Delaware
|
|
91-1292054
|
(State of Incorporation)
|
|
(I.R.S. Employer Identification No.)
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19300 International Boulevard, Seattle, Washington 98188
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Telephone: (206) 392-5040
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Large accelerated filer
x
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Accelerated filer
¨
|
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
¨
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Emerging growth company
¨
|
|
•
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the competitive environment in our industry;
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•
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changes in our operating costs, primarily fuel, which can be volatile;
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•
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general economic conditions, including the impact of those conditions on customer travel behavior;
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•
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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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•
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labor disputes and our ability to attract and retain qualified personnel;
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•
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the concentration of our revenue from a few key markets;
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•
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actual or threatened terrorist attacks, global instability and potential U.S. military actions or activities;
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•
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our reliance on automated systems and the risks associated with changes made to those systems;
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•
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changes in laws and regulations;
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•
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our ability to achieve anticipated synergies and timing thereof in connection with the acquisition of Virgin America.
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(in millions)
|
March 31, 2017
|
|
December 31, 2016
|
||||
ASSETS
|
|
|
|
||||
Current Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
183
|
|
|
$
|
328
|
|
Marketable securities
|
1,527
|
|
|
1,252
|
|
||
Total cash and marketable securities
|
1,710
|
|
|
1,580
|
|
||
Receivables—net
|
321
|
|
|
302
|
|
||
Inventories and supplies—net
|
50
|
|
|
47
|
|
||
Prepaid expenses and other current assets
|
132
|
|
|
121
|
|
||
Total Current Assets
|
2,213
|
|
|
2,050
|
|
||
|
|
|
|
||||
Property and Equipment
|
|
|
|
|
|
||
Aircraft and other flight equipment
|
7,137
|
|
|
6,947
|
|
||
Other property and equipment
|
1,139
|
|
|
1,103
|
|
||
Deposits for future flight equipment
|
541
|
|
|
545
|
|
||
|
8,817
|
|
|
8,595
|
|
||
Less accumulated depreciation and amortization
|
3,008
|
|
|
2,929
|
|
||
Total Property and Equipment—Net
|
5,809
|
|
|
5,666
|
|
||
|
|
|
|
||||
Goodwill
|
1,942
|
|
|
1,934
|
|
||
Intangible assets
|
139
|
|
|
143
|
|
||
Other noncurrent assets
|
199
|
|
|
169
|
|
||
Other Assets
|
2,280
|
|
|
2,246
|
|
||
|
|
|
|
||||
Total Assets
|
$
|
10,302
|
|
|
$
|
9,962
|
|
(in millions, except share amounts)
|
March 31, 2017
|
|
December 31, 2016
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
||||
Current Liabilities
|
|
|
|
||||
Accounts payable
|
$
|
95
|
|
|
$
|
92
|
|
Accrued wages, vacation and payroll taxes
|
281
|
|
|
397
|
|
||
Air traffic liability
|
1,218
|
|
|
849
|
|
||
Other accrued liabilities
|
909
|
|
|
878
|
|
||
Current portion of long-term debt
|
332
|
|
|
319
|
|
||
Total Current Liabilities
|
2,835
|
|
|
2,535
|
|
||
|
|
|
|
||||
Long-Term Debt, Net of Current Portion
|
2,531
|
|
|
2,645
|
|
||
Other Liabilities and Credits
|
|
|
|
|
|
||
Deferred income taxes
|
509
|
|
|
463
|
|
||
Deferred revenue
|
641
|
|
|
640
|
|
||
Obligation for pension and postretirement medical benefits
|
334
|
|
|
331
|
|
||
Other liabilities
|
438
|
|
|
417
|
|
||
|
1,922
|
|
|
1,851
|
|
||
Commitments and Contingencies
|
|
|
|
|
|
||
Shareholders' Equity
|
|
|
|
|
|
||
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding
|
—
|
|
|
—
|
|
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Common stock, $0.01 par value, Authorized: 200,000,000 shares, Issued: 2017 - 129,590,771 shares; 2016 - 129,189,634 shares, Outstanding: 2017 - 123,729,188 shares; 2016 - 123,328,051 shares
|
1
|
|
|
1
|
|
||
Capital in excess of par value
|
126
|
|
|
110
|
|
||
Treasury stock (common), at cost: 2017 - 5,861,583 shares; 2016 - 5,861,583 shares
|
(443
|
)
|
|
(443
|
)
|
||
Accumulated other comprehensive loss
|
(299
|
)
|
|
(305
|
)
|
||
Retained earnings
|
3,629
|
|
|
3,568
|
|
||
|
3,014
|
|
|
2,931
|
|
||
