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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 31, 2024
(Date of earliest event reported)
ALASKA AIR GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation) | | | | | | | | |
| 1-8957 | | 91-1292054 |
| (Commission File Number) | | (IRS Employer Identification No.) |
| | | | | | | | | | | | | | |
| 19300 International Boulevard | Seattle | Washington | | 98188 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(206) 392-5040
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Ticker Symbol | Name of each exchange on which registered |
| Common stock, $0.01 par value | ALK | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).
☐ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
This document is also available on our website at http://investor.alaskaair.com.
ITEM 2.02. Results of Operations And Financial Condition
On October 31, 2024, Alaska Air Group, Inc. (Air Group) issued a press release and certain supplemental materials reporting financial results for the third quarter of 2024.
ITEM 7.01. Regulation FD Disclosure
Pursuant to 17 CFR Part 243 (Regulation FD), the Company is submitting information relating to its financial and operational outlook in a press release as well as supplemental materials. The press release is attached as Exhibit 99.1. Supplemental information is attached as Exhibit 99.2 and Exhibit 99.3.
In accordance with General Instruction B.2 of Form 8-K, the information under this item shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.
ITEM 9.01. Financial Statements and Other Exhibits
Pro Forma Financial Information
The unaudited pro forma condensed combined financial information of Air Group for the year ended December 31, 2023, and for the quarters ended September 30, 2024, December 31, 2023, and September 30, 2023 are attached as Exhibit 99.4 and incorporated herein by reference.
| | | | | | | | |
| | Third Quarter 2024 Earnings Press Release dated October 31, 2024 |
| | Supplemental Earnings Material |
| | Supplemental Earnings Question & Answer |
| | Unaudited pro forma condensed combined financial information of the Company for the year ended December 31, 2023, and for the quarters ended September 30, 2024, December 31, 2023, and September 30, 2023 |
| 104 | | Cover Page Interactive Data File - embedded within the Inline XBRL Document |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALASKA AIR GROUP, INC.
Registrant
Date: October 31, 2024
/s/ EMILY HALVERSON
Emily Halverson
Vice President Finance, Controller, and Treasurer
Exhibit 99.1
October 31, 2024 | | | | | | | | |
| Media contact: | | Investor/analyst contact: |
| Media Relations | | Ryan St. John |
| (206) 304-0008 | | VP Finance, Planning and Investor Relations |
| | ALKInvestorRelations@alaskaair.com |
Alaska Air Group reports third quarter 2024 results
Completed acquisition of Hawaiian Airlines
Led the industry in adjusted pretax margin
SEATTLE — Alaska Air Group (NYSE: ALK) today reported financial results for the third quarter ending September 30, 2024.
Air Group closed out a strong third quarter, generating GAAP pretax margins of 10.7% and earnings per share (EPS) of $1.84. On an adjusted basis, our pretax margin of 13.0% will lead the industry. Given Air Group's completed acquisition of Hawaiian Airlines on September 18, 2024, quarterly financial statements include approximately 13 days of Hawaiian Airlines results.
“There has been no better time to be part of Alaska Air Group. By bringing together Alaska and Hawaiian’s remarkable service, expansive networks, distinct cultures, and shared values, we are creating a resilient airline that can meet the challenge of competing in a rapidly shifting industry," said CEO Ben Minicucci. “We have the resources and flexibility to navigate challenges, embrace new opportunities, and write the next chapter for our company. Our industry leading margins and strong operational performance are proof points that we are making the right investments to differentiate ourselves from our domestic-focused peers.
Today’s results reinforce we are on the right path for the future.”
Quarter in Review:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Q3 Expectations
July 17, 2024 | | Q3 Expectations
September 12, 2024 | | Q3 Consolidated Air Group Results | | Q3 Hawaiian Airlines Contribution to Results |
| ASMs vs. 2023 | | Up 2% to 3% | | Up 2% to 3% | | Up 6.8% | | 4.1 pts |
| CASMex vs. 2023 | | Up high single digits | | Up high single digits | | Up 6.9% | | 0.2 pts |
| RASM vs. 2023 | | Flat to positive | | Up ~2% | | Up 1.3% | | (0.8) pts |
| Economic fuel cost per gallon | | $2.85 to $2.95 | | $2.60 to $2.70 | | $2.61 | | $2.35 |
| Adjusted pretax income (in millions) | | — | | — | | $399 | | $(14) |
| | | | | | | | |
| Adjusted earnings per share | | $1.40 to $1.60 | | $2.15 to $2.25 | | $2.25 | | $(0.09) |
We are excited to host our Investor Day on December 10th, where we will share more detail about our vision as a combined company, including higher synergy estimates driven by the combination, discuss our strategy to expand margins and generate free cash flow, and provide 2025 guidance. Given the proximity of third quarter earnings to our Investor Day, we announced on October 21st that we would not hold an earnings conference call this quarter. While we expect to resume regular quarterly earnings calls again in January 2025, this quarter we are providing additional narrative on our third quarter performance, including discussion of Air Group trends excluding Hawaiian Airlines within our earnings release today.
Air Group’s consolidated results reported in the third quarter of 2024 include 13 days of Hawaiian Airlines results, while prior comparable periods exclude any Hawaiian results. Except where noted below, the following discussion of Air Group’s third
quarter performance reflect legacy-Alaska performance, excluding Hawaiian for the 13 days it was part of the combined company.
Income and EPS:
Today we reported GAAP net income of $236 million, or $1.84 earnings per share for the third quarter of 2024. Excluding special items and mark-to-market fuel hedge accounting adjustments, we reported net income of $289 million, or $2.25 earnings per share, significantly exceeding our original guidance for the quarter of $1.40 to $1.60 and coming in at the high end of our revised guidance published on September 12th. Our adjusted pretax margin of 13.0% led industry peers for the 2nd consecutive quarter and continues to demonstrate the strength of our business model. We have built a solid foundation of robust earnings and operating cash flow generation that we’re excited to continue building on through the combination of both Alaska and Hawaiian Airlines, as we realize substantial synergies amidst a strong demand environment and constructive industry backdrop.
Revenue:
During the quarter, Alaska saw unit revenues inflect positive in August, with strength in booking trends continuing into the fourth quarter. We’ve seen improvement across the Alaska network, in particular in the Pacific Northwest and Latin America regions. Corporate demand showed renewed strength in September and into October, which drove meaningful yield improvements on close-in bookings. Managed corporate revenue grew 9% year-over-year in the third quarter with double digit growth from the technology and professional services industries. Premium revenue performance also remained strong this quarter, continuing to outperform main cabin, with first and premium class revenue up 10% and 8% year-over-year respectively on 5% year-over-year growth in premium seat capacity. Unit revenues are expected to continue their positive trajectory, from up low-single digits in the third quarter to up mid-single digits in the fourth quarter.
“The opportunities for this newly combined global airline are clear, and we are poised to be the airline that connects the West Coast to the world with an experience rooted in care and performance," said CCO Andrew Harrison. "We are investing in our commercial engine to compete more effectively with the larger carriers, increase loyalty among our guests and realize synergies from both our commercial and cargo businesses. These investments include re-imagined lounge and onboard offerings designed to meet the needs of our most loyal guests, optimized route networks that get people to more places in less time, a seamless booking to boarding experience, and more.”
Operationally, Alaska delivered a reliable performance for our guests during their peak summer travel plans, not only flying our largest ever summer schedule, but doing so with a 99.2% completion rate. Growth this year has been impacted by delayed aircraft deliveries, which we expect to continue due to the ongoing strike at Boeing. Further aircraft delivery delays are expected to limit capacity growth in the final quarter of 2024 relative to our prior resource planning expectations earlier in the year.
Costs:
Costs performed as expected and were in line with our prior guidance, although unit costs remain pressured from lower capacity due to delivery delays. We remain resourced for higher capacity and are experiencing the lowest attrition rates across the company since 2019. One-third of our second half 2024 unit cost increases on a year-over-year basis are directly related to relative overstaffing given originally higher planned flying volumes, as well as the natural pressure that lower capacity puts on our fixed cost base which is about half of total costs. We expect this pressure to be transitory and to return to optimized resource levels relative to our capacity throughout 2025. Despite this, productivity for the quarter improved 4.6% year-over-year.
Our expected profit sharing payouts increased materially in the quarter, primarily driven by lower fuel prices and improving revenue trends, offset by a reduction in expected wage expense from our tentative agreement with our flight attendants which did not ratify during the quarter.
Balance Sheet and Capex:
Turning to our balance sheet, we ended the quarter with total liquidity of $3.4 billion, inclusive of approximately $850 million in undrawn lines of credit which were upsized following the closing of the Hawaiian acquisition. Subsequent to quarter end, we raised $2.0 billion in Term Loan B and Bond debt collateralized by Alaska's Mileage Plan program. The bond offering garnered investor interest of greater than 7x our issued amount, and we achieved the tightest spreads seen on similar debt within the industry outside of the pandemic, a testament to the strength of our loyalty collateral and our balance sheet. Approximately $1.4 billion was used to repay higher-yielding debt assumed in the merger, which we expect to result in annual interest cost savings of approximately $30 million over the next twelve months. Following the loyalty financing and debt repayments in October, our debt to capitalization and net leverage sit today at 58% and 2.4x respectively, still among the strongest balance sheets in the industry.
For capital expenditures, we continue to plan to incur approximately $1.2 to $1.3 billion in 2024. This amount assumes we pay for 18 737 Max aircraft this year, subject to Boeing delivery ability.
Hawaiian Airlines Trends:
Although we only recently completed the acquisition of Hawaiian Airlines, we are encouraged by the continued improvement in the Hawaiian network. Following significant losses incurred in the fourth quarter of 2023, Hawaiian's EBITDAR turned positive in the second quarter and pretax results are expected to approach break even in the fourth quarter. The improvement is expected to be driven by both revenues and costs. North America PRASM inflected positive during the third quarter and we expect will be up mid-single digits year-over-year in the fourth quarter, while International PRASM is gradually improving from down double digits toward flat year-over-year in the fourth quarter of 2024. Neighbor Island results are also showing material year-over-year improvements. Several temporary cost headwinds that have challenged Hawaiian’s performance have mostly passed, with the impact of the A321 GTF engine-driven groundings fully resolved and the majority of the A330 Amazon freighter and 787 new fleet startup related costs completed.
