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What changed in ALASKA AIR GROUP, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ALASKA AIR GROUP, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+378 added−364 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-13)

Top changes in ALASKA AIR GROUP, INC.'s 2023 10-K

378 paragraphs added · 364 removed · 250 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

104 edited+41 added−38 removed45 unchanged
Biggest changeAlaska’s union contracts at December 31, 2022 were as follows: Union Employee Group Number of Employees Contract Status Air Line Pilots Association, International (ALPA) Pilots 3,292 Amendable 10/17/2025 Association of Flight Attendants (AFA) (a) Flight attendants 6,620 Amendable 12/17/2022 International Association of Machinists and Aerospace Workers (IAM) Ramp service and stock clerks 789 Amendable 9/27/2026 IAM Clerical, office and passenger service 4,907 Amendable 9/27/2026 Aircraft Mechanics Fraternal Association (AMFA) Mechanics, inspectors and cleaners 973 Amendable 10/17/2023 Mexico Workers Association of Air Transport (b) Mexico airport personnel 109 Amendable 9/29/2019 Transport Workers Union of America (TWU) Dispatchers 99 Amendable 3/24/2027 (a) Negotiations with AFA for an updated collective bargaining agreement are ongoing as of the date of this filing.
Biggest changeAlaska’s union contracts at December 31, 2023 were as follows: Union Employee Group Number of Employees Contract Status Air Line Pilots Association, International (ALPA) Pilots 3,473 Amendable 10/17/2025 Association of Flight Attendants (AFA) (a) Flight attendants 6,813 Amendable 12/17/2022 International Association of Machinists and Aerospace Workers (IAM) Ramp service and stock clerks 828 Amendable 9/27/2026 IAM Clerical, office and passenger service 4,754 Amendable 9/27/2026 Aircraft Mechanics Fraternal Association (AMFA) Mechanics, inspectors and cleaners 981 Amendable 10/17/2023 Transport Workers Union of America (TWU) Dispatchers 105 Amendable 3/24/2027 (a) Negotiations with AFA for an updated collective bargaining agreement are ongoing as of the date of this filing. 15 Horizon’s union contracts at December 31, 2023 were as follows: Union Employee Group Number of Employees Contract Status International Brotherhood of Teamsters (IBT) (a) Pilots 565 Amendable 12/31/2024 AFA (a) Flight attendants 510 Amendable 4/30/2024 AMFA (a) Mechanics and related classifications 181 Amendable 5/10/2024 TWU Dispatchers 24 Amendable 1/29/2026 (a) Negotiations with IBT, AFA, and AMFA for updated collective bargaining agreements have begun of the date of this filing.
Alliances are an important part of our strategy and enhance our revenue by: • offering our guests more travel destinations and better mileage credit and redemption opportunities, including elite qualifying miles on U.S. and international airline partners; • providing a consistent and seamless guest experience whether flying on Alaska or one of our partners; • giving us access to more connecting traffic from other airlines; and • providing members of our alliance partners’ frequent flyer programs an opportunity to travel on Alaska and our regional partners while earning mileage credit in our partners’ programs.
Alliances are an important part of our strategy and enhance our revenue by: • offering our guests more travel destinations and better mileage credit and redemption opportunities, including elite qualifying miles on U.S. and international airline partners; • providing a consistent and seamless guest experience whether flying on Alaska or one of our partners; • giving us access to more connecting traffic from other airlines; and • providing members of our partners’ frequent flyer programs an opportunity to travel on Alaska and our regional partners while earning mileage credit in our partners’ programs.
Additionally, Regional includes an allocation of corporate overhead such as IT, finance, and other administrative costs incurred by Air Group and on behalf of Horizon RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile 19
Additionally, Regional includes an allocation of corporate overhead such as IT, finance, and other administrative costs incurred by Air Group and on behalf of Horizon RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile
MARKETING AGREEMENTS WITH OTHER AIRLINES Our marketing agreements with other airlines fall into three categories: frequent flyer, codeshare, and interline. • Frequent flyer agreements enable our Mileage Plan members to accrue miles and redeem them for flights on partner airlines. • Codeshare agreements allow one or more marketing carriers to sell seats on a single operating carrier that services passengers under multiple flight numbers.
AGREEMENTS WITH OTHER AIRLINES Our marketing agreements with other airlines fall into three categories: frequent flyer, codeshare, and interline. 6 • Frequent flyer agreements enable our Mileage Plan members to accrue miles and/or redeem them for flights on partner airlines. • Codeshare agreements allow one or more marketing carriers to sell seats on a single operating carrier that services passengers under multiple flight numbers.
Under TSA authority, we are required to collect a September 17 11 Security Fee of $5.60 per one-way trip from passengers and remit that sum to the government to fund aviation security me asures. Airlines are subject to enforcement actions that are brought by the TSA for alleged violations of the AOSSP, SDs or security regulations.
Under TSA authority, we are required to collect a September 11 Security Fee of $5.60 per one-way trip from passengers and remit that sum to the government to fund aviation security me asures. Airlines are subject to enforcement actions that are brought by the TSA for alleged violations of the AOSSP, SDs or security regulations.
Except for these proposed rules, we do not currently anticipate adverse financial impacts from specific existing or pending environmental regulation or reporting requirements, new regulations, related to our existing or past operations, or compliance issues that could harm our financial condition, results of operations, or cash flows in future periods.
Except for these rules, we do not currently anticipate adverse financial impacts from specific existing or pending environmental regulation or reporting requirements, new regulations, related to our existing or past operations, or compliance issues that could harm our financial condition, results of operations, or cash flows in future periods.
The Department of Transportation (DOT), the Transportation Security Administration (TSA) and the FAA exercise significant regulatory authority over air carriers. • DOT: A domestic airline is required to hold a certificate of public convenience and necessity issued by the DOT in order to provide passenger and cargo air transportation in the U.S.
The Department of Transportation (DOT), the Transportation Security Administration (TSA), and the FAA exercise significant regulatory authority over air carriers. 17 • DOT: A domestic airline is required to hold a certificate of public convenience and necessity issued by the DOT in order to provide passenger and cargo air transportation in the U.S.
To that end, we are focused on mitigating or reducing our most significant environmental impacts. Our sustainability goals are anchored by our commitment to reduce our carbon emissions. We have both short and long-term targets, with the long-term aim to reach net-zero carbon emissions by 2040.
To that end, we are focused on mitigating or reducing our most significant environmental impacts. Our sustainability goals are anchored by our commitment to reduce our carbon emissions. We have both short and long-term goals, with the long-term aim to reach net-zero carbon emissions by 2040.
Prior to that he was Executive Vice President/Operations of Alaska Airlines from December 2008 to May 2016, and was Alaska’s Chief Operating Officer from December 2008 until November 2019. He was Chief Executive Officer of Virgin America Inc. from December 2016 to July 2018, when Virgin America was merged into Alaska.
Prior to that he was Executive Vice President/Operations of Alaska Airlines from December 2008 to May 2016, and was Alaska’s Chief Operating Officer from December 2008 until November 2019. He was Chief Executive Officer of Virgin America Inc. from December 2016 to July 2018, when Virgin America was 16 merged into Alaska.
The Audit Committee of the Board of Directors oversees Air Group's financial reporting process, including disclosures on ESG matters within the Company's financial statements. We have formalized governance and oversight of ESG at the management level.
The Audit Committee of the Board of Directors oversees Air Group's financial reporting process, including disclosures on ESG matters within the Company's financial statements. 13 We have formalized governance and oversight of ESG at the management level.
As a one world member, Alaska's elite Mileage Plan members now receive tier status matching across member airlines. Depending on tier status, guests can enjoy a variety of privileges, including access to more than 620 international first and business class lounges, fast track through security, priority baggage benefits, priority check-in desks, upgrades, and priority boarding.
As a one world member, Alaska's elite Mileage Plan members now receive tier status matching across member airlines. Depending on tier status, guests can enjoy a variety of privileges, including access to more than 600 international first and business class lounges, fast track through security, priority baggage benefits, priority check-in desks, upgrades, and priority boarding.
GLOSSARY OF TERMS Adjusted Net Debt - long-term debt, including current portion, plus capitalized operating leases, less cash and marketable securities Adjusted Net Debt to EBITDAR - represents adjusted net debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent) Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit Aircraft Stage Length - represents the average miles flown per aircraft departure ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown CASM - operating costs per ASM, or "unit cost"; represents all operating expenses including fuel and special items CASMex - operating costs excluding fuel and special items per ASM; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control Debt-to-Capitalization Ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers Mainline - represents flying Boeing 737, Airbus 320 family and Airbus 321neo jets and all associated revenue and costs Productivity - number of revenue passengers per full-time equivalent employee RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile Regional - represents capacity purchased by Alaska from Horizon and SkyWest.
GLOSSARY OF TERMS Adjusted Net Debt - long-term debt, including current portion, plus capitalized operating and finance leases, less cash and marketable securities Adjusted Net Debt to EBITDAR - represents adjusted net debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent) Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit Aircraft Stage Length - represents the average miles flown per aircraft departure ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown CASM - operating costs per ASM; represents all operating expenses including fuel and special items 19 CASMex - operating costs excluding fuel and special items per ASM, or "unit cost"; this metric is used to help track progress toward reduction of non-fuel operating costs since fuel is largely out of our control Debt-to-Capitalization Ratio - represents adjusted debt (long-term debt plus capitalized operating lease liabilities) divided by total equity plus adjusted debt Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised Economic Fuel - best estimate of the cash cost of fuel, net of the impact of our fuel-hedging program Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers Mainline - represents flying Boeing 737, Airbus A320, and Airbus A321neo jets and all associated revenue and costs Productivity - number of revenue passengers per full-time equivalent employee RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile Regional - represents capacity purchased by Alaska from Horizon and SkyWest.
No material part of our business, or that of our subsidiaries, is dependent upon a single customer, or upon a few high-volume customers. SUSTAINABILITY SUSTAINABILITY INITIATIVES Taking responsibility for our impact on the environment is an integral part of delivering value for all those who depend on us – employees, guests, owners, and communities.
No material part of our business, or that of our subsidiaries, is dependent upon a single customer, or upon a few high-volume customers. SUSTAINABILITY INITIATIVES Taking responsibility for our impact on the environment is an integral part of delivering value for all those who depend on us – employees, guests, shareholders, and communities.
For the most frequent flyers, the program offers multiple tiers of MVP status, including MVP Gold, MVP Gold 75K, and MVP Gold 100K, which can be achieved annually by earning qualifying miles or by flying a specified number of segments on Alaska or any of our 24 partner airlines.
For the most frequent flyers, the program offers multiple tiers of MVP status, including MVP Gold, MVP Gold 75K, and MVP Gold 100K, which can be achieved annually by earning qualifying miles or by flying a specified number of segments on Alaska or any of our 30 partner airlines.
The cost of aircraft fuel is volatile and outside of our control, and can have a significant and immediate impact on our operating results. Over the past three years, aircraft fuel expense ranged from 14% to 28% of operating expenses.
The cost of aircraft fuel is volatile and outside of our control, and can have a significant and immediate impact on our operating results. Over the past three years, aircraft fuel expense ranged from 23% to 28% of operating expenses.
Alaska is working with others in the aviation community, companies in the private sector, and governments at the federal and state levels towards advancing the scalability of SAF production and reducing its cost. Alaska currently offtakes SAF from Neste at San Francisco International Airport.
Alaska is working with others in the aviation community, companies in the private sector, and governments at the federal and state levels towards advancing the scalability of SAF production and reducing its cost. Alaska currently offtakes SAF from Neste at San Francisco International Airport and from Shell Aviation at Los Angeles International Airport.
The program is regulated by the FAA who then affirms compliance to the International Civil Aviation Organization. The FAA has approved both Alaska and Horizon's monitoring, verification, and reporting plans. As a result of the COVID-19 pandemic, the growth baseline year was modified and set to 85% of 2019 carbon dioxide emissions during the initial phase.
The program is regulated by the FAA who then affirms compliance to the International Civil Aviation Organization. The FAA has approved both Alaska and Horizon's monitoring, verification, and reporting plans. As a result of the COVID-19 pandemic, the CORSIA growth baseline year was modified and set to 85% of 2019 carbon dioxide emissions.
Fuel prices are impacted by changes in both the price of crude oil and refining costs and can vary by region in the U.S. The price of crude oil on an average annual basis for the past three years has ranged from a low of $39 per barrel in 2020 to a high of $94 in 2022.
Fuel prices are impacted by changes in both the price of crude oil and refining costs and can vary by region in the U.S. The price of crude oil on an average annual basis for the past three years has ranged from a low of $68 per barrel in 2021 to a high of $94 in 2022.
In a typical year, in addition to passenger loads, factors that could cause our quarterly operating results to vary include: 11 • pricing initiatives by us or our competitors, • changes in fuel costs, • increases in competition at our primary airports, • general economic conditions and resulting changes in passenger demand, • increases or decreases in passenger and volume-driven variable costs, and • air space and Air Traffic Control delays, particularly in Seattle and San Francisco.
In a typical year, in addition to passenger loads, factors that could cause our operating results to vary include: • pricing initiatives by us or our competitors; • changes in fuel costs; • increases in competition at our primary airports; • general economic conditions and resulting changes in both leisure and business passenger demand; • increases or decreases in passenger and volume-driven variable costs; and • air space and Air Traffic Control delays, particularly in Seattle and San Francisco.
Schneider Senior Vice President People of Alaska Airlines, Inc. 57 2003 Diana Birkett-Rakow Senior Vice President Public Affairs and Sustainability of Alaska Airlines, Inc. 45 2017 Mr. Minicucci was elected President and Chief Executive Officer (CEO) of Alaska Air Group effective March 31, 2021, and has been President of Alaska Airlines since May 2016.
Schneider Senior Vice President People of Alaska Airlines, Inc. 58 2003 Diana Birkett-Rakow Senior Vice President Public Affairs and Sustainability of Alaska Airlines, Inc. 46 2017 Mr. Minicucci was elected President and Chief Executive Officer (CEO) of Alaska Air Group effective March 31, 2021, and has been President of Alaska Airlines since May 2016.
For us, a $1 per barrel change in the price of oil equates to approximately $18 million of raw fuel expense annually based on 2022 consumption levels. Said another way, a one-cent change in our fuel price per gallon would have impacted our 2022 raw fuel expense by approximately $8 million.
For us, a $1 per barrel change in the price of oil equates to approximately $20 million of raw fuel expense annually based on 2023 consumption levels. Said another way, a one-cent change in our fuel price per gallon would have impacted our 2023 raw fuel expense by approximately $8 million.
Our codeshare and interline agreements generated 5%, 2%, and 3% of our total marketed flight revenue for the years ended December 31, 2022, 2021, and 2020. 7 A comprehensive summary of Alaska's alliances with other airlines is as follows: Codeshare Airline Frequent Flyer Agreement Alaska Flight # on Flights Operated by Other Airline Other Airline Flight # on Flights Operated by Alaska or CPA Partners Aer Lingus Yes No No Air Tahiti Nui Yes Yes Yes American Airlines Yes Yes Yes British Airways Yes No Yes Cathay Pacific Airways Yes No Yes Condor Airlines (a) Yes No No EL AL Israel Airlines Yes No Yes Fiji Airways (a) Yes No Yes Finnair Yes No Yes Hainan Airlines Yes No No Iberia Yes No Yes Icelandair Yes No Yes Japan Airlines Yes No Yes Korean Air Yes No Yes LATAM Yes No Yes Malaysia Airlines Yes No No Qantas Yes Yes Yes Qatar Airways Yes Yes Yes Ravn Alaska Yes No No Royal Air Maroc Yes No No Royal Jordanian Yes No No S7 Airlines (b) Suspended No No Singapore Airlines Yes No Yes Southern Airways Express/Mokulele Airlines (a) Yes No No SriLankan Airlines Yes No No (a) These airlines do not have their own frequent flyer program.
Our codeshare and interline agreements generated 5%, 5%, and 2% of our total marketed flight revenue for the years ended December 31, 2023, 2022, and 2021. 7 A comprehensive summary of Alaska's alliances with other airlines is as follows: Codeshare Airline Frequent Flyer Agreement Alaska Flight # on Flights Operated by Other Airline Other Airline Flight # on Flights Operated by Alaska or CPA Partners Aer Lingus Yes No No Air Tahiti Nui Yes Yes Yes American Airlines Yes Yes Yes Bahamasair (b) Yes No No British Airways Yes No Yes Cape Air (b) Yes No No Cathay Pacific Airways Yes No Yes Condor Airlines (a) Yes Yes Yes EL AL Israel Airlines (c) Yes No Yes Fiji Airways (a) Yes No Yes Finnair Yes Yes Yes Hainan Airlines Yes No No Iberia Yes Yes Yes Icelandair Yes Yes Yes Japan Airlines Yes Yes Yes Kenmore Air (b) Yes No No Korean Air Yes No Yes LATAM Yes No Yes Malaysia Airlines Yes No No Mokulele Airlines (b) Yes No No Porter Airlines Yes No No Qantas Airways Yes Yes Yes Qatar Airways Yes Yes Yes Ravn Alaska Yes No No Royal Air Maroc Yes No No Royal Jordanian Yes No No Singapore Airlines Yes No Yes Southern Airways Express (b) Yes No No SriLankan Airlines Yes No No STARLUX Airlines Yes No No (a) These airlines do not have their own frequent flyer program.
Mileage Plan revenue, including those in the Passenger revenue income statement line item, represented approximately 16% of Air Group's total revenue in 2022. Accounting policies for Mileage Plan revenue are described more fully in Note 3 to the consolidated financial statements.
Mileage Plan revenue, including that in the Passenger revenue income statement line item, represented approximately 16% of Air Group's total revenue in 2023. Accounting policies for Mileage Plan are described more fully in Note 3 to the consolidated financial statements.