Total Liabilities and Shareholders' Equity
|
$
|
10,302
|
|
|
$
|
9,962
|
|
|
Three Months Ended March 31,
|
||||||
(in millions, except per share amounts)
|
2017
|
|
2016
|
||||
Operating Revenues
|
|
|
|
||||
Passenger
|
|
|
|
||||
Mainline
|
$
|
1,272
|
|
|
$
|
927
|
|
Regional
|
212
|
|
|
206
|
|
||
Total passenger revenue
|
1,484
|
|
|
1,133
|
|
||
Freight and mail
|
24
|
|
|
24
|
|
||
Other—net
|
241
|
|
|
190
|
|
||
Total Operating Revenues
|
1,749
|
|
|
1,347
|
|
||
|
|
|
|
||||
Operating Expenses
|
|
|
|
||||
Wages and benefits
|
448
|
|
|
336
|
|
||
Variable incentive pay
|
31
|
|
|
32
|
|
||
Aircraft fuel, including hedging gains and losses
|
339
|
|
|
167
|
|
||
Aircraft maintenance
|
87
|
|
|
68
|
|
||
Aircraft rent
|
65
|
|
|
29
|
|
||
Landing fees and other rentals
|
115
|
|
|
80
|
|
||
Contracted services
|
81
|
|
|
60
|
|
||
Selling expenses
|
81
|
|
|
49
|
|
||
Depreciation and amortization
|
90
|
|
|
88
|
|
||
Food and beverage service
|
45
|
|
|
31
|
|
||
Third-party regional carrier expense
|
27
|
|
|
23
|
|
||
Special items—merger-related costs
|
40
|
|
|
—
|
|
||
Other
|
134
|
|
|
94
|
|
||
Total Operating Expenses
|
1,583
|
|
|
1,057
|
|
||
Operating Income
|
166
|
|
|
290
|
|
||
|
|
|
|
||||
Nonoperating Income (Expense)
|
|
|
|
||||
Interest income
|
7
|
|
|
6
|
|
||
Interest expense
|
(25
|
)
|
|
(13
|
)
|
||
Interest capitalized
|
4
|
|
|
8
|
|
||
Other—net
|
—
|
|
|
1
|
|
||
|
(14
|
)
|
|
2
|
|
||
Income before income tax
|
152
|
|
|
292
|
|
||
Income tax expense
|
53
|
|
|
108
|
|
||
Net Income
|
$
|
99
|
|
|
$
|
184
|
|
|
|
|
|
||||
Basic Earnings Per Share:
|
$
|
0.80
|
|
|
$
|
1.47
|
|
Diluted Earnings Per Share:
|
$
|
0.79
|
|
|
$
|
1.46
|
|
Shares used for computation:
|
|
|
|
||||
Basic
|
123.495
|
|
|
124.550
|
|
||
Diluted
|
124.299
|
|
|
125.328
|
|
||
|
|
|
|
||||
Cash dividend declared per share:
|
$
|
0.30
|
|
|
$
|
0.275
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Net Income
|
$
|
99
|
|
|
$
|
184
|
|
|
|
|
|
||||
Other Comprehensive Income (Loss):
|
|
|
|
||||
Related to marketable securities:
|
|
|
|
||||
Unrealized holding gains arising during the period
|
3
|
|
|
12
|
|
||
Income tax effect
|
(1
|
)
|
|
(4
|
)
|
||
Total
|
2
|
|
|
8
|
|
||
|
|
|
|
||||
Related to employee benefit plans:
|
|
|
|
||||
Reclassification of net pension expense into Wages and benefits
|
6
|
|
|
5
|
|
||
Income tax effect
|
(2
|
)
|
|
(2
|
)
|
||
Total
|
4
|
|
|
3
|
|
||
|
|
|
|
||||
Related to interest rate derivative instruments:
|
|
|
|
||||
Unrealized holding gains (losses) arising during the period
|
1
|
|
|
(5
|
)
|
||
Reclassification of losses into Aircraft rent
|
—
|
|
|
1
|
|
||
Income tax effect
|
(1
|
)
|
|
2
|
|
||
Total
|
—
|
|
|
(2
|
)
|
||
|
|
|
|
||||
Other Comprehensive Income
|
6
|
|
|
9
|
|
||
|
|
|
|
||||
Comprehensive Income
|
$
|
105
|
|
|
$
|
193
|
|
|
Three Months Ended March 31,
|
||||||
(in millions)
|
2017
|
|
2016
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
99
|
|
|
$
|
184
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||
Depreciation and amortization
|
90
|
|
|
88
|
|
||
Stock-based compensation and other
|
13
|
|
|
9
|
|
||
Changes in certain assets and liabilities:
|
|
|
|
||||
Changes in deferred tax provision
|
48
|
|
|
(8
|
)
|
||
Increase in air traffic liability
|
369
|
|
|
199
|
|
||
Increase in deferred revenue
|
1
|
|
|
36
|
|
||
Other—net
|
(150
|
)
|
|
17
|
|
||
Net cash provided by operating activities
|
470
|
|
|
525
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
|
|
||
Property and equipment additions:
|
|
|
|
|
|
||
Aircraft and aircraft purchase deposits
|
(160
|
)
|
|
(91
|
)
|
||
Other flight equipment
|
(20
|
)
|
|
(15
|
)
|
||
Other property and equipment
|
(36
|
)
|
|
(13
|
)
|
||
Total property and equipment additions, including capitalized interest
|
(216
|
)
|
|
(119
|
)
|
||
Purchases of marketable securities
|
(557
|
)
|
|
(358
|
)
|
||
Sales and maturities of marketable securities
|
285
|
|
|
140
|
|
||
Other investing activities
|
—
|
|
|
1
|
|
||
Net cash used in investing activities
|
(488
|
)
|
|
(336
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Long-term debt payments
|
(101
|
)
|
|
(36
|
)
|
||
Common stock repurchases
|
—
|
|
|
(127
|
)
|
||
Dividends paid
|
(37
|
)
|
|
(34
|
)
|
||
Other financing activities
|
11
|
|
|
13
|
|
||
Net cash used in financing activities
|
(127
|
)
|
|
(184
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
(145
|
)
|
|
5
|
|
||
Cash and cash equivalents at beginning of year
|
328
|
|
|
73
|
|
||
Cash and cash equivalents at end of the period
|
$
|
183
|
|
|
$
|
78
|
|
|
|
|
|
||||
Supplemental disclosure:
|
|
|
|
|
|
||
Cash paid during the period for:
|
|
|
|
||||
Interest (net of amount capitalized)
|
$
|
26
|
|
|
$
|
8
|
|
Income taxes paid
|
2
|
|
|
13
|
|
(in millions)
|
March 31, 2017
|
|
December 31, 2016
|
||||
Cash and cash equivalents
|
$
|
645
|
|
|
$
|
645
|
|
Receivables
|
44
|
|
|
44
|
|
||
Prepaid expenses and other current assets
|
16
|
|
|
16
|
|
||
Property and equipment
|
561
|
|
|
560
|
|
||
Intangible assets
|
141
