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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Alaska Air Group Inc | NYSE:ALK | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.22 | 0.52% | 42.40 | 43.01 | 42.20 | 43.01 | 625,576 | 17:25:39 |
Delaware
|
|
91-1292054
|
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.)
|
19300 International Boulevard, Seattle, Washington 98188
|
Telephone: (206) 392-5040
|
Large accelerated filer
T
|
Accelerated filer
£
|
Non-accelerated filer
£
|
Smaller reporting company
£
|
|
•
|
our pending acquisition and the subsequent merger of Virgin America Inc. (Virgin America);
|
•
|
the competitive environment in our industry;
|
•
|
changes in our operating costs, primarily fuel, which can be volatile;
|
•
|
general economic conditions, including the impact of those conditions on customer travel behavior;
|
•
|
our ability to meet our cost reduction goals;
|
•
|
operational disruptions;
|
•
|
an aircraft accident or incident;
|
•
|
labor disputes and our ability to attract and retain qualified personnel;
|
•
|
the concentration of our revenue from a few key markets;
|
•
|
actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities;
|
•
|
our reliance on automated systems and the risks associated with changes made to those systems;
|
•
|
changes in laws and regulations.
|
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(in millions)
|
September 30,
2016 |
|
December 31,
2015 |
||||
ASSETS
|
|
|
|
||||
Current Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,818
|
|
|
$
|
73
|
|
Marketable securities
|
1,408
|
|
|
1,255
|
|
||
Total cash and marketable securities
|
3,226
|
|
|
1,328
|
|
||
Receivables - net
|
232
|
|
|
212
|
|
||
Inventories and supplies - net
|
44
|
|
|
51
|
|
||
Prepaid expenses and other current assets
|
98
|
|
|
72
|
|
||
Total Current Assets
|
3,600
|
|
|
1,663
|
|
||
|
|
|
|
||||
Property and Equipment
|
|
|
|
|
|
||
Aircraft and other flight equipment
|
6,398
|
|
|
5,690
|
|
||
Other property and equipment
|
1,021
|
|
|
955
|
|
||
Deposits for future flight equipment
|
489
|
|
|
771
|
|
||
|
7,908
|
|
|
7,416
|
|
||
Less accumulated depreciation and amortization
|
2,877
|
|
|
2,614
|
|
||
Total Property and Equipment - Net
|
5,031
|
|
|
4,802
|
|
||
|
|
|
|
||||
Other Assets
|
68
|
|
|
65
|
|
||
|
|
|
|
||||
Total Assets
|
$
|
8,699
|
|
|
$
|
6,530
|
|
(in millions, except share amounts)
|
September 30,
2016 |
|
December 31,
2015 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Accounts payable
|
$
|
71
|
|
|
$
|
63
|
|
Accrued wages, vacation and payroll taxes
|
257
|
|
|
298
|
|
||
Air traffic liability
|
785
|
|
|
669
|
|
||
Other accrued liabilities
|
735
|
|
|
661
|
|
||
Current portion of long-term debt
|
275
|
|
|
114
|
|
||
Total Current Liabilities
|
2,123
|
|
|
1,805
|
|
||
|
|
|
|
||||
Long-Term Debt, Net of Current Portion
|
1,861
|
|
|
569
|
|
||
Other Liabilities and Credits
|
|
|
|
|
|
||
Deferred income taxes
|
733
|
|
|
682
|
|
||
Deferred revenue
|
491
|
|
|
431
|
|
||
Obligation for pension and postretirement medical benefits
|
272
|
|
|
270
|
|
||
Other liabilities
|
355
|
|
|
362
|
|
||
|
1,851
|
|
|
1,745
|
|
||
Commitments and Contingencies
|
|
|
|
|
|
||
Shareholders' Equity
|
|
|
|
|
|
||
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value, Authorized: 200,000,000 shares, Issued: 2016 - 129,127,597 shares; 2015 - 128,442,099 shares, Outstanding: 2016 - 123,266,014 shares; 2015 - 125,175,325 shares
|
1
|
|
|
1
|
|
||
Capital in excess of par value
|
103
|
|
|
73
|
|
||
Treasury stock (common), at cost: 2016 - 5,861,583 shares; 2015 - 3,266,774 shares
|
(444
|
)
|
|
(250
|
)
|
||
Accumulated other comprehensive loss
|
(284
|
)
|
|
(303
|
)
|
||
Retained earnings
|
3,488
|
|
|
2,890
|
|
||
|
2,864
|
|
|
2,411
|
|
||
Total Liabilities and Shareholders' Equity
|
$
|
8,699
|
|
|
$
|
6,530
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in millions, except per share amounts)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Operating Revenues
|
|
|
|
|
|
|
|
||||||||
Passenger
|
|
|
|
|
|
|
|
||||||||
Mainline
|
$
|
1,073
|
|
|
$
|
1,057
|
|
|
$
|
3,036
|
|
|
$
|
2,977
|
|
Regional
|
249
|
|
|
240
|
|
|
682
|
|
|
638
|
|
||||
Total passenger revenue
|
1,322
|
|
|
1,297
|
|
|
3,718
|
|
|
3,615
|
|
||||
Freight and mail
|
31
|
|
|
30
|
|
|
82
|
|
|
83
|
|
||||
Other - net
|
213
|
|
|
188
|
|
|
607
|
|
|
523
|
|
||||
Total Operating Revenues
|
1,566
|
|
|
1,515
|
|
|
4,407
|
|
|
4,221
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Operating Expenses
|
|
|
|
|
|
|
|
|
|
||||||
Wages and benefits
|
340
|
|
|
312
|
|
|
1,008
|
|
|
923
|
|
||||
Variable incentive pay
|
31
|
|
|
32
|
|
|
95
|
|
|
90
|
|
||||
Aircraft fuel, including hedging gains and losses
|
225
|
|
|
245
|
|
|
593
|
|
|
741
|
|
||||
Aircraft maintenance
|
64
|
|
|
67
|
|
|
197
|
|
|
182
|
|
||||
Aircraft rent
|
25
|
|
|
26
|
|
|
80
|
|
|
78
|
|
||||
Landing fees and other rentals
|
89
|
|
|
80
|
|
|
232
|
|
|
217
|
|
||||
Contracted services
|
63
|
|
|
54
|
|
|
183
|
|
|
157
|
|
||||
Selling expenses
|
58
|
|
|
53
|
|
|
162
|
|
|
160
|
|
||||
Depreciation and amortization
|
101
|
|
|
81
|
|
|
281
|
|
|
236
|
|
||||
Food and beverage service
|
31
|
|
|
30
|
|
|
93
|
|
|
83
|
|
||||
Third-party regional carrier expense
|
25
|
|
|
20
|
|
|
72
|
|
|
52
|
|
||||
Other
|
92
|
|
|
82
|
|
|
267
|
|
|
259
|
|
||||
Special items - merger-related costs
|
22
|
|
|
—
|
|
|
36
|
|
|
—
|
|
||||
Total Operating Expenses
|
1,166
|
|
|
1,082
|
|
|
3,299
|
|
|
3,178
|
|
||||
Operating Income
|
400
|
|
|
433
|
|
|
1,108
|
|
|
1,043
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Nonoperating Income (Expense)
|
|
|
|
|
|
|
|
|
|
||||||
Interest income
|
7
|
|
|
5
|
|
|
20
|
|
|
16
|
|
||||
Interest expense
|
(11
|
)
|
|
(10
|
)
|
|
(33
|
)
|
|
(32
|
)
|
||||
Interest capitalized
