Alaska Air Group, Inc. · NYSE:ALK
Alaska Air — Debt Investor Presentation (September 2024)
59 slides from Alaska Air's debt investor presentation, Sep 24, 2024
Slide 1: Mileage Plan Lender Presentation
MILEAGE PLAN LENDER PRESENTATION SEPTEMBER 2024 Ss)
Slide 2: Safe Harbor
SAFE HARBOR Forward Looking Statements This presentation may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995, F
Slide 3: Disclaimer
DISCLAIMER By attending this presentation or otherwise viewing this presentation, or by reading the presentation slides or by accepting delivery of this presentation, you agree to be bound by the following limitations. This presentation, the information contained herein and any information provided
Slide 4: Today's Presenters
Today’s Presenters SHANE TACKETT EMILY HALVERSON BRETT CATLIN RYAN ST. JOHN Executive Vice President & Vice President Finance, Vice President Loyalty, Vice President, Finance, Chief Financial Officer Controller & Treasurer Alliances & Sales Planning and Investor Relations
Slide 5: Table of contents
Slide 6: Transaction Overview
Slide 7: Sources & uses and pro forma capitalization
Sources & uses and pro forma capitalization Financing HA MP + ‘ 0 Since Acqisiton, Teansocton Sources (8 in millions) as of 6/50/2024 2Maska 9g 6/30/2024 Adjustments “Adjustments Mileage Plan Financin $1500 Cash and Short-Term investments $2,509 $1,256 ($38) (989) $482 $3,120, er £2800 _ Ca : Sr.Sec
Slide 8: Alaska Company Overview
Slide 9: Alaska is the 5th largest U.S. airline
Alaska is the 5" largest U.S. airline" $10.48 2023 Revenue 30+ Years Positive Operating Cash Flow) 326 Aircraft as of June 30, 2024 1,100+ Departures Per Day in 2023 1,200+ Destinations including Global Partners 45M 2023 Passengers ~$19bn Unencumbered Asset Value 12.
Slide 10: Alaska Airlines Routes
. © Alaska Airlines Routes cement ntecetigs towsiantiinertoue 7MlaSKa X HAWAIIAN. 13 Representative AS ang HA networks as of 8/50/24; Subject
Slide 11: Leading seat share and relevance creates preference among West Coast guests
Leading seat share and relevance creates preference among West Coast guests West Coast Seat Share West Coast Relevance ® 44%) "i 37% 35% 23% 30% si 16% oe 14% i L : PMaska, Southwest United Delta American Maska. Southwest Delta United American 14
Slide 12: Alaska continues to be recognized for outstanding service and value
Alaska continues to be recognized for outstanding service and value Mileage Plan frequently receives awards for innovation and the quality of its customer experience eat 2 eset ee a 2A | eee in Sener _ a Forbes ial CUSTOMER . EXPERIENCE lng, Ws a = Best Fre ue America’s Best Customer Forbes Customer
Slide 13: Operational excellence consistently ranks Alaska among the industry's best operators
Focus on delivering Bperational excellence consistently ranks Alaska among the industry’s best operators WSJ Annual Airline Scorecard - Overall Performance 2017 Delta #3 JetBlue Southwest Southwest Southwest Southwest Southwest * Southwest Southwest Southwest #4 Southwest JetBlue JetBlue* United Uni
Slide 14: Airline Credit Ratings
S&P Fitch Moody’s BBB+ Baa1 BBB Baa2 BBB- Baa3 BB+ Ba1 BB Ba2 BB- Ba3 B+ B1 B B2 B- B3 CCC+ Caa1 CCC Caa2 Airline Credit Ratings + _ _ _ _ + _ _ _
Slide 15: Increased product offerings support revenue diversity
Increased product offerings support revenue diversity % Non-Main Cabin Revenue % Premium Cabin Revenue “ Notes a% 1H19 +6 pts 47% 1H24 27% +6 pts 1H19 + Planned fleet modifications commencing in September 2024 will add more premium = seats to 64% of Alaska’s fleet with no reduction in seat count * 7
Slide 16: Alaska maintains a meaningful cost advantage relative to competitors
Alaska continues to maintain a meaningful cost advantage relative to competitors Stage Length Adjusted CASMex Fuel ™ 11.816 12% Better 2023 10.44¢ Industry ) 12.01¢ 15% Better Proactive management of controllable costs... 4 INCREASING PRODUCTIVITY OPERATIONAL EXCELLENCE YOUNG & EFFICIENT FLEET HISTO
Slide 17: Sustained history of industry-leading pre-tax margins
Alaska has a sustained history of industry-leading pre-tax margins 24% 24% Top 3 Margin Over Nearly 4 Two Decades 1H24 #3 2023 #3 8% 8% ———— rer 6% 2022 #1 0% 7 2021 #1 on 2020 #1 2019 #3 2018 #3 2017 #1 2016 #1 2015 #1 2014 #1 2013 #1 | | AMaska. 2012 #1 2011 #1 Oo Industry “ooo | 2009 #1 (64%) ——
