Alaska Air Group, Inc. · NYSE:ALK
Alaska Air — Merrill Lynch Global Transportation Conference 2008
24 slides from Alaska Air's conference presentation, Jun 18, 2008
Slide 1: Merrill Lynch Global Transportation Conference
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 information concerning factors that could caus
Slide 2: Alaska Air Group Update
Alaska Air Group Update • How is Alaska Air Group doing in the current industry crisis? • Why is Alaska better positioned to weather the current storm? • What are we doing to position ourselves for the long term?
Slide 3: Estimated industry losses will rival or exceed 9/11
(in millions) Industry (in billions) Estimated industry losses will rival or exceed 9/11 *First Call mean estimate as of 6/11/08. Does not necessarily reflect the company’s internal forecast. Merrill Lynch estimate 6/10/08
Slide 4: Rapidly rising fuel is the cause
Q1 adjusted net result (in millions) Q1 fuel cost* (in millions) * Net of hedging Rapidly rising fuel is the cause
Slide 5: Oil as we knew it
Source: Bloomberg Oil as we knew it
Slide 6: Our world has changed
Source: Bloomberg Our world has changed $100/barrel increase or $1 billion annual raw fuel cost (crude portion) $1 per barrel = $10 million of pretax income
Slide 7: West Coast refinery margin also increased
Source: Bloomberg, as of 6/12/08 West Coast refinery margin also increased 75¢/gallon increase or $300 million annual cost (unhedged) 1¢/gallon = $4 million to pretax net income
Slide 8: Fuel is taking a bigger bite out of revenue than ever before
Fuel % of revenue Assumes $135/bbl thru 12/08 with 81¢/gal crack (avg $123.05/bbl unhedged for FY 2008) Also assumes 2008 revenues same as 2007 for comparison purposes only. Not to be taken as guidance. Cberry 6-16-08 Fuel is taking a bigger bite out of revenue than ever before
Slide 9: Fuel cost per passenger is about 4.5 times the cost in 2003
Then Now ( 2003 ) ( 2008 ) *Applies MD-80 fuel burn for MD-80 at maximum stage length to Seattle-Newark trip Assumes 80% load factors and no fuel hedge benefit STackett 6-16-08 MD-80* 42 196 MD-80 19 88 Fuel cost per passenger is about 4.5 times the cost in 2003
Slide 10: Actively managing capacity
MimiHoover AHarrison 6-16-08 Actively managing capacity • Reduced capacity 4.8% for Alaska mainline, 10.6% for purchased capacity flying, and 12.5% for Horizon • Redeployed 5% of Alaska’s and 6% of Horizon’s capacity • Accelerated MD-80 retirement to August 25 • Flying slower - -- adding just 2 minu
Slide 11: Reduce growth and redeploy capacity
Reduce growth and redeploy capacity forecast forecast (year-over-year % available seat mile (ASM) growth) was - -4.0% is now -8.9% was 3.0% is now 1.2%
Slide 12: Continued control of 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 7.81¢ 2007 Continuous improvement 2008 target 7.50¢ Continued control of non-fuel unit costs
Slide 13: Strong cash position and multiple sources of liquidity
Sources of additional liquidity • $185 million line of credit • $172 million maximum pre- delivery payment facility • 10 unencumbered aircraft, including B737-800s and Q400s • Unencumbered real estate • Spare parts • Forward sale of miles Cash as a % of Revenues Q1 ‘08 Note: Calculated using unrestr
Slide 14: Relatively low leverage
Alaska Air Group Adjusted Debt-to-Capitalization - Q1 2008 Source: Company Earnings Releases; AAG Board Deck PSundaresan Relatively low leverage
Slide 15: Air Group has the second best hedge position in the industry
1 Totals are annualized or estimated from Jet or heating oil positions. Assumes a heating oil crack spread of 41¢/gal and a jet fuel crack spread of 60¢/gal. 2 Values shown are crude oil equivalents. 3 2008 column reflects fuel hedge data for Q2-Q4 2008. 2008 2009 Hedged $/BBL 2 70% $51 50% $76 34%
Slide 16: An all-737 fleet by September
737-800 46 737-700 20 737-900 12 737-400 38 Source: 10K reports as of Dec. 31, 2007 December 2008 All-737 Fleet aircraft Average fleet age (years) An all-737 fleet by September
Slide 17: Alaska's aircraft most fuel-efficient in operation today
Better • Alaska Domestic Mission Rules • 1,000 statute miles • Nominal fuel burn • Pax/Bag weight = 220 lb • 100% load factor Fuel gallons per passenger Source: The Boeing Company Alaska’s aircraft most fuel-efficient in operation today
Slide 18: Moving to Q400 single type fleet by 2010
Q400 ~50 Q200 16 CRJ 700 21 Q400 33 ~50 aircraft December 2009 Q200 aircraft December 2007 Moving to Q400 single type fleet by 2010
Slide 19: 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 − Airfield access − Low-visibility technology For the e
Slide 20: Horizon's aircraft are among the most fuel-efficient
Better • 400 statute miles • 100% load factor Fuel gallons per passenger Source: Bombardier Horizon’s aircraft are among the most fuel-efficient
Slide 21: Partners drive additional revenue to AAG from international points
Partners drive additional revenue to AAG from international points; big opportunity in Asia Japan/Asia Northwest Cathay Los Angeles Int'l Seattle Portland San Francisco Int'l Caribbean/South America American Europe/Middle East/Africa Northwest/KLM Air France British South America Lan Australia/New Z
Slide 22: Greatly improved on-time performance
3 rd 4 th 10 th 12 th 17 th 19 th 5 th 2008 Greatly improved on-time performance
Slide 23: Alaska Air Group is well prepared to weather the storm
Alaska Air Group is well prepared to weather the storm • Conservative balance sheet with good liquidity • Young, fuel-efficient, simple fleets • Strong fuel hedge portfolio • Good progress with cost reduction • Strong network of code-share partners, poised to benefit from Trans-Pac growth • Manageme
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