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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, 2024
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
Telephone: (206) 392-5040
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 ((s)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.
Large accelerated Accelerated Non-accelerated Smaller reporting Emerging
filer filer filer company growth company
(Do not check if a smaller
reporting 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
126,159,173
common shares, par value $0.01, outstanding at July 31, 2024.
This document is also available on our website at https://investor.alaskaair.com
.
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ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2024
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION 4
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 43
ITEM 4. CONTROLS AND PROCEDURES 44
PART II. OTHER INFORMATION 45
ITEM 1. LEGAL PROCEEDINGS 45
ITEM 1A. RISK FACTORS 45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 45
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 45
ITEM 4. MINE SAFETY DISCLOSURES 45
ITEM 5. OTHER INFORMATION 45
ITEM 6. EXHIBITS 46
SIGNATURES 48
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."
2
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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,
2023. Some of these risks include competition, labor costs, relations and
availability, general economic conditions including those associated with
pandemic recovery, increases in operating costs including fuel, inability to
meet cost reduction, ESG and other strategic goals, seasonal fluctuations in
demand and financial results, supply chain risks, events that negatively
impact aviation safety and security, and changes in laws and regulations that
impact our business. Please consider our forward-looking statements in light
of those risks as you read this report.
3
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PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ALASKA AIR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions) June 30, 2024 December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents $ 1,115 $ 281
Marketable securities 1,394 1,510
Total cash and marketable securities 2,509 1,791
Receivables - net 370 383
Inventories and supplies - net 106 116
Prepaid expenses 179 176
Other current assets 212 239
Total Current Assets 3,376 2,705
Property and Equipment
Aircraft and other flight equipment 10,734 10,425
Other property and equipment 1,941 1,814
Deposits for future flight equipment 383 491
13,058 12,730
Less accumulated depreciation and amortization 4,537 4,342
Total Property and Equipment - Net 8,521 8,388
Other Assets
Operating lease assets 1,142 1,195
Goodwill and intangible assets 2,033 2,033
Other noncurrent assets 270 292
Total Other Assets 3,445 3,520
Total Assets $ 15,342 $ 14,613
4
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CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions, except share amounts) June 30, 2024 December 31, 2023
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 203 $ 207
Accrued wages, vacation and payroll taxes 513 584
Air traffic liability 1,576 1,136
Other accrued liabilities 852 800
Deferred revenue 1,312 1,221
Current portion of operating lease liabilities 153 158
Current portion of long-term debt and finance leases 359 353
Total Current Liabilities 4,968 4,459
Long-Term Debt, Net of Current Portion 2,313 2,182
Noncurrent Liabilities
Long-term operating lease liabilities, net of current portion 1,050 1,125
Deferred income taxes 746 695
Deferred revenue 1,329 1,382
Obligation for pension and post-retirement medical benefits 358 362
Other liabilities 352 295
Total Noncurrent Liabilities 3,835 3,859
Commitments and Contingencies (Note 7)
Shareholders' Equity
Preferred stock, $ - -
0.01
par value, Authorized:
5,000,000
shares,
none
issued or outstanding
Common stock, $ 1 1
0.01
par value, Authorized:
400,000,000
shares, Issued: 2024 -
140,570,032
shares; 2023 -
138,960,830
shares, Outstanding: 2024 -
126,475,292
shares; 2023 -
126,090,353
shares
Capital in excess of par value 757 695
Treasury stock (common), at cost: 2024 - ( (
14,094,740 868 819
shares; 2023 - ) )
12,870,477
shares
Accumulated other comprehensive loss ( (
287 299
) )
Retained earnings 4,623 4,535
4,226 4,113
Total Liabilities and Shareholders' Equity $ 15,342 $ 14,613
5
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share amounts) 2024 2023 2024 2023
Operating Revenue
Passenger revenue $ 2,651 $ 2,598 $ 4,655 $ 4,582
Mileage Plan other revenue 174 170 338 324
Cargo and other revenue 72 70 136 128
Total Operating Revenue 2,897 2,838 5,129 5,034
Operating Expenses
Wages and benefits 782 754 1,586 1,477
Variable incentive pay 49 57 93 104
Aircraft fuel, including hedging gains and losses 615 573 1,180 1,238
Aircraft maintenance 129 125 251 249
Aircraft rent 46 54 93 113
Landing fees and other rentals 173 167 338 319
Contracted services 106 95 203 190
Selling expenses 84 81 161 147
Depreciation and amortization 128 113 254 217
Food and beverage service 67 60 125 114
Third-party regional carrier expense 64 54 118 106
Other 186 182 391 359
Special items - operating 146 186 180 250
Total Operating Expenses 2,575 2,501 4,973 4,883
Operating Income 322 337 156 151
Non-operating Income (Expense)
Interest income 24 22 41 39
Interest expense ( ( ( (
36 28 71 56
) ) ) )
Interest capitalized 6 7 12 14
Special items - net non-operating - ( - (
6 6
) )
Other - net - ( - (
7 16
) )
Total Non-operating Expense ( ( ( (
6 12 18 25
) ) ) )
Income Before Income Tax 316 325 138 126
Income tax expense 96 85 50 28
Net Income $ 220 $ 240 $ 88 $ 98
Basic Earnings Per Share: $ 1.74 $ 1.88 $ 0.70 $ 0.77
Diluted Earnings Per Share: $ 1.71 $ 1.86 $ 0.69 $ 0.76
Weighted Average Shares Outstanding used for computation:
Basic 126.337 127.440 126.153 127.470
Diluted 128.310 128.919 127.857 128.860
6
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2024 2023 2024 2023
Net Income $ 220 $ 240 $ 88 $ 98
Other comprehensive income (loss), net of tax
Marketable securities 4 ( 5 16
5
)
Employee benefit plans 3 4 6 8
Interest rate derivative instruments - 1 1 (
1
)
Total other comprehensive income, net of tax $ 7 $ - $ 12 $ 23
Total Comprehensive Income, Net of Tax $ 227 $ 240 $ 100 $ 121
7
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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in millions) Common Stock Common Stock Capital Treasury Stock Accumulated Retained Total
Outstanding in Excess Other Earnings
of Par Value Comprehensive
Loss
Balance 126.090 $ 1 $ 695 $ ( $ ( $ 4,535 $ 4,113
at 819 299
December ) )
31, 2023
Net loss - - - - - ( (
132 132
) )
Other - - - - 5 - 5
comprehensive
income
Common stock ( - - ( - - (
repurchase 0.561 21 21
) ) )
Stock-based - - 15 - - - 15
compensation
Stock issued 0.177 - ( - - - (
under 3 3
stock plans ) )
Balance 125.706 $ 1 $ 707 $ ( $ ( $ 4,403 $ 3,977
at 840 294
March 31, ) )
2024
Net income - - - - - 220 220
Other - - - - 7 - 7
comprehensive
income
Common stock ( - - ( - - (
repurchase 0.663 28 28
) ) )
Stock-based 0.013 - 13 - - - 13
compensation
Stock issued 1.401 - 37 - - - 37
for employee
stock
purchase plan
Stock issued 0.018 - - - - - -
under
stock plans
Balance 126.475 $ 1 $ 757 $ ( $ ( $ 4,623 $ 4,226
at 868 287
June 30, ) )
2024
(in millions) Common Stock Common Stock Capital Treasury Stock Accumulated Retained Total
Outstanding in Excess Other Earnings
of Par Value Comprehensive
Loss
Balance 127.534 $ 1 $ 577 $ ( $ ( $ 4,300 $ 3,816
at 674 388
December ) )
31, 2022
Net loss - - - - - ( (
142 142
) )
Other - - - - 23 - 23
comprehensive
income
Common stock ( - - ( - - (
repurchase 0.414 18 18
) ) )
Stock-based - - 12 - - - 12
compensation
Stock issued 0.123 - ( - - - (
under 2 2
stock plans ) )
Balance 127.243 $ 1 $ 587 $ ( $ ( $ 4,158 $ 3,689
at 692 365
March 31, ) )
2023
Net income - - - - - 240 240
Other - - - - - - -
comprehensive
income
Common stock ( - - ( - - (
repurchase 0.872 39 39
) ) )
Stock-based 0.017 - 26 - - - 26
compensation
Stock issued 0.924 - 34 - - - 34
for employee
stock
purchase plan
Stock issued 0.036 - 1 - - - 1
under
stock plans
Balance 127.348 $ 1 $ 648 $ ( $ ( $ 4,398 $ 3,951
at 731 365
June 30, ) )
2023
8
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
(in millions) 2024 2023
Cash Flows from Operating Activities:
Net Income $ 88 $ 98
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 254 217
Stock-based compensation and other 37 56
Special items - operating - 238
Changes in certain assets and liabilities:
Changes in deferred income taxes 47 27
Increase in accounts receivable ( (
55 55
) )
Increase in air traffic liability 440 394
Increase in deferred revenue 38 80
Other - net 23 (
223
)
Net cash provided by operating activities 872 832
Cash Flows from Investing Activities:
Property and equipment additions
Aircraft and aircraft purchase deposits ( (
380 414
) )
Other flight equipment ( (
63 113
) )
Other property and equipment ( (
144 107
) )
Supplier proceeds 162 -
Purchases of marketable securities ( (
163 389
) )
Sales and maturities of marketable securities 288 574
Fleet transition 133 (
29
)
Other investing activities 32 (
1
)
Net cash used in investing activities ( (
135 479
) )
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt, net of issuance costs 279 -
Long-term debt payments ( (
149 149
) )
Common stock repurchases ( (
49 57
) )
Other financing activities 6 41
Net cash provided by (used in) financing activities 87 (
165
)
Net increase in cash and cash equivalents 824 188
Cash, cash equivalents, and restricted cash at beginning of period 308 369
Cash, cash equivalents, and restricted cash at end of the period $ 1,132 $ 557
9
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Six Months Ended June 30,
(in millions) 2024 2023
Supplemental disclosure:
Cash paid during the period for:
Interest, net of amount capitalized $ 55 $ 42
Income taxes, net of refunds received - 14
Non-cash transactions:
Right-of-use assets acquired through operating leases 34 120
Operating leases converted to finance leases - 310
Property and equipment acquired through the issuance of debt 68 134
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents 1,115 536
Restricted cash included in Other noncurrent assets 17 21
Total cash, cash equivalents, and restricted cash at end of the period $ 1,132 $ 557
10
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1.
GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The unaudited Condensed Consolidated Financial Statements include the accounts
of Air Group, or the Company, and its primary subsidiaries, Alaska and
Horizon. The unaudited Condensed Consolidated Financial Statements also
include McGee Air Services (McGee), a ground services subsidiary of Alaska,
and other immaterial business units. All 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 Quarterly Report on 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 Annual Report on Form 10-K for the year ended
December 31, 2023. 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, 2024 and the results of operations for the three and six months
ended June 30, 2024 and 2023. Such adjustments were of a normal recurring
nature. Certain rows, columns, figures, or percentages may not recalculate due
to rounding.