Slide 18: Further margin expansion opportunity
Further margin expansion opportunity Mainline Fleet Composition Fleet Strategy Benefits v GREATER REVENUE OPPORTUNITY 10-140 = * 19% more seats v MORE PREMIUM REVENUE 48% => + 33% more First Class seats v LOWER COST PER SEAT * 14% reduction Medium 150-165 seats 69% Large 175+ seats 43% v BETTER ENVI
Slide 19: Led by an experienced management team
Led by an experienced management team nt team which oversaw successful integration of Virgin America remains in place to facilitate Hawaiian integration BEN MINICUCCI President & Chief Executive Officer, Alaska Air Group (Role at Time of Virgin America Acquisition: President and CEO of Virgin Americ
Slide 20: Alaska continues to build on a strong and durable foundation
Alaska continues to build on a strong and durable foundation * #1airline on the West Coast” with increased seat share and relevance following recently closed 7 acquisition of Hawaiian Leading West Coast * Leadership positions in five growing West Coast hubs with concentration levels in line with lar
Slide 21: Hawaiian Acquisition Update
Slide 22: Compelling transaction rationale accelerates existing strategy
Compelling transaction rationale accelerates existing strategy & drives value creation BETTER, LEADERSHIP IN | ENHANCED ROBUST IMPROVED SHARED BROADER PREMIUM MARGIN PROFILE) FINANCIAL CONSUMER DNA NETWORK MARKET RETURNS CHOICE Adds Becomes leader in |) Addition of another |) Delivers potential Enha
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Slide 24: With strong histories, cultures and values
.-With strong histories, cultures and values ~Maska. HAWAIIAN AIRLINES, 90+ year legacies of service, including to air travel dependent communities Longstanding commitment to customer service, hospitality, and best-in-class operations Rooted in local communities and local cultures Aligned values of
Slide 25: Enhances West Coast network with another hub in a top U.S. market
Enhances our West Coast network with another hub in a top 25 U.S. market HAWAII Seat Share: 52% Market Rank @: #22 Market Size ©: $8B+ Market Position : #1 28
Slide 26: Adds a leading position in the Hawai'i market
Adds a leading position in the highly attractive Hawai‘i market TOP GLOBAL LEISURE DESTINATION with $2B+ annual passenger revenue 50+% HAWAI'I MARKET SHARE enables attractive hub economics STRONG MIX OF INTERNATIONAL TRAVELERS QM+ annual visitors by air and most popular outbound Japan leisure destin
Slide 27: Combination creates targeted synergies of at least $235M
Combination creates targeted synergies of at least $235M Confidence in Ability to Realize Synergies... ..And Additional Upside from Other Opportunities Targeted Annual EBITDA Contribution * Accelerated Asia-Pacific travel recovery = New domestic pathways Network = International connection growth * C
Slide 28: Proven track record of integrating acquisition targets
Proven track record of integrating acquisition targets 7Maska. + Qaanerica (December 2016) Timeline of Virgin America Acquisition Integration Run Rate Annual Synergies $ in millions Launched reciprocal loyalty accrual Activated codeshare to drive connectivity Elevate elite status matched by Mileage
Slide 29: Alaska + Hawaiian by the numbers
Alaska + Hawaiian by the numbers REVENUE ASMS DAILY DEPARTURES PASSENGERS ACTIVE LOVALTY MEMBERS EMPLOYEES AIRCRAFT AIRCRAFT ORDERS AIRCRAFT OPTIONS Maska. $10.5B 69.2B ~1,160 44.8M QM+ ~23,000 326 78 109 + HAWAIIAN AIRLINES. $2.88 20.5B ~1502) 10.9M 2.3M° ~7,470 66 10 VA +26% +30% +13% +24% +25% +3
Slide 30: Targeting combined balance sheet strength
Targeting combined balance sheet strength, in line with historical standards LEVERAGE * Deleverage post-acquisition balance sheet over the course of 12 - 24 months targeting net debt to EBITDAR of less than 1.5x LIQUIDITY + Maintain 15% to 25% liquidity to LTM revenue CREDIT RATING * Objective to ac
Slide 31: Asset base provides substantial flexibility for the future
Asset base provides substantial flexibility for the future Pro Forma Unencumbered Collateral Greater than $10 Billion 2) SMaska, + HAWAIIAN = éa AIRLINES, Source Estimated Value Total Estimated Value ~$12.8B0 ~$3.2B28) ~$16.0B ~$3.6B ~$0.6B® ~$4.2B ~$2.8B0 ~$0.7B28) ~$3.5B ~$19.2B ~$4.5B ~$23.7B
