PR Newswire | Jan 27, 2022 06:01AM EST

01/27 05:00 CST

Alaska Air Group delivers strong fourth quarter 2021 and full-year resultsAchieved adjusted pre-tax margin of 2.4% and debt-to-cap ratio of 49% SEATTLE, Jan. 27, 2022

SEATTLE, Jan. 27, 2022 /PRNewswire/ -- Alaska Air Group Inc. (NYSE: ALK) today announced another quarter of improvement in its financial results for the fourth quarter and full year ended December 31, 2021, and provided an outlook for the first quarter ending March 31, 2022.

"While recovery in our industry is never linear, our caring and dedicated people and the strength of our competitive advantages position us for success no matter what challenges we face," said CEO Ben Minicucci. "Despite operational disruption from omicron and severe winter weather in December, our fourth quarter adjusted pre-tax margin was 2.4%, marking one of the industry's most profitable performances in Q4 and the second half of the year. We have laid a solid foundation for our return to 100% of our pre-COVID flying by summer 2022 and we're poised to grow from there."

Alaska's fourth quarter and full year 2021 results reflect a disciplined focus on cost management and a measured approach to bringing back capacity in recovery. In addition to delivering profitability in the second half of the year, Alaska's financial performance enabled the company to restore its debt-to-capitalization ratio to pre-pandemic levels in the fourth quarter, priming the airlines for profitable growth in 2022.

Financial Results for the Fourth Quarter and Full Year:

* Reported net income for the fourth quarter and full year 2021 under Generally Accepted Accounting Principles (GAAP) of $18 million, or $0.14 per diluted share, and $478 million, or $3.77 per diluted share. These results compare to a net loss for the fourth quarter and full year 2020 of $447 million, or $3.60 per share, and $1.3 billion, or $10.72 per share. * Reported net income for the fourth quarter and net loss for the full year 2021, excluding special items and mark-to-market fuel hedge accounting adjustments, of $31 million, or $0.24 per diluted share, and $256 million, or $2.03 per share. These results compare to a net loss for the fourth quarter and full year 2020, excluding special items and mark-to-market fuel hedge accounting adjustments, of $316 million, or $2.54 per share, and $1.3 billion, or $10.17 per share. * Reported adjusted pre-tax margin for the fourth quarter of 2021 of 2.4%, marking the second profitable quarter on an adjusted basis since the onset of the pandemic. * Recorded $42 million and $151 million of incentive pay in the fourth quarter and full year 2021 earned by employees for meeting or exceeding cash flow, cost management, and safety goals, representing approximately three weeks pay for most employees.

Balance Sheet and Liquidity at Year End:

* Reported a debt-to-capitalization ratio of 49%, a reduction of 12 points from December 31, 2020, and the lowest level since the first quarter of 2020. * For the full year, generated $138 million in operating cash flows, net of Payroll Support Program grant funds received. * Repaid $112 million in debt in the fourth quarter, bringing total debt payments to $1.3 billion for the year. * Held $3.1 billion in unrestricted cash and marketable securities as of December 31, 2021.

Operational Updates and Milestones for the Fourth Quarter:

* Announced nonstop service between Seattle-Tacoma International Airport and Miami, marking the 100th nonstop destination from Alaska's Seattle hub. * Expanded oneworld partnership with new West Coast international flights between Portland and London Heathrow on British Airways and between Seattle and Helsinki on Finnair. Expanded service will provide Alaska's guests more than 100 nonstop flights on oneworld partners from the West Coast to Europe by summer 2022. * Launched new MVP Gold 100k tier for Mileage Plan members, providing enhanced benefits for those traveling 100,000 miles or more in one year. * Named the safest U.S. airline by AirlineRatings.com in their annual Top 20 Safest Airline Report. * Received four 737-9 aircraft during the quarter, bringing total additions in 2021 to 11. * Began nonstop service to Belize from Seattle and Los Angeles in November, marking the fourth country Alaska flies to from its West Coast hubs.

