Alaska Air Group reports third quarter 2023 results

Led the industry in completion rate in the third quarter

Delivered adjusted pretax margin of 11.4%, among the best in the industry despite West Coast fuel price headwinds

Flew final Airbus operating flight, completing Alaska’s transition to an all-Boeing fleet

SEATTLE, Oct. 19, 2023 /PRNewswire/ — Alaska Air Group (NYSE: ALK) today reported financial results for the third quarter ending September 30, 2023, and provided outlook for the fourth quarter ending December 31, 2023.

“I am grateful to our people for delivering industry-leading operational performance and strong cost discipline this quarter,” said CEO Ben Minicucci. “Our 11.4% adjusted pretax margin is among the best in the industry despite external headwinds. Our investments in our all-Boeing fleet, premium seating on 100% of our aircraft and access for our loyalty members to a global alliance provide our guests with a premium domestic product that rivals any in the industry.”

Financial Highlights:

  • Reported net income for the third quarter of 2023 under Generally Accepted Accounting Principles (GAAP) of $139 million, or $1.08 per share, compared to a net income of $40 million, or $0.31 per share, for the third quarter of 2022.
  • Reported net income for the third quarter of 2023, excluding special items and mark-to-market fuel hedge accounting adjustments, of $237 million, or $1.83 per share, compared to $325 million, or $2.53 per share, for the third quarter of 2022.
  • Recorded $2.8 billion in operating revenue.
  • Reduced CASM excluding fuel and special items by 5% compared to the third quarter of 2022.
  • Repurchased 248,988 shares of common stock for approximately $13 million, bringing total repurchases to $70 million for the nine months ended September 30, 2023.
  • Generated $271 million in operating cash flow for the third quarter of 2023.
  • Held $2.5 billion in unrestricted cash and marketable securities as of September 30, 2023.
  • Ended the quarter with a debt-to-capitalization ratio of 48%, within the target range of 40% to 50%.

Operational Updates:

  • Finished the third quarter with an industry-leading completion rate of 99.7%.
  • Completed Alaska’s transition to an all-Boeing fleet with the retirement of its A321neo aircraft in September, and reached an agreement to sell the ten A321neos to American Airlines, with aircraft sales beginning in the fourth quarter of 2023.
  • Received five 737-9 aircraft and two E175 aircraft during the quarter, bringing the totals in the Alaska and Horizon fleets to 56 and 41.
  • Provided support and relief to the Maui community following the devastating August wildfires, bringing aid to the island and donating nearly 30 million miles to assist with ongoing efforts.
  • Announced new nonstop daily service between San Diego and Atlanta, which will be the 37th nonstop destination from San Diego and the most of any airline serving the airport.
  • Launched the Mobile Verify program, providing guests with the ability to securely verify their passports before arriving to the airport for international travel.
  • Announced establishment of the Airline Venture Lab with UP.Labs, a partnership designed to build startups aimed at solving strategic challenges facing the airline industry.
  • Through Alaska Star Ventures, invested in Assaia, whose aim is to utilize artificial intelligence to optimize aircraft turn times and improve on-time performance.
  • Launched a new partnership with Portland-based Stumptown Coffee Roasters to create a custom coffee blend which will be introduced on all flights by the end of 2023.

Awards and Recognition:

  • Named for the third year in a row to Newsweek’s list of America’s Best Customer Service.
  • Recognized by Forbes as one of America’s Best Employers for Women.

The following table reconciles the company’s reported GAAP net income per share (EPS) for the three and nine months ended September 30, 2023 and 2022 to adjusted amounts.


Three Months Ended September 30,


2023


2022

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income per share

$               139


$              1.08


$                 40


$              0.31

Mark-to-market fuel hedge adjustments

(35)


(0.27)


131


1.02

Special items – fleet transition and other(a)

156


1.20


155


1.21

Special items – labor and related(b)



90


0.70

Special items – net non-operating(c)

8


0.06



Income tax effect of reconciling items above

(31)


(0.24)


(91)


(0.71)

Non-GAAP adjusted net income per share

$               237


$              1.83


$               325


$              2.53










Nine Months Ended September 30,


2023


2022

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income per share

$               237


$              1.84


$                 36


$              0.28

Mark-to-market fuel hedge adjustments

(14)


(0.11)


64


0.50

Special items – fleet transition and other(a)

355


2.75


376


2.94

Special items – labor and related(b)

51


0.39


90


0.70

Special items – net non-operating(c)

14


0.11



Income tax effect of reconciling items above

(98)


(0.76)


(128)


(1.00)

Non-GAAP adjusted net income per share

$               545


$              4.22


$               438


$              3.42

(a)

Special items – fleet transition and other in the three and nine months ended September 30, 2023 and 2022 is primarily for impairment charges and accelerated costs associated with the retirement of Airbus and Q400 aircraft.

