Alaska Air Group Reports Second Quarter Results

Share Name	Share Symbol	Market	Type
Alaska Air Group Inc	TG:ALK	Tradegate	Ordinary Share

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-0.20	-0.41%	48.44	48.34	48.54	48.94	47.95	48.91	590	22:50:14

Alaska Air (TG:ALK)
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Second Quarter Financial and Other Highlights: - Net income, excluding special items, was $26.5 million, or $0.72 per diluted share, compared to a net loss excluding special items of $14.1 million, or $0.39 per share, in the second quarter of 2008. This compares to a First Call mean estimate of $0.53 per share. - Net income under Generally Accepted Accounting Principles (GAAP) of $29.1 million, or $0.79 per diluted share, compared to net income of $63.1 million, or $1.74 per diluted share, in 2008. - $1.1 billion in unrestricted cash and marketable securities as of June 30, 2009. - Alaska ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in 2009 by J.D. Power and Associates for the second year in a row. - Alaska was No. 1 in U.S. Department of Transportation on-time performance in April and May among major network carriers. SEATTLE, July 23 /PRNewswire-FirstCall/ -- Alaska Air Group, Inc. (NYSE: ALK) today reported second quarter 2009 net income of $29.1 million, or $0.79 per diluted share, compared to net income of $63.1 million, or $1.74 per diluted share, in the second quarter of 2008. Excluding Alaska's new pilot contract transition costs of $35.8 million ($22.3 million after tax or $0.61 per diluted share) and mark-to-market fuel hedge gains of $39.8 million ($24.9 million after tax or $0.68 per diluted share), the company reported net income of $26.5 million, or $0.72 per diluted share, compared to a net loss of $14.1 million, or $0.39 per share, excluding special items in the second quarter of 2008. Alaska Air Group Chairman and Chief Executive Officer Bill Ayer said the quarter's earnings were shaped by a steep decline in fuel prices, network adjustments and employees' hard work and attention to customers. "We've made significant changes at both airlines over many years," said Ayer. "While there's more to do, we're seeing clear signs that what we're doing is working." He noted that he expects the economy to be very challenging for the foreseeable future. The company plans to maintain a healthy level of cash with a continued focus on improving revenues and reducing costs. The following table summarizes the company's net income (loss) and earnings per diluted share (EPS) during the second quarters of 2009 and 2008 excluding one-time pilot contract costs, fleet transition costs and adjustments to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting as reported in accordance with GAAP (in millions except per-share amounts): Three months ended June 30, --------------------------- 2009 2008 ---- ---- Diluted Diluted Dollars EPS Dollars EPS ------- ------- ------- ------- Net income (loss) and diluted EPS, excluding new pilot contract transition costs, fleet transition costs and mark-to-market hedging adjustments $26.5 $0.72 $(14.1) $(0.39) New pilot contract transition costs, net of tax (22.3) (0.61) --- --- Fleet transition costs - MD-80, net of tax --- --- (16.3) (0.45) Fleet transition costs - CRJ-700, net of tax --- --- (3.8) (0.11) Adjustments to reflect the timing of gain recognition resulting from mark-to-market fuel-hedge accounting, net of tax 24.9 0.68 97.3 2.69 ---- ---- ---- ---- Reported GAAP amounts $29.1 $0.79 $63.1 $1.74 ===== ===== ===== ===== Summary statistical and financial data for Alaska and Horizon are shown below: Alaska Airlines --------------- Three months