Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8957
ALASKA AIR GROUP, INC.
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| | |
Delaware | | 91-1292054 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
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|
19300 International Boulevard, Seattle, Washington 98188 |
Telephone: (206) 392-5040 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):
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| | | |
Large accelerated filer T | Accelerated filer £ | Non-accelerated filer £ | Smaller reporting company £ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes £ No T
The registrant has 123,271,393 common shares, par value $0.01, outstanding at October 31, 2016.
ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2016
TABLE OF CONTENTS
As used in this Form 10-Q, the terms “Air Group,” the "Company," “our,” “we” and "us," refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon,” respectively, and together as our “airlines.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of 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. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words "believe," "expect," "will," "anticipate," "intend," "estimate," "project," "assume" or other similar expressions, although not all forward-looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations. Some of the things that could cause our actual results to differ from our expectations are:
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• | our pending acquisition and the subsequent merger of Virgin America Inc. (Virgin America); |
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• | the competitive environment in our industry; |
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• | changes in our operating costs, primarily fuel, which can be volatile; |
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• | general economic conditions, including the impact of those conditions on customer travel behavior; |
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• | our ability to meet our cost reduction goals; |
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• | operational disruptions; |
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• | an aircraft accident or incident; |
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• | labor disputes and our ability to attract and retain qualified personnel; |
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• | the concentration of our revenue from a few key markets; |
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• | actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities; |
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• | our reliance on automated systems and the risks associated with changes made to those systems; |
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• | changes in laws and regulations. |
You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. 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 to our shareholders. For a discussion of these and other risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2015, as well as in other documents filed by Alaska Air Group with the SEC after the date thereof. Please consider our forward-looking statements in light of those risks as you read this report.
PART I
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
ALASKA AIR GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
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| | | | | | | |
(in millions) | September 30, 2016 | | December 31, 2015 |
ASSETS | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 1,818 |
| | $ | 73 |
|
Marketable securities | 1,408 |
| | 1,255 |
|
Total cash and marketable securities | 3,226 |
| | 1,328 |
|
Receivables - net | 232 |
| | 212 |
|
Inventories and supplies - net | 44 |
| | 51 |
|
Prepaid expenses and other current assets | 98 |
| | 72 |
|
Total Current Assets | 3,600 |
| | 1,663 |
|
| | | |
Property and Equipment | |
| | |
|
Aircraft and other flight equipment | 6,398 |
| | 5,690 |
|
Other property and equipment | 1,021 |
| | 955 |
|
Deposits for future flight equipment | 489 |
| | 771 |
|
| 7,908 |
| | 7,416 |
|
Less accumulated depreciation and amortization | 2,877 |
| | 2,614 |
|
Total Property and Equipment - Net | 5,031 |
| | 4,802 |
|
| | | |
Other Assets | 68 |
| | 65 |
|
| | | |
Total Assets | $ | 8,699 |
| | $ | 6,530 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
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| | | | | | | |
(in millions, except share amounts) | September 30, 2016 | | December 31, 2015 |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | |
Current Liabilities | | | |
Accounts payable | $ | 71 |
| | $ | 63 |
|
Accrued wages, vacation and payroll taxes | 257 |
| | 298 |
|
Air traffic liability | 785 |
| | 669 |
|
Other accrued liabilities | 735 |
| | 661 |
|
Current portion of long-term debt | 275 |
| | 114 |
|
Total Current Liabilities | 2,123 |
| | 1,805 |
|
| | | |
Long-Term Debt, Net of Current Portion | 1,861 |
| | 569 |
|
Other Liabilities and Credits | |
| | |
|
Deferred income taxes | 733 |
| | 682 |
|
Deferred revenue | 491 |
| | 431 |
|
Obligation for pension and postretirement medical benefits | 272 |
| | 270 |
|
Other liabilities | 355 |
| | 362 |
|
| 1,851 |
| | 1,745 |
|
Commitments and Contingencies |
|
| |
|
|
Shareholders' Equity | |
| | |
|
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding | — |
| | — |
|
Common stock, $0.01 par value, Authorized: 200,000,000 shares, Issued: 2016 - 129,127,597 shares; 2015 - 128,442,099 shares, Outstanding: 2016 - 123,266,014 shares; 2015 - 125,175,325 shares | 1 |
| | 1 |
|
Capital in excess of par value | 103 |
| | 73 |
|
Treasury stock (common), at cost: 2016 - 5,861,583 shares; 2015 - 3,266,774 shares | (444 | ) | | (250 | ) |
Accumulated other comprehensive loss | (284 | ) | | (303 | ) |
Retained earnings | 3,488 |
| | 2,890 |
|
| 2,864 |
| | 2,411 |
|
Total Liabilities and Shareholders' Equity | $ | 8,699 |
| | $ | 6,530 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions, except per share amounts) | 2016 | | 2015 | | 2016 | | 2015 |
Operating Revenues | | | | | | | |
Passenger | | | | | | | |
Mainline | $ | 1,073 |
| | $ | 1,057 |
| | $ | 3,036 |
| | $ | 2,977 |
|
Regional | 249 |
| | 240 |
| | 682 |
| | 638 |
|
Total passenger revenue | 1,322 |
| | 1,297 |
| | 3,718 |
| | 3,615 |
|
Freight and mail | 31 |
| | 30 |
| | 82 |
| | 83 |
|
Other - net | 213 |
| | 188 |
| | 607 |
| | 523 |
|
Total Operating Revenues | 1,566 |
| | 1,515 |
| | 4,407 |
| | 4,221 |
|
| | | | | | | |
Operating Expenses | | | | | |
| | |
|
Wages and benefits | 340 |
| | 312 |
| | 1,008 |
| | 923 |
|
Variable incentive pay | 31 |
| | 32 |
| | 95 |
| | 90 |
|
Aircraft fuel, including hedging gains and losses | 225 |
| | 245 |
| | 593 |
| | 741 |
|
Aircraft maintenance | 64 |
| | 67 |
| | 197 |
| | 182 |
|
Aircraft rent | 25 |
| | 26 |
| | 80 |
| | 78 |
|
Landing fees and other rentals | 89 |
| | 80 |
| | 232 |
| | 217 |
|
Contracted services | 63 |
| | 54 |
| | 183 |
| | 157 |
|
Selling expenses | 58 |
| | 53 |
| | 162 |
| | 160 |
|
Depreciation and amortization | 101 |
| | 81 |
| | 281 |
| | 236 |
|
Food and beverage service | 31 |
| | 30 |
| | 93 |
| | 83 |
|
Third-party regional carrier expense | 25 |
| | 20 |
| | 72 |
| | 52 |
|
Other | 92 |
| | 82 |
| | 267 |
| | 259 |
|
Special items - merger-related costs | 22 |
| | — |
| | 36 |
| | — |
|
Total Operating Expenses | 1,166 |
| | 1,082 |
| | 3,299 |
| | 3,178 |
|
Operating Income | 400 |
| | 433 |
| | 1,108 |
| | 1,043 |
|
| | | | | | | |
Nonoperating Income (Expense) | | | | | |
| | |
|
Interest income | 7 |
| | 5 |
| | 20 |
| | 16 |
|
Interest expense | (11 | ) | | (10 | ) | | (33 | ) | | (32 | ) |
Interest capitalized | 6 |
| | 9 |
| | 21 |
| | 25 |
|
Other - net | — |
| | — |
| | (2 | ) | | 1 |
|
| 2 |
| | 4 |
| | 6 |
| | 10 |
|
Income before income tax | 402 |
| | 437 |
| | 1,114 |
| | 1,053 |
|
Income tax expense | 146 |
| | 163 |
| | 414 |
| | 396 |
|
Net Income | $ | 256 |
| | $ | 274 |
| | $ | 700 |
| | $ | 657 |
|
| | | | | | | |
Basic Earnings Per Share: | $ | 2.08 |
| | $ | 2.15 |
| | $ | 5.66 |
| | $ | 5.08 |
|
Diluted Earnings Per Share: | $ | 2.07 |
| | $ | 2.14 |
| | $ | 5.63 |
| | $ | 5.05 |
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| | | | | | | |
Shares used for computation: | | | | | | | |
|
Basic | 123.149 |
| | 127.308 |
| | 123.648 |
| | 129.231 |
|
Diluted | 123.833 |
| | 128.205 |
| | 124.393 |
| | 130.200 |
|
| | | | | | | |
Cash dividend declared per share: | $ | 0.275 |
| | $ | 0.20 |
| | $ | 0.825 |
| | $ | 0.60 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | |
Net Income | $ | 256 |
| | $ | 274 |
| | $ | 700 |
| | $ | 657 |
|
| | | | | | | |
Other Comprehensive Income (Loss): | | | | | | | |
Related to marketable securities: | | | | | | | |
Unrealized holding gains (losses) arising during the period | (2 | ) | | — |
| | 17 |
| | 2 |
|
Reclassification of (gains) losses into Other-net nonoperating income (expense) | — |
| | — |
| | (1 | ) | | — |
|
Income tax effect | — |
| | — |
| | (6 | ) | | (1 | ) |
Total | (2 | ) | | — |
| | 10 |
| | 1 |
|
| | | | | | | |
Related to employee benefit plans: | | | | | | | |
Reclassification of net pension expense into Wages and benefits | 5 |
| | 3 |
| | 15 |
| | 11 |
|
Income tax effect | (1 | ) | | (1 | ) | | (5 | ) | | (4 | ) |
Total | 4 |
| | 2 |
| | 10 |
| | 7 |
|
| | | | | | | |
Related to interest rate derivative instruments: | | | | | | | |
Unrealized holding gains (losses) arising during the period | 1 |
| | (5 | ) | | (6 | ) | | (8 | ) |
Reclassification of (gains) losses into Aircraft rent | 1 |
| | 2 |
| | 4 |
| | 5 |
|
Income tax effect | (1 | ) | | 2 |
| | 1 |
| | 2 |
|
Total | 1 |
| | (1 | ) | | (1 | ) | | (1 | ) |
| | | | | | | |
Other Comprehensive Income | 3 |
| | 1 |
| | 19 |
| | 7 |
|
| | | | | | | |
Comprehensive Income | $ | 259 |
| | $ | 275 |
| | $ | 719 |
| | $ | 664 |
|
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
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| | | | | | | |
| Nine Months Ended September 30, |
(in millions) | 2016 | | 2015 |
Cash flows from operating activities: | | | |
Net income | $ | 700 |
| | $ | 657 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 281 |
| | 236 |
|
Stock-based compensation and other | 19 |
| | 22 |
|
Changes in certain assets and liabilities: | | | |
Changes in deferred tax provision | 47 |
| | (17 | ) |
Increase (decrease) in air traffic liability | 116 |
| | 129 |
|
Increase (decrease) in deferred revenue | 60 |
| | 42 |
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Other - net | (17 | ) | | 160 |
|
Net cash provided by operating activities | 1,206 |
| | 1,229 |
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| | | |
Cash flows from investing activities: | |
| | |
