Delaware
|
|
91-1292054
|
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.)
|
19300 International Boulevard, Seattle, Washington 98188
|
Telephone: (206) 392-5040
|
Large accelerated filer
T
|
Accelerated filer
£
|
Non-accelerated filer
£
|
Smaller reporting company
£
|
|
•
|
our pending acquisition and the subsequent merger of Virgin America Inc. (Virgin America);
|
•
|
the competitive environment in our industry;
|
•
|
changes in our operating costs, primarily fuel, which can be volatile;
|
•
|
general economic conditions, including the impact of those conditions on customer travel behavior;
|
•
|
our ability to meet our cost reduction goals;
|
•
|
operational disruptions;
|
•
|
an aircraft accident or incident;
|
•
|
labor disputes and our ability to attract and retain qualified personnel;
|
•
|
the concentration of our revenue from a few key markets;
|
•
|
actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities;
|
•
|
our reliance on automated systems and the risks associated with changes made to those systems;
|
•
|
changes in laws and regulations.
|
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(in millions)
|
June 30,
2016 |
|
December 31,
2015 |
||||
ASSETS
|
|
|
|
||||
Current Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
81
|
|
|
$
|
73
|
|
Marketable securities
|
1,526
|
|
|
1,255
|
|
||
Total cash and marketable securities
|
1,607
|
|
|
1,328
|
|
||
Receivables - net
|
254
|
|
|
212
|
|
||
Inventories and supplies - net
|
45
|
|
|
51
|
|
||
Prepaid expenses and other current assets
|
97
|
|
|
72
|
|
||
Total Current Assets
|
2,003
|
|
|
1,663
|
|
||
|
|
|
|
||||
Property and Equipment
|
|
|
|
|
|
||
Aircraft and other flight equipment
|
6,198
|
|
|
5,690
|
|
||
Other property and equipment
|
994
|
|
|
955
|
|
||
Deposits for future flight equipment
|
551
|
|
|
771
|
|
||
|
7,743
|
|
|
7,416
|
|
||
Less accumulated depreciation and amortization
|
2,784
|
|
|
2,614
|
|
||
Total Property and Equipment - Net
|
4,959
|
|
|
4,802
|
|
||
|
|
|
|
||||
Other Assets
|
73
|
|
|
65
|
|
||
|
|
|
|
||||
Total Assets
|
$
|
7,035
|
|
|
$
|
6,530
|
|
(in millions, except share amounts)
|
June 30,
2016 |
|
December 31,
2015 |
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Accounts payable
|
$
|
78
|
|
|
$
|
63
|
|
Accrued wages, vacation and payroll taxes
|
239
|
|
|
298
|
|
||
Air traffic liability
|
870
|
|
|
669
|
|
||
Other accrued liabilities
|
757
|
|
|
661
|
|
||
Current portion of long-term debt
|
117
|
|
|
114
|
|
||
Total Current Liabilities
|
2,061
|
|
|
1,805
|
|
||
|
|
|
|
||||
Long-Term Debt, Net of Current Portion
|
509
|
|
|
569
|
|
||
Other Liabilities and Credits
|
|
|
|
|
|
||
Deferred income taxes
|
721
|
|
|
682
|
|
||
Deferred revenue
|
480
|
|
|
431
|
|
||
Obligation for pension and postretirement medical benefits
|
271
|
|
|
270
|
|
||
Other liabilities
|
366
|
|
|
362
|
|
||
|
1,838
|
|
|
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 - 128,941,102 shares; 2015 - 128,442,099 shares, Outstanding: 2016 - 123,079,519 shares; 2015 - 125,175,325 shares
|
1
|
|
|
1
|
|
||
Capital in excess of par value
|
91
|
|
|
73
|
|
||
Treasury stock (common), at cost: 2016 - 5,861,583 shares; 2015 - 3,266,774 shares
|
(444
|
)
|
|
(250
|
)
|
||
Accumulated other comprehensive loss
|
(287
|
)
|
|
(303
|
)
|
||
Retained earnings
|
3,266
|
|
|
2,890
|
|
||
|
2,627
|
|
|
2,411
|
|
||
Total Liabilities and Shareholders' Equity
|
$
|
7,035
|
|
|
$
|
6,530
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(in millions, except per share amounts)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Operating Revenues
|
|
|
|
|
|
|
|
||||||||
Passenger
|
|
|
|
|
|
|
|
||||||||
Mainline
|
$
|
1,036
|
|
|
$
|
1,019
|
|
|
$
|
1,963
|
|
|
$
|
1,920
|
|
Regional
|
227
|
|
|
212
|
|
|
433
|
|
|
398
|
|
||||
Total passenger revenue
|
1,263
|
|
|
1,231
|
|
|
2,396
|
|
|
2,318
|
|
||||
Freight and mail
|
27
|
|
|
30
|
|
|
51
|
|
|
53
|
|
||||
Other - net
|
204
|
|
|
176
|
|
|
394
|
|
|
335
|
|
||||
Total Operating Revenues
|
1,494
|
|
|
1,437
|
|
|
2,841
|
|
|
2,706
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Operating Expenses
|
|
|
|
|
|
|
|
|
|
||||||
Wages and benefits
|
332
|
|
|
305
|
|
|
668
|
|
|
611
|
|
||||
Variable incentive pay
|
32
|
|
|
32
|
|
|
64
|
|
|
58
|
|
||||
Aircraft fuel, including hedging gains and losses
|
201
|
|
|
261
|
|
|
368
|
|
|
496
|
|
||||
Aircraft maintenance
|
65
|
|
|
52
|
|
|
133
|
|
|
115
|
|
||||
Aircraft rent
|
26
|
|
|
26
|
|
|
55
|
|
|
52
|
|
||||
Landing fees and other rentals
|
63
|
|
|
66
|
|
|
143
|
|
|
137
|
|
||||
Contracted services
|
60
|
|
|
51
|
|
|
120
|
|
|
102
|
|
||||
Selling expenses
|
55
|
|
|
54
|
|
|
104
|
|
|
107
|
|
||||
Depreciation and amortization
|
92
|
|
|
79
|
|
|
180
|
|
|
155
|
|
||||
Food and beverage service
|
31
|
|
|
28
|
|
|
62
|
|
|
53
|
|
||||
Third-party regional carrier expense
|
24
|
|
|
17
|
|
|
47
|
|
|
33
|
|
||||
Other
|
81
|
|
|
94
|
|
|
175
|
|
|
177
|
|
||||
Special items - merger costs
|
14
|
|
|
—
|
|
|
14
|
|
|
—
|
|
||||
Total Operating Expenses
|
1,076
|
|
|
1,065
|
|
|
2,133
|
|
|
2,096
|
|
||||
Operating Income
|
418
|
|
|
372
|
|
|
708
|
|
|
610
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Nonoperating Income (Expense)
|
|
|
|
|
|
|
|
|
|
||||||
Interest income
|
7
|
|
|
6
|
|
|
13
|
|
|
11
|
|
||||
Interest expense
|
(9
|
)
|
|
(11
|
)
|
|
(22
|
)
|
|
(22
|
)
|
||||
Interest capitalized
|
7
|
|
|
8
|
|
|
15
|
|
|
16
|
|
||||
Other - net
|
(3
|
)
|
|
1
|
|
|
(2
|
)
|
|
1
|
|
||||
|
2
|
|
|
4
|
|
|
4
|
|
|
6
|
|
||||
Income before income tax
|
420
|
|
|
376
|
|
|
712
|
|
|
616
|
|
||||
Income tax expense
|
160
|
|
|
142
|
|
|
268
|
|
|
233
|
|
||||
Net Income
|
$
|
260
|
|
|
$
|
234
|
|
|
$
|
444
|
|
|
$
|
383
|
|
|
|
|
|
|
|
|
|
||||||||
Basic Earnings Per Share:
|
$
|
2.11
|
|
|
$
|
1.80
|
|
|
$
|
3.58
|
|
|
$
|
2.93
|
|
Diluted Earnings Per Share:
|
$
|
2.10
|
|
|
$
|
1.79
|
|
|
$
|
3.56
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
||||||||
Shares used for computation:
|
|
|
|
|
|
|
|
|
|||||||
Basic
|
123.250
|
|
|
129.236
|
|
|
123.900
|
|
|
130.173
|
|
||||
Diluted
|
123.988
|
|
|
130.255
|
|
|
124.715
|
|
|
131.271
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Cash dividend declared per share:
|
$
|
0.275
|
|
|
$
|
0.20
|
|
|
$
|
0.550
|
|
|
$
|
0.40
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
|
|
|
|
|
|
|
|
||||||||
Net Income
|
$
|
260
|
|
|
$
|
234
|
|
|
$
|
444
|
|
|
$
|
383
|
|
|
|
|
|
|
|
|
|
||||||||
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
||||||||
Related to marketable securities:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding gains (losses) arising during the period
|
7
|
|
|
(5
|
)
|
|
19
|
|
|
2
|
|
||||
Reclassification of (gains) losses into Other-net nonoperating income (expense)
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
||||
Income tax effect
|
(2
|
)
|
|
2
|
|
|
(6
|
)
|
|
(1
|
)
|
||||
Total
|
4
|
|
|
(3
|
)
|
|
12
|
|
|
1
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Related to employee benefit plans:
|
|
|
|
|
|
|
|
||||||||
Reclassification of net pension expense into Wages and benefits
|
5
|
|
|
5
|
|
|
10
|
|
|
8
|
|
||||
Income tax effect
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
(3
|
)
|
||||
Total
|
3
|
|
|
3
|
|
|
6
|
|
|
5
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Related to interest rate derivative instruments:
|
|
|
|
|
|
|
|
||||||||
Unrealized holding gains (losses) arising during the period
|
(2
|
)
|
|
1
|
|
|