We organize the business and review financial operating performance by aggregating our business in three operating segments, which are as follows: • 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).
We organize the business and review financial operating performance by aggregating our business in three operating segments, which are as follows: • Mainline - includes scheduled air transportation on Alaska's Boeing 737 (B737) aircraft for passengers and cargo throughout the U.S., and in parts of Mexico, Costa Rica, Belize, the Bahamas, and Guatemala. • Regional - includes Horizon's and other third-party carriers’ scheduled air transportation on Embraer E175 (E175) aircraft for passengers across a shorter distance network within the U.S., Canada, and Mexico under capacity purchase agreements (CPA).
The co-branded credit card agreement provides the Company a material cash inflow on an annual basis, and is an important source of value for Mileage Plan members. In 2022, Mileage Plan members redeemed miles and companion certificates for 6.4 million award tickets on our airlines.
The co-branded credit card agreement provides the Company a material cash inflow on an annual basis, and is an important source of value for Mileage Plan members. In 2023, Mileage Plan members redeemed miles and companion certificates for seven million award tickets on our airlines and partner airlines.
In typical years, our profitability is generally lowest during the first and fourth quarters due principally to fewer departures and passengers. Profitability typically increases in the second quarter and then reaches its highest level during the third quarter as a result of vacation travel.
In typical years, our profitability is generally lowest during the first and fourth quarters due principally to fewer departures and passengers. Profitability typically increases in the second and third quarters as a result of vacation travel.
The percentage of revenue by category is as follows: 2022 2021 2020 Passenger revenue 91 % 89 % 85 % Mileage Plan other revenue 6 % 7 % 10 % Cargo and other revenue 3 % 4 % 5 % Total 100 % 100 % 100 % We deploy aircraft in ways that we believe will best optimize our revenue and profitability and reduce the impacts of seasonality.
The majority of our revenue is generated by transporting passengers. 4 The percentage of revenue by category is as follows: 2023 2022 2021 Passenger revenue 91 % 91 % 89 % Mileage Plan other revenue 6 % 6 % 7 % Cargo and other revenue 3 % 3 % 4 % Total 100 % 100 % 100 % We deploy aircraft in ways that we believe will best optimize our revenue and profitability, and reduce the impacts of seasonality.
TICKET DISTRIBUTION Our tickets are distributed through three primary channels: • Direct to customer : Selling direct at alaskaair.com is less expensive than other channels. We believe direct sales through this channel are preferable from a branding and customer relationship standpoint because we can establish ongoing communication with the guest and tailor offers accordingly.
TICKET DISTRIBUTION Our tickets are distributed through multiple channels: • Direct to customer : Selling direct at alaskaair.com and through the Alaska Airlines app are less expensive than other channels. We believe direct sales are preferable from a branding and customer relationship standpoint because we can establish ongoing communication with the guest and tailor offers accordingly.
The percentage of our capacity by region is as follows: 2022 2021 2020 West Coast (a) 27 % 31 % 32 % Transcon/midcon 43 % 37 % 41 % Hawaii 13 % 16 % 10 % Alaska 11 % 11 % 11 % Latin America 6 % 5 % 5 % Canada — % — % 1 % Total 100 % 100 % 100 % (a) Category represents flying within the West Coast.
The percentage of our capacity by region is as follows: 2023 2022 2021 West Coast (a) 26 % 27 % 31 % Transcon/midcon 44 % 43 % 37 % Hawaii 13 % 13 % 16 % Alaska 10 % 11 % 11 % Latin America 7 % 6 % 5 % Total 100 % 100 % 100 % (a) Category represents flying within the West Coast.
Over the last three years, average annual West Coast refining margin prices have fluctuated from a low of $11 per barrel in 2020 to a high of $48 per barrel in 2022. Our average raw fuel cost per gallon increased 73% in 2022, after increasing 37% in 2021 and decreasing 29% in 2020.
Over the last three years, average annual West Coast refining margin prices have fluctuated from a low of $12 per barrel in 2021 to a high of $48 per barrel in 2022. Our average raw fuel cost per gallon decreased 14% in 2023, after increasing 73% in 2022 and increasing 37% in 2021.
Tackett Executive Vice President/Finance and Chief Financial Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc. 44 2011 Kyle B. Levine Senior Vice President Legal, General Counsel and Corporate Secretary of Alaska Air Group, Inc., Alaska Airlines, Inc. and Horizon Air Industries, Inc., and Chief Ethics and Compliance Officer of Alaska Air Group, Inc. 51 2016 Joseph A.
Tackett Executive Vice President/Finance and Chief Financial Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc. 45 2011 Kyle B. Levine Senior Vice President Legal, General Counsel and Corporate Secretary of Alaska Air Group, Inc., Alaska Airlines, Inc. and Horizon Air Industries, Inc., and Chief Ethics and Compliance Officer of Alaska Air Group, Inc. 52 2016 Jason M.
Labor relations in the air transportation industry are regulated under the RLA. To the extent we continue to fly to foreign countries and pursue alliances with international carriers, we may be subject to certain regulations of foreign agencies and international treaties.
Postal Service has jurisdiction over certain aspects of the transportation of mail and related services. Labor relations in the air transportation industry are regulated under the RLA. To the extent we continue to fly to foreign countries and pursue alliances with international carriers, we may be subject to certain regulations of foreign agencies and international treaties.
At December 31, 2022, labor unions represented 86% of Alaska’s, 44% of Horizon’s, and 87% of McGee Air Services' employees. 13 Our relations with U.S. labor organizations are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements do not expire, but instead become amendable as of a stated date.
At December 31, 2023, labor unions represented 85% of Alaska’s, 41% of Horizon’s, and 88% of McGee Air Services' employees. Our relations with U.S. labor organizations representing Alaska and Horizon employees are governed by the Railway Labor Act (RLA). Under the RLA, collective bargaining agreements do not expire, but instead become amendable as of a stated date.
Some airlines have more extensive route structures than we do, and they offer significantly more international routes. In order to expand opportunities for our guests, we enter into codeshare and interline relationships with other airlines that provide reciprocal frequent flyer mileage credit and redemption privileges.
Some airlines have more extensive route structures than we do, and they offer significantly more international routes. In order to expand opportunities for our guests, we enter into codeshare and interline relationships with other airlines.
The majority of cargo services are provided to commercial businesses and the United States Postal Service. The Company satisfies cargo service performance obligations and recognizes revenue when the shipment arrives at its final destination, or is transferred to a third-party carrier for delivery.
We have four dedicated cargo aircraft that operate primarily to and within the state of Alaska. The majority of cargo services are provided to commercial businesses and the United States Postal Service. The Company satisfies cargo service performance obligations and recognizes revenue when the shipment arrives at its final destination, or is transferred to a third-party carrier for delivery.
We believe that our emphasis on safety and our state-of-the-art flight deck safety technology help to control the cost of our insurance. 18 WHERE YOU CAN FIND MORE INFORMATION Our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available on our website at www.alaskaair.com, free of charge, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
WHERE YOU CAN FIND MORE INFORMATION Our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available on our website at www.alaskaair.com, free of charge, as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
The Alaska Airlines Foundation provides grants to nonprofits that offer educational and career-development programs to young people. Organizations are invited to apply bi-annually for grants ranging from $5,000 to $20,000, with preference given to organizations that can demonstrate partnership and long-term program sustainability.
Alaska also partnered with non-profits to distribute donated miles to those who needed support to travel. The Alaska Airlines Foundation provides grants to nonprofits that offer educational and career-development programs to young people. Organizations are invited to apply bi-annually for grants ranging from $5,000 to $20,000, with preference given to organizations that can demonstrate partnership and long-term program sustainability.
Departures from the West Coast to other regions are captured in other categories. REGIONAL Our Regional operations consist of flights operated by Horizon and SkyWest. In 2022, our Regional operations carried approximately 10 million revenue passengers, primarily in the states of Washington, Oregon, Idaho, and California.
Departures from the West Coast to other regions are captured in other categories. REGIONAL Our Regional operations include E175 service operated by Horizon and SkyWest. In 2023, our Regional operations carried approximately nine million revenue passengers, primarily in the states of Washington, Oregon, California, Alaska, and Idaho.
Horizon is the largest regional airline in the Pacific Northwest and carried approximately 58% of Air Group's Regional revenue passengers. Based on 2022 Horizon passenger enplanements on Regional aircraft, our most significant concentration of Regional activity was in Seattle and Portland. During the year, we announced plans to transition our regional operations to an all-Embraer fleet.
Horizon is the largest regional airline in the Pacific Northwest and carried approximately 47% of Air Group's Regional passengers. Based on 2023 passenger enplanements on Regional aircraft, our most significant concentration of Regional activity was in Seattle and Portland. In 2023, we transitioned our Regional operations to an all-Embraer E175 fleet.
The Committee regularly reviews performance on publicly reported sustainability goals and climate-related issues. The Board has a dedicated Climate Working Group to oversee management’s climate strategy and path to net zero. This working group is comprised of four members from the board who bring deep expertise in energy, aviation, finance, and governance.
The Board has a dedicated Climate Working Group to oversee management’s climate strategy and path to net-zero. This working group is comprised of four members from the board who bring deep expertise in energy, aviation, finance, and governance.
Competition can be direct, in the form of another carrier flying the exact non-stop route, or indirect, where a carrier serves the same two cities non-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport.
Our competitors consist primarily of other airlines and, to a lesser extent, other forms of transportation. Competition can be direct, in the form of another carrier flying the exact non-stop route, or indirect, where a carrier serves the same two cities non-stop from an alternative airport in that city or via an itinerary requiring a connection at another airport.
We continue to actively seek agreements to move the aircraft to interested counterparties. 5 The percentage of Mainline passenger capacity by region and average stage length is presented below: 2022 2021 2020 West Coast (a) 22 % 24 % 22 % Transcon/midcon 46 % 40 % 47 % Hawaii 14 % 18 % 12 % Alaska 11 % 12 % 13 % Latin America 7 % 6 % 6 % Total 100 % 100 % 100 % Average Stage Length (miles) 1,347 1,324 1,272 (a) Category represents flying within the West Coast.
The percentage of Mainline passenger capacity by region and average stage length is presented below: 2023 2022 2021 West Coast (a) 21 % 22 % 24 % Transcon/midcon 47 % 46 % 40 % Hawaii 14 % 14 % 18 % Alaska 11 % 11 % 12 % Latin America 7 % 7 % 6 % Total 100 % 100 % 100 % Average Stage Length (miles) 1,387 1,347 1,324 (a) Category represents flying within the West Coast.
Members can earn miles by flying on our airline, which are awarded based on distance traveled. Awarding based on distance, not spend, is unique and provides the program a competitive advantage over other airlines' programs as miles accumulate faster.
FREQUENT FLYER PROGRAM Alaska Airlines Mileage Plan™ provides members with a comprehensive suite of frequent flyer benefits. Members can earn miles by flying on our airline, which are awarded based on distance traveled. Awarding based on distance, not spend, is unique and serves as a competitive advantage over other airlines' programs, as miles accumulate faster.
The Company also earns other revenue for lounge memberships, hotel and car commissions, travel insurance, and certain other immaterial items not intrinsically tied to providing air travel to passengers.
The Company also earns other revenue for lounge memberships, hotel and car commissions, travel insurance, and certain other immaterial items not intrinsically tied to providing air travel to passengers. Revenue is recognized when these services are rendered and recorded as Cargo and other revenue.
This does not have a direct impact on domestic flights, however the EPA finalized a rule in 2020 on aircraft emission standards which aligns with the international agreements. Additional commitments to decarbonize through the Paris Climate Accord and domestic carbon neutrality remain a potential impact to our industry.
This does not have a direct impact on domestic flights, however the EPA finalized a rule in 2020 on aircraft emission standards which aligns with the international agreements. Additional emissions reporting requirements and potential requirements to decarbonize could have a significant impact on our industry.
Sprague President of Horizon Air Industries, Inc. 54 2019 Andrew R. Harrison Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. 53 2008 Constance E. von Muehlen Executive Vice President and Chief Operating Officer of Alaska Airlines, Inc. 55 2021 Andrea L.
Berry President of Horizon Air Industries, Inc. 46 2023 Joseph A. Sprague Regional President of Hawai'i/Pacific of Alaska Airlines, Inc. 55 2019 Andrew R. Harrison Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. 54 2008 Constance E. von Muehlen Executive Vice President and Chief Operating Officer of Alaska Airlines, Inc. 56 2018 Andrea L.
Departures from the West Coast to other regions are captured in other categories. MAINLINE Our Mainline operations include Boeing 737 (B737) and Airbus A320 family (A320 and A321neo) jet service offered by Alaska. We offer extensive passenger service from the western U.S. throughout the contiguous United States, Alaska, Hawaii, Mexico, Costa Rica, and Belize.
Departures from the West Coast to other regions are captured in other categories. MAINLINE Our Mainline operations include B737 service offered by Alaska. We offer extensive passenger service from the western U.S. throughout the contiguous United States, Alaska, Hawaii, Mexico, Costa Rica, Belize, the Bahamas, and Guatemala. Our largest concentrations of departures are in Seattle, Portland, and the Bay Area.
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. We have operated in a highly competitive and often challenging industry for 90 years.
Alaska is 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.
Harrison joined Alaska Airlines in 2003 as the Managing Director of Internal Audit and was elected Vice President of Planning and Revenue Management in 2008. He was elected Senior Vice President of Planning and Revenue Management in 2014 and Executive Vice President and Chief Revenue Officer in February 2015.
Harrison was elected Executive Vice President and Chief Commercial Officer in August 2015. He is a member of Air Group's Management Executive Committee. Mr. Harrison joined Alaska Airlines in 2003 as the Managing Director of Internal Audit and was elected Vice President of Planning and Revenue Management in 2008.
We believe we have sufficient scheduling flexibility to accommodate local noise restrictions. The domestic US airline industry committed to carbon neutral growth starting in 2020 for both domestic and international growth.
Authorities in several cities have established aircraft noise reduction programs, including the imposition of nighttime curfews. We believe we have sufficient scheduling flexibility to accommodate local noise restrictions. The domestic US airline industry committed to carbon neutral growth starting in 2020 for both domestic and international growth.
For those achieving MVP tier status, the program offers benefits, including bonus miles on flown segments, complimentary upgrades, free checked bags, and priority boarding. Members qualifying for higher tiers are offered incremental benefits.
For those achieving MVP tier status, the program offers benefits, including bonus miles on flown segments, complimentary upgrades, free checked bags, and priority boarding. Members qualifying for higher tiers are offered incremental benefits. As a member of one world, Mileage Plan members with tier status are provided reciprocal status and benefits when flying on other one world members.
By April 2023, we expect to complete our installation of satellite Wi-Fi on nearly all aircraft in the Mainline fleet. In 2024, we will begin installing satellite Wi-Fi on our Regional fleet, becoming the first major airline to do so. Our employees are a critical element of our reputation.
Air Group offers first class and premium seats in all Mainline and Regional aircraft. In 2023, we completed our installation of satellite Wi-Fi on aircraft in the Mainline fleet. In 2024, we will begin installing high-speed satellite Wi-Fi on our Regional fleet, becoming the first major airline to do so. Our employees are a critical element of our reputation.
We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate. The Department of Justice and DOT have jurisdiction over airline competition matters. The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services.
We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate. The Department of Justice (DOJ) and DOT have jurisdiction over airline competition matters. The DOJ has authority to review Alaska's proposed acquisition of Hawaiian Airlines under the U.S. antitrust laws. The U.S.
Airlines with unionized workforces generally have higher labor costs than carriers without unionized workforces. Those with unionized workforces may not have the ability to adjust labor costs downward quickly in response to new competition or slowing demand.
COLLECTIVE BARGAINING Most major airlines, including Alaska and Horizon, have employee groups that are covered by collective bargaining agreements (CBA). Airlines with unionized workforces generally have higher labor costs than carriers without unionized workforces. Those with unionized workforces may not have the ability to adjust labor costs downward quickly in response to new competition or slowing demand.
Many large corporate customers require us to use these agencies. Some of our competitors rely on this distribution channel to a lesser extent than we do, and, as a result, may have lower ticket distribution costs. • Reservation call centers : Our call centers are located in Phoenix, AZ, Seattle, WA, and Boise, ID.
Bookings made through these agencies result in a fee that is charged to the airline. Many large corporate customers require us to use these agencies. Some of our competitors rely on this distribution channel to a lesser extent than we do, and, as a result, may have lower ticket distribution costs.
Currently, there are supply constraints in the SAF market and expanding our use of SAF at the quantities necessary to reach our sustainability goals is dependent on its reliable availability.
Currently, there are supply constraints in the SAF market, including scope, scale, and cost, which we are dependent on in order to expand our use of SAF at the quantities necessary to reach our sustainability goals.
In a typical year, some of the impacts of seasonality are offset by travel from the West Coast to leisure destinations, like Hawaii and Costa Rica, and expansion to leisure and business destinations in the mid-continental and eastern U.S. Seasonality and operational fluctuations are not predictable in the current environment and may be permanently changed post-pandemic.
In a typical year, some of the impacts of seasonality are offset by travel from the West Coast to leisure destinations and expansion to leisure and business destinations in the mid-continental and eastern U.S.
Revenue is recognized when these services are rendered and recorded as Cargo and other revenue. 8 GENERAL The airline industry is highly competitive and subject to potentially volatile business cycles, resulting from factors such as uncertain economic conditions, volatile fuel prices, pandemics, a largely unionized work force, the need to finance large capital expenditures and the related availability of capital, government regulation—including taxes and fees, and potential aircraft incidents.