Integration:
With a proven playbook from our integration of Virgin America, we are prepared and excited to begin in earnest to bring the operating platforms of Alaska and Hawaiian together, while we maintain the legacy and value of both brands, each of which have been built over 90 years respectively. We plan to achieve three significant integration milestones in the next 18 months – the launch of a single loyalty platform, receipt of a single operating certificate, and integration of our passenger service system. We will also soon begin working with our labor-represented workgroups to start the joint collective bargain process.
We are on track to finish the year strong and expect to be among the top 3 pretax margin producers in the industry for the full year, inclusive of Hawaiian’s results from the date of acquisition closing. There is much to be excited about for our airlines as we move ahead and begin unlocking the multiples of potential we can accomplish as a combined company.
Fourth Quarter 2024 Guidance:
For the fourth quarter, we expect the following results, inclusive of Hawaiian. Expectations for the fourth quarter are compared to pro forma historical results, as if the acquisition had occurred on January 1, 2023. Pro forma historical results were included with this Form 8-K. Full year 2024 EPS is expected finish above the midpoint of our previous guidance of $3.50 to $4.50 per share, inclusive of Hawaiian's results.
| | | | | | | | |
| | Q4 Expectation |
| Capacity (ASMs) % change versus 2023 | | Up 1.5% to 2.5% |
| CASMex % change versus 2023 | | Up high single digits |
| RASM % change versus 2023 | | Up mid single digits |
| Economic fuel cost per gallon | | $2.55 to $2.65 |
Adjusted earnings per share(a) | | $0.20 to $0.40 |
(a) Earnings per share guidance assumes non-operating expense of approximately $50 million and a tax rate of approximately 28%.
Financial Results and Updates:
•Reported net income for the third quarter of 2024 under Generally Accepted Accounting Principles ("GAAP") of $236 million, or $1.84 per share, compared to net income of $139 million, or $1.08 per share, for the third quarter of 2023.
•Reported net income for the third quarter of 2024, excluding special items and mark-to-market fuel hedge accounting adjustments, of $289 million, or $2.25 per share, compared to net income of $237 million, or $1.83 per share, for the third quarter of 2023
•Subsequent to quarter end, Air Group completed $2 billion in financing, backed by the Company's Mileage Plan program. Approximately $1.4 billion was used in October to refinance certain debt acquired with Hawaiian Airlines, which is expected to result in interest cost savings of approximately $30 million over the next twelve months.
•Repurchased 367,705 shares of common stock for approximately $14 million in the third quarter, bringing total repurchases to $63 million for the nine months ended September 30, 2024.
•Generated $318 million in operating cash flow for the third quarter.
•Held $2.5 billion in unrestricted cash and marketable securities as of September 30, 2024.
•Consolidated and upsized the Company's existing revolving credit facilities to $850 million in support of our overall liquidity target.
Operational Updates:
•Alaska received two 737-9 aircraft and one 737-8 aircraft during the quarter, bringing the totals within the airline's fleet to 72 737-9s and five 737-8s. Hawaiian received its fourth A330-300 freighter from Amazon.
•Completed Starlink installation on Hawaiian's 24 A330 aircraft, offering high-speed Wi-Fi free of charge to guests onboard.
•Partnered with Portland International Airport for the opening of its renovated terminal, leveraging new technology to help guests travel through the lobby quickly.
•Launched Stays by Alaska Vacations with Expedia Group, a new platform offering exclusive deals on over 900,000 hotels and vacation rental properties, providing Mileage Plan members the ability to earn and redeem miles on reservations.
•Announced partnership with James Beard award-winning chef Brandon Jew to offer an exclusive First Class dining experience for guests on flights between San Francisco and New York JFK.
Sustainability Updates:
•Announced investment in JetZero, a company developing a blended-wing body aircraft designed to provide up to 50% less fuel burn, reflecting Alaska's commitment to its goal of net zero carbon emissions by 2040.
•In collaboration with UP.Labs, launched Odysee, an innovative startup that leverages AI and computing power to optimize Air Group's scheduling and management of operational logistics.
The following table reconciles the company's reported GAAP net income per share (EPS) for the three and nine months ended September 30, 2024 and 2023 to adjusted amounts.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2024 | | 2023 |
| (in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
| Net income per share | $ | 236 | | | $ | 1.84 | | | $ | 139 | | | $ | 1.08 | |
| Mark-to-market fuel hedge adjustments | (4) | | | (0.03) | | | (35) | | | (0.27) | |
| Special items - operating | 74 | | | 0.57 | | | 156 | | | 1.20 | |
| Special items - net non-operating | 1 | | | 0.01 | | | 8 | | | 0.06 | |
| Income tax effect of reconciling items above | (18) | | | (0.14) | | | (31) | | | (0.24) | |
| Adjusted net income per share | $ | 289 | | | $ | 2.25 | | | $ | 237 | | | $ | 1.83 | |
| | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| (in millions, except per-share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
| Net income per share | $ | 324 | | | $ | 2.52 | | | $ | 237 | | | $ | 1.84 | |
| Mark-to-market fuel hedge adjustments | (22) | | | (0.17) | | | (14) | | | (0.11) | |
| Special items - operating | 254 | | | 1.98 | | | 406 | | | 3.14 | |
| Special items - net non-operating | 1 | | | 0.01 | | | 14 | | | 0.11 | |
| Income tax effect of reconciling items above | (57) | | | (0.44) | | | (98) | | | (0.76) | |
| Adjusted net income per share | $ | 500 | | | $ | 3.90 | | | $ | 545 | | | $ | 4.22 | |
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 discussion of risks and uncertainties that may cause our forward-looking statements to differ materially, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Some of these risks include competition, labor costs, relations and availability, general economic conditions, increases in operating costs including fuel, uncertainties regarding the ability to successfully integrate the operations of the recently completed acquisition of Hawaiian Holdings, Inc. and the ability to realize anticipated cost savings, synergies, or growth from the acquisition, 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 Air Group, Inc. is based in Seattle and comprised of subsidiaries Alaska Airlines, Hawaiian Holdings, Inc., Horizon Air and McGee Air Services. With our recent acquisition of Hawaiian Airlines, we now serve more than 140 destinations throughout North America, Central America, Asia and across the Pacific. We are committed to safety, remarkable customer care, operational excellence, financial performance and sustainability. Alaska Airlines is a member of the oneworld Alliance. With oneworld and our additional global partners, our guests have more choices than ever to purchase, earn or redeem on alaskaair.com across 30 airlines and more than 1,000 worldwide destinations. Book travel throughout the Pacific on Hawaiian Airlines at hawaiianairlines.com. Learn more about Alaska Airlines at news.alaskaair.com and Hawaiian Airlines at newsroom.hawaiianairlines.com/blog. Alaska Air Group is traded on the New York Stock Exchange (NYSE) as “ALK.”
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
Amounts below reflect Hawaiian's results of operations for the period September 18, 2024 through September 30, 2024, and incorporate purchase accounting impacts for the same period. Prior period information does not reflect Hawaiian's historical results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share amounts) | 2024 | | 2023 | | Change | | 2024 | | 2023 | | Change |
| Operating Revenue | | | | | | | | | | | |
| Passenger revenue | $ | 2,821 | | | $ | 2,618 | | | 8 | % | | $ | 7,476 | | | $ | 7,200 | | | 4 | % |
| Mileage Plan other revenue | 171 | | | 159 | | | 8 | % | | 509 | | | 483 | | | 5 | % |
| Cargo and other revenue | 80 | | | 62 | | | 29 | % | | 216 | | | 190 | | | 14 | % |
| Total Operating Revenue | 3,072 | | | 2,839 | | | 8 | % | | 8,201 | | | 7,873 | | | 4 | % |
| | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | |
| Wages and benefits | 883 | | | 782 | | | 13 | % | | 2,469 | | | 2,259 | | | 9 | % |
| Variable incentive pay | 104 | | | 45 | | | 131 | % | | 197 | | | 149 | | | 32 | % |
| Aircraft fuel, including hedging gains and losses | 624 | | | 694 | | | (10) | % | | 1,804 | | | 1,932 | | | (7) | % |
| Aircraft maintenance | 140 | | | 118 | | | 19 | % | | 391 | | | 367 | | | 7 | % |
| Aircraft rent | 49 | | | 48 | | | 2 | % | | 142 | | | 161 | | | (12) | % |
| Landing fees and other rentals | 194 | | | 183 | | | 6 | % | | 532 | | | 502 | | | 6 | % |
| Contracted services | 108 | | | 100 | | | 8 | % | | 311 | | | 290 | | | 7 | % |
| Selling expenses | 82 | | | 84 | | | (2) | % | | 243 | | | 231 | | | 5 | % |
| Depreciation and amortization | 139 | | | 113 | | | 23 | % | | 393 | | | 330 | | | 19 | % |
| Food and beverage service | 69 | | | 62 | | | 11 | % | | 194 | | | 176 | | | 10 | % |
| Third-party regional carrier expense | 63 | | | 58 | | | 9 | % | | 181 | | | 164 | | | 10 | % |
| Other | 202 | | | 185 | | | 9 | % | | 593 | | | 544 | | | 9 | % |
| Special items - operating | 74 | | | 156 | | | (53) | % | | 254 | | | 406 | | | (37) | % |
| Total Operating Expenses | 2,731 | | | 2,628 | | | 4 | % | | 7,704 | | | 7,511 | | | 3 | % |
| Operating Income | 341 | | | 211 | | | 62 | % | | 497 | | | 362 | | | 37 | % |
| | | | | | | | | | | |
| Non-operating Income (Expense) | | | | | | | | | | | |
| Interest income | 28 | | | 23 | | | 22 | % | | 69 | | | 62 | | | 11 | % |
| Interest expense | (44) | | | (34) | | | 29 | % | | (115) | | | (90) | | | 28 | % |
| Interest capitalized | 7 | | | 7 | | | — | % | | 19 | | | 21 | | | (10) | % |
| Special items - net non-operating | (1) | | | (8) | | | (88) | % | | (1) | | | (14) | | | (93) | % |
| Other - net | (3) | | | (6) | | | (50) | % | | (3) | | | (22) | | | (86) | % |
| Total Non-operating Expense | (13) | | | (18) | | | (28) | % | | (31) | | | (43) | | | (28) | % |
| Income Before Income Tax | 328 | | | 193 | | | | | 466 | | | 319 | | | |
| Income tax provision | (92) | | | (54) | | | | | (142) | | | (82) | | | |
| Net Income | $ | 236 | | | $ | 139 | | | | | $ | 324 | | | $ | 237 | | | |
| | | | | | | | | | | | |
| Basic Earnings Per Share | $ | 1.87 | | | $ | 1.09 | | | | | $ | 2.57 | | | $ | 1.86 | | | |
| Diluted Earnings Per Share | $ | 1.84 | | | $ | 1.08 | | | | | $ | 2.52 | | | $ | 1.84 | | | |
| Weighted Average Shares Outstanding used for computation: | | | | | | | | | | | |
| Basic | 126.189 | | | 127.187 | | | | | 126.165 | | | 127.375 | | | |
| Diluted | 128.590 | | | 129.188 | | | | | 128.347 | | | 129.085 | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
Amounts as of September 30, 2024 reflect the acquisition of Hawaiian and incorporate purchase accounting adjustments.