(7
|
)
|
|
(3
|
)
|
||||
Reclassification of (gains) losses into Aircraft rent
|
2
|
|
|
1
|
|
|
3
|
|
|
3
|
|
||||
Income tax effect
|
—
|
|
|
(1
|
)
|
|
2
|
|
|
—
|
|
||||
Total
|
—
|
|
|
1
|
|
|
(2
|
)
|
|
—
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Other Comprehensive Income
|
7
|
|
|
1
|
|
|
16
|
|
|
6
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Comprehensive Income
|
$
|
267
|
|
|
$
|
235
|
|
|
$
|
460
|
|
|
$
|
389
|
|
|
Six Months Ended June 30,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
444
|
|
|
$
|
383
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
180
|
|
|
155
|
|
||
Stock-based compensation and other
|
13
|
|
|
14
|
|
||
Changes in certain assets and liabilities:
|
|
|
|
||||
Changes in deferred tax provision
|
41
|
|
|
(44
|
)
|
||
Increase (decrease) in air traffic liability
|
201
|
|
|
209
|
|
||
Increase (decrease) in deferred revenue
|
48
|
|
|
27
|
|
||
Other - net
|
(28
|
)
|
|
145
|
|
||
Net cash provided by operating activities
|
899
|
|
|
889
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
||
Property and equipment additions:
|
|
|
|
|
|
||
Aircraft and aircraft purchase deposits
|
(268
|
)
|
|
(490
|
)
|
||
Other flight equipment
|
(31
|
)
|
|
(43
|
)
|
||
Other property and equipment
|
(41
|
)
|
|
(26
|
)
|
||
Total property and equipment additions, including capitalized interest
|
(340
|
)
|
|
(559
|
)
|
||
Purchases of marketable securities
|
(610
|
)
|
|
(711
|
)
|
||
Sales and maturities of marketable securities
|
357
|
|
|
676
|
|
||
Proceeds from disposition of assets and changes in restricted deposits
|
3
|
|
|
—
|
|
||
Net cash used in investing activities
|
(590
|
)
|
|
(594
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Long-term debt payments
|
(57
|
)
|
|
(58
|
)
|
||
Common stock repurchases
|
(193
|
)
|
|
(262
|
)
|
||
Dividends paid
|
(68
|
)
|
|
(52
|
)
|
||
Other financing activities
|
17
|
|
|
15
|
|
||
Net cash used in financing activities
|
(301
|
)
|
|
(357
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
8
|
|
|
(62
|
)
|
||
Cash and cash equivalents at beginning of year
|
73
|
|
|
107
|
|
||
Cash and cash equivalents at end of the period
|
$
|
81
|
|
|
$
|
45
|
|
|
|
|
|
||||
Supplemental disclosure:
|
|
|
|
|
|
||
Cash paid during the period for:
|
|
|
|
||||
Interest (net of amount capitalized)
|
$
|
8
|
|
|
$
|
8
|
|
Income taxes paid (received)
|
182
|
|
|
108
|
|
June 30, 2016
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cash equivalents
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
||||
Cash and cash equivalents
|
81
|
|
|
—
|
|
|
—
|
|
|
81
|
|
||||
U.S. government and agency securities
|
430
|
|
|
3
|
|
|
—
|
|
|
433
|
|
||||
Foreign government bonds
|
32
|
|
|
—
|
|
|
—
|
|
|
32
|
|
||||
Asset-backed securities
|
160
|
|
|
1
|
|
|
—
|
|
|
161
|
|
||||
Mortgage-backed securities
|
112
|
|
|
1
|
|
|
—
|
|
|
113
|
|
||||
Corporate notes and bonds
|
762
|
|
|
9
|
|
|
(1
|
)
|
|
770
|
|
||||
Municipal securities
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||
Marketable securities
|
1,513
|
|
|
14
|
|
|
(1
|
)
|
|
1,526
|
|
||||
Total
|
$
|
1,594
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
1,607
|
|
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
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Proceeds from sales and maturities
|
$
|
217
|
|
|
$
|
417
|
|
|
$
|
357
|
|
|
$
|
676
|
|
Gross realized gains
|
2
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||
Gross realized losses
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
June 30, 2016
|
Cost Basis
|
|
Fair Value
|
||||
Due in one year or less
|
$
|
363
|
|
|
$
|
363
|
|
Due after one year through five years
|
1,134
|
|
|
1,147
|
|
||
Due after five years through 10 years
|
16
|
|
|
16
|
|
||
Due after 10 years
|
—
|
|
|
—
|
|
||
Total
|
$
|
1,513
|
|
|
$
|
1,526
|
|
June 30, 2016
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
433
|
|
|
$
|
—
|
|
|
$
|
433
|
|
Foreign government bonds
|
—
|
|
|
32
|
|
|
32
|
|
|||
Asset-backed securities
|
—
|
|
|
161
|
|
|
161
|
|
|||
Mortgage-backed securities
|
—
|
|
|
113
|
|
|
113
|
|
|||
Corporate notes and bonds
|
—
|
|
|
770
|
|
|
770
|
|
|||
Municipal securities
|
—
|
|
|
17
|
|
|
17
|
|
|||
Total Marketable securities
|
433
|
|
|
1,093
|
|
|
1,526
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge call options
|
—
|
|
|
19
|
|
|
19
|
|
|||
Total Assets
|
433
|
|
|
1,112
|
|
|
1,545
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
|||
Total Liabilities
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
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
|
)
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
Carrying amount
|
$
|
474
|
|
|
$
|
520
|
|
Fair value
|
509
|
|
|
557
|
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
Current Liabilities:
|
|
|
|
||||
Other accrued liabilities
|
$
|
391
|
|
|
$
|
368
|
|
Other Liabilities and Credits:
|
|
|
|
||||
Deferred revenue
|
477
|
|
|
427
|
|
||
Other liabilities
|
19
|
|
|
19
|
|
||
Total
|
$
|
887
|
|
|
$
|
814
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Passenger revenues
|
$
|
73
|
|
|
$
|
69
|
|
|
$
|
143
|
|
|
$
|
134
|
|
Other - net revenues
|
108
|
|
|
82
|
|
|
211
|
|
|
159
|
|
||||
Total
|
$
|
181
|
|
|
$
|
151
|
|
|
$
|
354
|
|
|
$
|
293
|
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
Fixed-rate notes payable due through 2024
|
$
|
474
|
|
|
$
|
520
|
|
Variable-rate notes payable due through 2025
|
155
|
|
|
166
|
|
||
Less debt issuance costs
|
(3
|
)
|
|
(3
|
)
|
||
Total debt
|
626
|
|
|
683
|
|
||
Less current portion
|
117
|
|
|
114
|
|
||
Long-term debt, less current portion
|
$
|
509
|
|
|
$
|
569
|
|
|
|
|
|
||||
Weighted-average fixed-interest rate
|
5.7
|
%
|
|
5.7
|
%
|
||
Weighted-average variable-interest rate
|
2.1
|
%
|
|
1.8
|
%
|
|
Total
|
||
Remainder of 2016
|
$
|
58
|
|
2017
|
121
|
|
|
2018
|
151
|
|
|
2019
|
114
|
|
|
2020
|
116
|
|
|
Thereafter
|
69
|
|
|
Total
|
$
|
629
|
|
|
Qualified Defined - Benefit Plans
|
||||||||||||||
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||
Service cost
|
$
|
9
|
|
|
$
|
10
|
|
|
$
|
18
|
|
|
$
|
20
|
|
Interest cost
|
19
|
|
|
21
|
|
|
37
|
|
|
42
|
|
||||
Expected return on assets
|
(27
|
)
|
|
(30
|
)
|
|
(54
|
)
|
|
(61
|
)
|
||||
Recognized actuarial loss (gain)
|
6
|
|
|
6
|
|
|
12
|
|
|
13
|
|
||||
Total
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
13
|
|
|
$
|
14
|
|
June 30, 2016
|
Aircraft Leases
|
|
Facility Leases
|
|
Aircraft Purchase Commitments
|
|
Capacity Purchase Agreements
(a)
|
||||||||
Remainder of 2016
|
$
|
39
|
|
|
$
|
47
|
|
|
$
|
305
|
|
|
$
|
34
|
|
2017
|
99
|
|
|
90
|
|
|
931
|
|
|
78
|
|
||||
2018
|
90
|
|
|
42
|
|
|
725
|
|
|
81
|
|
||||
2019
|
82
|
|
|
41
|
|
|
648
|
|
|
86
|
|
||||
2020
|
73
|
|
|
40
|
|
|
337
|
|
|
92
|
|
||||
Thereafter
|
400
|
|
|
142
|
|
|
400
|
|
|
745
|
|
||||
Total
|
$
|
783
|
|
|
$
|
402
|
|
|
$
|
3,346
|
|
|
$
|
1,116
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
||||||||||||
2015 Repurchase Program - $1 billion
|
873,396
|
|
|
$
|
67
|
|
|
—
|
|
|
$
|
—
|
|
|
2,594,809
|
|
|
$
|
193
|
|
|
—
|
|
|
$
|
—
|
|
2014 Repurchase Program - $650 million
|
—
|
|
|
$
|
—
|
|
|
2,480,807
|
|
|
$
|
160
|
|
|
—
|
|
|
$
|
—
|
|
|
4,061,554
|
|
|
$
|
262
|
|
Total
|
873,396
|
|
|
$
|
67
|
|
|
2,480,807
|
|
|
$
|
160
|
|
|
2,594,809
|
|
|
$
|
193
|
|
|
4,061,554
|
|
|
$
|
262
|
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
Marketable securities
|
$
|
9
|
|
|
$
|
(3
|
)
|