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
revenue and expenses, including impairment charges. 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,
2024 are not necessarily indicative of operating results for the entire year.
Flight 1282 and Boeing 737-9 MAX Grounding
As a result of the Flight 1282 accident and the subsequent grounding of Boeing
737-9 MAX (B737-9) aircraft, Air Group's operation and results in the first
and second quarters were significantly impacted. The Company received
compensation from Boeing to address the financial damages incurred as a result
of the grounding. In the first quarter, Boeing paid Air Group $
162
million in cash. In the second quarter, Boeing issued Air Group $
61
million in supplier credit memos to be applied against future Boeing goods and
services purchases.
Compensation received under the agreement is accounted for as a reduction in
cost basis of certain B737-9 aircraft. The compensation is reflected within
Aircraft and other flight equipment and Deposits for future flight equipment
in the unaudited Condensed Consolidated Balance Sheets.
NOTE 2. PROPOSED ACQUISITION OF HAWAIIAN HOLDINGS, INC.
On December 2, 2023, the Company entered into a definitive agreement to
acquire Hawaiian Holdings, Inc. (Hawaiian). The Company has agreed to pay
Hawaiian's shareholders $
18.00
per share, or approximately $
1.0
billion, in cash for the outstanding shares of Hawaiian. In addition, the
Company expects to assume Hawaiian's debt and lease obligations on the date of
acquisition. The acquisition has been approved by Hawaiian's shareholders and
is subject to final approval by various regulatory bodies.
On February 7, 2024, Air Group and Hawaiian each received a request for
additional information and documentary material (the "Second Request") from
the Antitrust Division of the Department of Justice (the "DOJ") in connection
with the DOJ's review of the acquisition. On March 27, 2024, Air Group and
Hawaiian entered into a timing agreement with the DOJ pursuant to which they
agreed, among other things, not to consummate the acquisition before 90 days
following the date on which both parties have certified substantial compliance
with the Second Request unless they have received written notice from the DOJ
prior to the end of such 90-day period that the DOJ has closed its
investigation of the acquisition.
On May 7, 2024, Air Group and Hawaiian certified substantial compliance with
the Second Request. The certification of substantial compliance triggered the
start of the 90-day period described in the prior paragraph, which was
previously scheduled to expire on August 5, 2024. On July 29, 2024, Air Group
and Hawaiian agreed with the DOJ to extend the Review Period until 12:01 a.m.
Eastern Time on August 15, 2024.
In the three and six months ended June 30, 2024, the Company incurred
integration costs of $
30
million and $
38
million, respectively, primarily consisting of professional services fees.
These costs are included within Special items - operating in the
11
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unaudited Condensed Consolidated Statements of Operations. The Company expects
to continue to incur integration costs as activities supporting the proposed
acquisition continue.
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 is
passenger ancillary revenue such as bag fees, on-board food and beverage, and
certain revenue from the frequent flyer program. Mileage Plan other revenue
includes brand and marketing revenue from the 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 level of detail within the Company's unaudited Condensed Consolidated
Statements of Operations 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 unaudited Condensed Consolidated
Statements of Operations (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Passenger ticket revenue, net of taxes and fees $ 2,226 $ 2,207 $ 3,874 $ 3,855
Passenger ancillary revenue 135 123 243 227
Mileage Plan passenger revenue 290 268 538 500
Total Passenger revenue $ 2,651 $ 2,598 $ 4,655 $ 4,582
Mileage Plan Loyalty Program
Mileage Plan revenue included in the unaudited Condensed Consolidated
Statements of Operations (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Mileage Plan passenger revenue $ 290 $ 268 $ 538 $ 500
Mileage Plan other revenue 174 170 338 324
Total Mileage Plan revenue $ 464 $ 438 $ 876 $ 824
Cargo and Other Revenue
Cargo and other revenue included in the unaudited Condensed Consolidated
Statements of Operations (in millions):
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 2024 2023
Cargo revenue $ 36 $ 39 $ 64 $ 68
Other revenue 36 31 72 60
Total Cargo and other revenue $ 72 $ 70 $ 136 $ 128
12
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Air Traffic Liability and Deferred Revenue
Passenger ticket and ancillary services liabilities
The Company recognized Passenger revenue of
$
150
million
and
$
103
million
from the prior year-end air traffic liability balance for the three months
ended June 30, 2024 and 2023, and
$
717
million
and
$
588
million
from the prior year-end air traffic liability balance for the six months ended
June 30, 2024 and 2023.
Mileage Plan assets and liabilities
The Company records a receivable for amounts due from the affinity card
partner and from other partners as mileage credits are sold until the payments
are collected. The Company had
$
87
million
of such receivables as of June 30, 2024 and $
102
million as of December 31, 2023.
The table below presents a roll forward of the total frequent flyer liability
(in millions):
Six Months Ended June 30,
2024 2023
Total Deferred Revenue balance at January 1 $ 2,603 $ 2,497
Travel miles and companion certificate redemption - Passenger revenue ( (
508 470
) )
Miles redeemed on partner airlines - Other revenue ( (
67 52
) )
Increase in liability for mileage credits issued 613 602
Total Deferred Revenue balance at June 30 $ 2,641 $ 2,577
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, 2024, cost basis and fair value for marketable securities were $
1.4
billion. Differences in cost basis and fair value of marketable securities are
primarily a result of changes in interest rates and general market conditions.
Management does not believe any unrealized losses are the result of credit
quality based on its evaluation of industry and duration exposure, credit
ratings of the securities, liquidity profiles, and other observable
information as of June 30, 2024.
13
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Fair values of financial instruments on the unaudited Condensed Consolidated
Balance Sheets (in millions):
June 30, 2024 December 31, 2023
Level 1 Level 2 Total Level 1 Level 2 Total
Assets
Marketable securities
U.S. government and agency securities $ 438 $ - $ 438 $ 387 $ - $ 387
Equity mutual funds 6 - 6 5 - 5
Foreign government bonds - 10 10 - 10 10
Asset-backed securities - 168 168 - 192 192
Mortgage-backed securities - 91 91 - 115 115
Corporate notes and bonds - 638 638 - 763 763
Municipal securities - 43 43 - 38 38
Total Marketable securities 444 950 1,394 392 1,118 1,510
Derivative instruments
Fuel hedge contracts - call options - 6 6 - 11 11
Interest rate swap agreements - 9 9 - 8 8
Total Assets $ 444 $ 965 $ 1,409 $ 392 $ 1,137 $ 1,529
The Company uses 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
are determined based on the difference between the fixed interest rate in the
agreements and the observable interest SOFR-based forward rates at period end
multiplied by the total notional value.
Activity and Maturities for Marketable Securities
Maturities for marketable securities (in millions):
June 30, 2024 Cost Basis Fair Value
Due in one year or less $ 600 $ 592
Due after one year through five years 785 758
Due after five years through ten years 29 26
Due after 10 years 13 12
No maturity date 4 6
Total $ 1,431 $ 1,394
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.
14
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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
: To estimate the fair value of all fixed-rate debt as of June 30, 2024, 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 (EETC) debt is Level 2, as it
is estimated using observable inputs, while the estimated fair value of $
601
million of other fixed-rate debt, including PSP notes payable, is classified
as Level 3, as it is not actively traded and is valued using discounted cash
flows which is an unobservable input.
Fixed-rate debt on the unaudited Condensed Consolidated Balance Sheets and the
estimated fair value of long-term fixed-rate debt (in millions):
June 30, 2024 December 31, 2023
Fixed-rate debt $ 1,447 $ 1,515
Estimated fair value $ 1,367 $ 1,382
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 and
finance lease assets, goodwill, and intangible assets. These assets are
subject to fair valuation when there is evidence of impairment. No material
impairments were recorded during the three and six months ended June 30, 2024.
NOTE 5. LONG-TERM DEBT
Long-term debt obligations on the unaudited Condensed Consolidated Balance
Sheets (in millions):
June 30, 2024 December 31, 2023
Fixed-rate notes payable due through 2029 $ 68 $ 80
Fixed-rate PSP notes payable due through 2031 600 600
Fixed-rate EETC payable due through 2025 & 2027 779 835
Variable-rate notes payable due through 2036 1,239 971
Less debt issuance costs ( (
14 15
) )
Total debt 2,672 2,471
Less current portion ( (
(a) 359 289
) )
Long-term debt, less current portion $ 2,313 $ 2,182
Weighted-average fixed-interest rate 3.3 % 3.4 %
Weighted-average variable-interest rate 6.9 % 6.8 %
(a) Excludes finance lease liabilities recognized within Current portion of
long-term debt and finance leases in the unaudited Condensed Consolidated
Balance Sheets as of December 31, 2023.
Approximately $
223
million of the Company's total variable-rate notes payable are effectively
fixed via interest rate swaps at June 30, 2024, resulting in an effective
weighted-average interest rate for the full debt portfolio of
4.7
%.
During the six months ended June 30, 2024, the Company incurred debt of $
348
million from multiple lenders and sources. New debt includes proceeds of $
280
million, secured by a combination of aircraft and flight simulators.
Additionally, $
68
million was incurred as part of an agreement to finance certain E175
deliveries. Debt from this agreement is reflected as a non-cash transaction
within the supplemental disclosures in the unaudited Condensed Consolidated
Statements of Cash Flows. During the six months ended June 30, 2024, the
Company made debt payments of $
149
million.
Subsequent to quarter end, the Company incurred debt of $
67
million, secured by aircraft.
15
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Debt Maturity
At June 30, 2024, long-term debt principal payments for the next five years
and thereafter are as follows (in millions):
Total
Remainder of 2024 $ 164
2025 385
2026 342
2027 666
2028 176
Thereafter 953
Total Principal Payments $ 2,686
Bank Lines of Credit
Alaska has three credit facilities totaling $
626
million as of June 30, 2024. One credit facility is for $
150
million, expires in April 2028, and is secured by certain accounts receivable,
spare engines, spare parts, and ground service equipment. A second credit
facility is for $
400
million, expires in June 2026, and is secured by aircraft. Both facilities
have variable interest rates based on SOFR plus a specified margin. A third
credit facility is for $
76
million, expires in June 2025, and is secured by aircraft.
Alaska has secured letters of credit against the third facility. All credit
facilities have a requirement to maintain a minimum unrestricted cash and
marketable securities balance of $
500
million. Alaska was in compliance with this covenant at June 30, 2024.
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,
2024 2023 2024 2023
Service cost $ 7 $ 7 $ 14 $ 14
Pension expense included in Wages and benefits 7 7 14 14
Interest cost 27 27 54 54
Expected return on assets ( ( ( (
32 29 64 57
) ) ) )
Recognized actuarial loss 4 6 9 12
Pension expense (benefit) included in Non-operating Income $ ( $ 4 $ ( $ 9
1 1
) )
16
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NOTE 7. COMMITMENTS AND CONTINGENCIES
Boeing has communicated to Alaska that certain B737 aircraft are expected to
be delivered later than the contracted delivery dates. This includes certain
B737-8 and B737-9 aircraft contracted for delivery in 2024 that have been
moved to 2025, as well as certain B737-10 aircraft contracted for delivery in
2025 that have been moved to 2026, pending certification of the B737-10. The
Company has incorporated these adjustments in the tables below, however,
management expects that additional Boeing aircraft deliveries may also be
delayed beyond what is depicted in the tables.
