Alaska Air Group, Inc. — 2023 Form 10-K
Business context and reporting period: The filing covers the fiscal year ended December 31, 2023, not a standalone fourth quarter. Alaska Air Group operates Alaska Airlines, Horizon Air and McGee Air Services, with reportable Mainline, Regional and Horizon segments. It reported record annual revenue and completed its transition to all-Boeing 737 Mainline and all-Embraer E175 Regional fleets.
Financial performance
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Operating revenue | $10.426 billion | $9.646 billion | Up 8%; record annual revenue |
| Operating income | $394 million | $70 million | Operating margin about 3.8%, versus 0.7% |
| Income before tax | $323 million | $79 million | Up $244 million |
| Net income / diluted EPS | $235 million / $1.83 | $58 million / $0.45 | GAAP results |
| Adjusted net income / diluted EPS | $583 million / $4.53 | $556 million / $4.35 | Non-GAAP; excludes specified items and fuel hedge mark-to-market adjustments |
| Operating cash flow | $1.050 billion | $1.418 billion | Down $368 million |
| Cash and marketable securities | $1.791 billion | $2.417 billion | Down 26% |
| Long-term debt, net of current portion | $2.182 billion | $1.883 billion | Up 16%; total debt was $2.471 billion |
| Debt-to-capitalization, including leases | 46% | 48% | Within stated 40%–50% target range |
Passenger revenue rose 8% to $9.526 billion, as passenger traffic increased 12% while yield declined 3%. Mileage Plan revenue rose 11% to $1.682 billion, including revenue recorded in both passenger and Mileage Plan other revenue. Consolidated capacity increased 13%, while load factor eased 0.8 percentage points to 83.7%.
Operating expenses increased 5% to $10.032 billion. Non-fuel operating expenses excluding special items rose 10%, including wages and benefits up 15% and maintenance up 15%. Fuel expense declined 1%; economic fuel cost per gallon fell 6% to $3.21. CASMex, management’s non-GAAP unit-cost measure excluding fuel and special items, improved 3% to 10.14 cents.
Cash used in investing activities was $964 million and cash used in financing activities was $147 million. Cash capital additions for property and equipment were $1.494 billion. Adjusted net debt was $2.027 billion and adjusted net debt to EBITDAR was 1.4x, compared with 1.0x in 2022. The company reported $550 million of combined available bank-line capacity with no borrowings and said liquidity was sufficient for foreseeable needs.
Material changes and unusual items
- GAAP operating income improved to $394 million from $70 million. The filing attributes the improvement in pretax income primarily to $780 million of additional revenue, partly offset by $456 million of additional operating expenses and $80 million of increased non-operating expenses.
- Special items included $392 million of fleet-transition and other operating charges, including impairment and costs related to retiring Airbus and Q400 aircraft; a $51 million one-time labor charge related to pilot unused-sick-leave benefits; and $18 million of non-operating expense related to A321neo finance leases. The non-GAAP reconciliation also includes a $2 million favorable fuel hedge mark-to-market adjustment in 2023, compared with a $76 million unfavorable adjustment in 2022.
- Operating cash flow fell from 2022, which included $295 million of federal tax refunds; 2023 also had higher operating cash uses and settlements of certain A321neo leases. Alaska repurchased $145 million of shares during 2023; dividends remain suspended indefinitely.
- In December 2023, Alaska agreed to acquire Hawaiian Holdings for $18 per share, approximately $1.0 billion in cash, and expects to assume Hawaiian’s debt and lease obligations. Closing is subject to shareholder and regulatory approvals; the company expected a 2025 closing.
Outlook, risks and contingencies
- 2024 outlook: The company expected capacity growth of 3%–5% before the Boeing delivery disruption, but said growth could be at or below the lower end of that range. It forecast adjusted full-year EPS of $3.00–$5.00, inclusive of the B737-9 grounding impact, and first-quarter economic fuel cost of $2.85–$2.95 per gallon.
- Flight 1282 and Boeing: After the January 5, 2024 plug-door accident, Alaska temporarily grounded its 65 B737-9 aircraft. All aircraft other than the aircraft involved in the accident returned to service by early February after inspections. The NTSB investigation was ongoing; Alaska cited a preliminary report indicating certain critical parts were not installed at delivery. The company estimated the grounding reduced results by at least $150 million, had received initial compensation, and had not finalized a complete settlement. Boeing production oversight and delivery delays remained uncertain.
- Acquisition execution and financing: Hawaiian transaction approval, litigation, integration, workforce alignment, and realizing expected benefits are material uncertainties. Alaska disclosed a possible $100 million termination fee in certain circumstances if regulatory approval is not obtained. The acquisition would add debt and other fixed obligations; the total future financial impact was not yet estimable.
- Fuel and operating exposure: Fuel prices, West Coast refining margins, labor costs and negotiations, concentrated West Coast markets, weather, airport and air-traffic constraints, supplier and aircraft-delivery disruptions, and intense fare competition could affect results. Alaska suspended new crude-oil hedge purchases in fourth-quarter 2023; existing positions extend through first-quarter 2025.
- Other exposures: Contractual obligations totaled $11.632 billion, including $5.182 billion of aircraft-related commitments. The company had $112 million accrued for leased-aircraft returns. It is appealing a UK court ruling in Virgin Group trademark litigation; the filing describes a possible contractual liability range of $10 million–$160 million. Routine litigation was not expected to materially affect results, except as otherwise disclosed.
- Labor and liquidity: Negotiations with Alaska flight attendants and several Horizon work groups were ongoing. Credit-card agreements could require reserves under specified credit-rating or liquidity triggers; no reserve was required at year-end. Management reported no cybersecurity threats in 2023 that materially affected, or were reasonably likely to materially affect, the company.
Key facts for investors to verify
- Standalone fourth-quarter results: the supplied filing text reports annual results and does not provide a clear standalone Q4 financial value.
- Actual B737-9 operating, compensation and Boeing delivery outcomes, and any changes to 2024 capacity or EPS expectations.
- Hawaiian acquisition approvals, final financing and assumed obligations, closing timing, and integration costs or benefits.
- Whether traffic and revenue growth can offset rising labor and other non-fuel costs, and whether unit-cost improvements persist.
- Cash, debt and adjusted leverage trends alongside aircraft commitments and the company’s liquidity target.
- Developments in the Virgin trademark appeal and labor negotiations, as well as the assumptions underlying Mileage Plan deferred revenue of $2.6 billion.