|
|
|
143
|
|
||
Goodwill
|
1,942
|
|
|
1,934
|
|
||
Other assets
|
84
|
|
|
84
|
|
||
Total assets
|
3,433
|
|
|
3,426
|
|
||
|
|
|
|
||||
Accounts payable
|
22
|
|
|
22
|
|
||
Accrued wages, vacation and payroll taxes
|
50
|
|
|
51
|
|
||
Air traffic liabilities
|
172
|
|
|
172
|
|
||
Other accrued liabilities
|
198
|
|
|
196
|
|
||
Current portion of long-term debt
|
125
|
|
|
125
|
|
||
Long-term debt, net of current portion
|
360
|
|
|
360
|
|
||
Deferred income taxes
|
(308
|
)
|
|
(304
|
)
|
||
Deferred revenue
|
126
|
|
|
126
|
|
||
Other liabilities
|
92
|
|
|
82
|
|
||
Total liabilities
|
837
|
|
|
830
|
|
||
|
|
|
|
||||
Total purchase price
|
$
|
2,596
|
|
|
$
|
2,596
|
|
March 31, 2017
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
416
|
|
|
$
|
—
|
|
|
$
|
416
|
|
Foreign government bonds
|
—
|
|
|
38
|
|
|
38
|
|
|||
Asset-backed securities
|
—
|
|
|
194
|
|
|
194
|
|
|||
Mortgage-backed securities
|
—
|
|
|
88
|
|
|
88
|
|
|||
Corporate notes and bonds
|
—
|
|
|
780
|
|
|
780
|
|
|||
Municipal securities
|
—
|
|
|
11
|
|
|
11
|
|
|||
Total Marketable securities
|
416
|
|
|
1,111
|
|
|
1,527
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge call options
|
—
|
|
|
10
|
|
|
10
|
|
|||
Interest rate swap agreements
|
—
|
|
|
9
|
|
|
9
|
|
|||
Total Assets
|
416
|
|
|
1,130
|
|
|
1,546
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(12
|
)
|
|
(12
|
)
|
|||
Total Liabilities
|
—
|
|
|
(12
|
)
|
|
(12
|
)
|
December 31, 2016
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
287
|
|
Foreign government bonds
|
—
|
|
|
36
|
|
|
36
|
|
|||
Asset-backed securities
|
—
|
|
|
138
|
|
|
138
|
|
|||
Mortgage-backed securities
|
—
|
|
|
89
|
|
|
89
|
|
|||
Corporate notes and bonds
|
—
|
|
|
691
|
|
|
691
|
|
|||
Municipal securities
|
—
|
|
|
11
|
|
|
11
|
|
|||
Total Marketable securities
|
287
|
|
|
965
|
|
|
1,252
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge call options
|
—
|
|
|
20
|
|
|
20
|
|
|||
Total Assets
|
287
|
|
|
985
|
|
|
1,272
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|||
Total Liabilities
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Proceeds from sales and maturities
|
$
|
285
|
|
|
$
|
140
|
|
Gross realized gains
|
1
|
|
|
—
|
|
||
Gross realized losses
|
(1
|
)
|
|
—
|
|
||
Gross unrealized gains
|
3
|
|
|
10
|
|
||
Gross unrealized losses
|
(5
|
)
|
|
(2
|
)
|
March 31, 2017
|
Cost Basis
|
|
Fair Value
|
||||
Due in one year or less
|
$
|
236
|
|
|
$
|
236
|
|
Due after one year through five years
|
1,281
|
|
|
1,278
|
|
||
Due after five years through 10 years
|
12
|
|
|
13
|
|
||
Due after 10 years
|
—
|
|
|
—
|
|
||
Total
|
$
|
1,529
|
|
|
$
|
1,527
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
Carrying amount
|
$
|
1,116
|
|
|
$
|
1,179
|
|
Fair value
|
1,130
|
|
|
1,199
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
Current Liabilities:
|
|
|
|
||||
Other accrued liabilities
|
$
|
498
|
|
|
$
|
484
|
|
Other Liabilities and Credits:
|
|
|
|
||||
Deferred revenue
|
641
|
|
|
638
|
|
||
Other liabilities
|
22
|
|
|
21
|
|
||
Total
|
$
|
1,161
|
|
|
$
|
1,143
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Passenger revenues
|
$
|
86
|
|
|
$
|
69
|
|
Other—net revenues
|
119
|
|
|
103
|
|
||
Total
|
$
|
205
|
|
|
$
|
172
|
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
Fixed-rate notes payable due through 2028
|
$
|
1,116
|
|
|
$
|
1,179
|
|
Variable-rate notes payable due through 2028
|
1,764
|
|
|
1,803
|
|
||
Less debt issuance costs
|
(17
|
)
|
|
(18
|
)
|
||
Total debt
|
2,863
|
|
|
2,964
|
|
||
Less current portion
|
332
|
|
|
319
|
|
||
Long-term debt, less current portion
|
$
|
2,531
|
|
|
$
|
2,645
|
|
|
|
|
|
||||
Weighted-average fixed-interest rate
|
4.4
|
%
|
|
4.4
|
%
|
||
Weighted-average variable-interest rate
|
2.5
|
%
|
|
2.4
|
%
|
|
Total
|
||
Remainder of 2017
|
$
|
219
|
|
2018
|
350
|
|
|
2019
|
422
|
|
|
2020
|
449
|
|
|
2021
|
422
|
|
|
Thereafter
|
1,015
|
|
|
Total
|
$
|
2,877
|
|
|
Three Months Ended March 31,
|
||||||
|
2017
|
|
2016
|
||||
Service cost
|
$
|
10
|
|
|
$
|
9
|
|
Interest cost
|
18
|
|
|
18
|
|
||
Expected return on assets
|
(27
|
)
|
|
(27
|
)
|
||
Recognized actuarial loss
|
7
|
|
|
6
|
|
||
Total
|
$
|
8
|
|
|
$
|
6
|
|
|
Aircraft Leases
|
|
Facility Leases
|
|
Aircraft Purchase Commitments
|
|
Capacity Purchase Agreements
(a)
|
|
Aircraft Maintenance Deposits
|
|
Aircraft Maintenance and Parts Management
|
||||||||||||
Remainder of 2017
|
$
|
227
|
|
|
$
|
91
|
|
|
$
|
758
|
|
|
$
|
58
|
|
|
$
|
44
|
|
|
$
|
23
|
|
2018
|
318
|
|
|
73
|
|
|
876
|
|
|
80
|
|
|
61
|
|
|
32
|
|
||||||
2019
|
306
|
|
|
64
|
|
|
730
|
|
|
85
|
|
|
65
|
|
|
35
|
|
||||||
2020
|
279
|
|
|
57
|
|
|
337
|
|
|
90
|
|
|
68
|
|
|
37
|
|
||||||
2021
|
242
|
|
|
50
|
|
|
275
|
|
|
94
|
|
|
63
|
|
|
40
|
|
||||||
Thereafter
|
953
|
|
|
173
|
|
|
361
|
|
|
676
|
|
|
90
|
|
|
—
|
|
||||||
Total
|
$
|
2,325
|
|
|
$
|
508
|
|
|
$
|
3,337
|
|
|
$
|
1,083
|
|
|
$
|
391
|
|
|
$
|
167
|
|
(a)
|
Includes all non-aircraft lease costs associated with capacity purchase agreements.
