10-Q 1 alk-20240331.htm 10-Q alk-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024
 
OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                      to                      

Commission File Number 1-8957

ALASKA AIR GROUP, INC.
 
Delaware91-1292054
(State of Incorporation)(I.R.S. Employer Identification No.)
19300 International Boulevard,Seattle,WA98188
Telephone:(206)392-5040
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTicker SymbolName of each exchange on which registered
Common stock, $0.01 par value ALKNew York Stock Exchange
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filerAccelerated filer  Non-accelerated filer   
(Do not check if a smaller reporting company)
Smaller reporting company   Emerging growth company  

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes  No
 
The registrant has 126,891,838 common shares, par value $0.01, outstanding at April 30, 2024.

This document is also available on our website at http://investor.alaskaair.com.



ALASKA AIR GROUP, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024

 TABLE OF CONTENTS

As used in this Form 10-Q, the terms “Air Group,” the “Company,” “our,” “we” and "us" refer to Alaska Air Group, Inc. and its subsidiaries, unless the context indicates otherwise. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as “Alaska” and “Horizon” and together as our “airlines.”
 
2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Cautionary Note Regarding Forward-Looking Statements
In addition to historical information, this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from historical experience or the Company’s present expectations.

You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. For a discussion of our risk factors, see Item 1A. "Risk Factors” of the Company’s annual report on Form 10-K for the year ended December 31, 2023. Some of these risks include competition, labor costs, relations and availability, general economic conditions including those associated with pandemic recovery, increases in operating costs including fuel, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. Please consider our forward-looking statements in light of those risks as you read this report.
3


PART I 
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
ALASKA AIR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions)March 31, 2024December 31, 2023
ASSETS  
Current Assets  
Cash and cash equivalents$885 $281 
Marketable securities1,393 1,510 
Total cash and marketable securities2,278 1,791 
Receivables - net384 383 
Inventories and supplies - net104 116 
Prepaid expenses177 176 
Other current assets186 239 
Total Current Assets3,129 2,705 
Property and Equipment  
Aircraft and other flight equipment10,363 10,425 
Other property and equipment1,839 1,814 
Deposits for future flight equipment431 491 
 12,633 12,730 
Less accumulated depreciation and amortization4,439 4,342 
Total Property and Equipment - Net8,194 8,388 
Other Assets
Operating lease assets1,174 1,195 
Goodwill and intangible assets2,033 2,033 
Other noncurrent assets283 292 
Total Other Assets3,490 3,520 
Total Assets$14,813 $14,613 


4


CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in millions, except share amounts)March 31, 2024December 31, 2023
LIABILITIES AND SHAREHOLDERS' EQUITY  
Current Liabilities  
Accounts payable$181 $207 
Accrued wages, vacation and payroll taxes481 584 
Air traffic liability1,604 1,136 
Other accrued liabilities791 800 
Deferred revenue1,313 1,221 
Current portion of operating lease liabilities158 158 
Current portion of long-term debt and finance leases301 353 
Total Current Liabilities4,829 4,459 
Long-Term Debt, Net of Current Portion2,264 2,182 
Noncurrent Liabilities  
Long-term operating lease liabilities, net of current portion1,098 1,125 
Deferred income taxes649 695 
Deferred revenue1,320 1,382 
Obligation for pension and post-retirement medical benefits365 362 
Other liabilities311 295 
Total Noncurrent Liabilities3,743 3,859 
Commitments and Contingencies (Note 7)
Shareholders' Equity  
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding
  
Common stock, $0.01 par value, Authorized: 400,000,000 shares, Issued: 2024 - 139,137,527 shares; 2023 - 138,960,830 shares, Outstanding: 2024 - 125,705,964 shares; 2023 - 126,090,353 shares
1 1 
Capital in excess of par value707 695 
Treasury stock (common), at cost: 2024 - 13,431,563 shares; 2023 - 12,870,477 shares
(840)(819)
Accumulated other comprehensive loss(294)(299)
Retained earnings4,403 4,535 
 3,977 4,113 
Total Liabilities and Shareholders' Equity$14,813 $14,613 

