Investor Presentation
Safe harbor This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and are not guarantees of future performance. Forward-looking statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Please refer to the risk factors described in Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015. 2
Our strategy is simple and balanced Low Fares, Safety & People Focus Hassle Free Energetic & Low Costs & Compliance (Easiest airline to fly) Compelling Brand Network Growth 3
Good execution against that strategy has helped us grow our network for our customers… 14 New Markets 6 New Markets 20 New Markets in 14 New Markets in 8 New Markets* in Includes new markets announced for 2017 as of 11/8/16 4
…outpace the industry revenues… $5.8B * $5.6B $5.4B $5.0B $4.7B $4.3B $3.8B $3.4B 2009 2010 2011 2012 2013 2014 2015 2016 * 2016 estimate using consensus (not endorsed by Alaska Air Group) 5 Estimates are for Alaska Air Group 2016 standalone, without effect of Virgin America adjustment
…And provide returns for our owners Adjusted Net Income and EPS * 2009 2010 2011 2012 2013 2014 2015 2016 * 2016 estimate using consensus (not endorsed by Alaska Air Group) 6 Estimates are for Alaska Air Group 2016 standalone, without effect of Virgin America adjustment
2016 is shaping up to be another strong year financially Industry and Sector Leading Pre-Tax Margin (LTM 9/30/16) 24.8% 19.7% 14.4% 13.4% 11.5% S&P 500 Industrials Legacies LCC's Alaska 7
…And the underlying business is operating well Safe Great Operation Employee Engagement Award Winning Service 8
We have a long history of successful growth Alaska Mainline ASM Growth by Year, 1995–2016 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 9 U.S. Domestic Industry Data from A4A
This growth has helped us diversify our revenue and cash flows Transcon 11% Midcon 2% Alaska 55 % PacNW/ PacNW/ 20% Canada Canada 5% 12% Mountain Mountain 9% California 11% 36% Mexico Mexico 5% 8% 10 * 2016 revenue estimate using consensus (not endorsed by Alaska Air Group)
The Virgin America acquisition will position us as the 5 th largest airline in the U.S. with an unparalleled ability to serve West Coast travelers 11
It provides a platform for growth of our low-fare, premium product Powerful West Coast Network Enhanced International Partnerships Opportunity to Grow Access to Constrained Airports California Customer Base & Improve Loyalty 12
The market size is significant North America Low Fare Premium Product Carriers Revenue 12% Network Carriers Low Cost Carriers 19% 66% 3% Ultra Low Cost Carriers 13
California is our single largest opportunity… 2.5x AK 0.7M PacNW Daily Passengers Population Population 3x 11.9 Million 39.1 Million CA PacNW Daily Daily 39.1M WA Population Passengers Passengers 7.2M North America North America 71,700 185,700 OR 4.0M 14
…with very attractive characteristics Characteristic Metric US Rank Population 39.1M #1 Gross State Product $2.3T #1 North America Pax/Day 185,700 #1 Intl Passengers/Day 11,750 #3 Gross State Product Growth 4% #4 Sources: Bureau of Economic Analysis 15
Our combined network provides tremendous options for customers living on the West Coast + 16
From day one, the combined carrier will offer more seats from the West Coast, so that we can serve customers better… 22% 21% 16% 12% 12% 7% 2% 1% AS WN UA DL AA HA B6 NK Share of West Coast Seats North America Seat Share from Alaska, Oregon, Washington, and California YE3Q16; total is less than 100% because smaller “other” category is excluded 17
…and offer a significant presence at all major metropolitan areas Anchorage Portland San Francisco LAX Seattle 46 Flights 123 Flights 73 Flights 79 Flights 291 Flights 9 Gates 20 Gates 10 Gates 12 Gates 32 Gates Bay Area LA Basin 115 Flights 102 Flights Average scheduled daily flights for Alaska and Virgin America YE3Q16 18