Employee benefit plans
|
(282
|
)
|
|
(288
|
)
|
||
Interest rate derivatives
|
(14
|
)
|
|
(12
|
)
|
||
Total
|
$
|
(287
|
)
|
|
$
|
(303
|
)
|
|
Three Months Ended June 30, 2016
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,036
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,036
|
|
|
$
|
—
|
|
|
$
|
1,036
|
|
Regional
|
—
|
|
|
227
|
|
|
—
|
|
|
—
|
|
|
227
|
|
|
—
|
|
|
227
|
|
|||||||
Total passenger revenues
|
1,036
|
|
|
227
|
|
|
—
|
|
|
—
|
|
|
1,263
|
|
|
—
|
|
|
1,263
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
110
|
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
26
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|||||||
Other - net
|
184
|
|
|
19
|
|
|
1
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
204
|
|
|||||||
Total operating revenues
|
1,246
|
|
|
247
|
|
|
111
|
|
|
(110
|
)
|
|
1,494
|
|
|
—
|
|
|
1,494
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
679
|
|
|
192
|
|
|
101
|
|
|
(111
|
)
|
|
861
|
|
|
14
|
|
|
875
|
|
|||||||
Economic fuel
|
180
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
211
|
|
|
(10
|
)
|
|
201
|
|
|||||||
Total operating expenses
|
859
|
|
|
223
|
|
|
101
|
|
|
(111
|
)
|
|
1,072
|
|
|
4
|
|
|
1,076
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
6
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|||||||
Interest expense
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
(1
|
)
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
|||||||
Other
|
3
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|||||||
|
5
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|||||||
Income (loss) before income tax
|
$
|
392
|
|
|
$
|
24
|
|
|
$
|
7
|
|
|
$
|
1
|
|
|
$
|
424
|
|
|
$
|
(4
|
)
|
|
$
|
420
|
|
|
Three Months Ended June 30, 2015
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,019
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,019
|
|
|
$
|
—
|
|
|
$
|
1,019
|
|
Regional
|
—
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
212
|
|
|
—
|
|
|
212
|
|
|||||||
Total passenger revenues
|
1,019
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
1,231
|
|
|
—
|
|
|
1,231
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
99
|
|
|
(99
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
28
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
|||||||
Other - net
|
156
|
|
|
19
|
|
|
1
|
|
|
—
|
|
|
176
|
|
|
—
|
|
|
176
|
|
|||||||
Total operating revenues
|
1,203
|
|
|
233
|
|
|
100
|
|
|
(99
|
)
|
|
1,437
|
|
|
—
|
|
|
1,437
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
645
|
|
|
169
|
|
|
90
|
|
|
(100
|
)
|
|
804
|
|
|
—
|
|
|
804
|
|
|||||||
Economic fuel
|
232
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
267
|
|
|
(6
|
)
|
|
261
|
|
|||||||
Total operating expenses
|
877
|
|
|
204
|
|
|
90
|
|
|
(100
|
)
|
|
1,071
|
|
|
(6
|
)
|
|
1,065
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
5
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|||||||
Interest expense
|
(7
|
)
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
|||||||
Other
|
7
|
|
|
—
|
|
|
(1
|
)
|
|
3
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|||||||
|
5
|
|
|
—
|
|
|
(2
|
)
|
|
1
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|||||||
Income (loss) before income tax
|
$
|
331
|
|
|
$
|
29
|
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
370
|
|
|
$
|
6
|
|
|
$
|
376
|
|
|
Six Months Ended June 30, 2016
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
1,963
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,963
|
|
|
$
|
—
|
|
|
$
|
1,963
|
|
||
Regional
|
—
|
|
|
433
|
|
|
—
|
|
|
—
|
|
|
433
|
|
|
—
|
|
|
433
|
|
|||||||
Total passenger revenues
|
1,963
|
|
|
433
|
|
|
—
|
|
|
—
|
|
|
2,396
|
|
|
—
|
|
|
2,396
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
213
|
|
|
(213
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
49
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|||||||
Other - net
|
356
|
|
|
36
|
|
|
2
|
|
|
—
|
|
|
394
|
|
|
—
|
|
|
394
|
|
|||||||
Total operating revenues
|
2,368
|
|
|
471
|
|
|
215
|
|
|
(213
|
)
|
|
2,841
|
|
|
—
|
|
|
2,841
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating expenses, excluding fuel
|
1,380
|
|
|
378
|
|
|
206
|
|
|
(213
|
)
|
|
1,751
|
|
|
14
|
|
|
1,765
|
|
|||||||
Economic fuel
|
324
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
380
|
|
|
(12
|
)
|
|
368
|
|
|||||||
Total operating expenses
|
1,704
|
|
|
434
|
|
|
206
|
|
|
(213
|
)
|
|
2,131
|
|
|
2
|
|
|
2,133
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest income
|
12
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|||||||
Interest expense
|
(16
|
)
|
|
—
|
|
|
(5
|
)
|
|
(1
|
)
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|||||||
Other
|
10
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
13
|
|
|
—
|
|
|
13
|
|
|||||||
|
6
|
|
|
—
|
|
|
(4
|
)
|
|
2
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|||||||
Income (loss) before income tax
|
$
|
670
|
|
|
$
|
37
|
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
714
|
|
|
$
|
(2
|
)
|
|
$
|
712
|
|
|
Six Months Ended June 30, 2015
|
||||||||||||||||||||||||||
|
Alaska
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Parent & Consolidating
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,920
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,920
|
|
|
$
|
—
|
|
|
$
|
1,920
|
|
Regional
|
—
|
|
|
398
|
|
|
—
|
|
|
—
|
|
|
398
|
|
|
—
|
|
|
398
|
|
|||||||
Total passenger revenues
|
1,920
|
|
|
398
|
|
|
—
|
|
|
—
|
|
|
2,318
|
|
|
—
|
|
|
2,318
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
198
|
|
|
(198
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
50
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
53
|
|
|
—
|
|
|
53
|
|
|||||||
Other - net
|
298
|
|
|
35
|
|
|
2
|
|
|
—
|
|
|
335
|
|
|
—
|
|
|
335
|
|
|||||||
Total operating revenues
|
2,268
|
|
|
436
|
|
|
200
|
|
|
(198
|
)
|
|
2,706
|
|
|
—
|
|
|
2,706
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
1,284
|
|
|
333
|
|
|
181
|
|
|
(198
|
)
|
|
1,600
|
|
|
—
|
|
|
1,600
|
|
|||||||
Economic fuel
|
436
|
|
|
66
|
|
|
—
|
|
|
—
|
|
|
502
|
|
|
(6
|
)
|
|
496
|
|
|||||||
Total operating expenses
|
1,720
|
|
|
399
|
|
|
181
|
|
|
(198
|
)
|
|
2,102
|
|
|
(6
|
)
|
|
2,096
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
10
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
11
|
|
|
—
|
|
|
11
|
|
|||||||
Interest expense
|
(14
|
)
|
|
—
|
|
|
(5
|
)
|
|
(3
|
)
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|||||||
Other
|
14
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
17
|
|
|
—
|
|
|
17
|
|
|||||||
|
10
|
|
|
—
|
|
|
(5
|
)
|
|
1
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|||||||
Income (loss) before income tax
|
$
|
558
|
|
|
$
|
37
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
610
|
|
|
$
|
6
|
|
|
$
|
616
|
|
(a)
|
Includes consolidating entries, Parent Company, and other immaterial business units.
|
(b)
|
The adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations and does not include certain income and charges.
|
(c)
|
Includes mark-to-market fuel-hedge accounting charges, and other special items described previously.
|
|
June 30,
2016 |
|
December 31,
2015 |
||||
Alaska
(a)
|
$
|
9,101
|
|
|
$
|
8,127
|
|
Horizon
|
729
|
|
|
717
|
|
||
Parent company
|
5,200
|
|
|
4,734
|
|
||
Elimination of inter-company accounts
|
(7,995
|
)
|
|
(7,048
|
)
|
||
Consolidated
|
$
|
7,035
|
|
|
$
|
6,530
|
|
(a)
|
There are no assets associated with capacity purchase flying at Alaska.