(c) Codeshare and frequent flyer agreements with El AL Israel Airlines terminate on August 1, 2024. 8 GENERAL The airline industry is highly competitive and subject to potentially volatile business cycles, resulting from factors such as uncertain economic conditions, volatile fuel prices, supply chain dependencies, pandemics, a largely unionized work force, the need to finance large capital expenditures and the related availability of capital, government regulation - including taxes and fees, and potential aircraft incidents.
The percentages of our aircraft fuel expense by crude oil and refining margins, as well as the percentage of our aircraft fuel expense of operating expenses, are as follows: 2022 2021 2020 Crude oil 64 % 84 % 64 % Refining margins 35 % 16 % 16 % Other (a) 1 % — % 20 % Total 100 % 100 % 100 % Aircraft fuel expense 28 % 23 % 14 % (a) Other includes gains and losses on settled fuel hedges, unrealized mark-to-market fuel hedge gains or losses, taxes and other into-plane costs.
The cost composition our aircraft fuel expense, as well as the proportion of operating expenses that fuel comprises, are as follows: 2023 2022 2021 Crude oil 58 % 64 % 84 % Refining margins 33 % 35 % 16 % Other (a) 9 % 1 % — % Total 100 % 100 % 100 % Aircraft fuel expense 26 % 28 % 23 % (a) Other includes gains and losses on settled fuel hedges, unrealized mark-to-market fuel hedge gains or losses, taxes, and other into-plane costs. 9 We have historically used crude oil call options as hedges to limit our exposure to rapid increases in fuel prices.
As a member of one world, Mileage Plan members with tier status are provided reciprocal status and benefits when flying on other one world members. 6 Alaska has an agreement with Bank of America N.A which offers Mileage Plan members in the United States the Alaska Airlines Visa Signature card (co-branded credit card).
Alaska has an agreement with Bank of America N.A which offers Mileage Plan members in the United States the Alaska Airlines Visa Signature card (co-branded credit card).
Maintaining a young, fuel-efficient fleet helps reduce our fuel consumption rate, as well as the amount of greenhouse gases and other pollutants that our aircraft emit. COMPETITION Competition in the airline industry can be intense and unpredictable. Our competitors consist primarily of other airlines and, to a lesser extent, other forms of transportation.
We believe that operating fuel-efficient aircraft and executing on operational best practices are the best strategies to mitigate high fuel prices. Maintaining a young, fuel-efficient fleet helps reduce our fuel consumption rate, as well as the amount of greenhouse gases and other pollutants that our aircraft emit. COMPETITION Competition in the airline industry can be intense and unpredictable.
Ms. von Muehlen served as Chief Operating Officer at Horizon Air from January 2018 to January 2019, and Managing Director of Airframe, Engine, Components MRO at Alaska Airlines from December 2012 to January 2018. Ms. Schneider was elected Senior Vice President of People at Alaska Airlines in June 2019 and is a member of Air Group’s Management Executive Committee. Ms.
Prior to that she served as Senior Vice President of Maintenance and Engineering of Alaska Airlines from January 2019 to April 2021. Ms. von Muehlen served as Chief Operating Officer at Horizon Air from January 2018 to January 2019, and Managing Director of Airframe, Engine, Components MRO at Alaska Airlines from December 2012 to January 2018. Ms.
As a result, we prioritize efforts that drive more business to our website. • Traditional and online travel agencies : Both traditional and online travel agencies typically use Global Distribution Systems to obtain their fare and inventory data from airlines. Bookings made through these agencies result in a fee that is charged to the airline.
As a result, we prioritize efforts that drive more business to our website. We also have reservation call centers where guests can book reservations for a $15 fee. • Traditional and online travel agencies : Both traditional and online travel agencies typically use Global Distribution Systems to obtain their fare and inventory data from airlines.
Ms. von Muehlen was elected Executive Vice President and Chief Operating Officer of Alaska Airlines effective April 3, 2021 and is a member of Air Group’s Management Executive Committee. Prior to that she served as Senior Vice President of Maintenance and Engineering of Alaska Airlines from January 2019 to April 2021.
He was elected Senior Vice President of Planning and Revenue Management in 2014 and Executive Vice President and Chief Revenue Officer in February 2015. Ms. von Muehlen was elected Executive Vice President and Chief Operating Officer of Alaska Airlines effective April 3, 2021 and is a member of Air Group’s Management Executive Committee.
In 2022, we included a carbon emissions metric in our company-wide Performance-Based Pay program, as we believe it is important to embed these critical targets into the incentives that align all of our employees. This metric was paid out at maximum achievement for the year.
In 2023, we included a carbon emissions metric for the third year in our company-wide Performance-Based Pay program, as we believe it is important to embed these critical targets into the incentives that align all of our employees. Aside from our commitments to reducing our airlines' carbon footprint, we also recognize the impact our operation has in generating waste.
We are committed to advancing equity in all forms, and have set specific and measurable goals to deliver on our commitments to racial equity and diversity by 2025. Our primary goals in this arena are to increase racial diversity in our leadership team and build a culture of inclusion for all employees.
Our primary goals in this arena are to increase racial diversity in our leadership team and build a culture of inclusion for all employees. We have several initiatives designed to advance equity within our company and industry.
COMMUNITY INVOLVEMENT Alaska and Horizon are dedicated to actively supporting the communities we serve. In 2022, Air Group companies donated $6 million in cash and in-kind travel to approximately 1,500 charitable organizations, and our employees volunteered more than 26,000 hours of community service related to youth and education, medical research and transportation.
In 2023, Air Group companies donated $15 million in cash and in-kind travel to approximately 1,300 charitable organizations, and our employees volunteered more than 40,000 hours of community service related to youth and education, medical research, and transportation. Air Group also encourages its guests to play a role in supporting these communities.
Ms. Birkett-Rakow was elected Senior Vice President of Public Affairs and Sustainability at Alaska Airlines in November 2021. She was previously elected Vice President of Public Affairs and Sustainability in February 2021 and also served as Vice President of External Relations at Alaska Airlines from September 2017 to February 2021. Ms.
She was previously elected Vice President of Public Affairs and Sustainability in February 2021 and also served as Vice President of External Relations at Alaska Airlines from September 2017 to February 2021. Ms. Birkett-Rakow is a member of Air Group's Management Executive Committee. REGULATION GENERAL The airline industry is highly regulated, most notably by the federal government.
Our Mileage Plan offers some of the most valuable benefits in the industry, allowing our members the ability to earn and redeem miles on 24 partner carriers. Our membership in the one world alliance provides our guests increased global network utility and benefits, and positions us to capture an incremental share of global travelers and corporate accounts.
Alaska's membership in the one world alliance provides our guests increased global network utility, and positions us to capture an incremental share of global travelers and corporate accounts.
The federal government has proposed rules that would expand required disclosures discussing the impact of environmental change. While the rules are not yet final at the time of this filing, costs associated with compliance could be significant.
The state of California has enacted rules, effective in 2025, that will expand required disclosures discussing the impact of environmental change; agencies within the federal government have proposed similar rules that are not yet finalized. Costs associated with compliance could be significant.
Alaska does not currently purchase or invest in any carbon offsets or carbon removal technology. We will continue to evaluate various strategies, including these technologies, as we refine our plans to achieving net-zero. This roadmap and our net-zero ambitions require technologies not yet fully developed or available at the scale required to decarbonize our industry.
We have partnered with industry experts to develop criteria for assessing credible, high-quality carbon offsets and carbon removal technologies. The Company does not currently purchase or invest in any carbon offsets or carbon removal technology. We will continue to evaluate various strategies, including these technologies, as we refine our plans to achieving net-zero.
Alaska leads the industry in inflight recycling, and continues to evaluate new ways to further reduce inflight waste. SUSTAINABILITY GOVERNANCE The Governance, Nominating, and Corporate Responsibility Committee of the Board of Directors oversees Air Group’s Environmental, Social, and Governance (ESG) program and is responsible for oversight of the strategy, goals, and public disclosures on ESG matters.
SUSTAINABILITY GOVERNANCE The Governance, Nominating, and Corporate Responsibility Committee of the Board of Directors oversees Air Group’s Environmental, Social, and Governance (ESG) program and is responsible for oversight of the strategy, goals, and public disclosures on ESG matters. The Committee regularly reviews performance on publicly reported sustainability goals and climate-related issues.
Our sales by channel are as follows: 2022 2021 2020 Direct to customer 64 % 68 % 73 % Traditional agencies 18 % 12 % 12 % Online travel agencies 7 % 9 % 9 % Reservation call centers 11 % 11 % 6 % Total 100 % 100 % 100 % SEASONALITY AND OTHER FACTORS Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations.
In 2023, direct sales composed approximately 73% of our total sales. 11 SEASONALITY AND OTHER FACTORS Our results of operations for any interim period are not necessarily indicative of those for the entire year because our business is subject to seasonal fluctuations.
At December 31, 2022, Horizon’s operating fleet consisted of 33 E175 aircraft and 11 Q400 aircraft. The Regional fleet operated by SkyWest consisted of 42 E175 aircraft. All Bombardier Q400 turboprop aircraft were retired from our fleet in January 2023.
At December 31, 2023, Horizon’s operating fleet consisted of 41 E175 aircraft. The Regional fleet operated by SkyWest consisted of 42 E175 aircraft.
We will defend our position in our core markets and, if necessary, adjust capacity to better match supply with demand.
Fares that are substantially below our cost to operate can be harmful if sustained over a long period of time. We will defend our position in our core markets and, if necessary, adjust capacity to better match supply with demand.
These relationships allow us to offer our guests access to more destinations than we can on our own, gain exposure in markets we do not serve and allow our guests more opportunities to earn and redeem frequent flyer miles.
These relationships 10 allow us to offer our guests access to more destinations than we can on our own and to gain exposure in markets we do not serve. The agreements also make it more convenient for guests to purchase flights to their final destinations through Alaska's distribution channels.
Sprague was elected President of Horizon Air effective November 6, 2019 and is a member of Air Group’s Management Executive Committee. Mr. Sprague previously served as Senior Vice President External Relations of Alaska Airlines from May 2014 until his resignation in September 2017. Mr.
Sprague previously served as Senior Vice President External Relations of Alaska Airlines from May 2014 until his resignation in September 2017. Mr. Sprague also served Alaska Airlines as Vice President of Marketing from March 2010 to April 2014 and Vice President of Alaska Air Cargo from April 2008 to March 2010. Mr.
However, given the large concentration of industry capacity, some carriers in our markets may discount their fares substantially to develop or increase market share. Fares that are substantially below our cost to operate can be harmful if sustained over a long period of time.
One of our advantages is that we offer low fares and a premium value product and experience. However, given the large concentration of industry capacity, some carriers in our markets may discount their fares substantially to develop or increase market share.
These factors can reduce our pricing power and that of the airline industry as a whole. Domestic airline capacity is dominated by four large carriers, representing 78% of total seats. One of our advantages is that we offer low fares and a premium value product and experience.
Legacy carriers with expansive networks and diversified product offerings have experienced greater success attracting more price-conscious customers with their basic economy offerings. These factors can reduce our pricing power and that of the airline industry as a whole. Domestic airline capacity is dominated by four large carriers, representing 78% of total seats.
The Airport Noise and Capacity Act recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system. Authorities in several cities have established aircraft noise reduction programs, including the imposition of nighttime curfews.
We expect there to be continued incremental legislation aimed at further reduction of greenhouse gas emissions, hazardous substances, and additional focus on environmental justice. 18 The Airport Noise and Capacity Act recognizes the rights of airport operators with noise problems to implement local noise abatement programs so long as they do not interfere unreasonably with interstate or foreign commerce or the national air transportation system.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFactors that might impact our operations include: • contagious illness and fear of contagion; • congestion, construction, space constraints at airports, and/or air traffic control problems, all of which many restrict flow; • lack of adequate staffing or other resources within critical third parties; • adverse weather conditions; • lack of operational approval (e.g. new routes, aircraft deliveries, etc.); • increased security measures or breaches in security; • changes in international treaties concerning air rights; • international or domestic conflicts or terrorist activity; • interference by modernized telecommunications equipment with aircraft navigation technology; • disruption or failure of systems or infrastructure under the control of third parties, including government entities; and • other changes in business conditions. 20 Due to the concentration of our flights in the Pacific Northwest and Alaska, we believe a large portion of our operation is more susceptible to adverse weather conditions than other carriers with networks that cover a larger geographic area.
Biggest changeFactors that might impact our operations include: • congestion, construction, space constraints at airports, and/or air traffic control problems, all of which many restrict flow; • lack of adequate staffing or other resources within critical third parties; • adverse weather conditions; • lack of operational approval (e.g. new routes, aircraft deliveries, etc.); • contagious illness and fear of contagion; • increased security measures or breaches in security; • changes in international treaties concerning air rights; • international or domestic conflicts or terrorist activity; • random acts of violence on our aircraft or at airports; • interference by modernized telecommunications equipment with aircraft navigation technology; • disruption, failure, or inadequacy of systems or infrastructure under the control of third parties, including government entities; and • other changes in business conditions.
The resulting increased competition in both domestic and international markets may have a material adverse effect on our results of operations, financial condition, or liquidity if we are unable to attract and retain guests. 22 We strive toward maintaining and improving our competitive cost structure by setting aggressive unit cost-reduction goals.
The resulting increased competition in both domestic and international markets may have a material adverse effect on our results of operations, financial condition, or liquidity if we are unable to attract and retain guests. We strive toward maintaining and improving our competitive cost structure by setting aggressive unit cost-reduction goals.
If we are unable to maintain our cost advantage over the long-term and achieve sustained targeted returns on invested capital, we will likely not be able to grow our business in the future or weather industry downturns. Therefore, our financial results may suffer. The airline industry may undergo further consolidation or restructuring.
If we are unable to maintain our cost advantage over the long-term and achieve sustained targeted returns on invested capital, we will likely not be able to grow our business in the future or weather industry downturns. Therefore, our financial results may suffer. 22 The airline industry may undergo further consolidation or restructuring.
New employee health and welfare initiatives with employer-funded costs, specifically those impacting Washington state, could disproportionately increase our cost structure as compared to our competitors. In recent years, the airline industry has experienced an increase in litigation over the application of state and local employment laws, particularly in 21 California.
New employee health and welfare initiatives with employer-funded costs, specifically those impacting Washington state, could disproportionately increase our cost structure as compared to our competitors. In recent years, the airline industry has experienced an increase in litigation over the application of state and local employment laws, particularly in California.
The exclusive forum provision in our certificate of incorporation will not relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
The exclusive forum provision in our certificate of incorporation will not relieve us of our duties to comply with the federal 28 securities laws and the rules and regulations thereunder, and our stockholders will not be deemed to have waived our compliance with these laws, rules and regulations.
The shortage of pilots and opportunities at other carriers could mean that our captains and first officers leave our airlines more often than forecast. Additionally, the industry, including related vendor partners, has experienced and may continue to experience challenges in hiring and retaining other labor positions, such as aircraft technicians, ground handling and customer service agents, and flight attendants.
The shortage of pilots and opportunities at other carriers could mean that our captains and first officers leave our airlines more often than forecasted. Additionally, the industry, including related vendor partners, has experienced and may continue to experience challenges in hiring and retaining other labor positions, such as aircraft technicians, ground handling and customer service agents, and flight attendants.
Failure to invest in new technology or a disruption of our current systems or their operators could harm our business. We heavily depend on automated systems to operate our business.
Failure to invest in new technology or a disruption of our current systems or their operators could harm our business. 26 We heavily depend on automated systems to operate our business.
We could experience significant claims from injured passengers, bystanders and surviving relatives, as well as costs for the repair or replacement of a damaged aircraft and temporary or permanent loss from service. We maintain liability insurance in amounts and of the type generally consistent with industry practice, as do our codeshare partners and CPA carriers.
We could experience significant claims from injured passengers, bystanders and surviving relatives, as well as costs for the repair or replacement of a damaged aircraft and temporary or permanent loss from service. We maintain liability insurance in amounts and of the type generally consistent with industry practice, as do our commercial partners and CPA carriers.
An accident or incident involving one of our aircraft or an aircraft operated by one of our codeshare partners or CPA carriers could involve loss of life and result in a loss of confidence in our Company by the flying public and/or aviation authorities.
An accident or incident involving one of our aircraft or an aircraft operated by one of our commercial partners or CPA carriers could involve loss of life and result in a loss of confidence in our Company by the flying public and/or aviation authorities.
As a result, we are vulnerable to issues associated with the supply of those aircraft and parts including design defects, mechanical problems, contractual performance by the manufacturers, or adverse perception by the public that would result in customer avoidance or actions by the FAA.
As a result, we are vulnerable to issues associated with the supply of those aircraft and parts including design or manufacturing defects, mechanical problems, contractual performance by the manufacturers, or adverse perception by the public about safety that would result in customer avoidance or actions by the FAA.
This includes our airline reservation system, check-in kiosks, website, telecommunication systems, maintenance systems, airline operations control systems, flight deck/route optimization systems, planning and scheduling, mobile applications and devices, and many other systems. These systems require significant investment of employee time and cost for maintenance and upgrades.
This includes our airline reservation system, website, telecommunication systems, maintenance systems, airline operations control systems, flight deck/route optimization systems, planning and scheduling, mobile applications and devices, and many other systems. These systems require significant investment of employee time and cost for maintenance and upgrades.
Negative publicity, including as a result of misconduct by our guests or employees, failure to address our environmental, social, and governance goals, or other circumstances, can spread rapidly through such channels. Should the Company not respond in a timely and appropriate manner to address negative publicity, the Company's brand and reputation may be significantly harmed.
Negative publicity, including as a result of misconduct by our guests or employees, failures by our suppliers and other vendors, failure to address our environmental, social, and governance goals, or other circumstances, can spread rapidly through such channels. Should the Company not respond in a timely and appropriate manner to address negative publicity, the Company's reputation may be significantly harmed.