5


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31,
(in millions, except per share amounts)20242023
Operating Revenue  
Passenger revenue$2,004 $1,984 
Mileage Plan other revenue164 154 
Cargo and other revenue64 58 
Total Operating Revenue2,232 2,196 
Operating Expenses
Wages and benefits804 723 
Variable incentive pay44 47 
Aircraft fuel, including hedging gains and losses565 665 
Aircraft maintenance122 124 
Aircraft rent47 59 
Landing fees and other rentals165 152 
Contracted services97 95 
Selling expenses77 66 
Depreciation and amortization126 104 
Food and beverage service58 54 
Third-party regional carrier expense54 52 
Other205 177 
Special items - fleet transition26 13 
Special items - integration costs8  
Special items - labor and other 51 
Total Operating Expenses2,398 2,382 
Operating Loss(166)(186)
Non-operating Income (Expense)
Interest income17 17 
Interest expense(35)(28)
Interest capitalized6 7 
Other - net (9)
Total Non-operating Expense(12)(13)
Loss Before Income Tax(178)(199)
Income tax benefit(46)(57)
Net Loss$(132)$(142)
Basic Loss Per Share:$(1.05)$(1.11)
Diluted Loss Per Share:$(1.05)$(1.11)
Weighted Average Shares Outstanding used for computation:
Basic125.970 127.501 
Diluted125.970 127.501 
6


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS (unaudited)
Three Months Ended March 31,
(in millions)20242023
Net Loss$(132)$(142)
Other comprehensive income (loss), net of tax
Marketable securities1 21 
Employee benefit plans3 4 
Interest rate derivative instruments1 (2)
        Total other comprehensive income, net of tax$5 $23 
Total Comprehensive Loss, Net of Tax$(127)$(119)




7


CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
(in millions)Common Stock OutstandingCommon StockCapital in Excess of Par ValueTreasury StockAccumulated Other Comprehensive LossRetained EarningsTotal
Balance at December 31, 2023126.090 $1 $695 $(819)$(299)$4,535 $4,113 
Net loss — — — — (132)(132)
Other comprehensive income — — — 5 — 5 
Common stock repurchase(0.561)— — (21)— — (21)
Stock-based compensation — 15 — — — 15 
Stock issued under stock plans0.177 — (3)— — — (3)
Balance at March 31, 2024125.706 $1 $707 $(840)$(294)$4,403 $3,977 

(in millions)Common Stock OutstandingCommon StockCapital in Excess of Par ValueTreasury StockAccumulated Other Comprehensive LossRetained EarningsTotal
Balance at December 31, 2022127.534 $1 $577 $(674)$(388)$4,300 $3,816 
Net loss— — — — — (142)(142)
Other comprehensive income— — — — 23 — 23 
Common stock repurchase(0.414)— — (18)— — (18)
Stock-based compensation— — 12 — — — 12 
Stock issued under stock plans0.123 — (2)— — — (2)
Balance at March 31, 2023127.243 $1 $587 $(692)$(365)$4,158 $3,689 
8


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31,
(in millions)20242023
Cash Flows from Operating Activities:  
Net Loss$(132)$(142)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization126 104 
Stock-based compensation and other19 23 
Special items - fleet transition23 13 
Special items - labor and other 51 
Changes in certain assets and liabilities:
Changes in deferred income taxes(47)(56)
Increase in accounts receivable(55)(44)
Increase in air traffic liability468 433 
Increase in deferred revenue30 46 
Other - net(140)(206)
Net cash provided by operating activities292 222 
Cash Flows from Investing Activities:  
Property and equipment additions  
Aircraft and aircraft purchase deposits31 (50)
Other flight equipment(44)(50)
Other property and equipment(44)(24)
Total property and equipment additions(57)(124)
Supplier proceeds162  
Purchases of marketable securities(13)(201)
Sales and maturities of marketable securities133 388 
Other investing activities93 (3)
Net cash provided by investing activities318 60 
Cash Flows from Financing Activities:  
Proceeds from issuance of long-term debt, net of issuance costs149  
Long-term debt payments(102)(96)
Common stock repurchases(20)(18)
Other financing activities(32) 
Net cash used in financing activities(5)(114)
Net increase in cash and cash equivalents605 168 
Cash, cash equivalents, and restricted cash at beginning of period308 369 
Cash, cash equivalents, and restricted cash at end of the period$913 $537 
9


Three Months Ended March 31,
(in millions)20242023
Supplemental disclosure:
Cash paid during the period for:
Interest, net of amount capitalized$35 $32 
Non-cash transactions:
Right-of-use assets acquired through operating leases13 111 
Property and equipment acquired through the issuance of debt45  
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents885 516 
Restricted cash included in Other noncurrent assets
28 21 
Total cash, cash equivalents, and restricted cash at end of the period$913 $537 



10


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation
 
The condensed consolidated financial statements include the accounts of Air Group, or the Company, and its primary subsidiaries, Alaska and Horizon. The condensed consolidated financial statements also include McGee Air Services (McGee), a ground services subsidiary of Alaska, and other immaterial business units. All intercompany balances and transactions have been eliminated. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Consistent with these requirements, this Form 10-Q does not include all the information required by GAAP for complete financial statements. It should be read in conjunction with the consolidated financial statements and accompanying notes in the Form 10-K for the year ended December 31, 2023. In the opinion of management, all adjustments have been made that are necessary to fairly present the Company’s financial position as of March 31, 2024 and the results of operations for the three months ended March 31, 2024 and 2023. Such adjustments were of a normal recurring nature. Certain rows, columns, figures, or percentages may not recalculate due to rounding.