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Property and equipment additions: | |
| | |
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Aircraft and aircraft purchase deposits | (408 | ) | | (563 | ) |
Other flight equipment | (35 | ) | | (61 | ) |
Other property and equipment | (66 | ) | | (44 | ) |
Total property and equipment additions, including capitalized interest | (509 | ) | | (668 | ) |
Purchases of marketable securities | (775 | ) | | (876 | ) |
Sales and maturities of marketable securities | 638 |
| | 818 |
|
Proceeds from disposition of assets and changes in restricted deposits | 5 |
| | (1 | ) |
Net cash used in investing activities | (641 | ) | | (727 | ) |
| | | |
Cash flows from financing activities: | |
| | |
|
Proceeds from issuance of debt | 1,546 |
| | — |
|
Long-term debt payments | (93 | ) | | (93 | ) |
Common stock repurchases | (193 | ) | | (381 | ) |
Dividends paid | (102 | ) | | (78 | ) |
Other financing activities | 22 |
| | 31 |
|
Net cash provided (used) by financing activities | 1,180 |
| | (521 | ) |
Net increase (decrease) in cash and cash equivalents | 1,745 |
| | (19 | ) |
Cash and cash equivalents at beginning of year | 73 |
| | 107 |
|
Cash and cash equivalents at end of the period | $ | 1,818 |
| | $ | 88 |
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| | | |
Supplemental disclosure: | |
| | |
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Cash paid during the period for: | | | |
Interest (net of amount capitalized) | $ | 12 |
| | $ | 9 |
|
Income taxes paid | 321 |
| | 262 |
|
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The interim condensed consolidated financial statements include the accounts of Alaska Air Group, Inc. (Air Group or the Company) and its primary subsidiaries, Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon), through which the Company conducts substantially all of its operations. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. As a result, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying Notes in the Form 10-K for the year ended December 31, 2015. In the opinion of management, all adjustments have been made that are necessary to present fairly the Company’s financial position as of September 30, 2016, as well as the results of operations for the three and nine months ended September 30, 2016 and 2015. The adjustments made were of a normal recurring nature.
In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenues and expenses. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of operating results for the entire year.
Certain reclassifications have been made to prior year financial statements to conform with classifications used in the current year.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In March 2016, the FASB issued ASU 2016-08, "Revenue from Contracts with Customers" (Topic 606), Principal versus Agent Considerations, which provides guidance when a revenue transaction involves a third party in providing goods or services to a customer in determining whether the Company is considered the principal or the agent in the transaction. Entities are permitted to use either a full retrospective or cumulative effect transition method, and are required to adopt all parts of the new revenue standard using the same transition method. The new standard is effective for the Company on January 1, 2018. At this time, the Company believes the most significant impact to the financial statements will be in Mileage Plan revenues and liabilities. The Company currently uses the incremental cost approach for miles earned through travel. This standard eliminates that option and the Company will be required to increase its liability for earned miles through a relative selling price model. The Company continues to evaluate the full impact of the standard, and currently plans to apply the full retrospective transition method.
In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest" (Subtopic 835-30), which requires debt issuance costs related to a debt liability be presented as a direct deduction from the carrying value of the debt liability. The amendment was adopted as of January 1, 2016. Prior period debt balances have been adjusted to reflect the adoption of ASU 2015-03. The adoption of the ASU had no impact on the Statements of Operations or retained earnings.
In February 2016, the FASB issued ASU 2016-02, "Leases" (Topic 842), which requires lessees to recognize assets and liabilities for leases currently classified as operating leases. Under the new standard a lessee will recognize a liability on the balance sheet representing the lease payments owed, and a right-of-use-asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The new standard is effective for the Company on January 1, 2019. Early adoption of the standard is permitted. The Company is evaluating the effect that ASU 2016-02 will have on its financial statements and related disclosures. The Company has not yet determined whether it will early adopt the standard.
In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation" (Topic 718). The proposed standard simplifies several aspects of accounting for employee share-based payment awards, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is
evaluating the effect of ASU 2016-09 on the consolidated financial statements and related disclosures. The ASU is effective for the Company beginning January 1, 2017. The Company has not yet elected a transition method.