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
Marketable securities
|
$
|
(1
|
)
|
|
$
|
(3
|
)
|
Employee benefit plans
|
(295
|
)
|
|
(299
|
)
|
||
Interest rate derivatives
|
(3
|
)
|
|
(3
|
)
|
||
Total
|
$
|
(299
|
)
|
|
$
|
(305
|
)
|
•
|
Mainline
- includes Alaska's and Virgin America’s scheduled air transportation for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica and Cuba.
|
•
|
Regional
- includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under CPAs. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.
|
•
|
Horizon
- includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.
|
|
Three Months Ended March 31, 2017
|
||||||||||||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating & Other
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
1,272
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,272
|
|
|
$
|
—
|
|
|
$
|
1,272
|
|
Regional
|
—
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
212
|
|
|
—
|
|
|
212
|
|
|||||||
Total passenger revenues
|
1,272
|
|
|
212
|
|
|
—
|
|
|
—
|
|
|
1,484
|
|
|
—
|
|
|
1,484
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
97
|
|
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
23
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|||||||
Other—net
|
222
|
|
|
17
|
|
|
1
|
|
|
1
|
|
|
241
|
|
|
—
|
|
|
241
|
|
|||||||
Total operating revenues
|
1,517
|
|
|
230
|
|
|
98
|
|
|
(96
|
)
|
|
1,749
|
|
|
—
|
|
|
1,749
|
|
|||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
998
|
|
|
200
|
|
|
103
|
|
|
(97
|
)
|
|
1,204
|
|
|
40
|
|
|
1,244
|
|
|||||||
Economic fuel
|
292
|
|
|
36
|
|
|
—
|
|
|
1
|
|
|
329
|
|
|
10
|
|
|
339
|
|
|||||||
Total operating expenses
|
1,290
|
|
|
236
|
|
|
103
|
|
|
(96
|
)
|
|
1,533
|
|
|
50
|
|
|
1,583
|
|
|||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
|||||||
Interest expense
|
(22
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(25
|
)
|
|
—
|
|
|
(25
|
)
|
|||||||
Other
|
3
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
4
|
|
|||||||
|
(12
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
|
(14
|
)
|
|||||||
Income (loss) before income tax
|
$
|
215
|
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
|
$
|
—
|
|
|
$
|
202
|
|
|
$
|
(50
|
)
|
|
$
|
152
|
|
|
Three Months Ended March 31, 2016
|
||||||||||||||||||||||||||
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating & Other
(a)
|
|
Air Group Adjusted
(b)
|
|
Special Items
(c)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
927
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
927
|
|
|
$
|
—
|
|
|
$
|
927
|
|
Regional
|
—
|
|
|
206
|
|
|
—
|
|
|
—
|
|
|
206
|
|
|
—
|
|
|
206
|
|
|||||||
Total passenger revenues
|
927
|
|
|
206
|
|
|
—
|
|
|
—
|
|
|
1,133
|
|
|
—
|
|
|
1,133
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
103
|
|
|
(103
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
23
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|||||||
Other—net
|
172
|
|
|
17
|
|
|
1
|
|
|
—
|
|
|
190
|
|
|
—
|
|
|
190
|
|
|||||||
Total operating revenues
|
1,122
|
|
|
224
|
|
|
104
|
|
|
(103
|
)
|
|
1,347
|
|
|
—
|
|
|
1,347
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
701
|
|
|
186
|
|
|
105
|
|
|
(102
|
)
|
|
890
|
|
|
—
|
|
|
890
|
|
|||||||
Economic fuel
|
144
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
169
|
|
|
(2
|
)
|
|
167
|
|
|||||||
Total operating expenses
|
845
|
|
|
211
|
|
|
105
|
|
|
(102
|
)
|
|
1,059
|
|
|
(2
|
)
|
|
1,057
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|||||||
Interest expense
|
(12
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
|
(13
|
)
|
|||||||
Other
|
7
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|||||||
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
2
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|||||||
Income (loss) before income tax
|
$
|
278
|
|
|
$
|
13
|
|
|
$
|
(2
|
)
|
|
$
|
1
|
|
|
$
|
290
|
|
|
$
|
2
|
|
|
$
|
292
|
|
(a)
|
Includes consolidating entries, Parent Company and other immaterial business units.
|
(b)
|
The Air Group 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 merger-related costs and mark-to-market fuel-hedge accounting charges.
|
|
March 31, 2017
|
|
December 31, 2016
|
||||
Mainline
|
$
|
15,735
|
|
|
$
|
15,260
|
|
Horizon
|
719
|
|
|
690
|
|
||
Consolidating & Other
|
(6,152
|
)
|
|
(5,988
|
)
|
||
Consolidated
|
$
|
10,302
|
|
|
$
|
9,962
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
First
Quarter Review
—highlights from the
first
quarter of
2017
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
months ended
March 31, 2017
. 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. As Virgin America was acquired on December 14, 2016, its financial and operational results are reflected in the
three months ended March 31, 2017
but not in the comparative prior period. However, for comparability purposes, we have added "Combined Comparative" information for the prior year, which is more fully described below. This section includes forward-looking statements regarding our view of the remainder of
2017
.
|
•
|
Liquidity and Capital Resources
—an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.