Fourth Quarter Environmental, Social, and Governance Updates:

* Announced the appointment of Diana Birkett Rakow as senior vice president of public affairs and sustainability, emphasizing Alaska's commitment to protect the places it flies and support the communities it serves. * Announced collaboration with ZeroAvia to begin development on a hydrogen-electric powertrain engine capable of flying regional aircraft in excess of 500 nautical miles. * Expanded inflight sustainability efforts by trading plastic water bottles and cups for Boxed Water Is Better(r) plant-based cartons and recyclable paper cups. This change will eliminate an estimated 1.8 million pounds of single-use plastics over the next year. * Launched partnership with travel2change, a Hawaii-based social and environmental impact organization that connects travelers with sustainable volunteer projects while visiting Hawaii.

The following table reconciles the company's reported GAAP net income (loss) per share (EPS) for the three and twelve months ended December 31, 2021 and 2020 to adjusted amounts.

Three Months Ended December 31,

2021 2020

(in millions, except per share amounts) Dollars Diluted EPS Dollars EPS

Reported GAAP net income (loss) and diluted EPS $ 18$ 0.14 $ (447)$ (3.60)

Payroll support program wage offset - - (22) (0.18)

Mark-to-market fuel hedge adjustments 21 0.16 (8) (0.06)

Special items - impairment charges and other (6) (0.05) 277 2.23

Special items - restructuring charges 2 0.02 (102) (0.82)

Special items - merger-related costs - - 1 0.01

Special items - net non-operating - - 26 0.21

Income tax effect on special items and fuel hedge adjustments(4) (0.03) (41) (0.33)

Non-GAAP adjusted net income (loss) and diluted EPS $ 31$ 0.24 $ (316)$ (2.54)



Twelve Months Ended December 31,

2021 2020

(in millions, except per share amounts) Dollars Diluted EPS Dollars EPS

Reported GAAP net income (loss) and diluted EPS $ 478 $ 3.77 $ (1,324) $ (10.72)

Payroll support program wage offset (914) (7.21) (782) (6.33)

Mark-to-market fuel hedge adjustments (47) (0.37) (8) (0.06)

Special items - impairment charges and other (1) (0.01) 627 5.08

Special items - restructuring charges (10) (0.08) 220 1.78

Special items - merger-related costs - - 6 0.05

Special items - net non-operating - - 26 0.21

Income tax effect on special items and fuel hedge adjustments238 1.87 (21) (0.18)

Non-GAAP adjusted net loss and diluted EPS $ (256) $ (2.03)$ (1,256) $ (10.17)

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 fourth quarter and full year results will be streamed online at 8:30 a.m. PST on January 27, 2022. It can be accessed 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 update to "Air Group," "Company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

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 December 31, 2020, the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, as well as in other documents filed by the Company with the SEC after the date thereof. Some of these risks include the risks associated with contagious illnesses and contagion, such as COVID-19, general economic conditions, increases in operating costs including fuel, competition, labor costs and relations, our indebtedness, 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 and our regional partners serve more than 120 destinations across the United States, Belize, Canada, Costa Rica and Mexico. We emphasize Next-Level Care for our guests, along with providing low fares, award-winning customer service and sustainability efforts. Alaska is a member of the oneworld global alliance. With the alliance and our additional airline partners, guests can travel to more than 1,000 destinations on more than 20 airlines while earning and redeeming miles on flights to locations around the world. Learn more about Alaska at newsroom.alaskaair.com and blog.alaskaair.com. Alaska Airlines and Horizon Air are subsidiaries of Alaska Air Group (NYSE: ALK).

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Alaska Air Group, Inc.



Three Months Ended December 31, Twelve Months Ended December 31,

(in millions, except 2021 2020 Change2021 2020 Changeper share amounts)

Operating Revenues:

Passenger revenues $ 1,715 $ 657161 % $ 5,499$ 3,01982 %

Mileage Plan other 129 108 19 % 461 374 23 % revenues

Cargo and other 55 43 28 % 216 173 25 %

Total Operating 1,899 808 135 % 6,176 3,566 73 % Revenues



Operating Expenses:

Wages and benefits 637 474 34 % 2,218 2,053 8 %

Variable incentive pay42 65 (35) %151 130 16 %

Payroll support - (22) NM (914) (782) 17 % program wage offset

Aircraft fuel, including hedging 426 155 175 % 1,279 723 77 % gains and losses

Aircraft maintenance 92 77 19 % 364 321 13 %

Aircraft rent 66 70 (6) % 254 299 (15) %

Landing fees and other141 94 50 % 555 417 33 % rentals

Contracted services 68 43 58 % 235 181 30 %

Selling expenses 50 18 178 % 173 101 71 %

Depreciation and 100 100 - % 394 420 (6) % amortization

Food and beverage 42 20 110 %139 90 54 % service

Third-party regional 41 36 14 % 147 128 15 % carrier expense

Other 159 97 64 % 507 407 25 %

Special items - impairment charges and(6) 277 NM (1) 627 NM other

Special items - 2 (102) NM (10) 220 NM restructuring charges

Special items - - 1 NM - 6 NM merger-related costs

Total Operating 1,860 1,403 33 % 5,491 5,341 3 % Expenses

Operating Income 39 (595) NM 685 (1,775) NM (Loss)

Non-operating Income (Expense):

Interest income 6 8 (25) %25 31 (19) %

Interest expense (27) (34) (21) %(128) (98) 31 %

Interest capitalized 2 3 (33) %11 11 - %

Other - net 9 1 NM 36 17 NM

Special charges - net - (26) NM - (26) NM non-operating

Total Non-operating (10) (48) (79) %(56) (65) (14) %Expense

Income (Loss) Before 29 (643) 629 (1,840) Income Tax

Income tax (benefit) 11 (196) 151 (516) expense

Net Income (Loss) $ $ $ $ (1,324) 18 (447) 478



Basic Earnings (Loss) $ 0.14$ (3.60) $ $ (10.72) Per Share 3.82

Diluted Earnings $ 0.14$ (3.60) $ $ (10.72) (Loss) Per Share 3.77



Shares used for computation:

Basic 125.708 124.013 125.063 123.450

Diluted 127.284 124.013 126.775 123.450



Cash dividend declared$ -$ - $ $ 0.375 per share -

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.



As of December 31 (in millions) 2021 2020

ASSETS

Current Assets

Cash and cash equivalents $ 470$ 1,370

Marketable securities 2,646 1,976

Total cash and marketable securities 3,116 3,346

Receivables - net 546 480

Inventories and supplies - net 62 57

Prepaid expenses, assets held-for-sale, and other current assets196 123

Total Current Assets 3,920 4,006



Property and Equipment

Aircraft and other flight equipment 8,127 7,761

Other property and equipment 1,489 1,398

Deposits for future flight equipment 384 583

10,000 9,742

Less accumulated depreciation and amortization 3,862 3,531

Total Property and Equipment - Net 6,138 6,211



Operating lease assets 1,453 1,400

Goodwill and intangible assets 2,044 2,050

Other noncurrent assets 396 379

Other Assets 3,893 3,829



Total Assets $ 13,951 $ 14,046



CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

Alaska Air Group, Inc.



As of December 31 (in millions) 2021 2020

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Accounts payable $ 200$ 108

Accrued wages, vacation and payroll taxes 457 527

Air traffic liability 1,163 1,073

Other accrued liabilities 625 424

Deferred revenue 912 733

Current portion of operating lease liabilities 268 290

Current portion of long-term debt 366 1,138

Total Current Liabilities 3,991 4,293



Long-Term Debt, Net of Current Portion 2,173 2,357



Noncurrent Liabilities

Long-term operating lease liabilities, net of 1,279 1,268 current portion

Deferred income taxes 578 407

Deferred revenue 1,446 1,544

Obligation for pension and postretirement medical305 665 benefits

Other liabilities 378 524

Total Noncurrent Liabilities 3,986 4,408



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: 400,000,000 shares, Issued: 2021 - 135,255,808 shares; 2020 - 133,567,534 shares, Outstanding: 1 1 2021 - 125,905,864 shares; 2020 - 124,217,590 shares

Capital in excess of par value 494 391

Treasury stock (common), at cost: 2021 - (674) (674) 9,349,944 shares; 2020 - 9,349,944 shares

Accumulated other comprehensive loss (262) (494)

Retained earnings 4,242 3,764

3,801 2,988

Total Liabilities and Shareholders' Equity $ 13,951 $ 14,046

SUMMARY CASH FLOW (unaudited)

Alaska Air Group, Inc.



