UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8957
ALASKA AIR GROUP, INC.
| | | | | | | | |
Delaware | | 91-1292054 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | |
19300 International Boulevard, | Seattle, | WA | 98188 |
| | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: | | |
Title of each class | Ticker Symbol | Name of each exchange on which registered |
Common stock, $0.01 par value | ALK | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer (Do not check if a smaller reporting company) | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒
The registrant has 123,639,730125,232,721 common shares, par value $0.01, outstanding at July 31, 2020.2021.
This document is also available on our website at http://investor.alaskaair.com.
ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 20202021
TABLE OF CONTENTS
As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of 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. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.
You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2019, and Item 1A. "Risk Factors" of Part II of this Form 10-Q.2020. Please consider our forward-looking statements in light of those risks as you read this report.
PART I
| | |
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
ALASKA AIR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| (in millions) | (in millions) | June 30, 2020 | | December 31, 2019 | (in millions) | June 30, 2021 | | December 31, 2020 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current Assets | Current Assets | | | | Current Assets | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,509 | | | $ | 221 | | Cash and cash equivalents | $ | 1,025 | | | $ | 1,370 | |
Marketable securities | Marketable securities | 1,294 | | | 1,300 | | Marketable securities | 2,926 | | | 1,976 | |
Total cash and marketable securities | Total cash and marketable securities | 2,803 | | | 1,521 | | Total cash and marketable securities | 3,951 | | | 3,346 | |
Receivables - net | Receivables - net | 280 | | | 323 | | Receivables - net | 567 | | | 480 | |
Inventories and supplies - net | Inventories and supplies - net | 56 | | | 72 | | Inventories and supplies - net | 52 | | | 57 | |
Prepaid expenses and other current assets | 105 | | | 121 | | |
Prepaid expenses, assets held-for-sale, and other current assets | | Prepaid expenses, assets held-for-sale, and other current assets | 201 | | | 123 | |
Total Current Assets | Total Current Assets | 3,244 | | | 2,037 | | Total Current Assets | 4,771 | | | 4,006 | |
| Property and Equipment | Property and Equipment | | | | Property and Equipment | | | |
Aircraft and other flight equipment | Aircraft and other flight equipment | 8,257 | | | 8,549 | | Aircraft and other flight equipment | 7,996 | | | 7,761 | |
Other property and equipment | Other property and equipment | 1,381 | | | 1,306 | | Other property and equipment | 1,433 | | | 1,398 | |
Deposits for future flight equipment | Deposits for future flight equipment | 591 | | | 533 | | Deposits for future flight equipment | 402 | | | 583 | |
| | 10,229 | | | 10,388 | | | 9,831 | | | 9,742 | |
Less accumulated depreciation and amortization | Less accumulated depreciation and amortization | 3,434 | | | 3,486 | | Less accumulated depreciation and amortization | 3,703 | | | 3,531 | |
Total Property and Equipment - Net | Total Property and Equipment - Net | 6,795 | | | 6,902 | | Total Property and Equipment - Net | 6,128 | | | 6,211 | |
| Operating lease assets | Operating lease assets | 1,568 | | | 1,711 | | Operating lease assets | 1,375 | | | 1,400 | |
Goodwill | Goodwill | 1,943 | | | 1,943 | | Goodwill | 1,943 | | | 1,943 | |
Intangible assets - net | Intangible assets - net | 109 | | | 122 | | Intangible assets - net | 103 | | | 107 | |
Other noncurrent assets | Other noncurrent assets | 339 | | | 278 | | Other noncurrent assets | 336 | | | 379 | |
Other Assets | Other Assets | 3,959 | | | 4,054 | | Other Assets | 3,757 | | | 3,829 | |
| Total Assets | Total Assets | $ | 13,998 | | | $ | 12,993 | | Total Assets | $ | 14,656 | | | $ | 14,046 | |
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| (in millions, except share amounts) | (in millions, except share amounts) | June 30, 2020 | | December 31, 2019 | (in millions, except share amounts) | June 30, 2021 | | December 31, 2020 |
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
Accounts payable | Accounts payable | $ | 102 | | | $ | 146 | | Accounts payable | $ | 159 | | | $ | 108 | |
Accrued wages, vacation and payroll taxes | Accrued wages, vacation and payroll taxes | 284 | | | 470 | | Accrued wages, vacation and payroll taxes | 439 | | | 527 | |
Air traffic liability | Air traffic liability | 1,131 | | | 900 | | Air traffic liability | 1,533 | | | 1,073 | |
Deferred payroll support program grant | 361 | | | — | | |
| Other accrued liabilities | Other accrued liabilities | 327 | | | 431 | | Other accrued liabilities | 661 | | | 424 | |
Deferred revenue | Deferred revenue | 555 | | | 750 | | Deferred revenue | 922 | | | 733 | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | 273 | | | 269 | | Current portion of operating lease liabilities | 263 | | | 290 | |
Current portion of long-term debt | Current portion of long-term debt | 1,087 | | | 235 | | Current portion of long-term debt | 869 | | | 1,138 | |
Total Current Liabilities | Total Current Liabilities | 4,120 | | | 3,201 | | Total Current Liabilities | 4,846 | | | 4,293 | |
| Long-Term Debt, Net of Current Portion | Long-Term Debt, Net of Current Portion | 1,549 | | | 1,264 | | Long-Term Debt, Net of Current Portion | 2,319 | | | 2,357 | |
| Noncurrent Liabilities | Noncurrent Liabilities | | | | Noncurrent Liabilities | | | |
Long-term operating lease liabilities, net of current portion | Long-term operating lease liabilities, net of current portion | 1,376 | | | 1,439 | | Long-term operating lease liabilities, net of current portion | 1,222 | | | 1,268 | |
Deferred income taxes | Deferred income taxes | 619 | | | 715 | | Deferred income taxes | 439 | | | 407 | |
Deferred revenue | Deferred revenue | 1,519 | | | 1,240 | | Deferred revenue | 1,424 | | | 1,544 | |
Obligation for pension and postretirement medical benefits | Obligation for pension and postretirement medical benefits | 581 | | | 571 | | Obligation for pension and postretirement medical benefits | 660 | | | 665 | |
Other liabilities | Other liabilities | 373 | | | 232 | | Other liabilities | 422 | | | 524 | |
| | 4,468 | | | 4,197 | | | 4,167 | | | 4,408 | |
Commitments and Contingencies | Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
Shareholders' Equity | Shareholders' Equity | | | | Shareholders' Equity | | | |
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding | Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding | — | | | — | | Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, NaN issued or outstanding | 0 | | | 0 | |
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2020 - 132,989,258 shares; 2019 - 131,812,173 shares, Outstanding: 2020 - 123,639,314 shares; 2019 - 123,000,307 shares | 1 | | | 1 | | |
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 134,579,403 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,229,459 shares; 2020 - 124,217,590 shares | | Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2021 - 134,579,403 shares; 2020 - 133,567,534 shares, Outstanding: 2021 - 125,229,459 shares; 2020 - 124,217,590 shares | 1 | | | 1 | |
Capital in excess of par value | Capital in excess of par value | 350 | | | 305 | | Capital in excess of par value | 454 | | | 391 | |
Treasury stock (common), at cost: 2020 - 9,349,944 shares; 2019 - 8,811,866 shares | (674) | | | (643) | | |
Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares | | Treasury stock (common), at cost: 2021 - 9,349,944 shares; 2020 - 9,349,944 shares | (674) | | | (674) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (458) | | | (465) | | Accumulated other comprehensive loss | (487) | | | (494) | |
Retained earnings | Retained earnings | 4,642 | | | 5,133 | | Retained earnings | 4,030 | | | 3,764 | |
| | 3,861 | | | 4,331 | | | 3,324 | | | 2,988 | |
Total Liabilities and Shareholders' Equity | Total Liabilities and Shareholders' Equity | $ | 13,998 | | | $ | 12,993 | | Total Liabilities and Shareholders' Equity | $ | 14,656 | | | $ | 14,046 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions, except per share amounts) | (in millions, except per share amounts) | 2020 | | 2019 | | 2020 | | 2019 | (in millions, except per share amounts) | 2021 | | 2020 | | 2021 | | 2020 |
Operating Revenues | Operating Revenues | | | | | | | | Operating Revenues | | | | | | | |
Passenger revenue | Passenger revenue | $ | 309 | | | $ | 2,111 | | | 1,790 | | | 3,827 | | Passenger revenue | $ | 1,352 | | | $ | 309 | | | $ | 2,011 | | | $ | 1,790 | |
Mileage Plan other revenue | Mileage Plan other revenue | 73 | | | 118 | | | 182 | | | 228 | | Mileage Plan other revenue | 118 | | | 73 | | | 212 | | | 182 | |
Cargo and other | Cargo and other | 39 | | | 59 | | | 85 | | | 109 | | Cargo and other | 57 | | | 39 | | | 101 | | | 85 | |
Total Operating Revenues | Total Operating Revenues | 421 | | | 2,288 | | | 2,057 | | | 4,164 | | Total Operating Revenues | 1,527 | | | 421 | | | 2,324 | | | 2,057 | |
Operating Expenses | Operating Expenses | | | | | | | | Operating Expenses | | | | | | | |
Wages and benefits | Wages and benefits | 472 | | | 567 | | | 1,084 | | | 1,124 | | Wages and benefits | 510 | | | 472 | | | 1,003 | | | 1,084 | |
Variable incentive pay | Variable incentive pay | 16 | | | 44 | | | 23 | | | 79 | | Variable incentive pay | 34 | | | 16 | | | 67 | | | 23 | |
Payroll support program grant wage offset | (362) | | | — | | | (362) | | | — | | |
Payroll Support Program grant wage offset | | Payroll Support Program grant wage offset | (503) | | | (362) | | | (914) | | | (362) | |
Aircraft fuel, including hedging gains and losses | Aircraft fuel, including hedging gains and losses | 59 | | | 502 | | | 443 | | | 922 | | Aircraft fuel, including hedging gains and losses | 274 | | | 59 | | | 477 | | | 443 | |
Aircraft maintenance | Aircraft maintenance | 45 | | | 115 | | | 160 | | | 235 | | Aircraft maintenance | 102 | | | 45 | | | 183 | | | 160 | |
Aircraft rent | Aircraft rent | 74 | | | 82 | | | 155 | | | 165 | | Aircraft rent | 62 | | | 74 | | | 124 | | | 155 | |
Landing fees and other rentals | Landing fees and other rentals | 83 | | | 113 | | | 214 | | | 245 | | Landing fees and other rentals | 144 | | | 83 | | | 273 | | | 214 | |
Contracted services | Contracted services | 30 | | | 70 | | | 102 | | | 142 | | Contracted services | 54 | | | 30 | | | 105 | | | 102 | |
Selling expenses | Selling expenses | 4 | | | 87 | | | 59 | | | 159 | | Selling expenses | 41 | | | 4 | | | 74 | | | 59 | |
Depreciation and amortization | Depreciation and amortization | 107 | | | 105 | | | 215 | | | 211 | | Depreciation and amortization | 98 | | | 107 | | | 195 | | | 215 | |
Food and beverage service | Food and beverage service | 7 | | | 53 | | | 56 | | | 102 | | Food and beverage service | 35 | | | 7 | | | 58 | | | 56 | |
Third-party regional carrier expense | Third-party regional carrier expense | 26 | | | 42 | | | 63 | | | 83 | | Third-party regional carrier expense | 37 | | | 26 | | | 67 | | | 63 | |
Other | Other | 78 | | | 136 | | | 221 | | | 274 | | Other | 117 | | | 78 | | | 222 | | | 221 | |
Special items - impairment charges and other | | Special items - impairment charges and other | (4) | | | 69 | | | 14 | | | 229 | |
Special items - restructuring charges | | Special items - restructuring charges | (23) | | | 0 | | | (12) | | | 0 | |
Special items - merger-related costs | Special items - merger-related costs | 1 | | | 8 | | | 4 | | | 34 | | Special items - merger-related costs | 0 | | | 1 | | | 0 | | | 4 | |
Special items - impairment charges and other | 69 | | | — | | | 229 | | | — | | |
Total Operating Expenses | Total Operating Expenses | 709 | | | 1,924 | | | 2,666 | | | 3,775 | | Total Operating Expenses | 978 | | | 709 | | | 1,936 | | | 2,666 | |
Operating Income (Loss) | Operating Income (Loss) | (288) | | | 364 | | | (609) | | | 389 | | Operating Income (Loss) | 549 | | | (288) | | | 388 | | | (609) | |
Nonoperating Income (Expense) | Nonoperating Income (Expense) | | | | | Nonoperating Income (Expense) | | | | |
Interest income | Interest income | 7 | | | 11 | | | 16 | | | 20 | | Interest income | 6 | | | 7 | | | 13 | | | 16 | |
Interest expense | Interest expense | (17) | | | (20) | | | (30) | | | (42) | | Interest expense | (39) | | | (17) | | | (71) | | | (30) | |
Interest capitalized | Interest capitalized | 1 | | | 3 | | | 4 | | | 7 | | Interest capitalized | 3 | | | 1 | | | 6 | | | 4 | |
Other—net | 6 | | | (7) | | | 11 | | | (17) | | |
Other - net | | Other - net | 9 | | | 6 | | | 19 | | | 11 | |
Total Nonoperating Income (Expense) | Total Nonoperating Income (Expense) | (3) | | | (13) | | | 1 | | | (32) | | Total Nonoperating Income (Expense) | (21) | | | (3) | | | (33) | | | 1 | |
Income (Loss) Before Income Tax | Income (Loss) Before Income Tax | (291) | | | 351 | | | (608) | | | 357 | | Income (Loss) Before Income Tax | 528 | | | (291) | | | 355 | | | (608) | |
Income tax (benefit) expense | (77) | | | 89 | | | (162) | | | 91 | | |
Income tax expense (benefit) | | Income tax expense (benefit) | 131 | | | (77) | | | 89 | | | (162) | |
Net Income (Loss) | Net Income (Loss) | $ | (214) | | | $ | 262 | | | $ | (446) | | | $ | 266 | | Net Income (Loss) | $ | 397 | | | $ | (214) | | | $ | 266 | | | $ | (446) | |
| Basic Earnings (Loss) Per Share: | $ | (1.74) | | | $ | 2.12 | | | $ | (3.62) | | | $ | 2.15 | | |
Diluted Earnings (Loss) Per Share: | $ | (1.73) | | | $ | 2.11 | | | $ | (3.60) | | | $ | 2.14 | | |
Basic Income (Loss) Per Share: | | Basic Income (Loss) Per Share: | $ | 3.18 | | | $ | (1.74) | | | $ | 2.13 | | | $ | (3.62) | |
Diluted Income (Loss) Per Share: | | Diluted Income (Loss) Per Share: | $ | 3.13 | | | $ | (1.74) | | | $ | 2.10 | | | $ | (3.62) | |
Shares used for computation: | Shares used for computation: | | | Shares used for computation: | | |
Basic | Basic | 123.296 | | | 123.418 | | | 123.058 | | | 123.355 | | Basic | 124.977 | | | 123.296 | | | 124.640 | | | 123.058 | |
Diluted | Diluted | 123.965 | | | 124.301 | | | 123.685 | | | 124.179 | | Diluted | 126.825 | | | 123.296 | | | 126.388 | | | 123.058 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | (in millions) | 2020 | | 2019 | | 2020 | | 2019 | (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Net Income (Loss) | Net Income (Loss) | $ | (214) | | | $ | 262 | | | $ | (446) | | | $ | 266 | | Net Income (Loss) | $ | 397 | | | $ | (214) | | | $ | 266 | | | $ | (446) | |
| Other Comprehensive Income (Loss): | Other Comprehensive Income (Loss): | | Other Comprehensive Income (Loss): | |
Related to marketable securities: | Related to marketable securities: | | Related to marketable securities: | |
Unrealized holding gain (loss) arising during the period | Unrealized holding gain (loss) arising during the period | 31 | | | 13 | | | 30 | | | 27 | | Unrealized holding gain (loss) arising during the period | 0 | | | 31 | | | (11) | | | 30 | |
Reclassification of (gain) loss into Other - net nonoperating income (expense) | (6) | | | — | | | (9) | | | 2 | | |
Reclassification of gain into Other - net nonoperating income | | Reclassification of gain into Other - net nonoperating income | (2) | | | (6) | | | (6) | | | (9) | |
Income tax effect | Income tax effect | (6) | | | (3) | | | (5) | | | (7) | | Income tax effect | 1 | | | (6) | | | 4 | | | (5) | |
Total | Total | 19 | | | 10 | | | 16 | | | 22 | | Total | (1) | | | 19 | | | (13) | | | 16 | |
| Related to employee benefit plans: | Related to employee benefit plans: | | Related to employee benefit plans: | |
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income (expense) | 8 | | | 8 | | | 15 | | | 16 | | |
Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income | | Reclassification of net pension expense into Wages and benefits and Other - net nonoperating income | 9 | | | 8 | | | 17 | | | 15 | |
Income tax effect | Income tax effect | (2) | | | (2) | | | (4) | | | (4) | | Income tax effect | (2) | | | (2) | | | (4) | | | (4) | |
Total | Total | 6 | | | 6 | | | 11 | | | 12 | | Total | 7 | | | 6 | | | 13 | | | 11 | |
| Related to interest rate derivative instruments: | Related to interest rate derivative instruments: | | Related to interest rate derivative instruments: | |
Unrealized holding gain (loss) arising during the period | Unrealized holding gain (loss) arising during the period | (2) | | | (7) | | | (27) | | | (12) | | Unrealized holding gain (loss) arising during the period | 1 | | | (2) | | | 9 | | | (27) | |
Reclassification of loss into Aircraft rent | Reclassification of loss into Aircraft rent | — | | | — | | | 1 | | | 1 | | Reclassification of loss into Aircraft rent | 0 | | | 0 | | | 0 | | | 1 | |
Income tax effect | Income tax effect | 1 | | | 2 | | | 6 | | | 3 | | Income tax effect | 0 | | | 1 | | | (2) | | | 6 | |
Total | Total | (1) | | | (5) | | | (20) | | | (8) | | Total | 1 | | | (1) | | | 7 | | | (20) | |
| Other Comprehensive Income (Loss) | 24 | | | 11 | | | 7 | | | 26 | | |
Other Comprehensive Income | | Other Comprehensive Income | 7 | | | 24 | | | 7 | | | 7 | |
| Comprehensive Income (Loss) | Comprehensive Income (Loss) | $ | (190) | | | $ | 273 | | | $ | (439) | | | $ | 292 | | Comprehensive Income (Loss) | $ | 404 | | | $ | (190) | | | $ | 273 | | | $ | (439) | |
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
| (in millions) | (in millions) | Common Stock Outstanding | | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | (in millions) | Common Stock Outstanding | | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | |
Balances at December 31, 2019 | 123.000 | | $ | 1 | | | $ | 305 | | | $ | (643) | | | $ | (465) | | | $ | 5,133 | | | $ | 4,331 | | |
Balances at December 31, 2020 | | Balances at December 31, 2020 | 124.217 | | | $ | 1 | | | $ | 391 | | | $ | (674) | | | $ | (494) | | | $ | 3,764 | | | $ | 2,988 | | |
Net loss | Net loss | — | | | — | | | — | | | — | | | — | | | (232) | | | (232) | | Net loss | — | | | — | | | — | | | — | | | — | | | (131) | | | (131) | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (17) | | | — | | | (17) | | |
Common stock repurchase | (0.538) | | | — | | | — | | | (31) | | | — | | | — | | | (31) | | |
Stock-based compensation | — | | | — | | | 9 | | — | | | — | | | — | | | 9 | | |
Cash dividend declared ($0.375 per share) | — | | | — | | | — | | | — | | | — | | | (45) | | | (45) | | |
Stock issued under stock plans | 0.123 | | — | | | — | | | — | | | — | | | — | | | — | | |
Balances at March 31, 2020 | 122.585 | | $ | 1 | | | $ | 314 | | | $ | (674) | | | $ | (482) | | | $ | 4,856 | | | $ | 4,015 | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (214) | | | (214) | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 24 | | | — | | | 24 | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | 0 | | | — | | | 0 | | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 2 | | — | | | — | | | — | | | 2 | | Stock-based compensation | — | | | — | | | 12 | | | — | | | — | | | — | | | 12 | | |
CARES Act warrant issuance | CARES Act warrant issuance | — | | | — | | | 7 | | — | | | — | | | — | | | 7 | | CARES Act warrant issuance | — | | | — | | | 8 | | | — | | | — | | | — | | | 8 | | |
| Stock issued under stock plans | | Stock issued under stock plans | 0.225 | | | — | | | (2) | | | — | | | — | | | — | | | (2) | | |
Balances at March 31, 2021 | | Balances at March 31, 2021 | 124.442 | | | $ | 1 | | | $ | 409 | | | $ | (674) | | | $ | (494) | | | $ | 3,633 | | | $ | 2,875 | | |
Net income | | Net income | — | | | — | | | — | | | — | | | — | | | 397 | | | 397 | | |
Other comprehensive income | | Other comprehensive income | — | | | — | | | — | | | — | | | 7 | | | — | | | 7 | | |
| Stock-based compensation | | Stock-based compensation | 0.009 | | | — | | | 13 | | | — | | | — | | | — | | | 13 | | |
CARES Act warrant issuance | | CARES Act warrant issuance | — | | | — | | | 8 | | | — | | | — | | | — | | | 8 | | |
| Stock issued for employee stock purchase plan | Stock issued for employee stock purchase plan | 1.000 | | | — | | | 27 | | | — | | | — | | | — | | | 27 | | Stock issued for employee stock purchase plan | 0.716 | | | — | | | 23 | | | — | | | — | | | — | | | 23 | | |
Stock issued under stock plans | Stock issued under stock plans | 0.054 | | — | | | — | | | — | | | — | | | — | | | — | | Stock issued under stock plans | 0.062 | | | — | | | 1 | | | — | | | — | | | — | | | 1 | | |
Balances at June 30, 2020 | 123.639 | | $ | 1 | | | $ | 350 | | | $ | (674) | | | $ | (458) | | | $ | 4,642 | | | $ | 3,861 | | |
| Balances at June 30, 2021 | | Balances at June 30, 2021 | 125.229 | | 1 | | 454 | | (674) | | | (487) | | | 4,030 | | | 3,324 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Common Stock Outstanding | | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total |
Balances at December 31, 2018 | 123.194 | | | $ | 1 | | | $ | 232 | | | $ | (568) | | | $ | (448) | | | $ | 4,534 | | | $ | 3,751 | |
Cumulative effect of accounting changes(a) | — | | | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Net income | — | | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 15 | | | — | | | 15 | |
Common stock repurchase | (0.215) | | | — | | | — | | | (13) | | | — | | | — | | | (13) | |
Stock-based compensation | — | | | — | | | 12 | | | — | | | — | | | — | | | 12 | |
Cash dividend declared ($0.35 per share) | — | | | — | | | — | | | — | | | — | | | (43) | | | (43) | |
Stock issued for employee stock purchase plan | 0.391 | | | — | | | 20 | | | — | | | — | | | — | | | 20 | |
Stock issued under stock plans | 0.134 | | | — | | | (3) | | | — | | | — | | | — | | | (3) | |
Balances at March 31, 2019 | 123.504 | | | $ | 1 | | | $ | 261 | | | $ | (581) | | | $ | (433) | | | $ | 4,498 | | | $ | 3,746 | |
Net income | — | | | — | | | — | | | — | | | — | | | 262 | | | 262 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 11 | | | — | | | 11 | |
Common stock repurchase | (0.194) | | | — | | | — | | | (12) | | | — | | | — | | | (12) | |
Stock-based compensation | — | | | — | | | 9 | | | — | | | — | | | — | | | 9 | |
Cash dividend declared ($0.35 per share) | — | | | — | | | — | | | — | | | — | | | (43) | | | (43) | |
Stock issued under stock plans | 0.028 | | | — | | | — | | | — | | | — | | | — | | | — | |
Balances at June 30, 2019 | 123.338 | | | $ | 1 | | | $ | 270 | | | $ | (593) | | | $ | (422) | | | $ | 4,717 | | | $ | 3,973 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Common Stock Outstanding | | Common Stock | | Capital in Excess of Par Value | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Retained Earnings | | Total | | | | |
Balances at December 31, 2019 | 123.000 | | | $ | 1 | | | $ | 305 | | | $ | (643) | | | $ | (465) | | | $ | 5,133 | | | $ | 4,331 | | | | | |
| | | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (232) | | | (232) | | | | | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (17) | | | — | | | (17) | | | | | |
Common stock repurchase | (0.538) | | | — | | | — | | | (31) | | | — | | | — | | | (31) | | | | | |
Stock-based compensation | — | | | — | | | 9 | | | — | | | — | | | — | | | 9 | | | | | |
| | | | | | | | | | | | | | | | | |
Cash dividend declared ($0.375 per share) | — | | | — | | | | | — | | | — | | | (45) | | | (45) | | | | | |
| | | | | | | | | | | | | | | | | |
Stock issued under stock plans | 0.123 | | | — | | | — | | | — | | | — | | | — | | | 0 | | | | | |
Balance at March 31, 2020 | 122.585 | | | $ | 1 | | | $ | 314 | | | $ | (674) | | | $ | (482) | | | $ | 4,856 | | | $ | 4,015 | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (214) | | | (214) | | | | | |
Other comprehensive income | — | | | — | | | — | | | — | | | 24 | | | — | | | 24 | | | | | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | | | | | |
CARES Act warrant issuance | — | | | — | | | 7 | | | — | | | — | | | — | | | 7 | | | | | |
| | | | | | | | | | | | | | | | | |
Stock issued for employee stock purchase plan | 1.000 | | | — | | | 27 | | | — | | | — | | | — | | | 27 | | | | | |
Stock issued under stock plans | 0.054 | | | — | | | 0 | | | — | | | — | | | — | | | 0 | | | | | |
Balances at June 30, 2020 | 123.639 | | | $ | 1 | | | $ | 350 | | | $ | (674) | | | $ | (458) | | | $ | 4,642 | | | $ | 3,861 | | | | | |
| | | | | | | | | | | | | | | | | |
(a)Represents the opening balance sheet adjustment recorded as a result of the adoption of the new lease accounting standard.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, | | |
(in millions) | 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income (Loss) | $ | (446) | | | $ | 266 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 215 | | | 211 | |
Stock-based compensation and other | 7 | | | 16 | |
Special items - impairment charges and other | 229 | | | — | |
Payroll support program grant wage offset | (362) | | | — | |
Changes in certain assets and liabilities: | | | |
Payroll support program grant funding | 723 | | | — | |
Changes in deferred tax provision | (98) | | | 62 | |
Increase in air traffic liability | 231 | | | 385 | |
Increase in deferred revenue | 84 | | | 75 | |
Other - net | (262) | | | 18 | |
Net cash provided by operating activities | 321 | | | 1,033 | |
Cash flows used in investing activities: | | | |
Property and equipment additions: | | | |
Aircraft and aircraft purchase deposits | (58) | | | (172) | |