ended June 30, --------------------------- 2009 2008 Change ---- ---- ------ Mainline revenue passenger miles - "RPMs" (000,000) 4,613 4,872 (5.3)% Mainline available seat miles - "ASMs" (000,000) 5,852 6,238 (6.2)% Mainline passenger load factor 78.8% 78.1% 0.7 pts Mainline revenue passengers (000) 3,983 4,425 (10.0)% Mainline passenger revenue per ASM (in cents) 10.30 10.94 (5.9)% Mainline cost per ASM, excluding fuel and special items (in cents) 8.22 7.49 9.7% Pretax income on a GAAP basis (in millions) $42.1 $87.3 $(45.2) Pretax income (loss) adjusted for special items (in millions) $44.9 $(15.6) $60.5 On-time arrivals as reported to U.S. Dept. of Transportation 84.9% 79.9% 5.0 pts Horizon Air ----------- Three months ended June 30, --------------------------- 2009 2008 Change ---- ---- ------ RPMs (000,000) 609 695 (12.4)% ASMs (000,000) 828 944 (12.3)% Passenger load factor 73.6% 73.6% (0.0) pts Revenue passengers (000) 1,694 1,913 (11.4)% Passenger revenue per ASM (in cents) 18.74 19.75 (5.1)% Cost per ASM, excluding fuel and Special items (in cents) 15.18 14.40 5.4% Pretax income on a GAAP basis (in millions) $6.5 $12.6 $(6.1) Pretax loss adjusted for special items (in millions) $(0.3) $(7.7) $7.4 On-time arrivals as reported to U.S. Dept. of Transportation 88.8% 87.7% 1.1 pts Financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found at the end of this release. A conference call regarding the second quarter 2009 results will be simulcast via the Internet at 8:30 a.m. Pacific time on July 23, 2009. It can be accessed through the company's Web site at alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com/investors. References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines." This news release contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended Dec. 31, 2008. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and government fees and taxes. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse. Alaska Airlines and Horizon Air, subsidiaries of Alaska Air Group (NYSE: ALK), together serve more than 90 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Network Carriers" in the J.D. Power and Associates 2008 and 2009 North America Airline Satisfaction Studies(SM). For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom. Alaska Air Group, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- (in millions, except per share amounts) 2009 2008 %Change 2009 2008 %Change ---- ---- ------- ---- ---- ------- Operating Revenues: Passenger $757.2 $863.5 (12.3) $1,441.3 $1,639.2 (12.1) Freight and mail 25.2 27.7 (9.0) 44.6 49.9 (10.6) Other - net 61.5 39.6 55.3 100.4 81.2 23.6 ---- ---- ----- ---- Total Operating Revenues 843.9 930.8 (9.3) 1,586.3 1,770.3 (10.4) ----- ----- ------- ------- Operating Expenses: Wages and benefits 247.1 234.4 5.4 493.1 479.1 2.9 Variable incentive pay 18.9 5.1 270.6 28.2 8.7 224.1 Aircraft fuel, including hedging gains and losses 128.4 182.0 (29.5) 286.1 464.0 (38.3) Aircraft maintenance 59.6 54.2 10.0 119.3 112.2 6.3 Aircraft rent 39.1 42.3 (7.6) 77.1 85.9 (10.2) Landing fees and other rentals 54.4 56.9 (4.4) 108.6 112.9 (3.8) Contracted services 36.8 43.6 (15.6) 75.2 88.1 (14.6) Selling expenses 35.3 44.1 (20.0) 60.3 78.6 (23.3) Depreciation and amortization 53.9 51.5 4.7 106.7 100.8 5.9 Food and beverage service 12.4 13.4 (7.5) 24.0 25.7 (6.6) Other 50.3 61.5 (18.2) 107.1 118.7 (9.8) New pilot contract transition costs 35.8 - NM 35.8 - NM Fleet transition costs - MD-80 - 26.0 NM - 26.0 NM Fleet transition costs - CRJ-700 - 6.1 NM - 6.1 NM Fleet transition costs - Q200 5.2 3.2 62.5 10.0 9.0 11.1 --- --- ---- --- --- Total Operating Expenses 777.2 824.3 (5.7) 