Future minimum contractual payments for commitments as of June 30, 2024 (in
millions):
Aircraft-Related Commitments Capacity Purchase Agreements and Other Obligations
(a) (b)
Remainder of 2024 $ 864 $ 119
2025 1,064 242
2026 1,186 235
2027 1,100 231
2028 151 234
Thereafter 715 658
Total $ 5,080 $ 1,719
(a)
Includes contractual commitments for aircraft, engines, and aircraft
maintenance. Option deliveries are excluded from minimum commitments until
exercise.
(b)
Excludes lease costs associated with capacity purchase agreements.
Aircraft Commitments
Aircraft purchase commitments include contractual commitments for aircraft and
engines. Details for contractual aircraft commitments as of June 30, 2024 are
outlined below.
Firm Orders Options and Other Rights Total
Aircraft Type 2024-2027 2026-2030 2024-2030
B737 72 105 177
E175 6 4 10
Total 78 109 187
Aircraft Maintenance
Aircraft maintenance commitments include contractual commitments for engine
maintenance agreements requiring monthly payments based upon utilization, such
as flight hours, cycles, and age of the aircraft. In turn, these maintenance
agreements transfer certain risks to the third-party service provider. Alaska
has contracts for maintenance on its B737-800 and B737-900ER aircraft engines
through 2026 and 2032, respectively. Horizon has contracts for maintenance on
its E175 aircraft engines through 2033 and 2039.
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.
17
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As part of the 2016 acquisition of Virgin America, Alaska assumed
responsibility for the Virgin trademark license agreement with the Virgin
Group. In 2019, pursuant to that agreement's venue provision, the Virgin Group
sued Alaska in England, alleging that the agreement requires Alaska to pay $
8
million per year as a minimum annual royalty through 2039, adjusted annually
for inflation and irrespective of Alaska's actual use (or non-use) of the
mark. Alaska stopped making royalty payments in 2019 after ending all use of
the Virgin brand. On February 16, 2023, the commercial court issued a ruling
adopting Virgin Group's interpretation of the license agreement. The Company
appealed the decision. On June 11, 2024, the appellate court issued a final
decision affirming the lower court ruling in favor of the Virgin Group. Alaska
also commenced a separate claim for breach of the agreement against the Virgin
Group that may affect the Company's total liability in the matter. Alaska
recorded an accrual in the second quarter of 2024 for $
45
million, representing the expenses associated with the trademark license
agreement between January 2020 and June 2024. The expense is classified within
Special items - operating in the unaudited Condensed Consolidated Statements
of Operations.
On April 15, 2024, a private antitrust action captioned
Warren Yoshimoto, et al., v. Alaska Airlines, Inc., et al.
was filed in the United States District Court for the District of Hawaii,
against Alaska Airlines, Inc. and Alaska Air Group, Inc. The plaintiffs, whom
the complaint describes as airline passengers, allege that the pending
acquisition of Hawaiian Airlines, Inc. by Alaska Airlines, Inc. would violate
U.S. antitrust laws. They seek to enjoin the merger or obtain divestitures, as
well as costs and attorneys' fees. The Company believes the allegations in the
complaint are without merit and will defend against them vigorously, while
continuing to work cooperatively with the U.S. Department of Justice to obtain
regulatory clearance to close the acquisition.
NOTE 8.
SHAREHOLDERS' EQUITY
Common Stock Repurchase
In August 2015, the Board of Directors authorized a $
1
billion share repurchase program. The Company repurchased
1.2
million shares for $
49
million during the six months ended June 30, 2024 and
1.3
million shares for $
57
million during the six months ended June 30, 2023. As of June 30, 2024, the
Company has repurchased
12.3
million shares for $
738
million, with $
262
million remaining under this program.
CARES Act Warrant Issuances
As taxpayer protection required under the Payroll Support Program (PSP) under
the CARES Act, the Company granted the U.S. Department of the Treasury a total
of
1,455,437
warrants to purchase ALK common stock in 2020 and 2021. An additional
427,080
warrants were issued in conjunction with a draw on the CARES Act Loan in 2020.
These warrants are non-voting, freely transferable, may be settled as net
shares or in cash at the Company's option, and have a five-year term. The
warrants were sold at auction in the second quarter of 2024 to a third party
investor. The sale had no impact to the amount held on the Company's balance
sheet.
As of June 30, 2024, there are
1,882,517
total warrants outstanding, with a weighted average strike price of $
39.06
. The value of the warrants was estimated using a Black-Scholes option pricing
model. The total fair value of all outstanding warrants was $
30
million, recorded in stockholders' equity at issuance.
NOTE 9. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding, including the dilutive effect of
outstanding share-based instruments such as employee stock awards and warrants.
18
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Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share amounts) 2024 2023 2024 2023
Net income $ 220 $ 240 $ 88 $ 98
Basic weighted average shares outstanding 126.337 127.440 126.153 127.470
Dilutive effect of employee stock awards 1.627 1.066 1.421 0.962
Dilutive effect of stock warrants 0.346 0.413 0.283 0.428
Diluted weighted average shares outstanding 128.310 128.919 127.857 128.860
Basic earnings per share $ 1.74 $ 1.88 $ 0.70 $ 0.77
Diluted earnings per share $ 1.71 $ 1.86 $ 0.69 $ 0.76
Antidilutive amounts excluded from calculation:
Employee stock awards 1.1 1.7 1.9 2.1
Stock warrants 0.2 0.1 0.2 0.1
NOTE 10.
ACCUMULATED OTHER COMPREHENSIVE LOSS
A roll forward of the amounts included in accumulated other comprehensive loss
is shown below for the three and six months ended June 30, 2024 and 2023:
(in millions) Marketable Securities Employee Benefit Plan Interest Rate Derivatives Tax Effect Total
Balance at March 31, 2024 $ ( $ ( $ 9 $ 96 $ (
45 354 294
) ) )
Change in value 6 - - - 6
Reclassifications into earnings - 4 - ( 1
3
)
Balance at June 30, 2024 $ ( $ ( $ 9 $ 93 $ (
39 350 287
) ) )
Balance at December 31, 2023 $ ( $ ( $ 8 $ 97 $ (
46 358 299
) ) )
Change in value 7 - 1 - 8
Reclassifications into earnings - 8 - ( 4
4
)
Balance at June 30, 2024 $ ( $ ( $ 9 $ 93 $ (
39 350 287
) ) )
Marketable Securities Employee Benefit Plan Interest Rate Derivatives Tax Effect Total
Balance at March 31, 2023 $ ( $ ( $ 12 $ 117 $ (
78 416 365
) ) )
Change in value ( - 2 1 (
9 6
) )
Reclassifications into earnings 3 5 - ( 6
2
)
Balance at June 30, 2023 $ ( $ ( $ 14 $ 116 $ (
84 411 365
) ) )
Balance at December 31, 2022 ( ( 15 122 (
104 421 388
) ) )
Change in value 11 - ( ( 8
1 2
) )
Reclassifications into earnings 9 10 - ( 15
4
)
Balance at June 30, 2023 $ ( $ ( $ 14 $ 116 $ (
84 411 365
) ) )
19
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NOTE 11.
OPERATING SEGMENT INFORMATION
Alaska Air Group has two operating 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 and
SkyWest, under which Alaska receives all passenger revenue.
Under 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. Historically, our CODM has reviewed financial performance
information for our airline operations and the Horizon CPA as part of three
reportable operating segments:
.
Mainline
- includes scheduled air transportation on Alaska's Boeing jet aircraft for
passengers and cargo throughout the U.S., and in parts of Canada, Mexico,
Costa Rica, Belize, Guatemala, and the Bahamas.
.
Regional
- includes Horizon's and other third-party carriers' scheduled air
transportation for passengers across a shorter distance network within the
U.S., Canada, and Mexico under a CPA. This segment includes the actual revenue
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.
In addition to these reported segments, the Company has a "Consolidating and
Other" column which 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.
Over time, our Mainline and Regional airline segments have increasingly been
managed as a single component that provides scheduled air transportation for
passengers and cargo, and includes our loyalty program. Managing this
component in an integrated manner enables our team to leverage our
comprehensive network, single route scheduling system, and fleet as a single
business to deliver optimized consolidated financial results. In 2024,
management began evaluating changes to internal reporting that may change the
discrete information that is provided to our CODM in the future to better
align with the way the business is managed. Such changes may have an impact on
the Company's reportable segments once finalized. The Company will continue to
report using the existing segment structure until changes in our internal
reporting have been fully implemented, and a segment analysis has been
performed to determine if any changes to reportable segments are indicated.
