Alaska Air Group, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This filing primarily presents full-year results; it does not provide a clear standalone set of fourth-quarter financial results. Alaska Air Group operates Alaska Airlines, Horizon Air and McGee Air Services.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $3.566 billion | $8.781 billion |
| Operating income (loss) | $(1.775) billion | $1.063 billion |
| Net income (loss) | $(1.324) billion; $(10.72) per diluted share | $769 million; $6.19 per diluted share |
| Adjusted net income (loss), non-GAAP | $(1.256) billion; $(10.17) per diluted share | $798 million; $6.42 per diluted share |
| Net cash from (used in) operating activities | $(234) million | $1.722 billion |
| Cash and marketable securities | $3.346 billion | $1.521 billion |
| Total debt, including current portion | $3.495 billion | $1.499 billion |
| Adjusted net debt, including operating leases, less cash and securities | $1.707 billion | $1.686 billion |
Operating expenses were $5.341 billion, down 31%; the total includes a $782 million Payroll Support Program wage offset, $627 million of impairment and other special charges, and $220 million of restructuring charges. Excluding fuel and special items, consolidated cost per available seat mile (CASMex) rose 41% to 12.25 cents. The filing does not report a conventional operating margin as a headline metric.
- Revenue fell 59%, led by passenger revenue, down 63% to $3.019 billion. Mileage Plan other revenue declined 20% to $374 million; cargo and other revenue declined 22% to $173 million.
- Capacity fell 44%, revenue passenger miles fell 63%, and load factor dropped 28.9 percentage points to 55.2%. Revenue passengers declined 61.6% to 17.9 million.
- Fuel expense declined 62% to $723 million; economic fuel cost per gallon fell 28% to $1.58. Wages and benefits declined 13%, excluding the payroll-support offset.
- Capital expenditures were $206 million, compared with $696 million in 2019. Cash flow from financing activities was $1.981 billion, principally reflecting new debt financing and government support.
Material changes versus 2019
- The COVID-19 pandemic drove an unprecedented demand shock. Full-year capacity was down 44% year over year; quarterly capacity was down 75% in Q2, 55% in Q3 and 42% in Q4.
- Air Group reported a $1.324 billion net loss versus $769 million of net income. Passenger revenue fell $5.1 billion, while total operating expenses fell only $2.4 billion.
- Liquidity increased through financing, government support and cash preservation. Debt rose substantially, but management reported adjusted net debt of $1.7 billion, essentially unchanged from 2019.
- The company permanently removed 40 Airbus aircraft from its operating fleet and temporarily grounded 32 mainline aircraft at year-end. It recorded impairment charges and estimated lease-return costs in connection with fleet actions.
Outlook, risks and unusual items
- Management said recovery timing and pace remain uncertain. It expected leisure travel to lead recovery, with business travel recovering more slowly. Outlook depends on the pandemic, vaccine rollout, and government restrictions.
- For Q1 2021, management expected CASMex to be approximately 20% above 2019 levels, with sequential improvement thereafter and a goal of returning to 2019 unit-cost levels during 2022. It expected operating cash flow of zero to $100 million in Q1, including Payroll Support Program funds, and positive operating cash flow for the first half of 2021.
- Management identified more than $250 million of structural cost-saving initiatives, expected to ramp during 2021. It also expected 2021 cargo revenue to improve as freighters returned to full capacity and passenger schedules increased.
- Air Group reported approximately $1.1 billion of 2020 CARES Act Payroll Support Program funding, including $753 million recognized as a wage offset, and had access to a separate $1.9 billion CARES Act loan facility, of which $135 million was drawn by year-end. Further Payroll Support Program funding was finalized in early 2021. Government funding carries restrictions, including limits on dividends and repurchases and employee-related conditions.
- Dividends and share repurchases were suspended. The company may not resume them until the applicable CARES Act restrictions expire, no earlier than March 31, 2022 under the terms described in the filing.
- Special charges included $627 million in impairment and other items, $220 million in restructuring costs, and $26 million in non-operating debt prepayment and swap-break charges. The flight-attendant wage-and-hour class-action judgment was reduced on appeal in February 2021; the final amount was unresolved, with a disclosed potential-loss range of $0–$78 million and an accrual recorded in 2020.
- Key risks include continued pandemic-related weakness, high fixed costs and leverage, fuel-price volatility, labor negotiations, intense competition, reliance on concentrated West Coast markets and third-party providers, aircraft delivery and 737 MAX acceptance risks, and operational, weather, cybersecurity and regulatory exposures.
Important facts for investors to verify
- Demand recovery, bookings, load factors and capacity trends, particularly the relative pace of leisure and business travel.
- Liquidity and cash burn, debt maturities and covenant compliance, the status and terms of government support, and the company’s ability to reduce debt as operations recover.
- Progress toward CASMex targets and the delivery and realization of the stated structural cost savings.
- Final resolution and financial exposure from the flight-attendant litigation, and any changes to aircraft impairment or lease-return estimates.
- Execution of the Boeing 737 MAX fleet plan, aircraft deliveries, and the costs and flexibility associated with aircraft purchase and lease commitments.