In preparing these statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities, as well as the reported amounts of revenue and expenses, including impairment charges. Due to seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, changes in global economic conditions, changes in the competitive environment, and other factors, operating results for the three months ended March 31, 2024 are not necessarily indicative of operating results for the entire year.

Flight 1282 and Boeing 737-9 MAX Grounding

As a result of the Flight 1282 accident and the subsequent grounding of Boeing 737-9 MAX (B737-9) aircraft, Air Group's operation and results were significantly impacted. The Company received compensation from Boeing to address the financial damages incurred as a result of the grounding. As part of this compensation, Boeing paid Air Group $162 million in cash during the first quarter. Subsequent to quarter end, Boeing issued Air Group $61 million in supplier credit memos to be used on future Boeing purchases.

Compensation received under the agreement is accounted for as a reduction in cost basis of certain B737-9 aircraft. Proceeds received as of March 31, 2024 are reflected within Aircraft and other flight equipment or Deposits for future flight equipment within the condensed consolidated balance sheets.

NOTE 2. PROPOSED ACQUISITION OF HAWAIIAN HOLDINGS, INC.

On December 2, 2023, the Company entered into a definitive agreement to acquire Hawaiian Holdings, Inc. (Hawaiian). The Company has agreed to pay Hawaiian's shareholders $18.00 per share, or approximately $1.0 billion, in cash for the outstanding shares of Hawaiian. In addition, the Company expects to assume Hawaiian's debt and lease obligations on the date of acquisition. The acquisition has been approved by Hawaiian's shareholders and is subject to final approval by various regulatory bodies.

On February 7, 2024, Air Group and Hawaiian each received a request for additional information and documentary material (the “Second Request”) from the Antitrust Division of the Department of Justice (the “DOJ”) in connection with the DOJ’s review of the acquisition. On March 27, 2024, Air Group and Hawaiian entered into a timing agreement with the DOJ pursuant to which they agreed, among other things, not to consummate the acquisition before 90 days following the date on which both parties have certified substantial compliance with the Second Request unless they have received written notice from the DOJ prior to the end of such 90-day period that the DOJ has closed its investigation of the acquisition.

In the first quarter of 2024, the Company incurred integration costs of $8 million. These costs are classified as special items within the condensed consolidated statements of operations. The Company expects to continue to incur integration costs as activities supporting the proposed acquisition continue.

NOTE 3. REVENUE

Ticket revenue is recorded as Passenger revenue, and represents the primary source of the Company's revenue. Also included in Passenger revenue is passenger ancillary revenue such as bag fees, on-board food and beverage, and certain revenue from the
11


frequent flyer program. Mileage Plan other revenue includes brand and marketing revenue from the co-branded credit card and other partners, and certain interline frequent flyer revenue, net of commissions. Cargo and other revenue includes freight and mail revenue, and to a lesser extent, other ancillary revenue products such as lounge membership and certain commissions.

The level of detail within the Company’s condensed consolidated statements of operations and in this footnote depict the nature, amount, timing, and uncertainty of revenue and how cash flows are affected by economic and other factors.

Passenger Ticket and Ancillary Services Revenue

Passenger revenue recognized in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20242023
Passenger ticket revenue, net of taxes and fees$1,648 $1,648 
Passenger ancillary revenue108 104 
Mileage Plan passenger revenue248 232 
Total Passenger revenue$2,004 $1,984 

Mileage Plan Loyalty Program

Mileage Plan revenue included in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20242023
Mileage Plan passenger revenue$248 $232 
Mileage Plan other revenue164 154 
Total Mileage Plan revenue$412 $386 

Cargo and Other Revenue

Cargo and other revenue included in the condensed consolidated statements of operations (in millions):
Three Months Ended March 31,
20242023
Cargo revenue$28 $29 
Other revenue36 29 
Total Cargo and other revenue$64 $58 

Air Traffic Liability and Deferred Revenue

Passenger ticket and ancillary services liabilities

The Company recognized Passenger revenue of $584 million and $485 million from the prior year-end air traffic liability balance for the three months ended March 31, 2024 and 2023.