Other flight equipment | (43) | | | (83) | |
Other property and equipment | (67) | | | (78) | |
Total property and equipment additions, including capitalized interest | (168) | | | (333) | |
Purchases of marketable securities | (1,004) | | | (885) | |
Sales and maturities of marketable securities | 1,038 | | | 663 | |
Other investing activities | 10 | | | 25 | |
Net cash used in investing activities | (124) | | | (530) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of debt | 1,265 | | | 254 | |
Common stock repurchases | (31) | | | (25) | |
Dividends paid | (45) | | | (86) | |
Long-term debt payments | (125) | | | (532) | |
Other financing activities | 27 | | | 26 | |
Net cash provided by (used in) financing activities | 1,091 | | | (363) | |
Net increase in cash, cash equivalents, and restricted cash | 1,288 | | | 140 | |
Cash, cash equivalents, and restricted cash at beginning of year | 232 | | | 114 | |
Cash, cash equivalents, and restricted cash at end of the period | $ | 1,520 | | | $ | 254 | |
| | | |
Cash paid during the period for: | | | |
Interest (net of amount capitalized) | $ | 25 | | | $ | 34 | |
Income taxes | — | | | — | |
| | | |
Reconciliation of cash, cash equivalents, and restricted cash at end of the period | | | |
Cash and cash equivalents | $ | 1,509 | | | $ | 244 | |
Restricted cash included in Prepaid expenses and other current assets | 11 | | | 10 | |
Total cash, cash equivalents, and restricted cash at end of the period | $ | 1,520 | | | $ | 254 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
(in millions) | 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net Income (Loss) | $ | 266 | | | $ | (446) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 195 | | | 215 | |
Stock-based compensation and other | 24 | | | 7 | |
Special items - impairment charges and other | 14 | | | 229 | |
Special items - restructuring charges | (12) | | | 0 | |
Changes in certain assets and liabilities: | | | |
Changes in deferred tax provision | 33 | | | (98) | |
Increase in air traffic liability | 460 | | | 231 | |
Increase in deferred revenue | 69 | | | 84 | |
Other - net | (42) | | | 99 | |
Net cash provided by operating activities | 1,007 | | | 321 | |
Cash flows from investing activities: | | | |
Property and equipment additions: | | | |
Aircraft and aircraft purchase deposits | (30) | | | (58) | |
Other flight equipment | (38) | | | (43) | |
Other property and equipment | (34) | | | (67) | |
Total property and equipment additions, including capitalized interest | (102) | | | (168) | |
Purchases of marketable securities | (2,524) | | | (1,004) | |
Sales and maturities of marketable securities | 1,561 | | | 1,038 | |
Other investing activities | (5) | | | 10 | |
Net cash used in investing activities | (1,070) | | | (124) | |
Cash flows from financing activities: | | | |
Proceeds from issuance of debt | 363 | | | 1,265 | |
Common stock repurchases | 0 | | | (31) | |
Dividends paid | 0 | | | (45) | |
Long-term debt payments | (681) | | | (125) | |
Other financing activities | 37 | | | 27 | |
Net cash provided by (used in) financing activities | (281) | | | 1,091 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | (344) | | | 1,288 | |
Cash, cash equivalents, and restricted cash at beginning of period | 1,386 | | | 232 | |
Cash, cash equivalents, and restricted cash at end of the period | $ | 1,042 | | | $ | 1,520 | |
| | | |
Cash paid during the period for: | | | |
Interest (net of amount capitalized) | $ | 61 | | | $ | 25 | |
Income taxes | 0 | | | 0 | |
| | | |
Reconciliation of cash, cash equivalents, and restricted cash at end of the period | | | |
Cash and cash equivalents | $ | 1,025 | | | $ | 1,509 | |
Restricted cash included in Prepaid expenses, assets held-for-sale, and other current assets | 17 | | | 11 | |
Total cash, cash equivalents, and restricted cash at end of the period | $ | 1,042 | | | $ | 1,520 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska. The Company conducts substantially all of its operations through these subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, 2019.2020. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of June 30, 20202021 and the results of operations for the three and six months ended June 30, 20202021 and 2019.2020. Such adjustments were of a normal recurring nature.
In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses, including impairment charges. Due to the impacts of the COVID-19coronavirus (COVID-19) pandemic on the Company's business, these estimates and assumptions require more judgment than they would be otherwise given the uncertainty of the future demand for air travel, among other considerations. Further, due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment and other factors, operating results for the three and six months ended June 30, 20202021 are not necessarily indicative of operating results for the entire year.
Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The ASU requires the use of an "expected credit loss model" on certain financial instruments. The ASU also amends the impairment model for available-for-sale debt securities, and requires the estimation of credit losses to be recorded as allowances instead of reductions to amortized cost. The ASU was effective for the Company beginning January 1, 2020, and was adopted prospectively, but it did not have a significant impact on the Company's financial statements and disclosures.
NOTE 2. COVID-19 PANDEMIC
The public health and economic crisescrisis resulting from the outbreak of the novel coronavirus (COVID-19) beginningCOVID-19 in the first quarter of 2020 has had an unprecedentedcontinues to have a significant impact on the Company. TravelAlthough the relaxation of restrictions event cancellationsby state and social distancing guidelines implemented throughout the country drove significant declines in demand beginning in February, and adversely impacted revenues beginning in March. Consistent with expectations, the financial impact to the second quarter was more significant than the first quarter. There continue to be travel restrictions in place throughout the United States,local governments and the resurgence in COVID-19 cases threatensrollout of vaccination programs have allowed for the return of demand, passenger enplanements remain below pre-pandemic levels. As a result, the Company continues to halt or reverse progress towards reopening in many states and cities. It is uncertain when these restrictions may lift and when demand may return.fly less capacity than it had pre-pandemic.
In response to the COVID-19 pandemic,Beginning in 2020, the Company implemented a "Peace-of-Mind" waiver, which allows travelersvarious cost-saving initiatives, including permanently parking aircraft, restructuring the workforce through early-out and incentive leave programs, and obtaining funding available under programs offered by the U.S. Department of the Treasury (the Treasury). As demand has improved and the business has grown back towards pre-pandemic flying levels, these programs have been adjusted to book ticketsmeet the needs of the airline. The impacts of these programs for travel for a specified period of time that can be changed or canceled without incurring change fees. In the second quarter, the waiver has been extended to cover all ticketed travel purchased through September 8, 2020. Cancellationsthree and postponement of travel exceeded new bookings in March and April, and had a material impact on second quarter passenger revenues, air traffic liability, and cash position. Refer to Note 3 for further discussion.six months ended June 30, 2021 are described below.
Lease Return Costs
The Company has taken decisive actionremoved 40 leased Aircraft from operating service in 2020, and recorded an estimate of the expected future lease return costs for the aircraft. Lease return costs include the write off of associated maintenance deposits, as the Company no longer expects to reduce costs and preserve cash and liquidity.perform maintenance events covered by those deposits. The total net charge recorded in 2020 for aircraft that were parked amounted to $209 million. In the first quarter of 2021, the Company implemented a company-wide hiring freeze,recorded an additional $18 million in incremental costs associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned to the lessor, which was classified as Special items - impairment charges and other on the condensed consolidated statements of operations. In the second quarter, expected costs to return leased aircraft was reduced salariesby $4 million. The lease return cost estimates are based on the Company's best estimate of senior management and hours for management employees, suspended annual pay increases and solicited voluntary leavescosts to return aircraft as of absence. In addition to these payroll saving measures, the Company has actively negotiated with vendor partners to reduce contractual minimums and spending in line with the reduction in demand.date of this filing.
With demand dramatically depressed,In the second quarter of 2021, the Company initiated a plan to reactivate up to twelve previously parked Airbus aircraft to support the Company's plans for restoring capacity to 100% of pre-pandemic levels by no later than summer 2022. These reactivations create flexibility as management seeks to return capacity, mitigating against both staffing and supply chain risks that could constrain Alaska or Horizon's available capacity. Management's plans to return to 100% of pre-pandemic levels by no later than summer 2022 are consistent with previous plans, but some recovery has significantly reduced its planned flying capacity. As a result, manybeen accelerated into the second half of 2021 in response to the strong demand recovery that took place in the second quarter.The first of these reactivated aircraft have been parked orare expected to reenter revenue service beginning in the third quarter of 2021, with all reactivated by the second quarter of 2022. The Company currently anticipates these aircraft will be removed from service. As of June 30, 2020, 101 mainline aircraft were temporarily grounded. Theoperating service beginning in late 2022 through the end
of 2023. At this time, the Company made the decision in the first quarter of 2020does not anticipate material changes to permanently remove 12 Airbusestimated lease return costs previously recorded, as leases for aircraft from the operating fleet. As of June 30, 2020, all operating regional aircraft were in service.returning to service generally expire within a near term window.
Valuation of long-lived assetsWorkforce restructuring
The Company reviewscontinues to expect that demand will be below pre-pandemic levels through the end of 2021, but management will continue rebuilding capacity to 2019 levels. The Company reduced its long-lived assetsworkforce in 2020 to better align with the expected size of the business. To mitigate the need for impairment whenever eventsinvoluntary furloughs, various early-out and voluntary leave programs were made available to all frontline work groups, in addition to incentive leave programs made available to Alaska pilots and mechanics. Through these programs, over 600 employees took permanent early-outs and over 3,300 employees took voluntary or changes indicate that the total carrying amountincentive leaves. As of an asset or asset group may not be recoverable.June 30, 2021, approximately 1,800 employees remain on a voluntary leave program. The Company expects all employees on leave to return to work by October 2021.
To determine if impairment exists,In 2020, as a recoverability test is performed comparing the sumresult of estimated undiscounted future cash flows expected to be directly generated by the assets to the asset carrying value. Assets are grouped at the individual fleet level, which is the lowest level for which identifiable cash flows are available. The Company developed estimates of future cash flows utilizing historical results, adjusted for the current operating environment, including the impact of parked aircraft.
Given the temporary and permanent parking of certain aircraft described above,these programs, the Company performed impairment testsrecorded $220 million in wage expense for those pilots and mechanics on certain long-lived assets as of March 31, 2020incentive leaves, ongoing medical benefit coverage and again as of June 30, 2020. All individual fleets passed the recoverability test, except for the Q400 fleet and the permanently parked Airbus aircraft, which did not pass inlump-sum termination payments. In the first quarter of 2020.
In the first quarter,2021, the Company recorded an impairment chargerefined capacity expectations and training schedules, and delayed certain recalls to a future period beyond what was anticipated in the accrual at December 31, 2020, resulting in additional expense of $83 million for the 12 permanently parked Airbus aircraft, which was comprised of operating lease right of use assets, estimable return costs, and related leasehold improvements.$11 million. In the second quarter, demand improved at an accelerated pace, and the Company identified additional estimable return costs relatingissued recall notices to those permanently parked aircraft,all pilots on incentive leave for return-to-work by October 2021. As a result, $23 million of incentive leave accrual was reversed and recorded an additional $70 million charge.
Also in the first quarter, the Company recorded an impairment charge of $58 million reflecting the amount for which carrying value exceeded fair value of the Q400 fleet. The Company also recorded additional impairmentrecognized as a benefit within Special items - restructuring charges relating to 2 non-operating Q400 aircraft, which remain parked and held-for-sale, in the first quarter of 2020.
A summary of the impairment charges recorded for aircraft and other flight equipment in the condensed consolidated statementstatements of operations forduring the three months ended June 30, 2021. In total, the Company has recorded a net benefit from these adjustments of $12 million during the six months ended June 30, 2020 is as follows2021.
The table below presents a roll forward of the outstanding voluntary leave liability (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | Airbus Aircraft | | Q400 Aircraft | | Total Impairment |
Aircraft and other flight equipment, net | | $ | 11 | | | $ | 58 | | | $ | 69 | |
Operating lease assets | | 62 | | | — | | | 62 | |
Inventory and supplies - net | | 2 | | | — | | | 2 | |
Prepaid expenses and other current assets | | — | | | 3 | | | 3 | |
Other accrued liabilities | | 78 | | | — | | | 78 | |
Total impairment charges - Long-lived assets | | $ | 153 | | | $ | 61 | | | $ | 214 | |
| | | | | | | | |
| | Six Months Ended June 30, 2021 |
Total voluntary leave liability balance at January 1 | | $ | 127 | |
Cash payments | | (79) | |
Charges and adjustments | | (12) | |
Total voluntary leave liability balance at June 30 | | $ | 36 | |
The outstanding accrual is based on the Company's best estimate of capacity expectations and training schedules for 2021, as of the date of this filing. The Company will continue to evaluatemake the need for further impairment of long-lived assets as expectations of future demand, market conditions and fleet decisions evolve.
Valuation of intangible assets and goodwill
The Company reviews definite- and indefinite-lived intangible assets and goodwill for impairment on an annual basis in the fourth quarter, or more frequently should events or circumstances indicate that an impairment may exist.
Given strain in the general economic environment and a significant decline in Alaska Air Group market capitalization, the Company performed impairment tests on all three asset types as of March 31, 2020 and again as of June 30, 2020. As a result of these analyses, indefinite-lived intangible assets and goodwill were deemed recoverable, and no impairment charges were recorded. Of the company’s definite-lived intangibles, leased gates at Dallas-Love Field (DAL Gates) were deemed not recoverable and an impairment charge of $10 million was recorded in the first quarter. No additional impairment charges were identified for definite-lived intangibles as a resultmajority of the June 30, 2020 impairment test.
Other considerations
remaining cash payments associated with this liability in 2021. The Company also evaluated outstanding receivable balances for risk of non-payment. The Company identified a $5 million receivable from a vendor that filed for bankruptcy during the first quarter. The Company fully expects to file a bankruptcy claim but, as the notebalance is unsecured, management determined that collectability is not probable. Therefore, the full $5 million
was reservedreflected in accrued wages, benefits and charged to Special charges - impairment charges and other inpayroll taxes on the condensed consolidated statement of operations in the first quarter.
For the three and six months ended June 30, 2020, the Company concluded that the use of a year-to-date effective tax rate estimate was more appropriate than the annual effective tax rate method as estimates of the Company's full-year loss is not reliable at this time given the uncertainty of the travel demand environment.
Although it is not certain when the impacts of COVID-19 will subside and demand for air travel will return, the Company has implemented meaningful plans to reduce expenses, build liquidity and preserve cash. At June 30, 2020, given the balance of cash, cash equivalents and marketable securities, as well as anticipated access to liquidity and cash flows from future operations, the Company expects it will meet all cash obligations, as well as remain in compliance with the financial debt covenants in its existing financing arrangements, for the next 12 months. Refer to Note 5. Long-Term Debt for further information regarding liquidity obtained in response to the COVID-19 crisis.sheet.
CARES Act Funding
During the secondfirst quarter of 2021, Alaska, Horizon, and McGee finalized agreements with the U.S. DepartmentTreasury through an extension of the Treasury through the payroll support programPayroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act.Act, made available under the Consolidated Appropriations Act, 2021 (PSP 2). Under PSP 2 and the PSP and associatedsupporting agreements, Alaska and Horizon received $992total funds of approximately $539 million in the first quarter of 2021. In April 2021, Alaska and Horizon received an additional $80 million in funds made available under PSP 2.
Also in April 2021, Alaska, Horizon and McGee finalized additional agreements with the Treasury under a third round of the PSP, made available under the American Rescue Plan Act of 2021 (PSP 3). Under PSP 3 and the supporting agreements, Alaska, Horizon, and McGee received total funds of $585 million in the second quarter. Similarly, McGee entered into an agreement to receive a totalquarter of $30 million, of which $15 million was received in the second quarter, with the remainder expected to be received in two installments in the third quarter.2021.
Of the amounts received during the six months ended June 30, 2021, $311 million represented unsecured debt and was recorded at par, and $16 million represented warrants recorded at fair value using the Black-Scholes model. Both were recorded on the condensed consolidated balance sheet. The remaining $892 million was recorded as grant proceeds. These amounts are inclusive of additional funding of $8 million made available to McGee under the first installment of the PSP program (PSP 1). The grant is recorded as an offset to wages, salaries and benefits as eligible expenses are incurred. During the six months ended June 30, 2021, the Company recognized $914 million of the PSP grant proceeds as a wage offset. Included within this $914 million is approximately $21 million for employee retention credits as provided for in the CARES Act. The Company does not expect to record any additional wage offset in 2021.
Total funds contracted from the Treasury under the three Payroll Support Programs are to beallocated as follows (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Grants | | Loans | | Warrants | | Total Proceeds |
PSP 1 | $ | 757 | | | $ | 293 | | | $ | 9 | | | $ | 1,059 | |
PSP 2 | 457 | | | 160 | | | 9 | | | 626 | |
PSP 3 | 431 | | | 147 | | | 7 | | | 585 | |
Total | $ | 1,645 | | | $ | 600 | | | $ | 25 | | | $ | 2,270 | |
Funds are exclusively used exclusively toward continuing to payfor payment of employee salaries, wages and benefits. Upon receipt of the funds the Company is subject to variousissued under PSP 3, certain conditions including,and restrictions were extended. These conditions include, but are not limited to, refraining from conducting involuntary furloughs or reducing employee pay rates of pay through September 30, 20202021 and placing limits on executive compensation. Other conditionscompensation and severance through April 1, 2023. Alaska Air Group also prohibitagreed to continue the Company from repurchasing common stocksuspension of dividends and from paying dividendsshare repurchases until September 30, 2021, and require the Company to continue to maintain essential air service as directed by the U.S. Department of Transportation.
The funds received took the form of debt, warrants and a grant. The secured debt portion of $276 million was recorded at par. An additional $5 million of debt is expected to be issued in the third quarter as the remaining $15 million in funding is received by McGee. See Note 5 for further discussion. Warrants of $7 million were recorded on the condensed consolidated balance sheet at fair value determined using the Black-Scholes model. The residual amount of $723 million was recorded as grant proceeds on the condensed consolidated balance sheet as a deferred wage offset. The grant will be recognized into earnings as eligible wages, salaries and benefits are incurred. During the three months ended June 30, 2020, the Company recognized $362 million of the PSP grant proceeds as a wage offset.2022.
NOTE 3. REVENUE
Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue are passenger ancillary revenues such as bag fees, on-board food and beverage, ticket change fees, and certain revenue from the frequent flyer program. In 2020, the Company eliminated ticket change fees indefinitely from its main cabin and first class fares. Mileage Plan other revenue includes brand and marketing revenue from the Company'sour co-branded credit card and other partners and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.
The Company disaggregates revenue by segment in Note 9. The detailslevel of detail within the Company’s condensed consolidated statements of operations, segment disclosures, and in this footnote depict the nature, amount, timing and uncertainty of revenue and how cash flows are affected by economic and other factors.
Passenger Ticket and Ancillary Services Revenue
Passenger revenue recognized in the condensed consolidated statements of operations (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Passenger ticket revenue, including ticket breakage and net of taxes and fees | $ | 222 | | | $ | 1,792 | | | $ | 1,435 | | | $ | 3,231 | |
Passenger ancillary revenue | 31 | | | 147 | | | 147 | | | 271 | |
Mileage Plan passenger revenue | 56 | | | 172 | | | 208 | | | 325 | |
Total Passenger revenue | $ | 309 | | | $ | 2,111 | | | $ | 1,790 | | | $ | 3,827 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Passenger ticket revenue, including ticket breakage and net of taxes and fees | $ | 1,114 | | | $ | 222 | | | $ | 1,639 | | | $ | 1,435 | |
Passenger ancillary revenue | 84 | | | 31 | | | 134 | | | 147 | |
Mileage Plan passenger revenue | 154 | | | 56 | | | 238 | | | 208 | |
Total Passenger revenue | $ | 1,352 | | | $ | 309 | | | $ | 2,011 | | | $ | 1,790 | |
Mileage Plan™ Loyalty Program
Mileage Plan™ revenue included in the condensed consolidated statements of operations (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Passenger revenue | $ | 56 | | | $ | 172 | | | $ | 208 | | | $ | 325 | |
Mileage Plan other revenue | 73 | | | 118 | | | 182 | | | 228 | |
Total Mileage Plan revenue | $ | 129 | | | $ | 290 | | | $ | 390 | | | $ | 553 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Passenger revenue | $ | 154 | | | $ | 56 | | | $ | 238 | | | $ | 208 | |
Mileage Plan other revenue | 118 | | | 73 | | | 212 | | | 182 | |
Total Mileage Plan revenue | $ | 272 | | | $ | 129 | | | $ | 450 | | | $ | 390 | |
Cargo and Other
Cargo and other revenue included in the condensed consolidated statements of operations (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Cargo revenue | $ | 28 | | | $ | 38 | | | $ | 52 | | | $ | 68 | |
Other revenue | 11 | | | 21 | | | 33 | | | 41 | |
Total Cargo and other revenue | $ | 39 | | | $ | 59 | | | $ | 85 | | | $ | 109 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Cargo revenue | $ | 34 | | | $ | 28 | | | $ | 61 | | | $ | 52 | |
Other revenue | 23 | | | 11 | | | 40 | | | 33 | |
Total Cargo and other revenue | $ | 57 | | | $ | 39 | | | $ | 101 | | | $ | 85 | |
Air Traffic Liability and Deferred Revenue
Passenger ticket and ancillary services liabilities
The Company recognized Passenger revenue of $36 million$484 million and $563 millionnet refunds from the prior year-end air traffic liability balance for the three months ended June 30, 2021 and 2020, and $175 million and $484 million for the six months ended June 30, 20202021 and 2019.2020.
