Alaska Air Group Reports Third Quarter Results
Excluding special items, company reports third quarter profit
10/23/2008 5:00 a.m.
•Net income, excluding special items, of $39.9 million, or $1.10 per diluted share, compared to $78.8 million, or $1.93 per diluted share, in the third quarter of 2007. This compares to a First Call mean estimate of $0.85 per share.
•A net loss under Generally Accepted Accounting Principles (GAAP) of $86.5 million, or $2.40 per share, compared to 2007 net income of $81.8 million, or $2.01 per diluted share.
•Cash settlements of $44 million from fuel hedges, $27.2 million higher than the third quarter of 2007.
•Nearly $1.1 billion in unrestricted cash and marketable securities as of Sept. 30, 2008. Increased to $1.18 billion by Oct. 21, 2008.
SEATTLE — Alaska Air Group, Inc. (NYSE:ALK) today reported a net loss of
$86.5 million for the third quarter of 2008, compared to net income of $81.8 million in 2007. Excluding special items, the company reported a third quarter net profit of $39.9 million, or $1.10 per diluted share, compared to $78.8 million, or $1.93 per diluted share, in the third quarter of 2007.
"We are pleased to report an adjusted profit for the third quarter. Improved yields at both airlines helped recoup a portion of the $110 million increase in economic fuel expense," said Bill Ayer, Alaska Air Group's chairman and chief executive officer. "Looking forward, the volatility of oil prices and the weak economy make this an extremely challenging environment. The key is to adapt our business to the changing conditions. Our fleet, balance sheet and strong customer following put us in a great position to do just that. I am grateful to the employees of Alaska and Horizon who, in spite of unprecedented headwinds, have kept their focus on customers and have dramatically improved our operation."
The current-period results include a loss of $218.2 million ($136.7 million after tax, or $3.79 per diluted share) associated with the decline in the value of the company's fuel-hedge portfolio, compared to a $4.8 million gain ($3.0 million after tax, or $0.08 per diluted share) in the third quarter of 2007. "While the value of the portfolio of our hedges that will settle in future periods has declined with the drop in oil prices, the total value at the end of the second quarter was still nearly $100 million. We had a net cash benefit of $44 million for hedges that settled during the quarter and $130 million so far this year," Ayer said.
Under GAAP accounting rules, the company's fuel-hedge portfolio must reflect the current market value at each reporting date, with changes in market value reflected in current-period earnings. For hedge contracts that settle in future periods, rising oil prices generally result in recording unrealized gains; conversely, falling oil prices generally result in recording unrealized losses. To a large extent, this quarter's $218.2 million mark-to-market loss offsets the $155.3 million mark-to-market gain reported in the second quarter when oil prices were at historical highs.
Other special items in the third quarter of 2008 include MD-80 and CRJ-700 fleet transition costs of $22.2 million ($13.9 million after tax, or $0.38 per diluted share) and severance costs of $3.7 million ($2.3 million after tax, or $0.06 per diluted share) associated with the reductions in force. During the third quarter, Alaska also recorded a $42.3 million benefit ($26.5 million after tax, or $0.73 per diluted share) from the reduction in the number of Mileage Plan miles outstanding after deleting accounts with no activity for more than two years under its new policy.
Alaska Airlines' mainline passenger traffic in the third quarter declined 1.1 percent on a capacity decline of 0.8 percent, compared to the third quarter of 2007. Load factor declined 0.2 percentage points to 79.5 percent. Alaska's mainline passenger revenue per available seat mile (ASM) increased 4.4 percent and its operating cost per ASM excluding fuel and the special items mentioned above declined 0.7 percent. Alaska's total pretax loss for the quarter was $107.4 million, compared to pretax income of $127.4 million in 2007. Excluding the special items above, Alaska's pretax income was $56.6 million for the quarter, compared to pretax income of $123.4 million in the third quarter of 2007.
Horizon Air's passenger traffic in the third quarter declined 13.9 percent on a
12.8 percent capacity decrease. Load factor decreased by 0.9 percentage points to 76.3 percent. Horizon's passenger revenue per ASM increased 18.8 percent, and its operating cost per ASM excluding fuel and the special items mentioned above increased 0.7 percent. Horizon's total pretax loss for the quarter was $25.1 million, compared to pretax income of $8.3 million in 2007. Excluding special items, Horizon's pretax income was $12.7 million for the quarter, compared to pretax income of $7.5 million in the third quarter of 2007.
A summary of 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 conference call regarding the third quarter 2008 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Oct. 23, 2008. 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, 2007. Some of these risks include increased competition, significant fuel costs, general economic conditions, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, 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. These risk factors may not be exhaustive. 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 sister carrier Horizon Air together serve 90 cities through an expansive network in Alaska, the Lower 48, Hawaii, Canada and Mexico. For reservations, visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom.
View Third Quarter Financial Results