Alaska Air Group delivers record-breaking second quarter 2022 results

Rhea-AI Summary

Alaska Air Group (NYSE: ALK) reported record quarterly revenues of $2.7 billion for Q2 2022, with a net income of $139 million, or $1.09 per share. The company achieved a record load factor of 88% and a 14% adjusted pretax margin, demonstrating improved operational performance. The airline generated $948 million in operating cash flow and maintained $3.4 billion in cash reserves. For Q3 2022, Alaska expects a 16%-19% increase in total revenue compared to 2019, despite a capacity decrease of 5%-8%.

Positive

• Record quarterly revenues of $2.7 billion, highest in company history.
• Achieved a net income of $139 million, illustrating recovery from prior losses.
• 14% adjusted pretax margin, among the best in the industry.
• Generated $948 million in operating cash flow, highlighting strong liquidity.
• Maintained $3.4 billion in unrestricted cash and marketable securities.

Negative

• Net income decreased from $397 million in Q2 2021 to $139 million in Q2 2022.
• Adjusted net income excluding special items was $280 million, down from a $38 million loss in Q2 2021.
• Capacity expected to decline by 5%-8% compared to 2019.

Generated record quarterly revenues of $2.7 billion on improved operational performance; flew record load factor of 88% reflecting strong demand

SEATTLE, July 21, 2022 /PRNewswire/ -- Alaska Air Group (NYSE: ALK) today announced another quarter of improvement in its financial results for the second quarter ending June 30, 2022, and provided outlook for the third quarter ending Sept. 30, 2022.

"It's clear that travel is one of the things people have missed the most these past two years. They are excited to fly again and our team is delivering on the safe, reliable and caring experience they expect from us," said CEO Ben Minicucci. "Revenue in June topped $1 billion, the highest single month in our history. Our 14% adjusted pretax margin in Q2 is near the top of the industry, and our operation is on track in June with the #1 on-time performance and a schedule completion rate over 99%. I'm feeling so much gratitude for the people of Alaska, Horizon and McGee for pulling together. We have a strong platform for growth in 2023 and a lot to be optimistic about."

Financial Results for the Second Quarter:

• Reported net income for the second quarter of 2022 under Generally Accepted Accounting Principles (GAAP) of $139 million, or $1.09 per share, compared to a net income of $397 million, or $3.13 per share, in the second quarter of 2021.
• Reported net income for the second quarter of 2022, excluding special items and mark-to-market fuel hedge accounting adjustments, of $280 million, or $2.19 per share, compared to a net loss, excluding special items and mark-to-market fuel hedge accounting adjustments, of $38 million, or $0.30 per share, in the second quarter of 2021.
• Reported adjusted pretax margin for the second quarter of 14%.
• Recorded $2.7 billion in operating revenues for the second quarter, the highest revenue-generating quarter in company history.

Balance Sheet and Liquidity:

• Generated $948 million in operating cash flow for the second quarter, inclusive of $231 million in net federal income tax refunds.
• Held $3.4 billion in unrestricted cash and marketable securities as of June 30, 2022.
• Maintained a debt-to-capitalization ratio of 50% as of June 30, 2022, within our target range of 40% to 50%.

Operational Updates and Milestones for the Second Quarter:

• Flew a record load factor for the quarter of 88%, driven by high demand on reduced capacity.
• Led the industry in on-time performance for the month of June, meeting our commitment to operational reliability.
• Received nine Boeing 737-9 aircraft in the second quarter, bringing the total number of 737-9s in our mainline fleet to 28.
• Ratified new contracts with Alaska Airlines dispatchers and Horizon Air aircraft technicians and fleet service agents; and reached a tentative agreement with Alaska Airlines IAM represented employees.
• Expanded pilot training throughput by 20% from April, and added 100 active mainline pilots in the second quarter.
• Began nonstop service to Miami and Cleveland from Seattle, bringing the total nonstop destinations served from Seattle to 100.
• Launched $8 flat rate satellite Wi-Fi on mainline aircraft in partnership with Intelsat.