Mileage Plan assets and liabilities

The Company records a receivable for amounts due from the affinity card partner and from other partners as mileage credits are sold until the payments are collected. The Company had $104 million of such receivables as of March 31, 2024 and $102 million as of December 31, 2023.

12


The table below presents a roll forward of the total frequent flyer liability (in millions):
Three Months Ended March 31,
20242023
Total Deferred Revenue balance at January 1$2,603 $2,497 
Travel miles and companion certificate redemption - Passenger revenue(234)(218)
Miles redeemed on partner airlines - Other revenue(28)(21)
Increase in liability for mileage credits issued292 285 
Total Deferred Revenue balance at March 31$2,633 $2,543 

NOTE 4. FAIR VALUE MEASUREMENTS

In determining fair value, there is a three-level hierarchy based on the reliability of the inputs used. Level 1 refers to fair values based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 refers to fair values estimated using significant unobservable inputs.

Fair Value of Financial Instruments on a Recurring Basis

As of March 31, 2024, cost basis and fair value for marketable securities were $1.4 billion. Differences in cost basis and fair value of marketable securities are primarily a result of changes in interest rates. Management does not believe any unrealized losses are the result of expected credit losses based on its evaluation of industry and duration exposure, credit ratings of the securities, liquidity profiles, and other observable information as of March 31, 2024.

Fair values of financial instruments on the condensed consolidated balance sheets (in millions):
March 31, 2024December 31, 2023
Level 1Level 2TotalLevel 1Level 2Total
Assets
Marketable securities
U.S. government and agency securities$370 $ $370 $387 $ $387 
Equity mutual funds6  6 5  5 
Foreign government bonds 10 10  10 10 
Asset-backed securities 170 170  192 192 
Mortgage-backed securities 103 103  115 115 
Corporate notes and bonds 695 695  763 763 
Municipal securities 39 39  38 38 
Total Marketable securities376 1,017 1,393 392 1,118 1,510 
Derivative instruments
Fuel hedge contracts - call options 11 11  11 11 
Interest rate swap agreements 9 9  8 8 
Total Assets$376 $1,037 $1,413 $392 $1,137 $1,529 

The Company uses the market and income approach to determine the fair value of marketable securities. U.S. government securities and equity mutual funds are Level 1 as the fair value is based on quoted prices in active markets. Foreign government bonds, asset-backed securities, mortgage-backed securities, corporate notes and bonds, and municipal securities are Level 2 as the fair value is based on standard valuation models that are calculated based on observable inputs such as quoted interest rates, yield curves, credit ratings of the security and other observable market information.

The Company uses the market approach and the income approach to determine the fair value of derivative instruments. The fair value for fuel hedge call options is determined utilizing an option pricing model based on inputs that are readily available in active markets or can be derived from information available in active markets. In addition, the fair value considers the exposure to credit losses in the event of non-performance by counterparties. Interest rate swap agreements are Level 2 as the fair value of these contracts are determined based on the difference between the fixed interest rate in the agreements and the observable interest SOFR-based forward rates at period end multiplied by the total notional value.
13



Activity and Maturities for Marketable Securities

Maturities for marketable securities (in millions):
March 31, 2024Cost BasisFair Value
Due in one year or less$443 $436 
Due after one year through five years939 907 
Due after five years 34 31 
Due after 10 years14 13 
No maturity date4 6 
Total$1,434 $1,393 

Fair Value of Other Financial Instruments

The Company uses the following methods and assumptions to determine the fair value of financial instruments that are not recognized at fair value as described below.

Cash, Cash Equivalents, and Restricted Cash: Cash equivalents consist of highly liquid investments with original maturities of three months or less, such as money market funds, commercial paper, and certificates of deposit. They are carried at cost, which approximates fair value.

The Company's restricted cash balances are primarily used to guarantee various letters of credit, self-insurance programs, or other contractual rights. Restricted cash consists of highly liquid securities with original maturities of three months or less. They are carried at cost, which approximates fair value.

Debt: To estimate the fair value of all fixed-rate debt as of March 31, 2024, the Company uses the income approach by discounting cash flows or estimation using quoted market prices, utilizing borrowing rates for comparable debt over the remaining life of the outstanding debt. The estimated fair value of the fixed-rate Enhanced Equipment Trust Certificate (EETC) debt is Level 2, as it is estimated using observable inputs, while the estimated fair value of $582 million of other fixed-rate debt, including PSP notes payable, is classified as Level 3, as it is not actively traded and is valued using discounted cash flows which is an unobservable input.