1,531.5 1,715.8 (10.7) ----- ----- ------- ------- Operating Income 66.7 106.5 54.8 54.5 ---- ----- ---- ---- Nonoperating Income (Expense): Interest income 7.8 10.5 16.1 20.8 Interest expense (25.1) (25.0) (51.9) (48.4) Interest capitalized 1.8 6.1 4.6 12.6 Other - net (3.5) 0.1 (5.5) 0.3 ---- --- ---- --- (19.0) (8.3) (36.7) (14.7) ----- ---- ----- ----- Income before income tax 47.7 98.2 18.1 39.8 Income tax expense 18.6 35.1 8.2 14.0 ---- ---- --- ---- Net Income $29.1 $63.1 $9.9 $25.8 ===== ===== ==== ===== Basic Earnings Per Share: $0.80 $1.75 $0.27 $0.71 Diluted Earnings Per Share: $0.79 $1.74 $0.27 $0.70 Shares Used for Computation: Basic 36.354 36.059 36.340 36.542 Diluted 36.591 36.255 36.742 36.876 Alaska Air Group, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) -------- ------------ June 30, December 31, (in millions) 2009 2008 ------------- ---- ---- Cash and marketable securities $1,122 $1,077 ====== ====== Total current assets 1,594 1,509 Property and equipment-net 3,154 3,168 Other assets 193 159 --- --- Total assets $4,941 $4,836 ====== ====== Current liabilities $1,340 $1,361 Long-term debt 1,670 1,596 Other liabilities and credits 1,243 1,217 Shareholders' equity 688 662 --- --- Total liabilities and shareholders' equity $4,941 $4,836 ====== ====== Debt to Capitalization, adjusted for operating leases 80%:20% 81%:19% ====== ====== Number of common shares outstanding 35.741 36.275 ====== ====== Air Group Net Income (Loss) and EPS Reconciliation: --------------------------------------------------- The following table summarizes Alaska Air Group, Inc.'s net income (loss) and amounts per diluted share during 2009 and 2008 excluding adjustments for new pilot contract transition costs, certain fleet transition costs and to reflect the timing of gain or loss recognition resulting from mark-to-market fuel-hedge accounting as reported in accordance with GAAP (in millions except per share amounts): Three Months Ended June 30, --------------------------- 2009 2008 ---- ---- Dollars Diluted EPS Dollars Diluted EPS ------- ----------- ------- ----------- Net income (loss) and diluted EPS, excluding mark-to-market hedging adjustments, new pilot contract transition costs, and MD-80 and CRJ-700 fleet transition costs $26.5 $0.72 $(14.1) $(0.39) New pilot contract transition costs, net of tax (22.3) (0.61) - - Fleet transition costs - MD-80, net of tax - - (16.3) (0.45) Fleet transition costs - CRJ-700, net of tax - - (3.8) (0.11) Adjustments to reflect the timing of gain recognition resulting from mark-to-market fuel-hedge accounting, net of tax 24.9 0.68 97.3 2.69 ---- ---- ---- ---- Reported GAAP amounts $29.1 $0.79 $63.1 $1.74 ===== ===== ===== ===== Six Months Ended June 30, ------------------------- 2009 2008 ---- ---- Dollars Diluted EPS Dollars Diluted EPS ------- ----------- ------- ----------- Net income (loss) and diluted EPS, excluding mark-to-market hedging adjustments, new pilot contract transition costs, and MD-80 and CRJ-700 fleet transition costs $1.1 $0.03 $(51.8) $(1.42) New pilot contract transition costs, net of tax (22.3) (0.61) - - Fleet transition costs - MD-80, net of tax - - (16.3) (0.44) Fleet transition costs - CRJ-700, net of tax - - (3.8) (0.10) Adjustments to reflect the timing of gain recognition resulting from mark-to-market fuel-hedge accounting, net of tax 31.1 0.85 97.7 2.66 ---- ---- ---- ---- Reported GAAP amounts $9.9 $0.27 $25.8 $0.70 ==== ===== ===== ===== Alaska Airlines Financial and Statistical Data Three Months Ended Six Months Ended June 30, June 30, ------------------ --------------------- Financial Data (in millions): 2009 2008 %Change 2009 2008 %Change ---- ---- -------- ---- ---- ------- Operating Revenues: Passenger $602.5 $682.7 (11.7) $1,142.3 $1,290.0 (11.4) Freight and mail 24.2 26.6 (9.0) 42.5 47.9 (11.3) Other - net 54.9 33.3 64.9 88.1 67.7 30.1 ---- ---- ---- ---- Total mainline operating revenues 681.6 742.6 (8.2) 1,272.9 1,405.6 (9.4) Passenger - purchased capacity 67.7 77.8 (13.0) 129.5 148.2 (12.6) ---- ---- ----- ----- Total Operating Revenues 749.3 820.4 (8.7) 1,402.4 1,553.8 (9.7) ----- ----- ------- ------- Operating Expenses: Wages and benefits 198.4 184.3 7.7 395.8 376.4 5.2 Variable incentive pay 16.1 3.3 387.9 23.2 5.9 293.2 Aircraft fuel, including hedging gains and losses 107.4 151.2 (29.0) 239.3 384.9 (37.8) Aircraft maintenance 46.6 37.4 24.6 92.9 79.5 16.9 Aircraft rent 28.1 27.9 0.7 54.6 56.1 (2.7) Landing fees and other rentals 40.6 42.7 (4.9) 81.4 84.6 (3.8) Contracted services 28.4 33.9 (16.2) 58.9 68.6 (14.1) Selling expenses 28.3 36.0 (21.4) 47.4 62.5 (24.2) Depreciation and amortization 44.2 41.6 6.3 87.5 80.4 8.8 Food and beverage service 11.9 12.6 (5.6) 22.9 24.3 (5.8) Other 38.5 47.4 (18.8) 81.3 89.2 (8.9) New pilot contract transition costs 35.8 - NM 35.8 - NM Fleet transition costs - MD-80 - 26.0 NM - 26.0 NM --- ---- --- ---- Total mainline operating expenses 624.3 644.3 (3.1) 1,221.0 1,338.4 (8.8) ----- ----- ------- ------- Purchased capacity costs 68.9 84.5 (18.5) 131.6 161.2 (18.4) ---- ---- ----- ----- Total Operating Expenses 693.2 728.8 (4.9) 1,352.6 1,499.6 (9.8) ----- ----- ------- ------- Operating Income 56.1 91.6 49.8 54.2 ---- ---- ---- ---- Interest income 9.5 12.3 19.6 25.4 Interest expense (22.1) (22.2) (45.1) (44.0) Interest capitalized 1.8 5.4 4.3 11.3 Other - net (3.2) 0.2 (4.8) 0.6 ---- --- ---- --- (14.0) (4.3) (26.0) (6.7) ----- ---- ----- ---- Income Before Income Tax $42.1 $87.3 $23.8 $47.5 ===== ===== ===== ===== Mainline Operating Statistics: Revenue passengers (000) 3,983 4,425 (10.0) 7,556 8,505 (11.2) RPMs (000,000) "traffic" 4,613 4,872 (5.3) 8,792 9,398 (6.4) ASMs (000,000) "capacity" 5,852 6,238 (6.2) 11,372 12,322 (7.7) Passenger load factor 78.8% 78.1% 0.7 77.3% 76.3% 1.0 pts pts Yield per passenger mile (in cents) 13.06 14.01 (6.8) 12.99 13.73 (5.3) Operating revenue per ASM (in cents) 11.65 11.90 (2.2) 11.19 11.41 (1.9) Passenger revenue per ASM (in cents) 10.30 10.94 (5.9) 10.04 10.47 (4.1) Operating expense per ASM (in cents) 10.67 10.33 3.3 10.74 10.86 (1.1) Operating expense per ASM excluding fuel, new pilot contract transition costs and fleet transition costs (a) (in cents) 8.22 7.49 9.7 8.32 7.53 10.5 GAAP fuel cost per gallon $1.41 $1.75 (19.4) $1.60 $2.23 (28.3) Economic fuel cost per gallon (b) $1.84 $3.24 (43.2) $1.88 $2.98 (36.9) Fuel gallons (000,000) 76.5 86.4 (11.5) 149.8 172.3 (13.1) Average number of full-time equivalent employees 8,937 9,880 (9.5) 8,979 9,881 (9.1) Aircraft utilization (blk hrs/day) 9.9 10.9 (9.2) 9.9 10.8 (8.3) Average aircraft stage length (miles) 1,020 974 4.7 1,018 971 4.8 Operating fleet at period-end 116 115 1 a/c 116 115 1 a/c Regional Operating Statistics: RPMs (000,000) 264 302 (12.6) 479 569 (15.8) ASMs (000,000) 359 399 (10.0) 675 762 (11.4) Passenger load factor 73.5% 75.7% (2.2) 71.0% 74.7% (3.7) pts pts Yield per passenger mile (in cents) 25.64 25.76 (0.5) 27.04 26.05 3.8 Operating revenue per ASM (in cents) 18.86 19.50 (3.3) 19.19 19.45 (1.4) Operating expenses per ASM (in cents) 19.19 21.18 (9.4) 19.50 21.15 (7.8) (a) See page 10 for a reconciliation of these non-GAAP measures and a discussion about why these measures may be important to investors. (b) See page 12 for a reconciliation of economic fuel cost. NM = Not Meaningful Horizon Air Financial