Year Ended Nine Months Ended Three Months Ended (in millions) December 31, 2021 September 30, 2021^(a) December 31, 2021^(b)

Cash Flows from Operating Activities:

Net income $ 478$ 460$ 18

Non-cash reconciling items 434 322 112

Changes in working capital 118 119 (1)

Net cash provided by 1,030 901 129 operating activities



Cash Flows from Investing Activities:

Property and equipment (292) (190) (102) additions

Other investing activities (716) (753) 37

Net cash used in investing (1,008) (943) (65) activities



Cash Flows used in Financing (914) (825) (89) Activities:



Net decrease in cash and cash(892) (867) (25) equivalents

Cash, cash equivalents, and restricted cash at beginning 1,386 1,386 519 of period

Cash, cash equivalents, and restricted cash at end of the$ 494$ 519$ 494 period



Net cash provided by $ 1,030 operating activities

Payroll support program grant(892) funds received^(c)

Net cash provided by operating activities, ex. PSP$ 138 grant funds received

(a) As reported in Form 10-Q for the third quarter of 2021.

Cash flows for the three months ended December 31, 2021, can be calculated(b) by subtracting cash flows for the nine months ended September 30, 2021, as reported in Form 10-Q for the third quarter 2021, from the year ended December 31, 2021.

(c) As reported in Note 2 in Form 10-Q for the third quarter of 2021.

OPERATING STATISTICS SUMMARY (unaudited)

Alaska Air Group, Inc.



Three Months Ended December 31,Twelve Months Ended December 31,

2021 2020 Change 2021 2020 Change

Consolidated Operating Statistics:^(a)

Revenue passengers 9,196 3,916 134.8% 32,407 17,927 80.8% (000)

RPMs (000,000) 11,279 4,366 158.3% 38,598 20,493 88.3% "traffic"

ASMs (000,000) 14,207 9,631 47.5% 52,445 37,114 41.3% "capacity"

Load factor 79.4% 45.3% 34.1 pts 73.6% 55.2% 18.4 pts

Yield 15.20? 15.06? 0.9% 14.25? 14.73? (3.3)%

RASM 13.36? 8.39? 59.2% 11.78? 9.61? 22.6%

CASMex^(b) 10.12? 11.35? (10.8)% 9.80? 12.25? (20.0)%

Economic fuel cost per$2.26 $1.39 62.6% $2.02 $1.58 27.8% gallon^(b)

Fuel gallons (000,000)179 117 53.0% 656 461 42.3%

ASMs per gallon 79.4 82.3 (3.6)% 79.9 80.5 (0.7)%

Average full-time equivalent employees 21,043 16,050 31.1% 19,375 17,596 10.1% (FTEs)

Mainline Operating Statistics:

Revenue passengers 6,900 2,545 171.1% 23,268 12,280 89.5% (000)

RPMs (000,000) 10,078 3,622 178.2% 33,755 17,438 93.6% "traffic"

ASMs (000,000) 12,737 8,047 58.3% 45,741 31,387 45.7% "capacity"

Load factor 79.1% 45.0% 34.1 pts 73.8% 55.6% 18.2 pts

Yield 13.97? 13.54? 3.2% 13.07? 13.48? (3.0)%

RASM 12.39? 7.73? 60.3% 10.99? 9.01? 22.0%

CASMex^(b) 9.14? 10.60? (13.8)% 8.96? 11.57? (22.6)%

Economic fuel cost per$2.25 $1.37 64.2% $2.01 $1.59 26.4% gallon^(b)

Fuel gallons (000,000)150 88 69.7% 530 358 48.0%

ASMs per gallon 84.8 90.9 (6.8)% 86.2 87.7 (1.7)%

Average number of FTEs15,855 11,665 35.9% 14,366 13,214 8.7%

Aircraft utilization 10.0 8.3 20.5% 9.7 8.3 16.9%

Average aircraft stage1,356 1,298 4.5% 1,324 1,272 4.1% length

Operating fleet^(d) 217 197 20 a/c 217 197 20 a/c

Regional Operating Statistics:^(c)

Revenue passengers 2,296 1,371 67.5% 9,139 5,647 61.8% (000)

RPMs (000,000) 1,201 744 61.3% 4,842 3,055 58.5% "traffic"

ASMs (000,000) 1,469 1,584 (7.3)% 6,704 5,727 17.1% "capacity"

Load factor 81.7% 47.0% 34.7 pts 72.2% 53.3% 18.9 pts

Yield 25.57? 22.47? 13.8% 22.49? 21.90? 2.7%

RASM 21.82? 11.71? 86.3% 17.12? 12.82? 33.5%

Operating Fleet 94 94 - a/c 94 94 - a/c

(a) Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

See a reconciliation of this non-GAAP measure and Note A for a discussion(b) of potential importance of this measure to investors in the accompanying pages.