Fixed-rate debt on the condensed consolidated balance sheets and the estimated fair value of long-term fixed-rate debt (in millions):
March 31, 2024December 31, 2023
Fixed-rate debt$1,452 $1,515 
Estimated fair value$1,346 $1,382 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are recognized or disclosed at fair value on a nonrecurring basis, including property, plant and equipment, operating and finance lease assets, goodwill, and intangible assets. These assets are subject to fair valuation when there is evidence of impairment. No material impairments were recorded during the three months ended March 31, 2024.

14



NOTE 5. LONG-TERM DEBT
 
Long-term debt obligations on the condensed consolidated balance sheets (in millions):
 March 31, 2024December 31, 2023
Fixed-rate notes payable due through 2029$73 $80 
Fixed-rate PSP notes payable due through 2031600 600 
Fixed-rate EETC payable due through 2025 & 2027779 835 
Variable-rate notes payable due through 20361,128 971 
Less debt issuance costs(15)(15)
Total debt2,565 2,471 
Less current portion(a)
301 289 
Long-term debt, less current portion$2,264 $2,182 
Weighted-average fixed-interest rate3.3 %3.4 %
Weighted-average variable-interest rate6.8 %6.8 %
(a) Excludes finance lease liabilities recognized within Current portion of long-term debt and finance leases in the condensed consolidated balance sheets as of December 31, 2023.

Approximately $240 million of the Company's total variable-rate notes payable are effectively fixed via interest rate swaps at March 31, 2024, resulting in an effective weighted-average interest rate for the full debt portfolio of 4.6%.

During the three months ended March 31, 2024, the Company incurred debt of $195 million from multiple lenders and sources. New debt includes proceeds of $150 million which is secured by aircraft. Additionally, $45 million of debt was incurred as part of an agreement to finance certain E175 deliveries. Debt from this agreement is reflected as a non-cash transaction within the supplemental disclosures in the condensed consolidated statements of cash flows. During the three months ended March 31, 2024, the Company made debt payments of $102 million.

Debt Maturity

At March 31, 2024, long-term debt principal payments for the next five years and thereafter are as follows (in millions):
 Total
Remainder of 2024$201 
2025365 
2026322 
2027646 
2028131 
Thereafter915 
Total Principal Payments$2,580 

Bank Lines of Credit
 
Alaska has three credit facilities totaling $626 million as of March 31, 2024. One credit facility is for $150 million, expires in March 2025, and is secured by certain accounts receivable, spare engines, spare parts, and ground service equipment. A second credit facility is for $400 million, expires in June 2026, and is secured by aircraft. Both facilities have variable interest rates based on SOFR plus a specified margin. A third credit facility is for $76 million, expires in June 2024, and is secured by aircraft.

Alaska has secured letters of credit against the third facility, but has no plans to borrow using either of the other two facilities. All credit facilities have a requirement to maintain a minimum unrestricted cash and marketable securities balance of $500 million. Alaska was in compliance with this covenant at March 31, 2024.

Subsequent to quarter end, the Company executed an amendment to extend the term of the $150 million credit facility from March 2025 to April 2028.
15



NOTE 6. EMPLOYEE BENEFIT PLANS

Net periodic benefit costs for qualified defined-benefit plans include the following (in millions):
Three Months Ended March 31,
 20242023
Service cost$7 $7 
Pension expense included in Wages and benefits7 7 
Interest cost27 27 
Expected return on assets(32)(28)
Recognized actuarial loss5 6 
Pension expense included in Non-operating Income (Expense)$ $5 

NOTE 7. COMMITMENTS AND CONTINGENCIES

Alaska continues to experience delivery delays of B737 aircraft. Boeing has communicated that certain B737 aircraft are expected to be delivered later than the contracted delivery dates provided to Alaska. This includes certain B737-10 aircraft contracted for delivery in 2025 that have been moved to 2026, pending certification of the B737-10. We have incorporated these adjustments in the tables below, however, management expects that other Boeing aircraft deliveries may also be delayed later than negotiated delivery timeframes.

Future minimum contractual payments for commitments as of March 31, 2024 (in millions):
Aircraft-Related Commitments(a)
Capacity Purchase Agreements and Other Obligations (b)
Remainder of 2024$1,164 $177 
2025830 230 
20261,634 223 
2027601 220 
2028151 223 
Thereafter717 515 
Total$5,097 $1,588 
(a)Includes contractual commitments for aircraft, engines, and aircraft maintenance, and incorporates the impact of expected delays for certain B737 aircraft as communicated by Boeing. Option deliveries are excluded from minimum commitments until exercise.
(b)Primarily comprised of non-lease costs associated with capacity purchase agreements, as well as other various sponsorship agreements and investment commitments.