Awards and Employee Recognition:

• Ranked as one of America's Best Employers for Diversity by Forbes, recognizing our commitment to increasing diverse leadership representation and equity initiatives.
• Named the Best Major Airline in North America by the Airline Passenger Experience Association, highlighting Alaska's inflight experience.
• Recognized the company's workforce for their relentless commitment to caring for our guests for 90 years by giving each employee 90,000 miles redeemable for travel anywhere in the world.

Second Quarter Environmental, Social and Governance Updates:

• Released our 2021 Care Report, highlighting the company's progress in various environmental, social and governance areas and outlining ongoing initiatives and future goals.
• Signed agreement with Aemetis to purchase 13 million gallons of sustainable aviation fuel to be delivered over the seven-year term of the agreement.
• Subsequent to quarter end, announced a partnership with Microsoft and Twelve, a carbon transformation technology company, to advance the availability of sustainable aviation fuels.
• Scored 100% in our first year participating in Disability:IN's Disability Equality Index, which benchmarks companies on their disability inclusion and equality.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and six months ended June 30, 2022, and 2021 to adjusted amounts.

	Three Months Ended June 30,
	2022				2021
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income per share	$               139		$              1.09		$               397		$              3.13
Payroll Support Program grant wage offset	—		—		(503)		(3.97)
Mark-to-market fuel hedge adjustments	40		0.31		(46)		(0.36)
Special items - fleet transition and related charges(a)	146		1.14		(4)		(0.03)
Special items - restructuring charges(b)	—		—		(23)		(0.18)
Income tax effect of reconciling items above	(45)		(0.35)		141		1.11
Non-GAAP adjusted net income (loss) per share	$               280		$              2.19		$               (38)		$            (0.30)
	Six Months Ended June 30,
	2022				2021
(in millions, except per-share amounts)	Dollars		Diluted EPS		Dollars		Diluted EPS
GAAP net income (loss) per share	$                  (4)		$            (0.03)		$               266		$              2.10
Payroll support program grant wage offset	—		—		(914)		(7.23)
Mark-to-market fuel hedge adjustments	(67)		(0.53)		(68)		(0.54)
Special items - fleet transition and related charges(a)	221		1.75		14		0.11
Special items - restructuring charges(b)	—		—		(12)		(0.09)
Income tax effect of reconciling items above	(37)		(0.30)		240		1.90
Non-GAAP adjusted net income (loss) per share	$               113		$              0.89		$             (474)		$            (3.75)

(a)	Special items - fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023.
(b)	Special items - restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves.

 

Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.

Alaska will hold its quarterly conference call to discuss second quarter results at 8:30 a.m. PDT on July 21, 2022. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.

Third Quarter and Full Year 2022 Outlook

		Q3 Expectation(a)
Capacity (ASMs) % change versus 2019(a)		Down 5% to 8%
Revenue passengers % change versus 2019(a)		Down 8% to 10%
Passenger load factor		85% to 88%
Total revenue % change versus 2019(a)		Up 16% to 19%
Cost per ASM excluding fuel and special items (CASMex) % change versus 2019(a)		Up 16% to 19%
Economic fuel cost per gallon		$3.79 to $3.89
Non-operating expense		$2 million to $4 million
Adjusted tax rate		24% to 25%

(a)	Due to the unusual nature of 2021 and 2020, all 2022 comparisons are versus the third quarter of 2019.

 

For full year 2022, we expect our capacity to be down 8% to 9% versus 2019, and expect our CASMex to be up 15% to 17% versus 2019. We continue to expect our full year adjusted pre-tax margin to be between 6% and 9%.

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

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by our forward-looking statements, assumptions or beliefs. For a comprehensive discussion of potential risk factors, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.