20
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Operating segment information is as follows (in millions):
Three Months Ended June 30, 2024
Mainline Regional Horizon Consolidating Air Group Adjusted Special Items Consolidated
& Other (b) (c)
(a)
Operating Revenue
Passenger $ 2,188 $ 463 $ - $ - $ 2,651 $ - $ 2,651
revenue
CPA revenue - - 112 ( - - -
112
)
Mileage Plan 160 14 - - 174 - 174
other revenue
Cargo and 69 - - 3 72 - 72
other revenue
Total Operating 2,417 477 112 ( 2,897 - 2,897
Revenue 109
)
Operating Expenses
Operating expenses, 1,516 322 92 ( 1,814 146 1,960
excluding fuel 116
)
Fuel expense 520 100 - - 620 ( 615
5
)
Total Operating 2,036 422 92 ( 2,434 141 2,575
Expenses 116
)
Non-operating 6 - ( - ( - (
Income (Expense) 12 6 6
) ) )
Income (Loss) $ 387 $ 55 $ 8 $ 7 $ 457 $ ( $ 316
Before Income Tax 141
)
Pretax Margin 15.8 % 10.9 %
Three Months Ended June 30, 2023
Mainline Regional Horizon Consolidating Air Group Adjusted Special Items Consolidated
& Other (b) (c)
(a)
Operating Revenue
Passenger $ 2,209 $ 389 $ - $ - $ 2,598 $ - $ 2,598
revenue
CPA revenue - - 92 ( - - -
92
)
Mileage Plan 158 12 - - 170 - 170
other revenue
Cargo and 67 - - 3 70 - 70
other revenue
Total Operating 2,434 401 92 ( 2,838 - 2,838
Revenue 89
)
Operating Expenses
Operating expenses, 1,468 279 87 ( 1,742 186 1,928
excluding fuel 92
)
Fuel expense 490 81 - 1 572 1 573
Total Operating 1,958 360 87 ( 2,314 187 2,501
Expenses 91
)
Non-operating 3 - ( 1 ( ( (
Income (Expense) 10 6 6 12
) ) ) )
Income (Loss) $ 479 $ 41 $ ( $ 3 $ 518 $ ( $ 325
Before Income Tax 5 193
) )
Pretax Margin 18.3 % 11.5 %
21
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Six Months Ended June 30, 2024
Mainline Regional Horizon Consolidating Air Group Adjusted Special Items Consolidated
& Other (b) (c)
(a)
Operating Revenue
Passenger $ 3,817 $ 838 $ - $ - $ 4,655 $ - $ 4,655
revenue
CPA revenue - - 216 ( - - -
216
)
Mileage Plan 309 29 - - 338 - 338
other revenue
Cargo and 131 - - 5 136 - 136
other revenue
Total Operating 4,257 867 216 ( 5,129 - 5,129
Revenue 211
)
Operating Expenses
Operating expenses, 3,030 621 180 ( 3,613 180 3,793
excluding fuel 218
)
Fuel expense 1,005 193 - - 1,198 ( 1,180
18
)
Total Operating 4,035 814 180 ( 4,811 162 4,973
Expenses 218
)
Non-operating 3 - ( 2 ( - (
Income (Expense) 23 18 18
) ) )
Income (Loss) $ 225 $ 53 $ 13 $ 9 $ 300 $ ( $ 138
Before Income Tax 162
)
Pretax Margin 5.8 % 2.7 %
Six Months Ended June 30, 2023
Mainline Regional Horizon Consolidating Air Group Adjusted Special Items Consolidated
& Other (b) (c)
(a)
Operating Revenue
Passenger $ 3,882 $ 700 $ - $ - $ 4,582 $ - $ 4,582
revenue
CPA revenue - - 170 ( - - -
170
)
Mileage Plan 301 23 - - 324 - 324
other revenue
Cargo and 124 - - 4 128 - 128
other revenue
Total Operating 4,307 723 170 ( 5,034 - 5,034
Revenue 166
)
Operating Expenses
Operating expenses, 2,858 535 171 ( 3,395 250 3,645
excluding fuel 169
)
Fuel expense 1,051 166 - - 1,217 21 1,238
Total Operating 3,909 701 171 ( 4,612 271 4,883
Expenses 169
)
Non-operating ( - ( 2 ( ( (
Income (Expense) 3 18 19 6 25
) ) ) ) )
Income (Loss) $ 395 $ 22 $ ( $ 5 $ 403 $ ( $ 126
Before Income Tax 19 277
) )
Pretax Margin 8.0 % 2.5 %
(a)
Includes consolidating entries, Air Group parent company, McGee Air Services,
and other immaterial business units.
(b)
The Air Group Adjusted column represents the financial information that is
reviewed by management to assess performance of operations and determine
capital allocation and excludes certain charges.
(c)
Includes special items and mark-to-market fuel hedge accounting adjustments.
Total assets were as follows (in millions):
June 30, 2024 December 31, 2023
Mainline $ 20,674 $ 19,937
Horizon 1,383 1,352
Consolidating & Other ( (
6,715 6,676
) )
Consolidated $ 15,342 $ 14,613
22
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NOTE 12. SPECIAL ITEMS
The Company has classified certain operating and non-operating expenses as
special items due to their unusual or infrequently occurring nature. The
Company believes disclosing information about these items separately improves
comparable year over year analysis and allows stakeholders to better
understand our results of operations. A description of the special items is
provided below.
Fleet transition:
Costs are associated with the retirement and disposition of Airbus and Q400
aircraft.
Labor agreements:
Costs are for the retroactive pay offered to Alaska flight attendants pursuant
to the tentative agreement reached in the second quarter of 2024 and for
changes to Alaska pilots' sick leave benefits resulting from an agreement
signed in the first quarter of 2023.
Integration costs:
Costs are associated with the proposed acquisition of Hawaiian Airlines.
Litigation:
Costs represent expenses that were recognized following a negative appeal
ruling in the second quarter of 2024 associated with the Virgin trademark
license agreement with the Virgin Group.
Net non-operating:
Costs are for interest expense associated with certain A321neo lease
agreements which were modified as part of Alaska's fleet transition.
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2024 2023 2024 2023
Operating Expenses
Fleet transition $ 41 $ 186 $ 67 $ 199
Labor agreements 30 - 30 51
Integration costs 30 - 38 -
Litigation 45 - 45 -
Special items - operating $ 146 $ 186 $ 180 $ 250
Non-operating Income (Expense)
Special Items - net non-operating $ - $ ( $ - $ (
6 6
) )
23
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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 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, 2023. This overview summarizes the MD&A, which includes the following
sections:
.
GAAP to Non-GAAP Reconciliations and Operating Statistics
- reconciliations of reported non-GAAP financial measures to their most
directly comparable financial measures reported on a GAAP basis, as well as
operating statistics we use to measure operating performance.
.
Second Quarter Review -
highlights from the second quarter of 2024 outlining some of the major events
that occurred during the period.
.
Results of Operations -
an in-depth analysis of our consolidated revenue and expenses for the three
and six months ended June 30, 2024. This section includes forward-looking
statements regarding our view of the remainder of 2024.
.
Liquidity and Capital Resources -
an overview of our financial position, analysis of cash flows, and relevant
contractual obligations and commitments.
GAAP TO NON-GAAP RECONCILIATIONS AND OPERATING STATISTICS
We are providing reconciliations of reported non-GAAP financial measures to
their most directly comparable financial measures reported on a GAAP basis. We
believe that consideration of these non-GAAP financial measures may be
important to investors for the following reasons:
.
By excluding certain costs from our unit metrics, we believe that we have
better visibility into the results of operations. Our industry is highly
competitive and is characterized by high fixed costs, so even a small
reduction in non-fuel operating costs can result in a significant improvement
in operating results. 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 investors to understand the impact of company-specific cost
drivers which are more controllable by management. We adjust for expenses
related directly to our freighter aircraft operations to allow for better
comparability to other domestic carriers that do not operate freighter
aircraft. We also exclude certain special charges as they are unusual or
nonrecurring in nature and adjusting for these expenses allows management and
investors to better understand our cost performance.
.
CASMex 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.
CASMex is also a measure commonly used by industry analysts, and we believe it
is the basis by which they have historically compared our airline to others in
the industry. The measure is also the subject of frequent questions from
investors.
.
Adjusted pretax income is an important metric for the employee incentive plan,
which covers the majority of Air Group employees.
.
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 these items as 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 revenue, we do not, nor are we able to, evaluate
unit revenue 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
revenue in the mid-to-long term. Although we believe it is useful to
24
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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 consider them a substitute for GAAP
figures. Amounts in the tables below are rounded to the nearest million. As a
result, a manual recalculation of certain figures using these rounded amounts
may not agree directly to the Company's actual figures presented in the tables
below.
GAAP TO NON-GAAP RECONCILIATIONS (unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2024 2023 2024 2023
Income before income tax $ 316 $ 325 $ 138 $ 126
Adjusted for:
Mark-to-market fuel hedge adjustment (5) 1 (18) 21
Special items - operating 146 186 180 250
Special items - net non-operating - 6 - 6
Adjusted income before income tax $ 457 $ 518 $ 300 $ 403
Pretax margin 10.9 % 11.5 % 2.7 % 2.5 %
Adjusted pretax margin 15.8 % 18.3 % 5.8 % 8.0 %
25
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Three Months Ended June 30,
2024 2023
(in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS
Net income per share $ 220 $ 1.71 $ 240 $ 1.86
Mark-to-market fuel hedge adjustments (5) (0.04) 1 0.01
Special items - operating 146 1.14 186 1.44
Special items - net non-operating - - 6 0.05
Income tax effect of reconciling items above (34) (0.26) (46) (0.36)
Adjusted net income per share $ 327 $ 2.55 $ 387 $ 3.00
Six Months Ended June 30,
2024 2023
(in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS
Net income per share $ 88 $ 0.69 $ 98 $ 0.76
Mark-to-market fuel hedge adjustments (18) (0.14) 21 0.16
Special items - operating 180 1.41 250 1.94
Special items - net non-operating - - 6 0.05
Income tax effect of reconciling items above (39) (0.31) (67) (0.52)
Adjusted net income per share $ 211 $ 1.65 $ 308 $ 2.39
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2024 2023 2024 2023
Total operating $ 2,575 $ 2,501 $ 4,973 $ 4,883
expenses
Less the following components:
Aircraft fuel, including 615 573 1,180 1,238
hedging gains and losses
Freighter costs 13 12 28 26
Special items - operating 146 186 180 250
Total operating expenses, excluding fuel, $ 1,801 $ 1,730 $ 3,585 $ 3,369
freighter costs, and special items
ASMs 18,196 17,160 33,575 32,865
CASMex 9.89 c 10.08 c 10.67 c 10.25 c
26
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OPERATING STATISTICS (unaudited)
Below are consolidated operating statistics we use to measure operating
performance. We often refer to unit revenue and adjusted unit costs, which are
non-GAAP measures.
Three Months Ended June 30, Six Months Ended June 30,
2024 2023 Change 2024 2023 Change
Revenue passengers (000) 11,888 11,592 3% 21,662 21,444 1%
RPMs (000,000) "traffic" 15,309 14,936 2% 27,833 27,491 1%
ASMs (000,000) "capacity" 18,196 17,160 6% 33,575 32,865 2%
Load factor 84.1% 87.0% (2.9) pts 82.9% 83.6% (0.7) pts
Yield 17.32c 17.40c -% 16.73c 16.67c -%
PRASM 14.57c 15.14c (4)% 13.86c 13.94c (1)%
RASM 15.92c 16.54c (4)% 15.28c 15.32c -%
CASMex 9.89c 10.08c (2)% 10.67c 10.25c 4%
(a)
Economic fuel cost per gallon $2.84 $2.76 3% $2.95 $3.07 (4)%
(a)
Fuel gallons (000,000) 219 207 6% 406 396 3%
ASMs per fuel gallon 83.1 82.9 -% 82.7 83.0 -%
Departures (000) 112.4 104.4 8% 208.1 199.8 4%
Average full-time equivalent employees (FTEs) 23,368 23,301 -% 23,190 23,140 -%
Operating fleet 326 307 19 a/c 326 307 19 a/c
(b)
(a)
Refer to reconciliation of this non-GAAP measure to the most directly related
GAAP measure.
(b)
Includes aircraft owned and leased by Alaska and Horizon as well as aircraft
operated by third-party regional carriers under capacity purchase agreements.
Excludes non-operating aircraft.
SECOND QUARTER REVIEW
Financial Overview
We reported consolidated pretax income for the second quarter of 2024 of $316
million, compared to $325 million in the prior year. Despite challenges in the
domestic fare environment, the Company achieved record quarterly revenue of
$2.9 billion due to growth in our premium cabins and the continued strength of
our loyalty program. Total operating expenses increased $74 million compared
to the prior year. While fuel costs rose year over year due to increased
flying and higher per gallon costs, the Company's focus on managing its
non-fuel operating costs led to CASMex improvement of nearly 2% compared to
the prior year.
