EX-99.1 2 ex99_1.htm EXHIBIT 99.1 ex99_1.htm
Exhibit 99.1
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Investor Update – June 23, 2008

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This report includes information regarding forecasts of available seat miles (ASMs), cost per available seat mile (CASM) excluding fuel and special charges, capital expenditures, and fleet information, as well as certain actual results for revenue passenger miles (RPMs), load factor and revenue per available seat mile (RASM), for our subsidiaries Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon).  Our disclosure of operating cost per available seat mile, excluding fuel and special charges, provides us the ability to measure and monitor our performance without these items.  The most directly comparable GAAP measure is total operating expense per available seat mile.  However, due to the large fluctuations in fuel prices, we are unable to predict total operating expense for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

We are providing unaudited information about fuel price movements and the impact of our hedging program on our financial results.  Management believes it is useful to compare results between periods on an “economic basis.” Economic fuel expense is defined as the raw or “into-plane” fuel cost less the cash we receive from hedge counterparties for hedges that settle during the period, offset by the premium expense that we recognize.  Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.


Forward-Looking Information
 
This update contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements.  For a comprehensive discussion of potential risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.   Some of these risks include increased competition, significant fuel costs, general economic conditions, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes.  All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.
 
 
1
 
 
ALASKA AIRLINES – MAINLINE


May 2008 Statistics
                         
   
May
2008
    
Change
Y-O-Y
    
QTD
2008
    
Change
Y-O-Y
  
Capacity (ASMs in millions)
   2,078     1.3%     4,114    
2.3%
  
Traffic (RPMs in millions)
   1,617     2.2%     3,184     2.8%  
Revenue passengers (000s)
   1,472     (4.0)%     2,887     (3.2)%  
Load factor*
   77.8%    
0.7 pts
   77.4%    
1.0 pt
RASM (cents)
   11.64     1.7%     11.48     0.2%  
Passenger RASM (cents)
   10.63     1.3%     10.49     0.4%  
Raw fuel cost ($ in millions)
   $109.6     65.6%     $208.2     64.5%  
Raw fuel cost/gal.
   $3.79     71.0%   $3.65     69.0%  
Economic fuel expense ($ in millions)
   $93.6     44.2%     $180.7     45.9%  
Economic fuel expense/gal.
   $3.24     49.1%     $3.17     49.9%  
*percentage of available seats occupied by fare-paying passengers

Advance Bookings
 
       
 
June
July
August
Point Change Y-O-Y
-3 pts
-4 pts
+2 pts
       

Forecast Information
                         
   
Forecast
Q2 2008
    
Change
Y-O-Y
    
Forecast
FY 2008
    
Change
Y-O-Y
  
                             
Capacity (ASMs in millions)
  
6,200
      
1.2%
    
24,500
      
1.2%
  
                             
Unit Costs:
                            
Cost per ASM on a GAAP basis (cents)*
  
11.5 – 11.6
      
11% – 12%
    
N/A
      
N/A
  
Less: Fuel cost per ASM (cents)*
  
3.5
      
11%
    
N/A
      
N/A
  
Less: Fleet transition charges (cents)
  
0.5
      
N/A
    
N/A
      
N/A
  
Cost per ASM excluding fuel and fleet transition charges (cents)*
  
7.5 –7.6
      
3%-5%
    
7.5
      
–
  
                             
Fuel Gallons (000,000)
  
87
      
(3)%
    
340
      
(4)%
  
Economic fuel cost per gallon**
  
$3.29
      
54%
    
N/A
      
N/A
  
*For Alaska, our forecasts of mainline cost per ASM and fuel cost per ASM are based on forward-looking estimates, which will likely differ from actual results due to several factors including, but not limited to, the volatility of fuel prices. Fuel cost per ASM above includes our estimate of raw fuel cost for the second quarter and the actual favorable adjustments to the value of our fuel-hedging portfolio in April and May. Our economic fuel cost per ASM will likely be different than the amount presented here.

**Because of the volatility of fuel prices, actual amounts may differ significantly.  We are unable to forecast economic fuel cost per gallon for fiscal 2008.

