Wednesday, 29 January 2020

Alaska Air Group reports fourth quarter 2019 and full-year results; raises dividend 7%

This week Alaska Air Group has reported fourth-quarter 2019 GAAP net income of $181 million, or $1.46 per diluted share, compared to $23 million, or $0.19 per diluted share in 2018. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported fourth-quarter adjusted net income of $181 million, or $1.46 per diluted share, compared to adjusted net income of $93 million, or $0.75 per diluted share in the fourth quarter of 2018.

The company reported full-year 2019 GAAP net income of $769 million, compared to $437 million in the prior year. Excluding the impact of merger-related costs and mark-to-market fuel hedge adjustments, the company reported adjusted net income of $798 million, or $6.42 per diluted share for 2019, compared to adjusted net income of $554 million, or $4.46 per diluted share in 2018.

"When we announced our intention to purchase Virgin America in the spring of 2016, we launched a body of work that was designed to make Alaska the 'Go To' airline for people living up and down the West Coast," said Brad Tilden, Alaska's CEO. "2019 was a fantastic year as we completed the majority of that work and began to see significant returns from our investment. We're grateful to our people for pulling together to produce this strong financial performance, and proud that they are sharing in this financial success through our incentive pay program."





Dividend Increase:
  • Announced today a 7% increase in the quarterly dividend, from $0.35 per share to $0.375 per share. This is the seventh time the company has raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of 275% since that time. The dividend will be paid on March 5, 2020, to all shareholders of record as of Feb. 18, 2020. Dividends are financed from operating cash flow and cash on hand.
Financial Highlights:
  • Reported net income for the fourth quarter and full year 2019 under Generally Accepted Accounting Principles (GAAP) of $181 million, or $1.46 per diluted share, and $769 million, or $6.19 per diluted share. These results compare to fourth quarter 2018 net income of $23 million, or $0.19 per diluted share, and full year 2018 net income of $437 million, or $3.52 per diluted share.
  • Reported adjusted net income, excluding merger-related costs and mark-to-market fuel hedging adjustments for the fourth quarter and full year 2019 of $181 million, or $1.46 per diluted share, and $798 million, or $6.42 per diluted share. These results compare to fourth quarter 2018 adjusted net income of $93 million, or $0.75 per diluted share, and full year 2018 adjusted net income of $554 million, or $4.46 per diluted share. This quarter's adjusted results compare to the First Call analyst consensus estimate of $1.41 per share.
  • Paid a $0.35 per share quarterly cash dividend in the fourth quarter, bringing total dividends paid in 2019 to $173 million.
  • Repurchased a total of 1,192,820 shares of common stock for approximately $75 million in 2019.
  • Generated approximately $1.7 billion of operating cash flow, and used approximately $696 million for capital expenditures, resulting in approximately $1 billion of free cash flow in 2019, representing free cash flow conversion of 133%.
  • Grew passenger revenues by 8% compared to the fourth quarter of 2018, and by 6% compared to full-year 2018.
  • Generated full-year adjusted pretax margin of 12% in 2019, 3.1 points higher than the 8.9% in 2018.
  • Held $1.5 billion in unrestricted cash and marketable securities as of Dec. 31, 2019.
  • Achieved the goal of 75% repayment on the $2 billion debt borrowed to fund the acquisition of Virgin America, driving our debt-to-capitalization ratio to 41% as of Dec. 31, 2019, from 47% as of Dec. 31, 2018 and 51% as of Dec. 31, 2016.
  • Reduced net adjusted debt to EBITDAR to 0.9x as of Dec. 31, 2019 from 1.7x as of Dec. 31, 2018.
2019 Accomplishments and Highlights:
Recognition and Awards
  • Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2019 by J.D. Power for the 12th year in a row.
  • Named "Best U.S. Airline" by Condé Nast Traveler in their 2019 Readers Choice Awards for the second consecutive year, a continuation of the ten consecutive years that Virgin America received the recognition.
  • Mileage Plan™ ranked first in U.S. News & World Report's list of Best Travel Rewards Programs for the fifth time.
  • Ranked as top U.S. airline in Newsweek's 2020 Best Customer Service awards.
  • Named "Best Mid-Size Airline" by TripAdvisor in their 2019 Travelers Choice awards.
  • Earned top spot for customer satisfaction on the American Customer Satisfaction Index Travel Report for 2018-2019.
  • Named "Best Airline" by Kayak in their 2019 Travel Hacker Awards.
  • Ranked the best U.S. airline in Money Magazine for the second year in a row.
  • Rated as one of only two U.S. airlines in the Top 20 safest airlines in the world for 2019 by AirlineRatings.com.
  • Ranked as the top U.S. airline in the Dow Jones Sustainability Index (DJSI) for the third consecutive year.
Our People
  • Ranked among Forbes' 2019 global list for "World's Best Employers" for the fifth year in a row.
  • Completed Flight Path, our leader-led program aimed at informing and engaging our employees, bringing over 95% of Air Group employees together to discuss our culture and future.
  • Awarded $163 million in incentive pay for 2019, an 11% increase over 2018.
  • Alaska technicians, represented by the Aircraft Mechanics Fraternal Association, ratified an integrated seniority list and a transition agreement, including a two-year contract extension, in July 2019. This completes a major integration milestone, in that all of our workgroups are under joint agreements, less than three years from our acquisition of Virgin America.
  • Alaska's clerical, office, and passenger service, and Alaska's ramp and stores employees, both represented by the International Association of Machinists, each ratified new five-year agreements in August 2019.
Our Guests and Product
  • Launched commercial service from Paine Field in Everett, Washington, to 10 West Coast destinations.
  • Finished painting the Alaska Airlines livery on all Airbus aircraft.
  • Completed cabin interior renovations on the 42nd Airbus aircraft, or approximately 60% of the Airbus fleet.
  • Installed high-speed satellite Wi-Fi on the 104th mainline aircraft, or approximately 45% of the mainline fleet.
  • Opened a new 15,000+ square foot flagship lounge in the North Satellite at Sea-Tac International Airport and announced plans to build a new lounge in Terminal 2 at San Francisco International Airport.
  • Added EL AL Israel Airlines as a new global Mileage Plan partner.
  • Added four Boeing 737-900ER aircraft and two Airbus A321neo aircraft in 2019.
  • Added four Embraer 175 (E175) aircraft to the Regional operating fleet in 2019.
Our Communities
  • Launched LIFT, Alaska's newly renamed social and environmental impact program, complete with a week of employee volunteer events in eight cities across our network.
  • Donated over $15 million and contributed more than 41,000 volunteer hours to support nonprofits in our local communities, focusing on youth and education, medical (research/transportation) and community outreach.