Our operations are often affected by factors beyond our control, including delays, cancellations, and other conditions, which could harm our business, financial condition, and results of operations. As is the case for all airlines, our operations often are affected by delays, cancellations and other conditions caused by factors largely beyond our control.
This would harm our business. 20 Our operations are often affected by factors beyond our control, including delays, cancellations, and other conditions, which could harm our business, financial condition, and results of operations. As is the case for all airlines, our operations often are affected by delays, cancellations and other conditions caused by factors largely beyond our control.
Moreover, any aircraft accident or incident, even if it is fully insured and does not involve one of our aircraft, could cause a public perception that our airlines or the aircraft we or our partners fly are less safe or reliable than other transportation alternatives. This would harm our business.
Moreover, any aircraft accident or incident, even if it is fully insured or does not involve one of our aircraft, could cause a public perception that our airlines or the aircraft we or our partners fly are less safe or reliable than other transportation alternatives.
Failure to address the concerns of our guests and our shareholders may lead to a reduction in demand for our services in favor of competitors that customers perceive to be more sustainable. This could adversely impact our financial position, our results of operations, or our stock price.
Failure to address the concerns of our guests and our shareholders may lead to a reduction in demand for our services, including both leisure and business travel, in favor of competitors that customers perceive to be more sustainable. This could adversely impact our financial position, our results of operations, or our stock price.
Additionally, if effects of the ongoing supply chain backlog causes our limited vendors to have performance problems, reduced or ceased operations, bankruptcies, workforce shortages, or other events causing them to be unable to fulfill their commitments to us, our operations and business could be materially adversely affected.
Additionally, if effects of ongoing supply chain constraints cause our limited vendors to have performance problems, reduced or ceased operations, bankruptcies, workforce shortages, or other events causing them to be unable to fulfill their commitments to us, our operations and business could be materially adversely affected.
We continue to monitor emerging technologies, including technologies which may have disruptive impacts which are out of our control, such as the introduction of 5G wireless service. We will continue to work with regulatory agencies and other air carriers to mitigate potential impacts of these technologies on the safety and security of air travel.
We continue to monitor emerging technologies, including technologies which may have disruptive impacts which are out of our control. We will continue to work with regulatory agencies and other air carriers to mitigate potential impacts of these technologies on the safety and security of air travel.
We also rely on government-controlled systems such as air traffic control technology that could malfunction for reasons out of our control. Even though we strive to formalize agreements with these vendors that define expected service levels, our use of outside vendors increases our exposure to several risks.
We also rely on government-controlled systems such as air traffic control technology that could malfunction for reasons out of our control. Our use of outside vendors increases our exposure to several risks. Even though we strive to formalize agreements with these vendors that define expected service levels, we may not have the ability to influence change with all vendors.
Ongoing and periodic negotiations with labor unions could result in job actions, such as slow-downs, sick-outs, or other actions designed to disrupt normal operations and pressure the employer to acquiesce to bargaining demands during negotiations. Although unlawful until after lengthy mediation attempts, the operation could be significantly impacted.
Labor costs have recently increased significantly driven by inflationary pressure on wages. Ongoing and periodic negotiations with labor unions could result in job actions, such as slow-downs, sick-outs, or other actions designed to disrupt normal operations and pressure the employer to acquiesce to bargaining demands during negotiations. Although unlawful until after lengthy mediation attempts, the operation could be significantly impacted.
We are unable to predict the future supply of jet fuel, which may be impacted by various factors, included but not limited to geopolitical conflict, economic sanctions against oil-producing countries, natural disasters, or staffing and equipment shortages in the oil industry.
We are unable to predict the future supply of jet fuel, which may be impacted by various factors, included but not limited to geopolitical conflict, economic sanctions against oil-producing countries, natural disasters, or staffing and equipment shortages in the oil industry. Any of these factors could adversely impact our operations and financial results.
FINANCIAL CONDITION AND FINANCIAL MARKETS Our business, financial condition, and results of operations are substantially exposed to the volatility of jet fuel prices. Significant increases in jet fuel costs or significant disruptions in the supply of jet fuel would harm our business. Fuel costs constitute a significant portion of our total operating expenses.
If we fail to do so, our business could be harmed. Our business, financial condition, and results of operations are substantially exposed to the volatility of jet fuel prices. Significant increases in jet fuel costs or significant disruptions in the supply of jet fuel would harm our business. Fuel costs constitute a significant portion of our total operating expenses.
We are dependent on a limited number of suppliers for aircraft and parts. Alaska is dependent on Boeing as its sole supplier for aircraft and many aircraft parts. Horizon is similarly dependent on Embraer. Additionally, each carrier is dependent on sole suppliers for aircraft engines for each aircraft type.
Alaska is dependent on Boeing as its sole supplier for mainline aircraft and many aircraft parts. Horizon is similarly dependent on Embraer. Additionally, each carrier is dependent on sole suppliers for aircraft engines for each aircraft type.
As part of this process, we may continue to incur substantial costs for employee programs. 27 REGULATION Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for most legal actions involving actions brought against us by stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.
The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to our company than to our stockholders. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
The Court of Chancery of the State of Delaware may also reach different judgments or results than would other courts, including courts where a stockholder would otherwise choose to bring the action, and such judgments or results may be more favorable to our company than to our stockholders. PENDING ACQUISITION OF HAWAIIAN HOLDINGS INC.
Although lawmakers may impose these additional fees and view them as “pass-through” costs, a higher total ticket price could influence consumer purchase and travel decisions and may result in an overall decline in passenger traffic, which would harm our business. Additionally, changes in laws and regulations at the local level may be difficult to track and maintain compliance.
Although lawmakers may impose these additional fees and view them as “pass-through” costs, a higher total ticket price could influence consumer purchase and travel decisions and may result in an overall decline in passenger traffic, which would harm our business.
Any of these factors could adversely impact our operations and financial results. 25 We have a significant amount of debt and fixed obligations. These obligations could lead to liquidity restraints and have a material adverse effect on our financial position.
Such harm could have a negative impact on our operating results. FINANCIAL CONDITION We have a significant amount of debt and fixed obligations. These obligations could lead to liquidity restraints and have a material adverse effect on our financial position.
In addition to costs associated with represented employee groups, labor costs could also increase for non-unionized employees and via vendor agreements as we work to compete for highly skilled and qualified employees against the major U.S. airlines and other businesses in a competitive job market. Labor costs have recently increased significantly driven by inflationary pressure on wages.
Labor costs remain a significant component of our total expenses. In addition to costs associated with represented employee groups, labor costs could also increase for non-unionized employees and via vendor agreements as we work to compete for highly skilled and qualified employees against the major U.S. airlines and other businesses in a competitive job market.
As of December 31, 2022, the average age of our Boeing Next Gen passenger aircraft (B737-700, -800, -900, -900ERs) was approximately 11.9 years, the average age of our B737-9 aircraft was approximately 0.8 years, the average age of our A321neo aircraft was approximately 4.7 years, and the average age of our owned E175 aircraft was approximately 4.2 years.
As of December 31, 2023, the average age of our Boeing Next Gen passenger aircraft (B737-700, -800, -900, -900ER) was approximately 12.8 years, the average age of our Boeing MAX aircraft (B737-8, -9) was approximately 1.2 years, and the average age of our owned E175 aircraft was approximately 4.3 years.
Further, as regulation of the collection and storage of personal and financial information continues to evolve and increase, we may incur significant costs to bring our systems and processes into compliance. Cyber security threats have and will continue to impact our business. Failure to appropriately mitigate these risks could negatively impact our operations, onboard safety, reputation and financial condition.
Further, as regulation of the collection and storage of personal and financial information continues to evolve and increase, we may incur significant costs to bring our systems and processes into compliance. Cybersecurity threats have and will continue to impact our business.
In pursuit of these efforts we may negatively affect our reputation with some of our existing customer base. The Company's brand and reputation could be harmed if it is exposed to significant negative publicity. We operate in a highly visible industry that has significant exposure to social media and other media channels.
The Company's reputation could be harmed if it is exposed to significant negative publicity. We operate in a highly visible industry that has significant exposure to social media and other media channels.
If we are unable to receive these aircraft and future aircraft in a timely manner, our growth plans could be negatively impacted. Additionally, further consolidation amongst aircraft and aircraft parts manufacturers could further limit the number of suppliers.
If we are unable to receive these aircraft or future aircraft in a timely manner, our growth plans could be negatively impacted. Given Alaska's size relative to its competitors, these challenges may have a disproportionate impact on Alaska. Additionally, further consolidation among aircraft and aircraft parts manufacturers could further limit the number of suppliers.
Many airports have increased their rates and charges to air carriers to reflect higher costs of security, updates to infrastructure, and other expenses. Additional laws, regulations, taxes, airport rates, and airport charges may be occasionally proposed that could significantly increase the cost of airline operations or reduce the demand for air travel.
Additional laws, regulations, taxes, airport rates, and airport charges may be occasionally proposed that could significantly increase the cost of airline operations or reduce the demand for air travel.
We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities, as well as to gain greater advantage from sales and marketing efforts in those regions. As a result, we remain highly dependent on our key markets.
In 2023, passengers to and from these locations accounted for 82% of our total guests. We believe that concentrating our service offerings in this way allows us to maximize our investment in personnel, aircraft and ground facilities, as well as to gain greater advantage from sales and marketing efforts in those regions.
Our business could be harmed by any circumstances causing a reduction in demand for air transportation in our key markets. An increase in competition in our key markets could also cause us to reduce fares or take other competitive measures that, if sustained, could harm our business, financial condition and results of operations.
An increase in competition in our key markets could also cause us to reduce fares or take other competitive measures that, if sustained, could harm our business, financial condition, and results of operations. We are dependent on a limited number of suppliers for aircraft and parts.
Methods used by unauthorized parties are continually evolving and may be difficult to identify. Because of these ever-evolving risks and regular attacks, we continue to review policies and educate our people on various methods utilized in attempts to gain unauthorized access to bolster awareness and encourage cautionary practices.
Because of these ever-evolving risks and regular attacks, we continue to review policies and educate our people on various methods utilized in attempts to gain unauthorized access to bolster awareness and encourage cautionary practices. However, the nature of these attacks means that proper policies, technical controls, and education may not be enough to prevent all unauthorized access.
In accordance with acquisition accounting rules, we recorded goodwill on our consolidated balance sheet to the extent the Virgin America acquisition purchase price exceeded the net fair value of Virgin America’s tangible and identifiable intangible assets and liabilities as of the acquisition date. Goodwill is not amortized, but is tested for impairment at least annually.
The application of the acquisition method of accounting resulted in us recording goodwill, which could result in significant future impairment charges and negatively affect our financial results. 25 In accordance with acquisition accounting rules, we recorded goodwill on our consolidated balance sheet to the extent the Virgin America acquisition purchase price exceeded the net fair value of Virgin America’s tangible and identifiable intangible assets and liabilities as of the acquisition date.
The continuation of merger-adverse antitrust policy and/or the finality of legal rulings limiting airline mergers, joint marketing activities, and joint ventures could have a material adverse effect on our business, financial, and results of operations. Our concentration in certain markets could cause us to be disproportionately impacted by adverse changes in circumstances in those locations.
In recent years, the U.S. antitrust authorities have been increasingly reluctant to approve airline mergers, cooperative marketing arrangements, and joint ventures. The continuation of merger-adverse antitrust policy and/or the finality of legal rulings limiting airline mergers, joint marketing activities, and joint ventures could have a material adverse effect on our business, financial condition, and results of operations.
A cybersecurity attack impacting our onboard or other operational systems may result in an accident or incident onboard or significant operational disruptions, which could adversely affect our reputation, operation and financial position. Further, a significant portion of our office employees have maintained remote work arrangements, which increases our exposure to cyberattacks, and could compromise our financial or operational systems.
A cybersecurity attack impacting our onboard or other operational systems may result in an accident or incident onboard or significant operational disruptions, which could adversely affect our reputation, operation and financial position. The continued evolution and increased usage of artificial intelligence technologies may further increase our cybersecurity risks.
These events could result in disruptions in our operations or increases in our cost structure. Impacts of climate change, including legal, regulatory, or market responses, may have a material adverse result on our operations and financial position. Concerns regarding climate change, including the impacts of a gradual increase in global temperatures leading to more severe weather conditions, continue to rise.
These events could result in disruptions in our operations or increases in our cost structure. 21 Impacts of climate change, including physical and transition risks, as well as market responses, may have a material adverse result on our operations and financial position.
This dynamic may be exacerbated by competition among airlines to attract passengers during periods of economic recovery.
We have significant capacity overlap with competitors, particularly in our key West Coast markets. This dynamic may be exacerbated by competition among airlines to attract passengers during periods of economic recovery.
Application of these laws may result in operational disruption, increased litigation risk and expense, and undermining of negotiated labor agreements. Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost.
Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost. Many airports have increased their rates and charges to air carriers to reflect higher costs of security, updates to infrastructure, and other expenses.
STRATEGY The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business. If we cannot successfully compete in the marketplace, our business, financial condition, and operating results will be materially adversely affected. The U.S. airline industry is characterized by substantial competition.
The occurrence of any of these events would harm our business, financial condition, and results of operations. COMPETITION AND STRATEGY The airline industry is highly competitive and susceptible to price discounting and changes in capacity, which could have a material adverse effect on our business.
In addition, our bargained-for labor agreement terms for flight crew are increasingly coming into conflict with state and local laws purporting to govern benefits and duties. Our executive officers and other senior management personnel are critical to the long-term success of our business.
In addition, our bargained-for labor agreement terms for flight crew are increasingly coming into conflict with state and local laws purporting to govern benefits and duties. The inability to attract, retain, and train qualified personnel, or maintain our culture, could result in guest impacts and adversely affect our business and results of operations.
All of our automated systems cannot be completely protected against events beyond our control, including natural disasters, computer viruses, cyberattacks, other security breaches, or telecommunications failures. 24 Substantial or repeated failures or disruptions to any of these critical systems could reduce the attractiveness of our services or cause our guests to do business with another airline.
Substantial or repeated failures or disruptions to any of these critical systems could reduce the attractiveness of our services or cause our guests to do business with another airline.
Our strategy involves a high concentration of our business in key West Coast markets. A significant portion of our flights occur to and from our Seattle, Portland, and Bay Area hubs. In 2022, passengers to and from Seattle, Portland, and the Bay Area accounted for 82% of our total guests.
Our concentration in certain markets could cause us to be disproportionately impacted by adverse changes in circumstances in those locations. Our strategy involves a high concentration of our business in key West Coast markets. A significant portion of our flights occur to and from our stations in Seattle, Portland, and the Bay Area.
We continue to focus on strategic initiatives designed to increase our brand appeal to a diverse and evolving demographic of airline travelers. These efforts could include significant enhancements to our in-airport and on-board environments, increasing our direct customer relationships through improvements to our purchasing portals (digital and mobile) and optimization of our customer loyalty programs.
These efforts could include significant enhancements to our in-airport and on-board environments, increasing our direct customer relationships through improvements to our purchasing portals (digital and mobile), and management of our customer loyalty programs. In pursuit of these efforts we may negatively affect our reputation with some of our existing customer base.
Further, should we incur incremental obligations, issuers may require future debt agreements to contain more restrictive covenants or require additional collateral beyond historical market terms which may further restrict our ability to successfully access capital.
Further, should we incur incremental obligations, issuers may require future debt agreements to contain more restrictive covenants or require additional collateral beyond historical market terms which may further restrict our ability to successfully access capital. 24 Although we have historically been able to generate sufficient cash flow from our operations to pay our debt and other fixed obligations when they become due, we cannot ensure we will be able to do so in the future.
Additionally, reduced consumer spending would adversely impact revenue and cash flows from our co-branded credit card agreements. Unfavorable or even uncertain economic conditions could negatively affect our financial condition and results of operations. TECHNOLOGY We rely heavily on automated systems to operate our business, including expanded reliance on systems managed or hosted by third parties.
Additionally, reduced consumer spending would adversely impact revenue and cash flows from our co-branded credit card agreements. Unfavorable or even uncertain economic conditions could negatively affect our financial condition and results of operations. Our maintenance costs will increase as our fleet ages, and we will periodically incur substantial maintenance costs due to the timing of maintenance events of our aircraft.
Our sensitive information is securely transmitted over public and private networks. Our systems are subject to increasing and evolving cyber security risks. Unauthorized parties have attempted and continue to attempt to gain access to our systems and information, including through fraudulent misrepresentation and other means of deception.
Unauthorized parties have attempted and continue to attempt to gain access to our systems and information, including through fraudulent misrepresentation and other means of deception. Methods used by unauthorized parties are continually evolving and may be difficult to identify.
Any instances of non-compliance could result in additional fines and fees. The airline industry continues to face potential security concerns and related costs.
The airline industry continues to face potential security concerns and related costs.
Should these providers fail to meet established service requirements or provide inadequate technical support, we could experience disruptions in our operation, ticketing or financial systems.
Should these providers fail to meet established service requirements or provide inadequate technical support, we could experience disruptions in our operation, ticketing or financial systems. All of our automated systems cannot be completely protected against events beyond our control, including natural disasters, computer viruses, cyberattacks, other security breaches, or telecommunications failures.
Typically, our newer aircraft require less maintenance than they will in the future. Any significant increase in maintenance expenses could have a material adverse effect on our results of operations. In addition, expenses for aircraft coming off lease could result in incremental maintenance expense as we are required to return leased planes in a contractually specified condition.
Typically, our newer aircraft require less maintenance than they will in the future. Any significant increase in maintenance expenses could have a material adverse effect on our results of operations. Our financial condition or results of operations may be negatively affected by increases in expenses related to the airports in which we operate.