| | | | | | | | | | | |
| (in millions) | September 30, 2024 | | December 31, 2023 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 1,015 | | | $ | 281 | |
| Restricted cash | 27 | | | — | |
| Marketable securities | 1,490 | | | 1,510 | |
| Total cash, restricted cash, and marketable securities | 2,532 | | | 1,791 | |
| Receivables - net | 510 | | | 383 | |
| Inventories and supplies - net | 202 | | | 116 | |
| Prepaid expenses | 270 | | | 176 | |
| | | |
| Other current assets | 223 | | | 239 | |
| Total Current Assets | 3,737 | | | 2,705 | |
| | | |
| Property and Equipment | | | |
| Aircraft and other flight equipment | 12,349 | | | 10,425 | |
| Other property and equipment | 2,109 | | | 1,814 | |
| Deposits for future flight equipment | 612 | | | 491 | |
| 15,070 | | | 12,730 | |
| Less accumulated depreciation and amortization | (4,548) | | | (4,342) | |
| Total Property and Equipment - net | 10,522 | | | 8,388 | |
| | | |
| Other Assets | | | |
| Operating lease assets | 1,346 | | | 1,195 | |
| Goodwill | 2,703 | | | 1,943 | |
| Intangible assets - net | 888 | | | 90 | |
| Other noncurrent assets | 363 | | | 292 | |
| Total Other Assets | 5,300 | | | 3,520 | |
| | | |
| Total Assets | $ | 19,559 | | | $ | 14,613 | |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| | | | | | | | | | | |
| (in millions, except share amounts) | September 30, 2024 | | December 31, 2023 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
| Current Liabilities | | | |
| Accounts payable | $ | 242 | | | $ | 207 | |
| Accrued wages, vacation and payroll taxes | 822 | | | 584 | |
| Air traffic liability | 1,878 | | | 1,136 | |
| Other accrued liabilities | 958 | | | 800 | |
| Deferred revenue | 1,614 | | | 1,221 | |
| Current portion of operating lease liabilities | 211 | | | 158 | |
| Current portion of long-term debt and finance leases | 523 | | | 353 | |
| Total Current Liabilities | 6,248 | | | 4,459 | |
| | | |
| Noncurrent Liabilities | | | |
| Long-term debt and finance leases, net of current portion | 4,159 | | | 2,182 | |
| Long-term operating lease liabilities, net of current portion | 1,249 | | | 1,125 | |
| Deferred income taxes | 889 | | | 695 | |
| Deferred revenue | 1,578 | | | 1,382 | |
| Obligation for pension and post-retirement medical benefits | 505 | | | 362 | |
| Other liabilities | 452 | | | 295 | |
| Total Noncurrent Liabilities | 8,832 | | | 3,859 | |
| | | |
| | | |
| | | |
| 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: 2024 - 140,588,216 shares; 2023 - 138,960,830 shares, Outstanding: 2024 - 126,125,771 shares; 2023 - 126,090,353 shares | 1 | | | 1 | |
| Capital in excess of par value | 769 | | | 695 | |
Treasury stock (common), at cost: 2024 - 14,462,445 shares; 2023 - 12,870,477 shares | (882) | | | (819) | |
| Accumulated other comprehensive loss | (268) | | | (299) | |
| Retained earnings | 4,859 | | | 4,535 | |
| Total Shareholders' Equity | 4,479 | | | 4,113 | |
| Total Liabilities and Shareholders' Equity | $ | 19,559 | | | $ | 14,613 | |
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| SUMMARY CASH FLOW (unaudited) | | | | |
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| (in millions) | Nine Months Ended September 30, 2024 | | Six Months Ended June 30, 2024(a) | | Three Months Ended September 30, 2024(b) |
| Cash Flows from Operating Activities: | | | | | |
| Net Income | $ | 324 | | | $ | 88 | | | $ | 236 | |
| Adjustments to reconcile net income to net cash provided by operating activities | 451 | | | 291 | | | 160 | |
| Changes in working capital | 415 | | | 493 | | | (78) | |
| Net cash provided by operating activities | 1,190 | | | 872 | | | 318 | |
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| Cash Flows from Investing Activities: | | | | | |
| Property and equipment additions | (851) | | | (587) | | | (264) | |
| Acquisition of Hawaiian Airlines, net of cash acquired | (659) | | | — | | | (659) | |
| Supplier proceeds | 162 | | | 162 | | | — | |
| Other investing activities | 912 | | | 290 | | | 622 | |
| Net cash used in investing activities | (436) | | | (135) | | | (301) | |
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| Cash Flows from Financing Activities: | 7 | | | 87 | | | (80) | |
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| Net increase in cash and cash equivalents | 761 | | | 824 | | | (63) | |
Cash, cash equivalents, and restricted cash at beginning of period(c) | 308 | | | 308 | | | 1,132 | |
Cash, cash equivalents, and restricted cash at end of the period(c) | $ | 1,069 | | | $ | 1,132 | | | $ | 1,069 | |
(a) As reported in Form 10-Q for the second quarter of 2024.
(b) Cash flows for the three months ended September 30, 2024 can be calculated by subtracting cash flows from the six months ended June 30, 2024 from the nine months ended September 30, 2024.
(c) Cash, cash equivalents, and restricted cash shown in the Summary Cash Flow consists of restricted cash presented within Restricted Cash as well as certain amounts presented within Other noncurrent assets in the condensed consolidated balance sheets.
SPECIAL ITEMS (unaudited)
Air Group has classified certain operating and non-operating expenses as special items due to their unusual or infrequently occurring nature. We believe disclosing information about these items separately improves comparable year-over-year analysis and allows stakeholders to better understand our results of operations. A description of the special items is provided below.
Fleet transition: Fleet transition costs (benefits) are associated with the retirement and disposition of Airbus acquired from Virgin America and Q400 aircraft.
Labor agreements: Labor agreement costs in 2024 are for retroactive pay for Alaska flight attendants pursuant to the tentative agreement reached in the second quarter of 2024; the agreement did not pass and negotiations are ongoing. Costs in 2023 are for contractual changes to Alaska pilots' sick leave benefits.
Integration costs: Integration costs are associated with the acquisition of Hawaiian Airlines and primarily consist of legal and professional fees, change in control payments, and other employee-related expenses.
Litigation: Litigation costs represent expenses associated with the Virgin trademark license agreement with the Virgin Group and recorded following a negative ruling in an appeal case in the second quarter of 2024.
