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A record-breaking year
Best-ever profit, load factors
and on-time rates for Air Group
January 26, 2012
PBP and other highlights
• Annual bonus: The vast majority of Alaska Airlines employees will receive a PBP bonus of 6.7 percent of their eligible pay, to be paid Feb. 29 following formal board of directors' approval in mid-February. This is the third year in a row that PBP has exceeded the 5 percent goal. Coupled with OPR, Alaska and Horizon employees have collectively received nearly $240 million in monthly and annual bonuses over the past three years. PBP goals for 2012 will be shared with employees in late February.
• Retirement funding: Air Group contributed $133 million to its defined benefit pension plans last year. Poor market returns and low interest rates, however, caused overall funding to drop from 85 percent to 81 percent. Pension contributions will go up next year, putting pressure on costs. Air Group has contributed $427 million to its defined benefit pension plans over the past three years. "The fact that we had no required funding in any of those years underscores our commitment to keeping our pension obligations," Chief Financial Officer Brandon Pedersen said. "The performance of the pension plans this past year emphasizes our need to continue transitioning out of legacy pension plans and into 401(k) plans. Our company match to 401(k) plans has increased 53 percent over the past three years."
• Money in the bank: Air Group ended the year with a healthy $1.1 billion in cash and short-term investments. The company continued to prepay debt and repurchase stock — and owns 28 Boeing 737s and four Bombardier Q400s free and clear, which represent nearly one in five airplanes in the Air Group fleet.
• Horizon transformation on track: The financial performance of Alaska's sister carrier improved significantly in 2011 with an adjusted pretax profit of $21.7 million — or nearly 6 cents on every dollar.
Alaska Air Group set multiple records in 2011, chalking up new highs for profitability, on-time performance, load factor and more.
For the year, Air Group reported a record adjusted net profit of $287.4 million — nearly $25 million more than 2010’s profit. This translates into a profit margin of 10.7 cents on every dollar, exceeding the company’s 10-cent goal for the second year in a row. Although the fourth quarter profit was down from 2010, mostly due to higher fuel costs, October through December represented Air Group’s 11th consecutive quarterly profit.
Operational performance also set records last year with 88.2 percent of Alaska flights and 86.1 percent of Horizon flights arriving on time. Earlier this week, FlightStats.com named Alaska the best on-time carrier in North America for the second year in a row.
“All of these Air Group accomplishments were because of the hard work and dedication of our people, and I want to thank them for their focus on running a safe and on-time operation and for their excellent customer service,” CEO Bill Ayer said. “We know that 2011’s good results came from the initiatives that we’ve worked on over the past several years. Success in this business can be fragile, and we know that our continued success will depend on the plans and initiatives that we’re working on today, and how well we execute on them. Because of that conviction of controlling what we can control, I’m confident about the future.”
While advance booked load factors for the first three months of the year are higher than in 2011, Air Group expects cost pressures as it moves into 2012. Among the steeper expenses are wage increases, higher maintenance costs, investments in technology and employee training, and a projected $20 million increase in pension contributions.
Why we made money in 2011
• Higher revenue offsets rising fuel prices: Higher fares and record load factors helped Air Group increase revenues by $485.5 million — 12.7 percent more than a year ago. The revenues and a hedge benefit of $21.4 million more than offset a 34 percent jump in fuel costs, but the company spent $1.3 billion overall on Jet A last year — its largest expense.
• Robust demand and strong load factors: Alaska Airlines' capacity grew 8.5 percent (measured by available seat miles), buoyed by more flying to Hawaii. Passenger demand outpaced this growth, however, leading to a record load factor of 85.2 percent. Alaska's load factor has increased every month over the past 2½ years.
• People and plane productivity up: Alaska flew an average of 167 passengers a month for every full-time employee, representing improved productivity of 4.7 percent on top of a 9.3 percent improvement in 2010. Aircraft utilization also increased 5 percent to 10.5 hours of flying per day.
• Unit costs decline: Excluding fuel, flying one passenger one mile fell to 7.6 cents for the year, thanks to continued focus on controlling expenses, changes employees have made over the past several years and more available seat miles in the air. Costs increased in the fourth quarter, however, and the leadership team is developing plans to bring them down.