Given the ongoing reductionincrease in demand for air travel stemmingfrom the recovery from the COVID-19 pandemic, the Company has observed unprecedented declines in advance bookings and associated cash receipts.receipts have significantly increased in relation to prior year. The Company also saw significant cancellations beginning in March 2020,experienced increased revenue recognition from credits redeemed for travel, for which has led to cash refunds or the issuance of credits for future travel. Since the onset of the pandemic, the Company has issued cash refunds of $363 million and credits for future travel of $695 million. At June 30, 2020, such credits, which areremaining balance is included in the air traffic liability balance, totaled $568and total $387 million, net of breakage. In April 2020,2021, the Company announced updated expiration terms for these credits, extending to July 2021. At this time, the Company is unable to estimate how and when the air traffic liability will be recognized in earnings given ongoing uncertainty around the return in demandDecember 31, 2021 for air travel.possible travel through November 30, 2022.
Mileage PlanTM assets and liabilities
The Company records a receivable for amounts due from the bank partner and from other partners as mileage credits are sold until the payments are collected. The Company had $42$61 million of such receivables as of June 30, 20202021 and $105$48 million as of December 31, 2019. Consistent with the significant cancellation activity outlined above, the Company saw a substantial number of redeposits in the second quarter. Given the uncertainty around the return in2020. As demand for air travel continues to increase unpredictably, the Company is unable to determine how and whentiming of recognition of mileage credits will be recognized in earnings.may differ from current assumptions.
The table below presents a roll forward of the total frequent flyer liability (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | Six Months Ended June 30, | | |
| | | | | 2020 | | 2019 |
Total Deferred Revenue balance at January 1 | | | | | $ | 1,990 | | | $ | 1,874 | |
Travel miles and companion certificate redemption - Passenger revenue | | | | | (208) | | | (325) | |
Miles redeemed on partner airlines - Other revenue | | | | | (21) | | | (51) | |
Increase in liability for mileage credits issued | | | | | 313 | | | 451 | |
Total Deferred Revenue balance at June 30 | | | | | $ | 2,074 | | | $ | 1,949 | |
| | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| | | | | 2021 | | 2020 |
Total Deferred Revenue balance at January 1 | | | | | $ | 2,277 | | | $ | 1,990 | |
Travel miles and companion certificate redemption - Passenger revenue | | | | | (238) | | | (208) | |
Miles redeemed on partner airlines - Other revenue | | | | | (17) | | | (21) | |
Increase in liability for mileage credits issued | | | | | 324 | | | 313 | |
Total Deferred Revenue balance at June 30 | | | | | $ | 2,346 | | | $ | 2,074 | |
NOTE 4. FAIR VALUE MEASUREMENTS
In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.
Fair Value of Financial Instruments on a Recurring Basis
As of June 30, 2020,2021, total cost basis for all marketable securities was $1.3$2.9 billion. There were no significant differences between the cost basis and fair value of any individual class of marketable securities.
Fair values of financial instruments on the condensed consolidated balance sheet (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | | | December 31, 2019 | | | | |
| Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
| | | | | | | | | | | |
Assets | | | | | | | | | | | |
Marketable securities | | | | | | | | | | | |
U.S. government and agency securities | $ | 281 | | | $ | — | | | $ | 281 | | | $ | 330 | | | $ | — | | | $ | 330 | |
Equity mutual funds | 5 | | | — | | | 5 | | | 6 | | | — | | | 6 | |
Foreign government bonds | — | | | 22 | | | 22 | | | — | | | 31 | | | 31 | |
Asset-backed securities | — | | | 197 | | | 197 | | | — | | | 211 | | | 211 | |
Mortgage-backed securities | — | | | 214 | | | 214 | | | — | | | 176 | | | 176 | |
Corporate notes and bonds | — | | | 546 | | | 546 | | | — | | | 523 | | | 523 | |
Municipal securities | — | | | 29 | | | 29 | | | — | | | 23 | | | 23 | |
Total Marketable securities | 286 | | | 1,008 | | | 1,294 | | | 336 | | | 964 | | | 1,300 | |
Derivative instruments | | | | | | | | | | | |
Fuel hedge—call options | — | | | 5 | | | 5 | | | — | | | 11 | | | 11 | |
Interest rate swap agreements | — | | | — | | | — | | | — | | | 3 | | | 3 | |
Total Assets | $ | 286 | | | $ | 1,013 | | | $ | 1,299 | | | $ | 336 | | | $ | 978 | | | $ | 1,314 | |
| | | | | | | | | | | |
Liabilities | | | | | | | | | | | |
Derivative instruments | | | | | | | | | | | |
| | | | | | | | | | | |
Interest rate swap agreements | — | | | (33) | | | (33) | | | — | | | (10) | | | (10) | |
Total Liabilities | $ | — | | | $ | (33) | | | $ | (33) | | | $ | — | | | $ | (10) | | | $ | (10) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total |
| | | | | | | | | | | |
Assets | | | | | | | | | | | |
Marketable securities | | | | | | | | | | | |
U.S. government and agency securities | $ | 298 | | | $ | 0 | | | $ | 298 | | | $ | 407 | | | $ | 0 | | | $ | 407 | |
Equity mutual funds | 5 | | | 0 | | | 5 | | | 7 | | | 0 | | | 7 | |
Foreign government bonds | 0 | | | 31 | | | 31 | | | 0 | | | 20 | | | 20 | |
Asset-backed securities | 0 | | | 330 | | | 330 | | | 0 | | | 224 | | | 224 | |
Mortgage-backed securities | 0 | | | 253 | | | 253 | | | 0 | | | 290 | | | 290 | |
Corporate notes and bonds | 0 | | | 1,943 | | | 1,943 | | | 0 | | | 978 | | | 978 | |
Municipal securities | 0 | | | 66 | | | 66 | | | 0 | | | 50 | | | 50 | |
Total Marketable securities | 303 | | | 2,623 | | | 2,926 | | | 414 | | | 1,562 | | | 1,976 | |
Derivative instruments | | | | | | | | | | | |
Fuel hedge - call options | 0 | | | 92 | | | 92 | | | 0 | | | 15 | | | 15 | |
| | | | | | | | | | | |
Total Assets | $ | 303 | | | $ | 2,715 | | | $ | 3,018 | | | $ | 414 | | | $ | 1,577 | | | $ | 1,991 | |
| | | | | | | | | | | |
Liabilities | | | | | | | | | | | |
Derivative instruments | | | | | | | | | | | |
| | | | | | | | | | | |
Interest rate swap agreements | 0 | | | (16) | | | (16) | | | 0 | | | (25) | | | (25) | |
Total Liabilities | $ | 0 | | | $ | (16) | | | $ | (16) | | | $ | 0 | | | $ | (25) | | | $ | (25) | |
The Company uses both the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.
The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in
active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts isare determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end multiplied by the total notional value.
Activity and Maturities for Marketable Securities
Unrealized losses from marketable securities are primarily attributable to changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of available information as of June 30, 2020.2021.
Maturities for marketable securities (in millions):
| | | | | | | | | | | |
June 30, 2020 | Cost Basis | | Fair Value |
Due in one year or less | $ | 133 | | | $ | 134 | |
Due after one year through five years | 1,063 | | | 1,094 | |
Due after five years through 10 years | 60 | | | 61 | |
| | | |
Total | $ | 1,256 | | | $ | 1,289 | |
| | | | | | | | | | | |
June 30, 2021 | Cost Basis | | Fair Value |
Due in one year or less | $ | 1,538 | | | $ | 1,539 | |
Due after one year through five years | 1,280 | | | 1,294 | |
Due after five years through 10 years | 88 | | | 88 | |
| | | |
Total | $ | 2,906 | | | $ | 2,921 | |
Fair Value of Other Financial Instruments
The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.
Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper and certificates of deposit. They are carried at cost, which approximates fair value.
The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.
Debt: Debt assumed in the acquisition of Virgin America was subject to a non-recurring fair valuation adjustment as part of purchase price accounting. The adjustment is amortized over the life of the associated debt. All other fixed-rate debt is carried at cost. To estimate the fair value of all fixed-rate debt as of June 30, 2020,2021, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate debt is Level 2, as it is estimated using observable inputs, while the estimated fair value of $780 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as certain inputs used are unobservable.it is not actively traded and is valued using discounted cash flows which is an unobservable input.
Fixed-rate debt on the condensed consolidated balance sheet and the estimated fair value of long-term fixed-rate debt is as follows (in millions):
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Fixed-rate debt at cost | $ | 444 | | | $ | 473 | |
Non-recurring purchase price accounting fair value adjustment | 2 | | | 2 | |
Total fixed-rate debt | $ | 446 | | | $ | 475 | |
| | | |
Estimated fair value | $ | 463 | | | $ | 483 | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | | |
| | | |
Total fixed-rate debt | $ | 1,896 | | | $ | 1,662 | |
| | | |
Estimated fair value | $ | 2,019 | | | $ | 1,778 | |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. Refer to Note 2 for discussion regarding impairment charges recorded during the three and six months ended June 30, 2020. No material impairment chargesimpairments were recorded during the three and six months ended June 30, 2019.2021.
NOTE 5. LONG-TERM DEBT
Long-term debt obligations on the condensed consolidated balance sheet (in millions):
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Fixed-rate notes payable due through 2029 | $ | 446 | | | $ | 475 | |
Fixed-rate PSP notes payable due through 2030 | 276 | | | — | |
Variable-rate notes payable due through 2029 | 1,925 | | | 1,032 | |
Less debt issuance costs | (11) | | | (8) | |
Total debt | 2,636 | | | 1,499 | |
Less current portion | 1,087 | | | 235 | |
Long-term debt, less current portion | $ | 1,549 | | | $ | 1,264 | |
| | | |
Weighted-average fixed-interest rate | 2.4 | % | | 3.3 | % |
Weighted-average variable-interest rate | 2.0 | % | | 2.9 | % |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Fixed-rate notes payable due through 2029 | $ | 180 | | | $ | 198 | |
Fixed-rate PSP notes payable due through 2031 | 600 | | | 290 | |
Fixed-rate EETC payable due through 2025 & 2027 | 1,116 | | | 1,174 | |
Variable-rate notes payable due through 2029 | 1,315 | | | 1,866 | |
Less debt issuance costs and unamortized debt discount | (23) | | | (33) | |
Total debt | 3,188 | | | 3,495 | |
Less current portion | 869 | | | 1,138 | |
Long-term debt, less current portion | $ | 2,319 | | | $ | 2,357 | |
| | | |
Weighted-average fixed-interest rate | 3.7 | % | | 4.3 | % |
Weighted-average variable-interest rate | 1.6 | % | | 1.9 | % |
Approximately $666$562 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at June 30, 2020.2021, resulting in an effective weighted-average interest rate for the full debt portfolio of 3.1%.
During the six months ended June 30, 2020,2021, the Company obtained additional securedissued $363 million of debt, financingcomprised of $589$311 million of unsecured loans from multiple lenders. The newthe PSP and $54 million in proceeds from issuance of debt. Debt proceeds were offset by $681 million in debt is secured by a
payments. Included within total of 32 aircraft. The Company also made scheduled debt payments is the full repayment of $125the $135 million duringloan from the six months ended June 30, 2020.U.S. Treasury made available under the CARES Act and the $363 million outstanding balance on two credit facilities.
The $276$600 million PSP note is annotes are unsecured senior term loanloans with a 10-year term, bearing an interest rate of 1% in years 1 through 5, and an interest rate equal to the Secured Overnight Financing Rate (SOFR) plus 2% in years 6 through 10. The loan isPSP notes are prepayable at par at any time. Alaska and Horizon PSP proceeds were deposited into an account which will be drawn down over time for payroll expenses. That account and the balance of the proceeds will serve as the only collateral for the loan.without penalty.
CARES Act
In 2020, the Company finalized an agreement with the Treasury to obtain up to $1.9 billion via a secured term loan facility. Obligations under the loan agreement were secured by assets related to, and revenues generated by, Alaska's Mileage PlanTM frequent flyer program, as well as by 30 aircraft and 15 spare engines. In 2020, the Company drew $135 million under the agreement, which was used for certain general corporate purposes and operating expenses in accordance with the terms and conditions of the loan agreement and the applicable provisions of the CARES Act. The full balance was repaid in the second quarter of 2021. In accordance with the related agreement, the facility terminated at the time of payment.
Debt Maturity
At June 30, 20202021 long-term debt principal payments for the next five years and thereafter are as follows (in millions):
| | | | | |
| Total |
Remainder of 2020 | $ | 529 | |
2021 | 742 | |
2022 | 281 | |
2023 | 245 | |
2024 | 153 | |
Thereafter | 695 | |
Total | $ | 2,645 | |
Subsequent to quarter end, the Company obtained $1.2 billion in private funding through the issuance of Enhanced Equipment Trust Certificates (EETC). The EETCs are collateralized by 42 Boeing 737 aircraft and 19 Embraer E175 aircraft. | | | | | |
| Total |
Remainder of 2021 | $ | 227 | |
2022 | 796 | |
2023 | 334 | |
2024 | 240 | |
2025 | 261 | |
Thereafter | 1,353 | |
Total | $ | 3,211 | |
Bank Lines of Credit
The Company has 3 credit facilities with capacityavailability totaling $516 million, and availability of $509$486 million as of June 30, 2020. All 32021, resulting from the second quarter 2021 repayment of $363 million. One of the credit facilities have variable interest rates based on LIBOR plus a specified margin. One credit facility for $250 million expires in June 2021 and is secured by aircraft. A second credit facility with capacity of $150 million and availability of $143 million expires in March 2022 and is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. The second credit facility for $250 million expires in June 2024 and is secured by aircraft. These two facilities have variable interest rates based on LIBOR plus a specified margin. A third credit facility for $116$86 million expires in July 2020, with a mechanism for annual renewal,June 2022 and is secured by aircraft.
During the six months ended June 30, 2020, the Company drew $400 million on the first 2 existing facilities. In the second quarter, the Company repaid $7 million on the second credit facility. The Company has drawn the full availability of both facilities, and the outstanding balance is classified as short-term on the condensed consolidated balance sheet. The Company also has secured letters of credit against the $116 million facility.third facility, but has no plans to borrow using either of the other two facilities. All 3 credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. The Company was in compliance with this covenant at June 30, 2020.2021.
NOTE 6. EMPLOYEE BENEFIT PLANS
Net periodic benefit costs for qualified defined-benefit plans include the following (in millions): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | 13 | | | $ | 13 | | | $ | 26 | | | $ | 26 | |
Pension expense included in Wages and benefits | 13 | | | 13 | | | 26 | | | 26 | |
| | | | | | | |
Interest cost | 14 | | | 19 | | | 28 | | | 38 | |
Expected return on assets | (30) | | | (27) | | | (61) | | | (55) | |
| | | | | | | |
Recognized actuarial loss | 9 | | | 8 | | | 18 | | | 17 | |
Pension expense included in Nonoperating Income (Expense) | $ | (7) | | | $ | 0 | | | $ | (15) | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Service cost | $ | 13 | | | $ | 10 | | | $ | 26 | | | $ | 21 | |
Pension expense included in Wages and benefits | 13 | | | 10 | | | 26 | | | 21 | |
| | | | | | | |
Interest cost | 19 | | | 22 | | | 38 | | | 44 | |
Expected return on assets | (27) | | | (23) | | | (55) | | | (47) | |
Recognized actuarial loss | 8 | | | 9 | | | 17 | | | 18 | |
Pension expense included in Nonoperating Income (Expense) | $ | — | | | $ | 8 | | | $ | — | | | $ | 15 | |
NOTE 7. COMMITMENTS AND CONTINGENCIES
Future minimum payments for commitments as of June 30, 20202021 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Aircraft Commitments(a) | | Capacity Purchase Agreements (b) | | Aircraft Maintenance Deposits |
Remainder of 2020 | | | | | | | | | $ | 335 | | | $ | 36 | | | $ | 12 | |
2021 | | | | | | | | | 554 | | | 166 | | | 53 | |
2022 | | | | | | | | | 337 | | | 174 | | | 45 | |
2023 | | | | | | | | | 186 | | | 179 | | | 24 | |
2024 | | | | | | | | | 18 | | | 184 | | | 6 | |
Thereafter | | | | | | | | | 25 | | | 880 | | | 2 | |
Total | | | | | | | | | $ | 1,455 | | | $ | 1,619 | | | $ | 142 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Aircraft Commitments(a) | | Capacity Purchase Agreements (b) | | |
Remainder of 2021 | | | | | | | | | $ | 107 | | | $ | 82 | | | |
2022 | | | | | | | | | 1,458 | | | 173 | | | |
2023 | | | | | | | | | 1,207 | | | 178 | | | |
2024 | | | | | | | | | 291 | | | 183 | | | |
2025 | | | | | | | | | 76 | | | 188 | | | |
Thereafter | | | | | | | | | 12 | | | 877 | | | |
Total | | | | | | | | | $ | 3,151 | | | $ | 1,681 | | | |
(a)Includes non-cancelable contractual commitments for aircraft and engines, aircraft maintenance and parts management.
(b)Includes all non-aircraft lease costs associated with capacity purchase agreements. In the second quarter, Alaska entered into an agreement with SkyWest to defer a portion of 2020 payments and eliminate contractual minimums through September 30, 2020.
In the second quarter, the Company renegotiated scheduled payments with certain lessors and vendor partners, including the reduction of minimum obligations and rates. The impact of those negotiations on our leases was not material to the operating lease liability. The Company has also deferred the payment of remaining 2020 contractual aircraft commitments, including those related to the B737 MAX9, to periods beyond 2020.
Aircraft Commitments
Aircraft purchase commitments include non-cancelable contractual commitments for aircraft and engines. As of June 30, 2020,2021, Alaska had commitments to purchase 32 B737 MAX963 B737-9 MAX aircraft, with contracted deliveries between 20202021 and 2023. As a result of the grounding order mandated by the FAA on March 13, 2019, the delivery schedule for these MAX aircraft is subject to change.2024. Future minimum contractual payments for these aircraft have been updated to reflect the possibleexpected delivery timing, but are also subject to change. Horizon also has commitments to purchase 312 E175 aircraft with deliveries in 2023.between 2022 and 2025. Alaska has cancelable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through 2026.2027. In addition, Alaska has options to purchase 37 B73739 B737-9 MAX aircraft, and Horizon has options to purchase 3021 E175 aircraft. Alaska also has the option to increase capacity flown by SkyWest with 8 additional E175 aircraft with deliveries in 2022.
The cancelable purchase commitments and option payments are not reflected in the table above. Given the current COVID-19 pandemic, the Company is in discussion with aircraft manufacturers regarding these purchase commitments and delivery timelines.
Contingencies
The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.
In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company believes the claims in this case are without factual and legal merit.
In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. On February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and holds an accrual for $22 million in Other accrued liabilities on the condensed consolidated balance sheets. It did not award injunctive relief against Alaska Airlines.
The Company is seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U.S. Constitution and federal law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal. For these reasons, no loss has been accrued.
The Company is involved in other litigation around the application of state and local employment laws, like many air carriers. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.
This forward-looking statement is based on management's current understanding of the relevant law and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.
NOTE 8. SHAREHOLDERS' EQUITY
Common Stock Repurchase
In August 2015, the Board of Directors authorized a $1 billion share repurchase program. As of June 30, 2020,2021, the Company has repurchased 7.6 million shares for $544 million under this program. In March 2020, the Company suspended the share repurchase program indefinitely.
CARES Act Warrant IssuanceIssuances
As additional taxpayer protection required under PSP programs, during the PSP,six months ended June 30, 2021 the Company granted the Treasury Department 874,344a total of 539,508 warrants to purchase Alaska Air Group (ALK) common stock at a strike price of $31.61, based on the closing price on April 9, 2020.stock. The warrants are non-voting, freely transferable, may be settled as net shares or in cash at Alaska's option, and have a five yearfive-year term. Additional
Additionally, in conjunction with the October 2020 draw on the CARES Act Loan, the Company granted the Treasury 427,080 warrants to purchase 14,327 shares of Air GroupALK common stock will be issued to Treasury in connection with McGee's receiptstock. The value of the remaining secondwarrants was estimated using a Black-Scholes option pricing model, and third installmentsthe relative fair value of PSP fundsthe warrants of $6 million was recorded in the third quarter.stockholders' equity.
Total warrants outstanding are as follows as of June 30, 2021: | | | | | | | | | | | |
| Number of shares of ALK common stock | | Strike Price |
PSP 1 | 928,127 | | | 31.61 |
CARES Act loan warrants | 427,080 | | | 31.61 |
PSP 2 | 305,499 | | | 52.25 |
PSP 3 | 221,812 | | | 66.39 |
Total | 1,882,518 | | | |
Accumulated Other Comprehensive Lossother comprehensive loss
Components of accumulated other comprehensive loss, net of tax (in millions):
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Related to marketable securities | $ | 25 | | | $ | 9 | |
Related to employee benefit plans | (458) | | | (469) | |
Related to interest rate derivatives | (25) | | | (5) | |
Total | $ | (458) | | | $ | (465) | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Related to marketable securities | $ | 10 | | | $ | 23 | |
Related to employee benefit plans | (485) | | | (498) | |
Related to interest rate derivatives | (12) | | | (19) | |
Total | $ | (487) | | | $ | (494) | |
Earnings (Loss) Per Share (EPS)
Diluted EPS is calculated by dividing net income by the average number of common shares outstanding plus the number of additional common shares that would have been outstanding assuming the exercise of in-the-money stock options and restricted stock units, using the treasury-stock method. Loss per share is calculated by dividing net loss by the average number of basic shares outstanding. For the three and six months ended June 30, 2020 and 2019,2021, anti-dilutive shares excluded from the calculation of EPS were not material.
NOTE 9. OPERATING SEGMENT INFORMATION
Alaska Air Group has two operating airlines—airlines – Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon, as well as with third-party carriers,SkyWest, under which Alaska receives all passenger revenues.
Under U.S. GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions. Financial performance for the operating airlines and CPAs is managed and reviewed by the Company's CODM as part of 3three reportable operating segments:
•Mainline - includes scheduled air transportation on Alaska's Boeing or Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, and Costa Rica.
•Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under a CPA. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.
•Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.
The CODM makes resource allocation decisions for these reporting segments based on flight profitability data, aircraft type, route economics and other financial information.
The "Consolidating and Other" column reflects Air Group parent company activity, McGee Air Services, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is used by the Company's CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.
