EX-99.1 2 dex991.htm INVESTOR UPDATE Investor Update

Exhibit 99.1

LOGO

Investor Update – February 25, 2009

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

This update includes forecasted operational and financial information for our subsidiaries Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon). Our disclosure of operating cost per available seat mile, excluding fuel and other items, provides us (and may provide investors) with the ability to measure and monitor our performance without these items. The most directly comparable GAAP measure is total operating expense per available seat mile. However, due to the large fluctuations in fuel prices, we are unable to predict total operating expense for any future period with any degree of certainty. In addition, we believe the disclosure of fuel expense on an economic basis is useful to investors in evaluating our ongoing operational performance. Please see the cautionary statement under “Forward-Looking Information.”

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

Forward-Looking Information

This update contains forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Some of these risks include current economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our significant indebtedness, inability to meet cost reduction goals, terrorist attacks, seasonal fluctuations in our financial results, an aircraft accident, laws and regulations, and government fees and taxes. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

 

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  ALASKA AIRLINES – MAINLINE

   January 2009 Statistics

     
         January    

2009

  

 

       Change    

Y-O-Y

Capacity (ASMs in millions)

    1,877     (8.4)%

Traffic (RPMs in millions)

    1,345     (4.7)%

Revenue passengers (000s)

    1,133     (9.7)%

Load factor*

    71.7 %   2.8 pts

RASM (cents)

    10.54     6.4%

Passenger RASM (cents)

    9.53     5.1%

Raw fuel cost/gal.

    $1.71     (40.2)%

Economic fuel expense/gal.

    $2.00     (23.9)%

*percentage of available seats occupied by fare-paying passengers

   Changes in Advance Booked Load Factors

       
            February                March               April      
Point Change Y-O-Y    -0.5 pts    -3.5 pts*   +1.5 pts*

    * The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings.

   Forecast Information

         Forecast    

    Q1 2009    

        Change    

Y-O-Y

        Forecast    

    Full Year 2009    

        Change    

Y-O-Y

   

Capacity (ASMs in millions)

    5,450–5,500    (10)%    22,500    (7)%

Cost per ASM excluding fuel (cents)*

    8.3 – 8.4    10% – 11%    8.1    8%
   

Fuel Gallons (000,000)

    74    (14)%    310    (7)%

Economic fuel cost per gallon**

    $1.97    (28)%    **    **

*For Alaska, our forecasts of mainline cost per ASM excluding fuel, restructuring charges and fleet transition costs is based on forward-looking estimates, which will likely differ from actual results.

**Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. The first-quarter forecast assumes an average $45-per-barrel price of oil, a refinery margin of 46 cents per gallon, and a net hedge cost of 30 cents per gallon. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.

 

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  ALASKA – PURCHASED CAPACITY

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

   January 2009 Statistics

The following data represents only the Horizon CPA flying as that flying represents approximately 95% of the total purchased capacity.

     
         January    

2009

        Change    

Y-O-Y

   

Capacity (ASMs in millions)

    101    (13.2)%

Traffic (RPMs in millions)

    65    (18.2)%

Load factor*

    64.9%    (10.3)pts

Passenger RASM (cents)

    18.99    6.2%

  *Percentage of available seats occupied by fare-paying passengers

   Changes in Advance Booked Load Factors

       
            February                March                April      
Point Change Y-O-Y    -7.5 pts    -9.5 pts    -2.5 pts

  * The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings.

   Forecast Information (Horizon CPA)

         
         Forecast    

    Q1 2009    

        Change    

    Y-O-Y    

        Forecast    

    Full Year 2009    

        Change    

    Y-O-Y    

Capacity (ASMs in millions)

    300    (13)%    1,300    (7)%

Cost per ASM (cents)*

    20.3 – 20.4    (3)% – (4)%    20.5 – 20.6    (4)%

* Costs associated with the Horizon CPA agreement represent the amount paid by Alaska to Horizon for operating costs plus a specified profit margin and are eliminated in consolidation.

 

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  HORIZON AIR

  January 2009 Statistics

     

January

2009

   

    Change    

Y-O-Y

Capacity (ASMs in millions)

    265    (16.4)%

Traffic (RPMs in millions)

    167    (18.5)%

Revenue passengers (000s)

    501    (14.5)%

Load factor*

    63.1%    (1.6) pts

System RASM (cents)

    18.73    4.3%

Raw fuel cost/gal.

    $1.66    (43.2)%

Economic fuel expense/gal.

    $1.95    (27.8)%

  *percentage of available seats occupied by fare-paying passengers

Line-of-Business Information

Horizon’s line-of-business traffic and revenue information is presented below. In CPA arrangements, Horizon is insulated from market revenue factors and is guaranteed contractual revenue amounts based on operational capacity. As a result, yield and load factor information is not presented. Horizon bears the revenue risk in its brand flying markets. Revenue from the Alaska CPA is eliminated in consolidation.

January 2009

     Capacity Mix      Load Factor      Yield      RASM
     Actual
(000s)		   

Change

Y-O-Y

    Current
% Total		      Actual   

Change

Y-O-Y

      Actual   

Change

Y-O-Y

      Actual    Change
Y-O-Y

  Brand

    164    (18.2)%    62%      62.0%    (0.3)   pts      28.74¢    11.6%      18.30¢    11.4%

  Alaska CPA

    101    (13.2)%    38%      NM            NM          NM    NM      19.43¢    (5.6)%

  Total

   

 

265

    (16.4)%    100%      63.1%    (1.6)   pts      29.21¢    6.7%      18.73¢    4.3%

    NM = Not Meaningful

  Changes in Advance Booked Load Factors – Brand Flying Only

     

 

      February      

          March                April      

Point Change Y-O-Y

    -3.0 pts    -5.0 pts    +1.0 pt

*The Easter holiday is in April this year, but was in March 2008. This shift is negatively impacting March advance bookings and positively impacting April advance bookings.