(c) Data presented includes information related to flights operated by Horizon and third-party carriers.

(d) Excludes all aircraft removed from operating service.

Given the unusual nature of 2020, we believe that some analysis of specific financial and operational results compared to 2019 provides meaningful insight. The table below includes comparative results from 2021 to 2019.

FINANCIAL INFORMATION AND OPERATING STATISTICS - 2021 Compared with 2019 (unaudited)

Alaska Air Group, Inc.



Three Months Ended December 31, Year Ended December 31,

2021 2019 Change2021 2019 Change

Passenger revenues $ 1,715 $ 2,057 (17) $ 5,499 $ 8,095 (32) % %

Mileage plan other 129 119 8 %461 465 (1) % revenue

Cargo and other 55 52 6 %216 221 (2) %

Total operating $ 1,899 $ 2,228 (15) $ 6,176 $ 8,781 (30) % revenues %



Operating expense, (4) excluding fuel and $ 1,438 $ 1,500 % $ 5,137 $ 5,796 (11) % special items

Economic fuel 405 476 (15) 1,326 1,884 (30) % %

Special items 17 - NM (972) 38 NM

Total operating $ 1,860 $ 1,976 (6) $ 5,491 $ 7,718 (29) % expenses %



Total nonoperating $ (10)$ (9)11 $ (56)$ (47)19 % expense %

Income before income 29 243 (88) $ 629 $ 1,016 (38) % tax %



Consolidated Operating Statistics:

Revenue passengers 9,196 11,715 (22) 32,407 46,733 (31) % (000) %

RPMs (000,000) 11,279 13,928 (19) 38,598 56,040 (31) % "traffic" %

ASMs (000,000) 14,207 16,648 (15) 52,445 66,654 (21) % "capacity" %

Load Factor 79.4% 83.7% (4.3) 73.6% 84.1% (10.5) pts pts

Yield 15.20? 14.77? 3 %14.25? 14.45? (1) %

RASM 13.36? 13.38? - %11.78? 13.17? (11) %

CASMex 10.12? 9.01? 12 9.80? 8.70? 13 % %

FTEs 21,043 22,506 (7) 19,375 22,126 (12) % %

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.



Three Months Ended December 31, 2021

(in millions) Mainline Regional Horizon Consolidating Air Group Special Consolidated & Other^(a) Adjusted^(b) Items^(c)

Operating revenues

Passenger revenues $ 1,408 $ 307 $ - $ - $ 1,715 $ - $ 1,715

CPA revenues - - 84 (84) - - -

Mileage Plan other 115 14 - - 129 - 129 revenue

Cargo and other 55 - - - 55 - 55

Total Operating 1,578 321 84 (84) 1,899 - 1,899 Revenues

Operating Expenses

Non-fuel operating 1,164 258 101 (85) 1,438 (4) 1,434 expenses

Fuel expense 339 66 - - 405 21 426

Total Operating 1,503 324 101 (85) 1,843 17 1,860 Expenses

Total Non-operating (7) - (5) 2 (10) - (10) Income (Expense)

Income (Loss) Before $ 68$ (3)$ (22)$ 3$ 46 $ (17)$ Income Tax 29

Pre-tax Margin 2.4 % 1.5 %



Three Months Ended December 31, 2020

(in millions) Mainline Regional Horizon Consolidating Air Group Special Consolidated & Other^(a) Adjusted^(b) Items^(c)