|
6
|
|
|
9
|
|
|
21
|
|
|
25
|
|
||||
Other - net
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
1
|
|
||||
|
2
|
|
|
4
|
|
|
6
|
|
|
10
|
|
||||
Income before income tax
|
402
|
|
|
437
|
|
|
1,114
|
|
|
1,053
|
|
||||
Income tax expense
|
146
|
|
|
163
|
|
|
414
|
|
|
396
|
|
||||
Net Income
|
$
|
256
|
|
|
$
|
274
|
|
|
$
|
700
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
||||||||
Basic Earnings Per Share:
|
$
|
2.08
|
|
|
$
|
2.15
|
|
|
$
|
5.66
|
|
|
$
|
5.08
|
|
Diluted Earnings Per Share:
|
$
|
2.07
|
|
|
$
|
2.14
|
|
|
$
|
5.63
|
|
|
$
|
5.05
|
|
|
|
|
|
|
|
|
|
||||||||
Shares used for computation:
|
|
|
|
|
|
|
|
|
|||||||
Basic
|
123.149
|
|
|
127.308
|
|
|
123.648
|
|
|
129.231
|
|
||||
Diluted
|
123.833
|
|
|
128.205
|
|
|
124.393
|
|
|
130.200
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Cash dividend declared per share:
|
$
|
0.275
|
|
|
$
|
0.20
|
|
|
$
|
0.825
|
|
|
$
|
0.60
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Net Income
|
$
|
256
|
|
|
$
|
274
|
|
|
$
|
700
|
|
|
$
|
657
|
|
|
|
|
|
|
|
|
|
||||||||
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
||||||||
Related to marketable securities:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding gains (losses) arising during the period
|
(2
|
)
|
|
—
|
|
|
17
|
|
|
2
|
|
||||
Reclassification of (gains) losses into Other-net nonoperating income (expense)
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
||||
Income tax effect
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(1
|
)
|
||||
Total
|
(2
|
)
|
|
—
|
|
|
10
|
|
|
1
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Related to employee benefit plans:
|
|
|
|
|
|
|
|
||||||||
Reclassification of net pension expense into Wages and benefits
|
5
|
|
|
3
|
|
|
15
|
|
|
11
|
|
||||
Income tax effect
|
(1
|
)
|
|
(1
|
)
|
|
(5
|
)
|
|
(4
|
)
|
||||
Total
|
4
|
|
|
2
|
|
|
10
|
|
|
7
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Related to interest rate derivative instruments:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding gains (losses) arising during the period
|
1
|
|
|
(5
|
)
|
|
(6
|
)
|
|
(8
|
)
|
||||
Reclassification of (gains) losses into Aircraft rent
|
1
|
|
|
2
|
|
|
4
|
|
|
5
|
|
||||
Income tax effect
|
(1
|
)
|
|
2
|
|
|
1
|
|
|
2
|
|
||||
Total
|
1
|
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
||||
|
|
|
|
|
|
|
|
||||||||
Other Comprehensive Income
|
3
|
|
|
1
|
|
|
19
|
|
|
7
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Comprehensive Income
|
$
|
259
|
|
|
$
|
275
|
|
|
$
|
719
|
|
|
$
|
664
|
|
|
Nine Months Ended September 30,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
700
|
|
|
$
|
657
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
281
|
|
|
236
|
|
||
Stock-based compensation and other
|
19
|
|
|
22
|
|
||
Changes in certain assets and liabilities:
|
|
|
|
||||
Changes in deferred tax provision
|
47
|
|
|
(17
|
)
|
||
Increase (decrease) in air traffic liability
|
116
|
|
|
129
|
|
||
Increase (decrease) in deferred revenue
|
60
|
|
|
42
|
|
||
Other - net
|
(17
|
)
|
|
160
|
|
||
Net cash provided by operating activities
|
1,206
|
|
|
1,229
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
||
Property and equipment additions:
|
|
|
|
|
|
||
Aircraft and aircraft purchase deposits
|
(408
|
)
|
|
(563
|
)
|
||
Other flight equipment
|
(35
|
)
|
|
(61
|
)
|
||
Other property and equipment
|
(66
|
)
|
|
(44
|
)
|
||
Total property and equipment additions, including capitalized interest
|
(509
|
)
|
|
(668
|
)
|
||
Purchases of marketable securities
|
(775
|
)
|
|
(876
|
)
|
||
Sales and maturities of marketable securities
|
638
|
|
|
818
|
|
||
Proceeds from disposition of assets and changes in restricted deposits
|
5
|
|
|
(1
|
)
|
||
Net cash used in investing activities
|
(641
|
)
|
|
(727
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Proceeds from issuance of debt
|
1,546
|
|
|
—
|
|
||
Long-term debt payments
|
(93
|
)
|
|
(93
|
)
|
||
Common stock repurchases
|
(193
|
)
|
|
(381
|
)
|
||
Dividends paid
|
(102
|
)
|
|
(78
|
)
|
||
Other financing activities
|
22
|
|
|
31
|
|
||
Net cash provided (used) by financing activities
|
1,180
|
|
|
(521
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
1,745
|
|
|
(19
|
)
|
||
Cash and cash equivalents at beginning of year
|
73
|
|
|
107
|
|
||
Cash and cash equivalents at end of the period
|
$
|
1,818
|
|
|
$
|
88
|
|
|
|
|
|
||||
Supplemental disclosure:
|
|
|
|
|
|
||
Cash paid during the period for:
|
|
|
|
||||
Interest (net of amount capitalized)
|
$
|
12
|
|
|
$
|
9
|
|
Income taxes paid
|
321
|
|
|
262
|
|
September 30, 2016
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Cash equivalents
|
1,802
|
|
|
—
|
|
|
—
|
|
|
1,802
|
|
||||
Cash and cash equivalents
|
1,818
|
|
|
—
|
|
|
—
|
|
|
1,818
|
|
||||
U.S. government and agency securities
|
330
|
|
|
2
|
|
|
—
|
|
|
332
|
|
||||
Foreign government bonds
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
|
||||
Asset-backed securities
|
153
|
|
|
1
|
|
|
—
|
|
|
154
|
|
||||
Mortgage-backed securities
|
102
|
|
|
—
|
|
|
—
|
|
|
102
|
|
||||
Corporate notes and bonds
|
760
|
|
|
8
|
|
|
(1
|
)
|
|
767
|
|
||||
Municipal securities
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||
Marketable securities
|
1,398
|
|
|
11
|
|
|
(1
|
)
|
|
1,408
|
|
||||
Total
|
$
|
3,216
|
|
|
$
|
11
|
|
|
$
|
(1
|
)
|
|
$
|
3,226
|
|
December 31, 2015
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Cash equivalents
|
69
|
|
|
—
|
|
|
—
|
|
|
69
|
|
||||
Cash and cash equivalents
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
||||
U.S. government and agency securities
|
254
|
|
|
—
|
|
|
(1
|
)
|
|
253
|
|
||||
Foreign government bonds
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
||||
Asset-backed securities
|
130
|
|
|
—
|
|
|
—
|
|
|
130
|
|
||||
Mortgage-backed securities