In recent years, U.S. regulators have issued regulations or mandates concerning airline operations or consumer rights that have increased the cost and complexity of our business and involve greater civil enforcement and legal liability exposure. Similarly, legislative and regulatory initiatives and reforms at the federal, state, and local levels include increasingly stringent environmental, governance, and workers’ benefits laws.
Airlines are subject to extensive regulatory and legal requirements, both domestically and internationally, that involve substantial operational impacts and compliance costs. In recent years, U.S. regulators have issued regulations or mandates concerning airline operations or consumer rights that have increased the cost and complexity of our business and involve greater civil enforcement and legal liability exposure.
Failure to maintain and grow the Alaska culture could strain our ability to maintain relationships with guests, suppliers, employees and other constituencies.
Our success is also dependent on cultivating and maintaining a unified culture with cohesive values and goals. Much of our continued success is tied to our guest loyalty. Failure to maintain and grow the Alaska culture could strain our ability to maintain relationships with guests, suppliers, employees and other constituencies.
We can provide no assurance that a significant impairment charge will not occur in one or more future periods. Any such charges may materially affect our financial results. 26 BRAND AND REPUTATION As we evolve our brand we will engage in strategic initiatives that may not be favorably received by all of our guests.
We can provide no assurance that a significant impairment charge will not occur in one or more future periods. Any such charges may materially affect our financial results. PEOPLE AND LABOR A significant increase in labor costs or unsuccessful attempts to strengthen our relationships with union employees could adversely affect our business and results of operations.
If we experience significant turnover and loss of key personnel, and fail to find suitable replacements with comparable skills, our performance could be adversely impacted. The inability to attract, retain and train qualified personnel, or maintain our culture, could result in guest impacts and adversely affect our business and results of operations.
This would result in increased overall costs and may adversely impact our guest experience and financial position. Our executive officers and other senior management personnel are critical to the long-term success of our business. If we experience significant turnover and loss of key personnel, and fail to find suitable replacements with comparable skills, our performance could be adversely impacted.
The federal government has proposed rules that would significantly expand required disclosures discussing the impact of environmental change. These regulations and requirements may be difficult to implement and the cost of compliance, or failure to comply, could adversely impact our operations and financial position.
Increased governmental regulation involving aircraft emissions and environmental remediation costs may be difficult to implement and the cost of compliance, or failure to comply, could adversely impact our operations and financial position.
However, the nature of these attacks means that proper policies, technical controls, and education may not be enough to prevent all unauthorized access. Emerging cybercrime threats include the loss of functionality of critical systems through ransomware, denial of service, or other attacks.
Emerging cybercrime threats include the loss of functionality of critical systems through ransomware, denial of service, or other attacks.
Increased frequency or duration of extreme weather conditions could cause significant and prolonged impacts to our operation, disrupt our supply chain, and influence consumer travel decisions. These disruptions may result in increased operating costs and lost revenue should we be unable to operate our published schedules. Many aspects of our operation are subject to increasing regulation driven by environmental change.
Concerns regarding climate change, including the impacts of a gradual increase in global temperatures leading to more severe weather conditions, continue to rise. Increased frequency or duration of extreme weather conditions could cause significant and prolonged impacts to our operation, disrupt our supply chain, and influence consumer travel decisions.
Increased governmental regulation involving aircraft emissions and environmental investigation and remediation costs coupled with public expectations for reductions in greenhouse gas emissions may require us to make significant investments in emerging and yet unproven technologies.
These disruptions may result in increased operating costs and lost revenue should we be unable to operate our published schedules. Additionally, we have made commitments to reduce our greenhouse gas emissions which may require us to make significant investments in emerging and yet unproven technologies.
Removed
Changes in government regulation imposing additional requirements and restrictions on our operations could increase our operating costs and result in service delays and disruptions. Airlines are subject to extensive regulatory and legal requirements, both domestically and internationally, that involve substantial operational impacts and compliance costs.
Added
Due to the concentration of our flights in the Pacific Northwest and Alaska, we believe a large portion of our operation is more susceptible to adverse weather conditions than other carriers with networks that cover a larger geographic area.
Removed
The occurrence of any of these events would harm our business, financial condition and results of operations. The global pandemic caused by COVID-19, and related measures implemented to combat its spread has had, and could continue to have, a material adverse effect on the Company’s operations, financial position and liquidity.
Added
If we cannot successfully compete in the marketplace, our business, financial condition, and operating results will be materially adversely affected. The U.S. airline industry is characterized by substantial competition. Airlines compete for market share through pricing, capacity (supply), route systems and markets served, merchandising, and products and services offered to guests.
Removed
Our financial condition and results of operations have been, and could continue to be, adversely affected by the COVID-19 pandemic. Although our operation has largely recovered from the impacts of the COVID-19 pandemic, the pace of recovery has varied.
Added
As a result, we remain highly dependent on our key markets. Our business could be harmed by any circumstances causing a reduction in demand for air transportation in our key markets.
Removed
Our strategies for encouraging air travel or managing future pandemic-related issues, such as a resurgence of adverse health conditions or other factors, may evolve over time and will be responsive to new information or regulatory guidance.
Added
As we evolve our brand we will engage in strategic initiatives that may not be favorably received by all of our guests. We continue to focus on strategic initiatives designed to increase our brand appeal to a diverse and evolving demographic of airline travelers.
Removed
At this time, we are unable to predict how COVID-19 will influence future customer behavior, and whether any changes in behavior are temporary or permanent. These new strategies may require further investment, and if not successful, may not generate related revenue to offset these costs.
Added
The price of jet fuel can be dependent on geography and may have a disproportionate impact on our operating results due to our concentration on the West Coast.
Removed
Airlines compete for market share through competitive pricing, increasing or decreasing their capacity, route systems and markets served, and products and services offered to guests. We have significant capacity overlap with several of our competitors in locations we serve, particularly in our key West Coast markets.
Added
Additionally, we have engaged in various redevelopment projects at the airports in which we operate to improve or add to existing infrastructure our company uses. While the airport authority may reimburse costs associated with these projects, we may be required to commit significant resources of our own to finance construction and design.
Removed
In recent years, the U.S. antitrust authorities have been increasingly reluctant to approve airline mergers, cooperative marketing arrangements, and joint ventures. The proposed joint venture between American Airlines, with which Alaska has its own alliance, and JetBlue is subject to a pending legal challenge that could impact the landscape for other airline ventures.
Added
Delays and cost overruns associated with these projects could have a negative impact on our financial condition or results of operations.
Removed
In response to the COVID-19 pandemic, the Company, Alaska, Horizon, and McGee entered agreements with the United States Department of the Treasury (Treasury) to secure financing under the Coronavirus Aid, Relief, and Economic Security (CARES) Act Payroll Support Program (PSP).
Added
Goodwill is not amortized, but is tested for impairment at least annually.
Removed
In addition to our financial commitments under the CARES PSP program, we remain subject to limitations on compensation and severance payments for officers and employees who earned more than $425,000 in total compensation in 2019 through April 1, 2023.
Added
As part of this process, we may continue to incur substantial costs for employee programs. TECHNOLOGY We rely heavily on automated systems to operate our business, including expanded reliance on systems managed or hosted by third parties.
Removed
This may adversely affect the Company’s profitability, our ability to negotiate favorable terms with loyalty partners, our attractiveness to investors, and our ability to compensate at market-competitive levels and retain key personnel.
Added
Failure to appropriately mitigate these risks could negatively impact our operations, onboard safety, reputation and financial condition. 27 Our sensitive information is securely transmitted over public and private networks. Our systems are subject to increasing and evolving cybersecurity risks.

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Item 2. Properties

Properties — owned and leased real estate

6 edited+1 added−2 removed0 unchanged
Biggest changePROPERTIES AIRCRAFT The following table describes the aircraft we operate and their average age at December 31, 2022: Aircraft Type (a) Seats Owned Leased Total Average Age in Years B737 Freighters — 3 — 3 21.9 B737 Next Gen 124-178 153 10 163 11.9 B737-9 178 27 10 37 0.8 A320 150 — 12 12 13.2 A321neo 190 — 10 10 4.7 Total Mainline Fleet 183 42 225 10.0 Q400 76 10 1 11 12.9 E175 76 33 42 75 4.5 Total Regional Fleet 43 43 86 5.6 Total 226 85 311 8.8 (a) The table above does not include 24 Airbus and 21 Q400 non-operating aircraft, which have been permanently removed from operating service as of January 2023.
Biggest changePROPERTIES AIRCRAFT The following table describes the aircraft we operate and their average age at December 31, 2023: Aircraft Type Seats Owned Leased Total Average Age in Years B737-700F — 3 — 3 22.9 B737-800F — — 1 1 16.3 B737-700 124 11 — 11 23.7 B737-800 159 49 10 59 15.7 B737-900 178 12 — 12 21.4 B737-900ER 178 79 — 79 7.9 B737-8 159 1 — 1 — B737-9 178 51 14 65 1.2 Total Mainline Fleet 206 25 231 9.7 E175 76 41 42 83 5.0 Total Regional Fleet 41 42 83 5.0 Total 247 67 314 8.4 “Management’s Discussion and Analysis of Financial Condition and Results of Operations" discusses future orders and options for additional aircraft.
We also lease operations, training, administrative, and data center facilities in Burlingame, CA; Long Beach, CA; Portland, OR; Puyallup, WA; Quincy, WA; Renton, WA; Seattle, WA; and Spokane, WA, call center facilities in SeaTac, WA; Phoenix, AZ; and Boise, ID, and hangars in Portland, OR and Everett, WA.
We also lease operations, training, administrative, and data center facilities in Burlingame, CA; Long Beach, CA; Portland, OR; Puyallup, WA; Quincy, WA; Renton, WA; Seattle, WA; and Spokane, WA, call center facilities in Seattle, WA; Phoenix, AZ; and Boise, ID, and hangars in Portland, OR, Everett, WA, and Spokane, WA.
The leased E175 aircraft support Alaska's capacity purchase agreement with SkyWest, and are under agreement through 2034. Alaska has the option to extend some of the leases for additional periods. GROUND FACILITIES AND SERVICES In various cities in the state of Alaska, we own terminal buildings and hangars.
The leases for the B737-9 aircraft expire between 2031 and 2035. The leased E175 aircraft support Alaska's capacity purchase agreement with SkyWest, and are under agreement t hrough 2034. Alaska has the option to extend some of the leases for additional periods. GROUND FACILITIES AND SERVICES In various cities in the state of Alaska, we own terminal buildings and hangars.
At the majority of the airports we serve, we lease ticket counters, gates, cargo and baggage space, ground equipment, office space, and other support areas. Airport leases contain provisions for periodic adjustments of lease rates. We are typically responsible for maintenance, insurance and other facility-related expenses and services under these agreements.
Airport leases contain provisions for periodic adjustments of lease rates. We are typically responsible for maintenance, insurance and other facility-related expenses and services under these agreements.
We also own or lease several buildings located at or near Seattle-Tacoma International Airport (Sea-Tac). These include a multi-bay hangar and shops complex (used primarily for line maintenance), a flight operations and training center, an air cargo facility, a data center, and various other commercial office buildings.
These include a multi-bay hangar and shops complex (used primarily for line maintenance), a flight operations and training center, an air cargo facility, a data center, and various other commercial office buildings. 32 At the majority of the airports we serve, we lease ticket counters, gates, cargo and baggage space, ground equipment, office space, and other support areas.
Note 7 to the consolidated financial statements provides more information regarding leased aircraft as capitalized on our consolidated balance sheets. Alaska’s leased B737 Next Gen aircraft have lease expiration dates between 2026 and 2028. Alaska's leased B737-9 aircraft have lease expiration dates between 2031 and 2034.
“Liquidity and Capital Resources" provides more information about aircraft that are used to secure long-term debt arrangements or collateralize credit facilities. Note 7 to the consolidated financial statements provides more information regarding leased aircraft as capitalized on our consolidated balance sheets. The lease for the B737-800F expires in 2033. The leases for the B737-800 aircraft expire between 2026 and 2028.
Removed
“Management’s Discussion and Analysis of Financial Condition and Results of Operations" discusses future orders and options for additional aircraft. “Liquidity and Capital Resources" provides more information about aircraft that are used to secure long- 28 term debt arrangements or collateralize credit facilities.
Added
We also own or lease several buildings located at or near Seattle-Tacoma International Airport (Sea-Tac).
Removed
Alaska’s leased A319 and A320 aircraft have lease expiration dates between 2023 and 2025, including those aircraft that have been permanently removed from our operating fleet, but have not been returned to lessors. A321neo aircraft have lease expiration dates between 2029 and 2031. Horizon’s leased Q400 aircraft have lease expiration dates in 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−2 removed0 unchanged
Biggest changeOur common stock is listed on the New York Stock Exchange (symbol: ALK). SALES OF NON-REGISTERED SECURITIES None. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Historically, the Company purchased shares pursuant to a $1 billion repurchase plan authorized by the Board of Directors in August 2015.
Biggest changeOur common stock is listed on the New York Stock Exchange (symbol: ALK). SALES OF NON-REGISTERED SECURITIES None.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of December 31, 2022, there were 136,883,042 shares of common stock of Alaska Air Group, Inc. issued, 127,533,916 shares outstanding, and 2,394 shareholders of record. In March 2020, the Company suspended the payment of dividends indefinitely.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES As of December 31, 2023, there were 138,960,830 shares of common stock of Alaska Air Group, Inc. issued, 126,090,353 shares outstanding, and 2,349 shareholders of record. In March 2020, the Company suspended the payment of dividends indefinitely.
The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2017. ITEM 6. [RESERVED] None.
The following graph compares our cumulative total stockholder return since December 31, 2018 with the S&P 500 Index and the NYSE ARCA Airline Index. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2018. ITEM 6. [RESERVED] None.
Removed
In March 2020, subject to restrictions under the CARES Act, the Company suspended the share repurchase program indefinitely; these restrictions ended on October 1, 2022. In December 2022, the Company announced plans to resume share repurchases in early 2023.
Added
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Total Number of Shares Purchased (a) Average Price Paid per Share Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs Maximum remaining dollar value of shares that can be purchased under the plan (in millions) October 1, 2023 - October 31, 2023 — — — November 1, 2023 - November 30, 2023 — — — December 1, 2023 - December 31, 2023 1,986,004 $ 37.76 1,986,004 Total 1,986,004 $ 37.76 1,986,004 $ 312 (a) Purchased pursuant to the $1 billion repurchase plan authorized by the Board of Directors in August 2015. 33 PERFORMANCE GRAPH The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
Removed
The plan has remaining authorization to purchase an additional $456 million in shares. 29 PERFORMANCE GRAPH The following graph compares our cumulative total stockholder return since December 31, 2017 with the S&P 500 Index and the NYSE ARCA Airline Index.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

67 edited+49 added−54 removed22 unchanged
Biggest changeOptions will be exercised only if we believe return on invested capital targets can be met over the long term. 43 The following table summarizes our anticipated fleet count by year, as of the date of this filing: Actual Fleet Count Anticipated Fleet Activity (a) Aircraft Dec 31, 2021 Dec 31, 2022 2023 Changes Dec 31, 2023 2024 Changes Dec 31, 2024 2025 Changes Dec 31, 2025 B737-700 Freighters 3 3 — 3 — 3 — 3 B737-800 Freighters — — 1 1 1 2 — 2 B737-700 11 11 — 11 — 11 — 11 B737-800 61 61 (2) 59 — 59 — 59 B737-900 12 12 — 12 — 12 — 12 B737-900ER 79 79 — 79 — 79 — 79 B737-8 — — 3 3 7 10 — 10 B737-9 11 37 34 71 12 83 5 88 B737-10 — — — — 6 6 21 27 A320 30 12 (12) — — — — — A321neo 10 10 (10) — — — — — Total Mainline Fleet 217 225 14 239 26 265 26 291 Q400 operated by Horizon 32 11 (11) — — — — — E175 operated by Horizon 30 33 8 41 3 44 3 47 E175 operated by third party 32 42 — 42 — 42 1 43 Total Regional Fleet (b) 94 86 (3) 83 3 86 4 90 Total 311 311 11 322 29 351 30 381 (a) Anticipated fleet activity reflects intended early retirement and extensions or replacement of certain leases, not all of which have been contracted or agreed to by counterparties yet.
Biggest changeThe following table summarizes our anticipated fleet count by year, as of December 31, 2023: Actual Fleet Count Anticipated Fleet Activity Aircraft Dec 31, 2022 Dec 31, 2023 2024 Changes Dec 31, 2024 2025 Changes Dec 31, 2025 2026 Changes Dec 31, 2026 B737-700 Freighters 3 3 — 3 — 3 — 3 B737-800 Freighters — 1 1 2 — 2 — 2 B737-700 11 11 — 11 — 11 — 11 B737-800 61 59 — 59 — 59 — 59 B737-900 12 12 — 12 — 12 — 12 B737-900ER 79 79 — 79 — 79 — 79 B737-8 — 1 7 8 12 20 — 20 B737-9 37 65 16 81 — 81 — 81 B737-10 — — — — 11 11 19 30 A320 12 — — — — — — — A321neo 10 — — — — — — — Total Mainline Fleet 225 231 24 255 23 278 19 297 E175 operated by Horizon 33 41 3 44 3 47 3 50 E175 operated by third party 42 42 — 42 1 43 — 43 Q400 operated by Horizon 11 — — — — — — — Total Regional Fleet 86 83 3 86 4 90 3 93 Total 311 314 27 341 27 368 22 390 We intend to finance future aircraft deliveries and option exercises using cash flow from operations or long-term debt. 46 Fuel Hedge Positions In the fourth quarter of 2023, we suspended our crude oil hedge program.
