Exhibit 99.1
Investor Update – April 8, 2009
References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.
This update includes forecasted operational and financial information for our subsidiaries Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon). Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expense per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expense for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”
We are providing unaudited information about fuel price movements and the impact of our hedging program on our financial results. Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.
Forward-Looking Information
This update contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
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| ALASKA AIRLINES – MAINLINE |
March 2009 Statistics
March 2009 | Change Y-O-Y | QTD 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 1,910 | (9.0)% | 5,520 | (9.3)% |
| Traffic (RPMs in millions) | 1,559 | (8.1)% | 4,179 | (7.7)% |
| Revenue passengers (000s) | 1,344 | (12.5)% | 3,573 | (12.4)% |
| Load factor* | 81.6% | 0.8pts | 75.7% | 1.3pts |
*RPMs as a percentage of ASMs
Revenue and fuel cost information is not yet available for March. However, information for the first two months of the first quarter, as previously disclosed, is as follows:
| January and February 2009 | Change Y-O-Y | |
| RASM (cents) | 10.37 | 1.3% |
| Passenger RASM (cents) | 9.41 | 0.6% |
| Raw fuel cost/gal. | $1.65 | (42.9)% |
| Economic fuel expense/gal. | $1.96 | (25.8)% |
Changes in Advance Booked Load Factors (percentage of available seat miles that are sold)
| April | May | June | |
| Point Change Y-O-Y | +1.0 pt* | -1.5 pts | -5.0 pts |
* The Easter holiday is in April this year, but was in March 2008.
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ALASKA AIRLINES – MAINLINE (continued) |
Forecast Information
Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 5,520* | (9.3)%* | 22,600 | (7)% |
| Cost per ASM excluding fuel (cents)** | 8.4 | 11% | 8.1 | 8% |
| Fuel Gallons (000,000) | 74 | (14)% | 310 | (7)% |
| Economic fuel cost per gallon*** | $1.90 | (30)% | *** | *** |
* Actual results
** For Alaska, our forecasts of mainline cost per ASM excluding fuel, restructuring charges and fleet transition costs is based on forward-looking estimates, which may differ from actual results.
*** Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.
Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.
Impact of Mt. Redoubt Eruptions
The recent eruptions of Mt. Redoubt in Alaska have significantly impacted our operations in the state of Alaska. Since the volcanic eruptions began Sunday, March 22, Alaska Airlines has canceled more than 300 flights affecting more than 20,000 passengers. Most of these passengers were re-accommodated on other flights. Full refunds are available to passengers that are not re-accommodated on another flight. The eruptions have also resulted in disruptions in our cargo operations.
Labor Updates
As previously disclosed, Alaska recently reached an “agreement in concept” with the Air Line Pilots Association on a new four-year contract with our pilots. Details of the agreement will be disclosed at a later date.
Alaska’s flight attendants ratified a new contract that extended the current contract by two years through April 2012. As part of the new contract, flight attendants will receive a 1.5% pay increase on May 1, 2010 and May 1, 2011. Flight attendants will now participate in the same performance-based incentive plan as Alaska’s non-union and dispatch employees.
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| ALASKA – PURCHASED CAPACITY |
Alaska has Capacity Purchase Agreements (CPAs) with Horizon for certain routes and with a third party for service between Anchorage and Dutch Harbor, AK.
March 2009 Statistics
The following data represents only the Horizon CPA flying, which represents approximately 95% of the total purchased capacity.
March 2009 | Change Y-O-Y | QTD 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 105 | (14.6)% | 299 | (13.0)% |
| Traffic (RPMs in millions) | 74 | (22.9)% | 205 | (20.2)% |
| Load factor* | 71.1% | (7.4)pts | 68.6% | (5.9)pts |
*RPMs as a percentage of ASMs
Revenue information is not yet available for March. However, purchased capacity unit revenues for the first two months of the first quarter were as follows:
| January and February 2009 | Change Y-O-Y | |
| Passenger RASM (cents) | 19.04 | 1.7% |
Changes in Advance Booked Load Factors (percentage of available seat miles that are sold)
| April | May | June | |
| Point Change Y-O-Y | -3.0 pts* | -5.0 pts | -6.0 pts |
* The Easter holiday is in April this year, but was in March 2008.