Alaska Airlines and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We emphasize Next-Level Care for our guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of the oneworld global alliance. With the alliance and our additional airline partners, guests can travel to more than 1,000 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at news.alaskair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Alaska Air Group, Inc.
	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share amounts)	2022		2021		Change		2022		2021		Change
Operating Revenues
Passenger revenue	$        2,418		$        1,352		79 %		$        3,929		$        2,011		95 %
Mileage Plan other revenue	175		118		48 %		287		212		35 %
Cargo and other	65		57		14 %		123		101		22 %
Total Operating Revenues	2,658		1,527		74 %		4,339		2,324		87 %
Operating Expenses
Wages and benefits	639		510		25 %		1,245		1,003		24 %
Variable incentive pay	56		34		65 %		92		67		37 %
Payroll Support Program grant wage offset	—		(503)		NM		—		(914)		NM
Aircraft fuel, including hedging gains and losses	776		274		183 %		1,123		477		135 %
Aircraft maintenance	104		102		2 %		239		183		31 %
Aircraft rent	73		62		18 %		146		124		18 %
Landing fees and other rentals	136		144		(6) %		274		273		— %
Contracted services	82		54		52 %		160		105		52 %
Selling expenses	78		41		90 %		136		74		84 %
Depreciation and amortization	104		98		6 %		206		195		6 %
Food and beverage service	50		35		43 %		91		58		57 %
Third-party regional carrier expense	50		37		35 %		92		67		37 %
Other	177		117		51 %		329		222		48 %
Special items - fleet transition and related charges	146		(4)		NM		221		14		NM
Special items - restructuring charges	—		(23)	.	NM		—		(12)		NM
Total Operating Expenses	2,471		978		153 %		4,354		1,936		125 %
Operating Income (Loss)	187		549		(66) %		(15)		388		(104) %
Non-operating Income (Expense)
Interest income	11		6		100 %		18		13		38 %
Interest expense	(26)		(39)		(33) %		(53)		(71)		(25) %
Interest capitalized	3		3		7 %		5		6		(17) %
Other - net	10		9		10 %		24		19		25 %
Total Non-operating Income (Expense)	(2)		(21)		(90) %		(6)		(33)		(82) %
Income (Loss) Before Income Tax	185		528				(21)		355
Income tax expense (benefit)	46		131				(17)		89
Net Income (Loss)	$           139		$           397				$              (4)		$           266
Basic Earnings (Loss) Per Share	$          1.10		$          3.18				$        (0.03)		$          2.13
Diluted Earnings (Loss) Per Share	$          1.09		$          3.13				$        (0.03)		$          2.10
Shares used for computation:
Basic	126.543		124.977				126.265		124.640
Diluted	127.795		126.825				126.265		126.388

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
(in millions)	June 30, 2022		December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$                            778		$                            470
Marketable securities	2,647		2,646
Total cash and marketable securities	3,425		3,116
Receivables - net	401		546
Inventories and supplies - net	93		62
Prepaid expenses and other current assets	313		196
Total Current Assets	4,232		3,920
Property and Equipment
Aircraft and other flight equipment	8,569		8,127
Other property and equipment	1,532		1,489
Deposits for future flight equipment	292		384
	10,393		10,000
Less accumulated depreciation and amortization	3,922		3,862
Total Property and Equipment - Net	6,471		6,138
Other Assets
Operating lease assets	1,669		1,453
Goodwill and intangible assets	2,041		2,044
Other noncurrent assets	387		396
Other Assets	4,097		3,893
Total Assets	$                      14,800		$                      13,951

 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.
(in millions, except share amounts)	June 30, 2022		December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$                            286		$                            200
Accrued wages, vacation and payroll taxes	416		457
Air traffic liability	1,778		1,163
Other accrued liabilities	794		625
Deferred revenue	1,012		912
Current portion of operating lease liabilities	274		268
Current portion of long-term debt	342		366
Total Current Liabilities	4,902		3,991
Long-Term Debt, Net of Current Portion	1,961		2,173
Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion	1,505		1,279
Deferred income taxes	552		578
Deferred revenue	1,429		1,446
Obligation for pension and postretirement medical benefits	299		305
Other liabilities	353		378
Total Noncurrent Liabilities	4,138		3,986
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding	—		—
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2022 - 136,109,649 shares; 2021 - 135,255,808 shares, Outstanding: 2022 - 126,759,705 shares; 2021 - 125,905,864 shares	1		1
Capital in excess of par value	542		494
Treasury stock (common), at cost: 2022 - 9,349,944 shares; 2021 - 9,349,944 shares	(674)		(674)
Accumulated other comprehensive loss	(308)		(262)
Retained earnings	4,238		4,242
	3,799		3,801
Total Liabilities and Shareholders' Equity	$                      14,800		$                      13,951

 

