Alaska Airlines and Horizon Air 2007 Annual Report Download - page 6

Financial Results
At $92.3 million, or $2.28 per diluted share,
Alaska Air Group’s 2007 adjusted net income fell
short of our plan and lagged our 2006 results.
The primary reason was the significant rise in the
cost of fuel combined with our inability to pass
along those added costs through higher fares in
the current competitive and economic
environment.
0
50
100
150
-100
-50
Alaska Air Group Net Profit
2001 20072002 2003 2004 2005 2006
*(5.9) mil. after accounting change
See reconciliation of GAAP to adjusted amounts on page 112.
Generally Accepted Accounting Principles (GAAP)
Adjusted for unusual items
-43.4
-88.3
-67.2 -67.5
13.5
-30.8
-15.3
5.2
84.5*
55.0
-52.6
137.7
125.0
92.3
($ millions)
Airlines have many moving parts, but when you
boil it down, there are just two main drivers of
profitability — what it costs to provide our
service and what our customers pay for it.
Costs
In 2007, we succeeded in lowering Alaska’s
non-fuel unit costs (CASM excluding fuel) by
3.2 percent. CASM excluding fuel for Horizon
was up 2.8 percent, and if you exclude the costs
associated with fleet transition, Horizon’s unit
costs increased only 0.3 percent last year. (To
provide some perspective, Alaska’s mainline
operation accounted for about 80 percent of
Alaska Air Group’s $3.5 billion in total revenues
last year while Horizon contributed about
20 percent.)
7.5¢
8.0¢
8.5¢
9.0¢
7.0¢
2001 20072002 2003 2004 2005 2006 2008
target
Alaska Airlines Unit Costs
*Represents Alaska Airlines mainline flying
Continuous
Improvement
8.73¢
8.52¢
8.34¢
7.92¢ 7.90¢*
7.75¢*
7.50¢*7.50¢*
Cost per Available Seat Mile (excluding fuel and unusual items)
14¢
16¢
18¢
20¢
12¢
2001 20072002 2003 2004 2005 2006 2008
target
Horizon Air Unit Costs
Continuous
Improvement
18.95¢
15.99¢ 15.80¢
13.58¢
13.35¢
14.19¢
14.58¢ 14.60¢
Cost per Available Seat Mile (excluding fuel and unusual items)
We’re proud of the progress we’ve made
lowering our non-fuel unit costs. During the past
six years we’ve achieved $298 million in annual
reductions at Alaska Airlines and $174 million at
Horizon Air (measured in terms of 2007 available
seat miles). But we’re not yet where we need to
be, and we have several initiatives underway that
will help us continue to lower these costs, not
the least of which is completing Alaska’s
transition to a single 737 fleet type later this
year and Horizon’s transition out of smaller,
less-efficient Q200s in 2009.
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