SEATTLE, Oct. 22, 2015 /PRNewswire/ --

Financial Highlights:

• Reported record third quarter net income, excluding special items, of $277 million, a 39% increase over the third quarter of 2014.
• Reported adjusted earnings per share of $2.16 per diluted share, a 47% increase over the third quarter of 2014 and ahead of First Call analyst consensus estimate of $2.10 per share.
• Earned net income for the third quarter under Generally Accepted Accounting Principles (GAAP) of $274 million, or $2.14 per diluted share, compared to net income of $198 million, or $1.45 per diluted share in 2014.
• Recorded $90 million of employee incentive pay through the first nine months of 2015 in recognition of Air Group employees' progress on meeting customer service, safety, operational and financial goals.
• Generated record adjusted pretax margin in the third quarter of 29.2% compared to 21.8% in 2014.
• Generated 22.8% adjusted pretax margin for the trailing 12-month period ended Sept. 30, 2015, compared to 15.9% for the same period in the prior year.
• Achieved trailing 12-month after-tax return on invested capital of 24.2%, a 700 basis point improvement from the 17.2% reported for the 12-month period ended September 30, 2014.
• Repurchased 1.6 million shares of common stock for $119 million in the third quarter of 2015, and 5.6 million shares of common stock for $381 million during the first nine months of 2015, representing 4.5% of the total shares outstanding at the beginning of the year.
• Paid a $0.20 per-share quarterly cash dividend on Aug. 14, 2015, a 60% increase over the dividend paid in the third quarter of 2014.

Year-To-Date Accomplishments and Highlights:

• Ranked "Highest in Customer Satisfaction Among Traditional Carriers" in 2015 by J.D. Power for the eighth year in a row.
• Ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in 2015 by J.D. Power for the second consecutive year.
• Awarded Fast Travel Platinum status from the International Air Transport Association, which is awarded to airlines offering four or more Fast Travel options to at least 80% of their passengers.
• Rated the #1 Best Airline Rewards Program by U.S. News and World Report.
• Announced that a free first checked bag is a permanent feature of the Alaska Airlines Visa Signature affinity credit card.
• Held the No. 1 spot in U.S. Department of Transportation on-time performance among the six largest U.S. airlines for the 12 months ended August 2015.
• Improved third quarter customer satisfaction score by 1.2 percentage points over prior year.
• Increased fuel efficiency (as measured by seat-miles per gallon) by 1.6% compared to the third quarter of 2014, as part of our effort to be the airline leader in environmental stewardship.
• Began offering customers the option to upgrade to Preferred Plus Seating, providing customers the ability to select bulkhead and exit-row seating 24 hours in advance of their flight. Preferred Plus Seating also includes priority boarding and a complimentary beer, wine or cocktail.
• Amended our agreement with SkyWest Airlines to replace all eight CRJ-700 regional aircraft with Embraer E175 aircraft.
• Contracted for eight additional E175 aircraft, beginning in 2017, bringing the total E175 fleet to 23 aircraft by the end of 2017.
• Launched "Beyond Service" customer service training to all customer-facing employees. Nearly 6,000 of Alaska and Horizon employees have completed the training.
• Began our award-winning intensive leadership training workshop, Gear Up 2, for over 1,200 leaders at Alaska and Horizon.
• Announced a 10-year sponsorship agreement with the University of Washington which includes, among other things, exclusive naming rights for Alaska Airlines Field at Husky Stadium and Alaska Airlines Arena.
• New routes announced in the third quarter are as follows:

Alaska Air Group, Inc., (NYSE: ALK) today reported third quarter 2015 GAAP net income of $274 million, or $2.14 per diluted share, compared to $198 million, or $1.45 per diluted share in the third quarter of 2014. Excluding the impact of mark-to-market fuel hedge adjustments of $5 million ($3 million after tax, or $0.02 per diluted share), the company reported record adjusted net income of $277 million, or $2.16 per diluted share, compared to adjusted net income of $200 million, or $1.47 per diluted share in 2014.

"This was the busiest summer in our 83 year history and represents our highest quarterly profit ever," said CEO Brad Tilden. "I want to thank our employees who are building a fundamentally strong business and our customers for their incredible loyalty and support."

The following table reconciles the company's reported GAAP net income and earnings per diluted share (EPS) during the third quarters of 2015 and 2014 to adjusted amounts:

Statistical data, as well as a reconciliation of the reported non-GAAP financial measures, can be found in the accompanying tables. A glossary of financial terms can be found on the last page of this release.

A conference call regarding the third quarter results will be simulcast online at 8:30 a.m. Pacific time on Oct. 22, 2015. It can be accessed through the company's website at www.alaskaair.com/investors. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call.

References in this news release to "Air Group," "company," "we," "us" and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by any forward-looking statements. For a comprehensive discussion of potential risk factors, see Item 1A of the company's Annual Report on Form 10-K for the year ended Dec. 31, 2014. Some of these risks include general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, inability to meet cost reduction goals, seasonal fluctuations in our financial results, an aircraft accident, and changes in laws and regulations. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such differences might be significant and materially adverse.

Alaska Airlines, a subsidiary of Alaska Air Group (NYSE: ALK), together with its partner regional airlines, serves more than 100 cities through an expansive network in the United States, Canada and Mexico. Alaska Airlines ranked "Highest in Customer Satisfaction Among Traditional Carriers in North America" in the J.D. Power North American Airline Satisfaction Study for eight consecutive years from 2008 to 2015. Alaska Airlines' Mileage Plan also ranked "Highest in Customer Satisfaction with Airline Loyalty Rewards Programs" in the J.D. Power 2014 and 2015 Airline Loyalty/Rewards Program Satisfaction Report. For reservations, visit www.alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at www.alaskaair.com/newsroom.

Note A: Pursuant to Regulation G, we are providing reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

• 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 term, 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 items as specified in our plan documents) 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 special revenues, 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.

Note B: Air Group has two operating airlines - Alaska Airlines and Horizon Air. Each is a regulated airline with separate management teams primarily in operational roles. To manage the two operating airlines, management views the business in three operating segments. Alaska operates a fleet of passenger jets (Alaska Mainline) and contracts with Horizon, SkyWest Airlines, Inc. (SkyWest), and Peninsula Airways, Inc. (PenAir) for regional capacity under which Alaska receives all passenger revenue from those flights (Alaska Regional). Horizon operates a fleet of turboprop aircraft and sells all of its capacity to Alaska pursuant to a capacity purchase arrangement (Horizon). The Company believes the amounts paid by Alaska to Horizon approximate current market rates received by other regional carriers for similar flying and are available to pay for various Horizon operating expenses such as crew expenses, maintenance, and aircraft ownership costs. All inter-company revenues and expenses between Alaska and Horizon are eliminated in consolidation.

Glossary of Terms

Aircraft Utilization - block hours per day; this represents the average number of hours our aircraft are flying

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or "capacity"; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items

CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus the present value of future operating lease payments) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

Mainline - represents flying Boeing 737 jets and all associated revenues and costs

PRASM - passenger revenue per ASM; commonly called "passenger unit revenue"

Productivity - number of revenue passengers per full-time equivalent employee

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan, and other ancillary revenue; represents the average total revenue for flying one seat one mile

Regional - represents capacity purchased by Alaska from Horizon, SkyWest, and PenAir. In this segment, Alaska Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon, SkyWest and PenAir under the respective capacity purchased arrangement (CPAs). Additionally, Alaska Regional includes an allocation of corporate overhead such as IT, finance, other administrative costs incurred by Alaska and on behalf of Horizon.

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

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SOURCE Alaska Air Group, Inc.