Alaska Air Group, Inc. · NYSE:ALK
Alaska Air — Shareholder Meeting (May 2008)
32 slides from Alaska Air's shareholder meeting presentation, May 21, 2008
Slide 1: Shareholders Meeting
S H A R E H O L D E R S M E E T I N G This presentation may include forward-looking statements regarding the performance of Alaska Air Group or its subsidiaries. Actual results may differ materially from these projections. Please see our most recent Annual Report on Form 10-K for additional informat
Slide 2: Capacity growth is slowing
-4 to -5% 9.5% 6.8% 9.4% 20.9% 5.8% 13.0% -6.6% -10% -5% 0% 5% 10% 15% 20% 25% 2001 2002 2003 2004 2005 2006 2007 2008 3.5% 8.0% 7.5% 7.1% 0.1% 4.4% 4.0% 2.0% 0% 5% 10% 15% 20% 25% 2001 2002 2003 2004 2005 2006 2007 2008 Capacity growth is slowing (year-over-year % available seat mile (ASM) growth)
Slide 3: Load factors are holding up
Load factors are holding up 68.4% 68.1% 70.0% 72.9% 75.9% 76.6% 76.2% 60% 65% 70% 75% 80% 2001 2002 2003 2004 2005 2006 2007 62.9% 62.4% 63.9% 69.3% 72.8% 74.1% 73.4% 60% 65% 70% 75% 80% 2001 2002 2003 2004 2005 2006 2007
Slide 4: Revenue trend is positive
Revenue trend is positive (in millions) $2,153 $2,224 $2,445 $2,724 $2,975 $3,334 $3,506 $2,000 $2,500 $3,000 $3,500 $4,000 2001 2002 2003 2004 2005 2006 2007
Slide 5: Adjusted net income falling due to higher costs
Adjusted net income falling due to higher costs (in millions) ($88) ($68) ($31) $5 $55 $138 $92 ~ ($20) ($100) ($50) $0 $50 $100 $150 2001 2002 2003 2004 2005 2006 2007 2008* est. Earnings per share ($3.33) ($2.54) ($1.16) $0.19 $1.78 $3.45 $2.28 *First Call mean estimate as of 5/19/08
Slide 6: Committed to providing returns to capital providers
3.4% 5.3% 7.9% 6.1% 0% 2% 4% 6% 8% 10% 12% 14% 2004 2005 2006 2007 AAG Return on Invested Capital Committed to providing returns to capital providers Adjusted for hedge MTM and unusual items Goal
Slide 7: Industry estimated losses on par with 9/11
($11.0) ($2.4) ($7.6) ($5.8) $3.0 $5.0 ($7.2) ($8.3) ($12) ($9) ($6) ($3) $0 $3 $6 2001 2002 2003 2004 2005 2006 2007 2008 est. JP Morgan estimate 5/19/08 Industry (in billions) ($68) ($31) $5 $55 $138 $92 ~ ($20) ($88) ($100) ($50) $0 $50 $100 $150 2001 2002 2003 2004 2005 2006 2007 2008 est.* (in
Slide 8: Rapidly rising fuel is the cause
$3 ($16) ($36) ($40) ($35) ($30) ($25) ($20) ($15) ($10) ($5) $0 $5 2006 2007 2008 Q1 adjusted net income (in millions) $163 $194 $283 $100 $150 $200 $250 $300 2006 2007 2008 Q1 fuel cost* (in millions) * Net of hedging Rapidly rising fuel is the cause
Slide 9: Good progress controlling non-fuel unit costs
Good progress controlling non-fuel unit costs Cost per available seat mile excluding fuel 8.73¢ 8.52¢ 8.33¢ 7.92¢ 7.0¢ 7.5¢ 8.0¢ 8.5¢ 9.0¢ 2001 2002 2003 2004 2005 2006 8.01¢ 7.81¢ 2007 Continuous improvement 7.50¢ 2008 target 7.50¢
Slide 10: Good progress controlling non-fuel unit costs
Good progress controlling non-fuel unit costs 13.35¢ 14.19¢ 18.95¢ 13.58¢ 15.80¢ 15.99¢ 14.58¢ 12¢ 14¢ 16¢ 18¢ 20¢ 2001 2002 2003 2004 2005 2006 2007 2008 target Continuous improvement Cost per available seat mile excluding fuel 14.7¢ to 14.8¢
Slide 11: Industry Wall Street headlines
Industry Wall Street headlines “There will be blood” “Last man standing” “Perfect storm” “War of attrition”
Slide 12: The rest face dramatic change
The rest face dramatic change No longer operating or in bankruptcy Sources: ATA Apr-08 Some have ceased operation Mergers Major fleet transitions Capacity reductions Capital expenditure reduction Halt investor return programs Employee freeze/reduction Outsourcing costs No profitability MAXjet 12/25/
Slide 13: Will we survive the industry crisis?
