Exhibit 99.1
Investor Update – February 25, 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 |
January 2009 Statistics
| January 2009 |
| Change Y-O-Y | |||
Capacity (ASMs in millions) | 1,877 | (8.4)% | |||
Traffic (RPMs in millions) | 1,345 | (4.7)% | |||
Revenue passengers (000s) | 1,133 | (9.7)% | |||
Load factor* | 71.7 | % | 2.8 pts | ||
RASM (cents) | 10.54 | 6.4% | |||
Passenger RASM (cents) | 9.53 | 5.1% | |||
Raw fuel cost/gal. | $1.71 | (40.2)% | |||
Economic fuel expense/gal. | $2.00 | (23.9)% | |||
*percentage of available seats occupied by fare-paying passengers
Changes in Advance Booked Load Factors
| February | March | April | ||||
| Point Change Y-O-Y | -0.5 pts | -3.5 pts* | +1.5 pts* | |||
* The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings.
Forecast Information
| Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |||||
Capacity (ASMs in millions) | 5,450–5,500 | (10)% | 22,500 | (7)% | ||||
Cost per ASM excluding fuel (cents)* | 8.3 – 8.4 | 10% – 11% | 8.1 | 8% | ||||
Fuel Gallons (000,000) | 74 | (14)% | 310 | (7)% | ||||
Economic fuel cost per gallon** | $1.97 | (28)% | ** | ** | ||||
*For Alaska, our forecasts of mainline cost per ASM excluding fuel, restructuring charges and fleet transition costs is based on forward-looking estimates, which will likely differ from actual results.
**Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. The first-quarter forecast assumes an average $45-per-barrel price of oil, a refinery margin of 46 cents per gallon, and a net hedge cost of 30 cents per gallon. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.
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| ALASKA – PURCHASED CAPACITY |
Alaska has Capacity Purchase Agreements (CPA) with Horizon for certain routes and with a third party for service between Anchorage and Dutch Harbor, AK.
January 2009 Statistics
The following data represents only the Horizon CPA flying as that flying represents approximately 95% of the total purchased capacity.
| January 2009 | Change Y-O-Y | |||
Capacity (ASMs in millions) | 101 | (13.2)% | ||
Traffic (RPMs in millions) | 65 | (18.2)% | ||
Load factor* | 64.9% | (10.3)pts | ||
Passenger RASM (cents) | 18.99 | 6.2% | ||
*Percentage of available seats occupied by fare-paying passengers | ||||
Changes in Advance Booked Load Factors
| February | March | April | ||||
| Point Change Y-O-Y | -7.5 pts | -9.5 pts | -2.5 pts | |||
* The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings. | ||||||
Forecast Information (Horizon CPA)
| Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |||||
Capacity (ASMs in millions) | 300 | (13)% | 1,300 | (7)% | ||||
Cost per ASM (cents)* | 20.3 – 20.4 | (3)% – (4)% | 20.5 – 20.6 | (4)% | ||||
* 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.
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| HORIZON AIR |
January 2009 Statistics
January 2009 | Change Y-O-Y | |||
Capacity (ASMs in millions) | 265 | (16.4)% | ||
Traffic (RPMs in millions) | 167 | (18.5)% | ||
Revenue passengers (000s) | 501 | (14.5)% | ||
Load factor* | 63.1% | (1.6) pts | ||
System RASM (cents) | 18.73 | 4.3% | ||
Raw fuel cost/gal. | $1.66 | (43.2)% | ||
Economic fuel expense/gal. | $1.95 | (27.8)% |
*percentage of available seats occupied by fare-paying passengers
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 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 | 164 | (18.2)% | 62% | 62.0% | (0.3) | pts | 28.74¢ | 11.6% | 18.30¢ | 11.4% | ||||||||||
Alaska CPA | 101 | (13.2)% | 38% | NM | NM | NM | NM | 19.43¢ | (5.6)% | |||||||||||
Total |
265 | (16.4)% | 100% | 63.1% | (1.6) | pts | 29.21¢ | 6.7% | 18.73¢ | 4.3% | ||||||||||
NM = Not Meaningful
Changes in Advance Booked Load Factors – Brand Flying Only
February | March | April | ||||
Point Change Y-O-Y | -3.0 pts | -5.0 pts | +1.0 pt |
*The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings.