Operating segment information is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | $ | 225 | | | $ | 84 | | | $ | — | | | $ | — | | | $ | 309 | | | $ | — | | | $ | 309 | |
CPA revenues | — | | | — | | | 81 | | | (81) | | | — | | | — | | | — | |
Mileage Plan other revenue | 56 | | | 17 | | | — | | | — | | | 73 | | | — | | | 73 | |
Cargo and other | 39 | | | — | | | — | | | — | | | 39 | | | — | | | 39 | |
Total Operating Revenues | 320 | | | 101 | | | 81 | | | (81) | | | 421 | | | — | | | 421 | |
Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 746 | | | 210 | | | 68 | | | (82) | | | 942 | | | (292) | | | 650 | |
Economic fuel | 45 | | | 20 | | | — | | | — | | | 65 | | | (6) | | | 59 | |
Total Operating Expenses | 791 | | | 230 | | | 68 | | | (82) | | | 1,007 | | | (298) | | | 709 | |
Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | 11 | | | — | | | — | | | (4) | | | 7 | | | — | | | 7 | |
Interest expense | (18) | | | — | | | (5) | | | 6 | | | (17) | | | — | | | (17) | |
Interest capitalized | 1 | | | — | | | — | | | — | | | 1 | | | — | | | 1 | |
Other - net | 6 | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
Total Nonoperating Income (Expense) | — | | | — | | | (5) | | | 2 | | | (3) | | | — | | | (3) | |
Income (Loss) Before Income Tax | $ | (471) | | | $ | (129) | | | $ | 8 | | | $ | 3 | | | $ | (589) | | | $ | 298 | | | $ | (291) | |
| | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 | | | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | $ | 1,767 | | | $ | 344 | | | $ | — | | | $ | — | | | $ | 2,111 | | | $ | — | | | $ | 2,111 | |
CPA revenues | — | | | — | | | 112 | | | (112) | | | — | | | — | | | — | |
Mileage Plan other revenue | 105 | | | 13 | | | — | | | — | | | 118 | | | — | | | 118 | |
Cargo and other | 57 | | | — | | | — | | | 2 | | | 59 | | | — | | | 59 | |
Total Operating Revenues | 1,929 | | | 357 | | | 112 | | | (110) | | | 2,288 | | | — | | | 2,288 | |
Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 1,167 | | | 268 | | | 95 | | | (116) | | | 1,414 | | | 8 | | | 1,422 | |
Economic fuel | 422 | | | 77 | | | — | | | — | | | 499 | | | 3 | | | 502 | |
Total Operating Expenses | 1,589 | | | 345 | | | 95 | | | (116) | | | 1,913 | | | 11 | | | 1,924 | |
Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | 17 | | | — | | | — | | | (6) | | | 11 | | | — | | | 11 | |
Interest expense | (19) | | | — | | | (7) | | | 6 | | | (20) | | | — | | | (20) | |
Interest capitalized | 3 | | | — | | | — | | | — | | | 3 | | | — | | | 3 | |
Other - net | (7) | | | — | | | — | | | — | | | (7) | | | — | | | (7) | |
Total Nonoperating Income (Expense) | (6) | | | — | | | (7) | | | — | | | (13) | | | — | | | (13) | |
Income (Loss) Before Income Tax | $ | 334 | | | $ | 12 | | | $ | 10 | | | $ | 6 | | | $ | 362 | | | $ | (11) | | | $ | 351 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
| Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | $ | 1,072 | | | $ | 280 | | | $ | 0 | | | $ | 0 | | | $ | 1,352 | | | $ | 0 | | | $ | 1,352 | |
CPA revenues | 0 | | | 0 | | | 111 | | | (111) | | | 0 | | | 0 | | | 0 | |
Mileage Plan other revenue | 102 | | | 16 | | | 0 | | | 0 | | | 118 | | | 0 | | | 118 | |
Cargo and other | 55 | | | 0 | | | 0 | | | 2 | | | 57 | | | 0 | | | 57 | |
Total Operating Revenues | 1,229 | | | 296 | | | 111 | | | (109) | | | 1,527 | | | 0 | | | 1,527 | |
Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 984 | | | 286 | | | 91 | | | (127) | | | 1,234 | | | (530) | | | 704 | |
Economic fuel | 253 | | | 66 | | | 0 | | | 1 | | | 320 | | | (46) | | | 274 | |
Total Operating Expenses | 1,237 | | | 352 | | | 91 | | | (126) | | | 1,554 | | | (576) | | | 978 | |
Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 6 | |
Interest expense | (34) | | | 0 | | | (5) | | | 0 | | | (39) | | | 0 | | | (39) | |
Interest capitalized | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 3 | |
Other - net | 9 | | | 0 | | | 0 | | | 0 | | | 9 | | | 0 | | | 9 | |
Total Nonoperating Income (Expense) | (16) | | | 0 | | | (5) | | | 0 | | | (21) | | | 0 | | | (21) | |
Income (Loss) Before Income Tax | $ | (24) | | | $ | (56) | | | $ | 15 | | | $ | 17 | | | $ | (48) | | | $ | 576 | | | $ | 528 | |
| | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 |
| Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | $ | 225 | | | $ | 84 | | | $ | 0 | | | $ | 0 | | | $ | 309 | | | $ | 0 | | | $ | 309 | |
CPA revenues | 0 | | | 0 | | | 81 | | | (81) | | | 0 | | | 0 | | | 0 | |
Mileage Plan other revenue | 56 | | | 17 | | | 0 | | | 0 | | | 73 | | | 0 | | | 73 | |
Cargo and other | 39 | | | 0 | | | 0 | | | 0 | | | 39 | | | 0 | | | 39 | |
Total Operating Revenues | 320 | | | 101 | | | 81 | | | (81) | | | 421 | | | 0 | | | 421 | |
Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 746 | | | 210 | | | 68 | | | (82) | | | 942 | | | (292) | | | 650 | |
Economic fuel | 45 | | | 20 | | | 0 | | | 0 | | | 65 | | | (6) | | | 59 | |
Total Operating Expenses | 791 | | | 230 | | | 68 | | | (82) | | | 1,007 | | | (298) | | | 709 | |
Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | 11 | | | 0 | | | 0 | | | (4) | | | 7 | | | 0 | | | 7 | |
Interest expense | (18) | | | 0 | | | (5) | | | 6 | | | (17) | | | 0 | | | (17) | |
Interest capitalized | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1 | |
Other - net | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 6 | |
Total Nonoperating Income (Expense) | 0 | | | 0 | | | (5) | | | 2 | | | (3) | | | 0 | | | (3) | |
Income (Loss) Before Income Tax | $ | (471) | | | $ | (129) | | | $ | 8 | | | $ | 3 | | | $ | (589) | | | $ | 298 | | | $ | (291) | |
| | | Six Months Ended June 30, 2020 | | | Six Months Ended June 30, 2021 |
| | Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated | | Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | Operating Revenues | | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | Passenger revenues | 1,459 | | | 331 | | | — | | | — | | | 1,790 | | | — | | | 1,790 | | Passenger revenues | $ | 1,578 | | | $ | 433 | | | $ | 0 | | | $ | 0 | | | $ | 2,011 | | | $ | 0 | | | $ | 2,011 | |
CPA revenues | CPA revenues | — | | | — | | | 186 | | | (186) | | | — | | | — | | | — | | CPA revenues | 0 | | | 0 | | | 215 | | | (215) | | | 0 | | | 0 | | | 0 | |
Mileage Plan other revenue | Mileage Plan other revenue | 154 | | | 28 | | | — | | | — | | | 182 | | | — | | | 182 | | Mileage Plan other revenue | 182 | | | 30 | | | 0 | | | 0 | | | 212 | | | 0 | | | 212 | |
Cargo and other | Cargo and other | 83 | | | — | | | — | | | 2 | | | 85 | | | — | | | 85 | | Cargo and other | 99 | | | 0 | | | 0 | | | 2 | | | 101 | | | 0 | | | 101 | |
Total Operating Revenues | Total Operating Revenues | 1,696 | | | 359 | | | 186 | | | (184) | | | 2,057 | | | — | | | 2,057 | | Total Operating Revenues | 1,859 | | | 463 | | | 215 | | | (213) | | | 2,324 | | | 0 | | | 2,324 | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | Operating expenses, excluding fuel | 1,905 | | | 479 | | | 160 | | | (192) | | | 2,352 | | | (129) | | | 2,223 | | Operating expenses, excluding fuel | 1,877 | | | 551 | | | 179 | | | (236) | | | 2,371 | | | (912) | | | 1,459 | |
Economic fuel | Economic fuel | 358 | | | 82 | | | — | | | — | | | 440 | | | 3 | | | 443 | | Economic fuel | 427 | | | 118 | | | 0 | | | 0 | | | 545 | | | (68) | | | 477 | |
Total Operating Expenses | Total Operating Expenses | 2,263 | | | 561 | | | 160 | | | (192) | | | 2,792 | | | (126) | | | 2,666 | | Total Operating Expenses | 2,304 | | | 669 | | | 179 | | | (236) | | | 2,916 | | | (980) | | | 1,936 | |
Nonoperating Income (Expense) | Nonoperating Income (Expense) | | | | | | | | | | | | | | Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | Interest income | 25 | | | — | | | — | | | (9) | | | 16 | | | — | | | 16 | | Interest income | 13 | | | 0 | | | 0 | | | 0 | | | 13 | | | 0 | | | 13 | |
Interest expense | Interest expense | (30) | | | — | | | (10) | | | 10 | | | (30) | | | — | | | (30) | | Interest expense | (61) | | | 0 | | | (10) | | | 0 | | | (71) | | | 0 | | | (71) | |
Interest capitalized | Interest capitalized | 4 | | | — | | | — | | | — | | | 4 | | | — | | | 4 | | Interest capitalized | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 6 | |
Other - net | Other - net | 12 | | | — | | | — | | | (1) | | | 11 | | | — | | | 11 | | Other - net | 19 | | | 0 | | | 0 | | | 0 | | | 19 | | | 0 | | | 19 | |
Total Nonoperating Income (Expense) | Total Nonoperating Income (Expense) | 11 | | | — | | | (10) | | | — | | | 1 | | | — | | | 1 | | Total Nonoperating Income (Expense) | (23) | | | 0 | | | (10) | | | 0 | | | (33) | | | 0 | | | (33) | |
Income (Loss) Before Income Tax | Income (Loss) Before Income Tax | (556) | | | (202) | | | 16 | | | 8 | | | (734) | | | 126 | | | (608) | | Income (Loss) Before Income Tax | $ | (468) | | | $ | (206) | | | $ | 26 | | | $ | 23 | | | $ | (625) | | | $ | 980 | | | $ | 355 | |
| | | Six Months Ended June 30, 2019 | | | Six Months Ended June 30, 2020 |
| | Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated | | Mainline | | Regional | | Horizon | | Consolidating & Other(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating Revenues | Operating Revenues | | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | | |
Passenger revenues | Passenger revenues | 3,189 | | | 638 | | | — | | | — | | | 3,827 | | | — | | | 3,827 | | Passenger revenues | $ | 1,459 | | | $ | 331 | | | $ | 0 | | | $ | 0 | | | $ | 1,790 | | | $ | 0 | | | $ | 1,790 | |
CPA revenues | CPA revenues | — | | | — | | | 228 | | | (228) | | | — | | | — | | | — | | CPA revenues | 0 | | | 0 | | | 186 | | | (186) | | | 0 | | | 0 | | | 0 | |
Mileage Plan other revenue | Mileage Plan other revenue | 205 | | | 23 | | | — | | | — | | | 228 | | | — | | | 228 | | Mileage Plan other revenue | 154 | | | 28 | | | 0 | | | 0 | | | 182 | | | 0 | | | 182 | |
Cargo and other | Cargo and other | 105 | | | 1 | | | 1 | | | 2 | | | 109 | | | — | | | 109 | | Cargo and other | 83 | | | 0 | | | 0 | | | 2 | | | 85 | | | 0 | | | 85 | |
Total Operating Revenues | Total Operating Revenues | 3,499 | | | 662 | | | 229 | | | (226) | | | 4,164 | | | — | | | 4,164 | | Total Operating Revenues | 1,696 | | | 359 | | | 186 | | | (184) | | | 2,057 | | | 0 | | | 2,057 | |
Operating Expenses | Operating Expenses | | | | | | | | | | | | | | Operating Expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | Operating expenses, excluding fuel | 2,319 | | | 542 | | | 192 | | | (234) | | | 2,819 | | | 34 | | | 2,853 | | Operating expenses, excluding fuel | 1,905 | | | 479 | | | 160 | | | (192) | | | 2,352 | | | (129) | | | 2,223 | |
Economic fuel | Economic fuel | 780 | | | 143 | | | — | | | — | | | 923 | | | (1) | | | 922 | | Economic fuel | 358 | | | 82 | | | 0 | | | 0 | | | 440 | | | 3 | | | 443 | |
Total Operating Expenses | Total Operating Expenses | 3,099 | | | 685 | | | 192 | | | (234) | | | 3,742 | | | 33 | | | 3,775 | | Total Operating Expenses | 2,263 | | | 561 | | | 160 | | | (192) | | | 2,792 | | | (126) | | | 2,666 | |
Nonoperating Income (Expense) | Nonoperating Income (Expense) | | | | | | | | | | | | | | Nonoperating Income (Expense) | | | | | | | | | | | | | |
Interest income | Interest income | 33 | | | — | | | — | | | (13) | | | 20 | | | — | | | 20 | | Interest income | 25 | | | 0 | | | 0 | | | (9) | | | 16 | | | 0 | | | 16 | |
Interest expense | Interest expense | (40) | | | — | | | (15) | | | 13 | | | (42) | | | — | | | (42) | | Interest expense | (30) | | | 0 | | | (10) | | | 10 | | | (30) | | | 0 | | | (30) | |
Interest capitalized | Interest capitalized | 7 | | | — | | | — | | | — | | | 7 | | | — | | | 7 | | Interest capitalized | 4 | | | 0 | | | 0 | | | 0 | | | 4 | | | 0 | | | 4 | |
Other - net | Other - net | (17) | | | — | | | — | | | — | | | (17) | | | — | | | (17) | | Other - net | 12 | | | 0 | | | 0 | | | (1) | | | 11 | | | 0 | | | 11 | |
Total Nonoperating Income (Expense) | Total Nonoperating Income (Expense) | (17) | | | — | | | (15) | | | — | | | (32) | | | — | | | (32) | | Total Nonoperating Income (Expense) | 11 | | | 0 | | | (10) | | | 0 | | | 1 | | | 0 | | | 1 | |
Income (Loss) Before Income Tax | Income (Loss) Before Income Tax | 383 | | | (23) | | | 22 | | | 8 | | | 390 | | | (33) | | | 357 | | Income (Loss) Before Income Tax | $ | (556) | | | $ | (202) | | | $ | 16 | | | $ | 8 | | | $ | (734) | | | $ | 126 | | | $ | (608) | |
|
(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 allocationsallocation and excludes certain income and charges. See Note A in the accompanying pages for further information.
(c)Includes payroll support program grantPayroll Support Program wage offsets, special items and mark-to-market fuel hedge accounting adjustments.
Total assets were as follows (in millions):
| | | | | | | | | | | |
| June 30, 2020 | | December 31, 2019 |
Mainline | $ | 20,261 | | | $ | 19,207 | |
Horizon | 1,199 | | | 1,266 | |
Consolidating & Other | (7,462) | | | (7,480) | |
Consolidated | $ | 13,998 | | | $ | 12,993 | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Mainline | $ | 19,920 | | | $ | 19,754 | |
Horizon | 1,251 | | | 1,170 | |
Consolidating & Other | (6,515) | | | (6,878) | |
Consolidated | $ | 14,656 | | | $ | 14,046 | |
| | |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company, segment operations and the present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in "Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, and in Item 1A. "Risk Factors" of Part II of this Form 10-Q.2020. This overview summarizes the MD&A, which includes the following sections:
•Second Quarter Review—highlights from the second quarter of 20202021 outlining some of the major events that happened during the period and how they affected our financial performance.
•Results of Operations—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three and six months ended June 30, 2020.2021. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of 2020.2021.
•Liquidity and Capital Resources—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.
SECOND QUARTER REVIEW
COVID-19 ImpactsBusiness Recovery and ResponseFinancial Outlook
TheSecond quarter 2021 results indicate we have reached a turning point in our recovery from the significant impacts of the COVID-19 on our business have been unprecedented, and have presented us with some of the greatest challenges in our 88-year history. The cancellation of large public events, suspension of business travel, closure of popular tourist destinations and implementation of stay-at-home orders throughout the country beginning in March 2020, and continuing through to June 2020, has driven demand for air travel to historic lows.
As we entered the second quarter, passenger counts were approximately 5% of prior year levels. Throughout the quarter, we began to see slight improvements in demand and new bookings, with daily passenger counts peaking around 20% of prior year levels, primarily driven by leisure travelers.
Currently, we are planning a capacity reduction of about 50%pandemic. Early in the third quarter and about 35% in the fourth quarter, although that is subjectpandemic we shared plans to change based on demand. Given the significant reduction toreturn capacity it is critical that we take action to address the size of our workforce. In an effort to mitigate the need for involuntary furloughs, we have initiated various early-out and voluntary furlough programs for most frontline workers and provided incentive leave options to our pilots. To date, we have had approximately 4,000 volunteers for these programs. In addition, we made the difficult decision to reduce our non-union management positions by approximately 300 management positions. In total these changes are expected to result in a prudent manner, only when demand supported doing so. We also established structural cost removal targets that have positioned the airline well for returning to profitability in recovery. With the strong return of $250 million to $300 million, which will be recognizeddemand in the third quarter. We sent WARN notices on August 1 to approximately 4,000 employees, who may be potentially impacted if we determine furloughs are needed to adjust the workforce to fit the new size of the business.
Changes to our workforce is one of the ways we will reduce costs as we restructure our business. These and other cost reduction measures are critical to reaching our monthly cash burn goals. In the second quarter, we reducedreported an adjusted net loss that was significantly better than previous quarterly losses, and we currently expect double-digit adjusted pre-tax profit margins in the third quarter.
In the second half of 2021, we remain committed to returning capacity in a deliberate manner to match the return of leisure and business demand in the markets we serve. We also continue to return to 2019 capacity levels no later than the summer of 2022, though we have increased our cash burn rate from approximately $400 millionnear-term flying expectations as we exited Marchramp towards that target. To support this plan and prepare for growth beyond 2022, in the second quarter of 2021, we exercised options for 13 Boeing 737-9 MAX with deliveries in 2023 and 2024, and nine E175 to $120 millionbe operated by Horizon Air with deliveries in June. We remain focused on2022 and 2023. In addition, we expanded our goallong-term capacity agreement with SkyWest by eight aircraft beginning in 2022.
Our guidance for 2021 compares against 2019 as we believe it provides a more meaningful indication of the pace and quality of recovery to achieve cash break-even by year end. To reach this goal, ourpre-pandemic levels. For the third quarter, we are planning assumption is that cash bookings will recoverfor capacity to 40%be approximately 17% to 60% of prior year levels by December. Our20% below the same period in 2019, coupled with increased passenger counts as leisure travel continues through the summer months and business travel rebuilds as workplaces reopen. As we continue to be disciplined with returning capacity and cash bookings planning assumptions do not represent guidance,optimizing the aircraft gauge for flown routes, we anticipate third quarter load factors to range between 82% and we will adjust our plans if demand trends don't support these assumptions.85%.
MaintainingThe guidance we have provided and our outlook more broadly are sensitive to health trends, exposure to variants of the COVID-19 virus, and regulations and restrictions imposed by state, local and federal authorities. Our plans will be responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. Our people continue to focus on keeping costs low, running a significant liquidity balance is also paramountgreat operation, and welcoming guests back to preservingtravel with Next-Level Care to ensure they are safe and comfortable when they fly. These competitive advantages we have cultivated over many years will continue to serve us well in 2021 and beyond, and we are confident that we are prepared to meet the challenges ahead and that we will emerge from the pandemic a stronger and more resilient airline.
Sustainability Updates
As we move beyond the impacts of the COVID-19 pandemic, we have shifted our financial strength. In additionfocus back to the $1 billionour 2025 strategic plan, which was announced in CARES Act funding obtained in2019. During the second quarter, we continued to make strides towards our goals of 2020,increasing our commitments to diversity, equity, and inclusion, as well as expanding our sustainability efforts. As part of these commitments, we haveannounced a partnership with Boeing on the 737-9 MAX ecoDemonstrator program, aimed at testing advanced technologies to enhance the safety and sustainability of air travel. In the second quarter we also sourced $589 million in secured financing, drawn $400 million from our existing credit facilities,announced we are the first airline to implement network optimization software, Flyways, which uses artificial intelligence and issued $1.2 billion in EETCs which were finalized on July 2, 2020. We also have availablemachine learning to us an additional $1.1 billion in CARES Act loans, should we choose to participate. Asoptimize air traffic and enable more fuel-efficient flight paths for aggregate savings of August 4, 2020, our cashfuel, carbon emissions and marketable securities balance was approximately $3.8 billion.time.
Our commitmentAs a reflection of the importance of the commitments made, we continue to the health and safetytie a portion of our guests and employees remains our top priority. In responselong-term executive compensation to the crisis,achievement of diversity goals. Additionally, we have partnered with expertsincorporated a carbon emission target into our company-wide performance-based pay program, for which we currently expect to build our Next-Level Care initiative. In doing so, we have added layers of safety with over 100 safety measures through all stages of travel. Some examples of measures that are helping our guests build confidence include:
•Makingmeet the pre-flight experience as contactless as possible, including the addition of a health agreement during check-in;
•Requiring masks for both guests aged 12 and older and employees, and empowering our crews to enforce the policy with the ability to issue a formal warning to any guest who refuses to do so;
•Using the latest air filtration technology and hospital grade filters to remove particulates and fully recycle air in the cabin every 2 to 3 minutes;
•Exceeding CDC cleaning guidelines and using high grade disinfectants to reduce the risk of transmission on board, and;
•Providing for adequate social distancing in our airports and on-board, including blocking middle seats on mainline aircraft through September 30, 2020.
oneworld Invitation
In July 2020, we received our formal invitation to join the oneworld alliance. Upon entrance to the alliance, Alaska guests will be able to access the full range of customer services and benefits, and Mileage Plan members will be able to earn and redeem rewards on all oneworld member airlines. The Company is working to accelerate its timeline for entrance into the alliance, with a focus on completion as early as the end of 2020.targeted goal.
Financial Overview
Our consolidated pretax loss was $291 million duringpre-tax income for the second quarter of 2020,2021 was $528 million, compared to pretax profita pre-tax loss of $351$291 million in the second quarter of 2019.2020. The shift to pretax loss was$819 million improvement is primarily driven primarily by a decreasean increase of $1.1 billion in operating revenuesrevenue and $141 million of $1.9 billion stemming fromincreased wage offsets provided by extensions of the sharp decline in demand and $69 million in special charges from asset impairment,PSP of the CARES Act. These improvements were offset by a decrease$292 million increase in non-fuel operating expenses of $772costs, excluding special items, and a $215 million including wage offsets from the payroll support program of the CARES Act of $362 million. Pretax loss was also offset by a decreaseincrease in fuel expense of $443 million.as the operation ramps up to meet increased demand.
See “Results of Operations” below for further discussion of changes in revenues and operating expenses and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure. A glossary of financial terms can be found at the end of this Item 2.
RESULTS OF OPERATIONS
ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS
We believe disclosure of earnings excluding the impact of the payroll support programPayroll Support Program grant wage offset, impairment and other charges, merger-related costs,special items, mark-to-market gains or losses or other individual special revenues or expenses is useful information to investors because:
•By excluding fuel expense and certain special items (including the payroll support programPayroll Support Program grant 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 and our non-fuel cost initiatives.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 lead to 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 programPayroll Support Program grant 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) areis an important metricsmetric for the employee annual cash incentive plan, which covers the majority of employees within the Air Group organization.
•CASM excluding fuel and certain special items is a measure commonly used by industry analysts and we believe it is an important metric by which they comparehave historically compared our airlinesairline 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 certainthese items such as the payroll support program grant wage offset, impairment charges, merger-related costs, and mark-to-market hedging adjustments,noted above 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 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.
Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non-recurring, infrequent, or unusual in nature.
OPERATING STATISTICS SUMMARY (unaudited)
Below are operating statistics we use to measure operating performance. We often refer to unit revenues and adjusted unit costs, which are non-GAAP measures.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | Six Months Ended June 30, | | | | |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Consolidated Operating Statistics:(a) | | | | | | | | | | | |
Revenue passengers (000) | 1,485 | | 12,026 | | (87.7)% | | 10,417 | | 22,442 | | (53.6)% |
RPMs (000,000) "traffic" | 1,654 | | 14,638 | | (88.7)% | | 12,310 | | 27,087 | | (54.6)% |
ASMs (000,000) "capacity" | 4,307 | | 16,980 | | (74.6)% | | 19,612 | | 32,487 | | (39.6)% |
Load factor | 38.4% | | 86.2% | | (47.8) pts | | 62.8% | | 83.4% | | (20.6) pts |
Yield | 18.68¢ | | 14.43¢ | | 29.5% | | 14.54¢ | | 14.13¢ | | 2.9% |
RASM | 9.77¢ | | 13.48¢ | | (27.5)% | | 10.49¢ | | 12.82¢ | | (18.2)% |
CASM excluding fuel and special items(b) | 21.87¢ | | 8.33¢ | | 162.5% | | 12.00¢ | | 8.68¢ | | 38.2% |
Economic fuel cost per gallon(b) | $1.20 | | $2.27 | | (47.1)% | | $1.77 | | $2.20 | | (19.5)% |
Fuel gallons (000,000) | 54 | | 220 | | (75.5)% | | 248 | | 419 | | (40.8)% |
ASMs per fuel gallon | 79.8 | | 77.2 | | 3.4% | | 79.1 | | 77.5 | | 2.1% |
Average full-time equivalent employees (FTEs) | 15,836 | | 21,921 | | (27.8)% | | 19,155 | | 21,876 | | (12.4)% |
Mainline Operating Statistics: | | | | | | | | | | | |
Revenue passengers (000) | 905 | | 9,206 | | (90.2)% | | 7,580 | | 17,070 | | (55.6)% |
RPMs (000,000) "traffic" | 1,276 | | 13,207 | | (90.3)% | | 10,858 | | 24,379 | | (55.5)% |
ASMs (000,000) "capacity" | 3,363 | | 15,241 | | (77.9)% | | 17,060 | | 29,114 | | (41.4)% |
Load factor | 37.9% | | 86.7% | | (48.8) pts | | 63.6% | | 83.7% | | (20.1) pts |
Yield | 17.63¢ | | 13.38¢ | | 31.8% | | 13.44¢ | | 13.08¢ | | 2.8% |
RASM | 9.52¢ | | 12.66¢ | | (24.8)% | | 9.94¢ | | 12.02¢ | | (17.3)% |
CASM excluding fuel and special items(b) | 22.19¢ | | 7.65¢ | | 190.1% | | 11.17¢ | | 7.96¢ | | 40.3% |
Economic fuel cost per gallon(b) | $1.20 | | $2.26 | | (46.9)% | | $1.78 | | $2.19 | | (18.7)% |
Fuel gallons (000,000) | 38 | | 187 | | (79.7)% | | 201 | | 356 | | (43.5)% |
ASMs per fuel gallon | 88.5 | | 81.5 | | 8.6% | | 84.9 | | 81.8 | | 3.8% |
Average FTEs | 12,340 | | 16,551 | | (25.4)% | | 14,579 | | 16,504 | | (11.7)% |
Aircraft utilization | 5.6 | | 11.1 | | (49.5)% | | 8.8 | | 10.7 | | (17.8)% |
Average aircraft stage length | 1,144 | | 1,311 | | (12.7)% | | 1,270 | | 1,308 | | (2.9)% |
Operating fleet(d) | 225 | | 238 | | (13) a/c | | 225 | | 238 | | (13) a/c |
Regional Operating Statistics:(c) | | | | | | | | | | | |
Revenue passengers (000) | 580 | | 2,820 | | (79.4)% | | 2,837 | | 5,372 | | (47.2)% |
RPMs (000,000) "traffic" | 378 | | 1,431 | | (73.6)% | | 1,452 | | 2,708 | | (46.4)% |
ASMs (000,000) "capacity" | 945 | | 1,739 | | (45.7)% | | 2,552 | | 3,373 | | (24.3)% |
Load factor | 40.0% | | 82.3% | | (42.3 pts) | | 56.9% | | 80.3% | | (23.4 pts) |
Yield | 22.12¢ | | 24.06¢ | | (8.1)% | | 22.80¢ | | 23.57¢ | | (3.3)% |
RASM | 10.63¢ | | 20.51¢ | | (48.2)% | | 14.07¢ | | 19.62¢ | | (28.3)% |
Operating fleet | 94 | | 94 | | — a/c | | 94 | | 94 | | — a/c |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Consolidated Operating Statistics:(a) | | | | | | | | | | | |
Revenue passengers (000) | 8,712 | | 1,485 | | 486.7% | | 13,379 | | 10,417 | | 28.4% |
RPMs (000,000) "traffic" | 10,334 | | 1,654 | | 524.8% | | 15,727 | | 12,310 | | 27.8% |
ASMs (000,000) "capacity" | 13,413 | | 4,307 | | 211.4% | | 23,810 | | 19,612 | | 21.4% |
Load factor | 77.0% | | 38.4% | | 38.6 pts | | 66.1% | | 62.8% | | 3.3 pts |
Yield | 13.09¢ | | 18.68¢ | | (29.9)% | | 12.79¢ | | 14.54¢ | | (12.0)% |
RASM | 11.38¢ | | 9.77¢ | | 16.5% | | 9.76¢ | | 10.49¢ | | (7.0)% |
CASM excluding fuel and special items(b) | 9.20¢ | | 21.87¢ | | (57.9)% | | 9.95¢ | | 12.00¢ | | (17.1)% |
Economic fuel cost per gallon(b) | $1.90 | | $1.20 | | 58.3% | | $1.85 | | $1.77 | | 4.5% |
Fuel gallons (000,000) | 168 | | 54 | | 211.1% | | 294 | | 248 | | 18.5% |
ASMs per fuel gallon | 79.8 | | 79.8 | | —% | | 81.0 | | 79.1 | | 2.4% |
Average full-time equivalent employees (FTEs) | 19,001 | | 15,836 | | 20.0% | | 18,071 | | 19,115 | | (5.5)% |
Mainline Operating Statistics: | | | | | | | | | | | |
Revenue passengers (000) | 6,151 | | 905 | | 579.7% | | 9,302 | | 7,580 | | 22.7% |
RPMs (000,000) "traffic" | 8,966 | | 1,276 | | 602.7% | | 13,555 | | 10,858 | | 24.8% |
ASMs (000,000) "capacity" | 11,611 | | 3,363 | | 245.3% | | 20,464 | | 17,060 | | 20.0% |
Load factor | 77.2% | | 37.9% | | 39.3 pts | | 66.2% | | 63.6% | | 2.6 pts |
Yield | 11.96¢ | | 17.63¢ | | (32.2)% | | 11.64¢ | | 13.44¢ | | (13.4)% |
RASM | 10.59¢ | | 9.52¢ | | 11.2% | | 9.09¢ | | 9.94¢ | | (8.6)% |
CASM excluding fuel and special items(b) | 8.48¢ | | 22.19¢ | | (61.8)% | | 9.17¢ | | 11.17¢ | | (17.9)% |
Economic fuel cost per gallon(b) | $1.88 | | $1.20 | | 56.7% | | $1.84 | | $1.78 | | 3.4% |
Fuel gallons (000,000) | 135 | | 38 | | 255.3% | | 233 | | 201 | | 15.9% |
ASMs per fuel gallon | 86.0 | | 88.5 | | (2.8)% | | 87.8 | | 84.9 | | 3.4% |
Average FTEs | 14,021 | | 12,340 | | 13.6% | | 13,247 | | 14,579 | | (9.1)% |
Aircraft utilization | 9.9 | | 5.6 | | 76.8% | | 9.2 | | 8.8 | | 4.5% |
Average aircraft stage length | 1,320 | | 1,144 | | 15.4% | | 1,313 | | 1,270 | | 3.4% |
Operating fleet(d) | 202 | | 225 | | (23) a/c | | 202 | | 225 | | (23) a/c |
Regional Operating Statistics:(c) | | | | | | | | | | | |
Revenue passengers (000) | 2,562 | | 580 | | 341.7% | | 4,077 | | 2,837 | | 43.7% |
RPMs (000,000) "traffic" | 1,367 | | 378 | | 261.6% | | 2,172 | | 1,452 | | 49.6% |
ASMs (000,000) "capacity" | 1,802 | | 945 | | 90.7% | | 3,346 | | 2,552 | | 31.1% |
Load factor | 75.9% | | 40.0% | | 35.9 pts | | 64.9% | | 56.9% | | 8.0 pts |
Yield | 20.48¢ | | 22.12¢ | | (7.4)% | | 19.95¢ | | 22.80¢ | | (12.5)% |
RASM | 16.41¢ | | 10.63¢ | | 54.4% | | 13.84¢ | | 14.07¢ | | (1.6)% |
Operating fleet | 94 | | 94 | | — a/c | | 94 | | 94 | | — a/c |
(a)Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
(b)See reconciliation of this non-GAAP measure to the most directly related GAAP measure in the accompanying pages.
(c)Data presented includes information related to flights operated by Horizon and third-party carriers.
(d)Excludes 12all aircraft permanently parkedremoved from operating service.
Given the unusual nature of 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 2021 to 2019.
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FINANCIAL INFORMATION AND OPERATING STATISTICS - 2019 RESULTS (unaudited) |
Alaska Air Group, Inc. | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2019 | | Change | | 2021 | | 2019 | | Change |
Passenger revenue | $ | 1,352 | | | $ | 2,111 | | | (36) | % | | $ | 2,011 | | | $ | 3,827 | | | (47) | % |
Mileage plan other revenue | 118 | | | 118 | | | — | % | | 212 | | | 228 | | | (7) | % |
Cargo and other | 57 | | | 59 | | | (3) | % | | 101 | | | 109 | | | (7) | % |
Total operating revenues | $ | 1,527 | | | $ | 2,288 | | | (33) | % | | $ | 2,324 | | | $ | 4,164 | | | (44) | % |
| | | | | | | | | | | |
Operating expense, excluding fuel and special items | $ | 1,234 | | | $ | 1,414 | | | (13) | % | | $ | 2,371 | | | $ | 2,819 | | | (16) | % |
Economic fuel | 274 | | | 502 | | | (45) | % | | 477 | | | 922 | | | (48) | % |
Special items | (530) | | | 8 | | NM | | (912) | | | 34 | | NM |
Total operating expenses | $ | 978 | | | $ | 1,924 | | | (49) | % | | $ | 1,936 | | | $ | 3,775 | | | (49) | % |
| | | | | | | | | | | |
Total nonoperating expense | (21) | | | (13) | | | 62 | % | | (33) | | | (32) | | | 3 | % |
Income (loss) before income tax | $ | 528 | | | $ | 351 | | | 50 | % | | $ | 355 | | | $ | 357 | | | (1) | % |
| | | | | | | | | | | |
Consolidated Operating Statistics(a): | | | | | | | | | | | |
Revenue passengers (000) | 8,712 | | 12,026 | | (28) | % | | 13,379 | | 22,442 | | (40) | % |
RPMs (000,000) "traffic" | 10,334 | | 14,638 | | (29) | % | | 15,727 | | 27,087 | | (42) | % |
ASMs (000,000) "capacity" | 13,413 | | 16,980 | | (21) | % | | 23,810 | | 32,487 | | (27) | % |
Load Factor | 77.0% | | 86.2% | | (9.2) | pts | | 66.1% | | 83.4% | | (17.3) | pts |
Yield | 13.09¢ | | 14.43¢ | | (9) | % | | 12.79¢ | | 14.13¢ | | (9) | % |
RASM | 11.38¢ | | 13.48¢ | | (16) | % | | 9.76¢ | | 12.82¢ | | (24) | % |
CASMex | 9.20¢ | | 8.33¢ | | 10 | % | | 9.95¢ | | 8.68¢ | | 15 | % |
FTEs | 19,001 | | 21,921 | | (13) | % | | 18,071 | | 21,876 | | (17) | % |
(a)2019 comparative operating statistics have been recalculated using the information presented above, and as filed in March 2020.our second quarter 2019 Form 10-Q.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 20202021 TO THREE MONTHS ENDED JUNE 30, 20192020
Our consolidated net lossincome for the three months ended June 30, 20202021 was $397 million, or $3.13 per share, compared to a net loss of $214 million, or $1.73$1.74 per diluted share, compared to net income of $262 million, or $2.11 per diluted share, for the three months ended June 30, 2019.2020.
Excluding the impact of the payroll support programPayroll Support Program grant wage offset, special items and mark-to-market fuel hedge adjustments, our adjusted net loss for the second quarter of 20202021 was $38 million, or $0.30 per share, compared to an adjusted net loss of $439 million, or $3.54$3.57 per diluted share, compared to adjusted net income of $270 million, or $2.17 per diluted share, in the second quarter of 2019.2020. The following tables reconcile our adjusted net income and adjusted earningsloss per diluted share (EPS) to amounts as reported in accordance with GAAP:
| | | Three Months Ended June 30, | | | Three Months Ended June 30, |
| | 2020 | | | 2019 | | | 2021 | | 2020 |
(in millions, except per share amounts) | (in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS | (in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
GAAP net income (loss) and diluted EPS | $ | (214) | | | $ | (1.73) | | | $ | 262 | | | $ | 2.11 | | |
Payroll support program grant wage offset | (362) | | | (2.92) | | | — | | | — | | |
GAAP net income (loss) per share | | GAAP net income (loss) per share | $ | 397 | | | $ | 3.13 | | | $ | (214) | | | $ | (1.74) | |
Payroll Support Program grant wage offset | | Payroll Support Program grant wage offset | (503) | | | (3.97) | | | (362) | | | (2.94) | |
Mark-to-market fuel hedge adjustments | Mark-to-market fuel hedge adjustments | (6) | | | (0.05) | | | 3 | | | 0.02 | | Mark-to-market fuel hedge adjustments | (46) | | | (0.36) | | | (6) | | | (0.05) | |
Special items - impairment charges and other | Special items - impairment charges and other | 69 | | | 0.56 | | | — | | | — | | Special items - impairment charges and other | (4) | | | (0.03) | | | 69 | | | 0.56 | |
Special items - restructuring charges | | Special items - restructuring charges | (23) | | | (0.18) | | | — | | | — | |
Special items - merger-related costs | Special items - merger-related costs | 1 | | | 0.01 | | | 8 | | | 0.06 | | Special items - merger-related costs | — | | | — | | | 1 | | | 0.01 | |
| Income tax effect of reconciling items above | Income tax effect of reconciling items above | 73 | | | 0.59 | | | (3) | | | (0.02) | | Income tax effect of reconciling items above | 141 | | | 1.11 | | | 73 | | | 0.59 | |
Non-GAAP adjusted net income (loss) and diluted EPS | $ | (439) | | | $ | (3.54) | | | $ | 270 | | | $ | 2.17 | | |
Non-GAAP adjusted net loss per share | | Non-GAAP adjusted net loss per share | $ | (38) | | | $ | (0.30) | | | $ | (439) | | | $ | (3.57) | |
CASM reconciliation is summarized below:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
(in cents) | 2020 | | 2019 | | % Change |
Consolidated: | | | | | |
CASM | 16.46 | ¢ | | 11.33 | ¢ | | 45 | % |
Less the following components: | | | | | |
Payroll support program grant wage offset | (8.40) | | | — | | | NM |
Aircraft fuel, including hedging gains and losses | 1.37 | | | 2.96 | | | (54) | % |
Special items - merger-related costs | 0.02 | | | 0.04 | | | (50) | % |
Special items - impairment charges and other | 1.60 | | | — | | | NM |
| | | | | |
CASM excluding fuel and special items | 21.87 | ¢ | | 8.33 | ¢ | | 163 | % |
| | | | | |
Mainline: | | | | | |
CASM | 15.79 | ¢ | | 10.50 | ¢ | | 50 | % |
Less the following components: | | | | | |
Payroll support program grant wage offset | (9.69) | | | — | | | NM |
Aircraft fuel, including hedging gains and losses | 1.16 | | | 2.79 | | | (58) | % |
Special items - merger-related costs | 0.02 | | | 0.06 | | | (67) | % |
| | | | | |
Special items - impairment charges and other | 2.11 | | | — | | | NM |
CASM excluding fuel and special items | 22.19 | ¢ | | 7.65 | ¢ | | 190 | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
(in cents) | 2021 | | 2020 | | % Change |
Consolidated: | | | | | |
CASM | 7.29 | ¢ | | 16.46 | ¢ | | (56) | % |
Less the following components: | | | | | |
Payroll Support Program grant wage offset | (3.75) | | | (8.40) | | | (55) | % |
Aircraft fuel, including hedging gains and losses | 2.04 | | | 1.37 | | | 49 | % |
Special items - impairment charges and other | (0.03) | | | 1.60 | | | (102) | % |
Special items - restructuring charges | (0.17) | | | — | | | NM |
Special items - merger-related costs | — | | | 0.02 | | | (100) | % |
CASM excluding fuel and special items | 9.20 | ¢ | | 21.87 | ¢ | | (58) | % |
| | | | | |
Mainline: | | | | | |
CASM | 6.24 | ¢ | | 15.79 | ¢ | | (60) | % |
Less the following components: | | | | | |
Payroll Support Program grant wage offset | (3.79) | | | (9.69) | | | (61) | % |
Aircraft fuel, including hedging gains and losses | 1.78 | | | 1.16 | | | 53 | % |
| | | | | |
Special items - impairment charges and other | (0.03) | | | 2.11 | | | (101) | % |
Special items - restructuring charges | (0.20) | | | — | | | NM |
Special items - merger-related costs | — | | | 0.02 | | | (100) | % |
CASM excluding fuel and special items | 8.48 | ¢ | | 22.19 | ¢ | | (62) | % |
OPERATING REVENUES
Total operating revenues decreased $1.9increased $1.1 billion or 82%, during the second quarter of 20202021 compared to the same period in 2019.2020. The changes are summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Passenger revenue | $ | 309 | | | $ | 2,111 | | | (85) | % |
Mileage Plan other revenue | 73 | | | 118 | | | (38) | % |
Cargo and other | 39 | | | 59 | | | (34) | % |
Total operating revenues | $ | 421 | | | $ | 2,288 | | | (82) | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Passenger revenue | $ | 1,352 | | | $ | 309 | | | 338 | % |
Mileage Plan other revenue | 118 | | | 73 | | | 62 | % |
Cargo and other | 57 | | | 39 | | | 46 | % |
Total operating revenues | $ | 1,527 | | | $ | 421 | | | 263 | % |
Passenger Revenue
On a consolidated basis, Passenger revenue for the second quarter of 2021 increased by $1.0 billion, primarily driven by a significant increase in passenger traffic. In the second quarter of 2020, decreased by $1.8 billion, or 85%, on an 89% decline in traffic. Decreased revenue year-over-year is primarily due to thewe experienced a near complete loss of demand driven by the COVID-19 pandemic, which began significantly impacting revenues in March 2020pandemic. As recovery has taken hold, including wide availability of the vaccine and continuedremoval of restrictions throughout the second quarter. In response to the decline inmarkets we serve, demand we reduced capacity 75%, and experienced a 48-point decrease in load factor.for air travel has increased exponentially driven primarily by leisure travelers.
Mileage Plan other revenue
On a consolidated basis, Mileage Plan other revenue decreasedincreased by $45 million, or 38%62%, as compared to the same prior-year period, primarily on a reductionlargely due to an increase in miles purchasedcommissions from our bank card partners driven by our affinityincreased consumer spending and new card partner, consistent with an overall reductionacquisitions. Performance of Mileage Plan other revenues outpaced all other revenue sources, and resulted in consumer spending.the best performance of the program ever in the second quarter of 2021.
Cargo and Other Revenueother
On a consolidated basis, Cargo and other revenue for the second quarter of 2020 decreased2021 increased by $20$18 million, or 34%46%, as compared to the same prior-year period. The decreaseincrease is primarily due to reducedthe return of all three freighters back to full capacity in the second quarter of 2021, coupled with increased belly cargo activity driven by the schedule reductions for passenger aircraft, as well as continued capacity limitations in our freighters.we increase scheduled departures.
OPERATING EXPENSES
Total operating expenses decreased $1.2 billion,increased $269 million, or 63%38%, compared to the second quarter of 2019.2020. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Fuel expense | $ | 59 | | | $ | 502 | | | (88) | % |
Non-fuel operating expenses, excluding special items | 942 | | | 1,414 | | | (33) | % |
Payroll support program grant wage offset | (362) | | | — | | | NM |
Special items - merger-related costs | 1 | | | 8 | | | (88) | % |
| | | | | |
Special items - impairment charges and other | 69 | | | — | | | NM |
Total operating expenses | $ | 709 | | | $ | 1,924 | | | (63) | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Fuel expense | $ | 274 | | | $ | 59 | | | 364 | % |
Non-fuel operating expenses, excluding special items | 1,234 | | | 942 | | | 31 | % |
Payroll Support Program grant wage offset | (503) | | | (362) | | | 39 | % |
Special items - impairment charges and other | (4) | | | 69 | | | (106) | % |
Special items - restructuring charges | (23) | | | — | | | NM |
Special items - merger-related costs | — | | | 1 | | | (100) | % |
Total operating expenses | $ | 978 | | | $ | 709 | | | 38 | % |
Fuel Expense
Aircraft fuel expense includes raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases. Our aircraft fuel expense can be volatile because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S. Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges.
Aircraft fuel expense decreased $443increased $215 million, or 88%, compared to the second quarter of 2019.2020. The elements of the change are illustrated in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 60 | | | $ | 1.11 | | | $ | 495 | | | $ | 2.25 | |
Losses on settled hedges | 5 | | | 0.09 | | | 4 | | | 0.02 | |
Consolidated economic fuel expense | 65 | | | 1.20 | | | $ | 499 | | | $ | 2.27 | |
Mark-to-market fuel hedge adjustments | (6) | | | (0.11) | | | 3 | | | 0.01 | |
GAAP fuel expense | $ | 59 | | | $ | 1.09 | | | $ | 502 | | | $ | 2.28 | |
Fuel gallons | 54 | | | | | 220 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2021 | | 2020 |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 330 | | | $ | 1.96 | | | $ | 60 | | | $ | 1.11 | |
(Gain)/loss on settled hedges | (10) | | | (0.06) | | | 5 | | | 0.09 | |
Consolidated economic fuel expense | 320 | | | 1.90 | | | $ | 65 | | | $ | 1.20 | |
Mark-to-market fuel hedge adjustments | (46) | | | (0.27) | | | (6) | | | (0.11) | |
GAAP fuel expense | $ | 274 | | | $ | 1.63 | | | $ | 59 | | | $ | 1.09 | |
Fuel gallons | 168 | | | | | 54 | | | |
Raw fuel expense per gallon for the three months ended June 30, 2020 decreased2021 increased by approximately 51%77% due to lowerhigher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil and refining margins associated with the conversion of crude oil to jet fuel. The decreaseincrease in raw fuel price per gallon during the second quarter of 20202021 was primarily driven by a 53% decrease24% increase in crude oil prices and a 75% decrease in refining margins, when compared to the prior year. Crude oil prices have been dramatically impacted by the COVID-19 pandemic and the related reduction in demand. The decreaseprices. This is also due to a year-over-year declinecoupled with an increase in consumption of 166114 million gallons, or 75%, primarily on a significant reduction to flight time and block hours.an increase in scheduled departures.