Best-ever profit, load factors
and on-time rates for Air Group
January 26, 2012
PBP and other highlights
• Annual bonus: The vast majority of Alaska Airlines employees will receive a PBP bonus of 6.7 percent of their eligible pay, to be paid Feb. 29 following formal board of directors' approval in mid-February. This is the third year in a row that PBP has exceeded the 5 percent goal. Coupled with OPR, Alaska and Horizon employees have collectively received nearly $240 million in monthly and annual bonuses over the past three years. PBP goals for 2012 will be shared with employees in late February.
• Retirement funding: Air Group contributed $133 million to its defined benefit pension plans last year. Poor market returns and low interest rates, however, caused overall funding to drop from 85 percent to 81 percent. Pension contributions will go up next year, putting pressure on costs. Air Group has contributed $427 million to its defined benefit pension plans over the past three years. "The fact that we had no required funding in any of those years underscores our commitment to keeping our pension obligations," Chief Financial Officer Brandon Pedersen said. "The performance of the pension plans this past year emphasizes our need to continue transitioning out of legacy pension plans and into 401(k) plans. Our company match to 401(k) plans has increased 53 percent over the past three years."
• Money in the bank: Air Group ended the year with a healthy $1.1 billion in cash and short-term investments. The company continued to prepay debt and repurchase stock — and owns 28 Boeing 737s and four Bombardier Q400s free and clear, which represent nearly one in five airplanes in the Air Group fleet.
• Horizon transformation on track: The financial performance of Alaska's sister carrier improved significantly in 2011 with an adjusted pretax profit of $21.7 million — or nearly 6 cents on every dollar.
Alaska Air Group set multiple records in 2011, chalking up new highs for profitability, on-time performance, load factor and more.
For the year, Air Group reported a record adjusted net profit of $287.4 million — nearly $25 million more than 2010’s profit. This translates into a profit margin of 10.7 cents on every dollar, exceeding the company’s 10-cent goal for the second year in a row. Although the fourth quarter profit was down from 2010, mostly due to higher fuel costs, October through December represented Air Group’s 11th consecutive quarterly profit.
Operational performance also set records last year with 88.2 percent of Alaska flights and 86.1 percent of Horizon flights arriving on time. Earlier this week, FlightStats.com named Alaska the best on-time carrier in North America for the second year in a row.
“All of these Air Group accomplishments were because of the hard work and dedication of our people, and I want to thank them for their focus on running a safe and on-time operation and for their excellent customer service,” CEO Bill Ayer said. “We know that 2011’s good results came from the initiatives that we’ve worked on over the past several years. Success in this business can be fragile, and we know that our continued success will depend on the plans and initiatives that we’re working on today, and how well we execute on them. Because of that conviction of controlling what we can control, I’m confident about the future.”
While advance booked load factors for the first three months of the year are higher than in 2011, Air Group expects cost pressures as it moves into 2012. Among the steeper expenses are wage increases, higher maintenance costs, investments in technology and employee training, and a projected $20 million increase in pension contributions.
Why we made money in 2011
• Higher revenue offsets rising fuel prices: Higher fares and record load factors helped Air Group increase revenues by $485.5 million — 12.7 percent more than a year ago. The revenues and a hedge benefit of $21.4 million more than offset a 34 percent jump in fuel costs, but the company spent $1.3 billion overall on Jet A last year — its largest expense.
• Robust demand and strong load factors: Alaska Airlines' capacity grew 8.5 percent (measured by available seat miles), buoyed by more flying to Hawaii. Passenger demand outpaced this growth, however, leading to a record load factor of 85.2 percent. Alaska's load factor has increased every month over the past 2½ years.
• People and plane productivity up: Alaska flew an average of 167 passengers a month for every full-time employee, representing improved productivity of 4.7 percent on top of a 9.3 percent improvement in 2010. Aircraft utilization also increased 5 percent to 10.5 hours of flying per day.
• Unit costs decline: Excluding fuel, flying one passenger one mile fell to 7.6 cents for the year, thanks to continued focus on controlling expenses, changes employees have made over the past several years and more available seat miles in the air. Costs increased in the fourth quarter, however, and the leadership team is developing plans to bring them down.
