Alaska Air Group, Inc. (ALK)

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Alaska Air Group Inc. (ALK)

Q4 2008 Earnings Call

January 29, 2009 11:30 am ET

Executives

Shannon Alberts – Managing Director of Investor Relations

William S. Ayer – Chairman, Chief Executive Officer

Bradley D. Tilden – Chief Financial Officer

Jeffrey D. Pinneo – Chief Executive Officer of Horizon Air Industries, Inc.

Caroline Boren

[Jay]

Analysts

Michael Linenberg – Merrill Lynch

William Green – Morgan Stanley

Raymond Neidl – Calyon Securities

Peter Jacobs – Ragen Mackenzie

Helane Becker – Jesup & Lamont Securities Corporation

[Megan Koon] – [Flight International]

Presentation

(Operator Instructions) At this time, I would like to welcome everyone to the Alaska Air Group 2008 Fourth Quarter Earnings Call.

(Operator Instructions) At this time, it is my pleasure to turn the conference over to the Managing Director of Investor Relations, Shannon Alberts, please go ahead.

Shannon Alberts

Thank you for joining us for Alaska Air Group's Fourth Quarter 2008 Conference Call. Alaska Air Group Chairman and CEO Bill Ayer, CFO Glenn Johnson, Alaska President Brad Tilden, and Horizon Air President and CEO Jeff Pinneo, will provide an overview of the quarter. After which, we'll be happy to address questions from analysts, and then from journalists. 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 the 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've provided reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release.

This morning, Alaska Air Group reported a GAAP loss of $75.2 million for the fourth quarter. Excluding the impact of mark-to-market adjustments for fuel and charges associated with the write-up of premiums for hedges that we replaced, are transition out of CRJ Aircraft and severance, Air Group reported an adjusted net profit of $16.4 million, or $0.45 per share.

This compares to a first-call mean loss of $0.04 per share, and to an adjusted net loss of $17.9 million, or $0.46 per share, last year. Again, excluding special items, Air Group was slightly better than breakeven for the year, posting a small profit of $4.4 million, or $0.12 per share, compared to a profit of $91.6 million, or $2.26 per share in 2007.

Additional information about expected capacity changes, unit costs, field hedge positions, capital expenditures and fleet count, can be found in our investor updates, which is included in our Form 8-K, available on our Investor website at www.alaskaair.com. Now I will turn the call over to Bill Ayer.

William S. Ayer

Before I give you my perspective on the quarter and full year, I want to mention our recent reorganization. Brad Tilden, who previously served as our CFO, was promoted to President of Alaska Airlines.

We have a new CFO, Glenn Johnson, who is a 26-year Alaska and Horizon veteran. And, Benito Minicucci was promoted to Chief Operating Officer of Alaska, and he's reporting to Brad. With Glenn's help, my focus will be on Air Group performance.

And, I'll be working with Brad at Alaska and Jeff at Horizon, as we strive to achieve the required return on invested capital, over the long term. And, I couldn't be more pleased to have proven leaders of their caliber in these new roles.

Today, I'll begin our discussion with an overview of the quarter and the year. Glenn will then discuss Air Group's hedging strategy and balance sheet, followed by Brad and Jeff who will provide perspective on Alaska's and Horizon's performance.

The industry experienced unprecedented volatility during 2008, with extraordinary summer fuel prices, given way to depressed passenger demand, in the wake of today's economic meltdown. In the face of these realities, we eked out a small-adjusted, full-year profit, and are pleased to be one of two major airlines to do so.

In fact, this is our fifth consecutive year of profitability on an adjusted bases. While we had planned for a better result, considering where fuel prices were, things would have been much worse had we not made so much progress over the years, on reducing non-fuel costs, strengthening the network, and improving our operation.

The most important factor of all has been our people taking really good care of customers. We're proud of the fact that we paid $12.5 million in operational performance bonuses to our people, an increase of $3.6 million over last year, tied to improved performance.

2008 marked several milestones for Alaska Air Group. One, we achieved our goal of a single 737 fleet type at Alaska and at Horizon, we are down to two aircraft types, and on our way to a single Q400 fleet.

Two, we've responded to last summer's stratosphere oil prices, by reducing and reallocating capacity, a move that will serve us well, as we navigate the current economic storm. Three, we've significantly improved our operation in Seattle, through some new processes and better accountability. And, we are extending these processes to the rest of our system.

And, fourth, we reached a long-term agreement with the new Delta that will be great for our customers and will support our future growth. Delta is now the largest airline in the world, and we're pleased that they chose us to be their preferred west coast partner.

Of course, this is in addition to several other of our important alliance partners, including American Airlines, which together, will give our customers access to a global network and outstanding frequent-flier benefits.

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