The measure is also the subject of frequent questions from investors. • Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee annual incentive plan, which covers the majority of employees within the Alaska Air Group organization. • Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items.
The measure is also the subject of frequent questions from investors. 36 • Adjusted income before income tax (and other items as specified in our plan documents) is an important metric for the employee annual incentive plan, which covers the majority of employees within the Alaska Air Group organization. • Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items.
We believe this is the best measure of the effect that fuel prices are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.
We believe this is the best measure of the effect that fuel prices are currently having on our business as it most closely approximates the net cash outflow associated with purchasing fuel for our 40 operations. Accordingly, many industry analysts evaluate our results using this measure, and it is the basis for most internal management reporting and incentive pay plans.
This section also includes forward-looking statements regarding our view of 2023. • Liquidity and Capital Resources —an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments, and off-balance sheet arrangements. • Critical Accounting Estimates —a discussion of our accounting estimates that involve significant judgment and uncertainties.
This section also includes forward-looking statements regarding our view of 2024. • Liquidity and Capital Resources —an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments, and off-balance sheet arrangements. • Critical Accounting Estimates —a discussion of our accounting estimates that involve significant judgment and uncertainties.
See “ Results of Operations ” below for further discussion of changes in revenue and operating expenses as compared to 2021, and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure. A glossary of financial terms can be found at the end of Item 1.
See “ Results of Operations ” below for further discussion of changes in revenue and operating expenses as compared to 2022, and our reconciliation of non-GAAP measures to the most directly comparable GAAP measure. A glossary of financial terms can be found at the end of Item 1.
For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021.
For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022.
Our aircraft fuel expense can be volatile based on fuel consumption and because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees.
Our aircraft fuel expense can be volatile because it includes these gains or losses in the value of the underlying instrument as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees.
Income Taxes For federal income tax purposes, the majority of our assets are fully depreciated over a seven-year life using an accelerated depreciation method or bonus depreciation, if available. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight-line basis.
Income Taxes For federal income tax purposes, the majority of our property and equipment are fully depreciated over a seven-year life using an accelerated depreciation method or bonus depreciation, if available. For financial reporting purposes, the majority of our assets are depreciated over 15 to 25 years to an estimated salvage value using the straight-line basis.
Risk Factors.” This overview summarizes the MD&A, which includes the following sections: • Year in Review —highlights from 2022 outlining some of the major events that happened during the year and how they affected our financial performance. 30 • Results of Operations —an in-depth analysis of our revenue by segment and our expenses from a consolidated perspective for the most recent two years presented in our consolidated financial statements.
Risk Factors.” This overview summarizes the MD&A, which includes the following sections: 34 • Year in Review —highlights from 2023 outlining some of the major events that happened during the year and how they affected our financial performance. • Results of Operations —an in-depth analysis of our revenue by segment and our expenses from a consolidated perspective for the most recent two years presented in our consolidated financial statements.
A hypothetical 1% change in the amount of outstanding miles estimated to be redeemed would result in an approximately $9 million impact on annual revenue recognized.
A hypothetical 1% change in the amount of outstanding miles estimated to be redeemed would result in an approximately $10 million impact on annual revenue recognized.
With call options, we are hedged against volatile crude oil price increases and, during a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums. We typically hedge up to 50% of our expected consumption.
With call options, we are hedged against volatile crude oil price increases and, during a period of decline in crude oil prices, we only forfeit cash previously paid for hedge premiums. We have historically hedged up to 50% of our expected consumption.
ANALYSIS OF OUR CASH FLOWS Cash Provided by Operating Activities Net cash provided by operating activities was $1.4 billion in 2022 compared to $1 billion in 2021. Cash provided by ticket sales and from our co-branded credit card agreement are the primary sources of our operating cash flow.
ANALYSIS OF OUR CASH FLOWS Cash Provided by Operating Activities Cash provided by operating activities was $1.1 billion in 2023 compared to $1.4 billion in 2022. Cash provided by ticket sales and from our co-branded credit card agreement are the primary sources of our operating cash flow.
In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers, such as productivity, airport costs, maintenance costs, etc., which are more controllable by management. • Cost per ASM (CASM) excluding fuel and certain other items, such as the Payroll Support Program grant wage offset and other special items, is one of the most important measures used by management and by our Board of Directors in assessing quarterly and annual cost performance. • CASM excluding fuel and certain other items is a measure commonly used by industry analysts and we believe it is an important metric by which they have historically compared our airline to others in the industry.
In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers, such as productivity, airport costs, maintenance costs, etc., which are more controllable by management. • Cost per ASM (CASM) excluding fuel and special items is one of the most important measures used by management and by our Board of Directors in assessing quarterly and annual cost performance. • CASM excluding fuel and special items is a measure commonly used by industry analysts and we believe it is an important metric by which they have historically compared our airline to others in the industry.
These agreements are dependent on suppliers' ability to obtain all required governmental and regulatory approvals, achieve commercial operation, and produce sufficient quantities of SAF. Financial commitments that have been contractually established and have met defined minimum obligations, including those related to Alaska Star Ventures, are included within Other obligations in the above table, as appropriate.
These agreements are dependent on suppliers' ability to obtain all required governmental and regulatory approvals, achieve commercial operation, and produce sufficient quantities of SAF. Financial commitments that have been contractually established and have defined minimum obligations, including those related to Alaska Star Ventures, are included within the CPA and other obligations row in the above table.
This section of the Form 10-K covers discussion of 2022 and 2021 results, and comparisons between those years.
This section of the Form 10-K covers discussion of 2023 and 2022 results, and comparisons between those years.
CPA and Other Obligations We have obligations primarily ass ociated with our capacity purchase agreements between Alaska and SkyWest, as well as other various sponsorship agreements and investment commitments. Leased Aircraft Return Costs For many of our leased aircraft, we are required under the contractual terms to return the aircraft in a specified state.
CPA and Other Obligations We have obligations primarily ass ociated with our capacity purchase agreements between Alaska and SkyWest, as well as other various sponsorship agreements and investment commitments. Leased Aircraft Return Costs For many of our leased aircraft, contractual terms require us to return the aircraft in a specified state.
As a result of these contractual terms, we will incur significant costs to return these aircraft at the termination of the lease. Costs of returning leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made that the leased asset is removed from operation.
As a result of these contractual terms, we may incur significant costs to return aircraft at the termination of the lease. Costs to return leased aircraft are accrued when the costs are probable and reasonably estimable, usually over the twelve months prior to the lease return, unless a determination is made to remove the leased asset from operation.
Taxable income and cash taxes payable in the short term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue and fuel prices), usage of net operating losses, whether "bonus depreciation" provisions are available, as well as other legislative changes that are beyond our control.
Taxable income and cash taxes payable in the short term are impacted by many items, including the amount of book income generated (which can be volatile depending on revenue and fuel prices, among other factors out of our control), whether bonus depreciation provisions are available, as well as other legislative changes beyond our control.
RESULTS OF OPERATIONS ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS We believe disclosure of earnings excluding the impact of aircraft fuel, the Payroll Support Program grant wage offset, and other special items is useful information to investors because: • By excluding fuel expense and certain other items, such as the Payroll Support Program grant wage offset and other special items, from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction and productivity initiatives.
RESULTS OF OPERATIONS ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS We believe disclosure of earnings excluding the impact of aircraft fuel and special items is useful information to investors because: • By excluding fuel expense and special items from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction and productivity initiatives.
Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S. Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges. Aircraft fuel expense increased $1.4 billion, or 109%, compared to 2021.
Raw fuel prices are impacted by world oil prices and refining costs, which can vary by region in the U.S. Raw fuel expense approximates cash paid to suppliers and does not reflect the effect of our fuel hedges. Aircraft fuel expense decreased $27 million, or 1%, compared to 2022.
ADDITIONAL SEGMENT INFORMATION Refer to Note 13 to the consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability. Mainline Mainline operations reported an adjusted pretax profit of $855 million in 2022, compared to an adjusted pretax loss of $179 million in 2021.
ADDITIONAL SEGMENT INFORMATION Refer to Note 14 to the consolidated financial statements for a detailed description of each segment. Below is a summary of each segment's profitability. Mainline Mainline operations reported an adjusted pretax income of $820 million in 2023, compared to an adjusted pretax income of $855 million in 2022.
To a lesser extent, miles for transportation are also sold to other non-airline partners, such as hotels, and car rental agencies. Outstanding miles may be redeemed for travel on our airlines or eligible airline partners, and for non-airline products such as hotels. As long as Mileage Plan is in existence, we have an obligation to provide future travel.
To a lesser extent, miles for transportation are also sold to other non-airline partners, such as hotels, and car rental agencies. Outstanding miles may be redeemed for travel on our airlines or eligible airline partners, and for non-airline products such as hotels. The existence of outstanding miles held by Mileage Plan members represents an obligation to provide future travel.
Our primary use of operating cash flow is for operating expenses, including payments for employee wages and benefits, payments to suppliers for goods and services, and payments to lessors and airport authorities for rents and landing fees.
Our primary use of operating cash flow is for operating expenses, including payments for employee wages and benefits, payments to suppliers for goods and services, and payments to lessors and airport authorities for rents and landing fees. Operating cash flow also includes payments to, or refunds from, federal, state and local taxing authorities.
This difference has created a significant deferred tax liability. At some point in the future the depreciation basis will reverse, potentially resulting in an increase in income taxes paid.
This difference has created a significant deferred tax liability. At some point in the future, the property and equipment difference will reverse into taxable income, potentially resulting in an increase in income taxes payable.
We consider it useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management: Twelve Months Ended December 31, (in millions) 2022 2021 % Change Aircraft fuel, including hedging gains and losses $ 2,668 $ 1,279 109 % Non-fuel operating expenses, excluding special items 6,328 5,137 23 % Payroll Support Program grant wage offset — (914) NM Special items - fleet transition and other 496 (1) NM Special items - labor and related 84 (10) NM Total Operating Expenses $ 9,576 $ 5,491 74 % Significant operating expense variances from 2021 are more fully described below. 36 Fuel Expense Aircraft fuel expense includes raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases.
We believe it is useful to summarize operating expenses as follows, which is consistent with the way expenses are reported internally and evaluated by management: Twelve Months Ended December 31, (in millions) 2023 2022 % Change Aircraft fuel, including hedging gains and losses $ 2,641 $ 2,668 (1) % Non-fuel operating expenses, excluding special items 6,948 6,328 10 % Special items - fleet transition and other 392 496 (21) % Special items - labor and related 51 84 (39) % Total Operating Expenses $ 10,032 $ 9,576 5 % Aircraft fuel Aircraft fuel expense includes raw fuel expense (as defined below) plus the effect of mark-to-market adjustments to our fuel hedge portfolio as the value of that portfolio increases and decreases.
Our crude oil positions are as follows: Approximate % of Expected Fuel Requirements Weighted-Average Crude Oil Price per Barrel Average Premium Cost per Barrel First Quarter 2023 50% $93 $6 Second Quarter 2023 50% $97 $7 Third Quarter 2023 40% $101 $8 Fourth Quarter 2023 30% $99 $8 Total 2023 43% $97 $7 First Quarter 2024 20% $89 $8 Second Quarter 2024 10% $86 $8 Total 2024 7% $88 $8 44 Contractual Obligations The following table provides a summary of our obligations as of December 31, 2022.
Our crude oil positions are as follows: Approximate % of Expected Fuel Requirements Weighted-Average Crude Oil Price per Barrel Average Premium Cost per Barrel First Quarter 2024 50% $90 $5 Second Quarter 2024 40% $90 $5 Third Quarter 2024 30% $88 $5 Fourth Quarter 2024 20% $87 $5 Full Year 2024 35% $89 $5 First Quarter 2025 10% $92 $5 Full Year 2025 2% $92 $5 Contractual Obligations The following table provides a summary of our obligations as of December 31, 2023.
The elements of the change are illustrated in the following table: Twelve Months Ended December 31, 2022 2021 (in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $ 2,761 $ 3.64 $ 1,383 $ 2.11 (Gain)/loss on settled hedges (169) (0.22) (57) (0.09) Consolidated economic fuel expense $ 2,592 $ 3.42 $ 1,326 $ 2.02 Mark-to-market fuel hedge adjustments 76 0.10 (47) (0.07) GAAP fuel expense $ 2,668 $ 3.52 $ 1,279 $ 1.95 Fuel gallons 758 656 Raw fuel expense increased 100% in 2022 compared to 2021, due to significantly higher per gallon costs and increased fuel consumption.
The elements of the change are illustrated in the following table: Twelve Months Ended December 31, 2023 2022 (in millions, except for per gallon amounts) Dollars Cost/Gal Dollars Cost/Gal Raw or "into-plane" fuel cost $ 2,579 $ 3.13 $ 2,761 $ 3.64 (Gain)/loss on settled hedges 64 0.08 (169) (0.22) Consolidated economic fuel expense $ 2,643 $ 3.21 $ 2,592 $ 3.42 Mark-to-market fuel hedge adjustments (2) — 76 0.10 GAAP fuel expense $ 2,641 $ 3.21 $ 2,668 $ 3.52 Fuel gallons 824 758 Raw fuel expense decreased 7% in 2023 compared to 2022, due to lower per gallon costs, partially offset by increased fuel consumption.
Any accrual is based on the time remaining on the lease, planned aircraft usage and the provisions included in the lease agreement, although the actual amount due to any lessor upon return may not be known with certainty until lease termination. In 2022, we recorded expense of $238 million for estimated costs to return the Airbus A320 fleet.
Lease return accrual estimates are based on the time remaining on the lease, planned aircraft usage, and the provisions included in the lease agreement, although the actual amount due to any lessor upon return may not be known with certainty until lease termination.
MATERIAL CASH COMMITMENTS Material cash requirements include the following contractual and other obligations: Aircraft Commitments As of December 31, 2022, Alaska has firm orders to purchase 105 B737 aircraft with deliveries between 2023 and 2027 and firm commitments to lease four B737-9 aircraft with deliveries in 2023. Alaska also has rights for 105 additional B737 aircraft through 2030.
Other financing activities were largely comprised of settlements of certain A321neo finance leases. 45 MATERIAL CASH COMMITMENTS Material cash requirements include the following contractual and other obligations: Aircraft Commitments As of December 31, 2023, Alaska has firm orders to purchase 80 B737 aircraft with deliveries between 2024 and 2027. Alaska also has rights for 105 additional B737 aircraft through 2030.
(b) Includes contractual commitments for aircraft, engines, and aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise. (c) For variable-rate debt, future obligations are shown above using interest rates forecast as of December 31, 2022. (d) Primarily comprised of nonlease costs associated with capacity purchase agreements.
It also includes minimum lease payments for facilities. (b) Includes contractual commitments for aircraft, engines, and aircraft maintenance. Option deliveries are excluded from minimum commitments until exercise. (c) For variable-rate debt, future obligations are shown above using interest rates forecast as of December 31, 2023.
Twelve Months Ended December 31, 2022 2021 Change Consolidated Operating Statistics: (a) Revenue passengers (000) 41,468 32,407 28.0% RPMs (000,000) "traffic" 51,330 38,598 33.0% ASMs (000,000) "capacity" 60,773 52,445 15.9% Load factor 84.5% 73.6% 10.9 pts Yield 17.16¢ 14.25¢ 20.4% RASM 15.87¢ 11.78¢ 34.8% CASMex (b) 10.41¢ 9.80¢ 6.3% Economic fuel cost per gallon (b) $3.42 $2.02 69.3% Fuel gallons (000,000) 758 656 15.5% ASMs per gallon 80.2 79.9 0.3% Departures (000) 404 377 7.2% Average full-time equivalent employees (FTEs) 22,564 19,375 16.5% Employee productivity (PAX/FTEs/months) 153.1 139.4 9.9% Mainline Operating Statistics: Revenue passengers (000) 31,795 23,268 36.6% RPMs (000,000) "traffic" 46,812 33,755 38.7% ASMs (000,000) "capacity" 55,224 45,741 20.7% Load factor 84.8% 73.8% 11.0 pts Yield 15.92¢ 13.07¢ 21.8% RASM 14.91¢ 10.99¢ 35.7% CASMex (b) 9.45¢ 8.96¢ 5.5% Economic fuel cost per gallon (b) $3.40 $2.01 69.2% Fuel gallons (000,000) 646 530 21.9% ASMs per gallon 85.5 86.2 (0.8)% Departures (000) 244 207 17.9% Average full-time equivalent employees (FTEs) 17,224 14,366 19.9% Aircraft utilization 9.9 9.7 2.1% Average aircraft stage length 1,347 1,324 1.7% Operating fleet (d) 225 217 8 a/c Regional Operating Statistics: (c) Revenue passengers (000) 9,673 9,139 5.8% RPMs (000,000) "traffic" 4,518 4,842 (6.7)% ASMs (000,000) "capacity" 5,549 6,704 (17.2)% Load factor 81.4% 72.2% 9.2 pts Yield 29.97¢ 22.49¢ 33.3% RASM 25.34¢ 17.12¢ 48.0% Departures (000) 160 170 (5.9)% Operating fleet (d) 86 94 (8) a/c (a) Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
Twelve Months Ended December 31, 2023 2022 Change Consolidated Operating Statistics: (a) Revenue passengers (000) 44,557 41,468 7% RPMs (000,000) "traffic" 57,362 51,330 12% ASMs (000,000) "capacity" 68,524 60,773 13% Load factor 83.7% 84.5% (0.8) pts Yield 16.61¢ 17.16¢ (3)% RASM 15.21¢ 15.87¢ (4)% CASMex (b) 10.14¢ 10.41¢ (3)% Economic fuel cost per gallon (b) $3.21 $3.42 (6)% Fuel gallons (000,000) 824 758 9% ASMs per gallon 83.2 80.2 4% Departures (000) 414 404 2% Average full-time equivalent employees (FTEs) 23,319 22,564 3% Mainline Operating Statistics: Revenue passengers (000) 35,307 31,795 11% RPMs (000,000) "traffic" 52,975 46,812 13% ASMs (000,000) "capacity" 63,292 55,224 15% Load factor 83.7% 84.8% (1.1) pts Yield 15.28¢ 15.92¢ (4)% RASM 14.12¢ 14.91¢ (5)% CASMex (b) 9.23¢ 9.45¢ (2)% Economic fuel cost per gallon (b) $3.18 $3.40 (6)% Fuel gallons (000,000) 713 646 10% ASMs per gallon 88.8 85.5 4% Departures (000) 268 244 10% Average full-time equivalent employees (FTEs) 18,129 17,224 5% Aircraft utilization 11.4 9.9 15% Average aircraft stage length 1,387 1,347 3% Operating fleet (d) 231 225 6 a/c Regional Operating Statistics: (c) Revenue passengers (000) 9,250 9,673 (4)% RPMs (000,000) "traffic" 4,387 4,518 (3)% ASMs (000,000) "capacity" 5,232 5,549 (6)% Load factor 83.8% 81.4% 2.4 pts Yield 32.57¢ 29.97¢ 9% RASM 28.26¢ 25.34¢ 12% Departures (000) 146 160 (9)% Operating fleet (d) 83 86 (3) a/c (a) Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.