(b)

Special items – labor and related is primarily for changes to Alaska pilots’ sick leave benefits resulting from an agreement signed in the first quarter of 2023, and for a one-time payment to Alaska pilots following ratification of a new collective bargaining agreement in the third quarter of 2022.

(c)

Special items – net non-operating in the three and nine months ended September 30, 2023 is for interest expense associated with certain A321neo lease agreements which were modified as part of Alaska’s fleet transition.

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.

Alaska will hold its quarterly conference call to discuss third quarter results at 8:30 a.m. PDT on October 19, 2023. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.

Fourth Quarter and Full Year 2023 Forecast Information



Q4 Expectation

Capacity (ASMs) % change versus 2022


Up 11% to 14%

Total revenue % change versus 2022


Up 1% to 4%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2022


Down 3% to 5%

Economic fuel cost per gallon


$3.30 to $3.40

Adjusted pretax margin %


0% to 2%




Full Year Expectation

Capacity (ASMs) % change versus 2022


Up 12% to 13%

Total revenue % change versus 2022


Up 7% to 8%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2022


Down 1% to 2%

Adjusted pretax margin %


7% to 8%

Earnings per share(a)


$4.25 to $4.75

Capital expenditures


~$1.7 billion

(a)   Earnings per share guidance assumes a full year tax rate of approximately 25%

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, 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 our forward-looking statements, assumptions or beliefs. 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, 2022. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. 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 made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.

Alaska Airlines and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We strive to be the most caring airline with award-winning customer service and an industry-leading loyalty program. As a member of the oneworld alliance, and with our additional global partners, our guests can travel to more than 1,000 destinations on more than 25 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at news.alaskaair.com and follow @alaskaairnews for news and stories. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.













Three Months Ended September 30,


Nine Months Ended September 30,

(in millions, except per share amounts)

2023


2022


Change


2023


2022


Change

Operating Revenue












Passenger revenue

$        2,618


$        2,615


— %


$        7,200


$        6,544


10 %

Mileage Plan other revenue

159


146


9 %


483


433


12 %

Cargo and other revenue

62


67


(7) %


190


190


— %

Total Operating Revenue

2,839


2,828


— %


7,873


7,167


10 %













Operating Expenses












Wages and benefits

782


686


14 %


2,259


1,931


17 %

Variable incentive pay

45


48


(6) %


149


140


6 %

Aircraft fuel, including hedging gains and losses

694


877


(21) %


1,932


2,000


(3) %

Aircraft maintenance

118


92


28 %


367


331


11 %

Aircraft rent

48


76


(37) %


161


222


(27) %

Landing fees and other rentals

183


161


14 %


502


435


15 %

Contracted services

100


83


20 %


290


243


19 %

Selling expenses

84


82


2 %


231


218


6 %

Depreciation and amortization

113


104


9 %


330


310


6 %

Food and beverage service

62


52


19 %


176


143


23 %

Third-party regional carrier expense

58


53


9 %


164


145


13 %

Other

185


207


(11) %


544


536


1 %

Special items – fleet transition and other

156


155


1 %


355


376


(6) %

Special items – labor and related


90


(100) %


51


90


(43) %

Total Operating Expenses

2,628


2,766


(5) %


7,511


7,120


5 %

Operating Income

211


62


NM


362


47


NM

Non-operating Income (Expense)












Interest income

23


17


35 %


62


35


77 %

Interest expense

(34)


(31)


10 %


(90)


(84)


7 %

Interest capitalized

7


3


133 %


21


8


163 %

Special items – net non-operating

(8)



NM


(14)



NM

Other – net

(6)


14


(143) %


(22)


38


(158) %

Total Non-operating Expense

(18)


3


NM


(43)


(3)


NM

Income Before Income Tax

193


65




319


44



Income tax expense

54


25




82


8



Net Income

$           139


$             40




$           237


$             36















Basic Earnings Per Share

$          1.09


$          0.32




$          1.86


$          0.28



Diluted Earnings Per Share

$          1.08


$          0.31




$          1.84


$          0.28



Shares used for computation:












Basic

127.187


126.783




127.375


126.440



Diluted

129.188


128.370




129.085


128.087



 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)




Alaska Air Group, Inc.