Net non-operating: These costs are primarily for interest expense recognized in 2023 associated with certain Virgin America A321neo lease agreements which were modified as part of Alaska's fleet transition.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Operating Expenses | | | | | | | |
| Fleet transition | $ | (16) | | | $ | 156 | | | $ | 51 | | | $ | 355 | |
| Labor agreements | — | | | — | | | 30 | | | 51 | |
| Integration costs | 90 | | | — | | | 128 | | | — | |
| Litigation | — | | | — | | | 45 | | | — | |
| Special items - operating | $ | 74 | | | $ | 156 | | | $ | 254 | | | $ | 406 | |
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| Non-operating Income (Expense) | | | | | | | |
| Special items - net non-operating | $ | (1) | | | $ | (8) | | | $ | (1) | | | $ | (14) | |
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| OPERATING STATISTICS (unaudited) | | | | | | |
Amounts below reflect the results of operations for Hawaiian Airlines for the period September 18, 2024 through September 30, 2024. |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | Change | | 2024 | | 2023 | | Change |
Consolidated Operating Statistics:(a) | | | | | | | | | | | |
| Revenue passengers (000) | 13,237 | | 12,210 | | 8.4% | | 34,899 | | 33,654 | | 3.7% |
| RPMs (000,000) "traffic" | 16,970 | | 15,718 | | 8.0% | | 44,803 | | 43,208 | | 3.7% |
| ASMs (000,000) "capacity" | 19,847 | | 18,582 | | 6.8% | | 53,422 | | 51,447 | | 3.8% |
| Load factor | 85.5% | | 84.6% | | 0.9 pts | | 83.9% | | 84.0% | | (0.1) pts |
| Yield | 16.62¢ | | 16.66¢ | | (0.2)% | | 16.69¢ | | 16.66¢ | | 0.2% |
| PRASM | 14.21¢ | | 14.09¢ | | 0.9% | | 13.99¢ | | 14.00¢ | | (0.1)% |
| RASM | 15.48¢ | | 15.28¢ | | 1.3% | | 15.35¢ | | 15.30¢ | | 0.3% |
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CASMex(b) | 10.16¢ | | 9.50¢ | | 6.9% | | 10.48¢ | | 9.98¢ | | 5.0% |
Economic fuel cost per gallon(b) (c) | $2.61 | | $3.26 | | (19.9)% | | $2.82 | | $3.14 | | (10.2)% |
Fuel gallons (000,000)(c) | 240 | | 224 | | 7.2% | | 646 | | 620 | | 4.3% |
| ASMs per gallon | 82.7 | | 83.0 | | (0.4)% | | 82.6 | | 83.0 | | (0.5)% |
| Departures (000) | 121.6 | | 111.8 | | 8.8% | | 329.7 | | 311.6 | | 5.8% |
| Average full-time equivalent employees (FTEs) | 24,963 | | 23,879 | | 4.5% | | 23,784 | | 23,386 | | 1.7% |
Operating fleet(d) | 394 | | 303 | | 91 a/c | | 394 | | 303 | | 91 a/c |
| Alaska Airlines Operating Statistics: | | | | | | | | | | | |
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| RPMs (000,000) "traffic" | 14,951 | | 14,471 | | 3.3% | | 40,375 | | 39,967 | | 1.0% |
| ASMs (000,000) "capacity" | 17,459 | | 17,123 | | 2.0% | | 48,118 | | 47,584 | | 1.1% |
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| Economic fuel cost per gallon | $2.60 | | $3.22 | | (19)% | | $2.80 | | $3.11 | | (10)% |
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| Hawaiian Airlines Operating Statistics: | | | | | | | | | | | |
| RPMs (000,000) "traffic" | 634 | | n/a | | n/a | | 634 | | n/a | | n/a |
| ASMs (000,000) "capacity" | 763 | | n/a | | n/a | | 763 | | n/a | | n/a |
Economic fuel cost per gallon(c) | $2.35 | | n/a | | n/a | | $2.35 | | n/a | | n/a |
Regional Operating Statistics:(e) | | | | | | | | | | | |
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| RPMs (000,000) "traffic" | 1,385 | | 1,247 | | 11.1% | | 3,795 | | 3,241 | | 17.1% |
| ASMs (000,000) "capacity" | 1,625 | | 1,459 | | 11.4% | | 4,540 | | 3,862 | | 17.6% |
| Economic fuel cost per gallon | $2.74 | | $3.49 | | (21.5)% | | $2.99 | | $3.32 | | (9.9)% |
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(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)Excludes operations under the Air Transportation Services Agreement (ATSA) with Amazon.
(d)Includes aircraft owned and leased by Alaska, Hawaiian, and Horizon as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excludes all aircraft removed from operating service.
(e)Data presented includes information related to flights operated by Horizon and third-party carriers.
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| OPERATING SEGMENTS (unaudited) |
| Alaska Air Group, Inc. | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 |
| (in millions) | Alaska Airlines | | Hawaiian Airlines | | Regional | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
| Operating Revenue | | | | | | | | | | | | | |
| Passenger revenue | $ | 2,261 | | | $ | 84 | | | $ | 476 | | | $ | — | | | $ | 2,821 | | | $ | — | | | $ | 2,821 | |
| Mileage Plan other revenue | 151 | | | 5 | | | 15 | | | — | | | 171 | | | — | | | 171 | |
| Cargo and other revenue | 71 | | | 6 | | | — | | | 3 | | | 80 | | | — | | | 80 | |
| Total Operating Revenue | 2,483 | | | 95 | | | 491 | | | 3 | | | 3,072 | | | — | | | 3,072 | |
| Operating Expenses | | | | | | | | | | | | | |
| Operating expenses, excluding fuel | 1,640 | | | 82 | | | 325 | | | (14) | | | 2,033 | | | 74 | | | 2,107 | |
| Fuel expense | 510 | | | 23 | | | 95 | | | — | | | 628 | | | (4) | | | 624 | |
| Total Operating Expenses | 2,150 | | | 105 | | | 420 | | | (14) | | | 2,661 | | | 70 | | | 2,731 | |
| Non-operating Income (Expense) | 3 | | | (4) | | | — | | | (11) | | | (12) | | | (1) | | | (13) | |
| Income (Loss) Before Income Tax | $ | 336 | | | $ | (14) | | | $ | 71 | | | $ | 6 | | | $ | 399 | | | $ | (71) | | | $ | 328 | |
| Pretax Margin | | | | | | | | | 13.0 | % | | | | 10.7 | % |
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| Three Months Ended September 30, 2023 |
| (in millions) | Alaska Airlines | | Hawaiian Airlines | | Regional | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
| Operating Revenue | | | | | | | | | | | | | |
| Passenger revenue | $ | 2,201 | | | $ | — | | | $ | 417 | | | $ | — | | | $ | 2,618 | | | $ | — | | | $ | 2,618 | |
| Mileage Plan other revenue | 146 | | | — | | | 13 | | | — | | | 159 | | | — | | | 159 | |
| Cargo and other revenue | 60 | | | — | | | — | | | 2 | | | 62 | | | — | | | 62 | |
| Total Operating Revenue | 2,407 | | | — | | | 430 | | | 2 | | | 2,839 | | | — | | | 2,839 | |
| Operating Expenses | | | | | | | | | | | | | |
| Operating expenses, excluding fuel | 1,484 | | | — | | | 297 | | | (3) | | | 1,778 | | | 156 | | | 1,934 | |
| Fuel expense | 621 | | | — | | | 108 | | | — | | | 729 | | | (35) | | | 694 | |
| Total Operating Expenses | 2,105 | | | — | | | 405 | | | (3) | | | 2,507 | | | 121 | | | 2,628 | |
| Non-operating Income (Expense) | — | | | — | | | — | | | (10) | | | (10) | | | (8) | | | (18) | |
| Income (Loss) Before Income Tax | $ | 302 | | | $ | — | | | $ | 25 | | | $ | (5) | | | $ | 322 | | | $ | (129) | | | $ | 193 | |
| Pretax Margin | | | | | | | | | 11.4 | % | | | | 6.8 | % |
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| Nine Months Ended September 30, 2024 |
| (in millions) | Alaska Airlines | | Hawaiian Airlines | | Regional | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
| Operating Revenue | | | | | | | | | | | | | |
| Passenger revenue | $ | 6,078 | | | $ | 84 | | | $ | 1,314 | | | $ | — | | | $ | 7,476 | | | $ | — | | | $ | 7,476 | |
| Mileage Plan other revenue | 460 | | | 5 | | | 44 | | | — | | | 509 | | | — | | | 509 | |
| Cargo and other revenue | 202 | | | 6 | | | — | | | 8 | | | 216 | | | — | | | 216 | |
| Total Operating Revenue | 6,740 | | | 95 | | | 1,358 | | | 8 | | | 8,201 | | | — | | | 8,201 | |
| Operating Expenses | | | | | | | | | | | | | |
| Operating expenses, excluding fuel | 4,670 | | | 82 | | | 946 | | | (52) | | | 5,646 | | | 254 | | | 5,900 | |
| Fuel expense | 1,515 | | | 23 | | | 288 | | | — | | | 1,826 | | | (22) | | | 1,804 | |
| Total Operating Expenses | 6,185 | | | 105 | | | 1,234 | | | (52) | | | 7,472 | | | 232 | | | 7,704 | |
| Non-operating Income (Expense) | 6 | | | (4) | | | — | | | (32) | | | (30) | | | (1) | | | (31) | |
| Income (Loss) Before Income Tax | $ | 561 | | | $ | (14) | | | $ | 124 | | | $ | 28 | | | $ | 699 | | | $ | (233) | | | $ | 466 | |
| Pretax Margin | | | | | | | | | 8.5 | % | | | | 5.7 | % |
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| Nine Months Ended September 30, 2023 |
| (in millions) | Alaska Airlines | | Hawaiian Airlines | | Regional | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
| Operating Revenue | | | | | | | | | | | | | |
| Passenger revenue | $ | 6,082 | | | $ | — | | | $ | 1,118 | | | $ | — | | | $ | 7,200 | | | $ | — | | | $ | 7,200 | |
| Mileage Plan other revenue | 447 | | | — | | | 36 | | | — | | | 483 | | | — | | | 483 | |
| Cargo and other revenue | 184 | | | — | | | — | | | 6 | | | 190 | | | — | | | 190 | |
| Total Operating Revenue | 6,713 | | | — | | | 1,154 | | | 6 | | | 7,873 | | | — | | | 7,873 | |
| Operating Expenses | | | | | | | | | | | | | |
| Operating expenses, excluding fuel | 4,342 | | | — | | | 832 | | | (1) | | | 5,173 | | | 406 | | | 5,579 | |
| Fuel expense | 1,672 | | | — | | | 274 | | | — | | | 1,946 | | | (14) | | | 1,932 | |
| Total Operating Expenses | 6,014 | | | — | | | 1,106 | | | (1) | | | 7,119 | | | 392 | | | 7,511 | |
| Non-operating Income (Expense) | (3) | | | — | | | — | | | (26) | | | (29) | | | (14) | | | (43) | |
| Income (Loss) Before Income Tax | $ | 696 | | | $ | — | | | $ | 48 | | | $ | (19) | | | $ | 725 | | | $ | (406) | | | $ | 319 | |
| Pretax Margin | | | | | | | | | 9.2 | % | | | | 4.1 | % |
(a)Includes consolidating entries, Air Group parent company, Horizon, 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.
(c)Includes special items and mark-to-market fuel hedge accounting adjustments.
GAAP TO NON-GAAP RECONCILIATIONS (unaudited)
We are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. Amounts in the tables below are rounded to the nearest million. As a result, a manual recalculation of certain figures using these rounded amounts may not agree directly to the actual figures presented in the tables below.