Excluding the impact of special items, mark-to-market fuel hedge adjustments, and the Payroll Support Program grant wage offset, our adjusted consolidated net income for 2022 was $556 million, or $4.35 per share, compared to an adjusted consolidated net loss of $256 million, or $2.03 per share, in 2021.
Excluding the impact of special items and mark-to-market fuel adjustments, our adjusted consolidated net income for 2023 was $583 million, or $4.53 per share, compared to adjusted consolidated net income of $556 million, or $4.35 per share, in 2022.
Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million.
Under another such agreement, we could be required to maintain a reserve if our cash and marketable securities balance fell below $500 million. We are not currently required to maintain any reserve under these agreements, but if we were, our financial position and liquidity could be materially harmed.
We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations, meet our debt payment obligations, and remain in compliance with the financial debt covenants in existing financing arrangements for the foreseeable future.
We also resumed share repurchases during the year, spending $145 million in 2023, pursuant to the $1 billion repurchase plan authorized by the Board of Directors in August 2015. 43 We believe that our current cash and marketable securities balance, combined with available sources of liquidity, will be sufficient to fund our operations, meet our debt payment obligations, and remain in compliance with the financial debt covenants in existing financing arrangements for the foreseeable future.
Fuel Hedge Positions All of our future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases.
Existing positions entered into before suspension of the program will settle through the first quarter of 2025. All future oil positions are call options, which are designed to effectively cap the cost of the crude oil component of our jet fuel purchases.
If the leased aircraft is removed from the operating fleet, the estimated cost of return is accrued at the time of removal.
If the leased aircraft is removed from the operating 47 fleet, the estimated cost to return is accrued at the time of removal. If a leased aircraft has a known early retirement date in the future, the estimated cost to return is accrued through the retirement date.
The changes are summarized in the following table: Twelve Months Ended December 31, (in millions) 2022 2021 % Change Passenger revenue $ 8,808 $ 5,499 60 % Mileage Plan other revenue 590 461 28 % Cargo and other revenue 248 216 15 % Total Operating Revenue $ 9,646 $ 6,176 56 % Passenger Revenue On a consolidated basis, Passenger revenue for 2022 increased by $3.3 billion, or 60%, on a 33% increase in passenger traffic and a 20% increase in ticket yield.
The changes are summarized in the following table: Twelve Months Ended December 31, (in millions) 2023 2022 % Change Passenger revenue $ 9,526 $ 8,808 8 % Mileage Plan other revenue 648 590 10 % Cargo and other revenue 252 248 2 % Total Operating Revenue $ 10,426 $ 9,646 8 % Passenger revenue On a consolidated basis, Passenger revenue for 2023 increased by $718 million, or 8%, on a 12% increase in passenger traffic, partially offset by a 3% decrease in yield.
The table below presents the major indicators of our financial condition and liquidity: (in millions) December 31, 2022 December 31, 2021 Change Cash and marketable securities $ 2,417 $ 3,116 $ (699) Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months revenue 29 % 57 % (28) pts Long-term debt, net of current portion $ 1,883 $ 2,173 $ (290) Shareholders’ equity $ 3,816 $ 3,801 $ 15 41 Debt-to-capitalization, adjusted for operating leases (in millions) December 31, 2022 December 31, 2021 Change Long-term debt, net of current portion $ 1,883 $ 2,173 (13)% Capitalized operating leases 1,621 1,547 5% Adjusted debt $ 3,504 $ 3,720 (6)% Shareholders' equity 3,816 3,801 —% Total invested capital $ 7,320 $ 7,521 (3)% Debt-to-capitalization, including operating leases 48% 49% Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items and rent (in millions) December 31, 2022 December 31, 2021 Current portion of long-term debt $ 276 $ 366 Current portion of operating lease liabilities 228 268 Long-term debt 1,883 2,173 Long-term operating lease liabilities, net of current portion 1,393 1,279 Total adjusted debt 3,780 4,086 Less: Cash and marketable securities (2,417) (3,116) Adjusted net debt $ 1,363 $ 970 (in millions) December 31, 2022 December 31, 2021 GAAP Operating Income $ 70 $ 685 Adjusted for: Special items and Payroll Support Program grant wage offset 580 (925) Mark-to-market fuel hedge adjustments 76 (47) Depreciation and amortization 415 394 Aircraft rent 291 254 EBITDAR $ 1,432 $ 361 Adjusted net debt to EBITDAR 1.0x 2.7x The following discussion summarizes the primary drivers of the decrease in our cash and marketable securities balance and our expectation of future cash requirements.
The table below presents the major indicators of our financial condition and liquidity: (in millions) December 31, 2023 December 31, 2022 Change Cash and marketable securities $ 1,791 $ 2,417 (26)% Cash, marketable securities, and unused lines of credit as a percentage of trailing twelve months' revenue 22 % 29 % (7) pts Long-term debt, net of current portion $ 2,182 $ 1,883 16% Shareholders’ equity $ 4,113 $ 3,816 8% Debt-to-capitalization, including operating and finance leases (in millions) December 31, 2023 December 31, 2022 Change Long-term debt, net of current portion $ 2,182 $ 1,883 16% Capitalized operating leases 1,283 1,621 (21)% Capitalized finance leases (a) 64 — NM Adjusted debt, net of current portion of long-term debt $ 3,529 $ 3,504 1% Shareholders' equity 4,113 3,816 8% Total invested capital $ 7,642 $ 7,320 4% Debt-to-capitalization, including operating and finance leases 46% 48% (a) To best reflect our leverage at December 31, 2023, we included our capitalized finance leases balance, which is recognized within the Current portion of long-term debt and finance leases line in the consolidated balance sheets. 44 Adjusted net debt to earnings before interest, taxes, depreciation, amortization, special items, and rent (in millions) December 31, 2023 December 31, 2022 Current portion of long-term debt and finance leases $ 353 $ 276 Current portion of operating lease liabilities 158 228 Long-term debt 2,182 1,883 Long-term operating lease liabilities, net of current portion 1,125 1,393 Total adjusted debt 3,818 3,780 Less: Cash and marketable securities (1,791) (2,417) Adjusted net debt $ 2,027 $ 1,363 (in millions) December 31, 2023 December 31, 2022 GAAP Operating Income $ 394 $ 70 Adjusted for: Special items 443 580 Mark-to-market fuel hedge adjustments (2) 76 Depreciation and amortization 451 415 Aircraft rent 208 291 EBITDAR $ 1,494 $ 1,432 Adjusted net debt to EBITDAR 1.4x 1.0x The following discussion summarizes the primary drivers of the decrease in our cash and marketable securities balance and our expectation of future cash requirements.
Contracted Services Contracted services increased by $94 million, or 40%, compared to 2021, driven primarily by increased departures and passengers in line with increased demand, coupled with increased rates charged by vendor partners. We expect contracted services to increase in 2023 as we continue to increase capacity and departures throughout our network.
Contracted services Contracted services expense increased by $60 million, or 18%, compared to 2022, primarily driven by higher rates charged by vendors for services as well as an increase in passengers. We expect contracted services to increase in 2024 as we continue to increase capacity and departures throughout our network.
Twelve Months Ended December 31, 2022 2021 (in millions, except per-share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income per share $ 58 $ 0.45 $ 478 $ 3.77 Payroll Support Program grant wage offset — — (914) (7.21) Mark-to-market fuel hedge adjustments 76 0.60 (47) (0.37) Special items - fleet transition and other 496 3.88 (1) (0.01) Special items - labor and related 84 0.66 (10) (0.08) Income tax effect of reconciling items above (158) (1.24) 238 1.87 Non-GAAP adjusted net income (loss) per share $ 556 $ 4.35 $ (256) $ (2.03) CASMex is reconciled to CASM below: Twelve Months Ended December 31, (in cents) 2022 2021 % Change Consolidated: CASM 15.76 ¢ 10.47 ¢ 51% Less the following components: Payroll Support Program grant wage offset — (1.75) (100)% Aircraft fuel, including hedging gains and losses 4.39 2.44 80% Special items - fleet transition and other 0.82 — NM Special items - labor and related 0.14 (0.02) NM CASM excluding fuel and special items 10.41 ¢ 9.80 ¢ 6% Mainline: CASM 14.42 ¢ 9.52 ¢ 51% Less the following components: Payroll support program grant wage offset — (1.75) (100)% Aircraft fuel, including hedging gains and losses 4.11 2.33 76% Special items - fleet transition and other 0.71 — NM Special items - labor and related 0.15 (0.02) NM CASM excluding fuel and special items 9.45 ¢ 8.96 ¢ 5% 33 OPERATING STATISTICS SUMMARY (unaudited) Below are operating statistics we use to measure performance.
The following table reconciles our adjusted net income per share (EPS) to amounts as reported in accordance with GAAP: Twelve Months Ended December 31, 2023 2022 (in millions, except per share amounts) Dollars Diluted EPS Dollars Diluted EPS GAAP net income per share $ 235 $ 1.83 $ 58 $ 0.45 Mark-to-market fuel hedge adjustments (2) (0.02) 76 0.60 Special items - fleet transition and other 392 3.05 496 3.88 Special items - labor and related 51 0.40 84 0.66 Special items - net non-operating 18 0.14 — — Income tax effect of reconciling items above (111) (0.87) (158) (1.24) Non-GAAP adjusted net income per share $ 583 $ 4.53 $ 556 $ 4.35 CASM excluding fuel and special items reconciliation is summarized below: Twelve Months Ended December 31, (in cents) 2023 2022 % Change Consolidated: CASM 14.64 ¢ 15.76 ¢ (7)% Less the following components: Aircraft fuel, including hedging gains and losses 3.85 4.39 (12)% Special items - fleet transition and other 0.57 0.82 (30)% Special items - labor and related 0.08 0.14 (43)% CASM excluding fuel and special items 10.14 ¢ 10.41 ¢ (3)% Mainline: CASM 13.51 ¢ 14.42 ¢ (6)% Less the following components: Aircraft fuel, including hedging gains and losses 3.57 4.11 (13)% Special items - fleet transition and other 0.63 0.71 (11)% Special items - labor and related 0.08 0.15 (47)% CASM excluding fuel and special items 9.23 ¢ 9.45 ¢ (2)% OPERATING REVENUE Total operating revenue increased $780 million, or 8%, during 2023 compared to the same period in 2022.
Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business. 32 Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are nonrecurring, infrequent, or unusual in nature. 2022 COMPARED WITH 2021 Our consolidated net income for 2022 was $58 million, or $0.45 per diluted share, compared to a net income of $478 million, or $3.77 per diluted share, in 2021.
Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.
The deferred revenue resulting from our relative selling price allocations requires significant management judgment. There are uncertainties inherent in these estimates. Therefore, different assumptions could affect the amount and/or timing of revenue recognition or expenses. The most significant assumptions are described below. 1.
Therefore, different assumptions could affect the amount and/or timing of revenue recognition or expenses. The most significant assumptions are described below. 1.
Cash Used in Investing Activities Cash used in investing activities was $1.2 billion during 2022 compared to $1 billion in 2021. Cash used in capital expenditures for aircraft purchase deposits and other property and equipment was $1.7 billion in 2022, compared to $292 million in 2021.
The decrease in cash used is primarily driven by reduced capital expenditures for aircraft purchase deposits and other property and equipment, which were $1.5 billion in 2023 compared to $1.7 billion in 2022. Cash Used in Financing Activities Cash used in financing activities was $147 million in 2023 compared to $325 million in 2022.
Our estimates are based on the current requirements in our Mileage Plan program and historical and future award redemption patterns. We review significant Mileage Plan assumptions on an annual basis, or more frequently should circumstances indicate a need, and change our assumptions if facts and circumstances indicate that a change is necessary.
We review significant Mileage Plan assumptions on an annual basis, or more frequently should circumstances indicate a need, and change our assumptions if facts and circumstances indicate that a change is necessary. The Company regularly updates breakage estimates for the portion of loyalty mileage credits not expected to be redeemed. These estimates are based upon statistical analyses of historical data.
Gains recognized for hedges that settled during the year were $169 million in 2022, compared to gains of $57 million in 2021. These amounts represent cash received from settled hedges, offset by cash paid for the premium cost on related call options.
Losses recognized for hedges that settled during the year were $64 million in 2023, compared to gains of $169 million in 2022. These amounts represent cash paid for premium expense, offset by any cash received from those hedges at settlement. In the fourth quarter of 2023, we suspended our crude oil hedge program.
These commitments include, but are not limited to, purchasing SAF, increasing our use of electric ground equipment in our operation, and making investments through Alaska Star Ventures. Finding and establishing relationships with suppliers to meet these commitments is in process. Currently, Alaska has agreements to purchase approximately 200 million gallons of SAF to be delivered between 2025 and 2030.
We anticipate these efforts will require cash outlays, not all of which are reflected in our contractual commitments. Finding and establishing relationships with suppliers to meet these commitments is in process. Currently, Alaska has agreements to purchase approximately 200 million gallons of neat SAF to be delivered through 2030.
The primary components of Wages and benefits are shown in the following table: Twelve Months Ended December 31, (in millions) 2022 2021 % Change Wages $ 2,024 $ 1,643 23 % Pension - Defined benefit plans 45 52 (13) % Defined contribution plans 160 126 27 % Medical and other benefits 263 275 (4) % Payroll taxes 148 122 21 % Total wages and benefits $ 2,640 $ 2,218 19 % Wages and payroll taxes increased by a combined $407 million, or 23%, on a 17% increase in FTEs as Alaska, Horizon, and McGee hired to support the ramp up in operations.
The primary components of wages and benefits are shown in the following table: Twelve Months Ended December 31, (in millions) 2023 2022 % Change Wages $ 2,333 $ 2,024 15 % Payroll taxes 162 148 9 % Medical and other benefits 314 263 19 % Defined contribution plans 203 160 27 % Pension - Defined benefit plans 29 45 (36) % Total Wages and benefits $ 3,041 $ 2,640 15 % Wages increased $309 million, or 15%, on 3% growth in FTEs.
Significant operating expense variances from 2021 are more fully described below. 37 Twelve Months Ended December 31, (in millions) 2022 2021 % Change Wages and benefits $ 2,640 $ 2,218 19 % Variable incentive pay 257 151 70 % Aircraft maintenance 424 364 16 % Aircraft rent 291 254 15 % Landing fees and other rentals 581 555 5 % Contracted services 329 235 40 % Selling expenses 295 173 71 % Depreciation and amortization 415 394 5 % Food and beverage service 197 139 42 % Third-party regional carrier expense 182 147 24 % Other 717 507 41 % Total non-fuel operating expenses, excluding special items $ 6,328 $ 5,137 23 % Wages and Benefits Wages and benefits increased during 2022 by $422 million, or 19%, compared to 2021, excluding the impact of the Payroll Support Program grant wage offset.
Non-fuel expenses Twelve Months Ended December 31, (in millions) 2023 2022 % Change Wages and benefits $ 3,041 $ 2,640 15 % Variable incentive pay 200 257 (22) % Aircraft maintenance 488 424 15 % Aircraft rent 208 291 (29) % Landing fees and other rentals 680 581 17 % Contracted services 389 329 18 % Selling expenses 303 295 3 % Depreciation and amortization 451 415 9 % Food and beverage service 241 197 22 % Third-party regional carrier expense 218 182 20 % Other 729 717 2 % Total non-fuel operating expenses, excluding special items $ 6,948 $ 6,328 10 % Wages and benefits Wages and benefits expense increased during 2023 by $401 million, or 15%, compared to 2022.
Our relative standalone selling price models are refreshed when contracts originate or are materially modified. Absent a change to relevant contracts, we review the model for potential updates annually based on observed volumes. At December 31, 2022, we had approximately 319 billion miles outstanding, resulting in an aggregate deferred revenue balance of $2.5 billion.
Our relative standalone selling price models are refreshed when contracts originate or are materially modified. At December 31, 2023, we had approximately 341 billion miles outstanding, resulting in an aggregate deferred revenue balance of $2.6 billion. The deferred revenue resulting from our relative selling price allocations requires significant management judgment. There are uncertainties inherent in these estimates.
We expect food and beverage service to increase in 2023 as we continue to increase capacity and departures throughout our network. Third-party Regional Carrier Expense Third-party regional carrier expense, which represents payments made to SkyWest under our CPA agreements, increased $35 million, or 24%, in 2022 compared to 2021.