SUMMARY CASH FLOW (unaudited)
Alaska Air Group, Inc.
(in millions)	Six Months Ended June 30, 2022		Three Months Ended March 31, 2022(a)		Three Months Ended June 30, 2022(b)
Cash Flows from Operating Activities:
Net income (loss)	$                           (4)		$                      (143)		$                        139
Non-cash reconciling items	447		182		265
Changes in working capital	792		248		544
Net cash provided by (used in) operating activities	1,235		287		948
Cash Flows from Investing Activities:
Property and equipment additions	(632)		(288)		(344)
Other investing activities	(89)		327		(416)
Net cash provided by (used in) investing activities	(721)		39		(760)
Cash Flows from Financing Activities:	(206)		(168)		(38)
Net increase (decrease) in cash and cash equivalents	308		158		150
Cash, cash equivalents, and restricted cash at beginning of period	494		494		652
Cash, cash equivalents, and restricted cash at end of the period	$                        802		$                        652		$                        802

(a)	As reported in Form 10-Q for the first quarter of 2022.
(b)	Cash flows for the three months ended June 30, 2022, can be calculated by subtracting cash flows for the three months ended March 31, 2022, as reported in Form 10-Q for the first quarter 2022, from the six months ended June 30, 2022.

 

OPERATING STATISTICS SUMMARY (unaudited)
Alaska Air Group, Inc.
	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2021		Change		2022		2021		Change
Consolidated Operating Statistics:(a)
Revenue passengers (000)	11,005		8,712		26.3 %		19,700		13,379		47.2 %
RPMs (000,000) "traffic"	13,746		10,334		33.0 %		24,332		15,727		54.7 %
ASMs (000,000) "capacity"	15,611		13,413		16.4 %		29,394		23,810		23.5 %
Load factor	88.1 %		77.0 %		11.1 pts		82.8 %		66.1 %		16.7 pts
Yield	17.59¢		13.09¢		34.4 %		16.15¢		12.79¢		26.3 %
RASM	17.03¢		11.38¢		49.6 %		14.76¢		9.76¢		51.2 %
CASMex(b)	9.92¢		9.20¢		7.8 %		10.24¢		9.95¢		2.9 %
Economic fuel cost per gallon(b)	$3.76		$1.90		97.9 %		$3.23		$1.85		74.6 %
Fuel gallons (000,000)	196		168		16.7 %		368		294		25.2 %
ASMs per gallon	79.6		79.8		(0.3) %		79.9		81.0		(1.4) %
Average full-time equivalent employees (FTEs)	22,603		19,001		19.0 %		22,092		18,071		22.3 %
Mainline Operating Statistics:
Revenue passengers (000)	8,321		6,151		35.3 %		14,887		9,302		60.0 %
RPMs (000,000) "traffic"	12,460		8,966		39.0 %		21,972		13,555		62.1 %
ASMs (000,000) "capacity"	14,052		11,611		21.0 %		26,439		20,464		29.2 %
Load factor	88.7 %		77.2 %		11.5 pts		83.1 %		66.2 %		16.9 pts
Yield	16.28¢		11.96¢		36.1 %		14.89¢		11.64¢		27.9 %
RASM	16.02¢		10.59¢		51.3 %		13.81¢		9.09¢		51.9 %
CASMex(b)	8.98¢		8.48¢		5.9 %		9.29¢		9.17¢		1.3 %
Economic fuel cost per gallon(b)	$3.74		$1.88		98.9 %		$3.21		$1.84		74.4 %
Fuel gallons (000,000)	165		135		22.2 %		311		233		33.5 %
ASMs per gallon	85.2		86.0		(0.9) %		85.0		87.8		(3.2) %
Average number of FTEs	17,315		14,021		23.5 %		16,825		13,247		27.0 %
Aircraft utilization	10.1		9.9		2.0 %		9.8		9.2		6.5 %
Average aircraft stage length	1,363		1,320		3.3 %		1,349		1,313		2.7 %
Operating fleet(d)	233		202		31 a/c		233		202		31 a/c
Regional Operating Statistics:(c)
Revenue passengers (000)	2,685		2,562		4.8 %		4,813		4,077		18.1 %
RPMs (000,000) "traffic"	1,285		1,367		(6.0) %		2,360		2,172		8.7 %
ASMs (000,000) "capacity"	1,559		1,802		(13.5) %		2,955		3,346		(11.7) %
Load factor	82.4 %		75.9 %		6.5 pts		79.9 %		64.9 %		15.0 pts
Yield	30.35¢		20.48¢		48.2 %		27.88¢		19.95¢		39.7 %
RASM	26.04¢		16.41¢		58.7 %		23.21¢		13.84¢		67.7 %
Operating fleet(d)	104		94		10 a/c		104		94		10 a/c