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Second
Quarter Review
—highlights from the
second
quarter of
2016
outlining some of the major events that happened during the period and how they affected our financial performance.
|
•
|
Results of Operations
—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the
three and six
months ended
June 30, 2016
. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of the remainder of
2016
.
|
•
|
Liquidity and Capital Resources
—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.
|
New Non-Stop Routes Launched in Q2
|
New Non-Stop Routes Announced (Launch Dates)
|
San Diego to San Jose, California
|
Portland, Oregon to Newark, New Jersey (11/10/16)
|
San Jose to Orange County, California
|
San Diego to Newark, New Jersey (11/21/16)
|
Portland to Atlanta
|
Portland to Sun Valley, Idaho (12/17/16)
|
Anchorage, Alaska to Spokane, Washington
|
San Diego to Steamboat Springs, Colorado (12/17/16)
|
|
San Jose, California to Newark, New Jersey (2/31/17)
|
|
Portland to Orlando, Florida (3/16/17)
|
|
Seattle to San Luis Obispo, California (4/13/17)
|
|
Los Angeles to Havana, Cuba (TBD)
(a)
|
|
Forecast
Q3 2016 |
|
Change
Y-O-Y
|
|
Forecast
Full Year 2016 |
|
Change
Y-O-Y
|
Consolidated:
|
|
|
|
|
|
|
|
ASMs (000,000) "capacity"
|
11,150 - 11,200
|
|
~ 8%
|
|
43,250 - 43,350
|
|
~ 8.5%
|
CASM excluding fuel and special items (cents)
|
8.28¢ - 8.33¢
|
|
~ 3%
|
|
8.25¢ - 8.30¢
|
|
~ (0.5)%
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
ASMs (000,000) "capacity"
|
9,900 - 9,950
|
|
~ 7%
|
|
38,400 - 38,500
|
|
~ 7%
|
CASM excluding fuel and special items (cents)
|
7.37¢ - 7.42¢
|
|
~ 3%
|
|
7.35¢ - 7.40¢
|
|
~ (0.5)%
|
•
|
In the
second
quarter of
2016
we recorded special items of
$14 million
(
$9 million
after tax) for merger costs associated with our pending acquisition of Virgin America.
|
•
|
By eliminating fuel expense and certain special items from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
|
•
|
Cost per ASM (CASM) excluding fuel and certain special items is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
|
•
|
Adjusted income before income tax and CASM excluding fuel, and other special items, are important metrics for the employee incentive plan that covers all Air Group employees.
|
•
|
CASM excluding fuel and certain special items is a measure commonly used by industry analysts, and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.
|
•
|
Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as mark-to-market hedging adjustments or merger costs, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
|
•
|
Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.
|
|
Three Months Ended June 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except per share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Net income and diluted EPS as reported
|
$
|
260
|
|
|
$
|
2.10
|
|
|
$
|
234
|
|
|
$
|
1.79
|
|
Mark-to-market fuel hedge adjustments, net of tax
|
(6
|
)
|
|
(0.05
|
)
|
|
(4
|
)
|
|
(0.03
|
)
|
||||
Special items - merger costs, net of tax
|
9
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
||||
Non-GAAP adjusted income and per-share amounts
|
$
|
263
|
|
|
$
|
2.12
|
|
|
$
|
230
|
|
|
$
|
1.76
|
|
|
Three Months Ended June 30,
|
|||||||||
(in cents)
|
2016
|
|
2015
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
CASM
|
|
9.73
|
¢
|
|
|
10.70
|
¢
|
|
(9.1
|
)%
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.82
|
|
|
2.62
|
|
|
(30.5
|
)%
|
||
Special items - merger costs
|
0.13
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
7.78
|
¢
|
|
|
8.08
|
¢
|
|
(3.7
|
)%
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
CASM
|
|
8.60
|
¢
|
|
|
9.70
|
¢
|
|
(11.3
|
)%
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.72
|
|
|
2.53
|
|
|
(32.0
|
)%
|
||
CASM excluding fuel and special items
|
|
6.88
|
¢
|
|
|
7.17
|
¢
|
|
(4.0
|
)%
|
|
Three Months Ended June 30,
|
||||
|
2016
|
|
2015
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
Revenue passengers (000)
|
8,647
|
|
8,024
|
|
7.8%
|
Revenue passenger miles (RPM) (000,000) "traffic"
|
9,397
|
|
8,451
|
|
11.2%
|
Available seat miles (ASM) (000,000) "capacity"
|
11,062
|
|
9,949
|
|
11.2%
|
Load factor
|
84.9%
|
|
84.9%
|
|
—
|
Yield
|
13.44¢
|
|
14.56¢
|
|
(7.7)%
|
Passenger revenue per ASM (PRASM)
|
11.42¢
|
|
12.37¢
|
|
(7.7)%
|
Revenue per ASM (RASM)
|
13.51¢
|
|
14.44¢
|
|
(6.4)%
|
Operating expense per ASM (CASM) excluding fuel and special items
(b)
|
7.78¢
|
|
8.08¢
|
|
(3.7)%
|
Economic fuel cost per gallon
(b)
|
$1.53
|
|
$2.12
|
|
(27.8)%
|
Fuel gallons (000,000)
|
138
|
|
126
|
|
9.5%
|
ASMs per fuel gallon
|
80.2
|
|
79.0
|
|
1.5%
|
Average full-time equivalent employees (FTEs)
|
14,470
|
|
13,793
|
|
4.9%
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
Revenue passengers (000)
|
6,282
|
|
5,787
|
|
8.6%
|
RPMs (000,000) "traffic"
|
8,456
|
|
7,662
|
|
10.4%
|
ASMs (000,000) "capacity"
|
9,875
|
|
8,984
|
|
9.9%
|
Load factor
|
85.6%
|
|
85.3%
|
|
0.3 pts
|
Yield
|
12.25¢
|
|
13.29¢
|
|
(7.8)%
|
PRASM
|
10.49¢
|
|
11.34¢
|
|
(7.5)%
|
RASM
|
12.61¢
|
|
13.40¢
|
|
(5.9)%
|
CASM excluding fuel and special items
(b)
|
6.88¢
|
|
7.17¢
|
|
(4.0)%
|
Economic fuel cost per gallon
(b)
|
$1.52
|
|
$2.12
|
|
(28.3)%
|
Fuel gallons (000,000)
|
118
|
|
110
|
|
7.3%
|
ASMs per fuel gallon
|
83.7
|
|
81.7
|
|
2.4%
|
Average FTEs
|
11,261
|
|
10,726
|
|
5.0%
|
Aircraft utilization
|
10.8
|
|
11.1
|
|
(2.7%)
|
Average aircraft stage length
|
1,177
|
|
1,191
|
|
(1.2%)
|
Operating fleet
|
152
|
|
140
|
|
12 a/c
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
Revenue passengers (000)
|
2,365
|
|
2,237
|
|
5.7%
|
RPMs (000,000) "traffic"
|
941
|
|
789
|
|
19.3%
|
ASMs (000,000) "capacity"
|
1,187
|
|
965
|
|
23.0%
|
Load factor
|
79.3%
|
|
81.8%
|
|
(2.5 pts)
|
Yield
|
24.17¢
|
|
26.92¢
|
|
(10.2)%
|
PRASM
|
19.16¢
|
|
21.99¢
|
|
(12.9)%
|
Operating fleet
|
69
|
|
63
|
|
6 a/c
|
(a)
|
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
|
(b)
|
See reconciliation of operating expenses excluding fuel and special items, and a reconciliation of economic fuel costs in the accompanying pages.
