EX-99.1 2 dex991.htm INVESTOR UPDATE Investor Update

Exhibit 99.1

LOGO

Investor Update – April 9, 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 consumption, 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, 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.

 

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  ALASKA AIRLINES – MAINLINE

   March 2008 Statistics

         
     March 2008      Change

Y-O-Y

      Q1

2008

      Change

Y-O-Y

Capacity (ASMs in millions)

    2,099      5.2%      6,084      6.8%

Traffic (RPMs in millions)

    1,696      10.7%      4,526      11.3%

Revenue passengers (000s)

    1,537      6.1%      4,080      5.6%

Load factor*

    80.8%      4.0pts      74.4%      3.0pts

    *percentage of available seats occupied by fare-paying passengers

Revenue and fuel expense information is not yet available for March. See the Investor Update included in our Form 8-K/A dated March 25, 2008 for quarter-to-date revenue and fuel information through February 2008.

   Forecast Information

    

 

Forecast

Q1 2008

     

Change

Y-O-Y

Unit Costs:

          

    Cost per ASM on a GAAP basis (cents)*

    11.4 – 11.5      8% - 9%

    Less: Fuel cost per ASM (cents)*

    3.8      36%

    Cost per ASM excluding fuel (cents)*

    7.6 – 7.7      (1% - 3%)
   

Fuel Gallons (in millions)

    87.0      3%

Economic fuel cost per gallon**

    $2.73      40%

*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 first quarter and the actual adjustments to the value of our fuel-hedging portfolio in the first quarter. 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.

 

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  ALASKA – PURCHASED CAPACITY

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

   March 2008 Statistics (Horizon CPA)

         
     March 2008     

Change

Y-O-Y

      Q1

2008

      Change

Y-O-Y

Capacity (ASMs in millions)

    123      12.8%      344      15.9%

Traffic (RPMs in millions)

    96      20.3%      256      22.5%

Load factor*

    78.5%      5.0 pts      74.4%      4.1 pts

  *Percentage of available seats occupied by fare-paying passengers

Revenue information is not yet available for March. See the Investor Update included in the Form 8-K/A dated March 25, 2008 for quarter-to-date revenue information through February 2008.

The March 2008 statistics reflect the Horizon CPA flying only as that flying represents approximately 95% of the total purchased capacity. The ASMs and RPMs shown in the statistics table are included in Horizon’s system totals.

   Forecast Information (Horizon CPA and Dutch Harbor CPA)

     
    

Forecast

Q1 2008

     

Change

Y-O-Y

Capacity (ASMs in millions)

    360      14%

Cost per ASM (cents)*

    21.0-21.2      (1%-2%)

  * The operating data above includes capacity under the CPA with Horizon. Costs associated with this agreement are eliminated in consolidation

 

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  HORIZON AIR

   March 2008 Statistics

     

 

    March    
2008

   

    Change    

Y-O-Y

   

    Q1    

2008

   

    Change    

Y-O-Y

Capacity (ASMs in millions)

    327        (0.5%)        942        1.8%    

Traffic (RPMs in millions)

    241        3.5%        658        5.0%    

Revenue passengers (000s)

    660        11.0%        1,852        15.1%    

Load factor*

    73.8%        2.9 pts        69.9%        2.1pts    

  *percentage of available seats occupied by fare-paying passengers

Revenue and fuel expense information is not yet available for March. See the Investor Update included in the Form 8-K/A dated March 25, 2008 for quarter-to-date revenue and fuel information through February 2008.

Line-of-Business Information

Horizon’s capacity mix and load factor information by line-of-business for the first quarter is presented below.

First Quarter 2008

     Capacity Mix    Load Factor
    

Actual ASMs

(in millions)

   

Change

Y-O-Y

    Current
% Total		    Actual   

 

Point change

Y-O-Y

Brand Flying

    598    29.0%    65%    67.2%    0.1    pt

Alaska CPA

    344    15.9%    35%            NM            —    —

Frontier CPA

    —    (100.0)%    —%    NM    —    —

System Total

   

 

942

   

 

1.8%

   

 

100%

   

 

69.9%

   

 

2.1

   

 

pts

    NM = Not Meaningful

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, CPA 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.