(a)	Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
(b)	See a reconciliation of this non-GAAP measure and Note A for a discussion of the importance of this measure to investors in the accompanying pages.
(c)	Data presented includes information for flights operated by Horizon and third-party carriers.
(d)	Excludes all aircraft removed from operating service.

 

Given the unusual nature of 2021 and 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2022 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2022 Compared to 2019 (unaudited)
Alaska Air Group, Inc.
	Three Months Ended June 30,						Six Months Ended June 30,
	2022		2019		Change		2022		2019		Change
Passenger revenue	$        2,418		$        2,111		15 %		$        3,929		$        3,827		3 %
Mileage plan other revenue	175		118		48 %		287		228		26 %
Cargo and other	65		59		10 %		123		109		13 %
Total Operating Revenues	2,658		2,288		16 %		4,339		4,164		4 %
Operating expenses, excluding fuel and special items	1,549		1,414		10 %		3,010		2,819		7 %
Aircraft fuel, including hedging gains and losses	776		502		55 %		1,123		922		22 %
Special items	146		8		NM		221		34		NM
Total Operating Expenses	2,471		1,924		28 %		4,354		3,775		15 %
Total Non-operating Expense	(2)		(13)		(85) %		(6)		(32)		(81) %
Income (Loss) Before Income Tax	$            185		$            351		(47) %		$            (21)		$            357		(106) %
Consolidated Operating Statistics:
Revenue passengers (000)	11,005		12,026		(8) %		19,700		22,442		(12) %
RPMs (000,000) "traffic"	13,746		14,638		(6) %		24,332		27,087		(10) %
ASMs (000,000) "capacity"	15,611		16,980		(8) %		29,394		32,487		(10) %
Load Factor	88.1 %		86.2 %		1.9 pts		82.8 %		83.4 %		(0.6) pts
Yield	17.59¢		14.43¢		22 %		16.15¢		14.13¢		14 %
RASM	17.03¢		13.48¢		26 %		14.76¢		12.82¢		15 %
CASMex	9.92¢		8.33¢		19 %		10.24¢		8.68¢		18 %
FTEs	22,603		21,921		3 %		22,092		21,876		1 %

 

OPERATING SEGMENTS (unaudited)
Alaska Air Group, Inc.
	Three Months Ended June 30, 2022
(in millions)	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$     2,028		$        390		$          —		$                  —		$     2,418		$          —		$        2,418
CPA revenues	—		—		101		(101)		—		—		—
Mileage Plan other revenue	159		16		—		—		175		—		175
Cargo and other	64		—		—		1		65		—		65
Total Operating Revenues	2,251		406		101		(100)		2,658		—		2,658
Operating Expenses
Operating expenses, excluding fuel	1,262		289		98		(100)		1,549		146		1,695
Fuel expense	617		119		—		—		736		40		776
Total Operating Expenses	1,879		408		98		(100)		2,285		186		2,471
Non-operating Income (Expense)	3		—		(5)		—		(2)		—		(2)
Income (Loss) Before Income Tax	$        375		$           (2)		$           (2)		$                  —		$        371		$       (186)		$           185
Pretax Margin									14.0 %				7.0 %
	Three Months Ended June 30, 2021
(in millions)	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$     1,072		$        280		$          —		$                  —		$     1,352		$          —		$        1,352
CPA revenues	—		—		111		(111)		—		—		—
Mileage Plan other revenue	102		16		—		—		118		—		118
Cargo and other	55		—		—		2		57		—		57
Total Operating Revenues	1,229		296		111		(109)		1,527		—		1,527
Operating Expenses
Operating expenses, excluding fuel	984		286		91		(127)		1,234		(530)		704
Fuel expense	253		66		—		1		320		(46)		274
Total Operating Expenses	1,237		352		91		(126)		1,554		(576)		978
Non-operating Income (Expense)	(16)		—		(5)		—		(21)		—		(21)
Income (Loss) Before Income Tax	$         (24)		$         (56)		$          15		$                  17		$         (48)		$        576		$           528
Pretax Margin									(3.1) %				34.6 %

