as reported) (as reported) and
conformed)
---------
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 94 32 36 68 38.2%
Mark-to-market
fuel hedge
adjustments (4) - (4) 1 - 1 NM
Adjusted Income
Before Tax $308 $37 $345 $292 $53 $345 - %
Twelve months ended December 31, 2016 Twelve months ended December 31, 2015
(in millions) Alaska Air Virgin America Combined Alaska Air Virgin America Combined Combined
Group Group % Change
(as conformed) (as reported
(as reported) (as reported) and
conformed)
---------
Passenger revenue $5,006 $1,388 $6,394 $4,793 $1,361 $6,154 3.9%
Other revenue(a) 925 176 1,101 805 165 970 13.5%
Total Operating
Revenues 5,931 1,564 7,495 5,598 1,526 7,124 5.2%
Non-fuel
operating expense 3,751 1,049 4,800 3,346 989 4,335 10.7%
Fuel Expense 831 293 1,124 954 360 1,314 (14.5)%
Total Operating
Expenses 4,582 1,342 5,924 4,300 1,349 5,649 4.9%
----- ----- ----- ----- ----- -----
Operating Income 1,349 222 1,571 1,298 177 1,475 6.5%
----- --- ----- ----- --- -----
Nonoperating
income (expense) (4) (19) (23) 14 (9) 5 NM
Income Before Tax 1,345 203 1,548 1,312 168 1,480 4.6%
Special items -
merger-related
and other 117 21 138 32 36 68 102.9%
Mark-to-market
fuel hedge
adjustments (13) (2) (15) - (2) (2) NM
Adjusted Income
Before Tax $1,449 $222 $1,671 $1,344 $202 $1,546 8.1%
====== ==== ====== ====== ==== ======
(a) Includes Freight and Mail, and
Other-net revenue as
presented on the Statement of
Operations.
SUPPLEMENTARY COMBINED COMPARATIVE OPERATING STATISTICS (unaudited)
Selected operating statistics presented in the table below are on a combined basis, and include operations for Alaska Air Group and Virgin America for all periods presented, including Virgin America for the periods prior to the acquisition date. These combined results include the impact of purchase accounting only for the period following the acquisition. Virgin America's historical operating statistics included in the combined presentation have been conformed to Alaska Air Group's presentation where appropriate.
Three Months Ended December 31, Twelve Months Ended December 31,
2016 2015 Change 2016 2015 Change
---- ---- ------ ---- ---- ------
Revenue
Passengers
(000) 10,382 9,787 6.1% 41,947 38,919 7.8%
ASMs (000,000) 14,404 13,697 5.2% 57,953 52,605 10.2%
Load Factor 83.9% 82.1% 1.8 pts 84.1% 83.7% 0.4 pts
PRASM 10.97¢ 11.13¢ (1.4)% 11.03¢ 11.70¢ (5.7)%
RASM 12.87¢ 12.90¢ (0.2)% 12.93¢ 13.54¢ (4.5)%
CASMex 8.25¢ 8.24¢ 0.1% 8.04¢ 8.11¢ (0.9)%
Note A: Pursuant to Regulation G, we are providing reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:
-- By eliminating fuel expense and certain special items from our unit
metrics, we believe that we have better visibility into the results of
operations and our non-fuel cost-reduction initiatives. Our industry is
highly competitive and is characterized by high fixed costs, so even a
small reduction in non-fuel operating costs can result in a significant
improvement in operating results. In addition, we believe that all
domestic carriers are similarly impacted by changes in jet fuel costs
over the long run, so it is important for management (and thus
investors) to understand the impact of (and trends in) company-specific
cost drivers such as labor rates and productivity, airport costs,
maintenance costs, etc., which are more controllable by management.
-- Cost per ASM (CASM) excluding fuel and certain special items is one of
the most important measures used by management and by the Air Group
Board of Directors in assessing quarterly and annual cost performance.
-- Adjusted income before income tax and CASM excluding fuel (and other
items as specified in our plan documents) are important metrics for the
employee incentive plan that covers all Air Group employees.
-- CASM excluding fuel and certain special items is a measure commonly used
by industry analysts, and we believe it is the basis by which they
compare our airlines to others in the industry. The measure is also the
subject of frequent questions from investors.
-- Disclosure of the individual impact of certain noted items provides
investors the ability to measure and monitor performance both with and
without these special items. We believe that disclosing the impact of
certain items, such as mark-to-market hedging adjustments, is important
because it provides information on significant items that are not
necessarily indicative of future performance. Industry analysts and
investors consistently measure our performance without these items for
better comparability between periods and among other airlines.
-- Although we disclose our passenger unit revenues, we do not (nor are we
able to) evaluate unit revenues excluding the impact that changes in
fuel costs have had on ticket prices. Fuel expense represents a large
percentage of our total operating expenses. Fluctuations in fuel prices
often drive changes in unit revenues in the mid-to-long term. Although
we believe it is useful to evaluate non-fuel unit costs for the reasons
noted above, we would caution readers of these financial statements not
to place undue reliance on unit costs excluding fuel as a measure or
predictor of future profitability because of the significant impact of
fuel costs on our business.
Glossary of Terms
Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit
Aircraft Stage Length - represents the average miles flown per aircraft departure
ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown
CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items
CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control
Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt
Diluted Earnings per Share - represents earnings per share using fully diluted shares outstanding
Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised
Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program
Free Cash Flow - total operating cash flow generated less cash paid for capital expenditures
Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers
Mainline - represents flying Boeing 737 and Airbus jets and all associated revenues and costs
PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"
Productivity - number of revenue passengers per full-time equivalent employee
RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan, and other ancillary revenue; represents the average total revenue for flying one seat one mile
Regional - represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.
RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM
Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/alaska-air-group-reports-fourth-quarter-2016-and-full-year-results-and-raises-dividend-9-300404035.html
SOURCE Alaska Air Group, Inc.