(in millions)

September 30, 2023


December 31, 2022

ASSETS




Current Assets




Cash and cash equivalents

$                            647


$                            338

Marketable securities

1,804


2,079

Total cash and marketable securities

2,451


2,417

Receivables – net

341


296

Inventories and supplies – net

122


104

Prepaid expenses

187


163

Assets held for sale

385


3

Other current assets

158


57

Total Current Assets

3,644


3,040





Property and Equipment




Aircraft and other flight equipment

10,015


9,053

Other property and equipment

1,756


1,661

Deposits for future flight equipment

538


670


12,309


11,384

Less accumulated depreciation and amortization

4,283


4,127

Total Property and Equipment – net

8,026


7,257





Other Assets




Operating lease assets

1,171


1,471

Goodwill and intangible assets

2,034


2,038

Other noncurrent assets

290


380

Total Other Assets

3,495


3,889





Total Assets

$                      15,165


$                      14,186

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)




Alaska Air Group, Inc.








(in millions, except share amounts)

September 30, 2023


December 31, 2022

LIABILITIES AND SHAREHOLDERS’ EQUITY




Current Liabilities




Accounts payable

$                            229


$                            221

Accrued wages, vacation and payroll taxes

561


619

Air traffic liability

1,359


1,180

Other accrued liabilities

806


846

Deferred revenue

1,233


1,123

Current portion of operating lease liabilities

150


228

Current portion of long-term debt and finance leases

736


276

Total Current Liabilities

5,074


4,493





Long-Term Debt, Net of Current Portion

2,128


1,883





Noncurrent Liabilities




Long-term operating lease liabilities, net of current portion

1,113


1,393

Deferred income taxes

662


574

Deferred revenue

1,366


1,374

Obligation for pension and post-retirement medical benefits

368


348

Other liabilities

361


305

Total Noncurrent Liabilities

3,870


3,994





Commitments and Contingencies








Shareholders’ Equity




Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or

outstanding


Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2023 –

138,004,646 shares; 2022 – 136,883,042 shares, Outstanding: 2023 – 127,120,173

shares; 2022 – 127,533,916 shares

1


1

Capital in excess of par value

659


577

Treasury stock (common), at cost: 2023 – 10,884,473 shares; 2022 – 9,349,944

shares

(744)


(674)

Accumulated other comprehensive loss

(360)


(388)

Retained earnings

4,537


4,300


4,093


3,816

Total Liabilities and Shareholders’ Equity

$                      15,165


$                      14,186

 

SUMMARY CASH FLOW (unaudited)





Alaska Air Group, Inc.






(in millions)

Nine Months

Ended September 30,

2023


Six Months

Ended June 30,

2023(a)


Three Months

Ended September 30,

2023(b)

Cash Flows from Operating Activities:






Net Income

$                            237


$                          98


$                        139

Non-cash reconciling items

798


511


287

Changes in working capital

68


223


(155)

Net cash provided by operating activities

1,103


832


271







Cash Flows from Investing Activities:






Property and equipment additions

(991)


(634)


(357)

Other investing activities

181


155


26

Net cash used in investing activities

(810)


(479)


(331)







Cash Flows from Financing Activities:

12


(165)


177







Net increase in cash and cash equivalents

305


188


117

Cash, cash equivalents, and restricted cash at beginning of

period

369


369


557

Cash, cash equivalents, and restricted cash at end of the

period

$                            674


$                        557


$                        674

(a)

As reported in Form 10-Q for the second quarter of 2023.

(b)

Cash flows for the three months ended September 30, 2023, can be calculated by subtracting cash flows for the six months ended June 30, 2023, as reported in Form 10-Q for the second quarter 2023, from the nine months ended September 30, 2023.

 

OPERATING STATISTICS SUMMARY (unaudited)







Alaska Air Group, Inc.

