NOTE 2. PROPOSED ACQUISITION OF VIRGIN AMERICA
On April 1, 2016 the Company entered into an agreement to acquire Virgin America. The Company has agreed to pay Virgin America shareholders $57 per share, or approximately $2.6 billion, in cash for the outstanding common stock of Virgin America. In addition, the Company expects to assume Virgin America's debt and lease obligations, other than related party debt, on the date of acquisition. The merger has been approved by Virgin America's shareholders and is subject to final approval by various regulatory bodies. The Department of Justice (DOJ) is currently reviewing the transaction.
As of September 30, 2016, the Company has incurred merger-related costs of $36 million. Costs classified as merger-related are directly attributable to merger activities. These costs are classified as special items within the Statement of Operations. The Company expects to continue to incur merger-related costs in the future if the transaction closes.
NOTE 3. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Components for cash, cash equivalents and marketable securities (in millions):
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| | | | | | | | | | | | | | | |
September 30, 2016 | Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Cash | $ | 16 |
| | $ | — |
| | $ | — |
| | $ | 16 |
|
Cash equivalents | 1,802 |
| | — |
| | — |
| | 1,802 |
|
Cash and cash equivalents | 1,818 |
| | — |
| | — |
| | 1,818 |
|
U.S. government and agency securities | 330 |
| | 2 |
| | — |
| | 332 |
|
Foreign government bonds | 36 |
| | — |
| | — |
| | 36 |
|
Asset-backed securities | 153 |
| | 1 |
| | — |
| | 154 |
|
Mortgage-backed securities | 102 |
| | — |
| | — |
| | 102 |
|
Corporate notes and bonds | 760 |
| | 8 |
| | (1 | ) | | 767 |
|
Municipal securities | 17 |
| | — |
| | — |
| | 17 |
|
Marketable securities | 1,398 |
| | 11 |
| | (1 | ) | | 1,408 |
|
Total | $ | 3,216 |
| | $ | 11 |
| | $ | (1 | ) | | $ | 3,226 |
|
|
| | | | | | | | | | | | | | | |
December 31, 2015 | Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Cash | $ | 4 |
| | $ | — |
| | $ | — |
| | $ | 4 |
|
Cash equivalents | 69 |
| | — |
| | — |
| | 69 |
|
Cash and cash equivalents | 73 |
| | — |
| | — |
| | 73 |
|
U.S. government and agency securities | 254 |
| | — |
| | (1 | ) | | 253 |
|
Foreign government bonds | 31 |
| | — |
| | — |
| | 31 |
|
Asset-backed securities | 130 |
| | — |
| | — |
| | 130 |
|
Mortgage-backed securities | 117 |
| | — |
| | (1 | ) | | 116 |
|
Corporate notes and bonds | 711 |
| | 1 |
| | (4 | ) | | 708 |
|
Municipal securities | 17 |
| | — |
| | — |
| | 17 |
|
Marketable securities | 1,260 |
| | 1 |
| | (6 | ) | | 1,255 |
|
Total | $ | 1,333 |
| | $ | 1 |
| | $ | (6 | ) | | $ | 1,328 |
|
The large increase in cash and cash equivalents is due to debt financing received in anticipation of the pending merger with Virgin America.
Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence as of September 30, 2016.
Activity for marketable securities (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Proceeds from sales and maturities | $ | 280 |
| | $ | 142 |
| | $ | 638 |
| | $ | 818 |
|
Gross realized gains | — |
| | — |
| | 2 |
| | 2 |
|
Gross realized losses | — |
| | — |
| | (1 | ) | | (2 | ) |
Maturities for marketable securities (in millions):
|
| | | | | | | |
September 30, 2016 | Cost Basis | | Fair Value |
Due in one year or less | $ | 283 |
| | $ | 283 |
|
Due after one year through five years | 1,108 |
| | 1,118 |
|
Due after five years through 10 years | 7 |
| | 7 |
|
Due after 10 years | — |
| | — |
|
Total | $ | 1,398 |
| | $ | 1,408 |
|
NOTE 4. FAIR VALUE MEASUREMENTS
In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.
Fair Value of Financial Instruments on a Recurring Basis
Fair values of financial instruments on the consolidated balance sheet (in millions):
|
| | | | | | | | | | | |
September 30, 2016 | Level 1 | | Level 2 | | Total |
Assets | | | | | |
Marketable securities | | | | | |
U.S. government and agency securities | $ | 332 |
| | $ | — |
| | $ | 332 |
|
Foreign government bonds | — |
| | 36 |
| | 36 |
|
Asset-backed securities | — |
| | 154 |
| | 154 |
|
Mortgage-backed securities | — |
| | 102 |
| | 102 |
|
Corporate notes and bonds | — |
| | 767 |
| | 767 |
|
Municipal securities | — |
| | 17 |
| | 17 |
|
Total Marketable securities | 332 |
| | 1,076 |
| | 1,408 |
|
Derivative instruments | | | | | |
Fuel hedge call options | — |
| | 16 |
| | 16 |
|
Total Assets | 332 |
| | 1,092 |
| | 1,424 |
|
| | | | | |
Liabilities | | | | | |
Derivative instruments | | | | | |
Interest rate swap agreements | — |
| | (20 | ) | | (20 | ) |
Total Liabilities | — |
| | (20 | ) | | (20 | ) |
|
| | | | | | | | | | | |
December 31, 2015 | Level 1 | | Level 2 | | Total |
Assets | | | | | |
Marketable securities | | | | | |
U.S. government and agency securities | $ | 253 |
| | $ | — |
| | $ | 253 |
|
Foreign government bonds | — |
| | 31 |
| | 31 |
|
Asset-backed securities | — |
| | 130 |
| | 130 |
|
Mortgage-backed securities | — |
| | 116 |
| | 116 |
|
Corporate notes and bonds | — |
| | 708 |
| | 708 |
|
Municipal securities | — |
| | 17 |
| | 17 |
|
Total Marketable securities | 253 |
| | 1,002 |
| | 1,255 |
|
Derivative instruments | | | | | |
Fuel hedge call options | — |
| | 4 |
| | 4 |
|
Total Assets | 253 |
| | 1,006 |
| | 1,259 |
|
| | | | | |
Liabilities | | | | | |
Derivative instruments | | | | | |
Interest rate swap agreements | — |
| | (18 | ) | | (18 | ) |
Total Liabilities | — |
| | (18 | ) | | (18 | ) |
The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.