|
117
|
|
|
—
|
|
|
(1
|
)
|
|
116
|
|
||||
Corporate notes and bonds
|
711
|
|
|
1
|
|
|
(4
|
)
|
|
708
|
|
||||
Municipal securities
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||
Marketable securities
|
1,260
|
|
|
1
|
|
|
(6
|
)
|
|
1,255
|
|
||||
Total
|
$
|
1,333
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
1,328
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Proceeds from sales and maturities
|
$
|
280
|
|
|
$
|
142
|
|
|
$
|
638
|
|
|
$
|
818
|
|
Gross realized gains
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
||||
Gross realized losses
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
September 30, 2016
|
Cost Basis
|
|
Fair Value
|
||||
Due in one year or less
|
$
|
283
|
|
|
$
|
283
|
|
Due after one year through five years
|
1,108
|
|
|
1,118
|
|
||
Due after five years through 10 years
|
7
|
|
|
7
|
|
||
Due after 10 years
|
—
|
|
|
—
|
|
||
Total
|
$
|
1,398
|
|
|
$
|
1,408
|
|
September 30, 2016
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
332
|
|
|
$
|
—
|
|
|
$
|
332
|
|
Foreign government bonds
|
—
|
|
|
36
|
|
|
36
|
|
|||
Asset-backed securities
|
—
|
|
|
154
|
|
|
154
|
|
|||
Mortgage-backed securities
|
—
|
|
|
102
|
|
|
102
|
|
|||
Corporate notes and bonds
|
—
|
|
|
767
|
|
|
767
|
|
|||
Municipal securities
|
—
|
|
|
17
|
|
|
17
|
|
|||
Total Marketable securities
|
332
|
|
|
1,076
|
|
|
1,408
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge call options
|
—
|
|
|
16
|
|
|
16
|
|
|||
Total Assets
|
332
|
|
|
1,092
|
|
|
1,424
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(20
|
)
|
|
(20
|
)
|
|||
Total Liabilities
|
—
|
|
|
(20
|
)
|
|
(20
|
)
|
December 31, 2015
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
253
|
|
|
$
|
—
|
|
|
$
|
253
|
|
Foreign government bonds
|
—
|
|
|
31
|
|
|
31
|
|
|||
Asset-backed securities
|
—
|
|
|
130
|
|
|
130
|
|
|||
Mortgage-backed securities
|
—
|
|
|
116
|
|
|
116
|
|
|||
Corporate notes and bonds
|
—
|
|
|
708
|
|
|
708
|
|
|||
Municipal securities
|
—
|
|
|
17
|
|
|
17
|
|
|||
Total Marketable securities
|
253
|
|
|
1,002
|
|
|
1,255
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge call options
|
—
|
|
|
4
|
|
|
4
|
|
|||
Total Assets
|
253
|
|
|
1,006
|
|
|
1,259
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
|||
Total Liabilities
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Carrying amount
|
$
|
730
|
|
|
$
|
520
|
|
Fair value
|
759
|
|
|
557
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Current Liabilities:
|
|
|
|
||||
Other accrued liabilities
|
$
|
405
|
|
|
$
|
368
|
|
Other Liabilities and Credits:
|
|
|
|
||||
Deferred revenue
|
489
|
|
|
427
|
|
||
Other liabilities
|
19
|
|
|
19
|
|
||
Total
|
$
|
913
|
|
|
$
|
814
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Passenger revenues
|
$
|
73
|
|
|
$
|
66
|
|
|
$
|
215
|
|
|
$
|
199
|
|
Other - net revenues
|
107
|
|
|
85
|
|
|
318
|
|
|
244
|
|
||||
Total
|
$
|
180
|
|
|
$
|
151
|
|
|
$
|
533
|
|
|
$
|
443
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Fixed-rate notes payable due through 2026
|
$
|
730
|
|
|
$
|
520
|
|
Variable-rate notes payable due through 2028
|
1,423
|
|
|
166
|
|
||
Less debt issuance costs
|
(17
|
)
|
|
(3
|
)
|
||
Total debt
|
2,136
|
|
|
683
|
|
||
Less current portion
|
275
|
|
|
114
|
|
||
Long-term debt, less current portion
|
$
|
1,861
|
|
|
$
|
569
|
|
|
|
|
|
||||
Weighted-average fixed-interest rate
|
4.6
|
%
|
|
5.7
|
%
|
||
Weighted-average variable-interest rate
|
2.3
|
%
|
|
1.8
|
%
|
|
Total
|
||
Remainder of 2016
|
$
|
47
|
|
2017
|
282
|
|
|
2018
|
315
|
|
|
2019
|
281
|
|
|
2020
|
286
|
|
|
Thereafter
|
942
|
|
|
Total
|
$
|
2,153
|
|
|
Qualified Defined - Benefit Plans
|
||||||||||||||
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
27
|
|
|
$
|
31
|
|
Interest cost
|
18
|
|
|
21
|
|
|
55
|
|
|
63
|
|
||||
Expected return on assets
|
(27
|
)
|
|
(31
|
)
|
|
(81
|
)
|
|
(92
|
)
|
||||
Amortization of prior service costs
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
||||
Recognized actuarial loss (gain)
|
7
|
|
|
7
|
|
|
19
|
|
|
20
|
|
||||
Total
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
19
|
|
|
$
|
21
|
|
September 30, 2016
|
Aircraft Leases
|
|
Facility Leases
|
|
Aircraft Purchase Commitments
|
|
Capacity Purchase Agreements
(a)
|
||||||||
Remainder of 2016
|
$
|
20
|
|
|
$
|
24
|
|
|
$
|
146
|
|
|
$
|
17
|
|
2017
|
99
|
|
|
91
|
|
|
931
|
|
|
78
|
|
||||
2018
|
90
|
|
|
43
|
|
|
724
|
|
|
81
|
|
||||
2019
|
82
|
|
|
43
|
|
|
645
|
|
|
86
|
|
||||
2020
|
73
|
|
|
40
|
|
|
334
|
|
|
92
|
|
||||
Thereafter
|
400
|
|
|
188
|
|
|
397
|
|
|
746
|
|
||||
Total
|
$
|
764
|
|
|
$
|
429
|
|
|
$
|
3,177
|
|
|
$
|
1,100
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
||||||||||||
2015 Repurchase Program - $1 billion
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
2,594,809
|
|
|
$
|
193
|
|
|
—
|
|
|
$
|
—
|
|
2014 Repurchase Program - $650 million
|
—
|
|
|
—
|
|
|
1,588,251
|
|
|
119
|
|
|
—
|
|
|
—
|
|
|
5,649,805
|
|
|
381
|
|
||||
Total
|
—
|
|
|
$
|
—
|
|
|
1,588,251
|
|
|
$
|
119
|
|
|
2,594,809
|
|
|
$
|
193
|
|
|
5,649,805
|
|
|
$
|
381
|
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Marketable securities
|
$
|
7
|
|
|
$
|
(3
|
)
|
Employee benefit plans
|
(278
|
)
|
|
(288
|
)
|
||
Interest rate derivatives
|
(13
|
)
|
|
(12
|
)
|
||
Total
|
$
|
(284
|
)
|
|
$
|
(303
|
)
|
|
Three Months Ended September 30, 2016
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
|
$
|
—
|
|
|
$
|
1,073
|
|
Regional
|
—
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
249
|
|
|
—
|
|
|
249
|
|
|||||||
Total passenger revenues
|
1,073
|
|
|
249
|
|
|
—
|
|
|
—
|
|
|
1,322
|
|
|
—
|
|
|
1,322
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
109
|
|
|
(109
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
30