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| Adjusted Income Before Income Tax Reconciliation | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2024 | 2023 | | 2024 | 2023 |
| Income before income tax | $ | 328 | | | $ | 193 | | | $ | 466 | | | $ | 319 | |
| Adjusted for: | | | | | | | |
| Mark-to-market fuel hedge adjustment | (4) | | | (35) | | | (22) | | | (14) | |
| Special items - operating | 74 | | | 156 | | | 254 | | | 406 | |
| Special items - net non-operating | 1 | | | 8 | | | 1 | | | 14 | |
| Adjusted income before income tax | $ | 399 | | | $ | 322 | | | $ | 699 | | | $ | 725 | |
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| Pretax margin | 10.7 | % | | 6.8 | % | | 5.7 | % | | 4.1 | % |
| Adjusted pretax margin | 13.0 | % | | 11.4 | % | | 8.5 | % | | 9.2 | % |
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| CASMex Reconciliation |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2024 | | 2023 | | 2024 | | 2023 |
| Consolidated: | | | | | | | |
| Total operating expenses | $ | 2,731 | | | $ | 2,628 | | | $ | 7,704 | | | $ | 7,511 | |
| Less the following components: | | | | | | | |
| Aircraft fuel, including hedging gains and losses | 624 | | | 694 | | | 1,804 | | | 1,932 | |
| Freighter costs | 17 | | | 12 | | | 46 | | | 38 | |
| Special items - operating | 74 | | | 156 | | | 254 | | | 406 | |
| Total operating expenses, excluding fuel, freighter costs, and special items | $ | 2,016 | | | $ | 1,766 | | | $ | 5,600 | | | $ | 5,135 | |
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| ASMs | 19,847 | | | 18,582 | | | 53,422 | | | 51,447 | |
| CASMex | 10.16 | ¢ | | 9.50 | ¢ | | 10.48 | ¢ | | 9.98 | ¢ |
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| Fuel Reconciliation | | | | |
| Three Months Ended September 30, | | | | |
| 2024 | | 2023 | | | | |
| (in millions, except for per-gallon amounts) | Dollars | | Cost/Gallon | | Dollars | | Cost/Gallon | | | | |
| Raw or "into-plane" fuel cost | $ | 619 | | | $ | 2.57 | | | $ | 711 | | | $ | 3.18 | | | | | |
| Losses on settled hedges | 9 | | | 0.04 | | | 18 | | | 0.08 | | | | | |
| Economic fuel expense | $ | 628 | | | $ | 2.61 | | | $ | 729 | | | $ | 3.26 | | | | | |
| Mark-to-market fuel hedge adjustment | (4) | | | (0.01) | | | (35) | | | (0.16) | | | | | |
| Aircraft fuel, including hedging gains and losses | $ | 624 | | | $ | 2.60 | | | $ | 694 | | | $ | 3.10 | | | | | |
| Fuel gallons | | | 240 | | | | | 224 | | | | | |
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| Nine Months Ended September 30, | | | | |
| 2024 | | 2023 | | | | |
| (in millions, except for per gallon amounts) | Dollars | | Cost/Gallon | | Dollars | | Cost/Gallon | | | | |
| Raw or "into-plane" fuel cost | $ | 1,795 | | | $ | 2.77 | | | $ | 1,899 | | | $ | 3.06 | | | | | |
| Losses on settled hedges | 31 | | | 0.05 | | | 47 | | | 0.08 | | | | | |
| Economic fuel expense | $ | 1,826 | | | $ | 2.82 | | | $ | 1,946 | | | $ | 3.14 | | | | | |
| Mark-to-market fuel hedge adjustment | (22) | | | (0.03) | | | (14) | | | (0.02) | | | | | |
| Aircraft fuel, including hedging gains and losses | $ | 1,804 | | | $ | 2.79 | | | $ | 1,932 | | | $ | 3.12 | | | | | |
| Fuel gallons | | | 646 | | | | | 620 | | | | | |
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| Debt-to-capitalization, including operating and finance leases |
| (in millions) | September 30, 2024 | | December 31, 2023 |
Long-term debt and finance leases, net of current portion(a) | $ | 4,159 | | | $ | 2,182 | |
| Capitalized operating leases | 1,460 | | | 1,283 | |
Capitalized finance leases, current portion | 8 | | | 64 | |
| Adjusted debt, net of current portion of long-term debt | 5,627 | | | 3,529 | |
| Shareholders' equity | 4,479 | | | 4,113 | |
| Total Invested Capital | $ | 10,106 | | | $ | 7,642 | |
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| Debt-to-capitalization ratio, including operating and finance leases | 56 | % | | 46 | % |
(a)As of September 30, 2024, $49 million of capitalized finance leases were recognized within the 'Long-term debt, net of current portion' line of the condensed consolidated balance sheets.
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| Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent, and special items |
| (in millions) | September 30, 2024 | | December 31, 2023 |
| Current portion of long-term debt and finance leases | $ | 523 | | | $ | 353 | |
| Current portion of operating lease liabilities | 211 | | | 158 | |
| Long-term debt and finance leases, net of current portion | 4,159 | | | 2,182 | |
| Long-term operating lease liabilities, net of current portion | 1,249 | | | 1,125 | |
| Total adjusted debt | 6,142 | | | 3,818 | |
| Less: Total cash, restricted cash, and marketable securities | 2,532 | | | 1,791 | |
| Adjusted net debt | $ | 3,610 | | | $ | 2,027 | |
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| (in millions) | Twelve Months Ended September 30, 2024 | | Twelve Months Ended December 31, 2023 |
Operating Income(a) | $ | 529 | | | $ | 394 | |
| Adjusted for: | | | |
| Special items - operating | 291 | | | 443 | |
| Mark-to-market fuel hedge adjustments | (10) | | | (2) | |
| Depreciation and amortization | 514 | | | 451 | |
| Aircraft rent | 189 | | | 208 | |
| EBITDAR | $ | 1,513 | | | $ | 1,494 | |
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| Adjusted net debt to EBITDAR | 2.4x | | 1.4x |
(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 certain costs 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. 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 investors to understand the impact of company-specific cost drivers which are more controllable by management. We adjust for expenses related directly to our freighter aircraft operations to allow for better comparability to other domestic carriers that do not operate freighter aircraft. We also exclude certain special charges as they are unusual or nonrecurring in nature and adjusting for these expenses allows management and investors to better understand our cost performance.
•CASMex 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. CASMex is also 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 pretax income 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, restricted 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, freighter costs, and special items
CASMex - operating costs excluding fuel, freighter costs, and special items per ASM, or "unit cost"
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, excluding operations under the Air Transportation Service Agreement (ATSA) with Amazon, net of the impact of our fuel-hedging program
Freighter Costs - operating expenses directly attributable to the operation of Alaska's B737 freighter aircraft and Hawaiian's A330-300 freighter aircraft exclusively performing cargo missions
Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers
PRASM - passenger revenue per ASM, or "passenger unit revenue"
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
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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Supplemental Earnings Material: Q&A – Q3 2024
Q: Do you expect 2025 results to be accretive with the higher expected synergies?
A: We are optimistic about both the near and long-term future of Air Group. We are embarking on integration with the Hawaiian network from a solid financial foundation with a clear path to synergy capture. We plan to share more about our business strategy and revised synergy estimates, including expected synergy capture as well as EPS guidance for 2025 at our Investor Day on December 10th.
Q: How did Q3 2024 unit revenue perform both at Alaska and Hawaiian? Can you speak to competitive capacity trends and how that influenced any areas of your network and performance the third quarter and your outlook for the fourth quarter?
A: As reported, our combined third quarter unit revenues increased 1.3% y/y with both Alaska and Hawaiian network unit revenues inflecting positive in August. Legacy Air Group unit revenues improved ~2% y/y in line with previous guidance. On a pro forma basis, had Alaska and Hawaiian been a combined carrier for the entire third quarter of both 2023 and 2024, unit revenues would have increased 1.4% y/y.
Looking ahead, pro forma unit revenues are expected to be up mid-single digits in the fourth quarter, which, based on current public guidance, would be amongst the best in the industry on a quarter-to-quarter sequential improvement basis.
Legacy Air Group unit revenues are expected to improve from ~2% in the third quarter to up mid-single digits in the fourth quarter. Premium revenue performance continues to outperform main cabin, with first class and premium class revenue up 10% and 8% y/y respectively in the third quarter on only a 5% increase in premium seat capacity.
Positive booking trends have persisted into October and advanced bookings for the holidays are strong although on a monthly basis, December will outperform given the shift of Thanksgiving return travel into early December. Advance bookings in January and February are solid, with positive held load factors versus last year.
Hawaiian network revenue trends are also similarly encouraging, with North America PRASM inflecting positive during the quarter and trending toward up mid-single digits y/y as well in the fourth quarter, while International PRASM is gradually improving from down double digits toward flat y/y. Neighbor Island results are also showing y/y improvement.
Q: Do you envision any domestic route opportunities given pullback from others?
A: We have a clear strategic focus for the development of our network and will first be working on optimally connecting the Alaska and Hawaiian systems. We believe our combination further supports Air Group growth in California given our enhanced relevance to Californian travelers (where Hawaiian is the most preferred carrier to Hawaii) and this month we announced five new nonstop routes, four of which touch California (Las Vegas to San Diego and Santa Rosa, Los Angeles to Pasco and Reno and Portland to Atlanta).
To support our network integration and synergy efforts, we have significantly recalibrated our Seattle and Portland hub flying by time of day to expand and optimize connection opportunities over both the legacy Air Group network and the combined network with Hawaiian. We will further discuss our future network at our Investor Day.
Q: How is corporate demand performing in Q3 2024 and Q4 2024?
A: Following the step change in corporate travel demand to start the year, corporate demand has been strong in September and into October, providing further close in booking strength. For the Alaska network, managed corporate revenue grew 9% y/y in Q3 with double digit growth in the technology and professional services industries and we expect similar trends in the fourth quarter. Hawaiian’s corporate portfolio is materially smaller
than Alaska’s and is concentrated primarily across Neighbor Island flying with a small percentage between Hawaii and North America.
Q: Can you give us an update on your premium seat retrofit progress since last quarter?