Fleet Transition Charges Expected in Second Quarter
As disclosed previously, Alaska has four MD-80 aircraft under long-term leases.  As these aircraft cease operating, we will have charges reflecting the aggregate lease payments remaining under the lease terms.  During the second quarter, two of these aircraft were retired and were placed in a long-term storage facility.  As a result, we expect to record a second quarter fleet transition charge of approximately $30 million.  We also expect similar charges in the third quarter when we retire the remaining two MD-80s under long-term leases.
 
2
 
ALASKA – PURCHASED CAPACITY

Alaska has Capacity Purchase Agreements (CPA) with Horizon for certain routes and a third party that provides service between Anchorage and Dutch Harbor, AK.

May 2008 Statistics
The following data represents only the Horizon CPA flying as that flying represents approximately 95% of the total purchased capacity.
                         
   
May
2008
    
Change
Y-O-Y
    
QTD
2008
    
Change
Y-O-Y
  
Capacity (ASMs in millions)
  
129
    
13.4%
    
245
    
11.3%
  
Traffic (RPMs in millions)
  
99
    
12.6%
    
186
    
9.8%
  
Load factor*
  
76.9%
  
 
(0.5)pts 
 
  
75.7%
    
(1.1)pts 
 
Passenger RASM (cents)
  
19.29
    
(1.2)%
    
18.80
    
(1.5)%
  
  *Percentage of available seats occupied by fare-paying passengers

Advance Bookings
       
 
June
July
August
Point Change Y-O-Y
-3 pts
-3 pts
+2 pts
       

Forecast Information (Horizon CPA)
                         
   
Forecast
Q2 2008
    
Change
Y-O-Y
    
Forecast
FY 2008
    
Change
Y-O-Y
  
Capacity (ASMs in millions)
  
370
    
14%
    
1,430
    
5%
  
Cost per ASM (cents)*
  
21.6
    
flat
    
21.9
    
3%
  
* Costs associated with the Horizon CPA agreement are eliminated in consolidation

 
3
 
 
HORIZON AIR

May 2008 Statistics
                         
   
May
2008
    
Change
Y-O-Y
    
QTD
2008
    
Change
Y-O-Y
  
Capacity (ASMs in millions)
   318     (3.0)%     625     (3.4)%  
Traffic (RPMs in millions)
   234     (3.7)%     447     (5.3)%  
Revenue passengers (000s)
   647     0.0%     1,236     0.1  
Load factor*
   73.6%    
(0.6) pts
   71.4%    
(1.5)pts
System RASM (cents)
   19.90     9.2%     19.30     8.3%  
Raw fuel cost ($ in millions)
   $22.7     90.0%     $42.7     85.0%  
Raw fuel cost/gal.
   $3.92     71.0%     $3.75     67.0%  
Economic fuel expense ($ in millions)
   $19.5     66.0%     $37.1     64.2%  
Economic fuel expense/gal.
   $3.35     49.3%     $3.26     48.0%  
*percentage of available seats occupied by fare-paying passengers

Line-of-Business Information
Horizon’s information for line-of-business traffic and revenue information is presented below.  In CPA arrangements, Horizon is (or was, as was the case with the Frontier CPA which ended in November 2007) insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity.  As a result, yield and load factor information is not presented.  Horizon bears the revenue risk in its brand flying markets. Revenue from the Alaska CPA is eliminated in consolidation.

May 2008
   
Capacity Mix
    
Load Factor
      
Yield
    
RASM
  
 
 
Actual
(000s)
    
Change
Y-O-Y
    
Current % Total
    
Actual
  
Point change
Y-O-Y
      
Actual
    
Change
Y-O-Y
    
Actual
    
Change
Y-O-Y
  
Brand Flying
   189     14.8%       59%     71.4%  
(2.4)pts
       26.19¢     (0.0)%     19.15¢     (3.2)%  
Alaska CPA
   129     13.4%       41%    
NM
  
NM
      
NM
    
NM
     20.99¢     0.7%  
Frontier CPA
   –     (100.0)%       –%    
NM
  
NM
      
NM
    
NM
     –    
NM
  
System Total
   318     (3.0)%       100%     73.6%  
(0.6)pts
       26.67¢     9.8%     19.90¢     9.2%  