The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets, or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts is determined based on the difference between the fixed interest rate in the agreements and the observable LIBOR-based interest forward rates at period end, multiplied by the total notional value.
The Company has no financial assets that are measured at fair value on a nonrecurring basis at September 30, 2016.
Fair Value of Other Financial Instruments
The Company used the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.
Cash and Cash Equivalents: Carried at amortized cost, which approximates fair value.
Debt: The carrying amount of the Company's variable-rate debt approximates fair values. For fixed-rate debt, the Company uses the income approach to determine the estimated fair value, by using discounted cash flows using borrowing rates for comparable debt over the weighted life of the outstanding debt. The estimated fair value of the fixed-rate debt is Level 3 as certain inputs used are unobservable.
Fixed-rate debt which is not carried at fair value on the consolidated balance sheet, has an estimated fair value of (in millions):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Carrying amount | $ | 730 |
| | $ | 520 |
|
Fair value | 759 |
| | 557 |
|
NOTE 5. MILEAGE PLAN
Alaska's Mileage Plan liabilities and deferrals on the consolidated balance sheets (in millions): |
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Current Liabilities: | | | |
Other accrued liabilities | $ | 405 |
| | $ | 368 |
|
Other Liabilities and Credits: | | | |
Deferred revenue | 489 |
| | 427 |
|
Other liabilities | 19 |
| | 19 |
|
Total | $ | 913 |
| | $ | 814 |
|
Alaska's Mileage Plan revenue included in the consolidated statements of operations (in millions):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Passenger revenues | $ | 73 |
| | $ | 66 |
| | $ | 215 |
| | $ | 199 |
|
Other - net revenues | 107 |
| | 85 |
| | 318 |
| | 244 |
|
Total | $ | 180 |
| | $ | 151 |
| | $ | 533 |
| | $ | 443 |
|
NOTE 6. LONG-TERM DEBT
Long-term debt obligations on the consolidated balance sheet (in millions):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Fixed-rate notes payable due through 2026 | $ | 730 |
| | $ | 520 |
|
Variable-rate notes payable due through 2028 | 1,423 |
| | 166 |
|
Less debt issuance costs | (17 | ) | | (3 | ) |
Total debt | 2,136 |
| | 683 |
|
Less current portion | 275 |
| | 114 |
|
Long-term debt, less current portion | $ | 1,861 |
| | $ | 569 |
|
| | | |
Weighted-average fixed-interest rate | 4.6 | % | | 5.7 | % |
Weighted-average variable-interest rate | 2.3 | % | | 1.8 | % |
During the nine months ended September 30, 2016, the Company made debt payments of $93 million. In the current quarter the Company obtained approximately $1.5 billion of secured debt financing from multiple lenders in anticipation of the pending merger with Virgin America. The loans are secured by a total of 53 aircraft, including 34 737-900ER aircraft and 19 737-800 aircraft.
To hedge the volatility of the underlying variable interest rates on $300 million of the debt obtained in the third quarter of 2016, the Company entered into two interest rate swap agreements. The interest rate swap agreements stipulate that the Company pay a fixed interest rate over the term of the loans and receive a floating interest rate. We have designated these agreements as qualifying hedging instruments and are accounting for them as cash flow hedges. The interest rate swap agreements expire October 2022 and September 2026 to coincide with the debt termination dates.
Interest rate swaps are recognized at fair value on the balance sheet, and changes in the fair value are recognized in accumulated other comprehensive income (loss). The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is recognized in interest expense, if material.
Subsequent to September 30, 2016, the Company obtained an additional $100 million of secured debt financing in anticipation of the pending merger with Virgin America. Subsequent events are further discussed in Note 11.
As discussed in Note 1, the Company adopted ASU 2015-03 which resulted in a reclassification of debt issuance costs as an offset to debt in the consolidated balance sheet.
