Alaska Air Group Reports Fourth Quarter 2020 and Full-year Results

Financial Results:

  • Reported net loss for the fourth quarter and full year 2020 under Generally Accepted Accounting Principles (GAAP) of $430 million, or $3.47 per diluted share, and $1.3 billion, or $10.59 per diluted share. These results compare to fourth quarter 2019 net income of $181 million, or $1.46 per diluted share, and full year 2019 net income of $769 million, or $6.19 per diluted share.
  • Reported adjusted net loss for the fourth quarter and full year 2020, excluding payroll support program wage offsets, special items, and mark-to-market fuel hedging adjustments, of $316 million, or $2.55 per diluted share, and $1.3 billion, or $10.17 per diluted share. These results compare to fourth quarter 2019 adjusted net income of $181 million, or $1.46 per diluted share, and full year 2019 adjusted net income of $798 million, or $6.42 per diluted share.
  • Reported adjusted net debt of $1.7 billion, flat from December 2019 despite a 59% decline in operating revenues for the year.
  • Reported a debt-to-capitalization ratio, including certain short-term borrowings, of 61%.
  • Held $3.3 billion in unrestricted cash and marketable securities as of Dec. 31, 2020.

Liquidity and Fleet Updates:

  • Accessed approximately $5 billion in new liquidity in 2020, including $1.2 billion raised in the capital markets and approximately $600 million in bank financing.
  • Reached an agreement with the U.S. Treasury in January 2021 to receive an extension of payroll support totaling $533 million, $266 million of which was received on Jan. 15, 2021.
  • Extended the period available to draw funds under the CARES Act loan program from March 26, 2021 to May 28, 2021.
  • Announced plans to expand the mainline fleet and restructure the existing aircraft purchase agreement with Boeing. In total, Air Group will take delivery of 68 737-9 MAX aircraft between 2021 and 2024, inclusive of 32 previous purchase commitments and 13 aircraft to be leased from Air Lease Corporation.
  • Took delivery of Alaska’s first 737-9 MAX aircraft on January 24, 2021, which is expected to enter revenue service on March 1, 2021.
  • Permanently removed an additional 20 Airbus A320 aircraft from the fleet in the fourth quarter, resulting in 40 Airbus aircraft removed in 2020. A total of 31 Airbus aircraft remain in the operating fleet as of the end of the year.
  • Held $3.4 billion in cash and marketable securities as of Jan. 22, 2021, and total liquidity of $5.2 billion.

Operational and Guest Safety Updates

  • Announced seven new routes in the fourth quarter, including three “fun and sun” destinations connecting Anchorage to Las Vegas, Denver and San Francisco, and expanded service from Southern California to Austin and New York.
  • Eliminated change fees and extended the flexible travel policy for tickets purchased through March 31, 2021.
  • Implemented Next-Level Care initiative, which includes more than 100 measures designed to create a safe experience for guests and employees. These efforts were highlighted in the Alaska Safety Dance video.
  • Named the safest U.S. airline by AirlineRatings.com in their annual Top 20 Safest Airline report.
  • Launched the West Coast International Alliance with American Airlines on Jan. 1, 2021, which will unlock new benefits for Alaska Mileage Plan members in the spring.
  • Partnered with healthcare providers to offer rapid and standardized COVID-19 testing for those guests traveling to destinations that require a negative result.
  • Received diamond level certification from the Airline Passenger Experience Association for the health and safety standards Alaska and Horizon Air implemented to keep guests safe throughout their journey.
  • Launched pre-clearance program for guests traveling to the Hawaiian Islands from the West Coast with an approved negative COVID-19 test.
  • Announced a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain business air travel.
  • Announced oneworld benefits for elite Mileage Plan members, providing tier status in the global alliance to Alaska’s elite members, as the company works toward joining oneworld on March 31, 2021.

Alaska Air Group Inc. (NYSE: ALK) today reported a fourth quarter 2020 GAAP net loss of $430 million, or $3.47 per diluted share, compared to net income of $181 million, or $1.46 per diluted share in 2019. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported a fourth quarter adjusted net loss of $316 million, or $2.55 per diluted share, compared to adjusted net income of $181 million, or $1.46 per diluted share in the fourth quarter of 2019.