Three Months Ended September 30,


Nine Months Ended September 30,


2023


2022


Change


2023


2022


Change

Consolidated Operating Statistics:(a)












Revenue passengers (000)

12,210


11,437


7 %


33,654


31,137


8 %

RPMs (000,000) “traffic”

15,718


14,143


11 %


43,208


38,475


12 %

ASMs (000,000) “capacity”

18,582


16,349


14 %


51,447


45,743


12 %

Load factor

84.6 %


86.5 %


(1.9) pts


84.0 %


84.1 %


(0.1) pts

Yield

16.66¢


18.48¢


(10) %


16.66¢


17.01¢


(2) %

RASM

15.28¢


17.30¢


(12) %


15.30¢


15.67¢


(2) %

CASMex(b)

9.57¢


10.05¢


(5) %


10.05¢


10.17¢


(1) %

Economic fuel cost per gallon(b)

$3.26


$3.66


(11) %


$3.14


$3.38


(7) %

Fuel gallons (000,000)

224


204


10 %


620


573


8 %

ASMs per gallon

83.0


80.1


4 %


83.0


79.8


4 %

Departures (000)

111.8


110.4


1 %


311.6


309.3


1 %

Average full-time equivalent employees (FTEs)

23,879


22,878


4 %


23,386


22,354


5 %

Mainline Operating Statistics:












Revenue passengers (000)

9,681


8,671


12 %


26,735


23,557


13 %

RPMs (000,000) “traffic”

14,471


12,846


13 %


39,967


34,818


15 %

ASMs (000,000) “capacity”

17,123


14,782


16 %


47,584


41,221


15 %

Load factor

84.5 %


86.9 %


(2.4) pts


84.0 %


84.5 %


(0.5) pts

Yield

15.37¢


17.26¢


(11) %


15.37¢


15.76¢


(2) %

RASM

14.20¢


16.34¢


(13) %


14.24¢


14.72¢


(3) %

CASMex(b)

8.67¢


9.15¢


(5) %


9.12¢


9.24¢


(1) %

Economic fuel cost per gallon(b)

$3.22


$3.61


(11) %


$3.11


$3.35


(7) %

Fuel gallons (000,000)

193


173


12 %


538


484


11 %

ASMs per gallon

88.7


85.4


4 %


88.4


85.2


4 %

Departures (000)

72.3


65.3


11 %


202.1


182.7


11 %

Average full-time equivalent employees (FTEs)

18,619


17,453


7 %


18,184


17,035


7 %

Aircraft utilization

11.9


10.5


13 %


11.5


10.4


11 %

Average aircraft stage length

1,386


1,347


3 %


1,379


1,348


2 %

Operating fleet(d)

220


232


(12) a/c


220


232


(12) a/c

Regional Operating Statistics:(c)












Revenue passengers (000)

2,529


2,767


(9) %


6,919


7,579


(9) %

RPMs (000,000) “traffic”

1,247


1,297


(4) %


3,241


3,657


(11) %

ASMs (000,000) “capacity”

1,459


1,567


(7) %


3,862


4,522


(15) %

Load factor

85.5 %


82.8 %


2.7 pts


83.9 %


80.9 %


3.0 pts

Yield

31.57¢


30.69¢


3 %


32.64¢


28.88¢


13 %

RASM

27.85¢


26.23¢


6 %


28.33¢


24.26¢


17 %

Departures (000)

39.5


45.2


(13) %


109.5


126.6


(14) %

Operating fleet(d)

83


94


(11) a/c


83


94


(11) 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 the importance of this measure to investors in the accompanying pages.

(c)

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

(d)

Excludes all aircraft removed from operating service.

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.





























Three Months Ended September 30, 2023

(in millions)

Mainline


Regional


Horizon


Consolidating

& Other(a)


Air Group

Adjusted(b)


Special

Items(c)


Consolidated

Operating Revenue














Passenger revenue

$     2,225


$        394


$          —


$                  (1)


$     2,618


$          —


$        2,618

CPA revenue



104


(104)




Mileage Plan other revenue

146


13




159



159

Cargo and other revenue

60




2


62



62

Total Operating Revenue

2,431


407


104


(103)


2,839



2,839

Operating Expenses














Operating expenses, excluding fuel

1,484


297


89


(92)


1,778


156


1,934

Fuel expense

622


108



(1)


729


(35)


694

Total Operating Expenses

2,106


405


89


(93)


2,507


121


2,628

Non-operating Income (Expense)



(11)


1


(10)


(8)


(18)

Income (Loss) Before Income Tax

$        325


$            2


$            4


$                  (9)


$        322


$      (129)


$           193

Pretax Margin(d)









