Alaska Air Group, Inc. (ALK)

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Alaska Air Group, Inc. (ALK)

F4Q09 Earnings Call

January 28, 2010 11:30 a.m. ET

Executives

Shannon Albert - Managing Director IR

Bill Ayer - Chairman, President, CEO

Glenn Johnson - CFO

Brad Tilden - President

Jeff Pinneo - President and CEO

Andrew Harrison - VP Planning/Revenue Management

Steve Jarvis - VP Marketing

Caroline Boren - Managing Director, Corporate Communications

Analysts

Bill Greene - Morgan Stanley

Gary Chase - Barclays Capital

Mike Linenberg - Banc of America/Merrill Lynch

Helane Becker - Jesup & Lamont

Dan McKenzie - Next Generation Equity

Kevin Crissey - UBS

Steve O’Hara - Sidoti & Company

Megan Kuhn - Flight International

Operator

Good morning. My name is Christie, and I will be your conference Operator today. At this time, I would like to welcome everyone to the Alaska Air Fourth Quarter and Full Year 2009 Earnings Conference Call. Today’s call is being recorded and will be accessible for future playback at www.alaskaair.com. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now like to turn the call over to Alaska Air Group’s Managing Director of Investor Relations, Shannon Albert.

Shannon Albert

Thanks, Christie. Hello, everyone. And thank you for joining us for Alaska Air Group’s fourth quarter and year-end 2009 earnings call. During our call today Alaska Air Group’s CEO, Bill Ayer, will provide a company overview; CFO, Glenn Johnson will talk about Air Group’s financial position; and a President of our two operating subsidiary. Brad Tilden and Jeff Pinneo will comment on the financial and operational performance and future initiatives of Alaska and Horizon. Other members of the senior management team are also present to help answer your questions.

Today’s call will include forward-looking statements that may differ materially from actual results. Additional information on risk factors that could affect our business can be found in our periodic SEC filings available on our website.

Our presentation includes some non-GAAP financial measures and we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release.

This morning, Alaska Air Group reported a fourth quarter GAAP profit of $24.1 million. Excluding the impact of mark-to-market adjustments related to our fuel hedge portfolio, Air Group reported an adjusted net profit of $4.4 million or $0.12 per share, compared to a First Call mean estimate of $0.32 per share. This compares to last year’s adjusted profit of $16.4 million or $0.45 per share. Again, excluding unusual items, Air Group reported a full year profit of $88.7 million or $2.45 per share versus a profit of $4.4 million or $0.12 per share in 2008.

Additional information about expected capacity changes, unit costs, fuel hedge positions, capital expenditures and fleet count can be found in our investor update included in our Form 8-K and available on our website at alaskaair.com.

I will now turn the call over to Bill.

Bill Ayer

Thanks, Shannon. And good morning, everyone. We posted a modest fourth quarter profit and a full year result that is among the best in the industry. 2009 marks Alaska Air Group’s sixth consecutive year of adjusted profits and although we’re not yet where we need to be, we’re making great strides in spite of weak demand and volatile oil prices.

The past 12 months have certainly been a challenging time but we also see plenty of opportunity. And that’s why we’re focused on controlling what we can even in the face of substantial external forces.

During 2009, our key initiative was to optimize revenue. We reduced and redeployed capacity to better match demand and the new markets we entered are performing well. Both Alaska and Horizon had a strong year operationally thanks to our people.

Alaska led the 10 largest carriers in on-time performance in seven of 11 months and we expect that to be eight out of 12 when the December numbers come out. I might add that if Horizon were reporting to DOT they would have led the industry for the year.

Our customers enjoyed select travel experiences in 2009 as evidenced by our internal surveys and by Alaska’s number one ranking in customer service by J.D. Power for the second on a row.

During the year we reached agreements with several of our labor groups including Alaska’s pilots, mechanics and ramp employees, Horizon’s dispatchers and flight attendance at Alaska and Horizon. Those agreements provide for improve productivity and a common gain sharing formula in which the majority of Air Group employees now participate.

As is appropriate, our people share in the results when the company does well. For the year, Alaska and Horizon employees earned $76 million. We’re working together more than ever and having employees aligned around common goals through the same incentive plan means future execution should be even better.

While we made great progress over many years, it has taken longer than we planned to reach some of our goals. CASM ex-fuel is one of those and we’ll talk more about that in a moment. Specifically about our efforts to improve productivity and reduce overhead. The most difficult part of the year was having to furlough people and it’s especially tough during a time when jobs are scarce.

Our long-term strategy is based on simple principles that don’t change over time. As we look to the future, we will continue to pursue them with the goal of providing a high value product for customers, good careers for employees and a healthy return for investors.

Read the rest of this transcript for free on seekingalpha.com