The company reported a full-year 2020 GAAP net loss of $1.3 billion, compared to net income of $769 million in the prior year. Excluding the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported an adjusted net loss of $1.3 billion, or $10.17 per diluted share for 2020, compared to adjusted net income of $798 million, or $6.42 per diluted share in 2019.

“We are not out of the woods, but we are seeing signs of brighter days ahead,” said Air Group CEO Brad Tilden. “The people of Alaska and Horizon have really shown their grit over the past year, and the rest of the leadership team and I could not be more proud of them. We’re positioned to come out of this crisis with our balance sheet unimpaired and our competitive advantages intact, and both of these set us up for a strong future and a long runway for growth.”

The following tables reconcile the company’s adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2020 and 2019 to amounts as reported in accordance with GAAP:

Three Months Ended December 31,

2020

2019

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income (loss) and diluted EPS

$

(430)

$

(3.47)

$

181

$

1.46

Payroll support program wage offset

(22)

(0.18)

Mark-to-market fuel hedge adjustments

(8)

(0.07)

(5)

(0.04)

Special items – impairment charges and other

255

2.06

Special items – restructuring charges

(102)

(0.82)

Special items – merger-related costs

1

0.01

5

0.04

Special items – net non-operating

26

0.21

Income tax effect on special items and fuel hedge adjustments

(36)

(0.29)

Non-GAAP adjusted net income (loss) and diluted EPS

$

(316)

$

(2.55)

$

181

$

1.46

Twelve Months Ended December 31,

2020

2019

(in millions, except per share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

Reported GAAP net income (loss) and diluted EPS

$

(1,307)

$

(10.59)

$

769

$

6.19

Payroll support program wage offset

(782)

(6.33)

Mark-to-market fuel hedge adjustments

(8)

(0.06)

(6)

(0.05)

Special items – impairment charges and other

605

4.90

Special items – restructuring charges

220

1.78

Special items – merger-related costs

6

0.05

44

0.35

Special items – net non-operating

26

0.21

Income tax effect on special items and fuel hedge adjustments

(16)

(0.13)

(9)

(0.07)

Non-GAAP adjusted net income (loss) and diluted EPS

$

(1,256)

$

(10.17)

$

798

$

6.42

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31,

Twelve Months Ended December 31,

(in millions, except per share amounts)

2020

2019

Change

2020

2019

Change

Operating Revenues:

Passenger revenue

$

657

$

2,057

(68)

%

$

3,019

$

8,095

(63)

%

Mileage Plan other revenue

108

119

(9)

%

374

465

(20)

%

Cargo and other

43

52

(17)

%

173

221

(22)

%

Total Operating Revenues

808

2,228

(64)

%

3,566

8,781

(59)

%

Operating Expenses:

Wages and benefits

474

638

(26)

%

2,053

2,370

(13)

%

Variable incentive pay

65

38

71

%

130

163

(20)

%

Payroll support program wage offset

(22)

NM

(782)

NM

Aircraft fuel, including hedging gains and losses

155

470

(67)

%

723

1,878

(62)

%

Aircraft maintenance

77

96

(20)

%

321

437

(27)

%

Aircraft rent

70

84

(17)

%

299

331

(10)

%

Landing fees and other rentals

94

143

(34)

%

417

531

(21)

%

Contracted services

43

75

(43)

%

181

289

(37)

%

Selling expenses

18

77

(77)

%

101

313

(68)

%

Depreciation and amortization

100

106

(6)

%

420

423

(1)

%

Food and beverage service

20

55

(64)

%

90

214

(58)

%

Third-party regional carrier expense

36

41

(12)

%

128

166

(23)

%

Other

97

148

(34)

%

407

559

(27)

%

Special items – impairment charges and other

255

NM

605

NM

Special items – restructuring charges

(102)

NM

220

NM

Special items – merger-related costs

1

5

(80)

%

6

44

(86)

%

Total Operating Expenses

1,381

1,976

(30)

%

5,319

7,718

(31)

