OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) is intended to help the reader understand our
company, segment operations and the present business environment. MD&A is
provided as a supplement to - and should be read in conjunction with - our
consolidated financial statements and the accompanying notes. All statements in
the following discussion that are not statements of historical information or
descriptions of current accounting policy are forward-looking statements. Please
consider our forward-looking statements in light of the risks referred to in
this report's introductory cautionary note and the risks mentioned in "Item 1A.
Risk Factors" of our Annual Report on Form 10-K for the year ended
•First Quarter Review-highlights from the first quarter of 2021 outlining some of the major events that happened during the period and how they affected our financial performance.
•Results of Operations-an in-depth analysis of our revenues by segment and our
expenses from a consolidated perspective for the three months ended
•Liquidity and Capital Resources-an overview of our financial position, analysis of cash flows, and relevant contractual obligations and commitments.
FIRST QUARTER REVIEW
Business Recovery and Financial Outlook
The COVID-19 pandemic continues to have a material impact on our business.
However, in the first quarter of 2021 we began to see positive momentum toward
recovery. Vaccine availability, coupled with the relaxation of restrictions
imposed by state and local governments helped to stimulate demand for air travel
to the highest level since the onset of the pandemic. Positive revenue and
forward booking trends, combined with the benefits from cost-saving measures
enacted in 2020 and the PSP wage offset, drove positive operating cash flow of
During the first quarter of 2021, we also completed key milestones which will be
instrumental to our future success. On
Also in the first quarter of 2021, we finalized a previously announced deal with
Boeing to restructure
21
--------------------------------------------------------------------------------
In 2021, guidance will be compared to 2019 as we believe it provides meaningful indication of the pace and quality of recovery to pre-pandemic levels. For the second quarter, we are planning for capacity to be approximately 20% below the same period in 2019. We expect to see continued increases in passenger counts during the summer travel season and as more destinations relax restrictions and the vaccine rollout continues. As we have been measured in returning capacity and optimizing the aircraft gauge for flown routes, we anticipate second quarter load factors to range between 70% to 75%.
Our outlook, and the guidance provided, is sensitive to health trends, the vaccine rollout, and regulations and restrictions imposed by state, local and federal authorities. Our plans for 2021 will be responsive to emerging information and the guidance we have provided above is subject to greater uncertainty than we have historically experienced. Our people are focused on keeping our costs low, running a great operation, and welcoming guests back to travel with Next-Level Care to ensure they are safe and comfortable when they fly. These competitive advantages we have cultivated over many years will continue to serve us well in 2021 and beyond, and we are confident that we are prepared to meet the challenges ahead and that we will emerge from the pandemic a stronger and more resilient airline.
Sustainability Updates
As we move into a new phase of recovery, we have shifted attention back to our
2025 strategic plan, which was announced in 2019. Recently, we published updates
on our 2025 goals, which include increased commitments towards diversity, equity
and inclusion, as well as expanded sustainability efforts. We have highlighted
our commitment and support for equity in education through a new 737-900ER
livery designed in partnership with the
As a reflection of the importance of the commitments made, we have tied a portion of long-term executive compensation to achievement of diversity goals. Additionally, we have incorporated a carbon emission target into our company-wide performance-based pay program.
Financial Overview
Our consolidated pre-tax loss for the first quarter of 2021 was
See "Results of Operations" below for further discussion of changes in revenues and operating expenses 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 this Item 2.
RESULTS OF OPERATIONS
ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS
We believe disclosure of earnings excluding the impact of the Payroll Support Program grant wage offset, special items, mark-to-market gains or losses or other individual special revenues or expenses is useful information to investors because:
•By excluding fuel expense and certain special items (including the Payroll Support Program grant wage offset, impairment and restructuring charges and merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations as we focus on cost-reduction initiatives emerging from the COVID-19 pandemic. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can lead to a significant improvement in operating results. 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 labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
22
--------------------------------------------------------------------------------
•Cost per ASM (CASM) excluding fuel and certain special items, such as the Payroll Support Program grant wage offset, impairment and restructuring charges and merger-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
•Adjusted income before income tax (and other items as specified in our plan
documents) is an important metrics for the employee annual cash incentive plan,
which covers the majority of employees within the
•CASM excluding fuel and certain 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. The measure is also the subject of frequent questions from investors.
•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 that disclosing the impact of these items as noted above is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
•Although we disclose our unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. 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.
Although we are presenting these non-GAAP amounts for the reasons above, investors and other readers should not necessarily conclude that these amounts are non-recurring, infrequent, or unusual in nature.
23
--------------------------------------------------------------------------------
© Edgar Online, source