We also evaluate economic fuel expense, which we define as raw fuel expense adjusted for the cash we receive from, or pay to, hedge counterparties for hedges that settle during the period, and for the premium expense that we paid for those contracts. A key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on our hedge portfolio. When we refer to economic fuel expense, we include gains and losses only when they are realized for those contracts that were settled during the period based on their original contract terms. We believe this is the best measure of the effect that fuel prices are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.
LossesGains recognized for hedges that settled during the second quarter were $5$10 million in 2020,2021, compared to losses of $4$5 million in the same period in 2019.2020. These amounts represent cash received from hedges at settlement, offset by cash paid for premium expense.
Non-fuel Expenses
The table below provides the reconciliation of the operating expense line items, excluding fuel, the payroll support programPayroll Support Program grant wage offset and special items. Significant operating expense variances from 20192020 are more fully described below.
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Wages and benefits | $ | 472 | | | $ | 567 | | | (17) | % |
Variable incentive pay | 16 | | | 44 | | | (64) | % |
Aircraft maintenance | 45 | | | 115 | | | (61) | % |
Aircraft rent | 74 | | | 82 | | | (10) | % |
Landing fees and other rentals | 83 | | | 113 | | | (27) | % |
Contracted services | 30 | | | 70 | | | (57) | % |
Selling expenses | 4 | | | 87 | | | (95) | % |
Depreciation and amortization | 107 | | | 105 | | | 2 | % |
Food and beverage service | 7 | | | 53 | | | (87) | % |
Third-party regional carrier expense | 26 | | | 42 | | | (38) | % |
Other | 78 | | | 136 | | | (43) | % |
Total non-fuel operating expenses, excluding special items | $ | 942 | | | $ | 1,414 | | | (33) | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Wages and benefits | $ | 510 | | | $ | 472 | | | 8 | % |
Variable incentive pay | 34 | | | 16 | | | 113 | % |
Aircraft maintenance | 102 | | | 45 | | | 127 | % |
Aircraft rent | 62 | | | 74 | | | (16) | % |
Landing fees and other rentals | 144 | | | 83 | | | 73 | % |
Contracted services | 54 | | | 30 | | | 80 | % |
Selling expenses | 41 | | | 4 | | | 925 | % |
Depreciation and amortization | 98 | | | 107 | | | (8) | % |
Food and beverage service | 35 | | | 7 | | | 400 | % |
Third-party regional carrier expense | 37 | | | 26 | | | 42 | % |
Other | 117 | | | 78 | | | 50 | % |
Total non-fuel operating expenses, excluding special items | $ | 1,234 | | | $ | 942 | | | 31 | % |
Wages and Benefits
Wages and benefits decreasedincreased during the second quarter of 20202021 by $95$38 million, or 17%8%, compared to 2019.2020. The primary components of Wages and benefits are shown in the following table:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Wages | $ | 350 | | | $ | 421 | | | (17) | % |
Pension - Defined benefit plans service cost | 13 | | | 11 | | | 18 | % |
Defined contribution plans | 30 | | | 35 | | | (14) | % |
Medical and other benefits | 54 | | | 69 | | | (22) | % |
Payroll taxes | 25 | | | 31 | | | (19) | % |
Total wages and benefits | $ | 472 | | | $ | 567 | | | (17) | % |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Wages | $ | 386 | | | $ | 350 | | | 10 | % |
Pension - Defined benefit plans service cost | 13 | | | 13 | | | — | % |
Defined contribution plans | 26 | | | 30 | | | (13) | % |
Medical and other benefits | 59 | | | 54 | | | 9 | % |
Payroll taxes | 26 | | | 25 | | | 4 | % |
Total wages and benefits | $ | 510 | | | $ | 472 | | | 8 | % |
Wages decreased $71increased $36 million, or 17%10%, on a 28% reduction20% increase in FTEs. The decrease isIncreased wages as compared to the prior period are primarily due to voluntarythe result of leaves of absence accepted by more than 6,000 employees, as well astaken and reduction in executive pay and hours for management employees and reducing represented employees work hours to minimums.in 2020 which were not repeated in 2021.
Medical and other benefitsDefined contribution plan expense decreased $15 million, or 22%, primarily due13% as compared to 2020 as a significant reductionresult of a one-time adjustment recorded in elective procedures and adjustmentsthe second quarter of 2021 for employer contributions to reserves for high-dollar value medical claims.those participating in incentive leave programs.
Variable Incentive Pay
Variable incentive pay expense decreased $28increased $18 million or 64%, during the second quarter of 20202021 compared to the same period in 2019, due to the2020 on increased expectation thatof achievement of key financial metrics will not be achieved under the performance based pay program.and operational metrics.
Aircraft Maintenance
Aircraft maintenance expense increased by $57 million during the second quarter of 2021 compared to the same period in 2020. This is primarily due to a significant increase in utilization of aircraft as we return to capacity, resulting in increased engine events, heavy checks and power-by-the-hour expense.
Aircraft Rent
Aircraft rent expense decreased by $70$12 million, or 61%16%, during the second quarter of 20202021 compared to the same period in 2019. The decrease is2020 primarily due to fewer engine events and heavy checks as compared to the prior year, as well as lower power-by-the-hour expenseresult of the full impairment taken on reduced second quarter utilization of covered aircraft. These decreases were offset by costs incurredcertain leased Airbus aircraft in the temporary grounding of certain aircraft.2020.
Landing fees and other rentals
Landing fees and other rentals decreasedincreased by $30$61 million, or 27%73%, during the second quarter of 20202021 compared to the same period in 2019 on2020 primarily due to a 67% decreasesignificant increase in departures. DecreasedIncreased departure-related costs were offsetcoupled by rate increases at many of our airports.hub airports, including the renegotiated lease at our largest airport hub Seattle-Tacoma International Airport.
Contracted Services
Contracted services decreasedincreased by $40$24 million, or 57%80%, during the second quarter of 20202021 compared to the same period in 20192020 driven primarily by decreasedincreased departures and passengers as compared to the prior-year period as a result of the COVID-19 pandemic.
Selling Expense
Selling expense decreasedincreased by $83$37 million or 95%, during the second quarter of 20202021 compared to the same period in 2019,2020, primarily driven by a significant reductionincrease in distribution costs and credit card commissions. Reduced marketing spend and sponsorship costs also contributed tocommissions incurred with the year-over-year decline given COVID-19 related delays in professional sports seasons.increase of overall travel.
Food and Beverage Service
Food and beverage service decreasedincreased by $46$28 million or 87%, during the second quarter of 20202021 compared to the same period in 2019.2020. This decreaseincrease is in-lineconsistent with the overall reductionincrease in revenue passengers as compared to the prior-year period, as well as the temporary closurereturn of the majoritymany of our airport lounges.
on-board products in the second quarter of 2021.
Third-party Regional Carrier Expense
Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, decreasedincreased by $16$11 million, or 38%42%, during the second quarter of 20202021 compared to the same period in 2019.2020. The reductionincrease in expense is primarily due to a 41% reductionincreases in departures flown by SkyWest as compared to the prior-year period. Increased expense was partially offset by a pass through of CARES Act PSP funding of $5 million received in the second quarter to offset SkyWest pilot and flight attendant wages and benefits.
Other expense
Other expense increased $39 million, or 50%, during the second quarter of 2021 compared to the same period a reduction in departure-related contractual rates,2020. Increased expense is primarily driven by incremental crew hotel stays and per diem, consistent with the elimination of PenAir flying.overall increase in departures and capacity, as well as additional expense for professional services.
Special Items - Impairment and other charges
We recorded a benefit associated with impairment and other charges of $69$4 million in the second quarter of 2020,2021, consisting of our updated estimate ofestimates for costs required to returnassociated with leased Airbus aircraft that were permanently parkedhave been retired and removed from the operating fleet but not yet returned to the lessor.
Special Items - Restructuring charges
We recorded a benefit for workforce restructuring of $23 million in the first quarter.second quarter of 2021 primarily as a result of issuing recall notices to pilots on incentive lines for periods earlier than were previously anticipated.
ADDITIONAL SEGMENT INFORMATION
Refer to Note 9 of the condensed consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability.
Mainline
Mainline recorded an adjusted pretax loss of $24 million in the second quarter of 2021, compared to a pretax loss of $471 million in the second quarter of 2020, compared to a pretax profit of $3342020. The $447 million in the second quarter of 2019. The $805 million shift to pretax lossimprovement was primarily driven by a $1.5 billion decreasean $847 million increase in Passenger revenues as a result of the COVID-19 pandemic,increased demand for air travel, offset by a $421$238 million decreaseincrease in non-fuel operating costs and a $377$208 million decreaseincrease in economic fuel cost.
The decreaseincrease in Mainline passenger revenue for the second quarter of 20202021 was primarily driven by a 90% declinesignificant increase in traffic on a 78% decrease in capacity. The overall decrease in both traffic and capacity are driven by the significant reduction indue to increased demand as a result of the COVID-19 pandemic.for air travel.
Non-fuel operating expenses decreasedincreased significantly, on cost savings driven by reducedincreased variable costs, on reducedlargely consistent with the overall increase in capacity as well as decreased wages and benefits expense from voluntary leaves of absence and a reduction in hours for management employees. Lowerdepartures. Higher raw fuel prices, combined with a 80% decreasesignificant increase in gallons consumed, drove the declineincrease in Mainline fuel expense.
Regional
Regional operations generated an adjusted pretax loss of $56 million in the second quarter of 2021, compared to a pretax loss of $129 million in the second quarter of 2020, compared to a pretax profit of $12 million in the second quarter of 2019.2020. The increase in theimproved pretax loss was attributable to a $256$195 million declineincrease in operating revenues, partially offset by a $57$76 million decrease in fuel costs and an $58 million decreaseincrease in non-fuel operating expenses.expenses and a $46 million increase in fuel costs.
Regional passenger revenue decreased 76%increased significantly compared to the second quarter of 2019,2020, primarily driven by a 74% decline in traffic on a 46% decrease in capacity. The overall decrease in bothincreased traffic and capacity are driven by the significant reductionresurgence in demand as a result of the COVID-19 pandemic.for air travel.
The decreaseincrease in non-fuel operating expenses is primarily due to the 46% declineincreased variable costs and higher CPA rates on an increase in capacity, as well as eliminationoffset by the pass through of costs for PenAir flyingCARES Act PSP funds recorded in the statesecond quarter of Alaska.2021.
Horizon
Horizon achieved aan adjusted pretax profit of $15 million in the second quarter of 2021 compared to $8 million in the second quarter of 2020, compared to a pretax2020. Increased profit of $10 million in the second quarter of 2019. Profit recorded by Horizon in the second quarter is primarily the result of incremental flying as a proportion of overall Air Groupincreased capacity as compared to the prior year. Horizon revenues are recorded based upon purchased capacity, and are not impacted by changes to ticket prices and customer demand. Horizon profit is also the result of significantflown, coupled with substantial progress in cost reduction efforts implemented in response to the COVID-19 pandemic.efforts.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 20202021 TO SIX MONTHS ENDED JUNE 30, 20192020
Our consolidated net lossincome for the six months ended June 30, 20202021 was $446$266 million, or $3.60$2.10 per diluted share, compared to a net incomeloss of $266$446 million, or $2.14$3.62 per diluted share, for the six months ended June 30, 2019.2020.
Our adjusted net loss for the six months ended June 30, 20202021 was $541$474 million, or $4.37$3.75 per diluted share, compared to an adjusted net incomeloss of $291$541 million, or $2.34$4.40 per diluted share, in the six months ended June 30, 2019.2020. The following tables reconcile our adjusted net incomeloss and adjusted diluted EPS to amounts as reported in accordance with GAAP:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | |
(in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
Reported GAAP net income (loss) and diluted EPS | $ | (446) | | | $ | (3.60) | | | $ | 266 | | | $ | 2.14 | |
Payroll support program grant wage offset | (362) | | | (2.93) | | | — | | | — | |
Mark-to-market fuel hedge adjustments | 3 | | | 0.03 | | | (1) | | | (0.01) | |
Special items - merger-related costs | 4 | | | 0.03 | | | 34 | | | 0.27 | |
Special items - impairment charges and other | 229 | | | 1.85 | | | — | | | — | |
Income tax effect of reconciling items above | 31 | | | 0.25 | | | (8) | | | (0.06) | |
Non-GAAP adjusted net income (loss) and diluted EPS | $ | (541) | | | $ | (4.37) | | | $ | 291 | | | $ | 2.34 | |
Our operating costs per ASM are summarized below:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
(in cents) | 2020 | | 2019 | | % Change |
Consolidated: | | | | | |
CASM | 13.59 | ¢ | | 11.62 | ¢ | | 17 | % |
Less the following components: | | | | | |
Payroll support program grant wage offset | (1.85) | | | — | | | NM |
Aircraft fuel, including hedging gains and losses | 2.26 | | | 2.84 | | | (20) | % |
Special items - merger-related costs | 0.01 | | | 0.10 | | | (90) | % |
Special items - impairment charges and other | 1.17 | | | — | | | NM |
CASM excluding fuel and special items | 12.00 | ¢ | | 8.68 | ¢ | | 38 | % |
| | | | | |
Mainline: | | | | | |
CASM | 12.39 | ¢ | | 10.76 | ¢ | | 15 | % |
Less the following components: | | | | | |
Payroll support program grant wage offset | (1.91) | | | — | | | NM |
Aircraft fuel, including hedging gains and losses | 2.12 | | | 2.68 | | | (21) | % |
Special items - merger-related costs | 0.02 | | | 0.12 | | | (83) | % |
Special items - impairment charges and other | 0.99 | | | — | | | NM |
CASM excluding fuel and special items | 11.17 | ¢ | | 7.96 | ¢ | | 40 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
(in millions, except per share amounts) | Dollars | | Diluted EPS | | Dollars | | Diluted EPS |
Reported GAAP net income (loss) and diluted EPS | $ | 266 | | | $ | 2.10 | | | $ | (446) | | | $ | (3.62) | |
Payroll Support Program grant wage offset | (914) | | | (7.23) | | | (362) | | | (2.94) | |
Mark-to-market fuel hedge adjustments | (68) | | | (0.54) | | | 3 | | | 0.02 | |
Special items - merger-related costs | — | | | — | | | 4 | | | 0.03 | |
Special items - impairment charges and other | 14 | | | 0.11 | | | 229 | | | 1.86 | |
Special items - restructuring charges | (12) | | | (0.09) | | | — | | | — | |
Income tax effect of reconciling items above | 240 | | | 1.90 | | | 31 | | | 0.25 | |
Non-GAAP adjusted net loss per share | $ | (474) | | | $ | (3.75) | | | $ | (541) | | | $ | (4.40) | |
Our operating costs per ASM are summarized below: | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
(in cents) | 2021 | | 2020 | | % Change |
Consolidated: | | | | | |
CASM | 8.13 | ¢ | | 13.59 | ¢ | | (40) | % |
Less the following components: | | | | | |
Payroll Support Program grant wage offset | (3.84) | | | (1.85) | | | 108 | % |
Aircraft fuel, including hedging gains and losses | 2.00 | | | 2.26 | | | (12) | % |
Special items - impairment charges and other | 0.07 | | | 1.17 | | | (94) | % |
Special items - restructuring charges | (0.05) | | | — | | | NM |
Special items - merger-related costs | — | | | 0.01 | | | (100) | % |
CASM excluding fuel and special items | 9.95 | ¢ | | 12.00 | ¢ | | (17) | % |
| | | | | |
Mainline: | | | | | |
CASM | 6.72 | ¢ | | 12.39 | ¢ | | (46) | % |
Less the following components: | | | | | |
Payroll Support Program grant wage offset | (4.21) | | | (1.91) | | | 120 | % |
Aircraft fuel, including hedging gains and losses | 1.75 | | | 2.12 | | | (17) | % |
Special items - impairment charges and other | 0.07 | | | 0.99 | | | (93) | % |
Special items - restructuring charges and other | (0.06) | | | — | | | NM |
Special items - merger-related costs | — | | | 0.02 | | | (100) | % |
CASM excluding fuel and special items | 9.17 | ¢ | | 11.17 | ¢ | | (18) | % |
OPERATING REVENUES
Total operating revenues decreased $2.1 billion,increased $267 million, or 51%13%, during the first six months of 20202021 compared to the same period in 2019.2020. The changes are summarized in the following table:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Passenger revenue | $ | 1,790 | | | $ | 3,827 | | | (53) | % |
Mileage Plan other revenue | 182 | | | 228 | | | (20) | % |
Cargo and other | 85 | | | 109 | | | (22) | % |
Total operating revenues | $ | 2,057 | | | $ | 4,164 | | | (51) | % |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Passenger revenue | $ | 2,011 | | | $ | 1,790 | | | 12 | % |
Mileage Plan other revenue | 212 | | | 182 | | | 16 | % |
Cargo and other | 101 | | | 85 | | | 19 | % |
Total operating revenues | $ | 2,324 | | | $ | 2,057 | | | 13 | % |
Passenger Revenue
On a consolidated basis, Passenger revenue for the first six months of 2020 decreased2021 increased by $2 billion,$221 million, or 53%12%, on a 40% decrease28% increase in capacity, and a 21 point decreasepassenger traffic, driven primarily by rebounding demand for leisure travel experienced in load factor. Decreased revenue year-over-year is primarily duethe second quarter of 2021. As travel restrictions were removed, including the full removal of restrictions in the state of California in June of 2021, passenger counts increased dramatically as compared to the near complete lossprior year. These improvements were offset by a decrease of 12% in yield, stemming from promotional activities undertaken to stimulate demand due to the COVID-19 pandemic. Load factors and unit revenues in the first two months of 2020 were in-line with our original expectations. In March 2020, demand deteriorated at an unprecedented level, and in response we reduced April 2020 and May 2020 capacity to approximately 80% below prior year levels. Althoughincrease bookings during what is typically a moderate recovery was observed in June 2020, the resurgence of cases throughout the United States is expected to continue to have significant impacts to our revenue throughout 2020.low booking period.
We expect to see continued improvement to Passenger revenue as we progress through 2021, driven by continued growth in demand and capacity, as well as improvements to business travel as employees return to work.
Mileage Plan other revenue
On a consolidated basis, Mileage Plan other revenue decreased $46increased $30 million, or 20%16%, in the first six months of 20202021 compared to the first six months of 2019,2020, due largely to a reductionan increase in purchased miles and decreased commissionscommission received from our affinity card partner consistent with fewerstemming from growing consumer spend and incremental new affinity card holders in 2020 and an overall reduction in consumer spending.acquisitions.
Cargo and other
On a consolidated basis, Cargo and other revenue decreased $24increased $16 million, or 22%19%, in the first six months of 20202021 compared to the first six months of 2019.2020. The decreaseincrease is primarily due to reducedthe return of all three freighters back to full capacity in the second quarter of 2021, coupled with increased belly cargo activity driven byas we increase scheduled departures.
We expect that our cargo and other revenues will be positively impacted as compared to 2020 due to the schedule reductions for passenger aircraft, as well as continued capacity limitations in our freighters.elimination of freighter limitations.
OPERATING EXPENSES
Total operating expenses decreased $1.1 billion,$730 million, or 29%27%, compared to the first six months of 2019.2020. We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Fuel expense | $ | 443 | | | $ | 922 | | | (52) | % |
Non-fuel operating expenses, excluding special items | 2,352 | | | 2,819 | | | (17) | % |
Payroll support program grant wage offset | (362) | | | — | | | NM |
Special items - merger-related costs | 4 | | | 34 | | | (88) | % |
Special items - impairment charges and other | 229 | | | — | | | NM |
Total operating expenses | $ | 2,666 | | | $ | 3,775 | | | (29) | % |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Fuel expense | $ | 477 | | | $ | 443 | | | 8 | % |
Non-fuel operating expenses, excluding special items | 2,371 | | | 2,352 | | | 1 | % |
Payroll Support Program grant wage offset | (914) | | | (362) | | | 152 | % |
Special items - impairment charges and other | 14 | | | 229 | | | (94) | % |
Special items - restructuring charges | (12) | | | — | | | NM |
Special items - merger-related costs | — | | | 4 | | | (100) | % |
Total operating expenses | $ | 1,936 | | | $ | 2,666 | | | (27) | % |
Fuel Expense
Aircraft fuel expense decreased $479increased $34 million, or 52%8%, compared to the six months ended June 30, 2019.2020. The elements of the change are illustrated in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
| 2020 | | | | 2019 | | |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 430 | | | $ | 1.73 | | | $ | 916 | | | $ | 2.18 | |
Losses on settled hedges | 10 | | | 0.04 | | | 7 | | | 0.02 | |
Consolidated economic fuel expense | 440 | | | 1.77 | | | $ | 923 | | | $ | 2.20 | |
Mark-to-market fuel hedge adjustments | 3 | | | 0.01 | | | (1) | | | — | |
GAAP fuel expense | $ | 443 | | | $ | 1.78 | | | $ | 922 | | | $ | 2.20 | |
Fuel gallons | 248 | | | | | 419 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
(in millions, except for per gallon amounts) | Dollars | | Cost/Gal | | Dollars | | Cost/Gal |
Raw or "into-plane" fuel cost | $ | 552 | | | $ | 1.87 | | | $ | 430 | | | $ | 1.73 | |
(Gain)/loss on settled hedges | (7) | | | (0.02) | | | 10 | | | 0.04 | |
Consolidated economic fuel expense | 545 | | | 1.85 | | | $ | 440 | | | $ | 1.77 | |
Mark-to-market fuel hedge adjustments | (68) | | | (0.23) | | | 3 | | | 0.01 | |
GAAP fuel expense | $ | 477 | | | $ | 1.62 | | | $ | 443 | | | $ | 1.78 | |
Fuel gallons | 294 | | | | | 248 | | | |
The raw fuel price per gallon decreased 21%increased 8% due to lowerhigher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil, as well as refining margins associated with the conversion of crude oil to jet fuel. The decreaseincrease in raw fuel price per gallon during the first six months of 20202021 was driven by a 36% decrease10% increase in crude oil prices, andoffset by a 56%65% decrease in refining margins.
LossesGains recognized for hedges that settled in the first six months of 20202021 were $10$7 million, compared to losses of $7$10 million in the same period in 2019.2020. These amounts represent cash received from settled hedges, offset by cash paid for premium expense.
We expect our economic fuel cost per gallon in the third quarter to range between $1.35$1.95 and $1.40$2.00 per gallon based on a significant decrease in consumption as compared to the prior-year period.current market West Coast jet fuel prices.