A: We have completed five 737-900ER retrofits so far with 18 expected by year end and the full fleet of 79 aircraft completed prior to next summer. Work begins in early 2025 on our fleet of 137 737-800s, Max 8s and Max 9s with the goal to fully complete these retrofits by summer of 2026.
Q: With many of your low-cost carrier peers changing their product to better attract premium travelers, what are your strengths relative to the product others are looking to launch? How does your inflight experience differentiate from the industry and how do you market these differentiators?
A: We have a strong value proposition, with products and customer service that already cater to different segments of travelers, including those seeking a more premium experience. Whether it be our world class-lounges, generous premium seat pitch, quality onboard food and beverage, or our access to the globe through oneworld with our industry-leading loyalty program, the combination of these elements creates value for our guests. Importantly, we have the most relevance and loyalty in our core geographies and continue to make inroads in the rest of our network. We plan to share more about why this is an important segment of our business, why it will continue to help drive our outperformance as we invest in it even more at our investor day on December 10th.
Q: Your profit-sharing expense increased significantly in Q3 2024, can you explain the drivers, and should we expect a similar level in Q4 2024?
A: As a reminder, beginning in 2023 we implemented a margin-modifier component in addition to our baseline profit-sharing program, incentivizing our teams to focus on achieving the industry’s first, second or third highest adjusted pretax margin. Given the strong performance compared to peers as the year has progressed, with industry-leading margins in the second and third quarters, and with lower fuel prices and revenue strength, our profit forecast has increased, leading to a higher accrual in the quarter. This accrual contributed ~1.5pts of additional CASMex pressure in the quarter compared to prior expectations. We expect a similar level of cost to be accrued in the fourth quarter based on our current expectations and understanding of industry guidance, which will similarly pressure fourth quarter unit costs.
We have a long history of achieving amongst the top 3 margins in the industry, and view continued focus on delivering these margins as critical to the long-term health of the company and believe rewarding all of our employees when we achieve this goal to be a strong motivator that drives sustained financial performance.
Q: Can you explain the puts and takes on Q3 2024 CASMex performance and as well as the drivers of your high-single digit Q4 2024 expectation?
A: In Q3 2024, our tentative agreement with flight attendants did not ratify, and with no current tentative agreement in place, both our third quarter results and fourth quarter guidance do not include costs related to a new agreement. We are scheduled to return to negotiations next month with the mediator and look forward to reaching a deal. Once we reach a tentative agreement, we will begin accruing these costs again and incorporate into forward-looking guidance. As described above, our improving profitability expectations also drove higher profit sharing expense during the quarter and will remain elevated through year-end. Our core cost performance remains strong for costs within our control, helping partially offset the increased profit sharing.
Finally, 2024 has been significantly impacted by lower growth than the level we had planned and built the company for, and we remain resourced for higher capacity delivery. This relative overstaffing and historically low attrition, as well as the natural pressure that lower capacity puts on our fixed cost base, contributed to approximately one-third of our unit cost pressure in the back half of the year. We expect this pressure to be transitory and to return to more optimized resource levels relative to our capacity throughout 2025. Despite this, productivity still improved year over year in the third quarter.
With growth constrained across the industry, attrition has been low across most workgroups moving into the shoulder season. This, coupled with fewer Boeing deliveries from both production issues and the machinist strike, has resulted in carrying more costs than we anticipated for the level of flying we expect to realize, particularly in the fourth quarter. Near term, we are working to mitigate excess costs through staffing adjustment leaves and still expect modest y/y productivity improvements in the fourth quarter. We view these costs as temporary, and as we begin to take new deliveries, expect to grow into new levels of flying with very few additional resources.
Q: Ex merger, what are the key unit cost headwinds and tailwinds to keep in mind heading into 2025?
A: Throughout 2024 we have experienced several headwinds impacting costs, including most significantly, the MAX grounding and ongoing Boeing strike that have reduced our growth relative to our planning expectations. Although productivity continued to improve, up ~5% y/y in Q3 2024, our full year productivity is only half of what we expected to achieve this year. Although aircraft delivery delays are expected to persist into 2025, we have adjusted our planning and hiring, and expect much of our work group inefficiencies to be tailwinds into 2025. Other cost items such as higher real estate costs will continue to be headwinds, and as we restart negotiations with our flight attendants next month, we expect y/y pressure from a new labor contract once achieved.
Q: How much is capacity growth impacted in Q4 2024 for legacy Air Group, and given continued delays/uncertainty around MAX-10 certification timing, would you consider executing and expanding on Hawaiian’s A321 purchase rights?
A: Following the MAX grounding earlier this year, we lowered our delivery and growth expectations for 2024. However, subsequent delivery delays, compounded by the ongoing strike at Boeing have further reduced our current and future forecasted capacity. As a result, legacy Air Group network growth expectations have been reduced by approximately 2pts in the fourth quarter. We now expect legacy Air Group capacity growth to be less than 2% for the year versus our previous expectation of less than 2.5% growth y/y.
On a combined basis, we expect capacity growth to be approximately 1.5% to 2.5% for the fourth quarter, with the legacy Air Group network roughly flat y/y and the Hawaiian network growing approximately 7-8% y/y.
It remains too early to predict our future fleet strategy now that we operate a mixed fleet again. We are familiar with the A321 and its capabilities and our future fleet design will be influenced by Boeing’s ability to restart MAX production and certify the MAX10 aircraft on schedule.
Q: Now that you’re able to see financial projections of Hawaiian’s network following the closing of the acquisition, how are you feeling about its recovery trajectory?
A: We are excited about both the opportunity to combine our two networks to unlock synergies, as well as about the standalone improvement already happening across the Hawaiian network.
Neighbor Island and North American advanced bookings are strong and International is improving, albeit more slowly. Additionally, significant one-time cost headwinds are rapidly abating.
Hawaiian’s revenue was uniquely impacted by the Maui wildfires and has been challenged by a slower return of Japan point of origin travel. On costs, Hawaiian was exposed to the industry-wide GTF Engine related groundings in addition to aircraft delivery delays and fleet startup costs for both the 787 and A330 freighter fleets. All of these provided significant headwinds to Hawaiian’s 2024 results.
Hawaiian’s results are significantly improved, with EBITDAR that’s been positive since Q2 2024 and Q4 2024 adjusted pretax results approaching break even. While the Hawaiian network is seasonal and will likely see normal first quarter challenges, we anticipate results will be markedly improved in 2025 versus 2024, well before beginning the process of materially synergizing the two companies.
Q: Is 28% your new normalized tax rate?
A: We anticipate, based on current tax law and internal projections, that our tax rate will normalize back to ~25% in 2025. Our 2024 tax rate reflects on-time acquisition-related impacts related to the transaction.
Q: Are you still planning to repurchase shares to offset dilution this year?
A: After a required pause on share repurchases leading up to the closing of the acquisition, we anticipate resuming share repurchases in the near future.
Q: What are your updated capex expectations this year and next?
A: Our current expectation is to pay for 18 MAX aircraft this year and no further 787 deliveries. Our capex estimate for 2024 remains $1.2-1.3 billion, however, is subject to change given ongoing delivery delays and active dialogue with Boeing to reset our future fleet plan.
Q: Have your plans on fuel hedging evolved with the acquisition at all and how should we think about future fuel inputs?
A: At the end of 2023 we discontinued our hedging program. Our program consisted of very simple hedges on crude oil. However, as these hedges have become more expensive, and refining margins have grown in significance in terms of our overall fuel costs and volatility, we decided to end this program. Our teams are focused on investing in better fuel sourcing with the aim of reducing volatility and lowering our fuel costs. Hawaiian has had a different hedging program in place, which we are currently evaluating, and we will share more on that once a decision is made.
Q: Where are you in the labor process and what is your expected timing for the joint bargaining process and possible economics?
A: We are focused on achieving a ratified deal with our Flight Attendants as quickly as possible and resume mediation in November. We expect joint collective bargaining negotiations to commence with all our unions during 2025.
Q: When will Air Group provide pro-forma results (i.e., Legacy Air Group and Hawaiian combined co.) for prior-year quarters and how far back will financials be restated?
A: Today we provided Article 11 compliant pro-forma results for Q3 2023 and Q4 2023 for comparison purposes. FY 2024 results will only include Hawaiian’s financial results from September 18 through year end.
Q: What are your targeted balance sheet plans over the next 2 years
A: We are excited to share more details on our deleveraging path at our Investor Day. However, we are starting from a strong position even after the close of the acquisition. Following the successful funding of $2.0 billion in loyalty financing in October, our debt to capitalization level rose to 58%, up from 46% in Q2 2024 and our net leverage is now 2.4x vs. 1.0x. These metrics are better than the relative position we previously announced back in December 2023 where we expected debt to capitalization and net leverage to be <60% and <3x, respectively. At these levels, even before we begin to deleverage again, we still have one of the strongest balance sheets in the industry.
Subsequent to quarter close, we refinanced approximately $1.4B of higher-rate debt assumed in the merger, including $985M of HawaiianMiles 11.0% Senior Secured Notes and approximately $436M of other secured debt. These refinancings are expected to drive annualized interest cost savings of approximately $30M for the combined company in the first 12 months.
Q: What are your plans for the future network? What might a higher synergy target look like? How do you plan to execute two brands within one airline? When do you expect the deal to be accretive? Do you have new plans for the future loyalty and credit card program? What do you plan to do with your widebody aircraft? Any early thoughts on 2025 RASM or CASM trends?
A: We look forward to sharing answers to questions like this at our upcoming investor day December 10th in New York City.
Exhibit 99.4
Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Information
The following presents certain unaudited pro forma condensed combined statements of operations for the quarter-to-date and year-to-date periods ending September 30, 2023 and December 31, 2023, and for the quarter to date period ending September 30, 2024. The pro forma financial information is based upon the combined historical financial statements of Alaska Air Group, Inc., ("Air Group") and Hawaiian Holdings, Inc., (“Hawaiian”), after giving effect to Air Group’s purchase of all the issued and outstanding shares of Hawaiian by means of a merger (the “Merger”). The combined pro forma information includes adjustments in accordance with Article 11 of Regulation S-X to illustrate the effects of the merger as if it had occurred on January 1, 2023, the beginning of the earliest period presented.