See "
Results of Operations
" below for further discussion of changes in revenue and operating expenses as
compared to 2023. A glossary of financial terms can be found at the end of
this Item 2.
Labor Updates
In June 2024, Alaska reached a tentative agreement with its flight attendants
represented by the Association of Flight Attendants (AFA) for an updated
collective bargaining agreement. Voting is expected to take place in
mid-August. In the second quarter, we accrued $30 million which approximates
the retroactive pay offered to flight attendants for the service period
through June 30, 2024. This expense is classified within Special items -
operating in the unaudited Condensed Consolidated Statements of Operations.
Horizon is in negotiations with certain labor groups for updated CBAs,
including its pilots, represented by the International Brotherhood of
Teamsters; its flight attendants, represented by AFA; and its technicians,
represented by AMFA.
27
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Outlook
The following represents the Company's expectations for the third quarter and
full year 2024 results. Full year adjusted EPS guidance has been lowered by
$0.25 at the midpoint to reflect the economics of a newly signed tentative
agreement with Alaska's flight attendants and a moderating domestic revenue
environment.
Q3 Expectation
Capacity (ASMs) % change versus 2023 Up 2% to 3%
CASMex % change versus 2023 Up high single digits
RASM % change versus 2023 Flat to positive
Economic fuel cost per gallon $2.85 to $2.95
Adjusted earnings per share $1.40 to $1.60
(a)
Full Year Expectation
Capacity (ASMs) % change versus 2023 Up < 2.5%
Adjusted earnings per share $3.50 to $4.50
(a)
Capital expenditures $1.2 billion - $1.3 billion
(a) Adjusted earnings per share guidance assumes a full year tax rate of
approximately 25%. Full year EPS guidance assumes an economic fuel cost per
gallon of approximately $2.90 for FY 2024.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2024 TO THREE MONTHS ENDED JUNE 30,
2023
OPERATING REVENUE
Total operating revenue increased $59 million, or 2%, in the second quarter of
2024 compared to the same period in 2023. The changes are summarized in the
following table:
Three Months Ended June 30,
(in millions) 2024 2023 % Change
Passenger revenue $ 2,651 $ 2,598 2 %
Mileage Plan other revenue 174 170 2 %
Cargo and other revenue 72 70 3 %
Total Operating Revenue $ 2,897 $ 2,838 2 %
Passenger revenue
Passenger revenue for the second quarter of 2024 increased $53 million, or 2%,
on a 2% increase in passenger traffic, partially offset by a slight decrease
in yield. Passenger traffic growth was driven by increased gauge and
departures throughout the network. Increased revenue from the premium cabins
also contributed to the year over year improvement.
Mileage Plan other revenue
Mileage Plan other revenue for the second quarter of 2024 increased by $4
million, or 2%. The increase was driven by higher award redemption on partner
airlines and incremental commissions from third party partners.
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OPERATING EXPENSES
Total operating expenses increased $74 million, or 3%, compared to the second
quarter of 2023. 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) 2024 2023 % Change
Fuel expense $ 615 $ 573 7 %
Non-fuel operating expenses, excluding special items 1,814 1,742 4 %
Special items - operating 146 186 (22) %
Total Operating Expenses $ 2,575 $ 2,501 3 %
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 increased $42 million, or 7%, compared to the second
quarter of 2023. The elements of the change are illustrated in the following
table:
Three Months Ended June 30,
2024 2023
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 610 $ 2.79 $ 555 $ 2.68
Losses on settled hedges 10 0.05 17 0.08
Economic fuel expense $ 620 $ 2.84 $ 572 $ 2.76
Mark-to-market fuel hedge adjustments (5) (0.03) 1 -
Aircraft fuel, including hedging gains and losses $ 615 $ 2.81 $ 573 $ 2.76
Fuel gallons 219 207
Raw fuel expense increased 10% in the second quarter of 2024 compared to the
second quarter of 2023 due to higher fuel consumption and per gallon costs of
crude oil, partially offset by a decrease in refining margins associated with
the conversion of crude oil to jet fuel.
We also evaluate economic fuel expense, which we define as raw fuel expense
adjusted for the cash we receive from 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.
Economic fuel expense includes 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.
Losses recognized for hedges that settled during the second quarter were $10
million in 2024, compared to losses of $17 million in the same period in 2023.
These amounts represent cash paid for premium expense, offset by any cash
received from those hedges at settlement. In 2023, we suspended our crude oil
hedge program. Our final option position will settle in the first quarter of
2025.
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Non-fuel expenses
The table below provides the reconciliation of the operating expense line
items, excluding fuel and special items. Significant operating expense
variances from 2023 are more fully described below.
Three Months Ended June 30,
(in millions) 2024 2023 % Change
Wages and benefits $ 782 $ 754 4 %
Variable incentive pay 49 57 (14) %
Aircraft maintenance 129 125 3 %
Aircraft rent 46 54 (15) %
Landing fees and other rentals 173 167 4 %
Contracted services 106 95 12 %
Selling expenses 84 81 4 %
Depreciation and amortization 128 113 13 %
Food and beverage service 67 60 12 %
Third-party regional carrier expense 64 54 19 %
Other 186 182 2 %
Total non-fuel operating expenses, excluding special items $ 1,814 $ 1,742 4 %
Wages and benefits
Wages and benefits increased by $28 million, or 4%, in the second quarter of
2024. The primary components of Wages and benefits are shown in the following
table:
Three Months Ended June 30,
(in millions) 2024 2023 % Change
Wages $ 592 $ 576 3 %
Payroll taxes 44 44 - %
Medical and other benefits 82 77 6 %
Defined contribution plans 57 49 16 %
Pension - Defined benefit plans 7 8 (13) %
Total Wages and benefits $ 782 $ 754 4 %
Wages increased $16 million, or 3%, driven by increased wage rates across
multiple labor groups since the prior year. The increase was partially offset
by certain nonrecurring stock awards granted in the second quarter of 2023.
The change in medical and other benefits was primarily driven by an increase
in the cost of medical services compared to the prior year. Increased expense
for defined contribution plans was driven by the change in wages as well as
higher matching contributions for Alaska technicians.
Variable incentive pay
Variable incentive pay expense decreased by $8 million, or 14%, in the second
quarter of 2024. The decrease was driven by a lower assumed payout percentage
compared to the prior year, partially offset by an increased wage base.
Aircraft rent
Aircraft rent expense decreased by $8 million, or 15%, in the second quarter
of 2024. The decrease was primarily driven by the retirement of ten leased
A321neo aircraft fleet from operations since the second quarter of 2023.
30
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Landing fees and other rentals
Landing fees and other rentals increased by $6 million, or 4%, in the second
quarter of 2024. Landing fees increased due to the volume of departures and
landed weight. Increases to terminal rents were primarily due to growth
throughout the network, but were largely offset by favorable settlements
received during the quarter from certain airports.
Contracted services
Contracted services increased by $11 million, or 12%, in the second quarter of
2024, driven by higher rates charged by vendors as well as increased
passengers throughout our network.
Depreciation and amortization
Depreciation and amortization increased by $15 million, or 13%, in the second
quarter of 2024. The increase was primarily due to the addition of 22 owned
B737 aircraft and five owned E175 aircraft to our fleet since the second
quarter of 2023, as well as incremental depreciation on ground service and
other equipment additions.
Food and beverage service
Food and beverage service increased by $7 million, or 12%, in the second
quarter of 2024. The increase was driven by a combination of growth in revenue
passengers, additional onboard offerings, and higher costs for food, food
service supplies, and transportation.
Third-party regional carrier expense
Third-party regional carrier expense, which represents expenses associated
with SkyWest under the CPA with Alaska, increased by $10 million, or 19%, in
the second quarter of 2024. The increase in third-party regional carrier
expense was driven by increased SkyWest-operated departures and block hours.
Special items - operating
We recorded $146 million of operating special items in the second quarter of
2024, compared to $186 million in the same period in 2023. Refer to Note 12 to
the consolidated financial statements for details.
ADDITIONAL SEGMENT INFORMATION
Refer to Note 11 to the consolidated financial statements for a detailed
description of each segment. Below is a summary of each segment's results.
Mainline
Mainline reported a pretax profit of $387 million in the second quarter of
2024, compared to a pretax profit of $479 million in the same period in 2023.
The $92 million decrease was driven by a $17 million decrease in passenger
revenue, a $48 million increase in non-fuel operating expenses, and a $30
million increase in economic fuel expense.
Compared to the prior year, lower Mainline revenue is primarily attributable
to weaker ticket yield, driven by a moderating domestic pricing environment.
Non-fuel operating expenses increased, driven by higher wage rates across
multiple labor groups and higher variable costs associated with overall
network growth. Increased economic fuel cost was driven by higher per gallon
costs and incremental fuel consumption.
Regional
Regional reported a pretax profit of $55 million in the second quarter of
2024, compared to a pretax profit of $41 million in the same period in 2023.
The $14 million improvement was driven by higher passenger revenue consistent
with the increase in traffic, partially offset by higher operating expenses
associated with increased capacity.
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Horizon
Horizon reported a pretax profit of $8 million in the second quarter of 2024,
compared to a pretax loss of $5 million in the same period in 2023. The $13
million improvement was driven by increased revenue consistent with increased
capacity sold to Alaska, partially offset by increased expenses driven by the
addition of five owned E175 aircraft added to Horizon's fleet since the second
quarter of 2023. Cost reductions resulting from Horizon's transition to single
fleet also contributed to this improvement.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2024 TO SIX MONTHS ENDED JUNE 30, 2023
OPERATING REVENUE
Total operating revenue increased $95 million, or 2%, during the first six
months of 2024 compared to the same period in 2023. The changes are summarized
in the following table:
Six Months Ended June 30,
(in millions) 2024 2023 % Change
Passenger revenue $ 4,655 $ 4,582 2 %
Mileage Plan other revenue 338 324 4 %
Cargo and other revenue 136 128 6 %
Total Operating Revenue $ 5,129 $ 5,034 2 %
Passenger revenue
Passenger revenue for the first six months of 2024 increased by $73 million,
or 2%, driven by increased passenger traffic. Traffic growth was due to
increased gauge and departures throughout the network. Strength in premium
class products and increased redemptions by Mileage Plan members on both
Alaska and partner airlines also contributed to this increase. These
improvements were offset by lost revenue from the B737-9 grounding as well as
a moderating domestic revenue environment in the second quarter.
We expect to see Passenger revenue growth for the remainder of 2024 compared
to 2023 as a result of capacity growth plans, strength in the premium cabins,
and continued recovery of corporate travel.
Mileage Plan other revenue
Mileage Plan other revenue increased $14 million, or 4%, in the first six
months of 2024. The increase was driven by higher commissions from bank card
and third party partners.