Forecast Information
Forecast Q1 2009 | Change Y-O-Y | Forecast Full Year 2009 | Change Y-O-Y | |||||
Capacity (ASMs in millions) | 790 – 800 | (15)% – (16)% | 3,250 –3,350 | (8)% – (10)% | ||||
Cost per ASM excluding fuel and CRJ-700 fleet transition charges (cents)* | 16.0 –16.1 | 6% – 7% | 15.3 – 15.4 | 5% – 6% | ||||
Fuel gallons (in millions) | 15 | (15)% | 63 | (6)% | ||||
Economic fuel cost per gallon** | $1.97 | (29)% | ** | ** | ||||
*For Horizon, our forecast of cost per ASM excluding fuel is based on forward-looking estimates, which will likely differ significantly from actual results.
**Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. The first-quarter forecast assumes an average $45-per-barrel price of oil, a refinery margin of 46 cents per gallon, and a net hedge cost of 30 cents per gallon. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.
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| AIR GROUP |
Future Fuel Hedge Positions*
| Approximate % of Expected Fuel Requirements | Approximate Crude Oil Price per Barrel | |||
First Quarter 2009 | 50% | $81 | ||
Second Quarter 2009 | 50% | $71 | ||
Third Quarter 2009 | 50% | $76 | ||
Fourth Quarter 2009 | 50% | $76 | ||
Full Year 2009 | 50% | $76 | ||
First Quarter 2010 | 42% | $68 | ||
Second Quarter 2010 | 38% | $68 | ||
Third Quarter 2010 | 29% | $67 | ||
Fourth Quarter 2010 | 24% | $78 | ||
Full Year 2010 | 33% | $70 | ||
First Quarter 2011 | 17% | $91 | ||
Second Quarter 2011 | 15% | $73 | ||
Third Quarter 2011 | 11% | $74 | ||
Full Year 2011 | 11% | $80 | ||
*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) | January 31, 2009 | December 31, 2008 | ||
Cash and marketable securities | $934 | $1,077 | ||
Common shares outstanding | 36.295 | 36.275 |
On February 19, 2009, Alaska completed sale-leaseback financing transactions for three B737-800 resulting in gross proceeds of $115.5 million, bringing the total cash and marketable securities balance to $1.05 billion as of February 20, 2009.
Capital Expenditures
Total expected capital expenditures for 2009 are as follows (in millions):
| Total 2009 Estimate | ||||||
| Aircraft-related | Non-aircraft | Total | ||||
Alaska | $335 | $45 | $380 | |||
Horizon | 70 | 5 | 75 | |||
Air Group | $405 | $50 | $455 | |||
Firm Aircraft Commitments
| 2009 | 2010 | 2011 | Total | |||||
Alaska (B737-800) | 10 | 7 | 4 | 21 | ||||
Horizon (Q400) | 5 | 7 | 1 | 13 | ||||
Totals | 15 | 14 | 5 | 34 |
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 | Q1 | Q2 | Q3 | Q4 | Dec. 31, 20092 | 2010 Changes | Dec. 31, 20102 | ||||||||||
737-400F1 | — �� | 1 | 1 | — | — | — | — | 1 | — | 1 | ||||||||||
737-400C1 | 72 | 5 | 5 | — | — | — | — | 5 | — | 5 | ||||||||||
737-400 | 144 | 34 | 31 | (3) | — | — | — | 28 | (5) | 23 | ||||||||||
737-700 | 124 | 20 | 20 | (1) | (4) | — | — | 15 | (2) | 13 | ||||||||||
737-800 | 157 | 29 | 41 | 6 | 4 | — | — | 51 | 7 | 58 | ||||||||||
737-900 | 172 | 12 | 12 | — | — | — | — | 12 | — | 12 | ||||||||||
MD-80 | 140 | 14 | — | — | — | — | — | — | — | — | ||||||||||
Totals | 115 | 110 | 2 | — | — | — | 112 | — | 112 | |||||||||||
| Actual Fleet Count | Expected Fleet Activity | |||||||||||||||||||
| Changes by Quarter | ||||||||||||||||||||
Horizon | Seats | Dec. 31, 2007 | Dec. 31, 2008 | Q1 | Q2 | Q3 | Q4 | Dec. 31, 2009 | 2010 Changes | Dec. 31, 2010 | ||||||||||
Q200 | 37 | 16 | 6 | (6) | — | — | — | — | — | — | ||||||||||
Q400 | 74-76 | 33 | 35 | 2 | — | — | 3 | 40 | 7 | 47 | ||||||||||
CRJ-7003 | 70 | 21 | 18 | — | — | (1) | (4) | 13 | (8) | 5 | ||||||||||
Totals | 70 | 59 | (4) | — | (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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