|
(c)
|
Data presented includes information related to flights operated by Horizon and third-party carriers.
|
|
Three Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Passenger
|
|
|
|
|
|
|||||
Mainline
|
$
|
1,036
|
|
|
$
|
1,019
|
|
|
2
|
%
|
Regional
|
227
|
|
|
212
|
|
|
7
|
%
|
||
Total passenger revenue
|
1,263
|
|
|
1,231
|
|
|
3
|
%
|
||
Freight and mail
|
27
|
|
|
30
|
|
|
(10
|
)%
|
||
Other - net
|
204
|
|
|
176
|
|
|
16
|
%
|
||
Total operating revenues
|
$
|
1,494
|
|
|
$
|
1,437
|
|
|
4
|
%
|
|
Three Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Fuel expense
|
$
|
201
|
|
|
$
|
261
|
|
|
(23
|
)%
|
Non-fuel expenses
|
875
|
|
|
804
|
|
|
9
|
%
|
||
Special items - merger costs
|
14
|
|
|
—
|
|
|
NM
|
|
||
Total Operating Expenses
|
$
|
1,076
|
|
|
$
|
1,065
|
|
|
1
|
%
|
|
Three Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Wages
|
$
|
249
|
|
|
$
|
231
|
|
|
8
|
%
|
Pension - Defined benefit plans
|
6
|
|
|
7
|
|
|
(14
|
)%
|
||
Defined contribution plans
|
16
|
|
|
15
|
|
|
7
|
%
|
||
Medical and other benefits
|
42
|
|
|
35
|
|
|
20
|
%
|
||
Payroll taxes
|
19
|
|
|
17
|
|
|
12
|
%
|
||
Total wages and benefits
|
$
|
332
|
|
|
$
|
305
|
|
|
9
|
%
|
|
Three Months Ended June 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
207
|
|
|
$
|
1.50
|
|
|
$
|
262
|
|
|
$
|
2.08
|
|
Losses on settled hedges
|
4
|
|
|
0.03
|
|
|
5
|
|
|
0.04
|
|
||||
Consolidated economic fuel expense
|
211
|
|
|
1.53
|
|
|
267
|
|
|
2.12
|
|
||||
Mark-to-market fuel hedge adjustments
|
(10
|
)
|
|
(0.07
|
)
|
|
(6
|
)
|
|
(0.05
|
)
|
||||
GAAP fuel expense
|
$
|
201
|
|
|
$
|
1.46
|
|
|
$
|
261
|
|
|
$
|
2.07
|
|
Fuel gallons
|
138
|
|
|
|
|
126
|
|
|
|
•
|
In the
second
quarter of
2016
we recorded special items of
$14 million
(
$9 million
after tax) related to merger costs associated with our pending acquisition of Virgin America.
|
|
Six Months Ended June 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except per share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Net income and diluted EPS as reported
|
$
|
444
|
|
|
$
|
3.56
|
|
|
$
|
383
|
|
|
$
|
2.91
|
|
Mark-to-market fuel hedge adjustments, net of tax
|
(8
|
)
|
|
(0.06
|
)
|
|
(4
|
)
|
|
(0.03
|
)
|
||||
Special items - merger costs, net of tax
|
9
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
||||
Non-GAAP adjusted income and per-share amounts
|
$
|
445
|
|
|
$
|
3.57
|
|
|
$
|
379
|
|
|
$
|
2.88
|
|
|
Six Months Ended June 30,
|
|||||||||
(in cents)
|
2016
|
|
2015
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
CASM
|
|
9.91
|
¢
|
|
|
10.91
|
¢
|
|
(9.2
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.71
|
|
|
2.58
|
|
|
(33.7
|
)
|
||
Special items - merger costs
|
0.06
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
8.14
|
¢
|
|
|
8.33
|
¢
|
|
(2.3
|
)
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
CASM
|
|
8.80
|
¢
|
|
|
9.89
|
¢
|
|
(11.0
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.62
|
|
|
2.48
|
|
|
(34.7
|
)
|
||
CASM excluding fuel and special items
|
|
7.18
|
¢
|
|
|
7.41
|
¢
|
|
(3.1
|
)
|
|
Six Months Ended June 30,
|
||||
|
2016
|
|
2015
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
Revenue passengers (000)
|
16,482
|
|
15,340
|
|
7.4%
|
Revenue passenger miles (RPM) (000,000) "traffic"
|
17,968
|
|
16,173
|
|
11.1%
|
Available seat miles (ASM) (000,000) "capacity"
|
21,515
|
|
19,206
|
|
12.0%
|
Load factor
|
83.5%
|
|
84.2%
|
|
(0.7) pts
|
Yield
|
13.34¢
|
|
14.33¢
|
|
(6.9)%
|
Passenger revenue per ASM (PRASM)
|
11.14¢
|
|
12.07¢
|
|
(7.7)%
|
Revenue per ASM (RASM)
|
13.21¢
|
|
14.09¢
|
|
(6.2)%
|
Operating expense per ASM (CASM) excluding fuel and special items
(b)
|
8.14¢
|
|
8.33¢
|
|
(2.3)%
|
Economic fuel cost per gallon
(b)
|
$1.41
|
|
$2.05
|
|
(31.2)%
|
Fuel gallons (000,000)
|
270
|
|
245
|
|
10.2%
|
ASMs per fuel gallon
|
79.7
|
|
78.4
|
|
1.7%
|
Average full-time equivalent employees (FTEs)
|
14,414
|
|
13,534
|
|
6.5%
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
Revenue passengers (000)
|
11,925
|
|
11,022
|
|
8.2%
|
RPMs (000,000) "traffic"
|
16,172
|
|
14,657
|
|
10.3%
|
ASMs (000,000) "capacity"
|
19,229
|
|
17,330
|
|
11.0%
|
Load factor
|
84.1%
|
|
84.6%
|
|
(0.5) pts
|
Yield
|
12.14¢
|
|
13.10¢
|
|
(7.3)%
|
PRASM
|
10.21¢
|
|
11.08¢
|
|
(7.9)%
|
RASM
|
12.31¢
|
|
13.09¢
|
|
(6.0)%
|
CASM excluding fuel and special items
(b)
|
7.18¢
|
|
7.41¢
|
|
(3.1)%
|
Economic fuel cost per gallon
(b)
|
$1.40
|
|
$2.05
|
|
(31.7)%
|
Fuel gallons (000,000)
|
231
|
|
213
|
|
8.5%
|
ASMs per fuel gallon
|
83.2
|
|
81.4
|
|
2.2%
|
Average FTEs
|
11,192
|
|
10,553
|
|
6.1%
|
Aircraft utilization
|
10.7
|
|
10.8
|
|
(0.9%)
|
Average aircraft stage length
|
1,195
|
|
1,195
|
|
—%
|
Operating fleet
|
152
|
|
140
|
|
12 a/c
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
Revenue passengers (000)
|
4,558
|
|
4,318
|
|
5.6%
|
RPMs (000,000) "traffic"
|
1,796
|
|
1,516
|
|
18.5%
|
ASMs (000,000) "capacity"
|
2,287
|
|
1,876
|
|
21.9%
|
Load factor
|
78.5%
|
|
80.8%
|
|
(2.3 pts)
|
Yield
|
24.13¢
|
|
26.28¢
|
|
(8.2)%
|
PRASM
|
18.95¢
|
|
21.25¢
|
|
(10.8)%
|
Operating fleet
|
69
|
|
63
|
|
6 a/c
|
(a)
|
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
|
(b)
|
See reconciliation of operating expenses excluding fuel and special items, and a reconciliation of economic fuel costs in the accompanying pages.
|
(c)
|
Data presented includes information related to flights operated by Horizon and third-party carriers.