%

Operating Income (Loss)

(573)

252

NM

(1,753)

1,063

NM

Non-operating Income (Expense):

Interest income

8

11

(27)

%

31

42

(26)

%

Interest expense

(34)

(18)

89

%

(98)

(78)

26

%

Interest capitalized

3

4

(25)

%

11

15

(27)

%

Other – net

1

(6)

NM

17

(26)

NM

Special charges – net non-operating

(26)

NM

(26)

NM

Total Non-operating Expense

(48)

(9)

NM

(65)

(47)

38

%

Income (Loss) Before Income Tax

(621)

243

(1,818)

1,016

Income tax (benefit) expense

(191)

62

(511)

247

Net Income (Loss)

$

(430)

$

181

$

(1,307)

$

769

Basic Earnings (Loss) Per Share:

$

(3.47)

$

1.47

$

(10.59)

$

6.24

Diluted Earnings (Loss) Per Share:

$

(3.47)

$

1.46

$

(10.59)

$

6.19

Shares Used for Computation:

Basic

124.013

123.129

123.450

123.279

Diluted

124.013

124.245

123.450

124.289

Cash dividend declared per share

$

$

0.35

$

0.375

$

1.40

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.

(in millions)

December 31, 2020

December 31, 2019

Cash and marketable securities

$

3,346

$

1,521

Other current assets

660

516

Current assets

4,006

2,037

Property and equipment-net

6,211

6,902

Operating lease asset

1,400

1,711

Goodwill

1,943

1,943

Intangible assets-net

107

122

Other assets

379

278

Total assets

$

14,046

$

12,993

Air traffic liability

1,073

900

Current portion of long-term debt

1,138

235

Current portion of operating lease liabilities

290

269

Other current liabilities

1,770

1,797

Current liabilities

$

4,271

$

3,201

Long-term debt

2,357

1,264

Long-term operating lease liabilities

1,268

1,439

Other liabilities and credits

3,145

2,758

Shareholders’ equity

3,005

4,331

Total liabilities and shareholders’ equity

$

14,046

$

12,993

Debt-to-capitalization ratio, including operating leases

61%

41%

Number of common shares outstanding

124.218

123.000

SUMMARY CASH FLOW (unaudited)
Alaska Air Group, Inc.

The Company believes that cash burn is an important metric to investors in evaluating the Company’s ability to maintain liquidity and manage cash on hand. We define cash burn as all cash flows, excluding the impact of any CARES Act funding or proceeds from new borrowings, one-time vendor advances, plus net activities from marketable securities.

Our daily cash burn for the quarter and year ended December 31, 2020, is reconciled from our statement of cash flows as follows:

(in millions)

Year Ended
December 31,  2020

Nine Months Ended
September 30, 2020(a)

Three Months Ended
December 31, 2020(b)

Net cash provided by (used in) operating activities

$

(234)

$

116

$

(350)

Less: Payroll support program grant

(753)

(753)

Adjusted net cash used in operating activities

(987)

(637)

(350)

Net cash provided by (used in) investing activities

(593)

(767)

174

Net cash provided by (used in) financing activities

1,981

2,286

(305)

Adjusted net increase (decrease) in cash, cash
equivalents and restricted cash

401

882

(481)

Adjusted to remove:

Payroll support program note and equity

298

298

CARES Act loan program and equity

135

135

Net secured debt issuances (payments)(c)

1,711

1,724

(13)

Net credit facility draws (payments)(d)

363

363

Net marketable security activity(e)

(676)

(593)

(83)

Early out and severance payments(f)

(31)

(31)

Advance vendor rebate(g)

38

50

(12)

Total adjustments

1,838

1,977

(139)

Adjusted cash burn

$

(1,437)

$

(1,095)

$

(342)

Days in the period

366

274

92

Average daily cash burn

$

(4)

$

(4)

$

(4)

(a)    As reported in Form 10-Q for the third quarter 2020.

(b)    Cash burn for the three months ended December 31, 2020, can be calculated by subtracting cash flows for the nine months ended 
         September 30, 2020, as previously reported in Form 10-Q for the third quarter 2020, from the year-ended December 31, 2020.