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
|||||||
Other - net
|
190
|
|
|
21
|
|
|
1
|
|
|
1
|
|
|
213
|
|
|
—
|
|
|
213
|
|
|||||||
Total operating revenues
|
1,293
|
|
|
271
|
|
|
110
|
|
|
(108
|
)
|
|
1,566
|
|
|
—
|
|
|
1,566
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
727
|
|
|
202
|
|
|
99
|
|
|
(109
|
)
|
|
919
|
|
|
22
|
|
|
941
|
|
|||||||
Economic fuel
|
188
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
222
|
|
|
3
|
|
|
225
|
|
|||||||
Total operating expenses
|
915
|
|
|
236
|
|
|
99
|
|
|
(109
|
)
|
|
1,141
|
|
|
25
|
|
|
1,166
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|||||||
Interest expense
|
(7
|
)
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|||||||
Other
|
5
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|||||||
|
5
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
2
|
|
|
—
|
|
|
2
|
|
|||||||
Income (loss) before income tax
|
$
|
383
|
|
|
$
|
35
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
427
|
|
|
$
|
(25
|
)
|
|
$
|
402
|
|
|
Three Months Ended September 30, 2015
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,057
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,057
|
|
|
$
|
—
|
|
|
$
|
1,057
|
|
Regional
|
—
|
|
|
240
|
|
|
—
|
|
|
—
|
|
|
240
|
|
|
—
|
|
|
240
|
|
|||||||
Total passenger revenues
|
1,057
|
|
|
240
|
|
|
—
|
|
|
—
|
|
|
1,297
|
|
|
—
|
|
|
1,297
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
105
|
|
|
(105
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
29
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|||||||
Other - net
|
167
|
|
|
20
|
|
|
1
|
|
|
—
|
|
|
188
|
|
|
—
|
|
|
188
|
|
|||||||
Total operating revenues
|
1,253
|
|
|
261
|
|
|
106
|
|
|
(105
|
)
|
|
1,515
|
|
|
—
|
|
|
1,515
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
667
|
|
|
181
|
|
|
93
|
|
|
(104
|
)
|
|
837
|
|
|
—
|
|
|
837
|
|
|||||||
Economic fuel
|
205
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
240
|
|
|
5
|
|
|
245
|
|
|||||||
Total operating expenses
|
872
|
|
|
216
|
|
|
93
|
|
|
(104
|
)
|
|
1,077
|
|
|
5
|
|
|
1,082
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|||||||
Interest expense
|
(7
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
|||||||
Other
|
7
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|||||||
|
5
|
|
|
—
|
|
|
(3
|
)
|
|
2
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|||||||
Income (loss) before income tax
|
$
|
386
|
|
|
$
|
45
|
|
|
$
|
10
|
|
|
$
|
1
|
|
|
$
|
442
|
|
|
$
|
(5
|
)
|
|
$
|
437
|
|
|
Nine Months Ended September 30, 2016
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
3,036
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,036
|
|
|
$
|
—
|
|
|
$
|
3,036
|
|
||
Regional
|
—
|
|
|
682
|
|
|
—
|
|
|
—
|
|
|
682
|
|
|
—
|
|
|
682
|
|
|||||||
Total passenger revenues
|
3,036
|
|
|
682
|
|
|
—
|
|
|
—
|
|
|
3,718
|
|
|
—
|
|
|
3,718
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
322
|
|
|
(322
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
79
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
82
|
|
|
—
|
|
|
82
|
|
|||||||
Other - net
|
546
|
|
|
57
|
|
|
3
|
|
|
1
|
|
|
607
|
|
|
—
|
|
|
607
|
|
|||||||
Total operating revenues
|
3,661
|
|
|
742
|
|
|
325
|
|
|
(321
|
)
|
|
4,407
|
|
|
—
|
|
|
4,407
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses, excluding fuel
|
2,107
|
|
|
580
|
|
|
305
|
|
|
(322
|
)
|
|
2,670
|
|
|
36
|
|
|
2,706
|
|
|||||||
Economic fuel
|
512
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
602
|
|
|
(9
|
)
|
|
593
|
|
|||||||
Total operating expenses
|
2,619
|
|
|
670
|
|
|
305
|
|
|
(322
|
)
|
|
3,272
|
|
|
27
|
|
|
3,299
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest income
|
19
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
|||||||
Interest expense
|
(23
|
)
|
|
—
|
|
|
(7
|
)
|
|
(3
|
)
|
|
(33
|
)
|
|
—
|
|
|
(33
|
)
|
|||||||
Other
|
15
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
19
|
|
|
—
|
|
|
19
|
|
|||||||
|
11
|
|
|
—
|
|
|
(6
|
)
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|||||||
Income (loss) before income tax
|
$
|
1,053
|
|
|
$
|
72
|
|
|
$
|
14
|
|
|
$
|
2
|
|
|
$
|
1,141
|
|
|
$
|
(27
|
)
|
|
$
|
1,114
|
|
|
Nine Months Ended September 30, 2015
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
2,977
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
|
$
|
—
|
|
|
$
|
2,977
|
|
Regional
|
—
|
|
|
638
|
|
|
—
|
|
|
—
|
|
|
638
|
|
|
—
|
|
|
638
|
|
|||||||
Total passenger revenues
|
2,977
|
|
|
638
|
|
|
—
|
|
|
—
|
|
|
3,615
|
|
|
—
|
|
|
3,615
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
303
|
|
|
(303
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
79
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
83
|
|
|||||||
Other - net
|
465
|
|
|
55
|
|
|
3
|
|
|
—
|
|
|
523
|
|
|
—
|
|
|
523
|
|
|||||||
Total operating revenues
|
3,521
|
|
|
697
|
|
|
306
|
|
|
(303
|
)
|
|
4,221
|
|
|
—
|
|
|
4,221
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
1,951
|
|
|
514
|
|
|
274
|
|
|
(302
|
)
|
|
2,437
|
|
|
—
|
|
|
2,437
|
|
|||||||
Economic fuel
|
641
|
|
|
101
|
|
|
—
|
|
|
—
|
|
|
742
|
|
|
(1
|
)
|
|
741
|
|
|||||||
Total operating expenses
|
2,592
|
|
|
615
|
|
|
274
|
|
|
(302
|
)
|
|
3,179
|
|
|
(1
|
)
|
|
3,178
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
15
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
16
|
|
|
—
|
|
|
16
|
|
|||||||
Interest expense
|
(21
|
)
|
|
—
|
|
|
(8
|
)
|
|
(3
|
)
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
|||||||
Other
|
21
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|||||||
|
15
|
|
|
—
|
|
|
(8
|
)
|
|
3
|
|
|
10
|
|
|
—
|
|
|
10
|
|
|||||||
Income (loss) before income tax
|
$
|
944
|
|
|
$
|
82
|
|
|
$
|
24
|
|
|
$
|
2
|
|
|
$
|
1,052
|
|
|
$
|
1
|
|
|
$
|
1,053
|
|
(a)
|
Includes consolidating entries, Parent Company, and other immaterial business units.