11.4 %




6.8 %
















Three Months Ended September 30, 2022

(in millions)

Mainline


Regional


Horizon


Consolidating

& Other(a)


Air Group

Adjusted(b)


Special

Items(c)


Consolidated

Operating Revenue














Passenger revenue

$     2,217


$        398


$          —


$                  —


$     2,615


$          —


$        2,615

CPA revenue



93


(93)




Mileage Plan other revenue

133


13




146



146

Cargo and other revenue

65




2


67



67

Total Operating Revenue

2,415


411


93


(91)


2,828



2,828

Operating Expenses














Operating expenses, excluding fuel

1,352


292


94


(94)


1,644


245


1,889

Fuel expense

625


121




746


131


877

Total Operating Expenses

1,977


413


94


(94)


2,390


376


2,766

Non-operating Income (Expense)

8



(5)



3



3

Income (Loss) Before Income Tax

$        446


$          (2)


$          (6)


$                    3


$        441


$      (376)


$             65

Pretax Margin(d)









15.6 %




2.3 %

 


Nine Months Ended September 30, 2023

(in millions)

Mainline


Regional


Horizon


Consolidating

& Other(a)


Air Group

Adjusted(b)


Special

Items(c)


Consolidated

Operating Revenue














Passenger revenue

$     6,143


$     1,058


$          —


$                  (1)


$    7,200


$          —


$        7,200

CPA revenue



274


(274)




Mileage Plan other revenue

447


36




483



483

Cargo and other revenue

184




6


190



190

Total Operating Revenue

6,774


1,094


274


(269)


7,873



7,873

Operating Expenses














Operating expenses, excluding fuel

4,342


832


260


(261)


5,173


406


5,579

Fuel expense

1,673


274



(1)


1,946


(14)


1,932

Total Operating Expenses

6,015


1,106


260


(262)


7,119


392


7,511

Non-operating Income (Expense)

(3)



(29)


3


(29)


(14)


(43)

Income (Loss) Before Income Tax

$        756


$        (12)


$        (15)


$                  (4)


$       725


$      (406)


$           319

Pretax Margin(d)









9.2 %




4.1 %
















Nine Months Ended September 30, 2022

(in millions)

Mainline


Regional


Horizon


Consolidating

& Other(a)


Air Group

Adjusted(b)


Special

Items(c)


Consolidated

Operating Revenue














Passenger revenue

$     5,488


$     1,056


$          —


$                  —


$    6,544


$          —


$        6,544

CPA revenue



288


(288)




Mileage Plan other revenue

392


41




433



433

Cargo and other revenue

186




4


190



190

Total Operating Revenue

6,066


1,097


288


(284)


7,167



7,167

Operating Expenses














Operating expenses, excluding fuel

3,808


843


291


(288)


4,654


466


5,120

Fuel expense

1,623


313




1,936


64


2,000

Total Operating Expenses

5,431


1,156


291


(288)


6,590


530


7,120

Non-operating Income (Expense)

12



(15)



(3)



(3)

Income (Loss) Before Income Tax

$        647


$        (59)


$        (18)


$                    4


$       574


$      (530)


$             44

Pretax Margin(d)









8.0 %




0.6 %

(a)

Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.

(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 excludes certain charges. See Note A in the accompanying pages for further information.

(c)

Includes special items and mark-to-market fuel hedge accounting adjustments.

(d)

Figures in the tables above are rounded to the nearest million. As a result, manual recalculations may not agree directly to reported figures.

 

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)





Alaska Air Group, Inc.








CASM Excluding Fuel and Special Items Reconciliation


Three Months Ended

September 30,


Nine Months Ended

September 30,

(in cents)

2023


2022


2023


2022

Consolidated:








CASM

14.14 ¢


16.91 ¢


14.60 ¢


15.56 ¢

Less the following components:








Aircraft fuel, including hedging gains and losses

3.73


5.36


3.76


4.37

Special items – fleet transition and other(a)

0.84


0.95


0.69


0.82

Special items – labor and related(b)


0.55


0.10


0.20

CASM excluding fuel and special items

9.57 ¢


10.05 ¢


10.05 ¢


10.17 ¢









Mainline:








CASM

13.01 ¢


16.20 ¢


13.47 ¢


14.59 ¢

Less the following components:








Aircraft fuel, including hedging gains and losses

3.42


5.52


3.49


4.44

Special items – fleet transition and other(a)

0.92


0.92


0.75


0.69

Special items – labor and related(b)


0.61


0.11


0.22

CASM excluding fuel and special items

8.67 ¢


9.15 ¢


9.12 ¢


9.24 ¢

(a)

Special items – fleet transition and other in the three and nine months ended September 30, 2023 and 2022 is primarily for impairment charges and accelerated costs associated with the retirement of Airbus and Q400 aircraft.