Forecast Information (Horizon CPA)
Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 299* | (13)%* | 1,300 | (7)% |
| Cost per ASM (cents)** | 19.9 – 20.0 | (5)% | 20.4 – 20.5 | (4)% |
* Actual results
** Costs associated with the Horizon CPA agreement represent the amount paid by Alaska to Horizon for operating costs plus a specified profit margin and are eliminated in consolidation.
Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.
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| HORIZON AIR |
March 2009 Statistics
March 2009 | Change Y-O-Y | QTD 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 275 | (15.9)% | 787 | (16.5)% |
| Traffic (RPMs in millions) | 191 | (20.7)% | 524 | (20.4)% |
| Revenue passengers (000s) | 558 | (15.3)% | 1,546 | (16.5)% |
| Load factor* | 69.5% | (4.3)pts | 66.6% | (3.3)pts |
*RPMs as a percentage of ASMs
Revenue and fuel cost information is not yet available for March. Information for the first two months of the first quarter is as follows:
| January and February 2009 | Change Y-O-Y | |
| System RASM (cents) | 18.62 | 1.2% |
| Raw fuel cost/gal. | $1.63 | (44.6)% |
| Economic fuel expense/gal. | $1.94 | (27.9)% |
Line-of-Business Information
Horizon’s line-of-business traffic and revenue information is presented below. In CPA arrangements, Horizon is insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity. As a result, yield and load factor information is not presented. Horizon bears the revenue risk in its brand flying markets. Revenue from the Alaska CPA is eliminated in consolidation.
January and February 2009
| Capacity Mix | Load Factor | Yield | RASM | |||||||||||||||||||
| Actual (000s) | Change Y-O-Y | Current %Total | Actual | Change Y-O-Y | Actual | Change Y-O-Y | Actual | Change Y-O-Y | ||||||||||||||
| Brand | 317 | (19.5 | )% | 62 | % | 63.9 | % | (1.4 | ) | pts | 27.47 | ¢ | 8.3 | % | 18.05 | ¢ | 6.2 | % | ||||
| Alaska CPA | 194 | (12.0 | )% | 38 | % | NM | NM | NM | NM | 19.55 | ¢ | (6.3 | )% | |||||||||
| Total | 511 | (16.8 | )% | 100 | % | 65.1 | % | (2.7 | ) | pts | 28.15 | ¢ | 5.4 | % | 18.62 | ¢ | 1.2 | % | ||||
NM = Not Meaningful
Changes in Advance Booked Load Factors – Brand Flying Only (percentage of available seat miles that are sold)
| April | May | June | |
| Point Change Y-O-Y | flat* | -2.0 pts | -4.0 pts |
* The Easter holiday is in April this year, but was in March 2008.
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HORIZON AIR – (continued) |
Forecast Information
Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |
| Capacity (ASMs in millions) | 787* | (16.5)%* | 3,250 – 3,350 | (8)% -- (10)% |
| Cost per ASM excluding fuel and CRJ-700 fleet transition charges (cents)** | 16.3 | 8% | 15.3 – 15.4 | 5% – 6% |
| Cost per ASM excluding fuel and all fleet transition charges (cents)** | 15.5 – 15.6 | 7% - 8% | 15.1 – 15.2 | 6% – 7% |
| Fuel gallons (in millions) | 15 | (16)% | 63 | (6)% |
| Economic fuel cost per gallon*** | $1.92 | (31)% | *** | *** |
* Actual results
** For Horizon, our forecast of cost per ASM excluding fuel is based on forward-looking estimates, which may differ significantly from actual results.
*** Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.
Given our load factor for March and current ticket-yield information, we expect March unit revenues will be lower than those in March 2008.
Q200 Fleet Transition Charges Expected in First Quarter
As previously disclosed, Horizon expects to record a charge of approximately $4 million to $6.5 million in the first quarter related to the final six Q200 aircraft removed from operations during the period. The actual amount could differ from this estimate when the calculation is finalized. In the first quarter of 2008, Horizon recorded Q200 fleet transition charges of $5.8 million.
Consistent with past practice, Q200 fleet transition charges are not considered special items and are thus not excluded from our “adjusted” results.