 

	Six Months Ended June 30, 2022
(in millions)	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$     3,271		$        658		$          —		$                  —		$    3,929		$          —		$        3,929
CPA revenues	—		—		195		(195)		—		—		—
Mileage Plan other revenue	259		28		—		—		287		—		287
Cargo and other	121		—		—		2		123		—		123
Total Operating Revenues	3,651		686		195		(193)		4,339		—		4,339
Operating Expenses
Operating expenses, excluding fuel	2,456		551		197		(194)		3,010		221		3,231
Fuel expense	998		192		—		—		1,190		(67)		1,123
Total Operating Expenses	3,454		743		197		(194)		4,200		154		4,354
Non-operating Income (Expense)	4		—		(10)		—		(6)		—		(6)
Income (Loss) Before Income Tax	$        201		$         (57)		$         (12)		$                    1		$       133		$       (154)		$            (21)
Pretax Margin									3.1 %				(0.5) %
	Six Months Ended June 30, 2021
(in millions)	Mainline		Regional		Horizon		Consolidating & Other(a)		Air Group Adjusted(b)		Special Items(c)		Consolidated
Operating Revenues
Passenger revenues	$     1,578		$        433		$          —		$                  —		$    2,011		$          —		$        2,011
CPA revenues	—		—		215		(215)		—		—		—
Mileage Plan other revenue	182		30		—		—		212		—		212
Cargo and other	99		—		—		2		101		—		101
Total Operating Revenues	1,859		463		215		(213)		2,324		—		2,324
Operating Expenses
Operating expenses, excluding fuel	1,877		551		179		(236)		2,371		(912)		1,459
Fuel expense	427		118		—		—		545		(68)		477
Total Operating Expenses	2,304		669		179		(236)		2,916		(980)		1,936
Non-operating Income (Expense)	(23)		—		(10)		—		(33)		—		(33)
Income (Loss) Before Income Tax	$       (468)		$       (206)		$          26		$                  23		$      (625)		$        980		$           355
Pretax Margin									(26.9) %				15.3 %

(a)	Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.
(b)	The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information.
(c)	Includes payroll support program grant wage offsets, special items, and mark-to-market fuel hedge accounting adjustments.

 

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)
Alaska Air Group, Inc.
CASM Excluding Fuel and Special Items Reconciliation
	Three Months Ended June 30,				Six Months Ended June 30,
(in cents)	2022		2021		2022		2021
Consolidated:
CASM	15.84 ¢		7.29 ¢		14.81 ¢		8.13 ¢
Less the following components:
Payroll Support Program grant wage offset	—		(3.75)		—		(3.84)
Aircraft fuel, including hedging gains and losses	4.98		2.04		3.82		2.00
Special items - fleet transition and related charges(a)	0.94		(0.03)		0.75		0.07
Special items - restructuring charges(b)	—		(0.17)		—		(0.05)
CASM excluding fuel and special items	9.92 ¢		9.20 ¢		10.24 ¢		9.95 ¢
Mainline:
CASM	15.06 ¢		6.24 ¢		13.69 ¢		6.72 ¢
Less the following components:
Payroll Support Program grant wage offset	—		(3.79)		—		(4.21)
Aircraft fuel, including hedging gains and losses	5.06		1.78		3.84		1.75
Special items - fleet transition and related charges(a)	1.02		(0.03)		0.56		0.07
Special items - restructuring charges(b)	—		(0.20)		—		(0.06)
CASM excluding fuel and special items	8.98 ¢		8.48 ¢		9.29 ¢		9.17 ¢

(a)	Special items - fleet transition and related charges in the three and six months ended June 30, 2022 are primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets. The A320 fleet is expected to be retired from operating service by the end of 2022; the Q400 fleet is expected to be retired from operating service in early 2023.
(b)	Special items - restructuring charges in the three and six months ended June 30, 2021 are related to the estimated costs for pilot incentive leaves.