Aircraft Commitments

Aircraft purchase commitments include contractual commitments for aircraft and engines. Details for contractual aircraft commitments as of March 31, 2024 are outlined below.
Firm OrdersOptions and Other RightsTotal
Aircraft Type2024-20272025-20302024-2030
B73780105185
E1757714
   Total87112199

16


Aircraft Maintenance

Aircraft maintenance commitments include contractual commitments for engine maintenance agreements requiring monthly payments based upon utilization, such as flight hours, cycles, and age of the aircraft. In turn, these maintenance agreements transfer certain risks to the third-party service provider. Alaska has contracts for maintenance on its B737-800 and B737-900ER aircraft engines through 2026 and 2032, respectively. Horizon has contracts for maintenance on its E175 aircraft engines through 2033 and 2039.

Contingencies

The Company is a party to routine litigation matters incidental to its business and with respect to which no material liability is expected. Liabilities for litigation related contingencies are recorded when a loss is determined to be probable and estimable.

As part of the 2016 acquisition of Virgin America, Alaska assumed responsibility for the Virgin trademark license agreement with the Virgin Group. In 2019, pursuant to that agreement's venue provision, the Virgin Group sued Alaska in England, alleging that the agreement requires Alaska to pay $8 million per year as a minimum annual royalty through 2039, adjusted annually for inflation and irrespective of Alaska's actual use (or non-use) of the mark. The possible range of contractual liability is between $10 million and $160 million. Alaska stopped making royalty payments in 2019 after ending all use of the Virgin brand. On February 16, 2023, the commercial court issued a ruling adopting Virgin Group’s interpretation of the license agreement. The Company has appealed the decision and believes the claims in the case are without factual and legal merit, a position supported by Virgin America’s representations during pre-merger due diligence. Alaska also commenced a separate claim for breach of the agreement against the Virgin Group that may affect the Company’s total liability in the matter.

On April 15, 2024, a private antitrust action captioned Warren Yoshimoto, et al., v. Alaska Airlines, Inc., et al. was filed in the United States District Court for the District of Hawaii, against Alaska Airlines, Inc. and Alaska Air Group, Inc. The plaintiffs, whom the complaint describes as airline passengers, allege that the pending acquisition of Hawaiian Airlines, Inc. by Alaska Airlines, Inc. would violate U.S. antitrust laws. They seek to enjoin the merger or obtain divestitures, as well as costs and attorneys’ fees. The Company believes the allegations in the complaint are without merit and will defend against them vigorously, while continuing to work cooperatively with the U.S. Department of Justice to obtain regulatory clearance to close the acquisition.

NOTE 8. SHAREHOLDERS' EQUITY

Common Stock Repurchase

In August 2015, the Board of Directors authorized a $1 billion share repurchase program. As of March 31, 2024, the Company has repurchased 11.7 million shares for $709 million under this program.
Share purchase activity (in millions, except share amounts):
Three Months Ended March 31,
20242023
SharesAmountSharesAmount
2015 Repurchase Program—$1 billion561,086 $21 413,554 $18 
CARES Act Warrant Issuances
As taxpayer protection required under the Payroll Support Program (PSP) under the CARES Act, the Company granted the U.S. government a total of 1,455,437 warrants to purchase ALK common stock in 2020 and 2021. An additional 427,080 warrants were issued in conjunction with a draw on the CARES Act Loan in 2020. These warrants are non-voting, freely transferable, may be settled as net shares or in cash at the Company's option, and have a five-year term.
As of March 31, 2024, there are 1,882,517 total warrants outstanding, with a weighted average strike price of $39.06. The value of the warrants was estimated using a Black-Scholes option pricing model. The total fair value of all outstanding warrants was $30 million, recorded in stockholders' equity at issuance.

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NOTE 9. LOSS PER SHARE
Basic loss per share and diluted loss per share are calculated by dividing net loss by the weighted average number of common shares outstanding during the period.
Three Months Ended March 31,
(in millions, except per share amounts)
20242023
Net loss$(132)$(142)
Basic weighted average shares outstanding
125.970 127.501 
Dilutive effect of share-based instruments
 — 
Diluted weighted average shares outstanding
125.970 127.501 
Basic loss per share$(1.05)$(1.11)
Diluted loss per share$(1.05)$(1.11)
Antidilutive amounts excluded from calculation:
Employee stock awards3.8 2.4 
Stock warrants0.2 0.4 