|
(b)
|
The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain income and charges.
|
(c)
|
Includes mark-to-market fuel-hedge accounting charges, and other special items described previously.
|
|
September 30,
2016 |
|
December 31,
2015 |
||||
Alaska
(a)
|
$
|
10,949
|
|
|
$
|
8,127
|
|
Horizon
|
716
|
|
|
717
|
|
||
Parent company
|
5,479
|
|
|
4,734
|
|
||
Elimination of inter-company accounts
|
(8,445
|
)
|
|
(7,048
|
)
|
||
Consolidated
|
$
|
8,699
|
|
|
$
|
6,530
|
|
(a)
|
There are no assets associated with capacity purchase flying at Alaska.
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Third
Quarter Review
—highlights from the
third
quarter of
2016
outlining some of the major events that happened during the period and how they affected our financial performance.
|
•
|
Results of Operations
—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the
three and nine
months ended
September 30, 2016
. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of
2016
.
|
•
|
Liquidity and Capital Resources
—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.
|
New Non-Stop Routes Announced (Launch Dates)
|
Portland, Oregon to Newark, New Jersey (11/10/16)
|
San Diego to Newark, New Jersey (11/21/16)
|
Portland to Sun Valley, Idaho (12/17/16)
|
Los Angeles to Havana, Cuba (1/5/17)
|
San Jose, California to Newark, New Jersey (3/12/17)
|
Seattle to Wichita, Kansas (4/13/17)
|
Seattle to Indianapolis, Indiana (5/11/17)
|
|
Forecast
Q4 2016 |
|
Change
Y-O-Y
|
|
Forecast
Full Year 2016 |
|
Change
Y-O-Y
|
Consolidated:
|
|
|
|
|
|
|
|
ASMs (000,000) "capacity"
|
10,625 - 10,675
|
|
~ 3%
|
|
43,350 - 43,400
|
|
~ 8.5%
|
CASM excluding fuel and special items (cents)
|
8.54¢ - 8.59¢
|
|
~ 0.5%
|
|
8.25¢ - 8.27¢
|
|
~ (0.5)%
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
ASMs (000,000) "capacity"
|
9,475 - 9,525
|
|
~ 2%
|
|
38,700 - 38,750
|
|
~ 8%
|
CASM excluding fuel and special items (cents)
|
7.53¢ - 7.57¢
|
|
~ flat
|
|
7.29¢ - 7.31¢
|
|
~ (1)%
|
•
|
In the
third
quarter of
2016
, we recorded special items of
$22 million
for merger-related costs associated with our pending acquisition of Virgin America.
|
•
|
By eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant
|
•
|
Cost per ASM (CASM) excluding fuel and certain special items is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
|
•
|
Adjusted income before income tax and CASM excluding fuel, and other special items, are important metrics for the employee incentive plan that covers all Alaska and Horizon employees.
|
•
|
CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.
|
•
|
Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as mark-to-market hedging adjustments or merger-related costs, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
|
•
|
Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.
|
|
Three Months Ended September 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except per share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Net income and diluted EPS as reported
|
$
|
256
|
|
|
$
|
2.07
|
|
|
$
|
274
|
|
|
$
|
2.14
|
|
Mark-to-market fuel hedge adjustments
|
3
|
|
|
0.02
|
|
|
5
|
|
|
0.04
|
|
||||
Special items - merger-related costs
|
22
|
|
|
0.18
|
|
|
—
|
|
|
—
|
|
||||
Income tax effect
|
$
|
(9
|
)
|
|
$
|
(0.07
|
)
|
|
(2
|
)
|
|
(0.02
|
)
|
||
Non-GAAP adjusted income and per-share amounts
|
$
|
272
|
|
|
$
|
2.20
|
|
|
$
|
277
|
|
|
$
|
2.16
|
|
|
Three Months Ended September 30,
|
|||||||||
(in cents)
|
2016
|
|
2015
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
CASM
|
|
10.40
|
¢
|
|
|
10.44
|
¢
|
|
(0.4
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
2.01
|
|
|
2.37
|
|
|
(15.2
|
)
|
||
Special items - merger-related costs
|
0.19
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
8.20
|
¢
|
|
|
8.07
|
¢
|
|
1.6
|
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
CASM
|
|
9.19
|
¢
|
|
|
9.45
|
¢
|
|
(2.8
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.91
|
|
|
2.26
|
|
|
(15.5
|
)
|
||
CASM excluding fuel and special items
|
|
7.28
|
¢
|
|
|
7.19
|
¢
|
|
1.3
|
|
|
Three Months Ended September 30,
|
||||