Operating revenues

Passenger revenues $ 490 $ 167 $ - $ - $ 657 $ - $ 657

CPA revenues - - 105 (105) - - -

Mileage Plan other 90 18 - - 108 - 108 revenue

Cargo and other 42 - - 1 43 - 43

Total Operating 622 185 105 (104) 808 - 808 Revenues

Operating Expenses

Non-fuel operating 853 266 85 (110) 1,094 154 1,248 expenses

Fuel expense 121 42 - - 163 (8) 155

Total Operating 974 308 85 (110) 1,257 146 1,403 Expenses

Total Non-operating (18) - (6) 2 (22) (26) (48) Income (Expense)

Income (Loss) Before $ (370)$ (123) $ 14 $ 8$ (471) $ (172) $ Income Tax (643)

Pre-tax Margin (58.3) % (79.6) %

OPERATING SEGMENTS (unaudited)

Alaska Air Group, Inc.



Twelve Months Ended December 31, 2021

(in millions) Mainline Regional Horizon Consolidating Air Group Special Consolidated & Other^(a) Adjusted^(b) Items^(c)

Operating revenues

Passenger revenues $ 4,411 $ 1,088 $ - $ - $ 5,499 $ - $ 5,499

CPA revenues - - 406 (406) - - -

Mileage Plan other 402 59 - - 461 - 461 revenue

Cargo and other 212 - - 4 216 - 216

Total Operating 5,025 1,147 406 (402) 6,176 - 6,176 Revenues

Operating Expenses

Non-fuel operating 4,101 1,096 373 (433) 5,137 (925) 4,212 expenses

Fuel expense 1,065 261 - - 1,326 (47) 1,279

Total Operating 5,166 1,357 373 (433) 6,463 (972) 5,491 Expenses

Total Non-operating (38) - (21) 3 (56) - (56) Income (Expense)

Income (Loss) Before $ (179)$ (210)$ 12$ 34$ (343) $ 972 $ 629 Income Tax

Pre-tax Margin (5.6) % 10.2 %



Twelve Months Ended December 31, 2020

(in millions) Mainline Regional Horizon Consolidating Air Group Special Consolidated & Other^(a) Adjusted^(b) Items^(c)

Operating revenues

Passenger revenues $ 2,350 $ 669 $ - $ - $ 3,019 $ - $ 3,019

CPA revenues - - 386 (386) - - -

Mileage Plan other 309 65 - - 374 - 374 revenue

Cargo and other 170 - - 3 173 - 173

Total Operating 2,829 734 386 (383) 3,566 - 3,566 Revenues

Operating Expenses

Non-fuel operating 3,630 993 323 (399) 4,547 71 4,618 expenses

Fuel expense 569 162 - - 731 (8) 723

Total Operating 4,199 1,155 323 (399) 5,278 63 5,341 Expenses

Total Non-operating (19) - (22) 2 (39) (26) (65) Income (Expense)

Income (Loss) Before $ (1,389) $ (421)$ 41$ 18$ (1,751) $ (89)$ (1,840) Income Tax

Pre-tax Margin (49.1) % (51.6) %

(a) Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.

The Air Group Adjusted column represents the financial information that is(b) reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges. See Note A in the accompanying pages for further information.

(c) Includes payroll support program wage offsets, special items and mark-to-market fuel hedge accounting adjustments.

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)



Alaska Air Group, Inc.



CASM Excluding Fuel and Special Items Reconciliation



Three Months Ended December 31, Twelve Months Ended December 31,

(in cents) 2021 2020 2021 2020

Consolidated:

CASM 13.09 ? 14.57 ? 10.47 ? 14.39 ?

Less the following components:

Payroll support - (0.23) (1.75) (2.11) program wage offset

Aircraft fuel, including 3.00 1.61 2.44 1.95 hedging gains and losses

Special items - impairment (0.04) 2.89 - 1.69 charges and other^(a)

Special items - 0.01 (1.06) (0.02) 0.59 restructuring charges^(b)

Special items - - 0.01 - 0.02 merger-related costs

CASM excluding 9.80 fuel and 10.12 ? 11.35 ?? 12.25 ? special items



Mainline:

CASM 11.77 14.11 ? 9.52 13.66 ? ? ?