(c)     Secured debt issuances are presented net of related issuance costs and collateral-based prepayments.

(d)     Credit facility draws are presented net of collateral-based prepayments.

(e)     Net marketable security activity represents net purchases and sales activity of marketable securities, plus any unrealized gains or losses 
          on outstanding securities.

(f)      In the fourth quarter of 2020, the Company paid severance payments to certain employees through voluntary and involuntary leaves.

(g)     In the third quarter of 2020, the Company received an advance payment of a vendor rebate. This rebate will be recognized into earnings  
          and adjusted into cash burn over the next 12 month period.

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31,

Twelve Months Ended December 31,

2020

2019

Change

2020

2019

Change

Consolidated Operating Statistics:(a)

Revenue passengers (000)

3,916

11,715

(66.6)%

17,927

46,733

(61.6)%

RPMs (000,000) “traffic”

4,366

13,928

(68.7)%

20,493

56,040

(63.4)%

ASMs (000,000) “capacity”

9,631

16,648

(42.1)%

37,114

66,654

(44.3)%

Load factor

45.3%

83.7%

(38.4) pts

55.2%

84.1%

(28.9) pts

Yield

15.06¢

14.77¢

2.0%

14.73¢

14.45¢

1.9%

RASM

8.39¢

13.38¢

(37.3)%

9.61¢

13.17¢

(27.0)%

CASMex(b)

11.35¢

9.01¢

26.0%

12.25¢

8.70¢

40.8%

Economic fuel cost per gallon(b)

$1.39

$2.21

(37.1)%

$1.58

$2.19

(27.9)%

Fuel gallons (000,000)

117

216

(45.9)%

461

862

(46.5)%

ASM’s per gallon

82.3

77.2

6.7%

80.5

77.3

4.1%

Average full-time equivalent employees (FTEs)

16,050

22,506

(28.7)%

17,596

22,126

(20.5)%

Employee productivity (PAX/FTEs/months)

81.3

173.5

(53.1)%

84.9

176.0

(51.8)%

Mainline Operating Statistics:

Revenue passengers (000)

2,545

8,805

(71.1)%

12,280

35,530

(65.4)%

RPMs (000,000) “traffic”

3,622

12,496

(71.0)%

17,438

50,413

(65.4)%

ASMs (000,000) “capacity”

8,047

14,895

(46.0)%

31,387

59,711

(47.4)%

Load factor

45.0%

83.9%

(38.9) pts

55.6%

84.4%

(28.8) pts

Yield

13.54¢

13.69¢

(1.1)%

13.48¢

13.39¢

0.7%

RASM

7.73¢

12.53¢

(38.3)%

9.01¢

12.36¢

(27.1)%

CASMex(b)

10.60¢

8.27¢

28.2%

11.57¢

8.00¢

44.6%

Economic fuel cost per gallon(b)

$1.37

$2.19

(37.4)%

$1.59

$2.17

(26.7)%

Fuel gallons (000,000)

88

182

(51.4)%

358

731

(51.0)%

ASM’s per gallon

90.9

81.8

11.1%

87.7

81.7

7.3%

Average number of FTEs

11,665

16,771

(30.4)%

13,214

16,642

(20.6)%

Aircraft utilization

8.3

10.8

(23.1)%

8.3

10.9

(23.9)%

Average aircraft stage length

1,298

1,303

(0.4)%

1,272

1,299

(2.1)%

Operating fleet(d)

197

237

(40) a/c

197

237

(40) a/c

Regional Operating Statistics:(c)

Revenue passengers (000)

1,371

2,910

(52.9)%

5,647

11,203

(49.6)%

RPMs (000,000) “traffic”

744

1,432

(48.0)%

3,055

5,627

(45.7)%

ASMs (000,000) “capacity”

1,584

1,753

(9.6)%

5,727

6,943

(17.5)%

Load factor

47.0%

81.7%

(34.7) pts

53.3%

81.0%

(27.7) pts

Yield

22.47¢

24.22¢

(7.2)%

21.90¢

23.90¢

(8.4)%

Operating Fleet

94

95

(1) a/c

94

95

(1) 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 potential importance of this measure to investors in the accompanying pages.