We will serve all 10 of the top markets from SFO… SFO Customer Utility Service in Top 10 Markets from SFO Rank Rank Market Market 58% 1 1 JFK JFK 2 2 LAX LAX 3 3 Las Vegas Las Vegas 6% 4 4 Chicago Chicago Alaska - Today Alaska - Post Merger 5 5 Boston Boston 6 Seattle 6 SEATTLE 7 7 Newark Newark 8 8 San Diego San Diego 9 9 Denver Denver 10 10 Dulles Dulles Utility percentage represents share of domestic revenue for the year ended Q32015. 19
… And our utility in LAX increases substantially LAX Customer Utility Service in Top 10 Markets from LAX 58% Rank Market 1 JFK 2 San Francisco 10% 3 Chicago 4 Seattle Current Future 5 Las Vegas 6 Denver 7 Newark 8 Honolulu 9 Boston 10 Atlanta Utility percentage represents share of domestic revenue for the year ended Q32015. 20
With Virgin America, we obtain valuable gates and landing slots on the East and West Coast JFK 23 LGA Slots 12 Slots EWR 15 Slots SFO DCA 8 10 Gates Slots LAX 6 Gates DAL 2 Gates 21
Both Alaska and Virgin America have lower costs than legacy carriers Premium Value Carriers Limited Service Carriers Legacy Carriers 11.63 9.38 9.14 8.27 7.46 7.29 7.14 6.67 5.00 4.85 Spirit Allegiant Southwest Hawaiian Alaska Jetblue Virgin Delta American United Source: Alaska Mainline and Competitors, 12 Months Ending September 30, 2016 22 Stage-length adjusted CASM formula: other airline CASM x (other airline stage length / Alaska mainline stage length) ^ 0.5.
Our customers benefit from our lower fares… Our fares are ~25% lower than legacy carriers $215 $210 $205 $170 $169 Source: U.S. Department of Transportation, 12 months ended Q3 2015 North American Origin and Departures 23 (stage-length adjusted to industry average fare of 1,165)
…Industry leading operational reliability Virgin Amer. Alaska Alaska Alaska Alaska Alaska Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer. Alaska Virgin Amer. Virgin Amer. Alaska Virgin Amer. Alaska Sources: On-time and canceled flights data for full year 2014 from masFlight. Includes regional affiliate flights. extreme delays, which are 45 minutes or longer, compiled by FlightStats Inc. Two-hour tarmac delays, mishandled baggage, and consumer complaints from Department of Transportation based on 12 months ended in November. DOT involuntary-bumping data 12 24 months through September.
…Award-winning customer service Best Domestic Airline #1 Traditional Carrier 9 straight years 9 straight years 25
…on one of the youngest… 22 Fleet Age in Years 17 14 12 10 10 9 9 7 5 Source: Airfleets.net. Mainline only. 26
…and most fuel efficient fleets in the country Fuel Efficiency ASM’s/Gallon 83 82 76 75 74 70 70 68 66 65 Source: 2015 10-K reports. Mainline only. 27
Planned fleet growth comes from both mainline aircraft and E-175 regional aircraft Projected Fleet Count 12/31/16 12/31/17 12/31/18 Total Mainline Fleet 155 152 160 Q400s* 52 52 37 E175s* 15 33 43 Total Regional Fleet* 67 85 80 Alaska Air Group 222 237 240 Virgin America 63 68 73 * Indicates aircraft are operated under capacity purchase agreements with Horizon or other regional airlines The expected fleet counts at December 31, 2016 and beyond are subject to change. 28 Virgin America’s fleet plan is as reported.
Addition of E-175’s in our fleet creates a superior onboard experience for our customers and opens up new markets E-175 737- NG Air Group’s Fleet Range Cabin Height 6’7” 7’3” Aisle Width 19.75” 16.7” Seat Width 18.25” 17.5” Regional Jets 76 Seats 1,700 mi. 29
Starting in 2017, Alaska will introduced dedicated Premium Class product on 737s and E175s Premium Economy Seats +30 Main Cabin Seats -30 Net Seats -4 Premium Economy Seats +24 Main Cabin Seats -27 Net Seats -3 30
Our partner portfolio gives our customers expansive global reach 31
90% of revenue is Alaska generated and partner traffic remains robust, while composition has shifted 2014 2016 9% of Revenue is from Codeshare 6% of Revenue is from Codeshare International Interline International Interline $50M (1%) $53M (1%) Domestic Interline Domestic Interline $115M (2%) $113M (2%) Delta $65 Delta $190 Others $65 Others $71 American $190 American $225 Total Total Codeshare Codeshare $320M (6%) $486M (9%) 32
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