Alaska Air Group 10-K (2022-02-11)

ITEM 1. BUSINESS

 

Alaska Air Group (the "Company" or "Air Group") is a Delaware corporation incorporated in 1985 that operates two airlines, Alaska and Horizon. Alaska was organized in 1932 and incorporated in 1937 in the state of Alaska.

 

incorporated : formed into a business company with legal status

 

 

 

Horizon is a Washington corporation that was incorporated and began service in 1981, and was acquired by Air Group in 1986. Air Group acquired Virgin America in 2016, then legally merged the entity with Alaska in 2018, at which time the airlines' operating certificates were also combined.

 

acquire : acquire something to gain something by your own efforts, ability or behaviour / acquire something to obtain something by buying or being given it

 

entity : something that exists separately from other things and has its own identity

 

 

 

The Company also includes McGee Air Services, an aviation services provider that was established as a wholly-owned subsidiary of Alaska in 2016, and other subsidiaries.

 

subsidiary : subsidiary (to something) connected with something but less important than it / (of a business company) owned or controlled by another company

 

 

 

Alaska and Horizon operate as separate airlines, with individual business plans, competitive factors and economic risks. We organize the business and review financial operating performance by aggregating our business in three operating segments, which are as follows:

 

aggregate : to put together different items, amounts, etc. into a single group or total

 

 

 

Mainline - includes scheduled air transportation on Alaska's Boeing and Airbus jet aircraft for passengers and cargo throughout the U.S., and in parts of Mexico, Costa Rica and Belize.

 

 

 

Regional - includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. and Canada under capacity purchase agreements (CPA). This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.

 

incur : incur something if you incur something unpleasant, you are in a situation in which you have to deal with it / incur something if you incur costs, you have to pay them

 

 

 

Horizon - includes the capacity sold to Alaska under a CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.

 

 

 

Together we are the fifth largest airline in the United States, offering unparalleled guest service, connectivity and schedules from our hub markets along the West Coast. With our regional partners, we fly to more than 120 destinations throughout North America.

 

unparalleled : used to emphasize that something is bigger, better or worse than anything else like it

 

 

 

We have operated in a highly competitive and often challenging industry for nearly 90 years. Our top priority as an airline is ensuring the safety of our guests and employees, an area that we continually invest in. Our success over many decades and resilience in difficult times is attributable to our people, business model, and commitment to sustainable growth over the long-term.

 

resilience : the ability of people or things to recover quickly after something unpleasant, such as shock, injury, etc. / the ability of a substance to return to its original shape after it has been bent, stretched or pressed

 

 

 

In 2021, our business continued to recover from the impacts of the ongoing COVID-19 pandemic that began in 2020. Demand for travel improved considerably in 2021 as travel restrictions and stay-at-home orders relaxed.

 

 

 

However, progress was volatile as new COVID-19 variants impacted the communities that we serve. In response to the uncertainties in recovery, we scaled capacity back up in a measured way, bringing flying back as demand materialized.

 

volatile : (of a person or their moods) changing easily from one mood to another / likely to change suddenly; easily becoming dangerous

 

 

 

This approach was a critical factor that enabled us to return to profitability in the second half of the year. As a result, our 2021 operating cash flows were positive, even when excluding the impact of government grants.

 

 

 

This progress enabled us to repay $1.3 billion in debt and return our debt to capitalization ratio to 49%, the lowest level since the first quarter of 2020. In addition, we voluntarily funded a $100 million pension contribution, bringing our funded status to 98% as of year end.

 

 

 

The improved results in 2021 set a foundation for our return to pre-COVID flying levels by summer 2022 and growth from there. Our 2025 Plan includes ambitious goals, including aligning our growth strategy with critical environmental, social and governance targets. Instrumental to achieving this is our restructured fleet agreement with Boeing, which includes firm commitments for 93 new 737-9 aircraft to be delivered through 2024, with options to purchase 52 additional aircraft.

 

align : align (something) (with something) to arrange something in the correct position, or to be in the correct position, in relation to something else, especially in a straight line / align something (with/to something) to change something slightly so that it is in the correct relationship to something else

 

Instrumental : important in making something happen / made by or for musical instruments / (in some languages) in the form that a noun, pronoun or adjective has when it refers to a thing that is used to do something

 

 

 

These deliveries began in earnest in 2021, and ramp up significantly in 2022. The new 737-9 aircraft replace the aging Airbus A320 aircraft, which will be retired from the operating fleet by 2023. Significantly improved per-seat economics driven by larger gauge and improved fuel efficiency, as well as the transition to a single mainline fleet, will serve as the baseline for high-margin capacity growth over the next several years.

 

ramp up : to make something increase in amount

 

 

 

In 2021, recovery of leisure demand outpaced recovery of business demand. Responding to these trends, we adapted our network to take our guests where they want to fly. We announced 32 new routes to popular leisure destinations, including Belize.

 

outpace : outpace somebody/something to go, rise, improve, etc. faster than somebody/something

 

 

 

With new routes announced in 2021, we will serve 100 nonstop destinations from Seattle-Tacoma International Airport by summer 2022, more than any other carrier. We also formally joined the oneworld® alliance in 2021, which provides global access for our guests and exciting growth opportunities for our airlines.

 

 

 

As we grow our West Coast hubs, we plan to maximize connectivity to partner airlines, allowing our guests greater global connectivity. By summer 2022, Alaska guests will be able to access 100 nonstop flights to Europe from the West Coast on oneworld partners.

 

 

 

Although we have ambitious growth plans, we will continue to deploy capacity in a disciplined manner that is responsive to changing demand trends.

 

deploy : deploy somebody/something to move soldiers or weapons into a position where they are ready for military action / deploy something (formal) to use something effectively

 

 

 

Our success is fueled by the engagement and dedication of our employees. Aligning our employees' goals with the Company's goals is critical in achieving success.

 

 

 

To that end, all employees participate in our Performance-Based Pay (PBP) and Operational Performance Rewards (OPR) programs, which reward employees across all work groups based on metrics related to safety, profitability and cash flow, sustainability, on-time performance, low costs and customer satisfaction.

 

 

 

In 2021, we rewarded employees with $151 million under these incentive programs.

 

 

 

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