NOTE 10. ACCUMULATED OTHER COMPREHENSIVE LOSS
A roll forward of the amounts included in accumulated other comprehensive loss is shown below for the three months ended March 31, 2024 and 2023:
Marketable SecuritiesEmployee Benefit PlanInterest Rate DerivativesTax EffectTotal
Balance at December 31, 2023$(46)$(358)$8 $97 $(299)
Change in value1  1  2 
Reclassifications into earnings 4  (1)3 
Balance at March 31, 2024$(45)$(354)$9 $96 $(294)

Marketable SecuritiesEmployee Benefit PlanInterest Rate DerivativesTax EffectTotal
Balance at December 31, 2022$(104)$(421)$15 $122 $(388)
Change in value20  (3)(3)14 
Reclassifications into earnings6 5  (2)9 
Balance at March 31, 2023$(78)$(416)$12 $117 $(365)

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NOTE 11. OPERATING SEGMENT INFORMATION

Alaska Air Group has two operating airlines – Alaska and Horizon. Each is regulated by the U.S. Department of Transportation’s Federal Aviation Administration. Alaska has CPAs for regional capacity with Horizon and SkyWest, under which Alaska receives all passenger revenue.

Under GAAP, operating segments are defined as components of a business for which there is discrete financial information that is regularly assessed by the Chief Operating Decision Maker (CODM) in making resource allocation decisions. Historically, our CODM has reviewed financial performance information for our airline operations and Horizon CPA as part of three reportable operating segments:
Mainline - includes scheduled air transportation on Alaska's Boeing jet aircraft for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica, Belize, Guatemala, and the Bahamas.
Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S., Canada, and Mexico under a CPA. This segment includes the actual revenue and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.
Horizon - includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

In addition to these reported segments, we have a "Consolidating and Other" column which reflects Air Group parent company activity, McGee Air Services, consolidating entries and other immaterial business units of the company. The “Air Group Adjusted” column represents a non-GAAP measure that is used by the Company's CODM to evaluate performance and allocate resources. Adjustments are further explained below in reconciling to consolidated GAAP results.

Over time, our Mainline and Regional airline segments have increasingly been managed as a single component that provides scheduled air transportation for passengers and cargo, and includes our loyalty program. Managing this component in an integrated manner enables our team to leverage our comprehensive network, single route scheduling system, and fleet as a single business to deliver optimized consolidated financial results. In the first quarter of 2024, management began evaluating changes to internal reporting that may change the discrete information that is provided to our CODM in the future to better align with the way the business is managed. Such changes may have an impact on the company’s reportable segments once finalized. We will continue to report using the existing segment structure until changes in our internal reporting have been fully implemented, and a segment analysis has been performed to determine if any changes to reportable segments are indicated.


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Operating segment information is as follows (in millions):
Three Months Ended March 31, 2024
MainlineRegionalHorizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenue   
Passenger revenue$1,629 $375 $ $ $2,004 $ $2,004 
CPA revenue  104 (104)   
Mileage Plan other revenue149 15   164  164 
Cargo and other revenue62   2 64  64 
Total Operating Revenue1,840 390 104 (102)2,232  2,232 
Operating Expenses
Operating expenses, excluding fuel1,514 299 88 (102)1,799 34 1,833 
Fuel expense485 93   578 (13)565 
Total Operating Expenses1,999 392 88 (102)2,377 21 2,398 
Non-operating Income (Expense)(3) (11)2 (12) (12)
Income (Loss) Before Income Tax$(162)$(2)$5 $2 $(157)$(21)$(178)
Pretax Margin(7.0)%(8.0)%
Three Months Ended March 31, 2023
MainlineRegionalHorizon
Consolidating & Other(a)
Air Group Adjusted(b)
Special Items(c)
Consolidated
Operating Revenue
Passenger revenue$1,673 $311 $ $ $1,984 $ $1,984 
CPA revenue  78 (78)   
Mileage Plan other revenue143 11   154  154 
Cargo and other revenue57   1 58  58 
Total Operating Revenue1,873 322 78 (77)2,196  2,196 
Operating Expenses
Operating expenses, excluding fuel1,390 256 84 (77)1,653 64 1,717 
Fuel expense561 85  (1)645 20 665 
Total Operating Expenses1,951 341 84 (78)2,298 84 2,382 
Non-operating Income (Expense)(6) (8)1 (13) (13)
Income (Loss) Before Income Tax$(84)$(19)$(14)$2 $(115)$(84)$(199)
Pretax Margin(5.2)%(9.1)%
(a)Includes consolidating entries, Air Group parent company, McGee Air Services, and other immaterial business units.
(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges.
(c)Includes special items and mark-to-market fuel hedge accounting adjustments.