Non-fuel Expense and Non- special items
| | | Six Months Ended June 30, | | | Six Months Ended June 30, |
(in millions) | (in millions) | 2020 | | 2019 | | % Change | (in millions) | 2021 | | 2020 | | % Change |
Wages and benefits | Wages and benefits | $ | 1,084 | | | $ | 1,124 | | | (4) | % | Wages and benefits | $ | 1,003 | | | $ | 1,084 | | | (7) | % |
Variable incentive pay | Variable incentive pay | 23 | | | 79 | | | (71) | % | Variable incentive pay | 67 | | | 23 | | | 191 | % |
Aircraft maintenance | Aircraft maintenance | 160 | | | 235 | | | (32) | % | Aircraft maintenance | 183 | | | 160 | | | 14 | % |
Aircraft rent | Aircraft rent | 155 | | | 165 | | | (6) | % | Aircraft rent | 124 | | | 155 | | | (20) | % |
Landing fees and other rentals | Landing fees and other rentals | 214 | | | 245 | | | (13) | % | Landing fees and other rentals | 273 | | | 214 | | | 28 | % |
Contracted services | Contracted services | 102 | | | 142 | | | (28) | % | Contracted services | 105 | | | 102 | | | 3 | % |
Selling expenses | Selling expenses | 59 | | | 159 | | | (63) | % | Selling expenses | 74 | | | 59 | | | 25 | % |
Depreciation and amortization | Depreciation and amortization | 215 | | | 211 | | | 2 | % | Depreciation and amortization | 195 | | | 215 | | | (9) | % |
Food and beverage service | Food and beverage service | 56 | | | 102 | | | (45) | % | Food and beverage service | 58 | | | 56 | | | 4 | % |
Third-party regional carrier expense | Third-party regional carrier expense | 63 | | | 83 | | | (24) | % | Third-party regional carrier expense | 67 | | | 63 | | | 6 | % |
Other | Other | 221 | | | 274 | | | (19) | % | Other | 222 | | | 221 | | | — | % |
Total non-fuel operating expenses, excluding special items | Total non-fuel operating expenses, excluding special items | $ | 2,352 | | | $ | 2,819 | | | (17) | % | Total non-fuel operating expenses, excluding special items | $ | 2,371 | | | $ | 2,352 | | | 1 | % |
Wages and Benefits
Wages and benefits decreased during the first six months of 20202021 by $40$81 million, or 4%7%. The primary components of wages and benefits are shown in the following table:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
(in millions) | 2020 | | 2019 | | % Change |
Wages | $ | 803 | | | $ | 845 | | | (5) | % |
Pension—Defined benefit plans service cost | 26 | | | 21 | | | 24 | % |
Defined contribution plans | 68 | | | 66 | | | 3 | % |
Medical and other benefits | 130 | | | 132 | | | (2) | % |
Payroll taxes | 57 | | | 60 | | | (5) | % |
Total wages and benefits | $ | 1,084 | | | $ | 1,124 | | | (4) | % |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
(in millions) | 2021 | | 2020 | | % Change |
Wages | $ | 743 | | | $ | 803 | | | (7) | % |
Pension—Defined benefit plans service cost | 26 | | | 26 | | | — | % |
Defined contribution plans | 58 | | | 68 | | | (15) | % |
Medical and other benefits | 124 | | | 130 | | | (5) | % |
Payroll taxes | 52 | | | 57 | | | (9) | % |
Total wages and benefits | $ | 1,003 | | | $ | 1,084 | | | (7) | % |
Wages decreased $42$60 million, or 5%7%, on a 12%5% decrease in FTEs. The decrease isDecreased wages as compared to the prior period are primarily due tothe result of voluntary early-outs, as well as leaves of absence and incentive lines accepted by more than 6,000 employees, as well as reduction in executive pay and hours for management employees.2020 which carried into 2021. These decreasesreductions were offset by increased wage rates followingwages in the mid-2019 ratificationsecond quarter as we began to rebuild staffing and provide incentives to employees in response to increasing demand. Reductions to defined-contribution plan expense, medical and other benefits, and payroll taxes are a direct result of new contracts for employees represented by the Aircraft Mechanics Fraternal Association and the International Association of Machinists.decline in wages.
For the full year, we expect wages and benefits will declineincrease compared to the prior year2020 as we reduceincrease scheduled flying and executive salaries, and realize savings generatedreturn workers from our reduction in workforce necessaryincentive leaves or other absences to align with our expectation of increased demand. Additionally, as labor shortages continue to impact many of our markets, we expect to see continued wage pressure as we offer premium and bonus pay to attract and retain employees.
Variable Incentive Pay
Variable incentive pay expense decreased $56increased $44 million, or 71%191%, during the first six months of 20202021 as compared to the same period in 2019.2020. The decreaseincrease is primarily due to the expectation that incremental key financial metricstargets will not be achieved under the performance based pay program.
Aircraft Maintenance
Aircraft maintenance expense decreasedincreased by $75$23 million, or 32%14%, during the first six months of 20202021 compared to the same period in 2019.2020. The decreaseincrease is primarily due to increased component repairs which were delayed from 2020 as a significant reduction in engine events and heavy checks,result of increased flight hours, as well as reducedincreased power-by-the-hour expense on reducedcombined with increased utilization inof covered aircraft.
We expect full year aircraft maintenance expense to be lowerhigher than 20192020 on reducedincreased aircraft utilization and parking of certain aircraft.utilization.
Landing fees and other rentals
Landing fees and other rentals decreasedincreased by $31$59 million, or 13%28%, during the first six months of 20202021 compared to the same period in 2019,2020, primarily due to a 35% decreasesignificant increase in departures, offset bycombined with increased rates at certain of our airports.
For the full year we expect landing fees and other rentals to decreaseincrease as compared to 2019, however, not at the same rate2020 as decreased departures. We expectwe continue to see continued rate increasesincrease capacity and departures on increased rates at many of our airports, as well as negative net settlements to cover airport operating costs.
Contracted Services
Contracted services decreased by $40 million, or 28%, during the first six months of 2020 compared to the same period in 2019. This decrease is primarily a result of reduced vendor spend directly correlating to reduced year-over-year departures and passengers as a result of the COVID-19 pandemic.
For the full year, we expect contracted services expense to be significantly lower than in 2019, given our ongoing cost reduction efforts and significant reduction in departures.
Selling Expense
Selling expense decreasedincreased by $100$15 million, or 63%25%, during the first six months of 20202021 compared to the same period in 2019.2020, primarily driven by a significant reductionincrease in distribution costs and credit card commissions. ReducedIncreased marketing spend and sponsorship costs given the continued delay inreturn of professional sports and events also contributed to the year-over-year decline.increase.
We expect full year selling expense will decreaseincrease in-line with the reductionincrease to revenue as a result of reducedincreased distribution costs on lowerhigher bookings, as well as reducedincreased sponsorship costs.
Food and beverage service
Food and beverage service decreased by $46 million, or 45%, during the first six months of 2020 compared to the same period in 2019. This decrease is primarily due to the 55% decrease in revenue passengers as compared to the prior-year period, as well as the temporary closure of the majority of our airport lounges in the second quarter of 2020.
We expect food and beverage service to decrease as compared to 2019, consistent with our expectation of reduced passengers throughout 2020.marketing costs.
Third-party Regional Carrier Expense
Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, decreased $20increased $4 million, or 24%6%, during the first six months of 20202021 compared to the same period in 2019.2020. The decreaseincrease is primarily due to a 30% decrease26% increase in capacity flown by SkyWest departures as compared to the prior year. Increased SkyWest activity was offset by the receipt and recognition of $14 million in pass-through of CARES Act PSP funding for pilot and flight attendant wages and benefits.
For the full year, we expect third-party regional carrier expense to be lowerhigher than 2019 due to decreased flying and reduced contractual rates.
Special Items—Merger-Related Costs
We recorded special items of $4 million in the first six months of 2020 for merger-related costs associated with our acquisition of Virgin America, compared to $34 million in the first six months of 2019. Costs incurred in the first six months of 2020 are primarily comprised of certain technology integration costs. We expect 2020 will be the final year in which we incur integration related charges.driven by increased departures.
Special Items - Impairment and other charges
We recorded impairment and other charges of $229$14 million in the second quarterfirst six months of 2020, driven by our current expectation2021, consisting of decreased future cash flows stemmingcosts associated with leased aircraft that have been retired and removed from the COVID-19 pandemic. Impairment and other charges primarily consist ofoperating fleet but not yet returned to the full write-down of the operating lease assets and related spare inventory and parts, as well aslessor. We continue to evaluate total estimated leasecosts to return costs for certain Airbus aircraft which werethese permanently parked the write-down of our owned Q400 fleetaircraft, and make updates to fair value, and the full write-off of gate assets at Dallas Love Field.total expense where necessary.
Additional impairmentSpecial Items - Restructuring charges may be
We recorded a restructuring benefit of $12 million in the first six months of 2021 primarily as we execute further capacity reductions beyond those already scheduled and potentially permanently park additional aircraft.a result of issuing recall notices to pilots on incentive lines for periods earlier than were previously anticipated.
ADDITIONAL SEGMENT INFORMATION
Refer to Note 9 of the condensed consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability.
Mainline
Mainline reported an adjusted pretax loss was $556$468 million in the first six months of 2020,2021, compared to an adjusted pretax profitloss of $383$556 million in the same period in 2019.2020. The $939$88 million shiftimprovement to pretax loss was driven by a $1.8 billion decrease$163 million increase in Mainline operating revenues offset bycoupled with a $414$28 million decrease in Mainline non-fuel operating expense andexpense. These improvements were offset by a $422$69 million decreaseincrease in Mainline fuel expense.
As compared to the prior year, lowerhigher Mainline revenues are primarily attributable to a 55% decrease25% increase in traffic andon a 20 point decreaseincrease in capacity, driven by the significant reductionincrease in demand as a result ofrecovering from the COVID-19 pandemic. Non-fuel operating expenses decreased significantly on cost savings driven by reducedincreased from higher variable costs on reducedincreased capacity, as well as decreasedrising wages and benefits expense from voluntary leaves of absenceas we expand our workforce to meet growing demand and a reduction in hours for management employees. Lowerleisure travel seasonality. Higher raw fuel prices, combined with decreasedincreased consumption from the reduction in flying, drove the decreasegrowth in Mainline fuel expense.
Regional
Regional operations generated aincurred an adjusted pretax loss of $206 million in the first six months of 2021, compared to an adjusted pretax loss of $202 million in the first six months of 2020, compared to a pretax loss of $23 million in the first six months of 2019.2020. The increase in the pretaxincreased loss was attributable to a $303$72 million decreaseincrease in non-fuel operating revenues, partiallyexpenses and a $36 million increase in fuel costs, offset by a $61$104 million decreaseincrease in fuel costs andoperating revenues.
The increase to regional revenues is driven by a $63 million decrease50% increase in traffic as compared to the prior-year period, also resulting in increased variable non-fuel operating expenses. The decrease in regional revenues is primarily due to the 24% decrease in capacity, spurred by the COVID-19 pandemic.
Horizon
Horizon achieved aan adjusted pretax profit of $26 million in the first six months of 2021, compared to an adjusted pretax profit of $16 million in the first six months of 2020, compared to pretax profit of $22 million in the same period in 2019,2020, primarily due to significantimproved operational performance and cost reduction efforts implemented in response to the COVID-19 pandemic.management.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the COVID-19 pandemic, we have taken, and will continue to take action to reduce costs, increasemanage liquidity and help to preserve the relative strength of our balance sheet. From the onset of the pandemic,In 2020, we have taken the following keytook significant actions to enhance and preserve our liquidity:liquidity, withstand depressed demand, and prepare for the recovery ahead. In 2021, we have achieved the following, which we believe positions us well for recovery:
•Obtained $1Generated positive operating cash flow of $1.0 billion, bolstered by improved advance bookings for increased demand for air travel, and the receipt of $1.2 billion in payroll support funding from the U.S. Treasury under extensions of CARES Act funding to offset wage and benefit expense;programs, $892 million of which is included in operating cash flow;
•Raised $589Repaid $681 million in secured financing collateralized by 32 aircraft;debt, including the termination of the CARES Act loan, and the full repayment of two outstanding lines of credit;
•Drew $400 millionDecreased debt-to-capitalization ratio to 56% at June 30, 2021 from existing credit facilities;61% at December 31, 2020;
•SuspendedFinalized a previously announced amendment to the existing aircraft purchase agreement with Boeing, which significantly reduced our share repurchase program2021 capital commitments and quarterly dividend indefinitely,provides slide rights to defer commitments from 2022 to later years, and;
•Reduced plannedMaintained low capital expenditures, by nearly $600which are expected to be approximately $225 million for 2020,in 2021, including suspensionrenegotiated timing of pre-delivery payments and deferral of non-essential capital projects.
Subsequent to quarter end, we obtained $1.2 billion in financing through the issuance of EETCs in July 2020. The EETCs are collateralized by 42 Boeing 737 aircraft and 19 Embraer E175 aircraft.
We have significant remaining borrowing capacity, supported by our remaining 33 unencumbered aircraft, real estate and slot assets, and our loyalty program. Although we have no plans to access equity markets at this time, we believe our equity would be of high interest to investors.
InAs the business continues to recover and returns to profitability, reducing outstanding debt and strengthening our balance sheet is a high priority. Based on our expectations about the recovery ahead, we expect to generate cash flow from operations of zero to $100 million in the third quarter. This is lower than in the second quarter we notifieddue to the U.S. Departmentexpectation of the Treasury (Treasury) of Alaskano further government support and Horizon’s intent to applyseasonal booking patterns that result in less cash bookings for loans under the CARES Act, which enables us to access up to $1.1 billion of additional financing. In July 2020, we signed a non-binding letter of intent with the Treasury, anticipating that Mileage Plan assets may be used as loan collateral, and that definitive terms would be negotiated before September 30, 2020. As we continue our negotiations with Treasury, we are also considering other possible sources of liquidityfuture travel.
To preserveWe believe that our current cash and marketable securities balance, combined with available sources of liquidity, we have continuedwill be sufficient to fund our focus on reducing cash burn. We have successfully reducedoperations and meet our monthly cash burn rate from $400 million as we exited Marchdebt payment obligations, and to $120 millionremain in June. We define cash burn as all cash flows, excludingcompliance with the impact of any CARES Act funding or proceeds from new borrowings, plus net activities from marketable securities.
financial debt covenants in existing financing arrangements for the foreseeable future.
Our daily cash burn for the three and six months ended June 30, 2020, is reconciled from our statement of cash flows as follows:
| | | | | | | | | | | | | | | | | |
(in millions) | Six Months Ended June 30, 2020 | | Three Months Ended March 31, 2020(a) | | Three Months Ended June 30, 2020(b) |
Net cash provided by operating activities | $ | 321 | | | $ | 33 | | | $ | 288 | |
Net cash provided by (used in) investing activities | (124) | | | (127) | | | 3 | |
Net cash provided by financing activities | 1,091 | | | $ | 684 | | | 407 | |
Net increase in cash, cash equivalents and restricted cash | 1,288 | | | 590 | | | 698 | |
| | | | | |
Adjusted to remove: | | | | | |
Payroll support program grant | 723 | | | — | | | 723 | |
Payroll support program note and equity | 284 | | — | | | 284 |
Secured debt issuances | 589 | | 425 | | 164 |
Credit facility draws | 400 | | 400 | | | — | |
Net marketable security activity | (5) | | | (24) | | | 19 | |
Total adjustments | 1,991 | | | 801 | | | 1,190 | |
| | | | | |
Adjusted cash burn | $ | (703) | | | $ | (211) | | | $ | (492) | |
Days in the period | 182 | | 91 | | 91 | |
Average daily cash burn | $ | (4) | | | $ | (2) | | | $ | (5) | |
(a) As filed in our first quarter 10-Q, as amended.
(b) Cash burn for the three months ended June 30, 2020, can be calculated by subtracting cash flows for the three months ended March 31, 2020, as previously filed with the SEC, from the six months ended June 30, 2020.
The table below presents the major indicators of financial condition and liquidity: | | | | | | | | | | | | | | | | | |
(in millions) | June 30, 2021 | | December 31, 2020 | | Change |
Cash and marketable securities | $ | 3,951 | | | $ | 3,346 | | | 18 % |
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue | 103 | % | | 94 | % | | 9 pts |
Total debt | 3,188 | | | 3,495 | | | (9) % |
Shareholders’ equity | $ | 3,324 | | | $ | 2,988 | | | 11% |
| | | | | | | | | | | | | | | | | |
(in millions) | June 30, 2020 | | December 31, 2019 | | Change |
Cash and marketable securities | $ | 2,803 | | | $ | 1,521 | | | 84 % |
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue | 42 | % | | 17 | % | | 25 pts |
Total debt | 2,636 | | | 1,499 | | | 76 % |
Shareholders’ equity | $ | 3,861 | | | $ | 4,331 | | | (11)% |
| Debt-to-capitalization, adjusted for operating leases | Debt-to-capitalization, adjusted for operating leases | | Debt-to-capitalization, adjusted for operating leases | |
(in millions) | (in millions) | June 30, 2020 | | December 31, 2019 | | Change | (in millions) | June 30, 2021 | | December 31, 2020 | | Change |
Long-term debt, net of current portion | Long-term debt, net of current portion | $ | 1,549 | | | $ | 1,264 | | | 23% | Long-term debt, net of current portion | $ | 2,319 | | | $ | 2,357 | | | (2)% |
Capitalized operating leases | Capitalized operating leases | 1,649 | | | 1,708 | | | (4)% | Capitalized operating leases | 1,485 | | | 1,558 | | | (5)% |
COVID-19 related borrowings(a) | COVID-19 related borrowings(a) | 818 | | | — | | | NM | COVID-19 related borrowings(a) | 425 | | | 734 | | | (42)% |
Adjusted debt | $ | 4,016 | | | $ | 2,972 | | | 35% | |
Adjusted debt, net of current portion of long-term debt | | Adjusted debt, net of current portion of long-term debt | $ | 4,229 | | | $ | 4,649 | | | (9)% |
Shareholders' equity | Shareholders' equity | 3,861 | | | 4,331 | | | (11)% | Shareholders' equity | 3,324 | | | 2,988 | | | 11% |
Total invested capital | Total invested capital | $ | 7,877 | | | $ | 7,303 | | | 8% | Total invested capital | $ | 7,553 | | | $ | 7,637 | | | (1)% |
| Debt-to-capitalization, including operating leases | Debt-to-capitalization, including operating leases | 51 | % | | 41 | % | | 10 pts | Debt-to-capitalization, including operating leases | 56 | % | | 61 | % | | (5) pts |
(a)To best reflect our leverage, at June 30, 2020, we included the remaining short-term borrowings stemming from the COVID-19 pandemic in the above calculation, although these borrowings are classified as current in the condensed consolidated balance sheets.
| | | | | |
Net adjusted debt to earnings before interest, taxes, depreciation, amortization, special items and rent | |
(in millions) | June 30, 2020 |
Adjusted debt | $ | 4,016 | |
Current portion of long-term debt, net of COVID-19 related borrowings | 269 | |
Total adjusted debt | 4,285 | |
Less: Cash and marketable securities | (2,803) | |
Net adjusted debt | $ | 1,482 | |
| |
(in millions) | Last Twelve Months Ended June 30, 2020 |
GAAP Operating Income(a)
| $ | 65 | |
Adjusted for: | |
Special items | (119) | |
Mark-to-market fuel hedge adjustments | (2) | |
Depreciation and amortization | 427 | |
Aircraft rent | 321 | |
EBITDAR | $ | 692 | |
Net adjusted debt to EBITDAR | 2.1x |
| | | | | | | | | | | |
Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent | | |
(in millions) | June 30, 2021 | | December 31, 2020 |
Current portion of long-term debt | $ | 869 | | | $ | 1,138 | |
Current portion of operating lease liabilities | 263 | | | 290 | |
Long-term debt, net of current portion | 2,319 | | | 2,357 | |
Long-term operating lease liabilities, net of current portion | 1,222 | | | 1,268 | |
Total adjusted debt | 4,673 | | | 5,053 | |
Less: Cash and marketable securities | (3,951) | | | (3,346) | |
Adjusted net debt | $ | 722 | | | $ | 1,707 | |
| | | |
(in millions) | Twelve Months Ended June 30, 2021 | | Twelve Months Ended December 31, 2020 |
GAAP Operating Loss(a) | $ | (778) | | | $ | (1,775) | |
Adjusted for: | | | |
Payroll Support Program grant wage offset and special items | (712) | | | 71 | |
Mark-to-market fuel hedge adjustments | (79) | | | (8) | |
Depreciation and amortization | 400 | | | 420 | |
Aircraft rent | 268 | | | 299 | |
EBITDAR | $ | (901) | | | $ | (993) | |
Adjusted net debt to EBITDAR | (0.8x) | | (1.7x) |
(a)Operating incomeloss can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.
The following discussion summarizes the primary drivers of the increase in our cash and marketable securities balance and our expectation of future cash requirements.
ANALYSIS OF OUR CASH FLOWS
Cash Used inProvided by Operating Activities
For the first six months of 2020,2021, net cash provided by operating activities was $321 million,$1.0 billion, compared to $1 billion$321 million during the same period in 2019.2020. The $712$686 million decreaseincrease in our operating cash flows is primarily attributable to a $712 million decline inimprovement to net income, as well asaided by the receipt and recognition of $892 million in PSP grant funding made available by the U.S. Treasury. Additionally, improvement in our operating cash flows is due to continued increases in advanced bookings and a significant cashreduction in refund activity and a decline in advance bookings aswhen compared to the same period in the prior year, all as a resultfirst six months of the COVID-19 pandemic. The net loss was offset by funds received from the U.S. Treasury as part of the PSP.2020.
Cash Used in Investing Activities
Cash used in investing activities was $124 million$1.1 billion during the first six months of 2020,2021, compared to $530$124 million during the same period of 2019.2020. The decreaseincrease to cash used in investing activities is primarily due to a reduction in net purchases of marketable securities, which were $34$963 million in the first six months of 2020,2021, compared to $222net sales of $34 million in the six months ended June 30, 2019.2020. The decrease inshift to net purchases is primarily driven by additional cash on hand from increased operating cash flow and the needPSP program, which allowed the Company to utilize previously invested cash to fund operations and provide customer refunds. The decrease is also due to the postponement of capital expenditures in 2020 as a result of the COVID-19 pandemic.invest additional funds.
Cash Used inProvided by (Used in) Financing Activities
Cash fromused in financing activities was $1.1 billion$281 million during the first six months of 20202021 compared to cash used forprovided by financing activities of $363$1.1 billion during the same period in 2020. During the first six months of 2021, we utilized cash on hand to repay $681 million of outstanding long-term debt, compared to payments of $125 million during the same period in 2019. During the first six months of 2020, we had2020. These payments were offset by proceeds from debt issuances of $1.3 billion, including$363 million, primarily a result of the loan portion of the proceeds from the PSP. These proceeds were partially offset by debt payments of $125 million, dividend payments totaling $45 million, and $31 millionCARES Act PSP, compared to $1.3 billion issued in common stock repurchases.2020 in response to the COVID-19 pandemic.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Aircraft Commitments
As of June 30, 2020,2021, we have firm orders to purchase 3575 aircraft, and firm commitments to lease 13 aircraft. Alaska also has cancelablean agreement with SkyWest Airlines to expand our long-term capacity purchase agreement by eight aircraft in 2022. Alaska also has cancellable purchase commitments for 30 Airbus A320neo aircraft with deliveries from 2024 through 2026. We could incur a loss2027. At this time, we do not expect to take delivery of pre-delivery payments and credits as a cancellation fee.these 30 Airbus aircraft. Alaska also has options to acquire 37 B73739 B737-9 MAX aircraft with deliveries from 20212024 through 2024,2026, and Horizon has options to acquire 3021 E175 aircraft with deliveries from 20222023 through 2024. In addition to the 32 E175 aircraft currently operated by SkyWest in our regional fleet, Alaska has options in future periods to add regional capacity by having SkyWest operate up to eight more E175 aircraft. Options will be exercised only if we believe return on invested capital targets can be met over the long term.
