Alaska Air(ALK) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Alaska Air Group, Inc., including balance sheets, statements of operations, and cash flows, reflecting the company's financial position and performance after the Hawaiian Holdings acquisition Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total cash, restricted cash, and marketable securities | $2,152 | $2,504 | | Total Current Assets | $3,507 | $3,760 | | Total Property and Equipment - Net | $11,215 | $10,781 | | Total Assets | $19,885 | $19,768 | | Total Current Liabilities | $6,709 | $6,145 | | Total Liabilities | $15,943 | $15,396 | | Total Shareholders' Equity | $3,942 | $4,372 | | Total Liabilities and Shareholders' Equity | $19,885 | $19,768 | Condensed Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenue | $3,704 | $2,897 | $6,841 | $5,129 | | Operating Income | $277 | $322 | $80 | $156 | | Net Income | $172 | $220 | $6 | $88 | | Diluted Earnings Per Share | $1.42 | $1.71 | $0.05 | $0.69 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $835 | $872 | | Net cash used in investing activities | ($747) | ($135) | | Net cash provided by (used in) financing activities | ($544) | $87 | | Net (decrease) increase in cash and cash equivalents | ($456) | $824 | NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes detail accounting policies and financial items, including the Hawaiian Holdings acquisition, revenue recognition, fair value measurements, debt, aircraft commitments, legal contingencies, and segment performance - The company completed its acquisition of Hawaiian Holdings, Inc. on September 18, 2024, for a total consideration of $977 million[30] - Merger-related costs amounted to $53 million for the three months and $93 million for the six months ended June 30, 2025, classified under Special items[33] Total Revenue Breakdown (in millions) | Revenue Category | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Passenger revenue | $3,355 | $2,651 | $6,163 | $4,655 | | Loyalty program other revenue | $210 | $174 | $417 | $338 | | Cargo and other revenue | $139 | $72 | $261 | $136 | - As of June 30, 2025, the company had total debt of $4.95 billion, with a weighted-average interest rate of 4.0% for fixed-rate debt and 6.0% for variable-rate debt[58] - The company has firm orders for 86 aircraft (75 B737s, 8 B787-9s, 3 E175s) for delivery between 2025-2029, with total aircraft-related commitments of $4.53 billion[69][71] - A $1 billion share repurchase program was authorized in December 2024. During the first six months of 2025, the company repurchased 10.5 million shares for $535 million, with $465 million remaining under the program[75] Segment Pretax Income (Loss) - Q2 2025 (in millions) | Segment | Pretax Income (Loss) | | :--- | :--- | | Alaska Airlines | $267 | | Hawaiian Airlines | $1 | | Regional | $7 | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management analyzes financial performance, comparing Q2 and H1 2025 results to pro forma 2024 figures, covering revenue, expenses, segment performance, liquidity, capital resources, and future outlook, noting a non-material cybersecurity incident Second Quarter Review and Outlook The company reported Q2 2025 GAAP income before tax of $238 million, with a positive full-year 2025 outlook projecting 2% capacity growth and flat to low single-digit unit revenue increase on a pro forma basis - A cybersecurity incident was identified at Hawaiian Airlines on June 23, 2025, but it is not expected to have a material impact on business, operations, or financial condition[99][100] - New collective bargaining agreements were ratified for Hawaiian flight attendants and Horizon technicians in Q2 2025[104] - Full Year 2025 Outlook (Pro Forma): - Capacity: Up 2% YoY - Unit Revenue (RASM): Flat to up low single digits - Unit Cost (CASMex): Up mid single digits[107] Results of Operations This section details pro forma operating results for Q2 and H1 2025 versus 2024, showing Q2 revenue growth of 2% to $3.7 billion and a 2% rise in operating expenses, with segment performance analysis Q2 2025 vs Q2 2024 Pro Forma Operating Metrics | Metric | Q2 2025 | Q2 2024 Pro Forma | % Change | | :--- | :--- | :--- | :--- | | Total Operating Revenue (millions) | $3,704 | $3,629 | 2% | | RASM (unit revenue) | 15.39¢ | 15.49¢ | (0.6)% | | CASMex (unit cost ex-fuel) | 10.90¢ | 10.23¢ | 6.5% | | Economic fuel cost per gallon | $2.39 | $2.81 | (14.9)% | H1 2025 vs H1 2024 Pro Forma Operating Metrics | Metric | H1 2025 | H1 2024 Pro Forma | % Change | | :--- | :--- | :--- | :--- | | Total Operating Revenue (millions) | $6,841 | $6,506 | 5% | | RASM (unit revenue) | 15.11¢ | 14.84¢ | 1.8% | | CASMex (unit cost ex-fuel) | 11.36¢ | 10.89¢ | 4.3% | | Economic fuel cost per gallon | $2.49 | $2.88 | (13.4)% | - On a pro forma basis, Q2 2025 wages and benefits increased 12% to $1.165 billion, driven by higher headcount and wage rates[126] - Hawaiian Airlines' Q2 2025 pretax profit improved significantly to $1 million from a pro forma loss of $83 million in Q2 2024, driven by a $125 million revenue increase from network optimization and recovery from the 2023 Maui wildfires[137] Liquidity and Capital Resources As of June 30, 2025, the company maintained strong liquidity with $2.2 billion in cash, a 60% debt-to-capitalization ratio, and planned 2025 capital expenditures of $1.4 to $1.6 billion for aircraft, projecting a 2027 fleet of 464 aircraft Key Financial Condition Indicators (in millions) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash, marketable securities, and unused lines of credit | $2,974 | $3,325 | | Liquidity as a % of trailing twelve months' revenue | 22% | 28% | | Debt-to-capitalization ratio, including leases | 60% | 58% | - Planned capital expenditures for 2025 are estimated to be between $1.4 billion and $1.6 billion[175] - The company sold four B737-900 aircraft in Q2 2025 for proceeds of approximately $53 million, recognizing a gain of $25 million. The remaining eight B737-900s are expected to be sold by the end of 2025[173] Anticipated Total Fleet Count | Year-End | Total Air Group Fleet | | :--- | :--- | | June 30, 2025 (Actual) | 409 | | 2025 (Projected) | 414 | | 2026 (Projected) | 425 | | 2027 (Projected) | 464 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK No material changes in market risk were reported since the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes in market risk were reported since the last annual report[200] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective as of June 30, 2025, with ongoing integration of Hawaiian Holdings' internal controls and implementation of alternative controls post-cybersecurity incident - The company's certifying officers concluded that disclosure controls and procedures were effective as of June 30, 2025[201] - The integration of Hawaiian Holdings' internal controls is ongoing. Alternative and compensating controls were used following the Hawaiian Airlines cybersecurity incident to ensure the accuracy of financial reporting[202][203] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section refers to Note 7 for ongoing legal proceedings, primarily detailing litigation with Virgin Group over a trademark license agreement, for which a $61 million accrual is held - The company is involved in a dispute with Virgin Group over a trademark license agreement. An appellate court affirmed a lower court ruling in favor of Virgin Group. The company has accrued $61 million for this matter as of June 30, 2025[73][206] ITEM 1A. RISK FACTORS The company refers to its 2024 Form 10-K for a detailed discussion of risk factors affecting its business - There are no new risk factors disclosed; the company refers to its 2024 Annual Report on Form 10-K for a comprehensive list[207] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's Q2 2025 common stock repurchases, where over 8.7 million shares were bought back under a $1 billion plan authorized in December 2024 Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 2,521,296 | $44.02 | | May 2025 | 4,531,750 | $50.99 | | June 2025 | 1,667,963 | $51.05 | | Total Q2 | 8,721,009 | $48.99 | - As of June 30, 2025, $465 million remained available for future repurchases under the current plan[209] ITEM 5. OTHER INFORMATION No director or officer adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No director or officer made changes to their Rule 10b5-1 trading plans during the three months ended June 30, 2025[212]