Total assets were as follows (in millions):
March 31, 2024December 31, 2023
Mainline$20,140 $19,937 
Horizon1,382 1,352 
Consolidating & Other(6,709)(6,676)
Consolidated$14,813 $14,613 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our company and the present business environment. MD&A is provided as a supplement to – and should be read in conjunction with – our consolidated financial statements and the accompanying notes. All statements in the following discussion that are not statements of historical information or descriptions of current accounting policy are forward-looking statements. Please consider our forward-looking statements in light of the risks referred to in this report’s introductory cautionary note and the risks mentioned in "Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. This overview summarizes the MD&A, which includes the following sections:

GAAP to Non-GAAP Reconciliations and Operating Statistics - reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis, as well as operating statistics we use to measure operating performance.
 
First Quarter Review - highlights from the first quarter of 2024 outlining some of the major events that occurred during the period.
 
Results of Operations - an in-depth analysis of our consolidated revenue and expenses for the three months ended March 31, 2024. This section includes forward-looking statements regarding our view of the remainder of 2024. 

Liquidity and Capital Resources - an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.

GAAP TO NON-GAAP RECONCILIATIONS AND OPERATING STATISTICS
We are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

By excluding certain costs from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. We believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management and investors to understand the impact of company-specific cost drivers which are more controllable by management. We adjust for expenses related directly to our freighter aircraft operations to allow for better comparability to other domestic carriers that do not operate freighter aircraft. We also exclude certain special charges as they are unusual or nonrecurring in nature and adjusting for these expenses allows management and investors to better understand our cost performance.

CASMex is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance. CASMex is also a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.

Adjusted pretax income is an important metric for the employee incentive plan, which covers the majority of Air Group employees.

Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of these items as noted above is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

Although we disclose our unit revenue, we do not, nor are we able to, evaluate unit revenue excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenue in the mid-to-long term. Although we believe it is useful to
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evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not consider them a substitute for GAAP figures.

GAAP TO NON-GAAP RECONCILIATIONS (unaudited)
 Three Months Ended March 31,
20242023
(in millions)DollarsMarginDollarsMargin
Loss before income tax(178)(8.0)%(199)(9.1)%
Adjusted for:
Mark-to-market fuel hedge adjustment(13)20 
Special items - fleet transition(a)
26 13 
Special items - integration costs(b)
8 — 
Special items - labor and other(c)
 51 
Adjusted loss before income tax(157)(7.0)%(115)(5.2)%
(a) Special items - fleet transition in the three months ended March 31, 2024 and 2023 is primarily for costs associated with the retirement of Airbus and Q400 aircraft, as well as gains on the sale of certain Q400 aircraft.
(b) Special items - integration costs is associated with our proposed acquisition of Hawaiian Airlines.
(c) Special items - labor and other is for changes to Alaska pilots' sick leave benefits resulting from an agreement signed in the first quarter of 2023.

 Three Months Ended March 31,
 20242023
(in millions, except per share amounts)DollarsDiluted EPSDollarsDiluted EPS
Net loss per share$(132)$(1.05)$(142)$(1.11)
Mark-to-market fuel hedge adjustment(13)(0.10)20 0.16 
Special items - fleet transition26 0.21 13 0.10 
Special items - integration costs8 0.06 — — 
Special items - labor and other  51 0.40 
Income tax effect of reconciling items above(5)(0.04)(21)(0.17)
Adjusted net loss per share$(116)$(0.92)$(79)$(0.62)

 Three Months Ended March 31,
(in millions)20242023
Total operating expenses2,398 2,382 
Less the following components:
Aircraft fuel, including hedging gains and losses565 665 
Freighter costs(a)
15 14 
Special items - fleet transition26 13 
Special items - integration costs8 — 
Special items - labor and other 51 
Total operating expenses, excluding fuel, freighter costs, and special items1,784 1,639 
CASMex11.60 ¢10.44 ¢
(a) Freighter costs in the three months ended March 31, 2024 and 2023 are not presented separately on the consolidated statements of operations.
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OPERATING STATISTICS (unaudited)
Below are consolidated operating statistics we use to measure operating performance. We often refer to unit revenue and adjusted unit costs, which are non-GAAP measures.
Three Months Ended March 31,
20242023Change
Revenue passengers (000)9,7749,852(1)%
RPMs (000,000) "traffic"12,52412,554—%
ASMs (000,000) "capacity"15,37815,705(2)%
Load factor81.4%79.9%1.5 pts
Yield16.00¢15.80¢