We expect to see continued strength in Mileage Plan other revenue for the
remainder of 2024, driven by higher commissions from increased card spend and
acquisition bonuses, offset by incremental redemption on other air partners as
compared to the prior year.
OPERATING EXPENSES
Total operating expenses increased $90 million, or 2%, compared to the first
six months of 2023. 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) 2024 2023 % Change
Fuel expense $ 1,180 $ 1,238 (5) %
Non-fuel operating expenses, excluding special items 3,613 3,395 6 %
Special items - operating 180 250 (28) %
Total Operating Expenses $ 4,973 $ 4,883 2 %
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Fuel expense
Aircraft fuel expense decreased $58 million, or 5%, compared to the six months
ended June 30, 2023. The elements of the change are illustrated in the table:
Six Months Ended June 30,
2024 2023
(in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal
Raw or "into-plane" fuel cost $ 1,175 $ 2.89 $ 1,188 $ 3.00
(Gain)/loss on settled hedges 23 0.06 29 0.07
Consolidated economic fuel expense $ 1,198 $ 2.95 $ 1,217 $ 3.07
Mark-to-market fuel hedge adjustments (18) (0.05) 21 0.05
GAAP fuel expense $ 1,180 $ 2.90 $ 1,238 $ 3.12
Fuel gallons 406 396
Raw fuel expense decreased 1% in the first six months of 2024 compared to the
first six months of 2023. While fuel consumption and per gallon costs of crude
oil were higher, these increases were more than offset by lower refining
margins.
Economic fuel expense includes losses recognized for hedges that settled in
the first six months of 2024 of $23 million, compared to losses of $29 million
in the same period in 2023. These amounts represent cash paid for premium
expense, offset by any cash received from those hedges at settlement.
We expect our economic fuel cost per gallon in the third quarter to range
between $2.85 to $2.95.
Non-fuel expenses
Six Months Ended June 30,
(in millions) 2024 2023 % Change
Wages and benefits $ 1,586 $ 1,477 7 %
Variable incentive pay 93 104 (11) %
Aircraft maintenance 251 249 1 %
Aircraft rent 93 113 (18) %
Landing fees and other rentals 338 319 6 %
Contracted services 203 190 7 %
Selling expenses 161 147 10 %
Depreciation and amortization 254 217 17 %
Food and beverage service 125 114 10 %
Third-party regional carrier expense 118 106 11 %
Other 391 359 9 %
Total non-fuel operating expenses, excluding special items $ 3,613 $ 3,395 6 %
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Wages and benefits
Wages and benefits increased by $109 million, or 7%, in the first six months
of 2024. The primary components of wages and benefits are shown in the
following table:
Six Months Ended June 30,
(in millions) 2024 2023 % Change
Wages $ 1,201 $ 1,134 6 %
Payroll taxes 88 85 4 %
Medical and other benefits 165 143 15 %
Defined contribution plans 118 100 18 %
Pension - Defined benefit plans 14 15 (7) %
Total Wages and benefits $ 1,586 $ 1,477 7 %
Wages increased $67 million, or 6%, driven by increased wage rates across
multiple labor groups since the prior year, as well as additional impact from
irregular operations following the B737-9 grounding in the first quarter of
2024. The increase was partially offset by nonrecurring stock awards granted
in the second quarter of 2023. Increased expense for payroll taxes is
consistent with the change in wages.
The change in medical and other benefits was primarily driven by an increase
in the cost of medical services compared to the prior year. Increased expense
for defined contribution plans was driven by the change in wages as well as
higher matching contributions for Alaska technicians.
We expect to see higher wages and benefits for the remainder of 2024 due to
the impact of the new contract for Alaska flight attendants as well as
increases in wage rates for other labor groups.
Variable incentive pay
Variable incentive pay expense decreased by $11 million, or 11%, in the first
six months of 2024. The decrease was driven by a lower assumed payout
percentage compared to the prior year, partially offset by an increased wage
base.
Aircraft rent
Aircraft rent expense decreased by $20 million, or 18%, in the first six
months of 2024. The decrease was primarily driven by the retirement of ten
leased A321neo aircraft from operations.
We expect aircraft rent will remain below 2023 levels for the remainder of
2024, due to the reduction in leased aircraft described above.
Landing fees and other rentals
Landing fees and other rentals increased by $19 million, or 6%, in the first
six months of 2024. Higher terminal rent costs were due to rate and volume
increases at many of our facilities. Landing fees increased due to the volume
of departures and landed weight.
We expect landing fees and other rentals to increase for the remainder of 2024
as compared to 2023 due to higher rates at airports and a greater volume of
flying.
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Contracted services
Contracted services increased by $13 million, or 7%, in the first six months
of 2024, driven by higher rates charged by vendors as well as increased
passengers throughout our network.
We expect contracted services to increase for the remainder of 2024 as
compared to 2023 due to the same factors described above.
Selling expenses
Selling expenses increased by $14 million, or 10%, in the first six months of
2024. The increase was driven by incremental credit card commissions and
additional marketing costs.
We expect selling expenses to increase for the remainder of 2024 as compared
to 2023, primarily due to incremental credit card commissions, partially
offset by the timing of certain marketing campaigns in the respective years.
Depreciation and amortization
Depreciation and amortization increased by $37 million, or 17%, in the first
six months of 2024. The increase was primarily due to the addition of 22 owned
B737 aircraft and five owned E175 aircraft to our fleet since the second
quarter of 2023, as well as incremental depreciation on ground service and
other equipment additions.
We expect depreciation and amortization to increase for the remainder of 2024
as compared to 2023 due to incremental owned aircraft added to our fleet.
Food and beverage service
Food and beverage service increased by $11 million, or 10%, in the first six
months of 2024. The increase was driven by a combination of additional onboard
offerings and higher costs for food, food service supplies, and transportation.
We expect food and beverage service costs to increase for the remainder of
2024 as compared to 2023 due to the same factors described above.
Third-party regional carrier expense
Third-party regional carrier expense, which represents payments made to
SkyWest under the CPA with Alaska, increased $12 million, or 11%, in the first
six months of 2024. The increase was driven by incremental departures and
block hours operated by SkyWest.
We expect third-party regional carrier expense will continue to be higher for
the remainder of 2024 as compared to 2023 due to the same factors described
above.
Other expense
Other expense increased $32 million, or 9%, in the first six months of 2024.
The increase was primarily driven by passenger remuneration and crew hotel
costs due to the B737-9 grounding. Additional software costs and other
miscellaneous services also contributed to this increase.
We expect other expense will continue to be higher for the remainder of 2024
as compared to 2023 due to the same factors described above.
Special items - operating
We recorded $180 million of operating special items in the first six months of
2024, compared to $250 million in the same period in 2023. Refer to Note 12 to
the consolidated financial statements for additional details.
ADDITIONAL SEGMENT INFORMATION
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Refer to Note 11 to the consolidated financial statements for a detailed
description of each segment. Below is a summary of each segment's results.
Mainline
Mainline reported a pretax profit of $225 million in the first six months of
2024, compared to a pretax profit of $395 million in the same period in 2023.
The $170 million decrease was driven by a $172 million increase in non-fuel
operating expenses, including increased wage rates across multiple labor
groups and higher variable costs associated with overall network growth. The
$50 million decrease in Mainline operating revenue also contributed to lower
pretax profit, driven by decreased passenger revenue following the B737-9
grounding in the first quarter and decreased yield. A lower average per gallon
fuel cost lessened the negative impact of these items.
Regional
Regional reported a pretax profit of $53 million in the first six months of
2024, compared to a pretax profit of $22 million in the same period in 2023.
The $31 million improvement was driven by higher passenger revenue consistent
with the increase in traffic, partially offset by higher operating expenses
driven by increased capacity.
Horizon
Horizon reported a pretax profit of $13 million in the first six months of
2024, compared to a pretax loss of $19 million in the same period in 2023. The
$32 million improvement was driven by incremental revenue consistent with
increased capacity sold to Alaska, partially offset by increased expenses
driven by the addition of five owned E175 aircraft added to Horizon's fleet
since the second quarter of 2023. Cost reductions resulting from Horizon's
transition to single fleet also contributed to this improvement.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity as of June 30, 2024 are:
.
Existing cash and marketable securities of $2.5 billion;
.
Cash flows from operations in the first six months of 2024 of $872 million;
.
Combined bank line-of-credit facilities, with no outstanding borrowings, of
$550 million;
.
Our Mileage Plan program and 69 unencumbered aircraft which could be financed,
if necessary.
During the three months ended June 30, 2024, we took free and clear delivery
of six owned B737-9 aircraft and three owned B737-8 aircraft. We incurred new
debt of $153 million and made debt payments of $47 million. We ended the
quarter with a debt-to-capitalization ratio of 45%, within our target range of
40% to 50%.
In the second quarter, we continued share repurchases, spending $28 million,
pursuant to the $1 billion repurchase plan authorized by the Board of
Directors in August 2015. We also purchased a 600,000 square-foot facility in
Renton, Washington for $86 million. Alaska plans to invest an additional $100
million to renovate the property, which will serve as the future home for our
training programs and operational teams following completion of renovations in
2025.
We believe that our current cash and marketable securities balance, combined
with available sources of liquidity, will be sufficient to fund our
operations, meet our debt payment obligations, and remain in compliance with
the financial debt covenants in existing financing arrangements for the
foreseeable future.
In our cash and marketable securities portfolio, we invest only in securities
that meet our primary investment strategy of maintaining and securing
investment principal. The portfolio is managed by reputable firms that adhere
to our investment policy that sets forth investment objectives, approved and
prohibited investments, and duration and credit quality guidelines. Our
policy, and the portfolio managers, are continually reviewed to ensure that
the investments are aligned with our strategy.
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The table below presents the major indicators of financial condition and
liquidity:
(in millions) June 30, 2024 December 31, 2023 Change
Cash and marketable $ 2,509 $ 1,791 40 %
securities
Cash, marketable securities, and unused lines of credit 29 % 22 % 7 pts
as a percentage of trailing twelve months' revenue
Long-term debt, net 2,313 2,182 6%
of current portion
Shareholders' equity $ 4,226 $ 4,113 3%
Debt-to-capitalization, including operating and finance leases
(in millions) June 30, 2024 December 31, 2023 Change
Long-term debt, net of current portion $ 2,313 $ 2,182 6%
Capitalized operating leases 1,203 1,283 (6)%
Capitalized finance leases - 64 NM
(a)
Adjusted debt, net of current portion of long-term debt $ 3,516 $ 3,529 -%
Shareholders' equity 4,226 4,113 3%
Total invested capital $ 7,742 $ 7,642 1%
Debt-to-capitalization, including operating and finance leases 45 % 46 % (1) pt
(a)
To best reflect our leverage at December 31, 2023, we included our capitalized
finance lease balances, which are recognized within the Current portion of
long-term debt and finance leases line in the unaudited Condensed Consolidated
Balance Sheets.
Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items, and rent
(in millions) June 30, 2024 December 31, 2023
Current portion of long-term $ 359 $ 353
debt and finance leases
Current portion of operating 153 158
lease liabilities
Long-term debt 2,313 2,182
Long-term operating lease 1,050 1,125
liabilities, net of current portion
Total adjusted debt 3,875 3,818
Less: Cash and marketable securities 2,509 1,791
Adjusted net debt $ 1,366 $ 2,027
(in millions) Twelve Months Ended June 30, 2024 Twelve Months Ended December 31, 2023
GAAP Operating Income $ 399 $ 394
(a)
Adjusted for:
Special items - operating 373 443
Mark-to-market fuel hedge adjustments (41) (2)
Depreciation and amortization 488 451
Aircraft rent 188 208
EBITDAR $ 1,407 $ 1,494
Adjusted net debt to EBITDAR 1.0x 1.4x
(a)
Operating Income can be reconciled using the trailing twelve month operating
income as filed quarterly with the SEC.
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ANALYSIS OF OUR CASH FLOWS
The following discussion summarizes the primary drivers of the increase in our
cash and marketable securities balance.
Cash Provided by Operating Activities
For the first six months of 2024, cash provided by operating activities was
$872 million, compared to cash provided by operating activities of $832
million in 2023. Cash provided by ticket sales and from our co-branded credit
card agreement are the primary sources of our operating cash flow. Our primary
use of operating cash flow is for operating expenses, including payments for
employee wages and benefits, payments to suppliers for goods and services, and
payments to lessors and airport authorities for rents and landing fees.
Operating cash flow also includes payments to, or refunds from, federal,
state, and local taxing authorities. The $40 million net increase in our
operating cash flows was primarily due to a combination of changes in various
working capital account balances.
Cash Used in Investing Activities
Cash used in investing activities was $135 million during the first six months
of 2024, compared to cash used in investing activities of $479 million in
2023. In 2024, the Company received $162 million in supplier proceeds from
Boeing related to the B737-9 grounding. The Company also received $180 million
for the sale of certain owned aircraft and equipment. Total property and
equipment expenditures decreased $47 million due to fewer deliveries of B737
aircraft in the first half of 2024 compared to 2023, and due to changes in
contractual terms of our aircraft purchase deposit schedule with Boeing. This
was partially offset by the purchase of a facility in Renton, Washington for
$86 million in the second quarter of 2024. Finally, net sales of marketable
securities decreased by $60 million compared to the prior year.
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities was $87 million during the first six
months of 2024, compared to cash used in financing activities of $165 million
in 2023. The increase was driven by $279 million in new debt proceeds in 2024
compared to zero in 2023, partially offset by increased cash used in other
financing activities, of which the settlement of the final A321neo finance
lease was the largest component.
MATERIAL CASH COMMITMENTS
Material cash requirements include the following contractual and other
obligations.
Aircraft Commitments
As of June 30, 2024, Alaska had firm orders to purchase 72 B737 aircraft with
deliveries between 2024 and 2027. Alaska also had rights for 105 additional
B737 aircraft through 2030.
Boeing has communicated to Alaska that certain B737 aircraft are expected to
be delivered later than the contracted delivery dates. This includes certain
B737-8 and B737-9 aircraft contracted for delivery in 2024 that have been
moved to 2025, as well as certain B737-10 aircraft contracted for delivery in
2025 that have been moved to 2026, pending certification of the B737-10. We
have incorporated these adjustments in the tables below, however, management
expects that additional Boeing aircraft deliveries may also be delayed beyond
what is depicted in the tables.
As of June 30, 2024, Horizon had commitments to purchase six E175 aircraft
with deliveries between 2025 and 2026. Horizon also had options to acquire
four E175 aircraft in 2026, two of which expired subsequent to quarter end.
Options will be exercised only if we believe return on invested capital
targets can be met over the long term.
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The following table summarizes our fleet plan based on contractual terms, with
adjustments to reflect delivery delays as communicated by Boeing:
Actual Fleet Anticipated Fleet Activity
Aircraft June 30, 2024 2024 Changes Dec 31, 2024 2025 Changes Dec 31, 2025 2026 Changes Dec 31, 2026
B737-700 3 - 3 - 3 - 3
Freighters
B737-800 2 - 2 - 2 - 2
Freighters
B737-700 11 - 11 - 11 - 11
B737-800 59 - 59 - 59 - 59
B737-900 12 (6) 6 (6) - - -
B737-900ER 79 - 79 - 79 - 79
B737-8 4 1 5 15 20 - 20
B737-9 70 8 78 2 80 - 80
B737-10 - - - - - 21 21
Total Mainline 240 3 243 11 254 21 275
Fleet
E175 operated 44 - 44 3 47 3 50
by Horizon
E175 operated 42 - 42 1 43 - 43
by third party
Total Regional 86 - 86 4 90 3 93
Fleet
Total 326 3 329 15 344 24 368
Fuel Hedge Positions
In 2023, we suspended our crude oil hedge program. Existing positions entered
into before suspension of the program will settle through the first quarter of
2025. All 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
and, during a period of decline in crude oil prices, we only forfeit cash
previously paid for hedge premiums. Prior to suspension, our program was
designed to hedge on up to 50% of our expected consumption. Our crude oil
positions are as follows:
Approximate % of Expected Weighted-Average Crude Average Premium Cost per Barrel
Fuel Requirements Oil Price per Barrel
Third Quarter of 2024 30 % $88 $5
Fourth Quarter of 2024 20 % $87 $5
Rest of Year 2024 25 % $88 $5
First Quarter of 2025 10 % $92 $5
Full Year 2025 2 % $92 $5
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Contractual Obligations
The following table provides a summary of our obligations as of June 30, 2024.
For agreements with variable terms, amounts included reflect our minimum
obligations.
(in millions) Remainder of 2024 2025 2026 2027 2028 Beyond 2028 Total
Debt obligations $ 164 $ 385 $ 342 $ 666 $ 176 $ 953 $ 2,686
Lease commitments 114 204 203 196 187 678 1,582
(a)
Aircraft-related commitments 864 1,064 1,186 1,100 151 715 5,080
(b)
Interest obligations 74 129 124 119 59 122 627
(c)
CPA and other obligations 119 242 235 231 234 658 1,719
Total $ 1,335 $ 2,024 $ 2,090 $ 2,312 $ 807 $ 3,126 $ 11,694
(a)
Lease commitments include minimum payments for aircraft (operating and
non-operating) with associated operating leases, as we have remaining cash
obligations under existing terms. It also includes minimum lease payments for
facilities.
(b)
Includes contractual commitments for aircraft, engines, and aircraft
maintenance. Option deliveries are excluded from minimum commitments until
exercise.
(c)
For variable-rate debt, future obligations are shown above using interest
rates forecast as of June 30, 2024.
Debt Obligations and Interest Obligations
The Company primarily issues debt to fund purchases of aircraft or other
capital expenditures. At June 30, 2024, our debt portfolio carries a weighted
average interest rate of 4.7%. Interest is paid with regular debt service. At
June 30, 2024, debt service obligations remaining in 2024 are expected to be
approximately $238 million, inclusive of interest and principal. Refer to Note
5 to the consolidated financial statements for further discussion of our debt
and interest balances.
CPA and Other Obligations
We have obligations primarily associated with our capacity purchase agreements
between Alaska and SkyWest, as well as other various sponsorship agreements
and investment commitments.
Leased Aircraft Return Costs
For leased aircraft, contractual terms require us to return the aircraft in a
specified state. As a result of these contractual terms, we incur significant
costs to return these aircraft at the termination of the lease. Costs to
return leased aircraft are accrued when the costs are probable and reasonably
estimable, usually over the twelve months prior to the lease return or any
expected early retirement date, unless a determination is made to remove the
leased asset from operation. If the leased aircraft is removed from the
operating fleet, the estimated cost to return is accrued at the time of
removal. Lease return accrual estimates are based on the time remaining on the
lease and the provisions included in the lease agreement, although the actual
amount due to any lessor upon return may not be known with certainty until
lease termination. At June 30, 2024, $94 million is accrued for lease returns,
and classified within Other accrued liabilities in the consolidated balance
sheets.
Credit Card Agreements
Alaska has 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.
Sustainability Commitments
As part of our efforts to reach net-zero carbon emissions by 2040, we have
outlined a five-part path that includes operational efficiency, fleet renewal,
sustainable aviation fuel (SAF), investing in new technologies, and using
credible offsetting and removal technologies to close the gaps to our
emissions target in future years. We anticipate these efforts will require
cash outlays, not all of which are reflected in our contractual commitments.
Finding and establishing relationships with suppliers to meet these
commitments is in process. Currently, Alaska has certain agreements to
purchase SAF to be delivered in the coming
40
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years. These agreements are dependent on suppliers' ability to obtain all
required governmental and regulatory approvals, achieve commercial operation,
and produce sufficient quantities of SAF. Financial commitments that have been
contractually established and have defined minimum obligations, including
those related to Alaska Star Ventures, are included within the CPA and other
obligations row in the above table.
Income Taxes
For federal income tax purposes, the majority of our property and equipment
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 property
and equipment difference will reverse into taxable income, potentially
resulting in an increase in income taxes payable.
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 and cash
taxes payable in the short term are impacted by many items, including the
amount of book income generated (which can be volatile depending on revenue
and fuel prices, among other factors out of our control), whether bonus
depreciation provisions are available, as well as other legislative changes
beyond our control. We believe we have the liquidity to make our future tax
payments.
Proposed Acquisition of Hawaiian Holdings Inc
.
On December 2, 2023, the Company entered into a definitive agreement to
acquire Hawaiian Holdings, Inc. (Hawaiian). The Company has agreed to pay
Hawaiian's shareholders $18.00 per share, or approximately $1.0 billion, in
cash for the outstanding shares of Hawaiian. In addition, the Company expects
to assume Hawaiian's debt and lease obligations on the date of acquisition.
The acquisition is dependent on approval by various regulatory bodies and
other customary closing conditions. The Company expects to fund this
acquisition through a combination of existing cash and marketable securities,
new debt, as well as other available sources of liquidity.
CRITICAL ACCOUNTING ESTIMATES
There have been no material changes to our critical accounting estimates
during the three and six months ended June 30, 2024. For information regarding
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, 2023.