|
|
Forecast
Q2 2017 |
|
Change
Y-O-Y
|
|
Forecast
Full Year 2017 |
|
Change
Y-O-Y
|
Consolidated:
|
|
|
|
|
|
|
|
Capacity (ASMs in millions)
|
15,625 - 15,675
|
|
~ 6.0%
|
|
62,800 - 63,000
|
|
~ 8.5%
|
Cost per ASM excluding fuel and special items (cents)
|
7.88¢ - 7.93¢
|
|
~ 3.0%
|
|
8.00¢ - 8.05¢
|
|
flat
|
•
|
By eliminating fuel expense and certain special items (including merger-related costs) 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 lead to 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, such as merger-related costs, 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 items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of 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 merger-related costs and mark-to-market hedging adjustments, 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 March 31,
|
||||||||||||||
|
2017
|
|
2016
|
||||||||||||
(in millions, except per share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Reported GAAP net income
|
$
|
99
|
|
|
$
|
0.79
|
|
|
$
|
184
|
|
|
$
|
1.46
|
|
Mark-to-market fuel hedge adjustments
|
10
|
|
|
0.08
|
|
|
(2
|
)
|
|
(0.02
|
)
|
||||
Special items—merger-related costs
|
40
|
|
|
0.33
|
|
|
—
|
|
|
—
|
|
||||
Income tax effect on special items and fuel hedge adjustments
|
(19
|
)
|
|
(0.15
|
)
|
|
1
|
|
|
0.01
|
|
||||
Non-GAAP adjusted income and per-share amounts
|
$
|
130
|
|
|
$
|
1.05
|
|
|
$
|
183
|
|
|
$
|
1.45
|
|
|
Three Months Ended March 31,
|
|||||||||
(in cents)
|
2017
|
|
2016
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
CASM
|
|
11.00
|
¢
|
|
|
10.11
|
¢
|
|
8.8
|
%
|
Less the following components:
|
|
|
|
|
|
|
||||
Aircraft fuel, including hedging gains and losses
|
2.36
|
|
|
1.60
|
|
|
47.5
|
%
|
||
Special items—merger-related costs
|
0.27
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
8.37
|
¢
|
|
|
8.51
|
¢
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
CASM
|
|
10.11
|
¢
|
|
|
9.01
|
¢
|
|
12.2
|
%
|
Less the following components:
|
|
|
|
|
|
|
||||
Aircraft fuel, including hedging gains and losses
|
2.28
|
|
|
1.52
|
|
|
50.0
|
%
|
||
Special items—merger-related costs
|
0.30
|
|
|
—
|
|
|
NM
|
|
||
CASM excluding fuel and special items
|
|
7.53
|
¢
|
|
|
7.49
|
¢
|
|
0.5
|
%
|
|
Three Months Ended March 31,
|
||||
|
2017
|
|
2016
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
Revenue passengers (000)
|
10,018
|
|
7,835
|
|
27.9%
|
RPMs (000,000) "traffic"
|
11,708
|
|
8,571
|
|
36.6%
|
ASMs (000,000) "capacity"
|
14,394
|
|
10,453
|
|
37.7%
|
Load factor
|
81.3%
|
|
82.0%
|
|
(0.7) pts
|
Yield
|
12.68¢
|
|
13.22¢
|
|
(4.1)%
|
PRASM
|
10.31¢
|
|
10.84¢
|
|
(4.9)%
|
RASM
|
12.15¢
|
|
12.88¢
|
|
(5.7)%
|
CASM excluding fuel and special items
(b)
|
8.37¢
|
|
8.51¢
|
|
(1.6)%
|
Economic fuel cost per gallon
(b)
|
$1.78
|
|
$1.29
|
|
38.0%
|
Fuel gallons (000,000)
|
184
|
|
132
|
|
39.4%
|
ASMs per fuel gallon
|
78.2
|
|
79.2
|
|
(1.3%)
|
Average full-time equivalent employees (FTEs)
|
18,682
|
|
14,357
|
|
30.1%
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
Revenue passengers (000)
|
7,783
|
|
5,642
|
|
37.9%
|
RPMs (000,000) "traffic"
|
10,827
|
|
7,716
|
|
40.3%
|
ASMs (000,000) "capacity"
|
13,260
|
|
9,354
|
|
41.8%
|
Load factor
|
81.7%
|
|
82.5%
|
|
(0.8) pts
|
Yield
|
11.75¢
|
|
12.01¢
|
|
(2.2)%
|
PRASM
|
9.59¢
|
|
9.91¢
|
|
(3.2)%
|
RASM
|
11.44¢
|
|
11.99¢
|
|
(4.6)%
|
CASM excluding fuel and special items
(b)
|
7.53¢
|
|
7.49¢
|
|
0.5%
|
Economic fuel cost per gallon
(b)
|
$1.78
|
|
$1.28
|
|
39.1%
|
Fuel gallons (000,000)
|
164
|
|
113
|
|
45.1%
|
ASMs per fuel gallon
|
80.8
|
|
82.8
|
|
(2.4%)
|
Average FTEs
|
15,007
|
|
11,123
|
|
34.9%
|
Aircraft utilization
|
10.8
|
|
10.6
|
|
1.9%
|
Average aircraft stage length
|
1,245
|
|
1,237
|
|
0.6%
|
Operating fleet
|
217
|
|
152
|
|
65 a/c
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
Revenue passengers (000)
|
2,234
|
|
2,192
|
|
1.9%
|
RPMs (000,000) "traffic"
|
880
|
|
855
|
|
2.9%
|
ASMs (000,000) "capacity"
|
1,134
|
|
1,100
|
|
3.1%
|
Load factor
|
77.6%
|
|
77.7%
|
|
(0.1 pts)
|
Yield
|
24.13¢
|
|
24.09¢
|
|
0.2%
|
PRASM
|
18.73¢
|
|
18.72¢
|
|
0.1%
|
Operating fleet
|
73
|
|
67
|
|
6 a/c
|
(a)
|
Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
|
(b)
|
See reconciliation of this measure to the most directly related GAAP measure in the accompanying pages.
|
(c)
|
Data presented includes information related to flights operated by Horizon and third-party carriers.
|
|
Three Months Ended March 31,
|
|||||||||
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
Change
|
|
Consolidated:
|
|
|
|
|
|
|
|
|
|
|
Revenue passengers (in 000)
|
10,018
|
|
7,835
|
|
1,767
|
|
9,602
|
|
4.3
|
%
|
RPMs (in 000,000)
|
11,708
|
|
8,571
|
|
2,615
|
|
11,186
|
|
4.7
|
%
|
ASMs (in 000,000)
|
14,394
|
|
10,453
|
|
3,266
|
|
13,719
|
|
4.9
|
%
|
Load Factor
|
81.3%
|
|
82.0%
|
|
(a)
|
|
81.5%
|
|
(0.2) pts
|
|
PRASM
|
10.31¢
|
|
10.84¢
|
|
(a)
|
|
10.66¢
|
|
(3.3
|
)%
|
RASM
|
12.15¢
|
|
12.88¢
|
|
(a)
|
|
12.47¢
|
|
(2.6
|
)%
|
CASMex
|
8.37¢
|
|
8.51¢
|
|
(a)
|
|
8.36¢
|
|
0.1
|
%
|
FTEs
|
18,682
|
|
14,357
|
|
2,686
|
|
17,043
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Mainline:
|
|
|
|
|
|
|
|
|
|
|
RPMs (in 000,000)
|
10,827
|
|
7,716
|
|
2,615
|
|
10,331
|
|
4.8%
|
|
ASMs (in 000,000)
|
13,260
|
|
9,354
|
|
3,266
|
|
12,620
|
|
5.1%
|
|
Load Factor
|
81.7%
|
|
82.5%
|
|
(a)
|
|
81.9%
|
|
(0.2) pts
|
|
PRASM
|
9.59¢
|
|
9.91¢
|
|
(a)
|
|
9.95¢
|
|
(3.6)%
|
(a)
