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Alaska Air Group Inc. Q1 2010 Earnings Call Transcript

Alaska Air Group Inc. Q1 2010 Earnings Call Transcript

Alaska Air Group Inc. (ALK)

Q1 2010 Earnings Call

April 22, 2010 11:30 am ET


Shannon Albert - Managing Director IR

Bill Ayer - Chairman, President, CEO

Glenn Johnson - CFO

Brad Tilden - President

Jeff Pinneo - President and CEO

Andrew Harrison - VP Planning/Revenue Management

Brandon Pedersen – Vice President/Finance and Controller

Joe Sprague – Vice President of Marketing


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Welcome everyone to the Alaska Air Group first quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the call over to Alaska Air Group’s Managing Director of Investor Relations, Shannon Albert.

Shannon Albert

Thanks, Christie. Hello, everyone and thank you for joining us for Alaska Air Group’s first quarter 2010 earnings call. Today Alaska Air Group’s CEO, Bill Ayer, will provide a company overview; CFO, Glenn Johnson, will talk about Air Group’s financial position and Alaska President Brad Tilden and Horizon Air President and CEO Jeff Pinneo will comment on the financial and operational performance and future initiatives of Alaska and Horizon. Other members of the senior management team are also present to help answer your questions including Alaska’s recently elected Vice President of Marketing,

Joe Sprague.

We are making a slight change to our Q&A process today and will invite both analysts and journalists to queue up together at the end of our prepared remarks.

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 first quarter GAAP profit of $5.3 million. Excluding the impact of mark to market adjustments related to our fuel hedge portfolio, Air Group reported an adjusted net profit of $13.1 million or $0.36 per share. This compares to a first call estimated mean net profit of $0.35 per share and to last year’s adjusted net loss of $25.4 million or $0.70 per share. To look at it another way our first quarter results improved by $38.5 million or more than $1.00 per share. Additional information about expected capacity changes, unit costs, 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 Ayer.

Bill Ayer

Thanks Shannon and good morning everyone. We are very pleased to report our best first quarter since 1999 and our results were driven by a record first quarter load factor, improving yields and first bag fee revenues partially offset by an increase in the cost of fuel. In addition our ongoing network restructuring has continued substantially to the quarter’s profit.

As you know, this is seasonally our weakest quarter of the year and one in which we usually post a loss. In fact, the last time we announced a first quarter profit was in 2006 when we reported less than $3 million in net income and prior to that in 1999 when we earned $20 million. As in 2009 our biggest opportunity this year is to improve the top line with a specific focus on increasing network and ancillary revenues. To that end we are continuing to redeploy capacity to new markets. In addition to the new Portland/Honolulu service we announced last week today we announced new service to Hawaii from San Diego along with some other changes Brad will touch on in a few minutes.

While our fleet size as remained essentially flat, over the past 24 months Air Group has entered 26 new markets including those announced today. In addition we have initiatives underway to improve ancillary revenues and to do it in a way that is understandable and viewed by customers as fair and reasonable. One important source of ancillary revenue is checked baggage and today we’re announcing a modification to those fees. Beginning June 16


we will charge $20 each for the first three bags.

That is an increase for the first bag from the current $15 but a decrease for the second and third. We expect this change to be accretive to revenues to the tune of about $20 million per year. With this change we expect ancillary revenue per passenger to increase to more than $11 up from $4 a couple of years ago. It is important to note that our baggage charges are still less than the industry standard and we have a unique time to carousel guarantee which we are enhancing along with this increase.

Operational performance at both carriers continues to be outstanding. For the latest 12-month DOT reporting period that ended in February Alaska held the number one spot in on-time performance among the 10 largest U.S. airlines. Horizon is also performing exceptionally well and recently a story was published in Forbes that ranked Horizon among the top five airlines in the world for on-time performance in 2009. I want to thank the thousands of Alaska and Horizon employees who make our operations run safely and on-time and provide outstanding customer service each day. It is no secret everyone is working harder and we could not succeed without the extraordinary efforts of our people working together to improve our company.

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