GLOSSARY OF TERMS
Adjusted net debt -
long-term debt, including current portion, plus capitalized operating and
finance leases, less cash and marketable securities
Adjusted net debt to EBITDAR
- represents net adjusted 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; represents all operating expenses including fuel,
freighter costs, and special items
CASMex
- operating costs excluding fuel, freighter costs, and special items per ASM,
or "unit cost"
Debt-to-capitalization ratio
- represents adjusted debt (long-term debt plus capitalized operating and
finance lease liabilities) divided by total equity plus adjusted debt
Diluted Earnings per Share
- represents earnings per share (EPS) using fully diluted shares outstanding
41
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Diluted Shares
- represents the total number of shares that would be outstanding if all
possible sources of conversion, such as stock options, were exercised
Economic Fuel
- best estimate of the cash cost of fuel, net of the impact of our
fuel-hedging program
Freighter Costs -
operating expenses directly attributable to the operation of Alaska's Boeing
737 freighter aircraft exclusively performing cargo missions
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 A320, and Airbus A321neo jets and all
associated revenue and costs
PRASM
- passenger revenue per ASM, or "passenger unit revenue"
RASM
- operating revenue per ASMs, or "unit revenue"; operating revenue includes
all passenger revenue, freight & mail, Mileage Plan and other ancillary
revenue; represents the average total revenue for flying one seat one mile
Regional
- represents capacity purchased by Alaska from Horizon and SkyWest. Financial
results in this segment include actual on-board passenger revenue, less costs
such as fuel, distribution costs, and payments made to Horizon and SkyWest
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 Air Group 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
42
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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, 2023.
43
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of June 30, 2024, 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, 2024.
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, 2024, 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).
44
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PART II
ITEM 1. LEGAL PROCEEDINGS
See Note 7 to the condensed consolidated financial statements within Part I,
Item 1 of this document for a discussion of the Company's ongoing legal
proceedings.
ITEM 1A. RISK FACTORS
See Part I, Item 1A. "Risk Factors, in our Annual Report on Form 10-K for the
year ended December 31, 2023 for a detailed discussion of risk factors
affecting Alaska Air Group.
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 2024.
Total Number of Average Price Maximum remaining
Shares Purchased Paid per Share dollar value of shares
that can be purchased
under the plan
(in millions)
April 1, 2024 - April 30, 2024 225,427 43.11
May 1, 2024 - May 31, 2024 228,850 42.97
June 1, 2024 - June 30, 2024 208,900 41.07
Total 663,177 $ 42.42 $ 262
The shares were purchased pursuant to a $1 billion repurchase plan authorized
by the Board of Directors in August 2015.
As of June 30, 2024, a total of 1,882,517 shares of the Company's common stock
have been issued to Treasury in connection with the Payroll Support Program.
Each warrant is exercisable at a strike price of $31.61 (928,126 shares
related to PSP1), $52.25 (305,499 shares related to PSP2), and $66.39 (221,812
shares related to PSP3) per share of common stock. An additional 427,080
warrants were issued in conjunction with a draw on the CARES Act Loan in 2020
at a strike price of $31.61. These warrants are non-voting, freely
transferable, may be settled as net shares or in cash at the Company's option,
and have a five-year term. 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"). The warrants were
sold at auction in the second quarter of 2024 to a third party investor.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2024, no director or officer of Alaska
Air Group adopted, modified, or terminated a Rule 10b5-1 trading arrangement
or a non-Rule 10b5-1 trading arrangement, as such terms are defined in Item
408(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934.
45
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ITEM 6. EXHIBITS
The following documents are filed as part of this report:
1.
Exhibits:
See Exhibit Index.
46
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EXHIBIT INDEX
Exhibit Exhibit Form Date of First Filing Exhibit Number
Number Description
3.1 Amended and Restated 10-Q August 3, 2017 3.1
Certificate
of Incorporation
of Registrant
3.2 Amended and Restated 8-K December 15, 2015 3.2
Bylaws of Registrant
10.1# Supplemental Agreement No. 10-Q
24 to Purchase Agreement No.
3866 between the Boeing Company
and Alaska Airlines Inc.
31.1 Certification of Chief 10-Q
Executive Officer Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief 10-Q
Financial Officer Pursuant
to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive 10-Q
Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial 10-Q
Officer Pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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
104 Cover Page Interactive Data File - The cover page
interactive data file does not appear in the
Interactive Data File because its XBRL tags
are embedded within the Inline XBRL document.
Filed herewith
* Indicates management contract or compensatory plan or arrangement.
# Certain portions of this document that
constitute confidential information
have been redacted in accordance
with Regulation S-K Item 601(b)(10).
47
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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.
ALASKA AIR GROUP, INC.
/s/ EMILY HALVERSON
Emily Halverson
Vice President Finance, Controller, and Treasurer
August 2, 2024
48
CERTAIN CONFIDENTIAL PORTIONS HAVE BEEN REDACTED FROM THIS EXHIBIT BECAUSE
THEY ARE BOTH (i) NOT MATERIAL AND (ii) IS THE TYPE THAT THE COMPANY TREATS AS
PRIVATE OR CONFIDENTIAL. INFORMATION THAT HAS BEEN OMITTED HAD BEEN IDENTIFIED
IN THIS DOCUMENT WITH A PLACEHOLDER IDENTIFIED BY THE MARK "[***]".
Supplemental Agreement No. 24
to
Purchase Agreement No. 3866
between
The Boeing Company
and
Alaska Airlines, Inc.
Relating to Boeing Models 737-8, 737-9, and 737-10 Aircraft
THIS SUPPLEMENTAL AGREEMENT NO. 24 (
SA-24
), entered into as of June 25, 2024, is by and between THE BOEING COMPANY (
Boeing
) and ALASKA AIRLINES, INC. (
Customer
) (Boeing and Customer collectively,
Parties
). All capitalized terms used but not defined herein shall have the same
meaning as in the Purchase Agreement.
WHEREAS, the Parties hereto entered into Purchase Agreement No. 3866 dated
October 10, 2012 (as amended and supplemented,
Purchase Agreement
) relating to, among other things, Boeing model 737-8 aircraft (
737-8
Aircraft
), Boeing model 737-9 aircraft (
737-9 Aircraft
) and Boeing model 737-10 aircraft (
737-10 Aircraft
), (collectively,
Aircraft
); and
WHEREAS, Customer and Boeing have agreed to update and amend the Purchase
Agreement to purchase (1) incremental 737-10 Aircraft.
NOW THEREFORE, in consideration of the mutual covenants herein contained, the
Parties agree to amend the Purchase Agreement as follows:
1.
Table of Contents
The "Table of Contents" in the Purchase Agreement is hereby deleted in its
entirety and replaced with the revised Table of Contents, attached hereto and
incorporated into the Purchase Agreement, to reflect the changes made in this
SA-24.
Page 1
BOEING PROPRIETARY
-------------------------------------------------------------------------------
2.
Tables and Supplemental Exhibits.
The Tables and Supplemental Exhibits in the Purchase Agreement are amended as
set forth, to incorporate and reflect the changes made in this SA-24.
1.1
A new Table [ * * * ] "Incremental 737-10 Aircraft" attached hereto is
incorporated into the Purchase Agreement to reflect the addition of one (1)
incremental 737-10 Aircraft and references this SA-24.
1.2
Supplemental Exhibit [ * * * ] in the Purchase Agreement, entitled "Buyer
Furnished Equipment Variables," is hereby deleted in its entirety and replaced
with the revised Supplemental Exhibit [ * * * ], attached hereto and
incorporated into the Purchase Agreement.
1.3
Supplemental Exhibit [ * * * ] in the Purchase Agreement, entitled "Engine
Escalation Engine Warranty and Patent Indemnity," is hereby deleted in its
entirety and replaced with the revised Supplemental Exhibit [ * * * ],
attached hereto and incorporated into the Purchase Agreement.
2.1
Exhibit A-9 in the Purchase Agreement, entitled "Aircraft Configuration 737-10
is hereby deleted in its entirety and replaced with a revised Exhibit A-9
attached hereto.
3.
Letter Agreement.
3.1
Letter Agreement [ * * * ], entitled "Seller Purchased Equipment," is hereby
deleted in its entirety and replaced with a revised Letter Agreement [ * * *
], attached hereto, to incorporate 737-10 aircraft.
3.2
Letter Agreement [ * * * ], entitled "Demonstration Flight Waiver," is hereby
deleted in its entirety and replaced with a revised Letter Agreement [ * * *
], attached hereto, to incorporate 737-10 aircraft.
3.3
Letter Agreement [ * * * ], entitled "AGTA Matters," is hereby deleted in its
entirety and replaced with a revised Letter Agreement [ * * * ], attached
hereto, to incorporate 737-10 aircraft.
3.4
Letter Agreement [ * * * ], entitled "Special Matters" is hereby deleted in
its entirety and replaced with a revised Letter Agreement [ * * * ], attached
hereto, to reflect the addition of (1) incremental 737-10 Aircraft.
3.5
Letter Agreement [ * * * ], entitled "Aircraft Model Substitution" is hereby
deleted in its entirety and replaced with a revised Letter Agreement [ * * *
], attached hereto, to reflect substitution rights for 737-10 Aircraft.
3.6
Letter Agreement [ * * * ], entitled "Liquidated Damages - Non-Excusable
Delay," is hereby deleted in its entirety and replaced with a revised Letter
Agreement [ * * * ], attached hereto, [ * * * ]
P.A. 3866
ASA Page 2
BOEING PROPRIETARY
-------------------------------------------------------------------------------
3.7
Letter Agreement [ * * * ], entitled "Extended Operations (ETOPS) Matters," is
hereby deleted in its entirety and replaced with a revised Letter Agreement [
* * * ], attached hereto, to incorporate 737-10 aircraft.
3.8
Letter Agreement [ * * * ], entitled "Advance Payment Matters" is hereby
deleted in its entirety and replaced with a revised Letter Agreement [ * * *
], attached hereto, to reflect the addition of one (1) incremental 737-10
Aircraft.
3.9
Letter Agreement [ * * * ], entitled "Open Matters - 737-8 and 737-10
Aircraft" is hereby deleted in its entirety and replaced with a revised Letter
Agreement [ * * * ], attached hereto, to reflect current configuration status
related to 737-8 and 737-10 aircraft.
4.
Miscellaneous.
4.1
[ * * * ]
4.2
[ * * * ]
EXECUTED IN DUPLICATE as of the day and year first written above and below.
THE BOEING COMPANY
By
Its Attorney-In-Fact
ACCEPTED AND AGREED TO this
Date:
ALASKA AIRLINES, INC.
By
Its SVP Fleet, Revenue Products and Real Estate
P.A. 3866
ASA Page 3
BOEING PROPRIETARY
EXHIBIT 31.1
CERTIFICATIONS
I, Benito Minicucci, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Alaska Air Group, Inc.
for the period ended June 30, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and we have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
August 2, 2024
By /s/ BENITO MINICUCCI
Benito Minicucci
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, Shane R. Tackett, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Alaska Air Group, Inc.
for the period ended June 30, 2024;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and we have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
a)
All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
August 2, 2024
By /s/ SHANE R. TACKETT
Shane R. Tackett
Executive Vice President/Finance and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alaska Air Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2024 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Benito Minicucci, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
August 2, 2024
By /s/ BENITO MINICUCCI
Benito Minicucci
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alaska Air Group, Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2024 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Shane
R. Tackett, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
August 2, 2024
By /s/ SHANE R. TACKETT
Shane R. Tackett
Executive Vice President/Finance and Chief Financial Officer
{graphic omitted}
{graphic omitted}