Investor Presentation Safe harbor This presentation contains - - PowerPoint PPT Presentation

Investor Presentation

Safe harbor

This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act

• f 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking

statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and are not guarantees of future performance. Forward-looking statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Please refer to the risk factors described in Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under "Risk Factors" in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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Our strategy is simple and balanced

Energetic & Compelling Brand Safety & Compliance Hassle Free (Easiest airline to fly) People Focus Low Fares, Low Costs & Network Growth

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14 New Markets 6 New Markets 20 New Markets in

Good execution against that strategy has helped us grow

• ur network for our customers…

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14 New Markets in 8 New Markets* in

Includes new markets announced for 2017 as of 11/8/16

$3.4B $3.8B $4.3B $4.7B $5.0B $5.4B $5.6B $5.8B

2009 2010 2011 2012 2013 2014 2015 2016

…outpace the industry revenues…

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* 2016 estimate using consensus (not endorsed by Alaska Air Group) Estimates are for Alaska Air Group 2016 standalone, without effect of Virgin America adjustment

*

Adjusted Net Income and EPS

2009 2010 2011 2012 2013 2014 2015 2016

…And provide returns for our owners

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* 2016 estimate using consensus (not endorsed by Alaska Air Group) Estimates are for Alaska Air Group 2016 standalone, without effect of Virgin America adjustment

*

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2016 is shaping up to be another strong year financially

Industry and Sector Leading Pre-Tax Margin (LTM 9/30/16)

11.5% 13.4% 14.4% 19.7% 24.8%

S&P 500 Industrials Legacies LCC's Alaska

…And the underlying business is operating well

Safe Employee Engagement Great Operation Award Winning Service

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S. Domestic Industry Data from A4A

Alaska Mainline ASM Growth by Year, 1995–2016

We have a long history of successful growth

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Alaska 20% California 36% Mexico 8% Mountain 11% PacNW/ Canada 12% Midcon 2% Transcon 11% Mexico 5% Mountain 9% PacNW/ Canada 5%

55%

This growth has helped us diversify our revenue and cash flows

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* 2016 revenue estimate using consensus (not endorsed by Alaska Air Group)

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The Virgin America acquisition will position us as the 5th largest airline in the U.S. with an unparalleled ability to serve West Coast travelers

It provides a platform for growth of our low-fare, premium product

Powerful West Coast Network Access to Constrained Airports Opportunity to Grow & Improve Loyalty Enhanced International Partnerships California Customer Base

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The market size is significant

Network Carriers

North America Revenue

Low Fare Premium Product Carriers Low Cost Carriers Ultra Low Cost Carriers

12% 19% 3% 66%

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2.5x

PacNW Daily Passengers

3x

PacNW Population

WA 7.2M OR 4.0M AK 0.7M

CA 39.1M

California is our single largest opportunity…

Daily Passengers

North America

71,700 Population 11.9 Million Daily Passengers

North America

185,700 Population 39.1 Million

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Characteristic Metric US Rank Population 39.1M #1 Gross State Product $2.3T #1 North America Pax/Day 185,700 #1 Intl Passengers/Day 11,750 #3 Gross State Product Growth 4% #4

…with very attractive characteristics

15

Sources: Bureau of Economic Analysis

Our combined network provides tremendous options for customers living on the West Coast

+

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From day one, the combined carrier will offer more seats from the West Coast, so that we can serve customers better…

21% 16% 12% 12% 7% 2%

Share of West Coast Seats

1% 22%

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North America Seat Share from Alaska, Oregon, Washington, and California YE3Q16; total is less than 100% because smaller “other” category is excluded

…and offer a significant presence at all major metropolitan areas

Seattle 291 Flights 32 Gates Portland 123 Flights 20 Gates LAX 79 Flights 12 Gates San Francisco 73 Flights 10 Gates Anchorage 46 Flights 9 Gates Bay Area 115 Flights LA Basin 102 Flights

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Average scheduled daily flights for Alaska and Virgin America YE3Q16

We will serve all 10 of the top markets from SFO…

SFO Customer Utility Service in Top 10 Markets from SFO

6% 58%

Alaska - Today Alaska - Post Merger

Rank Market 1 JFK 2 LAX 3 Las Vegas 4 Chicago 5 Boston 6 SEATTLE 7 Newark 8 San Diego 9 Denver 10 Dulles Rank Market 1 JFK 2 LAX 3 Las Vegas 4 Chicago 5 Boston 6 Seattle 7 Newark 8 San Diego 9 Denver 10 Dulles

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Utility percentage represents share of domestic revenue for the year ended Q32015.

… And our utility in LAX increases substantially

LAX Customer Utility Service in Top 10 Markets from LAX

10% 58%

Current Future

Rank Market 1 JFK 2 San Francisco 3 Chicago 4 Seattle 5 Las Vegas 6 Denver 7 Newark 8 Honolulu 9 Boston 10 Atlanta

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Utility percentage represents share of domestic revenue for the year ended Q32015.

With Virgin America, we obtain valuable gates and landing slots on the East and West Coast

SFO 8 Gates LAX 6 Gates EWR 15 Slots JFK 23 Slots DCA 10 Slots LGA 12 Slots DAL 2 Gates

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Both Alaska and Virgin America have lower costs than legacy carriers

Premium Value Carriers Limited Service Carriers Legacy Carriers

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Source: Alaska Mainline and Competitors, 12 Months Ending September 30, 2016 Stage-length adjusted CASM formula: other airline CASM x (other airline stage length / Alaska mainline stage length) ^ 0.5.