and Statistical Data Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------- Financial Data (in millions): 2009 2008 %Change 2009 2008 %Change ---- ---- ------- ---- ---- ------- Operating Revenues: Passenger - brand flying $91.7 $107.7 (14.9) $178.3 $210.4 (15.3) Passenger - capacity purchase arrangements (a) 63.5 78.7 (19.3) 121.3 150.1 (19.2) ---- ---- ----- ----- Total passenger revenue 155.2 186.4 (16.7) 299.6 360.5 (16.9) Freight and mail 0.6 0.7 (14.3) 1.3 1.3 - Other - net 2.1 1.8 16.7 3.8 4.3 (11.6) --- --- --- --- Total Operating Revenues 157.9 188.9 (16.4) 304.7 366.1 (16.8) ----- ----- ----- ----- Operating Expenses: Wages and benefits 46.2 48.6 (4.9) 92.6 99.3 (6.7) Variable incentive pay 2.8 1.8 55.6 5.0 2.8 78.6 Aircraft fuel, including hedging gains and losses 21.0 30.8 (31.8) 46.8 79.1 (40.8) Aircraft maintenance 13.0 16.8 (22.6) 26.4 32.7 (19.3) Aircraft rent 11.0 14.4 (23.6) 22.5 29.8 (24.5) Landing fees and other rentals 14.1 14.5 (2.8) 27.8 28.9 (3.8) Contracted services 7.9 6.9 14.5 15.4 14.9 3.4 Selling expenses 7.0 8.1 (13.6) 12.9 16.1 (19.9) Depreciation and amortization 9.4 9.6 (2.1) 18.6 19.8 (6.1) Food and beverage service 0.5 0.8 (37.5) 1.1 1.4 (21.4) Other 8.6 11.2 (23.2) 19.6 24.0 (18.3) Fleet transition costs - CRJ-700 - 6.1 NM - 6.1 NM Fleet transition costs - Q200 5.2 3.2 NM 10.0 9.0 NM --- --- ---- --- Total Operating Expenses 146.7 172.8 (15.1) 298.7 363.9 (17.9) ----- ----- ----- ----- Operating Income 11.2 16.1 6.0 2.2 ---- ---- --- --- Interest income 0.6 1.3 1.0 2.7 Interest expense (5.2) (5.7) (11.1) (11.4) Interest capitalized - 0.7 0.3 1.3 Other - net (0.1) 0.2 (0.2) 0.2 ---- --- ---- --- (4.7) (3.5) (10.0) (7.2) ---- ---- ----- ---- Income (Loss) Before Income Tax $6.5 $12.6 $(4.0) $(5.0) ==== ===== ===== ===== Combined Operating Statistics: (a) Revenue passengers (000) 1,694 1,913 (11.4) 3,240 3,765 (13.9) RPMs (000,000) "traffic" 609 695 (12.4) 1,133 1,353 (16.3) ASMs (000,000) "capacity" 828 944 (12.3) 1,615 1,886 (14.4) Passenger load factor 73.6% 73.6% 0.0 70.2% 71.7% (1.5) pts pts Yield per passenger mile (in cents) 25.48 26.82 (5.0) 26.44 26.64 (0.8) Operating revenue per ASM (in cents) 19.07 20.01 (4.7) 18.87 19.41 (2.8) Passenger revenue per ASM (in cents) 18.74 19.75 (5.1) 18.55 19.11 (2.9) Operating expenses per ASM (in cents) 17.72 18.31 (3.2) 18.50 19.29 (4.1) Operating expense per ASM excluding fuel and CRJ-700 fleet transition costs (b) (in cents) 15.18 14.40 5.4 15.60 14.78 5.5 GAAP fuel cost per gallon $1.41 $1.79 (21.2) $1.58 $2.27 (30.4) Economic fuel cost per gallon (c) $1.86 $3.33 (44.1) $1.87 $3.05 (38.7) Fuel gallons (000,000) 15.0 17.2 (12.8) 29.5 34.9 (15.5) Average number of full-time equivalent employees 3,308 3,792 (12.8) 3,345 3,822 (12.5) Aircraft utilization (blk hrs/day) 8.3 8.5 (2.4) 8.3 8.4 (1.2) Operating fleet at period-end 55 65 (10 a/c) 55 65 (10 a/c) NM = Not Meaningful (a) Represents combined information for all Horizon flights, including those operated under a Capacity Purchase Agreement (CPA) with Alaska. See page 11 for additional line of business information. (b) See page 11 for a reconciliation of these non-GAAP measures and a discussion about why these measures may be important to investors. (c) See page 12 for a reconciliation of economic fuel cost. Note A: Pursuant to Regulation G, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of this measure of unit costs excluding fuel, purchased capacity costs, and other noted items may be important to investors for the following reasons: -- By eliminating fuel expense and certain special items from our unit cost metrics, we believe that we have better visibility into the