Slide 32: Combined fleet optimizes optionality and strategic opportunities
Combined fleet optimizes optionality and strategic opportunities 7Maska. Aircraft Current Fleet Firm Orders B737 235 | rou i | nn re See ee B737 Freighters 5 i og i A330-300F@ ' i : HAWAIIAN 1 0.8% bry 787-9 E175 operated by Horizon 444 Bi 1 AIRUINES. 97" A32ineo 5% ' q 717-200 = E175 operated by th
Slide 33: Mileage Plan Overview
Slide 34: Alaska Mileage Plan is a leader in loyalty
Alaska Mileage Plan is a leader in loyalty 9M+ Active Members 16% of Alaska Revenue is Contributed by Mileage Plan Members @ 30+ 1,100+ Worldwide Airline Brand Affiliations © Partners 1.8M Avg New Members / Yr) 92% >50% of Active Members are of Alaska Cardholders Have Millennials or Younger Househol
Slide 35: Mileage Plan brings significant value premium and strong growth potential
Mileage Plan brings significant value premium and strong growth potential to Alaska Mileage Plan drives significant revenue premium to Alaska Strong Growth In Active Mileage Plan Membership Active members in millions = |n 2023, Mileage Plan members contributed 16% of Alaska revenue 9.3 76 8A = Avera
Slide 36: Mileage Plan loyalty program continues to grow rapidly
Mileage Plan loyalty program continues to grow rapidly Mileage Plan members’ contribution to flight revenue has steadily grown over time Mileage Plan Membership and Credit Card Growth Since December 2016 Mileage Plan Revenue @ $ in millions 13% $1,682 ZMaska. CAG rash Mileage Plan ay 159% +635% | $9
Slide 37: Member mix is more geographically diverse than ever
Member mix is more geographically diverse than ever... Concentration of Mileage Plan Members Concentration of Credit Card Holders Pacific Northwest im Other geographies 40
Slide 38: The program is growing rapidly across our network
..and the program is growing rapidly across our network Mileage Plan Member Growth vs ASMs Since 2016 Credit Card Holder Growth vs ASMs Since 2016 | Pacific Northwest im Other geographies 4
Slide 39: Mileage Plan is backed by strong cash flow
Mileage Plan is backed by strong cash flow Entity Structure Pricing & Cash Flow Mechanics Alaska Air Group Redemption Purchase Redemption, Redemption of Miles , Partners Mileage Plan Co-Brand / Purchase__ of Miles Accrual Partners 1) Monthly purchase of miles by Alaska = EBITDA margin of 20% = Perpe
Slide 40: Mileage Plan manages earning and redemption activity
Mileage Plan manages earning and redemption activity SMaska Alaska pays Mileage Plan for each mile earned by Members oneworld and other partner airlines pay Mileage Plan for each mile earned by members for flying with them MARRIOTT Bonvey AVIS’ 7 Card partner issues co-branded credit cards and pays
Slide 41: Stable and growing performance with diversity of cash flows
Stable and growing performance with diversity of cash flows leage Plan Pro Forma Gross Cash Flows" $2,210 $2,021 $1,451 $1,453 $1,637 $1,079 $372 $568 $573 2021 2022 2023 ™ Cash Flow from Sales -- BofA ™ Cash Flow from Sales -- Alaska Performance Commentary * Mileage Plan has attractive cash flow ch
Slide 42: Supported by a deep ecosystem of partner relationships
Supported by a deep ecosystem of partner relationships Non-Air Partnerships Air Partnerships 3g Oneworid Alliance Earn & Redeem arn Partners 8é artne Partne) = ok Aer Lingus #% (\uuran = : ed AIRTAHITI NUL om fl Masha Worcs ZMaska acations BW | Best Western S catnay condor © bahamasair (CHOICE COAST
Slide 43: Alaska's Visa Signature card compares favorably with other airlines' co-brand cards
Alaska’s Visa Signature Mileage Plan card issued by Bank of America compares favorably with other airlines’ co-brand cards —— ‘American Patinum Sect Word Alacka Airlines Visa Signature | nn Amorcan Ainge Advantage Gold Delta SkyMilos United Explorer Southwest Rapid Rewords Plas Southwest Rapid Rewar
Slide 44: Key Transaction Highlights
Slide 45: Transaction summary
Transaction summary Alaska Air Group Inc. (“Parent” (Delaware) Alaska Airlines inc. (“Alaska”) * (Alaska) is 100% Direct Intercompany Contribution bean 100% Direct Commercial ‘Ownership Agreements & IP Licenses AS Mileage Plan IP Ltd, (“Loyalty Issuer”) (Cayman) Alaska will employ a financing struct
Slide 46: Detailed Alaska Mileage Plan financing structure