The following tables reconcile the company's adjusted net income and earnings per diluted share (EPS) during the full year and fourth quarters of 2019 and 2018 to amounts as reported in accordance with GAAP:

Three Months Ended December 31,

2019

2018
(in millions, except per share amounts)
Dollars

Diluted EPS

Dollars

Diluted EPS
Reported GAAP net income and diluted EPS
$
181


$
1.46


$
23


$
0.19

Mark-to-market fuel hedge adjustments
(5)


(0.04)


52


0.42

Special items - merger-related costs
5


0.04


20


0.16

Special items - other (a)




20


0.16

Income tax effect on special items and fuel hedge adjustments




(22)


(0.18)

Non-GAAP adjusted net income and diluted EPS
$
181


$
1.46


$
93


$
0.75






Twelve Months Ended December 31,

2019

2018
(in millions, except per share amounts)
Dollars

Diluted EPS

Dollars

Diluted EPS
Reported GAAP net income and diluted EPS
$
769


$
6.19


$
437


$
3.52

Mark-to-market fuel hedge adjustments
(6)


(0.05)


22


0.18

Special items - merger-related costs
44


0.35


87


0.70

Special items - other (a)




45


0.36

Income tax effect on special items and fuel hedge adjustments
(9)


(0.07)


(37)


(0.30)

Non-GAAP adjusted net income and diluted EPS
$
798


$
6.42


$
554


$
4.46



(a) 
Special items - other includes special charges associated with the employee tax reform bonus paid in Q1 2018, and a $20 million contract termination fee incurred in Q4 2018.






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