|
|
Six Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Passenger
|
|
|
|
|
|
|||||
Mainline
|
$
|
1,963
|
|
|
$
|
1,920
|
|
|
2
|
|
Regional
|
433
|
|
|
398
|
|
|
9
|
|
||
Total passenger revenue
|
2,396
|
|
|
2,318
|
|
|
3
|
|
||
Freight and mail
|
51
|
|
|
53
|
|
|
(4
|
)
|
||
Other - net
|
394
|
|
|
335
|
|
|
18
|
|
||
Total operating revenues
|
$
|
2,841
|
|
|
$
|
2,706
|
|
|
5
|
|
|
Six Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Fuel expense
|
$
|
368
|
|
|
$
|
496
|
|
|
(26
|
)
|
Non-fuel expenses
|
1,751
|
|
|
1,600
|
|
|
9
|
|
||
Special items - merger costs
|
14
|
|
|
—
|
|
|
NM
|
|
||
Total Operating Expenses
|
$
|
2,133
|
|
|
$
|
2,096
|
|
|
2
|
|
|
Six Months Ended June 30,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Wages
|
$
|
499
|
|
|
$
|
461
|
|
|
8
|
|
Pension - Defined benefit plans
|
13
|
|
|
14
|
|
|
(7
|
)
|
||
Defined contribution plans
|
33
|
|
|
30
|
|
|
10
|
|
||
Medical and other benefits
|
85
|
|
|
73
|
|
|
16
|
|
||
Payroll taxes
|
38
|
|
|
33
|
|
|
15
|
|
||
Total wages and benefits
|
$
|
668
|
|
|
$
|
611
|
|
|
9
|
|
|
Six Months Ended June 30,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gallon
|
|
Dollars
|
|
Cost/Gallon
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
372
|
|
|
$
|
1.38
|
|
|
$
|
492
|
|
|
$
|
2.01
|
|
(Gains) losses on settled hedges
|
8
|
|
|
0.03
|
|
|
10
|
|
|
0.04
|
|
||||
Consolidated economic fuel expense
|
380
|
|
|
1.41
|
|
|
502
|
|
|
2.05
|
|
||||
Mark-to-market fuel hedge adjustments
|
(12
|
)
|
|
(0.04
|
)
|
|
(6
|
)
|
|
(0.02
|
)
|
||||
GAAP fuel expense
|
$
|
368
|
|
|
$
|
1.37
|
|
|
$
|
496
|
|
|
$
|
2.03
|
|
Fuel gallons
|
270
|
|
|
|
|
245
|
|
|
|
•
|
Our existing cash and marketable securities balance of
$1.6 billion
, and our expected cash from operations;
|
•
|
Our
101
unencumbered aircraft in our operating fleet that could be financed, if necessary;
|
•
|
Our combined
$252 million
bank line-of-credit facilities, with no outstanding borrowings.
|
(a)
|
Calculated using the present value of remaining aircraft lease payments for aircraft in our operating fleet as of the end of the period.
|
(in millions)
|
2016
|
|
2017
|
|
2018
|
|
2019
|
||||||||
Aircraft and aircraft purchase deposits - firm
|
$
|
500
|
|
|
$
|
815
|
|
|
$
|
665
|
|
|
$
|
585
|
|
Other flight equipment
|
70
|
|
|
110
|
|
|
65
|
|
|
60
|
|
||||
Other property and equipment
|
125
|
|
|
115
|
|
|
110
|
|
|
95
|
|
||||
Total property and equipment additions
|
$
|
695
|
|
|
$
|
1,040
|
|
|
$
|
840
|
|
|
$
|
740
|
|
Option aircraft and aircraft deposits, if exercised
(a)
|
$
|
70
|
|
|
$
|
135
|
|
|
$
|
270
|
|
|
$
|
600
|
|
(a)
|
Alaska has options to acquire
46
B737 aircraft with deliveries from
2018
through
2024
. Horizon has options for
30
E175 aircraft with deliveries from
2019
to
2021
. Horizon also has options to acquire
five
Q400 aircraft with deliveries from
2018
through
2019
which we currently do not expect to exercise and related deposits are excluded from the table above.
|
|
Actual Fleet
|
|
Expected Fleet Activity
(a)
|
|||||||||||
Aircraft
|
Dec 31, 2015
|
|
2016 Changes
|
|
Dec 31, 2016
|
|
2017-2018 Changes
|
|
Dec 31, 2018
|
|||||
737 Freighters & Combis
(b)
|
6
|
|
|
—
|
|
|
6
|
|
|
(3
|
)
|
|
3
|
|
737 Passenger Aircraft
(b)
|
141
|
|
|
6
|
|
|
147
|
|
|
9
|
|
|
156
|
|
Total Mainline Fleet
|
147
|
|
|
6
|
|
|
153
|
|
|
6
|
|
|
159
|
|
Q400
(d)
|
52
|
|
|
—
|
|
|
52
|
|
|
(15
|
)
|
|
37
|
|
E175
(c)
|
5
|
|
|
10
|
|
|
15
|
|
|
28
|
|
|
43
|
|
CRJ700
(c)
|
8
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Regional Fleet
|
65
|
|
|
2
|
|
|
67
|
|
|
13
|
|
|
80
|
|
Total
|
212
|
|
|
8
|
|
|
220
|
|
|
19
|
|
|
239
|
|
(a)
|
The expected fleet counts at December 31, 2016 and beyond are subject to change.
|
(b)
|
2016 change in 737 Passenger Aircraft reflects delivery of 19 737-900 aircraft, the retirement of 10 737-400 aircraft and the removal from service of three 737-700 aircraft. The three 737-700 aircraft are being converted to freighters and will return to service in 2017.
|
(c)
|
Aircraft are operated under capacity purchase agreements with Horizon or other regional airlines.
|
(d)
|
Excludes deliveries of two Q400 aircraft that are currently contracted. At this time we do not expect to take delivery of those aircraft.
|
|
Approximate % of Expected Fuel Requirements
|
|
Weighted-Average Crude Oil Price per Barrel
|
|
Average Premium Cost per Barrel
|
|
Third Quarter 2016
|
50
|
%
|
|
$62
|
|
$3
|
Fourth Quarter 2016
|
50
|
%
|
|
$61
|
|
$3
|
Remainder 2016
|
50
|
%
|
|
$62
|
|
$3
|
First Quarter 2017
|
40
|
%
|
|
$58
|
|
$3
|
Second Quarter 2017
|
30
|
%
|
|
$58
|
|
$3
|
Third Quarter 2017
|
20
|
%
|
|
$59
|
|
$4
|
Fourth Quarter 2017
|
10
|
%
|
|
$63
|
|
$4
|
Full Year 2017
|
25
|
%
|
|
$59
|
|
$3
|
(in millions)
|
Remainder of 2016
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
Beyond 2020
|
|
Total
|
||||||||||||||
Current and long-term debt obligations
|
$
|
58
|
|
|
$
|
121
|
|
|
$
|
151
|
|
|
$
|
114
|
|
|
$
|
116
|
|
|
$
|
69
|
|
|
$
|
629
|
|
Operating lease commitments
(a)
|
86
|
|
|
189
|
|
|
132
|
|
|
123
|
|
|
113
|
|
|
542
|
|
|
1,185
|
|
|||||||
Aircraft purchase commitments
(d)
|
305
|
|
|
931
|
|
|
725
|
|
|
648
|
|
|
337
|
|
|
400
|
|
|
3,346
|
|
|||||||
Interest obligations
(b)
|
15
|
|
|
26
|
|
|
20
|
|
|
12
|
|
|
7
|
|
|
4
|
|
|
84
|
|
|||||||
Capacity Purchase Agreements
(c)
|
34
|
|
|
78
|
|
|
81
|
|
|
86
|
|
|
92
|
|
|
745
|
|
|
1,116
|
|
|||||||
Total
|
$
|
498
|
|
|
$
|
1,345
|
|
|
$
|
1,109
|
|
|
$
|
983
|
|
|
$
|
665
|
|
|
$
|
1,760
|
|
|
$
|
6,360
|
|
(a)
|
Operating lease commitments generally include aircraft operating leases (including those under capacity purchase agreements), airport property and hangar leases, office space, and other equipment leases.
|
(b)
|
For variable-rate debt, future obligations are shown above using interest rates in effect as of
June 30, 2016
.
|
(c)
|
Includes minimum obligations associated with third-party CPA provider SkyWest. Refer to the "Commitments" note in the condensed consolidated financial statements for further information.
|
(d)
|
Includes payments for two Q400 aircraft deliveries in 2018 that are currently contracted. However, at this time we do not expect to take delivery of those aircraft.