At September 30, 2016, scheduled long-term debt principal payments for the next five years and thereafter are as follows (in millions):
|
| | | |
| Total |
Remainder of 2016 | $ | 47 |
|
2017 | 282 |
|
2018 | 315 |
|
2019 | 281 |
|
2020 | 286 |
|
Thereafter | 942 |
|
Total | $ | 2,153 |
|
Bank Lines of Credit
The Company has two $100 million credit facilities and one $52 million credit facility. All three facilities have variable interest rates based on LIBOR plus a specified margin. One of the $100 million facilities, which expires in September 2017, is secured by aircraft. The other $100 million facility, which expires in March 2017, is secured by certain accounts receivable, spare engines, spare parts and ground service equipment. The $52 million facility expires in October 2017 with a mechanism for annual renewal and is secured by two 737-800 aircraft. The Company has no immediate plans to borrow using any of these facilities. All three credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. The Company is in compliance with this covenant at September 30, 2016.
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company has a number of employee benefit plans, including qualified and nonqualified defined-benefit plans, defined-contribution plans, postretirement medical benefits, and long-term disability benefits. In relation to the qualified plans, net periodic benefit costs recognized included the following components for the three and nine months ended September 30, 2016 (in millions). Amounts recognized in relation to all other plans were immaterial to the quarter.
|
| | | | | | | | | | | | | | | |
| Qualified Defined - Benefit Plans |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
Service cost | $ | 9 |
| | $ | 11 |
| | $ | 27 |
| | $ | 31 |
|
Interest cost | 18 |
| | 21 |
| | 55 |
| | 63 |
|
Expected return on assets | (27 | ) | | (31 | ) | | (81 | ) | | (92 | ) |
Amortization of prior service costs | (1 | ) | | (1 | ) | | (1 | ) | | (1 | ) |
Recognized actuarial loss (gain) | 7 |
| | 7 |
| | 19 |
| | 20 |
|
Total | $ | 6 |
| | $ | 7 |
| | $ | 19 |
| | $ | 21 |
|
NOTE 8. COMMITMENTS
Future minimum fixed payments for commitments (in millions):
|
| | | | | | | | | | | | | | | |
September 30, 2016 | Aircraft Leases | | Facility Leases | | Aircraft Purchase Commitments | | Capacity Purchase Agreements (a) |
Remainder of 2016 | $ | 20 |
| | $ | 24 |
| | $ | 146 |
| | $ | 17 |
|
2017 | 99 |
| | 91 |
| | 931 |
| | 78 |
|
2018 | 90 |
| | 43 |
| | 724 |
| | 81 |
|
2019 | 82 |
| | 43 |
| | 645 |
| | 86 |
|
2020 | 73 |
| | 40 |
| | 334 |
| | 92 |
|
Thereafter | 400 |
| | 188 |
| | 397 |
| | 746 |
|
Total | $ | 764 |
| | $ | 429 |
| | $ | 3,177 |
| | $ | 1,100 |
|
(a) Includes all non-aircraft lease costs associated with CPA arrangements.
Lease Commitments
At September 30, 2016, the Company’s fleet includes lease contracts for 18 B737 aircraft and 15 Q400s. Additionally, the fleet includes 16 lease commitments under the CPA with SkyWest, comprising 3 CRJ-700s and 13 E175s. All lease contracts have remaining noncancelable lease terms ranging from 2016 to 2029. The Company has the option to increase capacity flown by SkyWest with 8 additional E175 aircraft with delivery in 2019.
The majority of airport and terminal facilities are also leased. Rent expense for aircraft and facility leases was $82 million and $77 million for the three months ended September 30, 2016 and 2015, respectively. Rent expense for aircraft and facility leases was $226 million and $217 million for the nine months ended September 30, 2016 and 2015, respectively.
Aircraft Purchase Commitments
As discussed in Note 11, subsequent to September 30, 2016 the Company deferred the delivery of four 737-MAX aircraft with deliveries in 2017 and 2018, and exercised five 737-900ER options for delivery in 2018. These changes are not reflected in the commitments table above. Inclusive of these changes, the Company is committed to purchasing 56 B737 aircraft (19 737-900ER aircraft and 37 737 MAX aircraft), and 33 E175 aircraft, with deliveries in 2016 through 2023. In addition, the Company has options to purchase 41 B737 aircraft, and 30 E175 aircraft, which are not reflected in the commitments table above.
Capacity Purchase Agreements (CPAs)
At September 30, 2016, Alaska had CPAs with three carriers, including the Company's wholly-owned subsidiary, Horizon. Horizon sells 100% of its capacity under a CPA with Alaska. In addition, Alaska has CPAs with SkyWest to fly certain routes in the Lower 48 and with PenAir to fly certain routes in the state of Alaska. Under these agreements, Alaska pays the carriers an amount which is based on a determination of their cost of operating those flights and other factors intended to approximate market rates for those services. Future payments (excluding Horizon) are based on minimum levels of flying by the third-party carriers, which could differ materially due to variable payments based on actual levels of flying and certain costs associated with operating flights such as fuel.
Contingencies
The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Management believes the ultimate disposition of these matters is not likely to materially affect the Company's financial position or results of operations. This forward-looking statement is based on management's current understanding of the relevant law and facts, and is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of arbitrators, judges and juries.