|
2016 Combined operating statistics have been recalculated using the combined results.
|
|
Three Months Ended March 31,
|
|
Change
|
|||||||||||||||||||
(in millions)
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
$ Combined
|
|
% Combined
|
|||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Mainline
|
$
|
1,272
|
|
|
$
|
927
|
|
|
$
|
329
|
|
|
$
|
1,256
|
|
|
$
|
16
|
|
|
1
|
%
|
Regional
|
212
|
|
|
206
|
|
|
—
|
|
|
206
|
|
|
6
|
|
|
3
|
%
|
|||||
Total passenger revenue
|
1,484
|
|
|
1,133
|
|
|
329
|
|
|
1,462
|
|
|
22
|
|
|
2
|
%
|
|||||
Freight and mail
|
24
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
—
|
%
|
|||||
Other—net
|
241
|
|
|
190
|
|
|
34
|
|
|
224
|
|
|
17
|
|
|
8
|
%
|
|||||
Total operating revenues
|
$
|
1,749
|
|
|
$
|
1,347
|
|
|
$
|
363
|
|
|
$
|
1,710
|
|
|
$
|
39
|
|
|
2
|
%
|
|
Three Months Ended March 31,
|
|
Change
|
|||||||||||||||||||
(in millions)
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
$ Combined
|
|
% Combined
|
|||||||||||
Fuel expense
|
$
|
339
|
|
|
$
|
167
|
|
|
$
|
71
|
|
|
$
|
238
|
|
|
$
|
101
|
|
|
42
|
%
|
Non-fuel expenses
|
1,244
|
|
|
890
|
|
|
260
|
|
|
1,150
|
|
|
94
|
|
|
8
|
%
|
|||||
Total operating expenses
|
$
|
1,583
|
|
|
$
|
1,057
|
|
|
$
|
331
|
|
|
$
|
1,388
|
|
|
$
|
195
|
|
|
14
|
%
|
|
Three Months Ended March 31,
|
|
Change
|
|||||||||||||||||||
(in millions)
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
$ Combined
|
|
% Combined
|
|||||||||||
Wages and benefits
|
$
|
448
|
|
|
$
|
336
|
|
|
$
|
72
|
|
|
$
|
408
|
|
|
$
|
40
|
|
|
10
|
%
|
Variable incentive pay
|
31
|
|
|
32
|
|
|
6
|
|
|
38
|
|
|
(7
|
)
|
|
(18
|
)%
|
|||||
Aircraft maintenance
|
87
|
|
|
68
|
|
|
17
|
|
|
85
|
|
|
2
|
|
|
2
|
%
|
|||||
Aircraft rent
|
65
|
|
|
29
|
|
|
47
|
|
|
76
|
|
|
(11
|
)
|
|
(14
|
)%
|
|||||
Landing fees and other rentals
|
115
|
|
|
80
|
|
|
27
|
|
|
107
|
|
|
8
|
|
|
7
|
%
|
|||||
Contracted services
|
81
|
|
|
60
|
|
|
15
|
|
|
75
|
|
|
6
|
|
|
8
|
%
|
|||||
Selling expenses
|
81
|
|
|
49
|
|
|
30
|
|
|
79
|
|
|
2
|
|
|
3
|
%
|
|||||
Depreciation and amortization
|
90
|
|
|
88
|
|
|
8
|
|
|
96
|
|
|
(6
|
)
|
|
(6
|
)%
|
|||||
Food and beverage service
|
45
|
|
|
31
|
|
|
12
|
|
|
43
|
|
|
2
|
|
|
5
|
%
|
|||||
Third-party regional carrier expense
|
27
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
4
|
|
|
17
|
%
|
|||||
Special items—merger-related costs
|
40
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
38
|
|
|
NM
|
|
|||||
Other
|
134
|
|
|
94
|
|
|
24
|
|
|
118
|
|
|
16
|
|
|
14
|
%
|
|||||
Total non-fuel operating expenses
|
$
|
1,244
|
|
|
$
|
890
|
|
|
260
|
|
|
1,150
|
|
|
94
|
|
|
8
|
%
|
|
Three Months Ended March 31,
|
||||||||||||||||||||||
|
2017
|
|
2016 as Reported
|
|
2016 Combined
|
||||||||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
||||||||||||
Raw or "into-plane" fuel cost
|
$
|
325
|
|
|
$
|
1.76
|
|
|
$
|
165
|
|
|
$
|
1.26
|
|
|
$
|
222
|
|
|
$
|
1.27
|
|
Losses on settled hedges
|
4
|
|
|
0.02
|
|
|
4
|
|
|
0.03
|
|
|
19
|
|
|
0.11
|
|
||||||
Consolidated economic fuel expense
|
329
|
|
|
1.78
|
|
|
169
|
|
|
1.29
|
|
|
$
|
241
|
|
|
$
|
1.38
|
|
||||
Mark-to-market fuel hedge adjustments
|
10
|
|
|
0.06
|
|
|
(2
|
)
|
|
(0.02
|
)
|
|
(3
|
)
|
|
(0.02
|
)
|
||||||
GAAP fuel expense
|
$
|
339
|
|
|
$
|
1.84
|
|
|
$
|
167
|
|
|
$
|
1.27
|
|
|
$
|
238
|
|
|
$
|
1.36
|
|
Fuel gallons
|
184
|
|
|
|
|
132
|
|
|
|
|
175
|
|
|
|
|
Three Months Ended March 31,
|
|
Change
|
|||||||||||||||||||
(in millions)
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
$ Combined
|
|
% Combined
|
|||||||||||
Wages
|
$
|
337
|
|
|
$
|
251
|
|
|
$
|
55
|
|
|
$
|
306
|
|
|
$
|
31
|
|
|
10
|
%
|
Pension—Defined benefit plans
|
8
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
2
|
|
|
33
|
%
|
|||||
Defined contribution plans
|
25
|
|
|