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
ITEM 4. CONTROLS AND PROCEDURES
|
ITEM 1. LEGAL PROCEEDINGS
|
ITEM 1A. RISK FACTORS
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
Total Number of
Shares Purchased
|
|
Average Price
Paid per Share
|
|
Maximum remaining
dollar value of shares
that can be purchased
under the plan (in millions)
|
|||||
April 1, 2016 - April 30, 2016
|
682,273
|
|
|
$
|
78.33
|
|
|
|
||
May 1, 2016 - May 6, 2016
|
191,123
|
|
|
69.61
|
|
|
|
|||
Total
|
873,396
|
|
|
$
|
76.43
|
|
|
$
|
687
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4. MINE SAFETY DISCLOSURES
|
ITEM 5. OTHER INFORMATION
|
ITEM 6. EXHIBITS
|
1.
|
Exhibits:
See Exhibit Index.
|
ALASKA AIR GROUP, INC.
|
|
|
|
/s/ CHRISTOPHER M. BERRY
|
|
Christopher M. Berry
|
|
Managing Director, Accounting and Controller
|
|
(Principal Accounting Officer)
|
|
|
|
August 2, 2016
|
|
1.
|
I have reviewed this annual report on Form 10-Q of Alaska Air Group, Inc. for the period ended
June 30, 2016
;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
e)
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By
|
/s/ BRADLEY D. TILDEN
|
|
Bradley D. Tilden
|
|
Chairman, President and Chief Executive Officer
|
1.
|
I have reviewed this annual report on Form 10-Q of Alaska Air Group, Inc. for the period ended
June 30, 2016
;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By
|
/s/ BRANDON S. PEDERSEN
|
|
Brandon S. Pedersen
|
|
Executive Vice President/Finance and Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By
|
/s/ BRADLEY D. TILDEN
|
|
Bradley D. Tilden
|
|
Chairman, President and Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By
|
/s/ BRANDON S. PEDERSEN
|
|
Brandon S. Pedersen
|
|
Executive Vice President/Finance and Chief Financial Officer
|
Number of Shares of Common Stock
1
:
|
|
Award Date:
|
|
Exercise Price per Share
1
:
|
$
|
Expiration Date
1,2
:
|
|
1.
|
Vesting; Limits on Exercise; Incentive Stock Option Status
.
|
•
|
Cumulative Exercisability
. To the extent that the Option is vested and exercisable, the Grantee has the right to exercise the Option (to the extent not previously exercised), and such right shall continue, until the expiration or earlier termination of the Option.
|
•
|
McGee Air Services Not Considered a Subsidiary
. Notwithstanding any other provision of this Option Agreement or the Plan to the contrary, McGee Air Services (and any subsidiary of McGee Air Services) (together, the “
McGee Air Services Affiliates
”) shall not be considered a “Subsidiary” for purposes of the Option. Accordingly, if the Grantee ceases to be employed by or providing services to the Corporation or one of its Subsidiaries, and thereafter continues to be employed by or provide services to a McGee Air Services Affiliate while the Option is outstanding, then, unless the Administrator otherwise provides in the circumstances, the Grantee’s employment by or service to a McGee Air Services Affiliate shall not be considered for purposes of the Option and the termination of employment and service rules set forth in Section 4.2 shall be triggered by, and the Grantee’s Severance Date (as defined below) shall be determined with respect to, the last day that the Grantee was employed by or providing services to the Corporation or one of its Subsidiaries (other than a McGee Air Services Affiliate).
|
•
|
No Fractional Shares
. Fractional share interests shall be disregarded, but may be cumulated.
|
•
|
Minimum Exercise
. No fewer than 100 shares of Common Stock (subject to adjustment under Section 7.1 of the Plan) may be purchased at any one time, unless the number purchased is the total number at the time exercisable under the Option.
|
•
|
Nonqualified Stock Option
. The Option is a nonqualified stock option and is not, and shall not be, an incentive stock option within the meaning of Section 422 of the Code.
|
2.
|
Continuance of Employment/Service Required; No Employment/Service Commitment
.
|
3.
|
Method of Exercise of Option
.
|
•
|
a written notice stating the number of shares of Common Stock to be purchased pursuant to the Option or by the completion of such other administrative exercise procedures as the Administrator may require from time to time,
|
•
|
payment in full for the Exercise Price of the shares to be purchased in cash, check or by electronic funds transfer to the Corporation;
|
•
|
any written statements or agreements required pursuant to Section 8.1 of the Plan
; and
|
•
|
satisfaction of the tax withholding provisions of Section 8.5 of the Plan.
|
•
|
notice and third party payment in such manner as may be authorized by the Administrator;
|
•
|
in shares of Common Stock already owned by the Grantee, valued at their fair market value (as determined under the Plan) on the exercise date;
|
•
|
a reduction in the number of shares of Common Stock otherwise deliverable to the Grantee (valued at their fair market value on the exercise date, as determined under the Plan) pursuant to the exercise of the Option; or
|
•
|
a “cashless exercise” with a third party who provides simultaneous financing for the purposes of (or who otherwise facilitates) the exercise of the Option.
|
4.
|
Early Termination of Option
.
|
•
|
Other than as expressly provided below in this Section 4.2, the Option (whether vested or not) shall terminate on the Severance Date.
|
•
|
If the termination of the Grantee’s employment or services is the result of the Grantee’s Retirement, (a) the Option, to the extent not vested on the Severance Date and scheduled to vest at any time within the three (3)-year period following the Severance Date, shall become fully vested as of the Severance Date, (b) the Grantee will have until the date that is three (3) years after the Grantee’s Severance Date to exercise the Option, provided, however, that any portion of the Option that becomes vested pursuant to the foregoing clause (a) shall become exercisable only at such times as such portion would have otherwise vested pursuant to the original vesting schedule as provided herein had the Grantee’s employment or service not terminated, (c) the Option, to the extent not vested on the Severance Date (after giving effect to the foregoing clause (a)), shall terminate on the Severance Date, and (d) the Option, to the extent exercisable at any time during the three (3)-year period following the Severance Date and not exercised on or prior to the last day of such period, shall terminate at the close of business on the last day of the three (3)-year period.
|
•
|
If the termination of the Grantee’s employment or services is the result of the Grantee’s death or Total Disability, (a) the Option, to the extent not vested on the Severance Date, shall become fully vested as of the Severance Date, (b) the Grantee (or his beneficiary or personal representative, as the case may be) will have until the date that is three (3) years after the Grantee’s Severance Date to exercise the Option, and (c) the Option, to the extent exercisable for the three (3)-year period following the Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the three (3)-year period.
|
5.
|
Non-Transferability
.
|
6.
|
Notices
.
|
7.
|
Plan
.
|
8.
|
Entire Agreement
.
|
9.
|
Governing Law
.
|
10.
|
Effect of this Agreement
.
|
11.
|
Counterparts
.
|
12.
|
Section Headings
.
|
13.
|
Clawback Policy
.
|
14.
|
No Advice Regarding Grant
.
|
(i)
|
the Grantee is convicted of, or has pled guilty or
nolo contendere
to, a felony (other than traffic related offenses or as a result of vicarious liability); or
|
(ii)
|
the Grantee has engaged in acts of fraud, material dishonesty or other acts of willful misconduct in the course of his duties to the Corporation or any of its Subsidiaries; or
|
(iii)
|
the Grantee willfully and repeatedly fails to perform or uphold his duties to the Corporation or any of its Subsidiaries; or
|
(iv)
|
the Grantee willfully fails to comply with reasonable directives of the Board which are communicated to him or her in writing;
|
(iv)
|
approval by the stockholders of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation.
|
(v)
|
a material reduction in the Grantee’s annual base salary;
|
(vi)
|
a material diminution or reduction of the Grantee’s authority, duties, or responsibilities;
|
(vii)
|
a material change in the geographic location at which the Grantee must perform services; or
|
(viii)
|
any material breach by the Corporation of any other provision of this Agreement;
|
Number of Shares of Common Stock
1
:
|
|
Award Date:
|
|
Exercise Price per Share
1
:
|
$
|
Expiration Date
1,2
:
|
|
1.
|
Vesting; Limits on Exercise; Incentive Stock Option Status
.
|
•
|
Cumulative Exercisability
. To the extent that the Option is vested and exercisable, the Grantee has the right to exercise the Option (to the extent not previously exercised), and such right shall continue, until the expiration or earlier termination of the Option.
|
•
|
McGee Air Services Not Considered a Subsidiary
. Notwithstanding any other provision of this Option Agreement or the Plan to the contrary, McGee Air Services (and any subsidiary of McGee Air Services) (together, the “
McGee Air Services Affiliates
”) shall not be considered a “Subsidiary” for purposes of the Option. Accordingly, if the Grantee ceases to be employed by or providing services to the Corporation or one of its Subsidiaries, and thereafter continues to be employed by or provide services to a McGee Air Services Affiliate while the Option is outstanding, then, unless the Administrator otherwise provides in the circumstances, the Grantee’s employment by or service to a McGee Air Services Affiliate shall not be considered for purposes of the Option and the termination of employment and service rules set forth in Section 4.2 shall be triggered by, and the Grantee’s Severance Date (as defined below) shall be determined with respect to, the last day that the Grantee was employed by or providing services to the Corporation or one of its Subsidiaries (other than a McGee Air Services Affiliate).
|
•
|
No Fractional Shares
. Fractional share interests shall be disregarded, but may be cumulated.
|
•
|
Minimum Exercise
. No fewer than 100 shares of Common Stock (subject to adjustment under Section 7.1 of the Plan) may be purchased at any one time, unless the number purchased is the total number at the time exercisable under the Option.
|
•
|
ISO Status
. The Option is intended as an incentive stock option within the meaning of Section 422 of the Code (an “
ISO
”).
