Exhibit 99.2
Investor Update - April 23, 2018
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 consolidated operations. 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 expenses per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expenses 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 information about estimated fuel prices and our hedging program. 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, 2017, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, changes in laws and regulations, and risks inherent in the achievement of anticipated synergies and the timing thereof in connection with the acquisition of Virgin America. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. 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.
Forecast Information
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| | | | | | | |
| | Forecast
Full Year 2018 | | Full Year 2017
As Adjusted (a) | | % Change | | Prior Guidance March 13, 2018 |
| Capacity (ASMs in millions) | 65,980 - 66,130 | | 62,072 | | ~ 6.5% | | 66,595 - 66,745 |
| Cost per ASM excluding fuel and special items (cents) | 8.51¢ - 8.56¢ | | 8.25¢ | | ~ 3.5% | | 8.45¢ - 8.50¢ |
| Fuel gallons (millions) | 845 | | 797 | | ~ 6.0% | | 870 |
We expect second quarter 2018 Revenue per Available Seat Mile (RASM) to decline approximately 2.75% to 3.75%.
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| | | | | | | |
| | Forecast
Q2 2018 | | Q2 2017
As Adjusted (a) | | % Change | | Prior Guidance January 25, 2018 |
| Capacity (ASMs in millions) | 16,910 - 16,960 | | 15,612 | | ~ 8.5% | | ~ 9.5% |
| Cost per ASM excluding fuel and special items (cents) | 8.34¢ - 8.39¢ | | 7.98¢ | | ~ 4.8% | | 8.20¢ - 8.25¢ |
| Fuel gallons (millions) | 217 | | 201 | | ~ 8.0% | | N/A |
Economic fuel cost per gallon(b) | $2.25 | | $1.71 | | ~ 32% | | N/A |
| |
| (a) | RASM and CASMex in the preceding forecast information reflect the impacts of the updated accounting standards, effective for the Company January 1, 2018. Information not impacted by the updated accounting standards (Fuel Gallons and Economic fuel cost per gallon) has not been restated. Additionally, certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. We plan to provide restated prior year information under the new accounting standards in an 8-K expected to be filed on May 4, 2018. |
| |
| (b) | Our economic fuel cost per gallon estimate for the second quarter includes the following per-gallon assumptions: crude oil cost—$1.63 (approximately $68 per barrel), refining margin—51 cents, benefit of settled hedges—4 cents, with the remaining difference due to taxes and other into-plane costs. |
The cost guidance above includes the impact related to the agreement reached with our flight attendants on April 3, 2018. This includes retroactive pay back to January 1, 2018 and the impact of bringing our sick and vacation accruals to the new wage rates. We expect the 2018 full year impact of this agreement to be approximately $30 million, or 0.05 cents of CASM.
2018 Forecasted Capacity and CASMex by Quarter
The following table shows 2018 quarterly forecasted capacity by segment and forecasted consolidated CASMex with percent change on an adjusted basis from the same period in the prior year. Certain reclassifications have been made to prior year financial information to conform to classifications used in the current year. We plan to provide restated prior year quarterly information under the new accounting standards in an 8-K expected to be filed on May 4, 2018.
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| | | | | | | | | |
| | Actual | | Forecast |
| | Q1 | | Q2 | | Q3 | | Q4 | | Full Year |
| Mainline ASMs | 6.3% | | ~ 7.0% | | ~ 5.0% | | ~ 2.5% | | ~ 5.0% |
| Regional ASMs | 21.8% | | ~ 24.0% | | ~ 19.5% | | ~ 18.0% | | ~ 21.0% |
| Total Air Group ASMs | 7.5% | | ~ 8.5% | | ~ 6.0% | | ~ 4.0% | | ~ 6.5% |
| | | | | | | | | | |
| CASMex (cents) | 8.81¢ | | 8.34¢ - 8.39¢ | | 8.31¢ - 8.36¢ | | 8.63¢ - 8.68¢ | | 8.51¢ - 8.56¢ |
| 2017 CASMex (cents) as adjusted | 8.38¢ | | 7.98¢ | | 8.00¢ | | 8.68¢ | | 8.25¢ |
Capacity and Capital Expenditures Forecast
The guidance below is based on our current expectation of capacity growth and capital expenditures.
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| | | | | |
| (in millions, except %) | 2018 | | 2019 | | 2020 |
| Capacity (ASMs) growth | 6.5% | | ~ 4% | | ~ 4% |
| Targeted capital expenditures | ~$1,000 | | ~$750 | | ~$750 |
Nonoperating Expense
We expect that our consolidated nonoperating expense will be approximately $18 million in the second quarter of 2018.
Effective Tax Rate
We expect the 2018 full year effective tax rate to be approximately 25%.
Future 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. Our crude oil positions are as follows: |
| | | | | | | | | | |
| | Approximate % of Expected Fuel Requirements | | Weighted-Average Crude Oil Price per Barrel | | Average Premium Cost per Barrel |
| Second Quarter 2018 | 50 | % | | 63 |
| | 1 |
|
| Third Quarter 2018 | 50 | % | | 65 |
| | 1 |
|
| Fourth Quarter 2018 | 40 | % | | 65 |
| | 2 |
|
| Remainder 2018 | 47 | % | | $ | 64 |
| | $ | 1 |
|
| First Quarter 2019 | 30 | % | | 67 |
| | 2 |
|
| Second Quarter 2019 | 20 | % | | 68 |
| | 2 |
|
| Third Quarter 2019 | 10 | % | | 70 |
| | 2 |
|
| Full Year 2019 | 15 | % | | $ | 68 |
| | $ | 2 |
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