|
2016
|
|
2015
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
Revenue passengers (000)
|
9,054
|
|
8,616
|
|
5.1%
|
Revenue passenger miles (RPM) (000,000) "traffic"
|
9,601
|
|
8,878
|
|
8.1%
|
Available seat miles (ASM) (000,000) "capacity"
|
11,212
|
|
10,368
|
|
8.1%
|
Load factor
|
85.6%
|
|
85.6%
|
|
—
|
Yield
|
13.77¢
|
|
14.61¢
|
|
(5.7)%
|
Passenger revenue per ASM (PRASM)
|
11.79¢
|
|
12.51¢
|
|
(5.8)%
|
Revenue per ASM (RASM)
|
13.97¢
|
|
14.61¢
|
|
(4.4)%
|
Operating expense per ASM (CASM) excluding fuel and special items
(b)
|
8.20¢
|
|
8.07¢
|
|
1.6%
|
Economic fuel cost per gallon
(b)
|
$1.58
|
|
$1.82
|
|
(13.2)%
|
Fuel gallons (000,000)
|
140
|
|
132
|
|
6.1%
|
ASMs per fuel gallon
|
80.1
|
|
78.5
|
|
2.0%
|
Average full-time equivalent employees (FTEs)
|
14,674
|
|
14,003
|
|
4.8%
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
Revenue passengers (000)
|
6,507
|
|
6,171
|
|
5.4%
|
RPMs (000,000) "traffic"
|
8,595
|
|
7,976
|
|
7.8%
|
ASMs (000,000) "capacity"
|
9,987
|
|
9,278
|
|
7.6%
|
Load factor
|
86.1%
|
|
86.0%
|
|
0.1 pts
|
Yield
|
12.49¢
|
|
13.26¢
|
|
(5.8)%
|
PRASM
|
10.75¢
|
|
11.40¢
|
|
(5.7)%
|
RASM
|
12.96¢
|
|
13.50¢
|
|
(4.0)%
|
CASM excluding fuel and special items
(b)
|
7.28¢
|
|
7.19¢
|
|
1.3%
|
Economic fuel cost per gallon
(b)
|
$1.57
|
|
$1.81
|
|
(13.3)%
|
Fuel gallons (000,000)
|
119
|
|
113
|
|
5.3%
|
ASMs per fuel gallon
|
83.9
|
|
82.1
|
|
2.2%
|
Average FTEs
|
11,397
|
|
10,824
|
|
5.3%
|
Aircraft utilization
|
10.6
|
|
10.9
|
|
(2.8%)
|
Average aircraft stage length
|
1,203
|
|
1,168
|
|
3.0%
|
Operating fleet
|
154
|
|
144
|
|
10 a/c
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
Revenue passengers (000)
|
2,547
|
|
2,445
|
|
4.2%
|
RPMs (000,000) "traffic"
|
1,006
|
|
903
|
|
11.4%
|
ASMs (000,000) "capacity"
|
1,225
|
|
1,090
|
|
12.4%
|
Load factor
|
82.1%
|
|
82.8%
|
|
(0.7 pts)
|
Yield
|
24.75¢
|
|
26.53¢
|
|
(6.7)%
|
PRASM
|
20.32¢
|
|
21.97¢
|
|
(7.5)%
|
Operating fleet
|
69
|
|
63
|
|
6 a/c
|
(a)
|
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
|
(b)
|
See reconciliation of operating expenses excluding fuel and special items, and a reconciliation of economic fuel costs in the accompanying pages.
|
(c)
|
Data presented includes information related to flights operated by Horizon and third-party carriers.
|
|
Three Months Ended September 30,
|
||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
||||
Passenger
|
|
|
|
|
|
||||
Mainline
|
$
|
1,073
|
|
|
$
|
1,057
|
|
|
2
|
Regional
|
249
|
|
|
240
|
|
|
4
|
||
Total passenger revenue
|
1,322
|
|
|
1,297
|
|
|
2
|
||
Freight and mail
|
31
|
|
|
30
|
|
|
3
|
||
Other - net
|
213
|
|
|
188
|
|
|
13
|
||
Total operating revenues
|
$
|
1,566
|
|
|
$
|
1,515
|
|
|
3
|
|
Three Months Ended September 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Fuel expense
|
$
|
225
|
|
|
$
|
245
|
|
|
(8
|
)
|
Non-fuel expenses
|
919
|
|
|
837
|
|
|
10
|
|
||
Special items - merger-related costs
|
22
|
|
|
—
|
|
|
NM
|
|
||
Total Operating Expenses
|
$
|
1,166
|
|
|
$
|
1,082
|
|
|
8
|
|
|
Three Months Ended September 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Wages
|
$
|
250
|
|
|
$
|
236
|
|
|
6
|
|
Pension - Defined benefit plans
|
6
|
|
|
7
|
|
|
(14
|
)
|
||
Defined contribution plans
|
16
|
|
|
15
|
|
|
7
|
|
||
Medical and other benefits
|
50
|
|
|
38
|
|
|
32
|
|
||
Payroll taxes
|
18
|
|
|
16
|
|
|
13
|
|
||
Total wages and benefits
|
$
|
340
|
|
|
$
|
312
|
|
|
9
|
|
|
Three Months Ended September 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
218
|
|
|
$
|
1.55
|
|
|
$
|
235
|
|
|
$
|
1.78
|
|
Losses on settled hedges
|
4
|
|
|
0.03
|
|
|
5
|
|
|
0.04
|
|
||||
Consolidated economic fuel expense
|
222
|
|
|
1.58
|
|
|
240
|
|
|
1.82
|
|
||||
Mark-to-market fuel hedge adjustments
|
3
|
|
|
0.02
|
|
|
5
|
|
|
0.03
|
|
||||
GAAP fuel expense
|
$
|
225
|
|
|
$
|
1.60
|
|
|
$
|
245
|
|
|
$
|
1.85
|
|
Fuel gallons
|
140
|
|
|
|
|
132
|
|
|
|
•
|
In the
nine
months ended
September 30, 2016
we recorded special items of
$36 million
for merger-related costs associated with our pending acquisition of Virgin America.