NM = Not Meaningful

QTD 2008
   
Capacity Mix
    
Load Factor
  
Yield
    
RASM
  
   
Actual
(000s)
    
Change
Y-O-Y
    
Current
% Total
    
Actual
    
Point change
Y-O-Y
  
Actual
    
Change
Y-O-Y
    
Actual
    
Change
Y-O-Y
  
Brand Flying
   380     16.5%     61%     68.6%     (3.5)pts   25.97¢     (0.6)%     18.27¢     (5.3)%  
Alaska CPA
   245     11.3%     39%    
NM
    
NM
  
NM
    
NM
     20.89¢     1.0%  
Frontier CPA
   –     (100.0)%     –%    
NM
    
NM
  
NM
    
NM
     –    
NM
  
System Total
   625     (3.4)%     100%     71.4%     (1.5)pts   26.65¢     10.3%     19.30¢     8.3  

NM = Not Meaningful


Advance Bookings – Brand Flying Only
       
 
June
July
August
Point Change Y-O-Y
-4 pts
-1 pt
+2 pts
       

 
4
 
 
HORIZON AIR - (continued)

Forecast Information
                         
   
Forecast
Q2 2008
    
Change
Y-O-Y
    
Forecast
FY 2008
    
Change
Y-O-Y
  
                         
Capacity (ASMs in millions)
  
935 - 940
    
(3)% – (4)%
    
3,620
    
(9)%
  
 
                       
Unit Costs
                        
Cost per ASM on a GAAP basis (cents)*
  
19.4-19.5
    
4% – 5%
    
N/A
    
N/A
  
Less: Fuel cost per ASM (cents)*
  
4.5
    
29%
    
N/A
    
N/A
  
Cost per ASM excluding fuel (cents)*
  
14.9-15.0
    
flat – (1)%
    
14.9 – 15.0
    
2% – 3%
  
   
 
                    
Fuel Gallons (000,000)**
  
18
    
16%
    
68
    
5%
  
Economic fuel cost per gallon***
  
$3.35
    
52%
    
N/A
    
N/A
  
* For Horizon, our forecasts of cost per ASM and fuel cost per ASM are based on forward-looking estimates, which will likely differ significantly from actual results. There are several factors impacting our estimates including, but not limited to, the volatility of fuel prices. Fuel cost per ASM above includes our estimate of raw fuel cost for the second quarter and the actual favorable adjustments to the value of our fuel-hedging portfolio in April and May. We expect that our economic fuel cost per ASM will be lower.

Horizon’s CASM includes the expected loss on the sublease of Q200 aircraft to a third party.  We expect the loss will be approximately $3 million in the second quarter of 2008 as we have delivered the final two Q200s to the third party under the existing sublease agreement.
 
**Horizon’s fuel consumption now includes fuel that was formerly purchased by Frontier as part of the Frontier CPA agreement.

***Because of the volatility of fuel prices, actual amounts may differ significantly.  We are unable to forecast economic fuel cost per gallon for fiscal 2008.
 
Fleet Transition Charges Expected in Second Quarter

Horizon’s unit cost guidance does not yet include any impact from our recent decision to retire the CRJ-700 fleet earlier than expected.  As previously disclosed in our Form 8-K dated April 24, 2008, we expect to record an impairment charge in the second quarter on the two owned CRJ-700 aircraft.  The final amount of this charge has not yet been determined. In addition, we expected to revise the salvage values and estimated useful lives of the two owned CRJ-700 aircraft and the related spare parts as well as spare parts associated with the remaining Q200 fleet, which we now plan to remove from service by the end of 2008. These changes in estimate could result in a change to operating expenses not reflected in the forecast above as the impact has not yet been quantified.
 