Less the following components:

Payroll support - (0.07) (1.75) (2.17) program wage offset

Aircraft fuel, including 2.66 1.40 2.33 1.79 hedging gains and losses

Special items - impairment (0.05) 3.44 - 1.80 charges and other^(a)

Special items - 0.02 (1.27) (0.02) 0.65 restructuring charges^(b)

Special items - - 0.01 - 0.02 merger-related costs

CASM excluding 9.14 8.96 fuel and ? 10.60 ? ? 11.57 ?special items



Special items - impairment charges and other in the three and twelve months(a) ended December 31, 2021 are primarily comprised of updated estimates of cost associated with leased aircraft that have been retired and removed from the operating fleet but not yet returned to the lessor.

Special items - restructuring charges in the three and twelve months ended December 31, 2021 represent adjustments to total estimated cost for pilot(b) incentive leaves as a result of updated recall timing from what was previously anticipated due to schedule changes, training limitations and other factors.

Fuel Reconciliation



Three Months Ended December 31,

2021 2020

(in millions, except for per Dollars Cost/Gal Dollars Cost/Gal gallon amounts)

Raw or "into-plane"$ $ 2.42$ 159$ 1.36fuel cost 434

Losses (gains) on (29) (0.16) 4 0.03 settled hedges

Consolidated $ economic fuel 405 $ 2.26$ 163$ 1.39expense

Mark-to-market fuel21 0.12 (8) (0.07) hedge adjustments

GAAP fuel expense $ $ 2.38$ 155$ 1.32 426

Fuel gallons 179 117



Twelve Months Ended December 31,

2021 2020

(in millions, except for per Dollars Cost/Gal Dollars Cost/Gal gallon amounts)

Raw or "into-plane"$ 1,383$ 2.11$ 713$ 1.54fuel cost

Losses (gains) on (57) (0.09) 18 0.04 settled hedges

Consolidated economic fuel $ 1,326$ 2.02$ 731$ 1.58expense

Mark-to-market fuel(47) (0.07) (8) (0.01) hedge adjustments

GAAP fuel expense $ 1,279$ 1.95$ 723$ 1.57

Fuel gallons 656 461



Debt-to-capitalization, including operating leases

(in millions) December 31, 2021 December 31, 2020

Long-term debt, net of$ 2,173$ 2,357current portion

Long-term and current capitalized operating 1,547 1,558 leases

COVID-19 Related - 734 Borrowings^(a)

Adjusted debt, net of current portion of $ 3,720$ 4,649long-term debt

Shareholders' equity 3,801 2,988

Total Invested Capital$ 7,521$ 7,637



Debt-to-capitalization ratio, including 49% 61% operating leases

To best reflect our leverage we included the short-term borrowings stemming^ from the COVID-19 pandemic which are classified as current liabilities in(a) the above calculation. As of December 31, 2021 no such borrowings were outstanding.

Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent

(in millions) December 31, 2021 December 31, 2020

Current portion of long-term$ 366$ 1,138debt

Current portion of operating268 290 lease liabilities

Long-term debt 2,173 2,357

Long-term operating lease liabilities, net of current 1,279 1,268 portion

Total adjusted debt 4,086 5,053

Less: Total cash and (3,116) (3,346) marketable securities

Adjusted net debt $ 970$ 1,707



(in millions) Year Ended December Year Ended December 31, 2021 31, 2020

GAAP Operating Income (Loss)$ 685$ (1,775)

Adjusted for:

Payroll Support Program wage(925) 71 offset and special items

Mark-to-market fuel hedge (47) (8) adjustments

Depreciation and 394 420 amortization

Aircraft rent 254 299

EBITDAR $ 361$ (993)

Adjusted net debt to EBITDAR2.7x (1.7x)

Note A: Pursuant to Regulation G, we are providing reconciliations 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 (including the payroll support program wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. 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, such as the payroll support program wage offset, impairment and restructuring charges and 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 other items as specified in our plan documents) is an important metric 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 have historically compared our airline 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 these items as noted above. 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.

GLOSSARY OF TERMS

Adjusted net debt -long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities

Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

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

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 capitalized operating lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share- represents earnings per share (EPS) 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, Airbus 320 and Airbus 321neo family jets and all associated revenues and costs

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 and SkyWest. In this segment, Regional records actual on-board passenger revenue, less costs such as fuel, distribution costs, and payments made to Horizon and SkyWest under the respective capacity purchased arrangement (CPAs). Additionally, 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