 

Fuel Reconciliation
	Three Months Ended June 30,
	2022				2021
(in millions, except for per-gallon amounts)	Dollars		Cost/Gallon		Dollars		Cost/Gallon
Raw or "into-plane" fuel cost	$                   824		$                  4.20		$                   330		$                  1.96
Losses (gains) on settled hedges	(88)		(0.44)		(10)		(0.06)
Consolidated economic fuel expense	736		3.76		320		1.90
Mark-to-market fuel hedge adjustment	40		0.20		(46)		(0.27)
GAAP fuel expense	$                   776		$                  3.96		$                   274		$                  1.63
Fuel gallons			196				168
	Six Months Ended June 30,
	2022				2021
(in millions, except for per gallon amounts)	Dollars		Cost/Gallon		Dollars		Cost/Gallon
Raw or "into-plane" fuel cost	$                1,328		$                  3.61		$                   552		$                  1.87
Losses (gains) on settled hedges	(138)		(0.38)		(7)		(0.02)
Consolidated economic fuel expense	1,190		3.23		545		1.85
Mark-to-market fuel hedge adjustment	(67)		(0.18)		(68)		(0.23)
GAAP fuel expense	$                1,123		$                  3.05		$                   477		$                  1.62
Fuel gallons			368				294

 

Debt-to-capitalization, including operating leases
(in millions)	June 30, 2022		December 31, 2021
Long-term debt, net of current portion	$                           1,961		$                            2,173
Long-term and current capitalized operating leases	1,779		1,547
Adjusted debt, net of current portion of long-term debt	3,740		3,720
Shareholders' equity	3,799		3,801
Total Invested Capital	$                           7,539		$                            7,521
Debt-to-capitalization ratio, including operating leases	50 %		49 %

 

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, rent and special items
(in millions)	June 30, 2022		December 31, 2021
Current portion of long-term debt	$                                   342		$                                   366
Current portion of operating lease liabilities	274		268
Long-term debt	1,961		2,173
Long-term operating lease liabilities, net of current portion	1,505		1,279
Total adjusted debt	4,082		4,086
Less: Total cash and marketable securities	(3,425)		(3,116)
Adjusted net debt	$                                   657		$                                   970
(in millions)	Twelve Months Ended June 30, 2022		Twelve Months Ended December 31, 2021
GAAP Operating Income(a)	$                                   282		$                                   685
Adjusted for:
Payroll Support Program grant wage offset and special items	208		(925)
Mark-to-market fuel hedge adjustments	(46)		(47)
Depreciation and amortization	405		394
Aircraft rent	276		254
EBITDAR	$                               1,125		$                                   361
Adjusted net debt to EBITDAR	0.6x		2.7x

(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 eliminating fuel expense and certain special items (including Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges) from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
  
  
  
• Cost per ASM (CASM) excluding fuel and certain special items, such as Payroll Support Program wage offset, fleet transition and related charges, and restructuring charges, 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 other items as specified in our plan documents) is an important metric for the employee incentive plan, which covers the majority of Air Group employees.
  
  
  
• 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 have historically compared our airline 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 these items as noted above. 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.

GLOSSARY OF TERMS

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

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

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

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

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737, Airbus 320 and Airbus 321neo family jets and all associated revenues and costs

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPAs). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/alaska-air-group-delivers-record-breaking-second-quarter-2022-results-301590689.html

SOURCE Alaska Air Group

FAQ

What were Alaska Air Group's Q2 2022 financial results?

Alaska Air Group reported Q2 2022 revenues of $2.7 billion and a net income of $139 million.

What is the passenger load factor for Q2 2022 for ALK?

Alaska Air Group achieved a record passenger load factor of 88% in Q2 2022.

What is the revenue outlook for Q3 2022 for Alaska Air Group?

Alaska expects total revenue to increase by 16%-19% compared to Q3 2019.

How much cash does Alaska Air Group hold as of June 30, 2022?

As of June 30, 2022, Alaska Air Group had $3.4 billion in unrestricted cash and marketable securities.

What was the adjusted pretax margin for Alaska Air Group in Q2 2022?

The adjusted pretax margin for Q2 2022 was 14%.