 
5
 
 
AIR GROUP

Future Fuel Hedge Positions
             
   
Approximate % of Expected
Fuel Requirements
    
Approximate Crude Oil
Price per Barrel
  
Second Quarter 2008
  
50%
    
$73
  
Third Quarter 2008
  
50%
    
$78
  
Fourth Quarter 2008
  
50%
    
$77
  
Remainder of 2008
  
50%
    
$76
  
First Quarter 2009
  
33%
    
$101
  
Second Quarter 2009
  
33%
    
$105
  
Third Quarter 2009
  
25%
    
$107
  
Fourth Quarter 2009
  
20%
    
$105
  
Full Year 2009
  
28%
    
$104
  
First Quarter 2010
  
10%
 
  
$121
  
Second Quarter 2010
  
8%
    
$120
  
Third Quarter 2010
  
5%
    
$120
  
Fourth Quarter 2010
  
5%
    
$120
  
Full Year 2010
  
7%
    
$120
  

Cash and Share Count
 
(in millions)
  
May 31,
 2008
    
December 31,
 2007
  
Cash and marketable securities
   $
990
     $
823
  
Common shares outstanding
    
35.973
      
38.051
  

The Company does not have any auction-rate securities in its investment portfolio.


Capital Expenditures
Total capital expenditures for 2008 are expected to be as follows (in millions):

   
Total 2008 Estimate
  
   
Aircraft-related
    
Non-aircraft
    
Total
  
Alaska
   $ 390     $ 75     $ 465  
Horizon
     100       5       105  
Total Air Group
   $ 490     $ 80     $ 570  


Firm Aircraft Commitments
                               
   
2008
    
2009
    
2010
    
Thereafter
    
Total
  
Alaska (B737-800)
  
  17*
    
 6
      
6
      
3
    
32*
  
Horizon (Q-400)
  
  4
    
11
      
-
      
-
    
15
  
Totals
  
21
    
17
    
 
6
      
3
    
47
  
 
* includes one operating lease arrangement

In addition to the firm orders noted above, Alaska has options to acquire 45 additional B737-800s and Horizon has options to acquire 20 Q400s.

 
6
 
 
AIR GROUP – (continued)
 
Projected Fleet Count

           
Actual Fleet Count
    
Expected Fleet Activity
  
                             
Changes by Quarter
                    
Alaska
    
Seats
    
Dec. 31,
2006
    
Dec. 31,
2007
    
Mar. 31, 2008
    
Q2
    
Q3
    
Q4
    
Dec. 31,
 2008
    
2009
Changes
    
Dec. 31,
2009
  
737-200
    
  —
    
  2
    
 —
    
 —
    
—
    
—
    
—
 
  
—
    
—
    
 —
  
737-400F*
    
  —
    
  1
    
    1
    
    1
    
—
    
—
    
—
 
  
1
    
—
    
    1
  
737-400C*
    
  72
    
—
    
    5
    
    5
    
—
    
—
    
—
    
5
    
—
    
    5
 
737-400
    
144
    
39
    
  34
    
  34
    
—
    
—
    
(2)
    
32
    
  (4)
    
  28
 
737-700
    
124
    
22
    
  20
    
  20
    
—
    
—
    
—
    
20
    
  (1)
    
  19
  
737-800
    
157
    
15
    
  29
    
  33
    
  3
    
5
    
5
    
46
    
  6
    
  52
  
737-900
    
172
    
12
    
  12
    
  12
    
—
    
—
    
—
    
12
    
—
    
  12
  
MD-80
    
140
    
23
    
  14
    
  10
    
 (3)
    
(7)
    
—
    
—
    
—
    
 —
  
Totals
          
114
    
115
    
115
    
—
    
(2)
    
3
    
116
    
   1
 
  
117
  
 
                    
           
Actual Fleet Count
    
Expected Fleet Activity
  
                             
Changes by Quarter
                    
Horizon
    
Seats
    
Dec. 31,
2006
    
Dec. 31,
2007
    
Mar. 31, 2008
    
Q2
    
Q3
    
Q4
    
Dec. 31,
2008
    
2009
Changes
    
Dec. 31,
2009
  
Q200
            37     28     16     13     (2)     (4)     (7)    
—
    
—
    
—
  
Q400
      74-76     20     33     33       1    
—
     3     37     11    
48
  
CRJ-700**
           70     21     21     20    
—
     (1)     (1)     18     (18)    
—
  
Totals
           69     70     66     (1)     (5)     (5)     55       (7)     48  

*F=Freighter; C=Combination freighter/passenger
** The planned CRJ fleet at December 31, 2008 and 2009 is likely to change as we finalize the fleet exit plan.
 

7