results of our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management. -- Cost per ASM excluding fuel and certain special items is one of the most important measures used by managements of both Alaska and Horizon and by the Air Group Board of Directors in assessing quarterly and annual cost performance. -- Cost per ASM excluding fuel (and other items as specified in our plan documents) is an important metric for the employee incentive plan that covers company management and certain other employee groups. -- Cost per ASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the bases 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 new pilot contract transition costs and fleet transition 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 "mainline" passenger unit revenues for Alaska, we do not (nor are we able to) evaluate mainline unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total mainline 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. The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.: Alaska Airlines, Inc. (in millions, except for per ASM unit information) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- Mainline unit cost reconciliations: 2009 2008 2009 2008 ------------------ ---- ---- ---- ---- Mainline operating expenses $624.3 $644.3 $1,221.0 $1,338.4 Mainline ASMs 5,852 6,238 11,372 12,322 ----- ----- ------ ------ Mainline operating expenses per ASM (in cents) 10.67 10.33 10.74 10.86 ===== ===== ===== ===== Mainline operating expenses $624.3 $644.3 $1,221.0 $1,338.4 Less: aircraft fuel, including hedging gains and losses (107.4) (151.2) (239.3) (384.9) Less: new pilot contract transition costs (35.8) - (35.8) - Less: fleet transition costs - MD-80 - (26.0) - (26.0) --- ----- --- ----- Mainline operating expenses excluding fuel and special items $481.1 $467.1 $945.9 $927.5 Mainline ASMs 5,852 6,238 11,372 12,322 ----- ----- ------ ------ Mainline operating expenses per ASM excluding fuel and special items (in cents) 8.22 7.49 8.32 7.53 ==== ==== ==== ==== Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- Reconciliation to GAAP income before taxes : 2009 2008 2009 2008 ------------------------------ ---- ---- ---- ---- Income (loss) before taxes, excluding mark-to-market hedging gains (losses), new pilot contract transition costs and fleet transition costs $44.9 $(15.6) $18.3 $(55.2) New pilot contract transition costs (35.8) - (35.8) - Fleet transition costs - MD-80 - (26.0) - (26.0) Adjustments to reflect timing of gain recognition resulting from mark-to-market accounting on fuel hedges 33.0 128.9 41.3 128.7 ---- ----- ---- ----- GAAP income before taxes as reported $42.1 $87.3 $23.8 $47.5 ===== ===== ===== ===== Horizon Air Industries, Inc. (in millions, except for per ASM unit information) Three Months Six Months Ended Ended June 30, June 30, Unit cost ------------- ------------ reconciliations: 2009 2008 2009 2008 ----------------- ---- ---- ---- ---- Operating expenses $146.7 $172.8 $298.7 $363.9 ASMs 828 944 1,615 1,886 --- --- ----- ----- Operating expenses per ASM (in cents) 17.72 18.31 18.50 19.29 ===== ===== ===== ===== Operating expenses $146.7 $172.8 $298.7 $363.9 Less: aircraft fuel, including hedging gains and losses (21.0) (30.8) (46.8) (79.1) Less: fleet transition costs - CRJ-700 - (6.1) - (6.1) --- ---- --- ---- Operating expenses excluding fuel and CRJ-700 fleet transition costs $125.7 $135.9 $251.9 $278.7 ASMs 828 944 1,615 1,886 --- --- ----- ----- Operating expenses per ASM excluding fuel and CRJ-700 fleet transition costs (in cents) 15.18 14.40 15.60 14.78 ===== ===== ===== ===== Unit cost reconciliations-excluding all fleet transition costs: ---------------------------------------------- Operating expenses $146.7 $172.8 $298.7 $363.9 Less: aircraft fuel, including hedging gains and losses (21.0) (30.8) (46.8) (79.1) Less: fleet transition costs - CRJ-700 - (6.1) - (6.1) Less: fleet transition costs - Q200 (5.2) (3.2) (10.0) (9.0) ---- ---- ----- ---- Operating expenses excluding fuel and all fleet transition costs $120.5 $132.7 $241.9 $269.7 ASMs 828 944 1,615 1,886 --- --- ----- ----- Operating expenses per ASM excluding fuel and all fleet transition costs (in cents) 14.55 14.06 14.98 14.30 ===== ===== ===== ===== Reconciliation to GAAP income (loss) before taxes: -------------------------------------------------- Loss before taxes, excluding mark-to-market fuel hedging gains (losses) and CRJ-700 fleet transition costs $(0.3) $(7.7) $(12.5) $(26.2) Fleet transition costs - CRJ-700 - (6.1) - (6.1) Adjustments to reflect timing of gain recognition resulting from mark-to-market accounting on fuel hedges 6.8 26.4 8.5 27.3 --- ---- --- ---- GAAP income (loss) Before taxes as reported $6.5 $12.6 $(4.0) $(5.0) ==== ===== ===== ===== Line of Business Information: ----------------------------- Horizon brand flying includes those routes in the Horizon system not covered by the Alaska Capacity Purchase Agreement (CPA). Horizon bears the revenue risk in those markets and, as a result, traffic, yield and load factor impact revenue recorded by Horizon. In the CPA arrangement, Horizon is insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity. As a result, yield and load factor information is not presented. Three Months Ended June 30, 2009 Capacity and Mix ---------------- 2009 Actual 2008 Actual Change Current % (000,000) (000,000) Y-O-Y Total ----------- ----------- ----- --------- Brand Flying 488 570 (14.4%) 59% Alaska CPA 340 374 (9.1%) 41% --- --- ----- -- System Total 828 944 (12.3%) 100% === === ====== === Three Months Ended June 30, 2009 Load Factor Yield RASM ----------- ----- ---- Point Change Actual Change Actual Change Actual Y-O-Y (in cents) Y-O-Y (in cents) Y-O-Y ------ ----- ---------- ----- --------- ----- Brand Flying 72.9% 1.6 25.76 (2.9%) 19.33 (0.1%) Alaska CPA NM NM NM NM 18.69 (11.1%) -- -- -- -- ----- ------ System Total 73.6% 0.0 25.48 (5.0%) 19.07 (4.7%) ==== === ===== ===== ===== ===== NM = Not Meaningful Six Months Ended June 30, 2009 Capacity and Mix ---------------- 2009 Actual 2008 Actual Change Current % (000,000) (000,000) Y-O-Y Total ----------- ----------- ----- --------- Brand Flying 976 1,168 (16.4%) 60% Alaska CPA 639 718 (11.0%) 40% --- --- ------ -- System Total 1,615 1,886 (14.4%) 100% ===== ===== ====== === Six Months Ended June 30, 2009 Load Factor Yield RASM ----------- ----- ---- Point Change Actual Change Actual Change Actual Y-O-Y (in cents) Y-O-Y (in cents) Y-O-Y ------ ----- ---------- ----- --------- ----- Brand Flying 69.2% - 26.39 1.3% 18.79 1.5% Alaska CPA NM NM NM NM 18.99 (9.1%) -- -- -- -- ----- ----- System Total 70.2% (1.5) 26.44 (0.8%) 18.87 (2.8%) ==== ==== ===== ===== ===== ===== NM = Not Meaningful Alaska Airlines Fuel Reconciliation ----------------------------------- (in millions, except for per gallon amounts) Three Months Ended June 30, --------------------------- 2009 2008 ---- ---- Dollars Cost/Gal Dollars Cost/Gal ------- -------- ------- -------- Raw or "into-plane" fuel cost $132.3 $1.73 $326.6 $3.78 Minus gains, or plus the losses, during the period on settled hedges 8.1 0.11 (46.5) (0.54) --- ---- ----- ----- Economic fuel expense $140.4 $1.84 $280.1 $3.24 ------ ----- ------ ----- Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting (33.0) (0.43) (128.9) (1.49) ----- ----- ------ ----- GAAP fuel expense $107.4 $1.41 $151.2 $1.75 ====== ----- ====== ===== Fuel gallons 76.5 86.4 ==== ==== Six Months Ended June 30, ------------------------- 2009 2008 ---- ---- Dollars Cost/Gal Dollars Cost/Gal ------- -------- ------- -------- Raw or "into-plane" fuel cost $251.1 $1.68 $584.3 $3.39 Minus gains, or plus the losses, during the period on settled hedges 29.5 0.20 (70.7) (0.41) ---- ---- ----- ----- Economic fuel expense $280.6 $1.88 $513.6 $2.98 ------ ----- ------ ----- Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting (41.3) (0.28) (128.7) (0.75) ----- ----- ------ ----- GAAP fuel expense $239.3 $1.60 $384.9 $2.23 ====== ===== ====== ===== Fuel gallons 149.8 172.3 ===== ===== Horizon Air Fuel Reconciliation ------------------------------- (in millions, except for per gallon amounts) Three Months Ended June 30, --------------------------- 2009 2008 ---- ---- Dollars Cost/Gal Dollars Cost/Gal ------- -------- ------- --------Raw or "into-plane" fuel cost $26.2 $1.75 $66.7 $3.88 Minus gains, or plus the losses, during the period on settled hedges 1.6 0.11 (9.5) (0.55) --- ---- ---- ----- Economic fuel expense $27.8 $1.86 $57.2 $3.33 ----- ----- ----- ----- Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting (6.8) (0.45) (26.4) (1.54) ---- ----- ----- ----- GAAP fuel expense $21.0 $1.41 $30.8 $1.79 ===== ===== ===== ===== Fuel gallons 15.0 17.2 ==== ==== Six Months Ended June 30, ------------------------- 2009 2008 ---- ---- Dollars Cost/Gal Dollars Cost/Gal ------- -------- ------- --------Raw or "into-plane" fuel cost $49.3 $1.67 $120.9 $3.46 Minus gains, or plus the losses, during the period on settled hedges 6.0 0.20 (14.5) (0.41) --- ---- ----- ----- Economic fuel expense $55.3 $1.87 $106.4 $3.05 ----- ----- ------ ----- Adjustments to reflect timing of gain or loss recognition resulting from mark-to-market accounting (8.5) (0.29) (27.3) (0.78) ---- ----- ----- ----- GAAP fuel expense $46.8 $1.58 $79.1 $2.27 ===== ===== ===== ===== Fuel gallons 29.5 34.9 ==== ==== Glossary of Financial Terms ASM - available seat miles, or "capacity" - represents total seats available across the fleet multiplied by the number of miles flown RPM - revenue passenger miles, or "traffic" - the number of those available seats that were filled with paying passengers; one passenger traveling one mile is one RPM RASM - total operating revenue divided by ASMs; operating revenue includes all passenger revenue, freight & mail, Mileage Plan, and other ancillary revenue; commonly called "unit revenue" and represents the average total revenue for flying one seat one mile PRASM - passenger revenue per ASM; commonly called "passenger unit revenue" Yield - passenger revenue per RPM; this represents the average revenue for flying one passenger one mile CASM - total operating costs per ASM; this represents all operating expenses including fuel and special items; commonly called "unit cost" CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control Economic fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program Mainline - represents flying on Alaska jets and all associated revenues and costs Purchased Capacity Flying - represents operations whereby Horizon and, to a much lesser extent, another small carrier in the state of Alaska fly certain routes for Alaska using Horizon's or the other carrier's fleets DATASOURCE: Alaska Air Group, Inc. CONTACT: Media, Caroline Boren of Alaska Airlines, +1-206-392-5101, or Bill Coniff of Horizon Air, +1-206-392-0285; or Investor/analyst, Shannon Alberts of Alaska Air Group, +1-206-392-5218 Web Site: http://www.alaskaair.com/

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