Following Air Group's acquisition of Hawaiian on September 18, 2024, 13 days of Hawaiian's results were incorporated into the combined companies financial reporting. Management believes pro forma combined operating results for prior periods are useful for the purpose of comparing our actual or expected future operating results, as it provides a relevant baseline for identifying trends in the overall operating performance of our business. Management also believes the recalculation of certain operating statistics, unit metrics and certain non-GAAP measures on a pro forma basis to be useful in review of operating results.
"Other Adjustments" in the unaudited pro forma combined statements of operations reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon estimates of fair values. These adjustments are provisional and subject to further adjustment up to September 18, 2025 as additional information becomes available, additional analyses are performed and as warranted by changes in current conditions and future expectations. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma condensed combined financial information and the Combined Company’s future results of operations.
The unaudited pro forma condensed combined financial information is presented for informational purposes only. Such information is not necessarily indicative of the operating results or financial position that actually would have been achieved if the Merger had been consummated on the dates indicated or that the Combined Company may achieve in future periods. Specifically, the unaudited pro forma condensed combined financial information does not include any projected synergies expected to be achieved as a result of the Merger or any associated costs that may be incurred to achieve any projected synergies. The unaudited pro forma condensed combined financial information also exclude the costs associated with any integration activities that may result from the Merger.
ALASKA AIR GROUP
Unaudited Pro Forma Condensed Combined Statement of Operations
Three Months Ended September 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| | | | | | | | | | | | |
| Operating Revenue | | | | | | | | | | | | |
| Passenger revenue | $ | 2,618 | | | $ | 665 | | | $ | — | | | $ | — | | | | | | $ | 3,283 | |
| Mileage Plan other revenue | 159 | | | — | | | 31 | | | — | | | | | | 190 | |
| Cargo and other revenue | 62 | | | 63 | | | (32) | | | — | | | | | | 93 | |
| Total Operating Revenue | 2,839 | | | 728 | | | (1) | | | — | | | | | | 3,566 | |
| Non-fuel operating expense | 1,934 | | | 583 | | | (2) | | | 9 | | (a) | | | | 2,524 | |
| Fuel Expense | 694 | | | 200 | | | 8 | | | — | | | | | | 902 | |
| Total Operating Expenses | 2,628 | | | 783 | | | 6 | | | 9 | | | | | | 3,426 | |
| Operating Income / (Loss) | 211 | | | (55) | | | (7) | | | (9) | | | | | | 140 | |
| Non-operating Income (Expense) | (18) | | | (6) | | | 6 | | | 3 | | (b) | | | | (15) | |
| Income (Loss) Before Income Tax | 193 | | | (61) | | | (1) | | | (6) | | | | | | 125 | |
| Income tax expense / (benefit) | 54 | | | (12) | | | — | | | (2) | | (c) | | | | 40 | |
| Net Income (Loss) | 139 | | | (49) | | | (1) | | | (4) | | | | | | 85 | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| RPMs (000,000) "traffic" | 15,718 | | | 4,451 | | | | | | | | | | 20,169 |
| ASMs (000,000) "capacity" | 18,582 | | | 5,169 | | | | | | | | | | 23,751 |
| Load Factor | 84.6 | % | | 86.1 | % | | | | | | | | | 84.9 | % |
| RASM | 15.28 | ¢ | | 14.08 | ¢ | | | | | | | | | 15.01 | ¢ |
| | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| CASMex Reconciliation | | | | | | | | | | | | |
| Non-fuel operating expense | $ | 1,934 | | | $ | 583 | | | $ | (2) | | | $ | 9 | | | | | | $ | 2,524 | |
| Less the following components: | | | | | | | | | | | | |
| Freighter costs | 12 | | | — | | | — | | | — | | | | | | 12 | |
| Special items - operating | 156 | | | — | | | — | | | — | | | | | | 156 | |
| Total non-fuel operating expenses, excluding freighter costs and special items | $ | 1,766 | | | $ | 583 | | | $ | (2) | | | $ | 9 | | | | | | $ | 2,356 | |
| CASMex | 9.50 | ¢ | | 11.27 | ¢ | | | | | | | | | 9.92 | ¢ |
| | | | | | | | | | | | |
Adjusted Pretax Income | | | | | | | | | | | | |
| Income before income tax | $ | 193 | | | $ | (61) | | | $ | (1) | | | $ | (6) | | | | | | $ | 125 | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustment | (35) | | | (7) | | | — | | | — | | | | | | (42) | |
| Special items - operating | 156 | | | — | | | — | | | — | | | | | | 156 | |
| Special items - net non-operating | 8 | | | (1) | | | — | | | — | | | | | | 7 | |
| Adjusted income before income tax | $ | 322 | | | $ | (69) | | | $ | (1) | | | $ | (6) | | | | | | $ | 246 | |
| | | | | | | | | | | | |
| Pretax margin | 6.8 | % | | (8.4) | % | | | | | | | | | 3.5 | % |
| Adjusted pretax margin | 11.4 | % | | (9.5) | % | | | | | | | | | 7.0 | % |
| | | | | | | | | | | | |
Adjusted Net Income | | | | | | | | | | | | |
| Net Income (Loss) | $ | 139 | | | $ | (49) | | | $ | (1) | | | $ | (4) | | | | | | $ | 85 | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustments | (35) | | | (7) | | | — | | | — | | | | | | (42) | |
| Special items - operating | 156 | | | — | | | — | | | — | | | | | | 156 | |
| Special items - net non-operating | 8 | | | (1) | | | — | | | — | | | | | | 7 | |
| Income tax effect of reconciling items above | (31) | | | 2 | | | — | | | — | | | | | | (29) | |
| Adjusted Net Income (Loss) | $ | 237 | | | $ | (55) | | | $ | (1) | | | $ | (4) | | | | | | $ | 177 | |
ALASKA AIR GROUP
Unaudited Pro Forma Condensed Combined Statement of Operations
Three Months Ended December 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| | | | | | | | | | | | |
| Operating Revenue | | | | | | | | | | | | |
| Passenger revenue | $ | 2,326 | | | $ | 602 | | | $ | — | | | $ | — | | | | | | $ | 2,928 | |
| Mileage Plan other revenue | 165 | | | — | | | 31 | | | — | | | | | | $ | 196 | |
| Cargo and other revenue | 62 | | | 67 | | | (32) | | | — | | | | | | $ | 97 | |
| Total Operating Revenue | 2,553 | | | 669 | | | (1) | | | — | | | | | | 3,221 | |
| Non-fuel operating expense | 1,812 | | | 579 | | | (13) | | | 9 | | (a) | | | | 2,387 | |
| Fuel Expense | 709 | | | 202 | | | 8 | | | — | | | | | | 919 | |
| Total Operating Expenses | 2,521 | | | 781 | | | (5) | | | 9 | | | | | | 3,306 | |
Operating Income / (Loss) | 32 | | | (112) | | | 4 | | | (9) | | | | | | (85) | |
Non-operating Income (Expense) | (28) | | | (15) | | | 6 | | | 3 | | (b) | | | | (34) | |
| Income (Loss) Before Income Tax | 4 | | | (127) | | | 10 | | | (6) | | | | | | (119) | |
| Income tax expense / (benefit) | 6 | | | (26) | | | — | | | (2) | | (c) | | | | (22) | |
| Net Income (Loss) | (2) | | | (101) | | | 10 | | | (4) | | | | | | (97) | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| RPMs (000,000) "traffic" | 14,153 | | | 4,221 | | | | | | | | | | 18,374 |
| ASMs (000,000) "capacity" | 17,077 | | | 5,104 | | | | | | | | | | 22,181 |
| Load Factor | 82.9 | % | | 82.7 | % | | | | | | | | | 82.8 | % |
| RASM | 14.95 | ¢ | | 13.11 | ¢ | | | | | | | | | 14.52 | ¢ |
| | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| CASMex Reconciliation | | | | | | | | | | | | |
| Non-fuel operating expense | $ | 1,812 | | | $ | 579 | | | $ | (13) | | | $ | 9 | | | | | | $ | 2,387 | |
| Less the following components: | | | | | | | | | | | | |
| Freighter costs | 15 | | | — | | | — | | | — | | | | | | 15 | |
| Special items - operating | 37 | | | (22) | | | — | | | — | | | | | | 15 | |
Total non-fuel operating expenses, excluding freighter costs and special items | $ | 1,760 | | | $ | 601 | | | $ | (13) | | | $ | 9 | | | | | | $ | 2,357 | |
| CASMex | 10.31 | ¢ | | 11.77 | ¢ | | | | | | | | | 10.63 | ¢ |
| | | | | | | | | | | | |
Adjusted Pretax Income | | | | | | | | | | | | |
| Income before income tax | $ | 4 | | | $ | (127) | | | $ | 10 | | | $ | (6) | | | | | | $ | (119) | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustment | 12 | | | 4 | | | — | | | — | | | | | | 16 | |
| Special items - operating | 37 | | | (22) | | | — | | | — | | | | | | 15 | |
| Special items - net non-operating | 4 | | | (9) | | | — | | | — | | | | | | (5) | |
| Adjusted income before income tax | $ | 57 | | | $ | (154) | | | $ | 10 | | | $ | (6) | | | | | | $ | (93) | |
| | | | | | | | | | | | |
| Pretax margin | 0.2 | % | | (19.0) | % | | | | | | | | | (3.7) | % |
| Adjusted pretax margin | 2.2 | % | | (22.9) | % | | | | | | | | | (2.8) | % |