16
|
|
|
6
|
|
|
22
|
|
|
3
|
|
|
14
|
%
|
|||||
Medical and other benefits
|
52
|
|
|
44
|
|
|
6
|
|
|
50
|
|
|
2
|
|
|
4
|
%
|
|||||
Payroll taxes
|
26
|
|
|
19
|
|
|
5
|
|
|
24
|
|
|
2
|
|
|
8
|
%
|
|||||
Total wages and benefits
|
$
|
448
|
|
|
$
|
336
|
|
|
$
|
72
|
|
|
$
|
408
|
|
|
$
|
40
|
|
|
10
|
%
|
|
Three Months Ended March 31,
|
|
|
||||||||||||||||
|
2017
|
|
2016 as Reported
|
|
2016 Virgin America
|
|
2016 Combined
|
|
Change
|
||||||||||
Mainline
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating revenues
|
$
|
1,517
|
|
|
$
|
1,122
|
|
|
$
|
363
|
|
|
$
|
1,485
|
|
|
$
|
32
|
|
Non-fuel operating expenses
|
998
|
|
|
701
|
|
|
258
|
|
|
959
|
|
|
39
|
|
|||||
Economic fuel
|
292
|
|
|
144
|
|
|
72
|
|
|
216
|
|
|
76
|
|
|||||
Operating income
|
227
|
|
|
277
|
|
|
33
|
|
|
310
|
|
|
(83
|
)
|
|||||
Nonoperating income (expense)
|
(12
|
)
|
|
1
|
|
|
(4
|
)
|
|
(3
|
)
|
|
(9
|
)
|
|||||
Pretax profit
|
$
|
215
|
|
|
$
|
278
|
|
|
$
|
29
|
|
|
$
|
307
|
|
|
$
|
(92
|
)
|
•
|
Our existing cash and marketable securities balance of
$1.7 billion
, and our expected cash from operations;
|
•
|
Our
58
unencumbered aircraft in our operating fleet that could be financed, if necessary;
|
•
|
Our combined
$250 million
bank line-of-credit facilities, with no currently outstanding borrowings. Information about these facilities can be found in
Note 5
to the consolidated financial statements.
|
(in millions, except debt-to-capital amounts)
|
March 31, 2017
|
|
December 31, 2016
|
|
Change
|
||||
Cash and marketable securities
|
$
|
1,710
|
|
|
$
|
1,580
|
|
|
8.2 %
|
Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue
|
31
|
%
|
|
31
|
%
|
|
0 pts
|
||
Long-term debt, net of current portion
|
$
|
2,531
|
|
|
$
|
2,645
|
|
|
(4.3)%
|
Shareholders’ equity
|
$
|
3,014
|
|
|
$
|
2,931
|
|
|
2.8%
|
Long-term debt-to-capital including net present value of aircraft operating lease payments
(a)
|
58
|
%
|
|
59
|
%
|
|
(1) pts
|
(a)
|
Calculated using the present value of remaining aircraft lease payments for aircraft in our operating fleet as of the balance sheet date.
|
(in millions)
|
2017
|
|
2018
|
|
2019
|
||||||
Aircraft and aircraft purchase deposits—firm
|
$
|
805
|
|
|
$
|
685
|
|
|
$
|
595
|
|
Other flight equipment
|
125
|
|
|
190
|
|
|
135
|
|
|||
Other property and equipment
|
225
|
|
|
275
|
|
|
210
|
|
|||
Total property and equipment additions
|
$
|
1,155
|
|
|
$
|
1,150
|
|
|
$
|
940
|
|
Option aircraft and aircraft deposits, if exercised
(a)
|
$
|
55
|
|
|
$
|
230
|
|
|
$
|
710
|
|
(a)
|
We have options to acquire
41
B737 aircraft with deliveries from
2019
through
2024
, options to acquire
30
A320neo aircraft with deliveries from
2020
through
2022
, and options to acquire
30
E175 aircraft with deliveries in
2019
to
2021
.
|
|
Actual Fleet
|
|
Expected Fleet Activity
(a)
|
||||||||||||||
Aircraft
|
March 31, 2017
|
|
Remaining 2017 Additions Changes
|
|
Remaining 2017 Removals Changes
|
|
December 31, 2017
|
|
2018-2019 Changes
|
|
December 31, 2019
|
||||||
B737 Freighters & Combis
(b)
|
6
|
|
|
3
|
|
|
(6
|
)
|
|
3
|
|
|
—
|
|
|
3
|
|
B737 Passenger Aircraft
(b)
|
148
|
|
|
11
|
|
|
(8
|
)
|
|
151
|
|
|
15
|
|
|
166
|
|
Airbus Passenger Aircraft
(b)
|
63
|
|
|
5
|
|
|
—
|
|
|
68
|
|
|
4
|
|
|
72
|
|
Total Mainline Fleet
|
217
|
|
|
19
|
|
|
(14
|
)
|
|
222
|
|
|
19
|
|
|
241
|
|
Q400 operated by Horizon
|
52
|
|
|
—
|
|
|
—
|
|
|
52
|
|
|
(15
|
)
|
|
37
|
|
E-175 operated by Horizon
|
1
|
|
|
12
|
|
|
—
|
|
|
13
|
|
|
20
|
|
|
33
|
|
E-175 operated by third party
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
20
|
|
Total Regional Fleet
|
73
|
|
|
12
|
|
|
—
|
|
|
85
|
|
|
5
|
|
|
90
|
|
Total
|
290
|
|
|
31
|
|
|
(14
|
)
|
|
307
|
|
|
24
|
|
|
331
|
|
(a)
|
The expected fleet counts at
December 31, 2017
and beyond are subject to change.
