Thursday, 22 October 2020

Alaska Air Group reports third quarter 2020 results along with COVID-19 updates and extends blocked middle seats through Jan. 6, 2021

The Alaska Air Group Inc has reported a net loss of $431 million in the third quarter of 2020 its latest results how.   The carrier is struggling to cope with the effects of the coronavirus COVID-19 pandemic.  Its reported loss excludes the impact of payroll support program wage offsets, special items and mark-to-market fuel hedge adjustments, the company reported adjusted net loss of $399 million, compared to adjusted net income of $326 million.

"We are gaining momentum as we climb our way out of this crisis," said Air Group CEO Brad Tilden. "Each of the last six months has been better than the month before in terms of flights offered and passengers carried, and to date, we've kept our net debt unchanged. Alaska has competitive advantages that continue to serve us well in this crisis, and we are fighting this battle with the most passionate and dedicated employees in the business."


Financial Results:

  • Reported net loss for the third quarter of 2020 under Generally Accepted Accounting Principles (GAAP) of $431 million, or $3.49 per diluted share, compared to net income of $322 million, or $2.60 per diluted share in the third quarter of 2019.
  • Reported net loss for the third quarter of 2020, excluding payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments, of $399 million, or $3.23 per diluted share, compared to adjusted net income of $326 million or $2.63 per diluted share, in the third quarter of 2019.
  • Maintained adjusted net debt of $1.7 billion, flat from Dec. 31, 2019. 
  • Reported a debt-to-capitalization ratio, including short-term borrowings related to COVID-19, of 59%.
  • Held $3.8 billion in unrestricted cash and marketable securities as of Sept. 30, 2020.

Liquidity Updates:

  • Reduced cash burn to approximately $4 million per day in the third quarter from approximately $5 million per day in the second quarter.
  • Obtained nearly $1.2 billion in financing through the issuance of Enhanced Equipment Trust Certificates, secured by 42 Boeing and 19 Embraer aircraft.
  • Reached an agreement with the U.S. Treasury in September to participate in the CARES Act loan program, and drew $135 million in September. The U.S. Treasury advised in October 2020 that the facility will be upsized to $1.9 billion.
  • Held $3.7 billion in cash and marketable securities as of Oct. 21, 2020 and total liquidity of $5.5 billion.

Operational and Guest Safety Updates:

  • Extending blocking of middle seats on mainline aircraft through Jan. 6, 2021.
  • Announced today a partnership with Microsoft to use sustainable aviation fuel to offset the environmental impact of certain business air travel.
  • Permanently eliminated change fees and extended the flexible travel policy for all new ticket purchases through Dec. 31, 2020.
  • Launched a partnership with certain healthcare providers to offer rapid and standardized COVID-19 testing for those guests traveling to destinations which require a negative test result.
  • Expanded the company's Next-Level Care initiative, including implementation of new technology to create a touch-free experience for guests and a partnership with essential oils brand EO to provide hand sanitizing wipes onboard.
  • Strengthened face covering policy, requiring all guests over the age of two to wear a cloth mask or face covering at all times onboard.
  • Initiated voluntary early-out and incentive leave programs to our frontline employee workgroups, which were accepted by more than 4,000 employees. As a result, furloughs were limited to approximately 400 employees.
  • Announced 15 new routes during the third quarter, aimed at connecting West Coast travelers to key leisure destinations, including Jackson Hole, Wyoming, and Fort Myers, Florida.
  • Received official oneworld invitation on July 23, 2020. The company has announced it will officially join the alliance on March 31, 2021.



Three Months Ended September 30,


2020


2019

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) and diluted EPS

$

(431)



$

(3.49)



$

322



$

2.60


Payroll support program wage offset

(398)



(3.22)






Mark-to-market fuel hedge adjustments

(3)



(0.02)






Special items - merger-related costs

1



0.01



5



0.04


Special items - impairment charges and other

121



0.98






Special items - restructuring charges

322



2.60






Income tax effect of reconciling items above

(11)



(0.09)



(1)



(0.01)


Non-GAAP adjusted net income (loss) and diluted EPS

$

(399)



$

(3.23)



$

326



$

2.63











Nine Months Ended September 30,


2020


2019

(in millions, except per-share amounts)

Dollars


Diluted EPS


Dollars


Diluted EPS

GAAP net income (loss) and diluted EPS

$

(877)



$

(7.12)



$

588



$

4.74


Payroll support program wage offset

(760)



(6.16)






Mark-to-market fuel hedge adjustments





(1)



(0.01)


Special items - merger-related costs

5



0.04



39



0.31


Special items - impairment charges and other

350



2.84






Special items - restructuring charges

322



2.61






Income tax effect of reconciling items above

20



0.16



(9)



(0.07)


Non-GAAP adjusted net income (loss) and diluted EPS

$

(940)



$

(7.63)



$

617



$

4.97


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.