| | | | | | | | | | | | |
Adjusted Net Income | | | | | | | | | | | | |
| Net Income (Loss) | $ | (2) | | | $ | (101) | | | $ | 10 | | | $ | (4) | | | | | | $ | (97) | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustments | 12 | | | 4 | | | — | | | — | | | | | | 16 | |
| Special items - operating | 37 | | | (22) | | | — | | | — | | | | | | 15 | |
| Special items - net non-operating | 4 | | | (9) | | | — | | | — | | | | | | (5) | |
| Income tax effect of reconciling items above | (13) | | | 5 | | | — | | | — | | | | | | (8) | |
| Adjusted Net Income (Loss) | $ | 38 | | | $ | (123) | | | $ | 10 | | | $ | (4) | | | | | | $ | (79) | |
ALASKA AIR GROUP
Unaudited Pro Forma Condensed Combined Statement of Operations
Twelve Months Ended December 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| | | | | | | | | | | | |
| Operating Revenue | | | | | | | | | | | | |
| Passenger revenue | $ | 9,526 | | | $ | 2,460 | | | $ | — | | | $ | — | | | | | | $ | 11,986 | |
| Mileage Plan other revenue | 648 | | | — | | | 124 | | | — | | | | | | 772 | |
| Cargo and other revenue | 252 | | | 256 | | | (126) | | | — | | | | | | 382 | |
| Total Operating Revenue | 10,426 | | | 2,716 | | | (2) | | | — | | | | | | 13,140 | |
| Non-fuel operating expense | 7,391 | | | 2,244 | | | (20) | | | 33 | | (a) | | | | 9,648 | |
| Fuel Expense | 2,641 | | | 766 | | | 32 | | | — | | | | | | 3,439 | |
| Total Operating Expenses | 10,032 | | | 3,010 | | | 12 | | | 33 | | | | | | 13,087 | |
Operating Income / (Loss) | 394 | | | (294) | | | (14) | | | (33) | | | | | | 53 | |
| Non-operating Income (expense) | (71) | | | (34) | | | 12 | | | 4 | | (b) | | | | (89) | |
| Income (Loss) Before Income Tax | 323 | | | (328) | | | (2) | | | (29) | | | | | | (36) | |
Income tax expense / (benefit) | 88 | | | (67) | | | — | | | (7) | | (c) | | | | 14 | |
| Net Income (Loss) | 235 | | | (261) | | | (2) | | | (22) | | | | | | (50) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| RPMs (000,000) "traffic" | 57,362 | | | 16,865 | | | | | | | | | | 74,227 |
| ASMs (000,000) "capacity" | 68,524 | | | 20,204 | | | | | | | | | | 88,728 |
| Load Factor | 83.7 | % | | 83.5 | % | | | | | | | | | 83.7 | % |
| RASM | 15.22 | ¢ | | 13.44 | ¢ | | | | | | | | | 14.81 | ¢ |
| | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| CASMex Reconciliation | | | | | | | | | | | | |
| Non-fuel operating expense | $ | 7,391 | | | $ | 2,244 | | | $ | (20) | | | $ | 33 | | | | | | $ | 9,648 | |
| Less the following components: | | | | | | | | | | | | |
| Freighter costs | 53 | | | — | | | — | | | — | | | | | | 53 | |
| Special items - operating | 443 | | | (38) | | | — | | | — | | | | | | 405 | |
Total non-fuel operating expenses, excluding freighter costs and special items | $ | 6,895 | | | $ | 2,282 | | | $ | (20) | | | $ | 33 | | | | | | $ | 9,190 | |
| CASMex | 10.06 | ¢ | | 11.29 | ¢ | | | | | | | | | 10.36 | ¢ |
| | | | | | | | | | | | |
Adjusted Pretax Income | | | | | | | | | | | | |
| Income before income tax | $ | 323 | | | $ | (328) | | | $ | (2) | | | $ | (29) | | | | | | $ | (36) | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustment | (2) | | | 2 | | | — | | | — | | | | | | — | |
| Special items - operating | 443 | | | (38) | | | — | | | — | | | | | | 405 | |
| Special items - net non-operating | 18 | | | (29) | | | — | | | — | | | | | | (11) | |
| Adjusted income before income tax | $ | 782 | | | $ | (393) | | | $ | (2) | | | $ | (29) | | | | | | $ | 358 | |
| | | | | | | | | | | | |
| Pretax margin | 3.1 | % | | (12.1) | % | | | | | | | | | (0.3) | % |
| Adjusted pretax margin | 7.5 | % | | (14.5) | % | | | | | | | | | 2.7 | % |
| | | | | | | | | | | | |
Adjusted Net Income | | | | | | | | | | | | |
| Net Income (Loss) | $ | 235 | | | $ | (261) | | | $ | (2) | | | $ | (22) | | | | | | $ | (50) | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustments | (2) | | | 2 | | | — | | | — | | | | | | — | |
| Special items - operating | 443 | | | (38) | | | — | | | — | | | | | | 405 | |
| Special items - net non-operating | 18 | | | (29) | | | — | | | — | | | | | | (11) | |
| Income tax effect of reconciling items above | (111) | | | 12 | | | — | | | — | | | | | | (111) | |
| Adjusted Net Income (Loss) | $ | 583 | | | $ | (314) | | | $ | (2) | | | $ | (22) | | | | | | $ | 233 | |
ALASKA AIR GROUP
Unaudited Pro Forma Condensed Combined Statement of Operations
Three Months Ended September 30, 2024
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| | | | | | | | | | | | |
| Operating Revenue | | | | | | | | | | | | |
| Passenger revenue | $ | 2,821 | | | $ | 606 | | | $ | — | | | $ | — | | | | | | $ | 3,427 | |
| Mileage Plan other revenue | 171 | | | — | | | 4 | | | — | | | | | | 175 | |
| Cargo and other revenue | 80 | | | 62 | | | (5) | | | — | | | | | | 137 | |
| Total Operating Revenue | 3,072 | | | 668 | | | (1) | | | — | | | | | | 3,739 | |
| Non-fuel operating expense | 2,107 | | | 539 | | | (8) | | | (9) | | (a) | | | | 2,629 | |
| Fuel Expense | 624 | | | 153 | | | 6 | | | — | | | | | | 783 | |
| Total Operating Expenses | 2,731 | | | 692 | | | (2) | | | (9) | | | | | | 3,412 | |
Operating Income / (Loss) | 341 | | | (24) | | | 1 | | | 9 | | | | | | 327 | |
Non-operating Income (Expense) | (13) | | | (38) | | | 17 | | | 3 | | (b) | | | | (31) | |
| Income (Loss) Before Income Tax | 328 | | | (62) | | | 18 | | | 12 | | | | | | 296 | |
Income tax expense / (benefit) | 92 | | | (3) | | | — | | | 3 | | (c) | | | | 92 | |
| Net Income (Loss) | 236 | | | (59) | | | 18 | | | 9 | | | | | | 204 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| RPMs (000,000) "traffic" | 16,970 | | | 4,103 | | | | | | | | | | 21,073 |
| ASMs (000,000) "capacity" | 19,847 | | | 4,760 | | | | | | | | | | 24,607 |
| Load Factor | 85.5 | % | | 86.2 | % | | | | | | | | | 85.6 | % |
| RASM | 15.48 | ¢ | | 14.03 | ¢ | | | | | | | | | 15.19 | ¢ |
| | | | | | | | | | | | |
| As Reported | | Pro Forma |
| (in millions, except statistical data) | Alaska | | Hawaiian | | Reclassification and Policy Adjustments | | Other | | | | | Condensed Combined
Pro Forma |
| CASMex Reconciliation | | | | | | | | | | | | |
| Non-fuel operating expense | $ | 2,107 | | | $ | 539 | | | $ | (8) | | | $ | (9) | | | | | | $ | 2,629 | |
| Less the following components: | | | | | | | | | | | | |
| Freighter costs | 17 | | | — | | | — | | | — | | | | | | 17 | |
| Special items - operating | 74 | | | 3 | | | — | | | — | | | | | | 77 | |
| Total non-fuel operating expenses, excluding freighter costs and special items | $ | 2,016 | | | $ | 536 | | | $ | (8) | | | $ | (9) | | | | | | $ | 2,535 | |
| CASMex | 10.16 | ¢ | | 11.26 | ¢ | | | | | | | | | 10.30 | ¢ |
| | | | | | | | | | | | |
Adjusted Pretax Income | | | | | | | | | | | | |
| Income before income tax | $ | 328 | | | $ | (62) | | | $ | 18 | | | $ | 12 | | | | | | $ | 296 | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustment | (4) | | | — | | | — | | | — | | | | | | (4) | |
| Special items - operating | 74 | | | 3 | | | — | | | — | | | | | | 77 | |
| Special items - net non-operating | 1 | | | — | | | — | | | — | | | | | | 1 | |
| Adjusted income before income tax | $ | 399 | | | $ | (59) | | | $ | 18 | | | $ | 12 | | | | | | $ | 370 | |
| | | | | | | | | | | | |
| Pretax margin | 10.7 | % | | (9.3) | % | | | | | | | | | 7.9 | % |
| Adjusted pretax margin | 13.0 | % | | (8.8) | % | | | | | | | | | 9.9 | % |
| | | | | | | | | | | | |
Adjusted Net Income | | | | | | | | | | | | |
| Net Income (Loss) | $ | 236 | | | $ | (59) | | | $ | 18 | | | $ | 9 | | | | | | $ | 204 | |
| Adjusted for: | | | | | | | | | | | | |
| Mark-to-market fuel hedge adjustments | (4) | | | — | | | — | | | — | | | | | | (4) | |
| Special items - operating | 74 | | | 3 | | | — | | | — | | | | | | 77 | |
| Special items - net non-operating | 1 | | | — | | | — | | | — | | | | | | 1 | |
| Income tax effect of reconciling items above | (18) | | | — | | | — | | | — | | | | | | (18) | |
| Adjusted Net Income (Loss) | $ | 289 | | | $ | (56) | | | $ | 18 | | | $ | 9 | | | | | | $ | 260 | |
Notes for the Pro Forma Adjustments
(a)Adjustments to non-fuel operating expense includes impacts of purchase accounting and related depreciation and amortization.
(b)To eliminate the historical amortization of debt fees and discount and to record the impact for interest expense related to the fair value adjustment of debt.
(c)To recognize the income tax impacts of other adjustments.
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