4.85 5.00 6.67 7.14 7.29 7.46 8.27 9.14 9.38 11.63

Spirit Allegiant Southwest Hawaiian Alaska Jetblue Virgin Delta American United

Our customers benefit from our lower fares…

$169 $170 $205 $210 $215

Our fares are ~25% lower than legacy carriers

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Source: U.S. Department of Transportation, 12 months ended Q3 2015 North American Origin and Departures (stage-length adjusted to industry average fare of 1,165)

…Industry leading operational reliability

Alaska Alaska Alaska Alaska Alaska Alaska Alaska Alaska Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer. Virgin Amer.

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Sources: On-time and canceled flights data for full year 2014 from masFlight. Includes regional affiliate flights. extreme delays, which are 45 minutes or longer, compiled by FlightStats Inc. Two-hour tarmac delays, mishandled baggage, and consumer complaints from Department of Transportation based on 12 months ended in November. DOT involuntary-bumping data 12 months through September.

…Award-winning customer service

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#1 Traditional Carrier

9 straight years

Best Domestic Airline

9 straight years

…on one of the youngest…

Fleet Age in Years

5 7 9 9 10 10 12 14 17 22

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Source: Airfleets.net. Mainline only.

Fuel Efficiency ASM’s/Gallon

83 82 76 75 74 70 70 68 66 65

…and most fuel efficient fleets in the country

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Source: 2015 10-K reports. Mainline only.

Planned fleet growth comes from both mainline aircraft and E-175 regional aircraft

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Projected Fleet Count 12/31/16 12/31/17 12/31/18 Total Mainline Fleet 155 152 160 Q400s* 52 52 37 E175s* 15 33 43 Total Regional Fleet* 67 85 80 Alaska Air Group 222 237 240

* Indicates aircraft are operated under capacity purchase agreements with Horizon or other regional airlines The expected fleet counts at December 31, 2016 and beyond are subject to change. Virgin America’s fleet plan is as reported.

Virgin America 63 68 73

Addition of E-175’s in our fleet creates a superior onboard experience for our customers and opens up new markets

1,700 mi. Regional Jets 76 Seats

Air Group’s Fleet Range

E-175 737- NG Cabin Height 6’7” 7’3” Aisle Width 19.75” 16.7” Seat Width 18.25” 17.5”

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Starting in 2017, Alaska will introduced dedicated Premium Class product on 737s and E175s

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Premium Economy Seats +30 Main Cabin Seats

• 30

Net Seats

• 4

Premium Economy Seats +24 Main Cabin Seats

• 27

Net Seats

• 3

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Our partner portfolio gives our customers expansive global reach

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90% of revenue is Alaska generated and partner traffic remains robust, while composition has shifted

Total Codeshare $320M (6%)

International Interline $50M (1%) Domestic Interline $115M (2%) American $190 Delta $65 Others $65

Total Codeshare $486M (9%)

International Interline $53M (1%) Domestic Interline $113M (2%) American $225 Delta $190 Others $71

2014

9% of Revenue is from Codeshare

2016

6% of Revenue is from Codeshare

Annual Fee

$75

$95 $95 $95 $99

Miles for on Airline Spend

3X

2X 2X 2X 2X

Companion Certificate

$99

× × × ×

Top Rated Loyalty Program*



× × × ×

Free Bag



   

Foreign Transaction Fees

0%

0% 0% 0% 0%

Bonus Miles

30K

30K 30K 30K 25K

Our credit card offers the best value proposition amongst comparable airlines

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2010 2011 2012 2013 2014 2015 2016* 2010 2011 2012 2013 2014 2015 2016*

Our enhanced network and service offerings should help us grow our loyalty further

Mileage Plan Members Affinity Card Membership

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All 2016 data is year ending Q3 2016

…And we are committed to taking care of employees

Combined Incentive Pay

2012 2013 2014 2015

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This combination creates significant value for our owners

Average Annual Run Rate Estimates

Revenue Synergies $175M Net Cost Synergies $50M Total Synergies $225M

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These synergies are in line with recent deals in the sector

Average: 4.4%

• f Annual Returns

$680M $2.0B $1.0B - $1.2B > $400M > $1.0B

Net Synergies

$225M

6.5% 6.3% 3.9% 2.8% 3.1% 2.7%

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Source: SEC filings by other airlines Notes: Delta / Northwest announced merger with $1.1b in synergies and revised upward to $2.0b after closing. Average reflects actuals only

We expect synergies to ramp up quickly

30% 65% 90% 100%

Year 1 Year 2 Year 3 Year 4

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38% 39% 43% 59% 61% 64% 66% 78% 88%

LUV JBLU DAL ALGT ALK SAVE UAL HA AAL

Debt-to-Cap

Post merger our leverage is comparable to other airlines

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Source: OALs come from 9/30/16 company filings. ALK is a pro forma modeled on the combined carrier.

~

…and in line with S&P 500 industrials

We are committed to “re-de-leveraging” the balance sheet

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100+%

~55% by end of 2017

Debt-to-Cap

Half of S&P 500 Industrials have leverage between 40-60%

61% ~45% Post Close 2020

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~

We have a track record of balanced cash flow allocation…

Cash Flow from Operations Pension Contributions Capex (Aircraft/Other) Debt Payments Net of Borrowing Cash Returned to Shareholders

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2010 to 2015 cash generation and deployment. Capex includes both aircraft and other capex

$45 $79 $59 $159 $347 $505 ~$200 $28 $68 $102 ~$130 2010 2011 2012 2013 2014 2015 2016 Share Repurchase Dividend

…And we have consistently returned capital since 2007 and grown the dividend since inception

10.0₵ 27.5₵ 2013 2016

Shareholder returns since 2010 Increased dividend each year since inception

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* Dividend spend subject to Board approval. + Share repurchase based on current expected case – subject to change