|
(b)
|
Remaining 2017 changes in passenger aircraft reflect delivery of
11
Boeing 737-900ER aircraft and
five
A321neo aircraft, retirement of
seven
B737-400 passenger aircraft and the conversion of
one
B737-700 aircraft into a freighter. The freighter and combi changes reflect retirement of
five
combis and
one
freighter and the reintroduction of
three
B737-700 aircraft as freighters.
|
|
Approximate % of Expected Fuel Requirements
|
|
Weighted-Average Crude Oil Price per Barrel
|
|
Average Premium Cost per Barrel
|
|||||
Second Quarter 2017
|
50
|
%
|
|
$
|
62
|
|
|
$
|
2
|
|
Third Quarter 2017
|
50
|
%
|
|
62
|
|
|
2
|
|
||
Fourth Quarter 2017
|
40
|
%
|
|
63
|
|
|
2
|
|
||
Remainder 2017
|
47
|
%
|
|
62
|
|
|
2
|
|
||
First Quarter 2018
|
30
|
%
|
|
63
|
|
|
2
|
|
||
Second Quarter 2018
|
20
|
%
|
|
63
|
|
|
2
|
|
||
Third Quarter 2018
|
10
|
%
|
|
60
|
|
|
2
|
|
||
Full Year 2018
|
15
|
%
|
|
$
|
63
|
|
|
$
|
2
|
|
(in millions)
|
Remainder of 2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Beyond 2021
|
|
Total
|
||||||||||||||
Current and long-term debt obligations
|
$
|
219
|
|
|
$
|
350
|
|
|
$
|
422
|
|
|
$
|
449
|
|
|
$
|
422
|
|
|
$
|
1,015
|
|
|
$
|
2,877
|
|
Operating lease commitments
(a)
|
318
|
|
|
391
|
|
|
370
|
|
|
336
|
|
|
292
|
|
|
1,126
|
|
|
2,833
|
|
|||||||
Aircraft maintenance deposits
(b)
|
44
|
|
|
61
|
|
|
65
|
|
|
68
|
|
|
63
|
|
|
90
|
|
|
391
|
|
|||||||
Aircraft purchase commitments
(c)
|
758
|
|
|
876
|
|
|
730
|
|
|
337
|
|
|
275
|
|
|
361
|
|
|
3,337
|
|
|||||||
Interest obligations
(d)
|
67
|
|
|
94
|
|
|
83
|
|
|
68
|
|
|
51
|
|
|
113
|
|
|
476
|
|
|||||||
Aircraft maintenance and parts management
(e)
|
23
|
|
|
32
|
|
|
35
|
|
|
37
|
|
|
40
|
|
|
—
|
|
|
167
|
|
|||||||
Other obligations
(f)
|
61
|
|
|
84
|
|
|
89
|
|
|
94
|
|
|
98
|
|
|
692
|
|
|
1,118
|
|
|||||||
Total
|
$
|
1,490
|
|
|
$
|
1,888
|
|
|
$
|
1,794
|
|
|
$
|
1,389
|
|
|
$
|
1,241
|
|
|
$
|
3,397
|
|
|
$
|
11,199
|
|
(a)
|
Operating lease commitments generally include aircraft operating leases, airport property and hangar leases, office space, and other equipment leases. Included here are Airbus aircraft operated by Virgin America and E175 aircraft that are operated by SkyWest under a capacity purchase agreement.
|
(b)
|
Aircraft maintenance deposits relate to leased Airbus aircraft.
|
(c)
|
Represents non-cancelable contractual payment commitments for aircraft and engines.
|
(d)
|
For variable-rate debt, future obligations are shown above using interest rates in effect as of
March 31, 2017
.
|
(e)
|
Includes minimum obligations under a parts management and maintenance agreement with a third-party vendor.
|
(f)
|
Includes minimum obligations associated with the SkyWest third-party CPA. Refer to
Note 7
in the consolidated financial statements for further information.
|
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
|
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
|
|
Vice President Finance and Controller
|
|
|
|
May 4, 2017
|
|
1.
|
ELIGIBILITY
|
2.
|
ACCRUAL OF AWARDS
|
3.
|
PAYMENT OF AWARDS
|
4.
|
ESTABLISHMENT OF PERFORMANCE GOALS
|
5.
|
AMENDMENT; TERMINATION; INTERPETATION
|
1.
|
ELIGIBILITY
|
2.
|
CALCULATION OF THE AWARD
|
3.
|
PERFORMANCE WEIGHTING
|
4.
|
PERFORMANCE GOALS AND APPLICABLE PERFORMANCE WEIGHTING FACTORS
|
5.
|
DISCRETIONARY FACTOR
|
6.
|
TIMING OF AWARDS
|
8.
|
AMENDMENT
|
a.
|
This Plan, including its attachments, constitutes the entire understanding relating to an Award to any employee of Alaska, Virgin or Horizon, and supersedes all prior oral or written agreements, representations or commitments relating to such Awards.
|
b.
|
This Plan is not a commitment of the Company, Alaska, Virgin or Horizon, to any officer or employee of such company, to continue that individual in its employ in order to qualify for an Award. Nothing contained in this Plan may be considered to be a promise of continued employment. Any employee who shall file suit against his or her employer for wrongful termination shall automatically cease to be a Plan Participant.
|
c.
|
This Plan and the rights and obligations provided for herein shall be construed and interpreted in accordance with the law of the state of Washington, excluding its conflicts of law rules.
|
d.
|
No unpaid Award will be subject to the debts, liabilities, contracts or engagements of any Plan Participant, and may not be alienated, pledged, garnished or sold, and any attempt to do so shall be void.
|
e.
|
All Awards are subject to applicable federal, state, and local deductions.
|
f.
|
This Plan is intended to be an exception to, or otherwise be in compliance with, Section 409A of the Internal Revenue Code of 1986, as amended. This Plan shall be interpreted to comply with Section 409A. Further, it is the intent of the Company that, in the case of Section 162(m) Awards, this Plan, each such Award, any amounts paid with respect to such Awards, shall qualify as performance-based compensation or will otherwise be exempt from deductibility limitations under Section 162(m). Any provision, application or interpretation of this Plan inconsistent with this intent to satisfy the standards in Section 162(m) as to the Section 162(m) Awards shall be disregarded.
|
1.
|
I have reviewed this annual report on Form 10-Q of Alaska Air Group, Inc. for the period ended
March 31, 2017
;
|
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
March 31, 2017
;
|
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
|