Given the drastically reduced demand for air travel as a result of the COVID-19 pandemic, we are currently evaluating
The following table summarizes our overall fleet strategy and long-term plan. We are also in the process of negotiating with aircraft manufacturers and lessors to optimize timing of fleet activity. It is probable that the current outlook as stated below will change significantly. This table represents anticipated fleet activitycount by year, as of June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual Fleet | | Anticipated Fleet Activity | | | | | | | | |
Aircraft | June 30, 2020 | | 2020 Additions | | 2020 Removals | | December 31, 2020 | | 2021 Changes | | December 31, 2021 |
B737 Freighters | 3 | | | — | | | — | | | 3 | | | — | | | 3 | |
B737-700 | 11 | | | — | | | — | | | 11 | | | — | | | 11 | |
B737-800 | 61 | | | — | | | — | | | 61 | | | — | | | 61 | |
B737-900 | 12 | | | — | | | — | | | 12 | | | — | | | 12 | |
B737-900ER | 79 | | | — | | | — | | | 79 | | | — | | | 79 | |
B737 MAX9(a) | — | | | 3 | | | — | | | 3 | | | 15 | | | 18 | |
A320(b) | 49 | | | — | | | — | | | 49 | | | (7) | | | 42 | |
A321neo | 10 | | | — | | | — | | | 10 | | | — | | | 10 | |
Total Mainline Fleet | 225 | | | 3 | | | — | | | 228 | | | 8 | | | 236 | |
Q400 operated by Horizon | 32 | | | — | | | — | | | 32 | | | — | | | 32 | |
E175 operated by Horizon | 30 | | | — | | | — | | | 30 | | | — | | | 30 | |
E175 operated by third party | 32 | | | — | | | — | | | 32 | | | — | | | 32 | |
Total Regional Fleet | 94 | | | — | | | — | | | 94 | | | — | | | 94 | |
Total | 319 | | | 3 | | | — | | | 322 | | | 8 | | | 330 | |
2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual Fleet | | Anticipated Fleet Activity(a) |
Aircraft | June 30, 2021 | | 2021 Additions | | 2021 Removals | | Dec 31, 2021 | | 2022 Changes | | Dec 31, 2022 | | 2023 Changes | | Dec 31, 2023 |
B737 Freighters | 3 | | | — | | | — | | | 3 | | | — | | | 3 | | | — | | | 3 | |
B737-700 | 11 | | | — | | | — | | | 11 | | | — | | | 11 | | | — | | | 11 | |
B737-800 | 61 | | | — | | | — | | | 61 | | | — | | | 61 | | | — | | | 61 | |
B737-900 | 12 | | | — | | | — | | | 12 | | | — | | | 12 | | | — | | | 12 | |
B737-900ER | 79 | | | — | | | — | | | 79 | | | — | | | 79 | | | — | | | 79 | |
B737-9 MAX | 5 | | | 7 | | | — | | | 12 | | | 31 | | | 43 | | | 22 | | | 65 | |
A320(b) | 21 | | | 7 | | | (1) | | | 27 | | | (3) | | | 24 | | | (24) | | | — | |
A321neo | 10 | | | — | | | — | | | 10 | | | — | | | 10 | | | — | | | 10 | |
Total Mainline Fleet | 202 | | | 14 | | | (1) | | | 215 | | | 28 | | | 243 | | | (2) | | | 241 | |
Q400 operated by Horizon(c) | 32 | | | — | | | — | | | 32 | | | — | | | 32 | | | — | | | 32 | |
E175 operated by Horizon(c) | 30 | | | — | | | — | | | 30 | | | 5 | | | 35 | | | 4 | | | 39 | |
E175 operated by third party(c) | 32 | | | — | | | — | | | 32 | | | 8 | | | 40 | | | — | | | 40 | |
Total Regional Fleet | 94 | | | — | | | — | | | 94 | | | 13 | | | 107 | | | 4 | | | 111 | |
Total | 296 | | | 14 | | | (1) | | | 309 | | | 41 | | | 350 | | | 2 | | | 352 | |
(a)The three B737 MAX9 aircraft reflected in 2020 were originally contracted for delivery in 2019Anticipated fleet activity reflects intended early retirement and delayed due to the MAX grounding. Seven B737 MAX9 deliveries originally contracted for 2020extensions or replacement of certain leases, not all of which have been shifted to 2021 based on our current estimate of expected delivery dates.contracted yet.
(b)Actual fleet at June 30, 2020, excludes 122021, excluding Airbus aircraft permanently parked in response to COVID-19 capacity reductions. We have announced plans to return 12 of these aircraft to operating service, seven of which are planned for 2021 and five for 2022.
(c)Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third party. Under the terms of our capacity purchase agreement with a third party, in 2023 an additional spare aircraft will be leased to support the operational integrity of the network.
For future firm orders and option exercises, we may finance the aircraft through cash flow from operations or long-term debt, or lease arrangements.debt.
Fuel Hedge Positions
All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases. With call options, we are hedged against volatile crude oil price increases. During a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums. We typically hedge up to 50% of our expected consumption. However, given the sharp decline in demand and our capacity resulting from the COVID-19 pandemic, we are currently overhedged relative to our target of 50% of consumption through the remainder of 2020. Our crude oil positions are as follows:
| | | | | | | | | | | | | | | | | |
| Approximate Gallons Hedged (in millions) | | Weighted-Average Crude Oil Price per Barrel | | Average Premium Cost per Barrel |
| | | | | |
| | | | | |
Third Quarter 2020 | 115 | | $66 | | $2 |
Fourth Quarter 2020 | 85 | | $64 | | $2 |
Full Year 2020 | 200 | | $65 | | $2 |
First Quarter 2021 | 60 | | $62 | | $2 |
Second Quarter 2021 | 45 | | $63 | | $2 |
Third Quarter 2021 | 40 | | $57 | | $2 |
Fourth Quarter 2021 | 20 | | $49 | | $4 |
Total 2021 | 165 | | $60 | | $2 |
| | | | | | | | | | | | | | | | | |
| Approximate Gallons Hedged (in millions) | | Weighted-Average Crude Oil Price per Barrel | | Average Premium Cost per Barrel |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Third Quarter 2021 | 100 | | $60 | | $2 |
Fourth Quarter 2021 | 90 | | $61 | | $3 |
Remainder of 2021 | 190 | | $60 | | $2 |
First Quarter 2022 | 80 | | $67 | | $3 |
Second Quarter 2022 | 60 | | $66 | | $3 |
Third Quarter 2022 | 40 | | $70 | | $3 |
Fourth Quarter 2022 | 20 | | $71 | | $3 |
Full Year 2022 | 200 | | $68 | | $3 |
Contractual Obligations
The following table provides a summary of our contractual obligations as of June 30, 2020.2021. For agreements with variable terms, amounts included reflect our minimum obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Beyond 2024 | | Total |
Current and long-term debt obligations | $ | 529 | | | $ | 742 | | | $ | 281 | | | $ | 245 | | | $ | 153 | | | $ | 695 | | | $ | 2,645 | |
Aircraft lease commitments | 162 | | | 300 | | | 274 | | | 217 | | | 166 | | | 677 | | | 1,796 | |
Facility lease commitments | 5 | | | 9 | | | 8 | | | 7 | | | 7 | | | 84 | | | 120 | |
Aircraft maintenance deposits | 12 | | | 53 | | | 45 | | | 24 | | | 6 | | | 2 | | | 142 | |
Aircraft purchase commitments (a) | 335 | | | 554 | | | 337 | | | 186 | | | 18 | | | 25 | | | 1,455 | |
Interest obligations (b) | 32 | | | 42 | | | 30 | | | 23 | | | 17 | | | 61 | | | 205 | |
Other obligations (c) | 41 | | | 179 | | | 185 | | | 190 | | | 197 | | | 910 | | | 1,702 | |
Total | $ | 1,116 | | | $ | 1,879 | | | $ | 1,160 | | | $ | 892 | | | $ | 564 | | | $ | 2,454 | | | $ | 8,065 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Remainder of 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Beyond 2025 | | Total |
Current and long-term debt obligations | $ | 227 | | | $ | 796 | | | $ | 334 | | | $ | 240 | | | $ | 261 | | | $ | 1,353 | | | $ | 3,211 | |
Aircraft lease commitments(a) | 162 | | | 280 | | | 219 | | | 167 | | | 159 | | | 633 | | | 1,620 | |
Facility lease commitments | 6 | | | 10 | | | 9 | | | 8 | | | 6 | | | 88 | | | 127 | |
Aircraft-related commitments(b) | 107 | | | 1,458 | | | 1,207 | | | 291 | | | 76 | | | 12 | | | 3,151 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Interest obligations (c) | 55 | | | 98 | | | 72 | | | 57 | | | 51 | | | 175 | | | 508 | |
Other obligations (d) | 89 | | | 184 | | | 189 | | | 196 | | | 197 | | | 898 | | | 1,753 | |
Total | $ | 646 | | | $ | 2,826 | | | $ | 2,030 | | | $ | 959 | | | $ | 750 | | | $ | 3,159 | | | $ | 10,370 | |
(a)Although the Company has contractual obligationsFuture minimum lease payments for purchaseaircraft includes commitments in 2020, informal agreementsfor aircraft which have been reached with aircraft manufacturers to defer payments beyond 2020.removed from operating service, as we have remaining obligation under existing terms.
(b)Includes non-cancelable contractual commitments for aircraft and engines, buyer furnished equipment, and contractual aircraft maintenance obligations.
(c)For variable-rate debt, future obligations are shown above using forecasted interest rates forecast as of June 30, 2020.2021.
(c)(d)Primarily comprised of non-aircraft lease costs associated with capacity purchase agreements. In the second quarter, Alaska entered into an agreement with SkyWest to defer a portion of 2020 payments and eliminate contractual minimums through September 30, 2020.
In the second quarter, the Company renegotiated scheduled payments with certain lessors and vendor partners, including the reduction of minimum obligations. The Company has also deferred 2020 aircraft payments, including those related to the B737 MAX9, to periods beyond 2020. Discussions remain ongoing with aircraft manufacturers and lessors to optimize the timing of aircraft deliveries and lease returns.
Credit Card Agreements
We have agreements with a number of credit card companies to process the sale of tickets and other services. Under these agreements, there are material adverse change clauses that, if triggered, could result in the credit card companies holding back a reserve from our credit card receivables. Under one such agreement, we could be required to maintain a reserve if our credit rating is downgraded to or below a rating specified by the agreement or our cash and marketable securities balance fell below $500 million. Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million. We are not currently required to maintain any reserve under these agreements, but if we were, our financial position and liquidity could be materially harmed.
Deferred Income Taxes
For federal income tax purposes, the majority of our assets are fully depreciated over a seven-year life using an accelerated depreciation method or bonus depreciation, if available. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight-line basis. This difference has created a significant deferred tax liability. At some point in the future the depreciation basis difference will reverse, including via asset impairment, potentially resulting in an increase in income taxes paid.
While it is possible that we could have material cash obligations for this deferred liability at some point in the future, we cannot estimate the timing of long-term cash flows with reasonable accuracy. Taxable income or loss and cash taxes payable and refundable in the short-term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue, demand for air travel and fuel prices), usage of net operating losses, whether "bonus depreciation" provisions are available, any future tax reform efforts at the federal level, as well as other legislative changes that are beyond our control. We expect that our 2020 cash tax rate will be close to zero, given our current expectation of operating losses for the remainder of the year.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting estimates during the three months ended June 30, 2020.2021. For information on our critical accounting estimates, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2019 and Note 2, "COVID-19," for discussion about the estimates used in the Company's impairment analyses.2020.
GLOSSARY OF AIRLINE 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 adjusted net 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 leases) 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 settled fuel-hedging contracts in the period
Free Cash Flow - total operating cash flow generated less cash paid for capital expenditures
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 family and Airbus 321neo 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 SkyWest and PenAir.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 PenAirSkyWest under the respective capacity purchased arrangement (CPA). Additionally, Regional includes an allocation of corporate overhead such as IT, finance, and 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
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
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ITEM 4. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of June 30, 2020,2021, an evaluation was performed under the supervision and with the participation of our management, including our chief executive officer and chief financial officer (collectively, our “certifying officers”), of the effectiveness of the design and operation of our disclosure controls and procedures. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in our periodic reports filed with or submitted to the Securities and Exchange Commission (the SEC) is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our certifying officers, as appropriate, to allow timely decisions regarding required disclosure. Our certifying officers concluded, based on their evaluation, that disclosure controls and procedures were effective as of June 30, 2020.2021.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Our internal control over financial reporting is based on the 2013 framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).
PART II
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ITEM 1. LEGAL PROCEEDINGS |
We areThe Company is a party to routine litigation matters incidental to our business. Management believes the ultimate disposition of these mattersits business and with respect to which no material liability is not likelyexpected. Liabilities for litigation related contingencies are recorded when a loss is determined to materially affect our financial position or results of operations. This forward-looking statement is based on management’s current understanding of the relevant lawbe probable and facts, and it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries.estimable.
In 2015, three flight attendants filed a class action lawsuit seeking to represent all Virgin America flight attendants for damages based on alleged violations of California and City of San Francisco wage and hour laws. The court certified a class of approximately 1,800 flight attendants in November 2016. The Company believes the claims in this case are without factual and legal merit.
In July 2018, the Court granted in part Plaintiffs' motion for summary judgment, finding Virgin America, and Alaska Airlines, as a successor-in-interest to Virgin America, responsible for various damages and penalties sought by the class members. OnIn February 4, 2019, the Court entered final judgment against Virgin America and Alaska Airlines in the amount of approximately $78 million. It did not award injunctive relief against Alaska Airlines. In February 2021, an appellate court reversed portions of the lower court decision and significantly reduced the judgment. The determination of total judgment has not been completed as of the date of this filing. Based on the facts and circumstances available, the Company believes the range of potential loss to be between $0 and $22 million, and holds an accrual for $22 million in Other accrued liabilities on the condensed consolidated balance sheets. It did not award injunctive relief against Alaska Airlines.
The Company is seeking an appellate court ruling that the California laws on which the judgment is based are invalid as applied to national airlines pursuant to the U.S. Constitution and federal law and for other employment law and improper class certification reasons. The Company remains confident that a higher court will respect the federal preemption principles that were enacted to shield inter-state common carriers from a patchwork of state and local wage and hour regulations such as those at issue in this case and agree with the Company's other bases for appeal. For these reasons, no loss has been accrued.
The Company is involved in other litigation around the application of state and local employment laws, like many air carriers. Our defenses are similar to those identified above, including that the state and local laws are preempted by federal law and are unconstitutional because they impede interstate commerce. None of these additional disputes are material.
Except for the additional risk factors below, thereThere have been no material changes to the risk factors affecting our business, financial condition or future results from those set forth in Item 1A."Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.
The global pandemic caused by COVID-19, and related measures implemented to combat its spread has had, and is expected to continue to have, a material adverse effect on the Company’s operations, financial position and liquidity.
In late 2019, an outbreak of novel coronavirus and its resulting disease (COVID-19) was detected in Wuhan, China. Since that time, COVID-19 has spread rapidly throughout the globe, including within the United States, where over one million cases have been positively diagnosed to date. In March 2020, the President of the United States declared a national emergency in response to the rapid spread, and all markets we serve have implemented some measure of travel restriction or stay-at-home order. These orders, combined with a wariness among the public of travel by aircraft due to perceived risk of infection, have resulted in an unprecedented decline in business and leisure travel. Cancellations of conventions and conferences, sporting events, concerts and other similar events, as well as the closure of popular tourist destinations, have contributed to this decline. This reduction in demand has materially negatively impacted our revenues and results of operations. As there is no indication of when these restrictions may be lifted or when demand may return, we expect to continue to see negative impacts from the COVID-19 pandemic on our business.
In response to the pandemic, we have implemented and continue to implement a comprehensive strategy to mitigate the impacts on our business. This strategy may itself have negative impacts on our business and operations. One such action is the waiver of change fees and the ability to rebook travel for an extended period beyond standard rebooking terms. The loss of change fee revenue, combined with ongoing significant ticket cancellation activity, has adversely impacted our revenues and liquidity, and we expect such impacts to continue if governmental authorities extend existing travel restriction or stay-at-home orders or
impose new orders or other restrictions intended to mitigate the spread of COVID-19, if businesses continue to restrict nonessential travel for their employees, or if the perceived risk of infection persists.
We have also implemented significant cash preservation and cost reduction strategies in response to the impacts of COVID-19. These strategies include, but are not limited to, capital expenditure reductions, hiring freezes, solicitation of voluntary leaves of absence and renegotiation of contractual terms and conditions. These measures, while helpful in slowing the rate at which we utilize our cash, are not expected to fully recover the loss of cash as a result of decreased ticket sales.
The Company may also experience significant supply chain disruptions as the COVID-19 pandemic may also adversely impact our suppliers. See “Item 1A., Risk Factors – We are dependent on a limited number of suppliers for aircraft and parts” of our Annual Report on Form 10-K for further discussion of risks related to the Company’s dependence on a limited number of suppliers. Should COVID-19 cause our limited vendors to have performance problems, reduced or ceased operations, or bankruptcies, or other events causing them to be unable to fulfill their commitments to us, our operations and business could be materially adversely affected.
At this time, we are unable to predict what impact the pandemic will have on future customer behavior. Future business travel may be impacted by widespread use of videoconferencing or the reduction of business travel budgets. Travelers may also become more reluctant in general to travel. In addition, the Company has incurred, and will continue to incur COVID-19 related costs for enhanced aircraft cleaning and additional procedures to limit transmission among employees and guests. Although these procedures are elective, the industry may in the future be subject to further cleaning and safety measures, which may be costly and take a significant amount of time to implement. These contingencies, individually and combined, could have a material adverse impact on our business. See “Item 1A., Risk Factors – Economic uncertainty, or another recession, would likely impact demand for our product and could harm our financial condition and results of operations.” of our Annual Report on Form 10-K for further discussion of the Company’s vulnerability to a general economic downturn or recession.
We have a significant amount of debt and fixed obligations and have incurred substantial incremental debt in response to the COVID-19 pandemic. These obligations could lead to liquidity restraints and have a material adverse effect on our financial position.
We carry, and will continue to carry for the foreseeable future, a substantial amount of debt related to aircraft lease and financing commitments, as well as non-cancelable commitments for airport and facility leases, maintenance and other obligations. In response to the COVID-19 pandemic, we have incurred and continue to seek new financing sources to fund our operations while demand remains at an unprecedented low level and for the unknown duration of any economic recovery period. Further, as we incur incremental obligations, issuers may require future debt agreements to contain more restrictive covenants or require additional collateral beyond historical market terms which may further restrict our ability to successfully access capital.
Although we have historically been able to generate sufficient cash flow from our operations to pay our debt and other fixed obligations when they become due, the impacts of COVID-19, or from other risks as described in “Item 1A., Risk Factors” of our Annual Report on Form 10-K, may prohibit us from doing so in the future and may adversely affect our overall liquidity.
We have accepted certain conditions by accepting funding under the payroll support program of the Coronavirus Aid, Relief and Economic Security (CARES) Act.
On March 27, 2020, the CARES Act was signed into law and provides the Company with the ability to access liquidity in the form of grants, loans, loan guarantees and other investments by the U.S. government.
In the second quarter of 2020, the Company and its subsidiaries Alaska Airlines and Horizon Air, as well as McGee, entered agreements with the United States Department of the Treasury (the Treasury) to secure funding under the PSP of the CARES Act. Alaska, Horizon and McGee agreed to use PSP funds exclusively for employee payroll and benefits expenses through at least September 30, 2020. Our aggregate receipts from the PSP total approximately $1 billion, of which, a total of $281 million is in the form of an unsecured senior term loan payable over ten years.Additionally, the government received warrants to purchase 874,344 non-voting shares of the Company’s common stock. On April 23, 2020, Alaska and Horizon received full disbursement of the PSP funds. McGee received partial disbursement in June 2020, with the remainder expected in the third quarter of 2020. Additional warrants to purchase 14,327 shares of Air Group common stock will be issued to Treasury in connection with McGee's receipt of the second and third installments of PSP funds.
Our PSP funding is subject to the following conditions:
•Alaska Airlines and Horizon Air must refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits for non-officer employees through September 30, 2020;
•Executive compensation for officers and employees who earned more than $425,000 in total compensation in 2019 will be subject to maximum limitations through March 24, 2022;
•The Company is prohibited from repurchasing its common stock and from paying dividends on its common stock until September 30, 2021;
•Alaska Airlines and Horizon Air must maintain air service to markets they served as of March 1, 2020, unless exempted by the Department of Transportation, through March 1, 2022; and
•The Company must maintain certain internal controls and records, and provide any additional reporting required by the U.S. government, relating to PSP funding.
These conditions may affect the profitability of the Company, including through increased compliance costs, and affect retention of key personnel.
In April 2020, the Company and its airline subsidiaries applied for loans under a separate provision of the CARES Act.If we accept funds under the loan program, we will be required to provide additional compensation to the U.S. government and may be subject to conditions beyond those stated above.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
This table provides certain information with respect to our purchases of shares of our common stock during the second quarter of 2020.
| | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Maximum remaining dollar value of shares that can be purchased under the plan (in millions) |
April 1, 2020 - April 30, 2020 | — | | | $ | — | | | |
May 1, 2020 - May 31, 2020 | — | | | — | | | |
June 1, 2020 - June 30, 2020 | — | | | — | | | |
Total | — | | | $ | — | | | $ | 456 | |
Historically, the Company purchased shares pursuant to a $1 billion repurchase plan authorized by the Board of Directors in August 2015. In March 2020, the Company suspended the share repurchase program indefinitely. When the repurchase program is restarted, the plan has remaining authorization to purchase an additional $456 million in shares.
In the second quarter of 2021, the Company issued 271,437 warrants to the United States Department of the Treasury (“Treasury”) in connection with the Payroll Support Program (PSP) under the Coronavirus Aid, Relief and Economic Security (CARES) Act, resulting in warrants to purchase a total of 1,455,436 shares of the Company’s common stock that have been issued to Treasury in connection with the payroll support program. Each warrant is exercisable at a strike price of $52.25 (49,625 shares related to PSP2) and $66.39 (221,812 shares related to PSP3) per share of common stock and will expire on the fifth anniversary of the issue date of the warrant. Such warrants were issued to Treasury in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
None.
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ITEM 4. MINE SAFETY DISCLOSURES |
None.
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ITEM 5. OTHER INFORMATION |
None.
The following documents are filed as part of this report:
1.Exhibits: See Exhibit Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ALASKA AIR GROUP, INC. | |
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/s/ CHRISTOPHER M. BERRY | |
Christopher M. Berry | |
Vice President Finance and Controller | |
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August 4, 20203, 2021 | |
EXHIBIT INDEX
| | | | | | | | | | | | | | |
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number |
3.1 | | 10-Q | August 3, 2017 | 3.1 |
10.1† | | 10-Q | | |
31.1† | | 10-Q | | |
31.2† | | 10-Q | | |
32.1† | | 10-Q | | |
32.2† | | 10-Q | | |
101.INS† | XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document. | | | |
101.SCH† | XBRL Taxonomy Extension Schema Document | | | |
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | | | |
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | | | |
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | | | |
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | | | |
| | | | |
† | Filed herewith | | | |
* | Indicates management contract or compensatory plan arrangement | | | |
| | | | | | | | | | | | | | |
Exhibit Number | Exhibit Description | Form | Date of First Filing | Exhibit Number |
3.1 | | 10-Q | August 3, 2017 | 3.1 |
4.1† | | | | |
4.2† | | | | |
4.3† | | | | |
4.4† | | | | |
4.5† | | | | |
4.6† | | | | |
10.1† | | | | |
10.2† | | | | |
10.3† | | | | |
10.4† | | | | |
10.5†* | | | | |
10.6† | | | | |
10.7† | | | | |
31.1† | | 10-Q | | |
31.2† | | 10-Q | | |
32.1† | | 10-Q | | |
32.2† | | 10-Q | | |
101.INS† | XBRL Instance Document - The instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document. | | | |
101.SCH† | XBRL Taxonomy Extension Schema Document | | | |
101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | | | |
101.DEF† | XBRL Taxonomy Extension Definition Linkbase Document | | | |
101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | | | |
101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | | | |
| | | | |
† | Filed herewith |
* | Certain confidential portions have been redacted from this exhibit in accordance with Item 601(b)(10) of Regulation S-K under the Securities Exchange Act of 1934, as amended. |