Detailed Alaska Mileage Plan financing structure 100% Direct Alaska Air Group Inc. 100% Indirect Ownership [True Contribution] of Mileage Plan Assets & IP Intercompany Agreement IP Licenses License Fee InterCo Loan Loyalty Issuer Collection, Payment & Reserve Accounts Mileage Plan Assets (incl. IP)
Slide 47: Mileage Plan financing security and collection account overview
Mileage Plan financing security and collection account overview Key Credit and Structural Enhancements Simplified Cash Flow Waterfall First priority lien over critical IP required to operate the program without which the airline could not run its customer loyalty program as currently operated First
Slide 48: Summary of terms & key covenants
Summary of terms & key covenants 7-years 6-month $101 soft call 1% per annum paid quarterly First-priority perfected pledge of all material Mileage Plan agreements (ie., applicable Bank of America card agreements) First-priority perfected pledge of Alaska’s equity interest in HoldCo and HoldCo's equ
Slide 49: Summary of terms & key covenants (cont'd)
Summary of terms & key covenants (cont'd) Payment Accounts / Waterfall Early Amortization Events Debt Service Coverage Ratio Test (“DSCR Test”) Permitted Pari Senior indebtedness Permitted Junior Indebtedness Events of Default SPV Party Change of (Control Prior to each quarterly payment date, amount
Slide 50: Summary of terms & key covenants (cont'd)
Summary of terms & key covenants (cont'd) + A_Loyalty Program owned, operated or controlled, directly or indirectly by Hawaiian Airlines, Inc. or any entity that is (x) acquired by Alaska or any of its subsidiaries (other than any SPV Party), whether such entity becomes wholly-owned or less than 100
Slide 51: Summary of IP license terms
Summary of IP license terms Licensor License Grant Licensee Term License Fee Non-Compete Termination Events Liquidated Damages Claim Loyalty Issuer (bankruptcy remote Cayman SPV to hold all Mileage Plan IP collateral) All the contributed Mileage Plan IP, including, to the extent applicable: (1) cust
Slide 52: Collateral Overview
Collateral Overview Collateral Type Valuation Source Alaska Mileage Plan $12,823M mba Aviation as of August 1, 2024 Mileage Plan Financing $1,500M | nitial Loan-to-Value Ratio (%) 11.7% olateral Coverage Ratio 8.5x 55
Slide 53: Alaska United Delta American
Alaska United Delta American
Slide 54: Financial Information
Slide 55: Mileage Plan pro forma cash flow profile
Mileage Plan pro forma cash flow profile 6 Months 12 Months Ended June 30, Ended June 30, ($ in millions) Cash Flow Statement: Cash Flow From Sales to Alaska $372 $568 $573 $291 $292 $574 Cash Flow from Sales to BofA $1,079 $1,453 $1,637 $818 $833 $1,652 Total Cash Flow From Sales $1,451 $2,021 $2,2
Slide 56: Mileage Plan pro forma income statement profile
Mileage Plan pro forma income statement profile 6 Months 12 Months Ended June 30, Ended June 30, ($ in millions) Income Statement: Gross Revenue $1,541 $2,048 $2,199 $1,122 $1,153 $2,230 Redemption and Other Costs ($927) ($1,258) ($1,377) ($706) ($730) ($1,401) Revenue, Net $614 $790 $822 $416 $423
Slide 57: Historical non-GAAP reconciliation - Alaska
Historical non-GAAP reconciliation - Alaska (S$ in millions) 2019 2020 2021 2022 2023 LT GAAP Operating Income $1,063 ($1,775) $685 $70 $394 $399 Adjusted for: Special Items and Payroll Support Program Grant Wage ee $44 $71 (9925) $580 $443 $373 Market-to-Market Fuel Hedge Adjustments ©) (8) (47) 76
Slide 58: Historical non-GAAP reconciliation - Alaska (cont'd)
Historical non-GAAP reconciliation - Alaska (cont'd) 12 Months Ended 3 Months Ended December 31, June 30, (in millions) 2023 2024 Total Operating Expenses $10,032 $2,575 Less the following components: Aircraft Fuel, Including Hedging Gains and Losses $2,641 $615 Special Items - Operating $443 $146 T
Slide 59: Historical non-GAAP reconciliation - Hawaiian
Historical non-GAAP reconciliation - Hawaiian (Sit jons) 2019 2020 2021 2022 2023 LT Net Loss before Taxes $305 ($700) ($185) ($294) ($328) ($408) Depreciation & Amortization 159 152 138 136 134 136 Interest and Amortization of Debt 28 40 (10) 96 1 97 EBITDA, as reported $492 ($508) $63 ($62) ($104)
Alaska Air Group — Debt Investor Presentation (September 2024) on 6ix