(b)

Special items – labor and related is primarily for changes to Alaska pilots’ sick leave benefits resulting from an agreement signed in the first quarter of 2023 and for a one-time payment to Alaska pilots following ratification of a new collective bargaining agreement in the third quarter of 2022.

 

Fuel Reconciliation


Three Months Ended September 30,


2023


2022

(in millions, except for per-gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or “into-plane” fuel cost

$                   711


$                  3.18


$                   775


$                  3.80

Losses (gains) on settled hedges

18


0.08


(29)


(0.14)

Consolidated economic fuel expense

729


3.26


746


3.66

Mark-to-market fuel hedge adjustment

(35)


(0.16)


131


0.64

GAAP fuel expense

$                   694


$                  3.10


$                   877


$                  4.30

Fuel gallons



224




204










Nine Months Ended September 30,


2023


2022

(in millions, except for per gallon amounts)

Dollars


Cost/Gallon


Dollars


Cost/Gallon

Raw or “into-plane” fuel cost

$                1,899


$                  3.06


$                2,103


$                  3.67

Losses (gains) on settled hedges

47


0.08


(167)


(0.29)

Consolidated economic fuel expense

1,946


3.14


1,936


3.38

Mark-to-market fuel hedge adjustment

(14)


(0.02)


64


0.11

GAAP fuel expense

$                1,932


$                  3.12


$                2,000


$                  3.49

Fuel gallons



620




573

 

Debt-to-capitalization, including operating and finance leases

(in millions)

September 30, 2023


December 31, 2022

Long-term debt, net of current portion

$                           2,128


$                            1,883

Capitalized operating leases

1,263


1,621

Capitalized finance leases(a)

452


Adjusted debt, net of current portion of long-term debt

3,843


3,504

Shareholders’ equity

4,093


3,816

Total Invested Capital

$                           7,936


$                            7,320





Debt-to-capitalization ratio, including operating and finance leases

48 %


48 %

(a)

To best reflect our leverage at September 30, 2023, we included our capitalized finance lease balances, which are recognized within the ‘Current portion of long-term debt and finance leases’ line of the condensed consolidated balance sheet.

 

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent, and special items

(in millions)

September 30, 2023


December 31, 2022

Current portion of long-term debt and finance leases

$                                   736


$                                   276

Current portion of operating lease liabilities

150


228

Long-term debt

2,128


1,883

Long-term operating lease liabilities, net of current portion

1,113


1,393

Total adjusted debt

4,127


3,780

Less: Total cash and marketable securities

2,451


2,417

Adjusted net debt

$                               1,676


$                               1,363





(in millions)

Twelve Months Ended

September 30, 2023


Twelve Months Ended

December 31, 2022

GAAP Operating Income(a)

$                                   385


$                                     70

Adjusted for:




Special items

520


580

Mark-to-market fuel hedge adjustments

(2)


76

Depreciation and amortization

435


415

Aircraft rent

230


291

EBITDAR

$                               1,568


$                               1,432

Adjusted net debt to EBITDAR

1.1x


1.0x

(a)

Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.

Note A: Pursuant to Regulation G, we are providing reconciliations 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 excluding fuel expense and special items from our unit metrics, we believe that we have better visibility into the results of operations. 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 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.



  • CASM excluding fuel and special items is a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.



  • Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee incentive plan, which covers the majority of Air Group employees.



  • 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 these items as noted above 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 unit revenue, we do not, nor are we able to, evaluate unit revenue 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 revenue 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

Adjusted net debt – long-term debt, including current portion, plus capitalized operating and finance leases, less cash and marketable securities

Adjusted net debt to EBITDAR – represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

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; represents all operating expenses including fuel and special items

CASMex – operating costs excluding fuel and special items per ASM, or “unit cost”; 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 capitalized operating and finance lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share – represents earnings per share (EPS) 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

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, Airbus A320, and Airbus A321neo jets and all associated revenue and costs

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 and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest 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

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SOURCE ALASKA AIRLINES

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