Alaska Air Group Inc. reports record profits in 4Q, 2012

Photo/Mark Thiessen/AP

Alaska Air Group Inc. reported record-setting income of $50 million in net adjusted profits during the fourth quarter and $339 million for the year.

The company, which owns Alaska Airlines and regional Horizon Air, released its fourth quarter and 2012 earnings reports Jan. 24.

During a conference call with investors, Alaska Air Group President and CEO Brad Tilden said the record quarterly and annual profits marked 15 consecutive quarters and nine consecutive years for the company in the black.

“None of the success in 2012, or over the past several years, would have been possible without the talented and dedicated people we have at Alaska and Horizon; they are the backbone of the company,” Tilden said.

The $339 million profit in 2012 represented 18 percent growth over the 2011 profit of $287 million.

The $50 million fourth-quarter profit was a 35 percent year-over-year increase versus Alaska Air Group’s $37 million profit in 2011.

Pre-tax income for 2012 was up 11.9 percent to $552 million, from $463 million in 2011. Alaska Airlines contributed $528 million and Horizon added $24 million to 2012’s earnings before taxes, according to the financial report.

A 13 percent return on investment capital was another record for the airline company and meant three straight years of results above its 10 percent ROIC goal.

Driving the record profits, Tilden said, was a combination of full airplanes and a strong financial base. Alaska Air Group carried more passengers and had its highest load factor ever during 2012 — it sold 85.9 percent of its seats for the year, up 1.4 points.

Alaska Air Group currently expects to increase capacity by 8 percent in 2013. That figure can be easily adjusted depending on market demands, company Vice President and CFO Brandon Pedersen said.

Alaska Air Group’s debt-to-capital was 54 percent at the end of last year, down eight points from December 2011. Pederson said less debt helped the company cut its fourth quarter non-operating expenses $11 million year-over-year, to just $2 million at the end of 2012.

“Looking back to just four years ago — to the end of 2008 — we had a somewhat highly levered typical airline balance sheet with a debt-to-capital ratio of 81 percent,” Tilden said. “We knew that was unacceptable and focused our attention on improving profitability and cash flows so that we could improve our balance sheet.”

Since 2008 Alaska Air Group has paid down $1.1 billion in debt and leases, he said.

The growth and stability has allowed Alaska Air Group to return some of its good fortune to its approximately 13,000 employees. Most received an 8 percent annual bonus, or about a month’s pay, Pedersen said.

“We’re proud to report that Alaska Air Group employees have earned $88 million through our performance-based pay plan,” he said.

The company also put $110 million towards employee pension plans in 2012, despite having no required commitment, Pedersen said.

Alaska Air Group’s successful run allowed it to take a big step to modernize its fleet in 2012. In October, Alaska Airlines announced an order of 50 new, more fuel-efficient Boeing 737s, the only aircraft it flies. The $5 billion dollar order will be filled incrementally through 2022. Alaska Airlines operated a fleet of 124 aircraft at the end of 2012, according to a company statement.

Pedersen said Alaska Airlines is taking delivery of nine new 737-900 ERs in 2013 to replace older aircraft. The new planes are larger and more fuel-efficient than the “classic” 737s flying now, allowing for more passenger capacity without increasing departures, he said.

Alaska Air Group unveiled a mobile phone app in 2012 that allows customers to book flights on the company’s website, Pedersen said. In 2013, plans are to invest $20 million in technology infrastructure and mobile phone features to improve customer service, he said.

Early 2013 bookings have held steady compared with 2012 Pedersen said, but government actions could affect consumer spending near-term.

“We’re mindful that the expiration of the Social Security tax holiday and concerns over the federal borrowing limit do create an overhang that may impact consumer confidence,” he said.

Tilden said Alaska Air Group is trying to do its part to improve the U.S. economy the best way he knows how — by running a successful company.

“I’m optimistic about the future of this company and what we will be able to achieve if we continue working together,” he said.

In 2013 wage and benefit costs are expected to rise between 6 percent and 7 percent, Pedersen said, with the major driver being employee health care costs that are expected to go up at least 10 percent.

Alaska Air Group reached an agreement with Horizon pilots to extend their current contract for three years in December. The contract, originally ratified in November 2010, now runs through December 2018 and includes wage increases and better job security, according to the company. Horizon Air pilots are represented by the International Brotherhood of Teamsters union.

In July, Alaska Airlines’ ramp service and store agents agreed to a new six-year contract.

Tilden said the company is continuing to negotiate contract agreements with Alaska Airlines pilots and Alaska and Horizon flight attendants.

Elwood Brehmer can be reached at [email protected].

01/30/2013 - 11:12am