Third-party regional carrier expense Third-party regional carrier expense, which represents payments made to SkyWest under our CPA, increased $36 million, or 20%, in 2023 compared to 2022. The increase in third-party regional carrier expense is driven by incremental SkyWest-operated departures.
Improved results were attributable to increased operating revenue of $259 million driven by higher demand and yields, partially offset by a $136 million increase in fuel expense driven by higher fuel prices. Horizon Horizon reported an adjusted pretax loss of $46 million in 2022 compared to an adjusted pretax profit of $12 million in 2021.
Improved results were driven by a $72 million increase in operating revenue, attributable to a higher yield compared to the prior year, as well as decreased fuel expense on a lower price per gallon. Horizon Horizon reported an adjusted pretax loss of $11 million in 2023, compared to an adjusted pretax loss of $46 million in 2022.
Debt service obligations in 2023 is expected to be approximately $384 million, inclusive of interest and principal. Refer to Note 6 to the consolidated financial statement for further discussion of our debt and interest balances.
At December 31, 2023 and inclusive of the impact of our interest rate swaps, our debt portfolio carries a weighted average interest rate of 4.4%. Interest is paid with regular debt service. Refer to Note 6 to the consolidated financial statement for further discussion of our debt and interest balances.
We estimate the selling prices and volumes over the terms of the agreements in order to determine the allocation of proceeds to each of the multiple deliverables. Following the amendment of our agreement with one of our co-branded bank card partners in the first quarter of 2022, the Company updated the standalone selling price for performance obligations in the contract.
We estimate the selling prices and volumes over the terms of the agreements in order to determine the allocation of proceeds to each of the multiple deliverables. 2.
As compared to the prior year, higher Mainline revenue is primarily attributable to a 39% increase in traffic and a 22% increase in yield, driven by a historically strong demand environment. Non-fuel operating expenses increased, driven by higher variable costs, largely consistent with the overall growth in capacity and departures.
Compared to the prior year, non-fuel operating expenses increased due largely to higher wage rates and higher variable costs consistent with growth in capacity and departures. Additional gallons consumed and losses from settled hedges compared to gains in the prior year drove the increase in fuel expense. Non-operating expense increased primarily driven by increases to certain components of pension expense.
Mileage Plan Other Revenue On a consolidated basis, Mileage Plan other revenue increased $129 million, or 28%, as compared to 2021, largely due to an increase in commissions from our bank card partners driven by increased consumer spending and improved economics from our new co-branded credit card agreement.
Mileage Plan other revenue On a consolidated basis, Mileage Plan other revenue increased $58 million, or 10%, compared to 2022, primarily driven by higher commissions from our bank card partners due to increased spend levels, annual membership fees, and credit card acquisitions. OPERATING EXPENSES Total operating expenses increased $456 million, or 5%, compared to 2022.
Raw fuel price per gallon increased 73% due to higher West Coast jet fuel prices. West Coast jet fuel prices are impacted by both the price of crude oil, as well as refining margins associated with the conversion of crude oil to jet fuel. Crude oil prices have risen 37% while refining margins are four times as high as 2021.
Raw fuel expense per gallon decreased 14% due to lower all-in jet fuel prices. Jet fuel prices are impacted by the price of crude oil and refining margins associated with the conversion of crude oil to jet fuel, both of which have decreased in 2023 compared to 2022. Fuel gallons consumed increased 9%, driven by a 13% increase in capacity.
Horizon has commitments to purchase 17 Embraer E175 aircraft with deliveries between 2023 and 2026. Horizon has options to acquire 13 Embraer E175 aircraft between 2025 and 2026.
As of December 31, 2023, Horizon has commitments to purchase nine E175 aircraft with deliveries between 2024 and 2026. Horizon has options to acquire ten E175 aircraft between 2025 and 2026. The E175 deliveries expected through the end of 2024 are covered under a financing agreement executed in 2023.
Debt Obligations and Interest Obligations The Company primarily issues debt to fund purchases of aircraft or other capital expenditures. In 2022, we repaid $385 million in debt, including prepayments of $17 million. At December 31, 2022, our debt portfolio carries a weighted average interest rate of 3.7%. Interest is paid with regular debt service.
Debt Obligations and Interest Obligations The Company primarily issues debt to fund purchases of aircraft or other capital expenditures. In 2023, the Company incurred new debt of $595 million and repaid $282 million in existing debt.
The $1 billion improvement was primarily driven by a $3.2 billion increase in Passenger revenue, offset by a $1.1 billion increase in economic fuel cost and a $1.1 billion increase in non-fuel operating costs.
The $35 million decrease was driven by a $625 million increase in non-fuel operating expense, a $69 million increase in fuel expense, and a $45 million increase in non-operating expense, partially offset by a $704 million increase in operating revenue.
We expect aircraft rent to decrease in 2023 driven by lease terminations in 2022 for certain Airbus and Q400 aircraft, partially offset by incremental deliveries of leased B737-9 aircraft during 2023 and the annualization of expense of lease deliveries in 2022. Landing Fees and Other Rentals Landing fees and other rental expenses increased $26 million, or 5%, compared to 2021.
These decreases were partially offset by delivery of four leased B737-9 aircraft in 2023. We expect aircraft rent to decrease in 2024 driven by a reduction in leased aircraft as a result of exiting the Airbus fleet, partially offset by the annualization of expense for leased aircraft deliveries in 2023.
Food and Beverage Service Food and beverage service increased by $58 million, or 42%, compared to 2021, primarily driven by the 28% increase in revenue passengers as well as additional offerings of on-board products as compared to the prior-year period. Higher costs for food, food service supplies, and transportation also contributed to the increase.
Food and beverage service Food and beverage service expense increased by $44 million, or 22%, compared to 2022, primarily driven by a combination of a 7% increase in passengers and higher costs for food, food service supplies, and transportation. We expect food and beverage service to increase in 2024 as we continue to increase capacity and departures throughout our network.
We will continue to evaluate the provisions within the IRA, but at this time we do not believe it will have a material impact on our financial statements. 46 CRITICAL ACCOUNTING ESTIMATES The discussion and analysis of our financial position and results of operations in this MD&A are based upon our consolidated financial statements.
The Company expects to fund this acquisition through a combination of existing cash and marketable securities, new debt, as well as other available sources of liquidity. 48 CRITICAL ACCOUNTING ESTIMATES The discussion and analysis of our financial position and results of operations in this MD&A are based upon our consolidated financial statements.
Higher fuel prices, combined with more gallons consumed, drove the increase in Mainline fuel expense. Regional Regional operations reported an adjusted pretax loss of $76 million in 2022, compared to an adjusted pretax loss of $210 million in 2021.
Higher operating revenue was primarily attributable to a 13% increase in traffic consistent with growth in capacity, as well as continued strength in the Mileage Plan program. Regional Regional operations reported an adjusted pretax loss of $22 million in 2023, compared to an adjusted pretax loss of $76 million in 2022.
During the year, we had no new proceeds from issuance of debt and utilized cash on hand to make $385 million in debt payments, compared to debt proceeds of $363 million and payments of $1.3 billion in the prior year.
The decrease in cash used is driven by a combination of factors. We had debt proceeds in 2023 of $411 million, net of issuance costs, compared to none in the prior year. We made $282 million in debt payments compared to $385 million in the prior year.
Updated standalone selling prices became effective as of January 1, 2022. 2. The number of miles that will not be redeemed for travel (breakage): We estimate how many miles will be used per award. For example, our members may redeem mileage credits for award travel to various locations or choose between a highly restricted award and an unrestricted award.
The number of miles that will not be redeemed for travel (breakage): We estimate how many miles will be used per award by employing a relative selling price method to allocate revenue from passenger ticket sales between air transportation and earned mileage credits. The portion attributed to mileage credits is deferred initially and recognized in passenger revenue upon redemption.
Higher maintenance expense is the result of charges recorded for maintenance work to return leased aircraft recorded in the first quarter of 2022 and increased power-by-the-hour charges on covered aircraft, including a new contract for our regional fleet. 38 We expect aircraft maintenance expense to be higher in 2023 due to increased aircraft utilization and a new power-by-the-hour contract for our B737-900ER fleet.
We expect aircraft maintenance expense to be higher in 2024 due to fleet growth and a new contract effective in 2024 for certain E175 engines. Aircraft rent Aircraft rent expense decreased $83 million, or 29%, compared to 2022. The decrease was driven by the retirement of all Airbus aircraft from our operating fleet by the third quarter of 2023.
The shift to adjusted pretax loss is driven by lower CPA revenue on decreased departures, combined with higher wage and benefit costs on incremental FTEs and increased wage rates resulting from the new collective bargaining agreements with Horizon employees. 40 LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are: • Existing cash and marketable securities balance of $2.4 billion; • Cash flows from operations; • 73 unencumbered aircraft that could be financed, if necessary; • Combined bank line-of-credit facilities, with no outstanding borrowings, of $400 million Improved results and increased demand in 2022 allowed us to strengthen our balance sheet and available liquidity as we prepare for growth in 2023 and thereafter.
LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity are: • Existing cash and marketable securities of $1.8 billion; • Cash flows from operations of $1.1 billion; • Our Mileage Plan program and 69 unencumbered aircraft which could be financed, if necessary; • Combined bank line-of-credit facilities, with no outstanding borrowings, of $550 million.
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YEAR IN REVIEW 2022 Results Air Group's recorded consolidated pretax income under GAAP of $79 million and consolidated pretax income on an adjusted basis of $736 million, or 7.6%. This industry leading financial performance reflects the strength and resilience of our business model.
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YEAR IN REVIEW 2023 Results In 2023, Air Group recorded operating revenue of $10.4 billion, the highest in company history, and exceeded pre-pandemic capacity for the first time. Our 2023 consolidated pretax income under GAAP was $323 million compared to $79 million in 2022.
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Strong demand for air travel underpinned our results and enabled record breaking full year revenue of $9.6 billion, 10% above 2019 levels, despite flying capacity 9% below 2019 levels. As we ramped our operation significantly in 2022, we encountered disruptions including pilot training throughput issues in the spring, and weather related irregular operations in the winter.
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The improvement is due to $780 million in increased operating revenue, partially offset by $456 million in increased operating expenses and $80 million in increased non-operating expenses. Increased operating revenue and operating expenses were primarily driven by the continued recovery in air travel demand.
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Despite these challenges, we had one of the industry's best completion rates and on-time performance rates for the year. As a result of the strength of our results, our employees earned a historic performance-based pay award, amounting to $257 million in 2022.
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Flight 1282 and B737-9 Updates On January 5, 2024, Alaska temporarily grounded its fleet of 65 B737-9 aircraft in response to an accident in which a plug door detached from the fuselage en-route from Portland, Oregon to Ontario, California. On January 24, 2024, the FAA provided detailed instructions to operators to inspect each aircraft before returning them to service.
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During 2022 our teams focused on several strategic priorities designed to strengthen our competitive advantages and set the stage for future growth. We signed five new labor contracts, we invested in fortifying our operational reliability, and we executed our single fleet transitions at both Alaska and Horizon. This progress positions our airlines well for the future.
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These inspections were completed by Alaska maintenance technicians, and all aircraft, excluding the aircraft involved in the accident, were returned to service by early February. We also completed inspections of plug doors on our B737-900ER aircraft in accordance with FAA recommendations and identified one minor issue which was immediately resolved.
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During the year we incurred $580 million in special charges, primarily driven by our fleet transitions and contract ratification bonuses paid to Alaska's pilots. Fuel is a significant component of our cost structure, and significant increases in fuel costs in 2022 impacted our financial results.
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The accident remains under investigation by the National Transportation Safety Board (NTSB) to determine the root cause of the plug door failure. The NTSB has issued a preliminary report indicating that certain critical parts were not installed at the time the aircraft was delivered to Alaska.
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Economic fuel cost per gallon was 69% above prior year levels, at $3.42 per gallon for the year, inclusive of a $0.22 per gallon hedge benefit. As a result of elevated fuel prices and increased consumption, total economic fuel cost incurred was $1.3 billion higher than 2021.
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In response to the accident, Alaska has since announced that it will audit Boeing's production quality and control systems, as well as enhance quality oversight of aircraft destined for Alaska's fleet from the Boeing production line. Alaska believes these steps will help ensure quality and safety of every new aircraft delivered.
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Non-fuel operating expense, excluding special items, increased 23% in 2022 over the prior year period, while capacity was up 16%. Increases in non-fuel operating expense were primarily due to higher employee wages and related costs, driven by increased staffing levels relative to our level of flying, increased training, and the impacts of new labor deals.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIf short-term interest rates were to average one point more than they did in 2022, interest income would increase by approximately $24 million. Our variable rate instruments, including long-term debt, interest rate swaps, and credit facilities, make reference to the London Interbank Offered Rate (LIBOR) and Secured Overnight Financing Rate (SOFR) as the interest rate benchmark.
Biggest changeIf short-term interest rates were to average one point more than they did in 2023, interest income would increase by approximately $18 million. Inflationary Risk Inflation in the United States remained elevated throughout 2023.
We do not purchase or hold any derivative financial instruments for trading purposes. Aircraft Fuel Currently, our fuel hedging portfolio consists of crude oil call options. Call options effectively cap our pricing for the crude oil component of jet fuel, limiting our exposure to increasing fuel prices for about half of our planned fuel consumption.
We do not purchase or hold any derivative financial instruments for trading purposes. Aircraft Fuel Currently, our fuel hedging portfolio consists of crude oil call options. Call options are designed to cap our pricing for the crude oil component of jet fuel, limiting our exposure to increasing fuel prices for about half of our planned fuel consumption.
Approximately $302 million of the Company's total variable rate notes payable were effectively fixed via interest rate swaps at December 31, 2022. Our exposure to interest rate variability is further mitigated through our variable rate investment portfolio. We also have investments in marketable securities, which are exposed to market risk associated with changes in interest rates.
Approximately $253 million of the Company's total variable rate notes payable were effectively fixed via interest rate swaps at December 31, 2023. Our exposure to interest rate variability is further mitigated through our variable rate investment portfolio. We also have investments in marketable securities, which are exposed to market risk associated with changes in interest rates.
A hypothetical 10% change in the average interest rates incurred on average variable rate debt held during 2022 would have correspondingly changed our net earnings and cash flows associated with these items by less than $2 million. Our variable rate debt represents approximately 24% and 29% of our total long-term debt as of December 31, 2022 and December 31, 2021.
A hypothetical 10% change in the average interest rates incurred on average variable rate debt held during 2023 would have correspondingly changed our net earnings and cash flows associated with these items by less than $5 million. Our variable rate debt represents approximately 39% and 24% of our total long-term debt as of December 31, 2023 and December 31, 2022.
We purchase the majority of our jet fuel at prevailing 47 market prices and seek to manage market risk through execution of our hedging strategy and other means. We have market-sensitive instruments in the form of fixed rate debt instruments and financial derivative instruments used to hedge our exposure to jet fuel price increases and interest rate increases.
We purchase the majority of our jet fuel at prevailing market prices and have historically sought to manage market risk through execution of our hedging strategy and other means. 49 We have market-sensitive instruments in the form of fixed rate debt instruments and financial derivative instruments used to hedge our exposure to crude oil price increases and interest rate increases.
We estimate that a hypothetical 10% increase or decrease in the forward curve for crude oil prices as of December 31, 2022 would change the fair value of our crude oil hedge portfolio to approximately $74 million or $23 million.
We estimate that a hypothetical 10% increase or decrease in the forward curve for crude oil prices as of December 31, 2023 would change the fair value of our crude oil hedge portfolio to approximately $26 million or $4 million.
Elevated inflation rates for a prolonged period of time, without the ability to increase our fares at a similar rate, may have a significant impact to our financial results.
Elevated inflation rates for a prolonged period of time, without a contemporaneous increase our fares at a similar rate, may have a negative impact to our financial results.
With call options, we are hedged against volatile crude oil price increases, and, during a period of decline in crude oil prices, we only forfeit cash paid for hedge premiums. We believe there is risk in not hedging against fuel price increases.
With call options, we are hedged against volatile crude oil price increases, and, during a period of decline in crude oil prices, we only forfeit cash paid for hedge premiums.
The portfolio value of our fuel hedge contracts was $44 million at December 31, 2022 compared to a portfolio value of $81 million at December 31, 2021. We did not have any collateral held by counterparties on these agreements as of December 31, 2022.
The portfolio value of our fuel hedge contracts was $11 million at December 31, 2023 compared to a portfolio value of $44 million at December 31, 2022. We did not have any collateral held by counterparties on these agreements as of December 31, 2023. In the fourth quarter of 2023, we suspended our fuel hedge program.
Although a large portion of our operating costs are contractual with escalation clauses capped at specific increases, a portion of our costs are subject to a greater degree of inflationary pressures.
Although a portion of our operating costs are subject to contractual escalation caps, a portion are not, and are therefore subject to a greater degree of inflationary pressures.
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We continue to believe that our fuel hedge program is an important part of our strategy to reduce our exposure to volatile fuel prices. We expect to enter into these types of contracts prospectively, although significant changes in market conditions could affect our decisions. For more discussion, see Note 4 to our consolidated financial statements.
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Existing positions entered into before the suspension will settle through the first quarter of 2025. We believe refining margins represent a significant source of our fuel expense volatility, particularly given our geographic concentration on the West Coast. We are exploring alternative strategies that will enable fuel cost optimization and mitigate our concentrated reliance on West Coast refineries.
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In June 2023, LIBOR will be discontinued as a reference rate. We have started to transition LIBOR-based contracts to SOFR, which effectively places the Lenders and the Company in the same economic position that existed immediately prior to the discontinuation of LIBOR.
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At this time, we do not anticipate that the discontinuance of LIBOR will materially impact our liquidity or financial position. Inflationary Risk Inflation in the United States in 2022 was among the highest it has been in the past 30 years.

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