On September 7, 2016, a private antitrust action captioned Daniel Grace, et al., v. Alaska Air Group, Inc., et al. was filed in the United States District Court for the Northern District of California, against the Company. The complaint was subsequently amended by the plaintiffs on October 28, 2016 to, among other matters, add Virgin America Inc. as a defendant and modify the list of named plaintiffs. The plaintiffs, each of whom the complaint describes as air passengers, allege that the pending merger
of Virgin America Inc. with the Company would violate Section 7 of the Clayton Antitrust Act (15 U.S.C. §18), as well as Section 1 of the Sherman Antitrust Act (15 U.S.C. §1). The complaint seeks, among other matters, to preliminarily as well as permanently enjoin the pending merger, and also seeks attorneys’ fees. On October 19, 2016, the Court held a hearing on plaintiffs’ motion for a preliminary injunction. The Court did not rule at the hearing on whether to issue the preliminary injunction, but did subsequently issue an order requiring the defendants to provide the Court and the plaintiffs with at least seven calendar days’ notice before consummating the merger, noting that any consummation of the merger would be subject to divestiture. At the Court’s direction, the parties have submitted to the Court a proposed pretrial and trial schedule assuming a December 2016 trial date. The Company believes the allegations in this complaint are without merit and we intend to defend against them vigorously.
NOTE 9. SHAREHOLDERS' EQUITY
Dividends
During the three months ended September 30, 2016, the Company declared and paid cash dividends of $0.275 per share, or $34 million. During the nine months ended September 30, 2016, the Company declared and paid cash dividends of $0.825 per share, or $102 million.
Common Stock Repurchase
In May 2014, the Board of Directors authorized a $650 million share repurchase program, which was completed in October 2015. In August 2015, the Board of Directors authorized a $1 billion share repurchase program, which was paused in the second quarter of 2016 in anticipation of the pending acquisition of Virgin America.
Share repurchase activity (in millions, except share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2016 | | 2015 | | 2016 | | 2015 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
2015 Repurchase Program - $1 billion | — |
| | $ | — |
| | — |
| | $ | — |
| | 2,594,809 |
| | $ | 193 |
| | — |
|
| $ | — |
|
2014 Repurchase Program - $650 million | — |
| | — |
| | 1,588,251 |
| | 119 |
| | — |
| | — |
| | 5,649,805 |
| | 381 |
|
Total | — |
| | $ | — |
| | 1,588,251 |
| | $ | 119 |
| | 2,594,809 |
| | $ | 193 |
| | 5,649,805 |
| | $ | 381 |
|
Accumulated Other Comprehensive Loss
Components of accumulated other comprehensive income (loss), net of tax (in millions):
|
| | | | | | | |
| September 30, 2016 | | December 31, 2015 |
Marketable securities | $ | 7 |
| | $ | (3 | ) |
Employee benefit plans | (278 | ) | | (288 | ) |
Interest rate derivatives | (13 | ) | | (12 | ) |
Total | $ | (284 | ) | | $ | (303 | ) |
NOTE 10. OPERATING SEGMENT INFORMATION
Air Group has two operating airlines - Alaska and Horizon. Each is a regulated airline with separate management teams. To manage the two operating airlines and the revenues and expenses associated with the CPAs, management views the business in three operating segments:
Alaska Mainline - The Boeing 737 part of Alaska's business.
Alaska Regional - Alaska's shorter distance network. In this segment, Alaska Regional records actual on board passenger revenue and costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir for the capacity purchased under CPAs. Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance and other administrative costs incurred by Alaska on behalf of the regional operations.
Horizon - Horizon operates regional aircraft. All of Horizon's capacity is sold to Alaska under a CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs, station handling costs, and maintenance costs.
Additionally, the following table reports “Air Group adjusted,” which is not a measure determined in accordance with GAAP. The Company's chief operating decision-makers and others in management use this measure to evaluate operational performance and determine resource allocations. Adjustments are further explained below in a reconciliation to consolidated GAAP results.
