Alaska Air Group, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Alaska Air Group operates Alaska Airlines, Horizon Air and McGee Air Services, with mainline, regional and Horizon reporting segments. The business continued recovering from COVID-19 disruption; leisure demand recovered faster than business travel. Financial statements received an unqualified audit opinion, and the auditor reported effective internal control over financial reporting.
Key financial and operating metrics
| Metric | 2021 | 2020 / comparison |
|---|---|---|
| Operating revenue | $6.176 billion | $3.566 billion; up 73% year over year, but 30% below 2019 |
| GAAP operating income | $685 million | 2020 operating loss of $1.775 billion |
| GAAP net income (diluted EPS) | $478 million ($3.77) | 2020 net loss of $1.324 billion ($10.72) |
| Adjusted net income (loss), non-GAAP | $(256) million ($(2.03) per diluted share) | 2020 adjusted loss of $1.256 billion |
| Operating cash flow | $1.030 billion | $(234) million in 2020; includes $892 million of 2021 Payroll Support Program (PSP) grants |
| Cash and marketable securities | $3.116 billion | $3.346 billion at year-end 2020 |
| Debt-to-capitalization, including operating leases | 49% | 61% at year-end 2020 |
| Consolidated load factor | 73.6% | 55.2% in 2020; 84.1% in 2019 |
| CASM excluding fuel and special items | 9.80 cents | Down 20% from 12.25 cents in 2020; 13% above 2019 |
GAAP operating margin was approximately 11.1%; this result includes the effect of government payroll support. Revenue was 70% of 2019 levels while capacity was 79% of 2019. Fuel expense rose 77% year over year to $1.279 billion, reflecting higher fuel prices and increased flying. The company repaid $1.3 billion of debt and made a voluntary $100 million pension contribution; pension plans were reported 98% funded at year-end.
Changes versus comparable periods
Revenue increased substantially as passenger demand and capacity recovered, with passenger revenue up 82% year over year. Consolidated capacity increased 41%, traffic increased 88%, and load factor improved 18.4 percentage points. Despite the recovery, 2021 revenue remained 30% below 2019, and the company reported an adjusted full-year net loss. GAAP earnings benefited from PSP wage offsets: $914 million in 2021, compared with $782 million in 2020. Non-fuel operating expenses excluding special items rose 13% from 2020 as flying and staffing returned; CASM excluding fuel and special items remained above 2019 levels.
Cash from operations was positive, but the filing reports $1.030 billion including PSP grants and approximately $138 million excluding grants. Cash and marketable securities decreased $230 million from year-end 2020. Debt-to-capitalization improved by 12 percentage points following repayments and earnings recovery.
Outlook, risks and unusual items
- 2022 outlook: Management expected to return to 2019 flying levels by summer 2022. Full-year capacity guidance was 2%–6% above 2019, dependent on demand. Expected CASMex was 3%–6% above 2019, or 1%–3% excluding Airbus lease-return costs.
- First quarter 2022: Capacity was expected to be 10%–13% below Q1 2019 and revenue 14%–17% below Q1 2019. CASM was expected to be 15%–18% above Q1 2019. Management cited Omicron-related disruption and schedule reductions.
- Recovery and operating risks: COVID-19 variants, weak business-travel recovery, staffing constraints, severe weather, airport and air-traffic delays, and operational disruption could affect demand, capacity and costs. The filing also highlights intense competition, concentration in West Coast markets, cybersecurity and vendor risks.
- Fuel, inflation and labor: Fuel prices are volatile; each $1-per-barrel oil-price change was estimated to affect annual fuel costs by about $16 million at 2021 consumption. Wage inflation, labor negotiations and pilot or technician availability could raise costs or constrain operations.
- Capital commitments: Planned 2022 capital expenditures were $1.5–$1.6 billion, expected to be funded with cash on hand. The company had firm Boeing 737-9 orders and aircraft-related contractual commitments, and anticipated material Airbus lease-return costs beginning in 2022.
- Government support and shareholder returns: The company received about $2.270 billion in total PSP funding across 2020–2021, including $600 million in loans. CARES Act conditions barred dividends and repurchases until October 1, 2022 and imposed compensation limits through April 1, 2023. Dividends and repurchases remained suspended.
- Legal contingency: A California wage-and-hour class action had an estimated potential loss range of $0–$22 million; a $22 million accrual was recorded. The company continued seeking review of the matter.
- Key estimates: Mileage Plan deferred revenue was $2.4 billion, supported by estimates including mileage breakage and standalone selling prices. The auditor identified assessment of the Mileage Plan model as a critical audit matter.
Investor verification priorities
- Reconcile GAAP net income of $478 million with the $256 million adjusted net loss, including the treatment of PSP wage offsets, fuel-hedge adjustments and other special items.
- Confirm cash generation excluding government grants and monitor the use of the $3.116 billion cash and marketable securities balance against debt service and planned capital spending.
- Track actual capacity, revenue and CASMex against 2022 guidance, especially the pace of business-travel recovery and the effect of COVID-19 disruptions.
- Assess fuel-price exposure, hedge coverage and the sensitivity of margins to fuel, labor, inflation and airport costs.
- Monitor Boeing aircraft delivery timing, Airbus retirement and lease-return costs, and the company’s ability to execute its fleet and growth plans.
- Review Mileage Plan liability assumptions and the outcome of the California wage-and-hour litigation; verify whether restrictions on dividends and repurchases expire as scheduled.