|
•
|
ISO Value Limit
. If the aggregate fair market value of the shares with respect to which ISOs (whether granted under the Option or otherwise) first become exercisable by the Grantee in any calendar year exceeds $100,000, as measured on the applicable Award Dates, the limitations of Section 5.1.2 of the Plan shall apply and to such extent the Option will be rendered a nonqualified stock option.
|
2.
|
Continuance of Employment/Service Required; No Employment/Service Commitment
.
|
3.
|
Method of Exercise of Option
.
|
•
|
a written notice stating the number of shares of Common Stock to be purchased pursuant to the Option or by the completion of such other administrative exercise procedures as the Administrator may require from time to time,
|
•
|
payment in full for the Exercise Price of the shares to be purchased in cash, check or by electronic funds transfer to the Corporation;
|
•
|
any written statements or agreements required pursuant to Section 8.1 of the Plan
; and
|
•
|
satisfaction of the tax withholding provisions of Section 8.5 of the Plan.
|
•
|
notice and third party payment in such manner as may be authorized by the Administrator;
|
•
|
in shares of Common Stock already owned by the Grantee, valued at their fair market value (as determined under the Plan) on the exercise date;
|
•
|
a reduction in the number of shares of Common Stock otherwise deliverable to the Grantee (valued at their fair market value on the exercise date, as determined under the Plan) pursuant to the exercise of the Option; or
|
•
|
a “cashless exercise” with a third party who provides simultaneous financing for the purposes of (or who otherwise facilitates) the exercise of the Option.
|
4.
|
Early Termination of Option
.
|
•
|
Other than as expressly provided below in this Section 4.2, the Option (whether vested or not) shall terminate on the Severance Date.
|
•
|
If the termination of the Grantee’s employment or services is the result of the Grantee’s Retirement, (a) the Option, to the extent not vested on the Severance Date and scheduled to vest at any time within the three (3)-year period following the Severance Date, shall become fully vested as of the Severance Date, (b) the Grantee will have until the date that is three (3) years after the Grantee’s Severance Date to exercise the Option, provided, however, that any portion of the Option that becomes vested pursuant to the foregoing clause (a) shall become exercisable only at such times as such portion would have otherwise vested pursuant to the original vesting schedule as provided herein had the Grantee’s employment or service not terminated, (c) the Option, to the extent not vested on the Severance Date (after giving effect to the foregoing clause (a)), shall terminate on the Severance Date, and (d) the Option, to the extent exercisable at any time during the three (3)-year period following the Severance Date and not exercised on or prior to the last day of such period, shall terminate at the close of business on the last day of the three (3)-year period.
|
•
|
If the termination of the Grantee’s employment or services is the result of the Grantee’s death or Total Disability, (a) the Option, to the extent not vested on the Severance Date, shall become fully vested as of the Severance Date, (b) the Grantee (or his beneficiary or personal representative, as the case may be) will have until the date that is three (3) years after the Grantee’s Severance Date to exercise the Option, and (c) the Option, to the extent exercisable for the three (3)-year period following the Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the three (3)-year period.
|
5.
|
Non-Transferability
.
|
6.
|
Notices
.
|
7.
|
Plan
.
|
8.
|
Entire Agreement
.
|
9.
|
Governing Law
.
|
10.
|
Effect of this Agreement
.
|
11.
|
Counterparts
.
|
12.
|
Section Headings
.
|
13.
|
Clawback Policy
.
|
14.
|
No Advice Regarding Grant
.
|
(i)
|
the Grantee is convicted of, or has pled guilty or
nolo contendere
to, a felony (other than traffic related offenses or as a result of vicarious liability); or
|
(ii)
|
the Grantee has engaged in acts of fraud, material dishonesty or other acts of willful misconduct in the course of his duties to the Corporation or any of its Subsidiaries; or
|
(iii)
|
the Grantee willfully and repeatedly fails to perform or uphold his duties to the Corporation or any of its Subsidiaries; or
|
(iv)
|
the Grantee willfully fails to comply with reasonable directives of the Board which are communicated to him or her in writing;
|
(ii)
|
at any time during a period of twenty-four (24) months, fewer than a majority of the members of the Board are Incumbent Directors. “
Incumbent Directors
” means (A) individuals who constitute the Board at the beginning of such period; and (B) individuals who were nominated or elected by all of, or a committee composed entirely of, the individuals described in (A); and (C) individuals who were nominated or elected by individuals described in (B).
|
(iii)
|
any Person (meaning any individual, entity or group within the meaning of Section 13(d)(3) or 14(d) of the Exchange Act) shall, as a result of a tender or exchange offer, open market purchases, privately-negotiated purchases or otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of the then-outstanding securities of the Corporation ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of members of the Board (“
Voting Securities
” to be calculated as
|
(iv)
|
approval by the stockholders of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation.
|
(v)
|
a material reduction in the Grantee’s annual base salary;
|
(vi)
|
a material diminution or reduction of the Grantee’s authority, duties, or responsibilities;
|
(vii)
|
a material change in the geographic location at which the Grantee must perform services; or
|
(viii)
|
any material breach by the Corporation of any other provision of this Agreement;
|
Number of Stock Units
1
:
|
|
Award Date:
|
|
Performance Period: [___________, 20__ through ____________, 20__]
|
(i)
|
the Participant is convicted of, or has pled guilty or
nolo contendere
to, a felony (other than traffic related offenses or as a result of vicarious liability); or
|
(ii)
|
the Participant has engaged in acts of fraud, material dishonesty or other acts of willful misconduct in the course of his or her duties to the Corporation; or
|
(iii)
|
the Participant willfully and repeatedly fails to perform or uphold his or her duties to the Corporation; or
|
(iv)
|
the Participant willfully fails to comply with reasonable directives of the Board which are communicated to him or her in writing;
|
(ii)
|
at any time during a period of twenty-four (24) months, fewer than a majority of the members of the Board are Incumbent Directors. “
Incumbent Directors
” means (A) individuals who constitute the Board at the beginning of such period; and (B) individuals who were nominated or elected by all of, or a committee composed entirely of, the individuals described in (A); and (C) individuals who were nominated or elected by individuals described in (B);
|
(iii)
|
any Person (meaning any individual, entity or group within the meaning of Section 13(d)(3) or 14(d) of the Exchange Act) shall, as a result of a tender or exchange offer, open market purchases, privately-negotiated purchases or otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of the then-outstanding securities of the Corporation ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of members of the Board (“
Voting Securities
” to be calculated as provided in paragraph (d) of Rule 13d-3 in the case of rights to acquire common stock of the Corporation) representing 20% or more of the combined voting power of the then-outstanding Voting Securities; or
|
(iv)
|
approval by the stockholders of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation.
|
•
|
a material reduction in the Participant’s annual base salary;
|
•
|
a material diminution or reduction of the Participant’s authority, duties, or responsibilities;
|
•
|
a material change in the geographic location at which the Participant must perform services; or
|
•
|
any material breach by the Corporation of any other provision of this Agreement;
|
Number of Stock Units
1
:
|
|
Award Date:
|
|
(i)
|
the Participant is convicted of, or has pled guilty or
nolo contendere
to, a felony (other than traffic related offenses or as a result of vicarious liability); or
|
(ii)
|
the Participant has engaged in acts of fraud, material dishonesty or other acts of willful misconduct in the course of his or her duties to the Corporation or any of its Subsidiaries; or
|
(iii)
|
the Participant willfully and repeatedly fails to perform or uphold his or her duties to the Corporation or any of its Subsidiaries; or
|
(iv)
|
the Participant willfully fails to comply with reasonable directives of the Board which are communicated to him or her in writing;
|
(ii)
|
at any time during a period of twenty-four (24) months, fewer than a majority of the members of the Board are Incumbent Directors. “
Incumbent Directors
” means (A) individuals who constitute the Board at the beginning of such period; and (B) individuals who were nominated or elected by all of, or a committee composed entirely of, the individuals described in (A); and (C) individuals who were nominated or elected by individuals described in (B)
;
|
(iii)
|
any Person (meaning any individual, entity or group within the meaning of Section 13(d)(3) or 14(d) of the Exchange Act) shall, as a result of a tender or exchange offer, open market purchases, privately-negotiated purchases or otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of the then-outstanding securities of the Corporation ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of members of the Board (“
Voting Securities
” to be calculated as provided in paragraph (d) of Rule 13d-3 in the case of rights to acquire common stock of the Corporation) representing 20% or more of the combined voting power of the then-outstanding Voting Securities
; or
|
(iv)
|
approval by the stockholders of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation.
|
(v)
|
a material reduction in the Participant’s annual base salary;
|
(vi)
|
a material diminution or reduction of the Participant’s authority, duties, or responsibilities;
|
(vii)
|
a material change in the geographic location at which the Participant must perform services; or
|
(viii)
|
any material breach by the Corporation of any other provision of this Agreement;
|