|
|
Nine Months Ended September 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except per share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Net income and diluted EPS as reported
|
$
|
700
|
|
|
$
|
5.63
|
|
|
$
|
657
|
|
|
$
|
5.05
|
|
Mark-to-market fuel hedge adjustments
|
(9
|
)
|
|
(0.07
|
)
|
|
(1
|
)
|
|
(0.01
|
)
|
||||
Special items - merger-related costs
|
36
|
|
|
0.29
|
|
|
—
|
|
|
—
|
|
||||
Income tax effect
|
(10
|
)
|
|
(0.08
|
)
|
|
—
|
|
|
—
|
|
||||
Non-GAAP adjusted income and per-share amounts
|
$
|
717
|
|
|
$
|
5.77
|
|
|
$
|
656
|
|
|
$
|
5.04
|
|
|
Nine Months Ended September 30,
|
|||||||||
(in cents)
|
2016
|
|
2015
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
CASM
|
|
10.08
|
¢
|
|
|
10.75
|
¢
|
|
(6.2
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.81
|
|
|
2.51
|
|
|
(27.9
|
)
|
||
Special items - merger-related costs
|
0.11
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
8.16
|
¢
|
|
|
8.24
|
¢
|
|
(1.0
|
)
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
CASM
|
|
8.93
|
¢
|
|
|
9.74
|
¢
|
|
(8.3
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.72
|
|
|
2.41
|
|
|
(28.6
|
)
|
||
CASM excluding fuel and special items
|
|
7.21
|
¢
|
|
|
7.33
|
¢
|
|
(1.6
|
)
|
|
Nine Months Ended September 30,
|
||||
|
2016
|
|
2015
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
Revenue passengers (000)
|
25,536
|
|
23,956
|
|
6.6%
|
Revenue passenger miles (RPM) (000,000) "traffic"
|
27,569
|
|
25,052
|
|
10.0%
|
Available seat miles (ASM) (000,000) "capacity"
|
32,728
|
|
29,574
|
|
10.7%
|
Load factor
|
84.2%
|
|
84.7%
|
|
(0.5) pts
|
Yield
|
13.49¢
|
|
14.43¢
|
|
(6.5)%
|
Passenger revenue per ASM (PRASM)
|
11.36¢
|
|
12.22¢
|
|
(7.0)%
|
Revenue per ASM (RASM)
|
13.47¢
|
|
14.27¢
|
|
(5.6)%
|
Operating expense per ASM (CASM) excluding fuel and special items
(b)
|
8.16¢
|
|
8.24¢
|
|
(1.0)%
|
Economic fuel cost per gallon
(b)
|
$1.47
|
|
$1.97
|
|
(25.4)%
|
Fuel gallons (000,000)
|
410
|
|
377
|
|
8.8%
|
ASMs per fuel gallon
|
79.8
|
|
78.4
|
|
1.8%
|
Average full-time equivalent employees (FTEs)
|
14,500
|
|
13,690
|
|
5.9%
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
Revenue passengers (000)
|
18,432
|
|
17,193
|
|
7.2%
|
RPMs (000,000) "traffic"
|
24,767
|
|
22,633
|
|
9.4%
|
ASMs (000,000) "capacity"
|
29,216
|
|
26,609
|
|
9.8%
|
Load factor
|
84.8%
|
|
85.1%
|
|
(0.3) pts
|
Yield
|
12.26¢
|
|
13.15¢
|
|
(6.8)%
|
PRASM
|
10.39¢
|
|
11.19¢
|
|
(7.1)%
|
RASM
|
12.53¢
|
|
13.23¢
|
|
(5.3)%
|
CASM excluding fuel and special items
(b)
|
7.21¢
|
|
7.33¢
|
|
(1.6)%
|
Economic fuel cost per gallon
(b)
|
$1.46
|
|
$1.97
|
|
(25.9)%
|
Fuel gallons (000,000)
|
350
|
|
326
|
|
7.4%
|
ASMs per fuel gallon
|
83.5
|
|
81.6
|
|
2.3%
|
Average FTEs
|
11,260
|
|
10,643
|
|
5.8%
|
Aircraft utilization
|
10.7
|
|
10.9
|
|
(1.8%)
|
Average aircraft stage length
|
1,218
|
|
1,185
|
|
2.8%
|
Operating fleet
|
154
|
|
144
|
|
10 a/c
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
Revenue passengers (000)
|
7,105
|
|
6,762
|
|
5.1%
|
RPMs (000,000) "traffic"
|
2,801
|
|
2,419
|
|
15.8%
|
ASMs (000,000) "capacity"
|
3,512
|
|
2,965
|
|
18.4%
|
Load factor
|
79.8%
|
|
81.6%
|
|
(1.8 pts)
|
Yield
|
24.35¢
|
|
26.37¢
|
|
(7.7)%
|
PRASM
|
19.43¢
|
|
21.51¢
|
|
(9.7)%
|
Operating fleet
|
69
|
|
63
|
|
6 a/c
|
(a)
|
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
|
(b)
|
See reconciliation of operating expenses excluding fuel and special items, and a reconciliation of economic fuel costs in the accompanying pages.
|
(c)
|
Data presented includes information related to flights operated by Horizon and third-party carriers.
|
|
Nine Months Ended September 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Passenger
|
|
|
|
|
|
|||||
Mainline
|
$
|
3,036
|
|
|
$
|
2,977
|
|
|
2
|
|
Regional
|
682
|
|
|
638
|
|
|
7
|
|
||
Total passenger revenue
|
3,718
|
|
|
3,615
|
|
|
3
|
|
||
Freight and mail
|
82
|
|
|
83
|
|
|
(1
|
)
|
||
Other - net
|
607
|
|
|
523
|
|
|
16
|
|
||
Total operating revenues
|
$
|
4,407
|
|
|
$
|
4,221
|
|
|
4
|
|
|
Nine Months Ended September 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Fuel expense
|
$
|
593
|
|
|
$
|
741
|
|
|
(20
|
)
|
Non-fuel expenses
|
2,670
|
|
|
2,437
|
|
|
10
|
|
||
Special items - merger-related costs
|
36
|
|
|
—
|
|
|
NM
|
|
||
Total Operating Expenses
|
$
|
3,299
|
|
|
$
|
3,178
|
|
|
4
|
|
|
Nine Months Ended September 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Wages
|
$
|
749
|
|
|
$
|
697
|
|
|
7
|
|
Pension - Defined benefit plans
|
19
|
|
|
21
|
|
|
(10
|
)
|
||
Defined contribution plans
|
49
|
|
|
45
|
|
|
9
|
|
||
Medical and other benefits
|
135
|
|
|
111
|
|
|
22
|
|
||
Payroll taxes
|
56
|
|
|
49
|
|
|
14
|
|
||
Total wages and benefits
|
$
|
1,008
|
|
|
$
|
923
|
|
|
9
|
|
|
Nine Months Ended September 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
590
|
|
|
$
|
1.44
|
|
|
$
|
727
|
|
|
$
|
1.93
|
|
(Gains) losses on settled hedges
|
12
|
|
|
0.03
|
|
|
15
|
|
|
0.04
|
|
||||
Consolidated economic fuel expense
|
602
|
|
|
1.47
|
|
|
742
|
|
|
1.97
|
|
||||
Mark-to-market fuel hedge adjustments
|
(9
|
)
|
|
(0.02
|
)
|
|
(1
|
)
|
|
—
|
|
||||
GAAP fuel expense
|
$
|
593
|
|
|
$
|
1.45
|
|
|
$
|
741
|
|
|
$
|
1.97
|
|
Fuel gallons
|
410
|
|
|
|
|
377
|
|
|
|
•
|
Our existing cash and marketable securities balance of $1.7 billion, excluding the $1.5 billion of funding obtained in anticipation of the pending merger with Virgin America, and our expected cash from operations;
|
•
|
Our
50
unencumbered aircraft in our operating fleet as of September 30, 2016 that could be financed, if necessary;
|
•
|
Our combined
$252 million
bank undrawn line-of-credit facilities, notwithstanding any covenant restrictions.