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| AIR GROUP |
Future Fuel Hedge Positions*
Approximate % of Expected Fuel Requirements | Approximate Crude Oil Price per Barrel | |
| Second Quarter 2009 | 50% | $71 |
| Third Quarter 2009 | 50% | $76 |
| Fourth Quarter 2009 | 50% | $76 |
| Full Year 2009 | 50% | $76 |
First Quarter 2010 | 47% | $67 |
| Second Quarter 2010 | 38% | $68 |
| Third Quarter 2010 | 29% | $67 |
| Fourth Quarter 2010 | 24% | $78 |
| Full Year 2010 | 34% | $69 |
First Quarter 2011 | 17% | $91 |
| Second Quarter 2011 | 15% | $73 |
| Third Quarter 2011 | 11% | $74 |
| Fourth Quarter 2011 | 5% | $67 |
| Full Year 2011 | 12% | $78 |
*All of our 2010 and 2011 positions and the majority of our 2009 positions are call options which are designed to effectively cap our cost of the crude oil component of our jet fuel purchases. With call options, we benefit from a decline in crude oil prices, as there is no cash outlay other than the premiums we pay to enter into the contracts.
Cash and Share Count
(in millions) | March 31, 2009 | December 31, 2008 |
| Cash and marketable securities | $1,043 | $1,077 |
| Common shares outstanding | 36.386 | 36.275 |
Capital Expenditures
Total expected capital expenditures for 2009 are as follows (in millions):
| Total 2009 Estimate | |||
| Aircraft-related | Non-aircraft | Total | |
| Alaska | $340 | $45 | $385 |
| Horizon | 70 | 5 | 75 |
| Air Group | $410 | $50 | $460 |
Firm Aircraft Commitments
| April – Dec. 2009 | 2010 | 2011 | Total | |
| Alaska (B737-800) | 4 | 7 | 4 | 15 |
| Horizon (Q400) | 3 | 7 | 1 | 11 |
| Totals | 7 | 14 | 5 | 26 |
In addition to the firm orders noted above, Alaska has options to acquire 44 additional B737-800s and Horizon has options to acquire 10 Q400s.
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AIR GROUP – (continued) |
Projected Fleet Count
| Actual Fleet Count | Expected Fleet Activity | ||||||||||
| Changes by Quarter | |||||||||||
Alaska | Seats | Dec. 31, 2007 | Dec. 31, 2008 | Mar. 31, 2009 | Q2 | Q3 | Q4 | Dec. 31, 2009 2 | 2010 Changes | Dec. 31, 2010 2 | |
737-400F 1 | --- | 1 | 1 | 1 | --- | --- | --- | 1 | --- | 1 | |
737-400C 1 | 72 | 5 | 5 | 5 | --- | --- | --- | 5 | --- | 5 | |
| 737-400 | 144 | 34 | 31 | 28 | --- | --- | --- | 28 | (5) | 23 | |
| 737-700 | 124 | 20 | 20 | 19 | --- | (2) | (2) | 15 | (2) | 13 | |
| 737-800 | 157 | 29 | 41 | 47 | 4 | --- | --- | 51 | 7 | 58 | |
| 737-900 | 172 | 12 | 12 | 12 | --- | --- | --- | 12 | --- | 12 | |
| MD-80 | 140 | 14 | --- | --- | --- | --- | --- | --- | --- | --- | |
| Totals | 115 | 110 | 112 | 4 | (2) | (2) | 112 | --- | 112 | ||
Actual Fleet Count | Expected Fleet Activity | ||||||||||
| Changes by Quarter | |||||||||||
Horizon | Seats | Dec. 31, 2007 | Dec. 31, 2008 | Mar. 31, 2009 | Q2 | Q3 | Q4 | Dec. 31, 2009 | 2010 Changes | Dec. 31, 2010 | |
| Q200 | 37 | 16 | 6 | --- | --- | --- | --- | --- | --- | --- | |
| Q400 | 74-76 | 33 | 35 | 37 | --- | --- | 3 | 40 | 7 | 47 | |
CRJ-700 3 | 70 | 21 | 18 | 18 | --- | (1) | (4) | 13 | (8) | 5 | |
| Totals | 70 | 59 | 55 | --- | (1) | (1) | 53 | (1) | 52 | ||
1 F=Freighter; C=Combination freighter/passenger
2 The expected fleet counts at December 31, 2009 and 2010 for Alaska are subject to change as we continue to refine the capacity reduction and aircraft utilization plan, and attempt to market four of our B737-700 aircraft.
3 The planned CRJ and Q400 fleets at December 31, 2009 and 2010 are subject to change as we finalize the fleet transition plan and is dependent on our ability to remarket the CRJ aircraft.
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