(c)     Data presented includes information related to flights operated by Horizon and third-party carriers.

(d)     Excludes 40 Airbus aircraft permanently parked during 2020.

 

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Three Months Ended December 31, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating revenues

Passenger revenue

$

490

$

167

$

$

$

657

$

$

657

CPA revenue

105

(105)

Mileage Plan other revenue

90

18

108

108

Cargo and other

42

1

43

43

Total Operating Revenues

622

185

105

(104)

808

808

Operating Expenses

Non-fuel operating expenses

853

266

85

(110)

1,094

132

1,226

Fuel expense

121

42

163

(8)

155

Total Operating Expenses

974

308

85

(110)

1,257

124

1,381

Total Non-operating Income (Expense)

(18)

(6)

2

(22)

(26)

(48)

Income (Loss) Before Income Tax

$

(370)

$

(123)

$

14

$

8

$

(471)

$

(150)

$

(621)

Three Months Ended December 31, 2019

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating revenues

Passenger revenue

$

1,711

$

346

$

$

$

2,057

$

$

2,057

CPA revenues

110

(110)

Mileage Plan other revenue

107

12

119

119

Cargo and other

49

1

2

52

52

Total Operating Revenues

1,867

359

110

(108)

2,228

2,228

Operating Expenses

Non-fuel operating expenses

1,233

280

99

(111)

1,501

5

1,506

Fuel expense

398

77

475

(5)

470

Total Operating Expenses

1,631

357

99

(111)

1,976

1,976

Total Non-operating Income (Expense)

(4)

(6)

1

(9)

(9)

Income (Loss) Before Income Tax

$

232

$

2

$

5

$

4

$

243

$

$

243

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.

Twelve Months Ended December 31, 2020

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating revenues

Passenger revenue

$

2,350

$

669

$

$

$

3,019

$

$

3,019

CPA revenue

386

(386)

Mileage Plan other revenue

309

65

374

374

Cargo and other

170

3

173

173

Total Operating Revenues

2,829

734

386

(383)

3,566

3,566

Operating Expenses

Non-fuel operating expenses

3,630

993

323

(399)

4,547

49

4,596

Fuel expense

569

162

731

(8)

723

Total Operating Expenses

4,199

1,155

323

(399)

5,278

41

5,319

Total Non-operating Income (Expense)

(19)

(22)

2

(39)

(26)

(65)

Income (Loss) Before Income Tax

$

(1,389)

$

(421)

$

41

$

18

$

(1,751)

$

(67)

$

(1,818)

Twelve Months Ended December 31, 2019

(in millions)

Mainline

Regional

Horizon

Consolidating
& Other(a)

Air Group
Adjusted(b)

Special
Items(c)

Consolidated

Operating revenues

Passenger revenue

$

6,750

$

1,345

$

$

$

8,095

$

$

8,095

CPA revenue

450

(450)

Mileage Plan other revenue

419

46

465

465

Cargo and other

212

3

1

5

221

221

Total Operating Revenues

7,381

1,394

451

(445)

8,781

8,781

Operating Expenses

Non-fuel operating expenses

4,778

1,097

385

(464)

5,796

44

5,840

Fuel expense

1,589

295

1,884

(6)

1,878

Total Operating Expenses

6,367

1,392

385

(464)

7,680

38

7,718

Total Non-operating Income (Expense)

(21)

(28)

2

(47)

(47)

Income (Loss) Before Income Tax

$

993

$

2

$

38

$

21

$

1,054

$

(38)

$

1,016

(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 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 (unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

(in cents)

2020

2019

2020

2019

Consolidated:

Total operating expenses per ASM (CASM)

14.33

¢

11.86

¢

14.33

¢

11.58

¢

Less the following components:

Payroll support program wage offset

(0.23)

(2.11)

Aircraft fuel, including hedging gains and losses

1.61

2.82

1.95

2.82

Special items – impairment charges and other

2.65

1.63

Special items – restructuring charges

(1.06)