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

Alaska Air Group, Inc.













Three Months Ended September 30,


Nine Months Ended September 30,

(in millions, except per-share amounts)

2020


2019


Change


2020


2019


Change

Operating Revenues:












Passenger revenue

$

572



$

2,211



(74)

%


$

2,362



$

6,038



(61)

%

Mileage Plan other revenue

84



118



(29)

%


266



346



(23)

%

Cargo and other

45



60



(25)

%


130



169



(23)

%

Total Operating Revenues

701



2,389



(71)

%


2,758



6,553



(58)

%

Operating Expenses:












Wages and benefits

495



608



(19)

%


1,579



1,732



(9)

%

Payroll support program wage offset

(398)





NM



(760)





NM


Variable incentive pay

42



46



(9)

%


65



125



(48)

%

Aircraft fuel, including hedging gains and losses

125



486



(74)

%


568



1,408



(60)

%

Aircraft maintenance

84



106



(21)

%


244



341



(28)

%

Aircraft rent

74



82



(10)

%


229



247



(7)

%

Landing fees and other rentals

109



143



(24)

%


323



388



(17)

%

Contracted services

36



72



(50)

%


138



214



(36)

%

Selling expenses

24



77



(69)

%


83



236



(65)

%

Depreciation and amortization

105



106



(1)

%


320



317



1

%

Food and beverage service

14



57



(75)

%


70



159



(56)

%

Third-party regional carrier expense

29



42



(31)

%


92



125



(26)

%

Other

89



137



(35)

%


310



411



(25)

%

Special items - merger-related costs

1



5



(80)

%


5



39



(87)

%

Special items - impairment charges and other

121





NM



350





NM


Special items - restructuring charges

322




.

NM



322





NM


Total Operating Expenses

1,272



1,967



(35)

%


3,938



5,742



(31)

%

Operating Income (Loss)

(571)



422



(235)

%


(1,180)



811



(245)

%

Nonoperating Income (Expense):












Interest income

7



11



(36)

%


23



31



(26)

%

Interest expense

(34)



(18)



89

%


(64)



(60)



7

%

Interest capitalized

4



4



%


8



11



(27)

%

Other - net

5



(3)



(267)

%


16



(20)



(180)

%

Total Nonoperating Income (Expense)

(18)



(6)



200

%


(17)



(38)



(55)

%

Income (Loss) Before Income Tax

(589)



416





(1,197)



773




Income tax (benefit) expense

(158)



94





(320)



185




Net Income (Loss)

$

(431)



$

322





$

(877)



$

588
















Basic Earnings (Loss) Per Share:

$

(3.49)



$

2.61





$

(7.12)



$

4.76




Diluted Earnings (Loss) Per Share:

$

(3.49)



$

2.60





$

(7.12)



$

4.74
















Shares Used for Computation:












Basic

123.647



123.280





123.255



123.330




Diluted

123.647



124.067





123.255



124.051
















Cash dividend declared per share:

$



$

0.35





$

0.375



$

1.05




 

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.








(in millions)

September 30, 2020


December 31, 2019

Cash and marketable securities

$

3,759



$

1,521


Other current assets

706



516


Current assets

4,465



2,037


Property and equipment - net

6,381



6,902


Operating lease assets

1,516



1,711


Goodwill

1,943



1,943


Intangible assets - net

107



122


Other assets

337



278


Total assets

14,749



12,993






Air traffic liability

1,071



900


Current portion of long-term debt

1,150



235


Current portion of operating lease liabilities

283



269


Other current liabilities

1,703



1,797


Current liabilities

4,207



3,201


Long-term debt

2,672



1,264


Long-term operating lease liabilities

1,320



1,439


Other liabilities and credits

3,096



2,758


Shareholders' equity

3,454



4,331


Total liabilities and shareholders' equity

$

14,749



$

12,993






Debt-to-capitalization ratio, including operating leases

59

%


41

%





Number of common shares outstanding

123.661



123.000



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