|
(in millions, except per share and debt-to-capital amounts)
|
September 30, 2016
|
|
December 31, 2015
|
|
Change
|
|||||
Cash and marketable securities
|
$
|
3,226
|
|
|
$
|
1,328
|
|
|
143
|
%
|
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months revenue
(b)
|
60
|
%
|
|
28
|
%
|
|
32
|
pts
|
||
Long-term debt, net of current portion
|
$
|
1,861
|
|
|
$
|
569
|
|
|
227
|
%
|
Shareholders’ equity
|
$
|
2,864
|
|
|
$
|
2,411
|
|
|
19
|
%
|
Long-term debt-to-capital including net present value of aircraft operating lease payments
(a)
|
45%
|
|
|
27%
|
|
|
18
|
pts
|
(a)
|
Calculated using the present value of remaining aircraft lease payments for aircraft in our operating fleet as of the end of the period.
|
(b)
|
Cash balance includes approximately $1.5 billion of financing received in the current quarter which we intend to use to fund the pending acquisition of Virgin America.
|
(in millions)
|
2016
|
|
2017
|
|
2018
|
|
2019
|
||||||||
Aircraft and aircraft purchase deposits - firm
|
$
|
500
|
|
|
$
|
810
|
|
|
$
|
695
|
|
|
$
|
585
|
|
Other flight equipment
|
65
|
|
|
95
|
|
|
90
|
|
|
60
|
|
||||
Other property and equipment
|
115
|
|
|
150
|
|
|
150
|
|
|
100
|
|
||||
Total property and equipment additions
|
$
|
680
|
|
|
$
|
1,055
|
|
|
$
|
935
|
|
|
$
|
745
|
|
Option aircraft and aircraft deposits, if exercised
(a)
|
$
|
—
|
|
|
$
|
65
|
|
|
$
|
215
|
|
|
$
|
600
|
|
(a)
|
Alaska has options to acquire
41
B737 aircraft with deliveries from
2019
through
2024
. Horizon has options for
30
E175 aircraft with deliveries from
2019
to
2021
.
|
|
Actual Fleet
|
|
Expected Fleet Activity
(a)
|
|||||||||||
Aircraft
|
Dec 31, 2015
|
|
2016 Changes
|
|
Dec 31, 2016
|
|
2017-2018 Changes
|
|
Dec 31, 2018
|
|||||
737 Freighters & Combis
(b)
|
6
|
|
|
1
|
|
|
7
|
|
|
(4
|
)
|
|
3
|
|
737 Passenger Aircraft
(b)
|
141
|
|
|
7
|
|
|
148
|
|
|
9
|
|
|
157
|
|
Total Mainline Fleet
|
147
|
|
|
8
|
|
|
155
|
|
|
5
|
|
|
160
|
|
Q400
(c)
|
52
|
|
|
—
|
|
|
52
|
|
|
(15
|
)
|
|
37
|
|
E175
(c)
|
5
|
|
|
10
|
|
|
15
|
|
|
28
|
|
|
43
|
|
CRJ700
(c)
|
8
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Regional Fleet
|
65
|
|
|
2
|
|
|
67
|
|
|
13
|
|
|
80
|
|
Total
|
212
|
|
|
10
|
|
|
222
|
|
|
18
|
|
|
240
|
|
(a)
|
The expected fleet counts at December 31, 2016 and beyond are subject to change.
|
(b)
|
2016 change in 737 Passenger Aircraft reflects delivery of 19 737-900 aircraft, the retirement of 10 737-400 aircraft and the removal from service of one 737-700 aircraft. The 737-700 aircraft are being converted to freighters and will return to service in late 2016 and early 2017.
|
(c)
|
Aircraft are operated under capacity purchase agreements with Horizon or other regional airlines.
|
|
Approximate % of Expected Fuel Requirements
|
|
Weighted-Average Crude Oil Price per Barrel
|
|
Average Premium Cost per Barrel
|
|
Fourth Quarter 2016
|
50
|
%
|
|
$61
|
|
$3
|
First Quarter 2017
|
50
|
%
|
|
$58
|
|
$3
|
Second Quarter 2017
|
40
|
%
|
|
$58
|
|
$3
|
Third Quarter 2017
|
30
|
%
|
|
$59
|
|
$4
|
Fourth Quarter 2017
|
20
|
%
|
|
$62
|
|
$4
|
Full Year 2017
|
35
|
%
|
|
$59
|
|
$3
|
First Quarter 2018
|
10
|
%
|
|
$61
|
|
$4
|
Total 2018
|
2
|
%
|
|
$61
|
|
$4
|
(in millions)
|
Remainder of 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Beyond 2020
|
|
Total
|
||||||||||||||
Current and long-term debt obligations
(a)
|
$
|
47
|
|
|
$
|
282
|
|
|
$
|
315
|
|
|
$
|
281
|
|
|
$
|
286
|
|
|
$
|
942
|
|
|
$
|
2,153
|
|
Operating lease commitments
(b)
|
44
|
|
|
190
|
|
|
133
|
|
|
125
|
|
|
113
|
|
|
588
|
|
|
1,193
|
|
|||||||
Aircraft purchase commitments
|
146
|
|
|
931
|
|
|
724
|
|
|
645
|
|
|
334
|
|
|
397
|
|
|
3,177
|
|
|||||||
Interest obligations
(c)
|
11
|
|
|
63
|
|
|
53
|
|
|
42
|
|
|
28
|
|
|
88
|
|
|
285
|
|
|||||||
Capacity Purchase Agreements
(d)
|
17
|
|
|
78
|
|
|
81
|
|
|
86
|
|
|
92
|
|
|
746
|
|
|
1,100
|
|
|||||||
Total
|
$
|
265
|
|
|
$
|
1,544
|
|
|
$
|
1,306
|
|
|
$
|
1,179
|
|
|
$
|
853
|
|
|
$
|
2,761
|
|
|
$
|
7,908
|
|
(a)
|
Current and long-term debt obligations presented in the table above excludes debt issuance costs.
|
(b)
|
Operating lease commitments generally include aircraft operating leases (including those under capacity purchase agreements), airport property and hangar leases, office space, and other equipment leases.
|
(c)
|
For variable-rate debt, future obligations are shown above using interest rates in effect as of
September 30, 2016
.
|
(d)
|
Includes minimum obligations associated with third-party CPA provider SkyWest. Refer to the "Commitments" note in the condensed consolidated financial statements for further information.
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
ITEM 4. CONTROLS AND PROCEDURES
|
ITEM 1. LEGAL PROCEEDINGS
|
ITEM 1A. RISK FACTORS
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4. MINE SAFETY DISCLOSURES
|
ITEM 5. OTHER INFORMATION
|
ITEM 6. EXHIBITS
|
1.
|
Exhibits:
See Exhibit Index.
|
ALASKA AIR GROUP, INC.
|
|
|
|
/s/ CHRISTOPHER M. BERRY
|
|
Christopher M. Berry
|
|
Managing Director, Accounting and Controller
|
|
(Principal Accounting Officer)
|
|
|
|
November 1, 2016
|
|
1 Year Alaska Air Chart |
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