Alaska Air Group, Inc. CEO Discusses Q3 2010 Earnings - Call Transcript

Alaska Air Group, Inc. CEO Discusses Q3 2010 Earnings - Call Transcript
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Alaska Air Group, Inc. (



Q3 2010 Earnings Call

October 21, 2010 11:30 pm ET


Shannon Albert - MD, IR

Bill Ayer - Chairman and CEO

Brandon Pedersen - CFO

Brad Tilden - President

Glenn Johnson - President, Horizon Air

Andrew Harrison - VP, Planning and Revenue Management

Joe Sprague - VP, Marketing


Bill Greene - Morgan Stanley

Hunter Keay - Stifel Nicolaus

Jamie Baker - JPMorgan

Duane Pfennigwerth - Raymond James

Michael Linenberg – Deutsche Bank

Dan McKenzie - Hudson Securities

Helane Becker - Dahlman Rose

Steve O'Hara - Sidoti & Company

Kevin Crissey - UBS

Glenn Engel - BoA/Merrill Lynch

Michael Derchin - CRT Capital Group

Tom Banse - KUOW Radio Seattle



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Good morning, my name is Brooke and I'll be your conference operator today. At this time I would like to welcome everyone to the Alaska Air Group Third Quarter 2010 Earnings Conference Call. Today's call is being recorded and will be accessible for future playback at All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session for analysts and journalists. (Operator Instructions). Thank you. I will now turn the call over to Alaska Air Group's Managing Director of Investor Relations, Shannon Albert.

Shannon Albert

Thanks, Brooke. Hello, everyone and thank you for joining us for Alaska Air Group's third quarter 2010 earnings call. Today Alaska Air Group's CEO, Bill Ayer, Alaska Airlines President, Brad Tilden and Air Group CFO, Brandon Pedersen will share their thoughts on the quarter, our financial results, the operating environment and our future initiatives. Other members of the senior management team are also present to help answer your questions.

Today's call will include forward-looking statements that may differ materially from actual results. Additional information on risk factors that could affect our business can be found in our periodic SEC filings available on our website. Our presentation includes some non-GAAP financial measures and we have provided reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release.

This morning, Alaska Air Group reported a third quarter GAAP net profit of $122.4 million. Excluding the impact of mark-to-market adjustments in connection with our fuel hedge portfolio as well as fleet transition and restructuring cost at Horizon. Air Group reported an adjusted net profit of $118.1 million or $3.21 per share. This compares to a first call mean estimate of $3.11 per share and to last year’s adjusted net profit of $83 million or $2.33 per share. Again excluding unusual items Air Group reported a year-to-date profit of $215.2 million or $5.87 per share compared to $84.1 million or $2.32 per share for the first nine months of 2009.

Additional information about expected capacity changes, unit cost fuel hedge positions, capital expenditures and fleet count can be found in our investor update included in our Form 8-K and available on our website at

With that I will turn the call over to Bill.

Bill Ayer

Thanks Shannon and good morning everyone. This quarter’s results represent Alaska Air Group’s best adjusted quarterly profit in our history displacing last quarter’s record. Our financial performance was driven by increased traffic, stable yields and good cost management through improved productivity and lower overhead and our employees continue to provide customers with a travel experience which is among the best in the industry.

I am proud and honored to work with such dedicated people and the credit for our quarterly results really belongs to the 12,000 employees of the Alaska and Horizon. Turning to the operation, both companies had a very good summer and Alaska’s was particularly noteworthy. In July and August Alaska finished first among the top 10 U.S. carriers with more than 88% of flights arriving on time and in September where industry rankings are not yet available. More than 90% of our flights arrived on time.

Unofficially extending our number one rank among the top 10 airlines to 17 over the last 18 months and every month in 2010. In addition we are heading our 20 minute bag guarantee over 90% of the time in our top 14 cities. I want to spend a minute updating you and the changes we’re making at horizon. One of the most important components of our plan is to accelerate the move to an all Q400 fleet and we now believe we can achieve that in 2011.

This will allow horizon to capture the same trends of efficiencies that Alaska realized when it transitioned out of the MD80s. During the third quarter we announced that horizon will move to an all capacity purchase model in 2011 further optimizing Horizons route system to benefit Air Group. We reached a tentative agreement with Horizon pilots on a new contract and we are optimistic that agreement will be ratified in the fourth quarter. We have outsourced the last of our heavy maintenance with a significant dedicated oversight function.

We are working with Bombardier to improve the scheduled reliability of the Q400 and we are working to eliminate any remaining redundant functions between Alaska and Horizon. Glenn Johnson and his team have done a great job managing the pace and magnitude of these changes and I want to thank the entire horizon employee group for their dedication and understanding as we move the company to a more competitive and profitable long term outlook.

As we look at the industry environment we are encouraged the traffic is holding up despite the continued economic uncertainty. One of the keys has been our ability to adjust our schedule quickly to match capacity with demand and to take advantage of opportunities. And just to give you a little perspective in the last 30 days we have initiated service in three new markets and we'll begin serving eight additional markets by the end of the first quarter. We are doing this through increased utilization and a delivery of three additional aircraft next year.

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