March revenue information is not yet available. See the Investor Update included in the Form 8-K/A dated March 25, 2008 for quarter-to-date revenue information through February 2008.

 

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  HORIZON AIR - (continued)

   Forecast Information

     

 

    Forecast    

Q1 2008

     

    Change    

Y-O-Y

Unit Costs

          

    Cost per ASM on a GAAP basis (cents)*

    20.2-20.3      10-11%

    Less: Fuel cost per ASM (cents)*

    4.9      65%

    Cost per ASM excluding fuel (cents)*

    15.3-15.4      —
   

Fuel Gallons (in million)**

    17.8      22%

Economic fuel cost per gallon***

    $2.78      38%

*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 first quarter and the actual adjustments to the value of our fuel-hedging portfolio in the first quarter. 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 $6 million in the first quarter of 2008 as we deliver three of the remaining five 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.

 

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  AIR GROUP

  Future Fuel Hedge Positions

 

     Approximate % of Expected

Fuel Requirements

      Approximate Crude Oil

Price per Barrel

  First Quarter 2008

    50%      $66.88

  Second Quarter 2008

    50%      $72.60

  Third Quarter 2008

    50%      $78.03

  Fourth Quarter 2008

    50%      $76.74

  Full Year 2008

    50%      $73.72
   

  First Quarter 2009

    16%      $83.97

  Second Quarter 2009

    16%      $82.90

  Third Quarter 2009

    12%      $82.95

  Fourth Quarter 2009

    10%      $82.08

  Full Year 2009

    13%      $83.07

Cash and Share Count

 

(in millions)

            March 31,        
2008		            December 31,        
2007

  Cash and marketable securities

    $918    $823

  Common shares outstanding

    36.425    38.051

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

Share Repurchase Program

The Company completed its $100 million common stock repurchase program on February 29, 2008. Under that program, the Company repurchased 4,113,782 shares, or 10 percent of the outstanding stock at the start of the program, at an average price of $24.31 per share.

On March 13, 2008, the Company announced a new $50 million common stock repurchase program. Through April 8, 2008, the Company had repurchased 313,000 shares of its common stock for approximately $6.1 million under this new program.

Capital Expenditures

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

 

     Alaska      Horizon      Air Group      

   Aircraft -related

    $390      $100      $490

   Non aircraft-related

        75            5          80

   Totals

    $465      $105      $570

Firm Aircraft Commitments

 

     2008    2009      2010      Thereafter      Total

   Alaska (B737-800)

    17*      6      6      3      32

   Horizon (Q-400)

      3      12      -      -      15

   Totals

    20      18      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.

 

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  AIR GROUP – (continued)

  Projected Fleet Count

 

             
                     Change by Quarter     

Alaska

      Seats        Actual    

31-Dec-06    

    Actual    

31-Dec-07    

    Actual    

31-Mar-08    

     

Q2

      Q3      Q4    Planned
31-Dec-08

737-200

        —        2      —      —      —      —      —      —

737-400F*

        —        1        1        1      —      —      —        1

737-400C*

        72      —        5        5      —      —      —        5

737-400

      144      39      34      34      —      —      (2)      32

737-700

      124      22      20      20      —      —      —      20

737-800

      157      15      29      33      3      5      5      46

737-900

      172      12      12      12      —      —      —      12

MD-80

      140      23      14      10      (3)      (7)      —      —

Totals

           114    115    115      —      (2)      3    116
   
                     Change by Quarter     

Horizon

      Seats        Actual    

31-Dec-06    

    Actual    

31-Dec-07    

    Actual    

31-Mar-08    

      Q2      Q3     

Q4

    Planned
31-Dec-08

Q200

      37    28    16    13      (1)      (1)      (2)      9

Q400

      74-76    20    33    33      —      —        3    36

CRJ-700

      70    21    21    20      —      —      —    20

Totals

           69    70    66      (1)      (1)        1    65

*F=Freighter; C=Combination freighter/passenger

 

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