Operating segment information is as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2016 |
| Alaska | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Parent & Consolidating(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 1,073 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,073 |
| | $ | — |
| | $ | 1,073 |
|
Regional | — |
| | 249 |
| | — |
| | — |
| | 249 |
| | — |
| | 249 |
|
Total passenger revenues | 1,073 |
| | 249 |
| | — |
| | — |
| | 1,322 |
| | — |
| | 1,322 |
|
CPA revenues | — |
| | — |
| | 109 |
| | (109 | ) | | — |
| | — |
| | — |
|
Freight and mail | 30 |
| | 1 |
| | — |
| | — |
| | 31 |
| | — |
| | 31 |
|
Other - net | 190 |
| | 21 |
| | 1 |
| | 1 |
| | 213 |
| | — |
| | 213 |
|
Total operating revenues | 1,293 |
| | 271 |
| | 110 |
| | (108 | ) | | 1,566 |
| | — |
| | 1,566 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 727 |
| | 202 |
| | 99 |
| | (109 | ) | | 919 |
| | 22 |
| | 941 |
|
Economic fuel | 188 |
| | 34 |
| | — |
| | — |
| | 222 |
| | 3 |
| | 225 |
|
Total operating expenses | 915 |
| | 236 |
| | 99 |
| | (109 | ) | | 1,141 |
| | 25 |
| | 1,166 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 7 |
| | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Interest expense | (7 | ) | | — |
| | (2 | ) | | (2 | ) | | (11 | ) | | — |
| | (11 | ) |
Other | 5 |
| | — |
| | — |
| | 1 |
| | 6 |
| | — |
| | 6 |
|
| 5 |
| | — |
| | (2 | ) | | (1 | ) | | 2 |
| | — |
| | 2 |
|
Income (loss) before income tax | $ | 383 |
| | $ | 35 |
| | $ | 9 |
| | $ | — |
| | $ | 427 |
| | $ | (25 | ) | | $ | 402 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2015 |
| Alaska | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Parent & Consolidating(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 1,057 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,057 |
| | $ | — |
| | $ | 1,057 |
|
Regional | — |
| | 240 |
| | — |
| | — |
| | 240 |
| | — |
| | 240 |
|
Total passenger revenues | 1,057 |
| | 240 |
| | — |
| | — |
| | 1,297 |
| | — |
| | 1,297 |
|
CPA revenues | — |
| | — |
| | 105 |
| | (105 | ) | | — |
| | — |
| | — |
|
Freight and mail | 29 |
| | 1 |
| | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
Other - net | 167 |
| | 20 |
| | 1 |
| | — |
| | 188 |
| | — |
| | 188 |
|
Total operating revenues | 1,253 |
| | 261 |
| | 106 |
| | (105 | ) | | 1,515 |
| | — |
| | 1,515 |
|
| | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | |
Operating expenses, excluding fuel | 667 |
| | 181 |
| | 93 |
| | (104 | ) | | 837 |
| | — |
| | 837 |
|
Economic fuel | 205 |
| | 35 |
| | — |
| | — |
| | 240 |
| | 5 |
| | 245 |
|
Total operating expenses | 872 |
| | 216 |
| | 93 |
| | (104 | ) | | 1,077 |
| | 5 |
| | 1,082 |
|
| | | | | | | | | | | | | |
Nonoperating income (expense) | | | | | | | | | | | | | |
Interest income | 5 |
| | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Interest expense | (7 | ) | | — |
| | (3 | ) | | — |
| | (10 | ) | | — |
| | (10 | ) |
Other | 7 |
| | — |
| | — |
| | 2 |
| | 9 |
| | — |
| | 9 |
|
| 5 |
| | — |
| | (3 | ) | | 2 |
| | 4 |
| | — |
| | 4 |
|
Income (loss) before income tax | $ | 386 |
| | $ | 45 |
| | $ | 10 |
| | $ | 1 |
| | $ | 442 |
| | $ | (5 | ) | | $ | 437 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| Alaska | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Parent & Consolidating(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | 3,036 |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | 3,036 |
|
| $ | — |
|
| $ | 3,036 |
|
Regional | — |
|
| 682 |
|
| — |
|
| — |
|
| 682 |
|
| — |
|
| 682 |
|
Total passenger revenues | 3,036 |
|
| 682 |
|
| — |
|
| — |
|
| 3,718 |
|
| — |
|
| 3,718 |
|
CPA revenues | — |
|
| — |
|
| 322 |
|
| (322 | ) |
| — |
|
| — |
|
| — |
|
Freight and mail | 79 |
|
| 3 |
|
| — |
|
| — |
|
| 82 |
|
| — |
|
| 82 |
|
Other - net | 546 |
|
| 57 |
|
| 3 |
|
| 1 |
|
| 607 |
|
| — |
|
| 607 |
|
Total operating revenues | 3,661 |
|
| 742 |
|
| 325 |
|
| (321 | ) |
| 4,407 |
|
| — |
|
| 4,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses, excluding fuel | 2,107 |
|
| 580 |
|
| 305 |
|
| (322 | ) |
| 2,670 |
|
| 36 |
|
| 2,706 |
|
Economic fuel | 512 |
|
| 90 |
|
| — |
|
| — |
|
| 602 |
|
| (9 | ) |
| 593 |
|
Total operating expenses | 2,619 |
|
| 670 |
|
| 305 |
|
| (322 | ) |
| 3,272 |
|
| 27 |
|
| 3,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income | 19 |
|
| — |
|
| 1 |
|
| — |
|
| 20 |
|
| — |
|
| 20 |
|
Interest expense | (23 | ) |
| — |
|
| (7 | ) |
| (3 | ) |
| (33 | ) |
| — |
|
| (33 | ) |
Other | 15 |
|
| — |
|
| — |
|
| 4 |
|
| 19 |
|
| — |
|
| 19 |
|
| 11 |
|
| — |
|
| (6 | ) |
| 1 |
|
| 6 |
|
| — |
|
| 6 |
|
Income (loss) before income tax | $ | 1,053 |
|
| $ | 72 |
|
| $ | 14 |
|
| $ | 2 |
|
| $ | 1,141 |
|
| $ | (27 | ) |
| $ | 1,114 |
|
|
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| Nine Months Ended September 30, 2015 |
| Alaska | | | | | | | | | | |
| Mainline | | Regional | | Horizon | | Parent & Consolidating(a) | | Air Group Adjusted(b) | | Special Items(c) | | Consolidated |
Operating revenues | | | | | | | | | | | | | |
Passenger | | | | | | | | | | | | | |
Mainline | $ | 2,977 |
| | $ | — |
| | $ | — |
| | $ | |