0.59

Special items – merger-related costs

0.01

0.03

0.02

0.06

CASM, excluding fuel and special items

11.35

¢

9.01

¢

12.25

¢

8.70

¢

Mainline:

Total operating expenses per ASM (CASM)

13.84

¢

10.95

¢

13.59

¢

10.73

¢

Less the following components:

Payroll support program wage offset

(0.07)

(2.17)

Aircraft fuel, including hedging gains and losses

1.40

2.64

1.79

2.65

Special items – impairment charges and other

3.17

1.73

Special items – restructuring charges

(1.27)

0.65

Special items – merger-related costs

0.01

0.04

0.02

0.08

CASM, excluding fuel and special items

10.60

¢

8.27

¢

11.57

¢

8.00

¢

Fuel Reconciliations (unaudited)

Three Months Ended December 31,

2020

2019

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or “into-plane” fuel cost

$

159

$

1.36

$

471

$

2.19

Losses (gains) on settled hedges

4

0.03

4

0.02

Consolidated economic fuel expense

$

163

$

1.39

$

475

$

2.21

Mark-to-market fuel hedge adjustments

(8)

(0.07)

(5)

(0.03)

GAAP fuel expense

$

155

$

1.32

$

470

$

2.18

Fuel gallons

117

216

Twelve Months Ended December 31,

2020

2019

(in millions, except for per gallon amounts)

Dollars

Cost/Gal

Dollars

Cost/Gal

Raw or “into-plane” fuel cost

$

713

$

1.54

$

1,868

$

2.17

Losses (gains) on settled hedges

18

0.04

16

0.02

Consolidated economic fuel expense

$

731

$

1.58

$

1,884

$

2.19

Mark-to-market fuel hedge adjustments

(8)

(0.01)

(6)

(0.01)

GAAP fuel expense

$

723

$

1.57

$

1,878

$

2.18

Fuel gallons

461

862

Debt-to-capitalization, including operating leases

(in millions)

December 31, 2020

December 31, 2019

Long-term debt

$

2,357

$

1,264

Long-term and current capitalized operating leases

1,558

1,708

COVID-19 Related Borrowings(a)

734

Adjusted debt, net of current portion of long-term debt

4,649

2,972

Shareholders’ equity

3,005

4,331

Total Invested Capital

$

7,654

$

7,303

Debt-to-capitalization ratio, including operating leases

61%

41%

(a)       To best reflect our leverage at December 31, 2020, we included the short-term borrowings stemming from the COVID-19 pandemic which 
          are classified as current liabilities in the above calculation.

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent

(in millions)

December 31, 2020

December 31, 2019

Current portion of long-term debt

$

1,138

$

235

Current portion of operating lease liabilities

290

269

Long-term debt

2,357

1,264

Long-term operating lease liabilities, net of current
portion

1,268

1,439

Total adjusted debt

5,053

3,207

Less: Cash and marketable securities

(3,346)

(1,521)

Adjusted net debt

$

1,707

$

1,686

(in millions)

Year Ended December 31, 2020

Year Ended December 31, 2019

GAAP Operating Income (Loss)

$

(1,753)

$

1,063

Adjusted for:

Payroll support program grant wage offset and special
items

49

44

Mark-to-market fuel hedge adjustments

(8)

(6)

Depreciation and amortization

420

423

Aircraft rent

299

331

EBITDAR

$

(993)

$

1,855

Net adjusted debt to EBITDAR

(1.7x)

0.9x

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 the payroll support program wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. 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 the payroll support program wage offset, impairment and restructuring charges and merger-related costs, 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 items as specified in our plan documents) are important metrics 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 compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.
  • Cash burn is a measure that has been used by the industry during the COVID-19 pandemic, and we believe it is useful for investors to evaluate our ability to maintain and manage liquidity, as well as a timeline for return to cash generation. This measure has been 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 merger-related costs and mark-to-market hedging adjustments, 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.

GLOSSARY OF TERMS

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 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 A321neo family jets and all associated revenues and costs

Net adjusted debt – long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

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

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, SkyWest and PenAir 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

SOURCE Alaska Air Group