   Forecast Information

     

  Forecast  

Q1 2009

   

  Change  

Y-O-Y

   

  Forecast  

Full Year 2009

   

  Change  

Y-O-Y

Capacity (ASMs in millions)

    790 – 800    (15)% – (16)%    3,250 –3,350    (8)% – (10)%
   

Cost per ASM excluding fuel and CRJ-700 fleet transition charges (cents)*

    16.0 –16.1    6% – 7%    15.3 – 15.4    5% – 6%
   

Fuel gallons (in millions)

    15    (15)%    63    (6)%

Economic fuel cost per gallon**

    $1.97    (29)%    **    **

*For Horizon, our forecast of cost per ASM excluding fuel is based on forward-looking estimates, which will likely differ significantly from actual results.

**Because of the volatility of fuel prices, actual amounts may differ significantly from our estimates. The first-quarter forecast assumes an average $45-per-barrel price of oil, a refinery margin of 46 cents per gallon, and a net hedge cost of 30 cents per gallon. Because of the unpredictable nature of oil prices, our full-year 2009 forecast is not meaningful at this time.

 

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  AIR GROUP

  Future Fuel Hedge Positions*

 

     Approximate % of Expected

Fuel Requirements

    Approximate Crude Oil

Price per Barrel

  First Quarter 2009

    50%    $81

  Second Quarter 2009

    50%    $71

  Third Quarter 2009

    50%    $76

  Fourth Quarter 2009

    50%    $76

    Full Year 2009

    50%    $76
   

  First Quarter 2010

    42%    $68

  Second Quarter 2010

    38%    $68

  Third Quarter 2010

    29%    $67

  Fourth Quarter 2010

    24%    $78

    Full Year 2010

    33%    $70
   

  First Quarter 2011

    17%    $91

  Second Quarter 2011

    15%    $73

  Third Quarter 2011

    11%    $74

    Full Year 2011

    11%    $80

*All of our 2010 and 2011 positions and the majority of our 2009 positions are call options which are designed to effectively cap our cost of the crude oil component of our jet fuel purchases. With call options, we benefit from a decline in crude oil prices, as there is no cash outlay other than the premiums we pay to enter into the contracts.

Cash and Share Count

 

  (in millions)

            January 31,        
2009  		            December 31,        
2008  

  Cash and marketable securities

       $934    $1,077

  Common shares outstanding

    36.295    36.275

On February 19, 2009, Alaska completed sale-leaseback financing transactions for three B737-800 resulting in gross proceeds of $115.5 million, bringing the total cash and marketable securities balance to $1.05 billion as of February 20, 2009.

Capital Expenditures

Total expected capital expenditures for 2009 are as follows (in millions):

 

     Total 2009 Estimate
         Aircraft-related            Non-aircraft        Total    

  Alaska

    $335    $45    $380

  Horizon

        70        5        75

  Air Group

    $405    $50    $455

Firm Aircraft Commitments

 

      2009    2010    2011    Total    

Alaska (B737-800)

    10      7    4    21

Horizon (Q400)

      5      7    1    13

Totals

    15    14    5    34

In addition to the firm orders noted above, Alaska has options to acquire 44 additional B737-800s and Horizon has options to acquire 10 Q400s.

 

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  AIR GROUP – (continued)

Projected Fleet Count

 

              Actual Fleet Count      Expected Fleet Activity
                      Changes by Quarter           

Alaska

      Seats      Dec. 31,

2007

      Dec. 31,

2008

      Q1    Q2    Q3    Q4    Dec. 31,

2009 2

    2010

Changes

   Dec. 31,

2010 2

737-400F 1

      —          1        1      —    —    —    —    1    —      1

737-400C 1

        72        5        5      —    —    —    —    5    —      5

737-400

      144      34      31      (3)    —    —    —    28    (5)    23

737-700

      124      20      20      (1)    (4)    —    —    15    (2)    13

737-800

      157      29      41      6    4    —    —    51    7    58

737-900

      172      12      12      —    —    —    —    12    —    12

MD-80

      140      14      —        —    —    —    —    —    —    —

Totals

             115      110      2    —    —    —    112    —    112
   
            Actual Fleet Count      Expected Fleet Activity
                      Changes by Quarter           

Horizon

      Seats      Dec. 31,

2007

      Dec. 31,

2008

      Q1    Q2    Q3    Q4    Dec. 31,

2009

    2010

Changes

   Dec. 31,

2010

Q200

      37      16        6      (6)    —    —    —    —    —    —  

Q400

      74-76      33      35      2    —    —    3    40    7    47

CRJ-700 3

      70      21      18      —      —    (1)    (4)    13    (8)    5

Totals

             70      59      (4)    —    (1)    (1)    53    (1)    52

1 F=Freighter; C=Combination freighter/passenger

2 The expected fleet counts at December 31, 2009 and 2010 for Alaska are subject to change as we continue to refine the capacity reduction and aircraft utilization plan, and attempt to market four of our B737-700 aircraft.

3 The planned CRJ and Q400 fleets at December 31, 2009 and 2010 are subject to change as we finalize the fleet transition plan and is dependent on our ability to remarket the CRJ aircraft.

 

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