Alaska Air Group reports third quarter 2022 results

by Press Release

Delivered adjusted pretax margins of 15.6%;

Recorded record third quarter operating revenue of $2.8 billion;

Finalized new contracts with ALPA, IBT and IAM represented employees

SEATTLE, Oct. 20, 2022 /PRNewswire/ -- Alaska Air Group (NYSE: ALK) today reported financial results for the third quarter ending Sept. 30, 2022, and provided outlook for the fourth quarter ending Dec. 31, 2022.

"I am incredibly proud of our entire team for the strong results they delivered in the third quarter, through the busiest travel season in two years," said Alaska CEO Ben Minicucci. "We ran an industry-leading operation with completion rates over 99% every month. We set a new revenue record and our double-digit pretax margin will likely lead the industry. Alaska and Horizon also ratified three major labor deals. This is a strong foundation that we look forward to building on in 2023."

Financial Results for the Third Quarter:

  • Reported net income for the third quarter of 2022 under Generally Accepted Accounting Principles (GAAP) of $40 million, or $0.31 per share, compared to a net income of $194 million, or $1.53 per share, in the third quarter of 2021.
  • Reported net income for the third quarter of 2022, excluding special items and mark-to-market fuel hedge accounting adjustments, of $325 million, or $2.53 per share, compared to a net income, excluding special items and mark-to-market fuel hedge accounting adjustments, of $187 million, or $1.47 per share, in the third quarter of 2021.
  • Recorded $2.8 billion in operating revenues for the third quarter, the highest revenue-generating quarter in company history.
  • Generated RASM in the third quarter of 2022 26.8% above the third quarter 2019 result, driven by strong pricing, a robust demand environment and the execution of our commercial roadmap.
  • Reported adjusted pretax margin for the third quarter of 15.6%.

Balance Sheet and Liquidity:

  • Held $3.2 billion in unrestricted cash and marketable securities as of Sept. 30, 2022.
  • Maintained a debt-to-capitalization ratio of 49% as of Sept. 30, 2022, within the target range of 40% to 50%.
  • Generated $174 million in operating cash flow for the third quarter.

Operational Updates and Milestones:

  • First major carrier to ratify a new labor agreement with mainline pilots, recognizing Alaska's more than 3,300 ALPA-represented employees for their contributions to the company's success.
  • Ratified a pilot retention agreement in September with 700 Horizon Air pilots represented by the IBT.
  • Ratified a two-year contract extension in August with nearly 5,700 Alaska Airlines employees represented by the IAM.
  • Delivered an excellent operation, with 99% completion rates for both mainline and regional for the quarter.
  • Received five Boeing 737-9 aircraft in the third quarter, bringing the total number of 737-9s in our mainline fleet to 33.
  • Retired six Airbus A320 aircraft and nine Q400 aircraft during the quarter, progressing on our transition to single fleets. By the end of January 2023, the remaining 23 A320 aircraft and 22 Q400 aircraft are expected to be retired.
  • Began retrofit project for the 737-800 fleet to refresh interiors and add three main cabin seats.
  • Announced new nonstop service between Everett's Paine Field and Anchorage starting in November 2022.

Awards and Recognition:

  • Mileage Plan ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the eighth consecutive year.
  • Named to Forbes' America's Best Employers for Women list, receiving the highest ranking of all airlines.
  • Named for the second year in a row to Newsweek's list of America's Best Customer Service.
  • Recognized by Fast Company as one of the Best Workplaces for Innovators.

Environmental, Social and Governance Updates:

  • Signed agreement with Gevo Inc. to purchase 185 million gallons of sustainable aviation fuel (SAF) over five years beginning in 2026.
  • Launched a new SAF initiative in partnership with Microsoft, Boeing and Washington State University to expand the use of SAF and increase education on sustainable travel topics.
  • Donated funds and miles to multiple organizations assisting disaster relief and recovery in Alaska, Florida and Puerto Rico.

The following table reconciles the company's reported GAAP net income per share (EPS) for the three and nine months ended Sept. 30, 2022, and 2021 to adjusted amounts.

Three Months Ended September 30,

2022

2021

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income per share

$                 40

$              0.31

$               194

$              1.53

Mark-to-market fuel hedge adjustments

131

1.02

—

—

Special items - fleet transition(a)

155

1.21

(9)

(0.07)

Special items - labor ratification bonus(b)

90

0.70

—

—

Income tax effect of reconciling items above

(91)

(0.71)

2

0.01

Non-GAAP adjusted net income per share

$               325

$              2.53

$               187

$              1.47

Nine Months Ended September 30,

2022

2021

(in millions, except per-share amounts)

Dollars

Diluted EPS

Dollars

Diluted EPS

GAAP net income per share

$                 36

$              0.28

$               460

$              3.64

Payroll support program grant wage offset

—

—

(914)

(7.24)

Mark-to-market fuel hedge adjustments

64

0.50

(68)

(0.54)

Special items - fleet transition(a)

376

2.94

5

0.04

Special items - labor ratification bonus(b)

90

0.70

—

—

Special items - restructuring(c)

—

—

(12)

(0.09)

Income tax effect of reconciling items above

(128)

(1.00)

242

1.92

Non-GAAP adjusted net income (loss) per share

$               438

$              3.42

$             (287)

$            (2.27)

(a)    Special items - fleet transition in the three and nine months ended September 30, 2022 is primarily for impairment charges and accelerated costs associated with the retirement of the A320 and Q400 fleets by January 2023.

(b)   Special items - labor ratification bonus in the three and nine months ended September 30, 2022 is comprised of a one-time payment to Alaska pilots following ratification of a new collective bargaining agreement.

(c)   Special items - restructuring in the nine months ended September 30, 2021 is related to the estimated costs for pilot incentive leaves.  

Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.

Alaska will hold its quarterly conference call to discuss third quarter results at 8:30 a.m. PDT on Oct. 20, 2022. A webcast of the call is available to the public at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the call.

Fourth Quarter 2022 Forecast Information

 

Q4 Expectation(a)

Capacity (ASMs) % change versus 2019(a)

Down 7% to 10%

Passenger load factor

83% to 86%

Total revenue % change versus 2019(a)

Up 12% to 15%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2019(a)

Up 20% to 23%

Economic fuel cost per gallon

$3.50 to $3.70

Non-operating expense (benefit)

 

 

($3M) to ($5M)

Full Year 2022 Forecast Information

 

Full Year Expectation(a)

Prior Full Year Expectation(b)

Capacity (ASMs) % change versus 2019

Down 8% to 9%

Down 8% to 9%

Cost per ASM excluding fuel and special items (CASMex) % change versus 2019

Up 19% to 20%

Up 15% to 17%

Adjusted Pre-tax margin

6% to 9%

6% to 9%

Capital Expenditures

~$1.5 billion

$1.6 billion to $1.7 billion

(a)    Due to the unusual nature of 2021 and 2020, all 2022 comparisons are versus the comparable period in 2019.

(b)    As filed on July 21, 2022.

For full year 2022, we continue to expect capacity down 8% to 9% as we prioritize our transition to single fleet and operational reliability. For the same period we expect CASMex to be up 19% to 20%, now reflecting the impacts of our three newly ratified labor agreements. Despite the impact of elevated fuel and new labor deals, we still expect to deliver a full year adjusted pre-tax margin of 6% to 9%.

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