Will we survive the industry crisis? • Rapidly deteriorating industry conditions make the continued execution of our plan all the more critical • We’re optimistic because of our progress over the last seven years • Our ability to change and adapt will determine our survival and long-term prosperity
Slide 14: Oil as we knew it
Source: Bloomberg Oil as we knew it
Slide 15: Oil price per barrel chart
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Slide 16: Air Group has the second best hedge position in the industry
Source: Public Data, Bloomberg, Totals are annualized or estimated from Jet or heating oil positions. Assumes a heating oil crack spread of 41c/gal and a jet fuel crack spread of 60c/gal. Values shown are crude oil equivalents. 2008 column reflects fuel hedge data for the remainder of 2008. 2008 200
Slide 17: An all-737 fleet by October
737-800 46 737-700 20 737-900 12 737-400 38 17.5 15 13 12.8 10.8 10 9.4 7.6 4 3.1 Source: 10K reports as of Dec. 31, 2007 An all-737 fleet by October December 2008 All-737 Fleet 116 aircraft Northwest American United Delta US Air Continental Southwest Alaska 2009 AirTran JetBlue Average fleet age (y
Slide 18: Alaska's aircraft most fuel-efficient in operation today
Better Alaska’s aircraft most fuel-efficient in operation today • Alaska Domestic Mission Rules • 1,000 statute miles • Nominal fuel burn • Pax/Bag weight = 220 lb • 100% load factor Source: The Boeing Company 10.76 11.16 11.65 12.38 12.63 12.75 13.12 15.36 16.49 737-900 172 seats 737-800 157 seats
Slide 19: Moving to Q400 single type fleet by 2010
Q400 ~50 Q200 16 CRJ 700 21 Q400 33 Moving to Q400 single type fleet by 2010 ~50 aircraft December 2009 Q200 70 aircraft December 2007
Slide 20: Benefits of single fleet
Benefits of single fleet Employees • Reduced stress • Better crew utilization • Simplification of training programs • Improved proficiency Scheduling • More flexible scheduling • Higher dispatch reliability • Reduced crew deadheading • Reduced seat spoilage • Fewer spare aircraft required Operations
Slide 21: Horizon's aircraft are among the most fuel-efficient
Better Horizon’s aircraft are among the most fuel-efficient 5.8 6.2 6.7 7.1 7.2 7.3 7.7 10.6 Q400 76 seats CRJ900 88 seats E190 99 seats CRJ700 70 seats Q200 37 seats CRJ200 50 seats E170 72 seats B1900 19 seats • 400 statute miles • 100% load factor Fuel gallons per passenger
Slide 22: The Q400: The right aircraft at the right time
The Q400: The right aircraft at the right time For our customers: • Fast - 415 mph cruise speed - Pure jet block times @ 500 miles • Quiet and comfortable • Prop and ANVS technology For our business plan: • Cost-efficient - Best economics of any regional aircraft • Flexible/High Performance - Airfie
Slide 23: The Q400 "comfortably greener"
The “comfortably greener” Q400 •Consumes 30% less fuel than other 70-80 seat class aircraft - More fuel-efficient per passenger than average auto •Produces 30% less carbon emissions than other 70-80 seat class aircraft •Among the world’s quietest aircraft - Produces 10 db less noise than 70-seat jet
Slide 24: Reducing our carbon footprint
15 12 Emissions reduction equivalent to taking 33,500 cars off the road per year 20% Reduction 14.5 17.4 17% Reduction Emissions reduction equivalent to taking 130,000 cars off the road per year Reducing our carbon footprint 2006 2010 2002 2008
Slide 25: New cities since 2001
New cities since 2001 Lihue (Kauai) Honolulu (Oahu) Kahului** (Maui) Cancun Loreto Flagstaff* Kamloops Prince George Santa Barbara Santa Rosa Adak Mexico City Guadalajara La Paz Washington D.C. Miami Orlando Boston Dallas New York (Newark) Denver New cities since 2001 * Service to Flagstaff begins J
Slide 26: New cities
Kona Minneapolis Seattle New cities Adak Adak Lihue (Kauai) Lihue (Kauai) Honolulu (Oahu) Honolulu (Oahu) Kahului* (Maui) Kahului* (Maui) Mexico City Mexico City Cancun Cancun Guadalajara Guadalajara La Paz La Paz Loreto Loreto Miami Miami Orlando Orlando Washington D.C. Washington D.C. Boston Bosto
Slide 27: West Most Schedule
West Most Schedule • Frequent flights, easy-to- remember schedules • Hourly Seattle - LAX flights • 35 Seattle - LA Basin daily round trips • 24 Seattle - Bay Area daily round trips • Flights every other hour between Seattle and Orange County, San Francisco, San Diego, San Jose and Oakland Seattle L
Slide 28: Airport of the Future
Airport of the Future
Slide 29: Greatly improved on-time performance
73.0% 76.7% 78.0% 72.4% 73.3% 69.7% 3 4 10 th 12 th 17 th 19 th th rd Greatly improved on-time performance 64% 68% 72% 76% 80% 2005 2006 2007 Jan Feb Mar % On time Rank 2008
Slide 30: Fundamental requirements
Fundamental requirements • Maintain highest standards of safety & compliance • Get the basics right – reliability/on-time performance/ baggage • Fly the right schedules in the right markets with our young, fuel-efficient fleet • Differentiate by providing a delightful customer experience that drives
Slide 31: Alaska Air Group is well prepared to weather the storm
Alaska Air Group is well prepared to weather the storm • Conservative balance sheet with strong liquidity • Young, fuel-efficient, simple fleet • Strong fuel hedge portfolio • Good progress with cost reduction • Strong network of codeshare partners, poised to benefit from Trans-Pac growth • The PNW
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