Q4 2020 Alaska Air Group Inc Earnings Call

January 26, 2021

[music].

Good morning, My name is Thea and I will be your conference operator today at this time I would like to welcome everyone to the Alaska Air Group 'twenty and 'twenty fourth quarter earnings release Conference call. Today's call is being recorded and will be accessible for future playback and Alaska Air Dot Com all lines have been placed on mute to per.

And any background noise. After the Speakers' remarks, there will be a question and answer session for analysts if you wish to ask a question. Please press star one on your telephone keypad. If you would like to withdraw the question press the pound Keith. Thank you at this time I would like to turn the conference over to Alaska Air Group's managing director Investor Relations Emily.

<unk> Halvorson. Please go ahead.

Yeah. Good morning, Thank you.

Many of us.

Part of 'twenty and 'twenty earnings call. This morning, we issued our earnings release, which is available at Investor day at Alaska, and Dot Com on today's call, you'll hear updates from Brad and shape.

And several other than the management team are also on the line the answer your questions during the Q&A portion of the call.

The business and outlook continues to be significantly impacted by the global and global health and economic crises that are underway and the fourth quarter Air Group reported and adjusted net loss, excluding special items and mark to market adjustment of $316 million.

Special items. This quarter include a $255 million of impairment and estimate the lease return charges that were triggered as a result of certain aircrafts being permanently part of $22 million of benefit related to the first cares Act payroll support program of wage on that and the Hunter.

The $2 million benefit, resulting from the expectation of certain employees will eventually be returning from long term lease early and our average daily cash burn for the partner was approximately $3 8 million.

This call and marks the end of the unprecedented year, but also a few other important milestones as well Brian best of Alaska.

30 years, serving as the CEO for the last eight and this will be the final time speaking of CEO to our investor audience and he will be retiring on March 31, and handing the flight from Tibetan today also happens to be Andrew Harrison and swiftly. Please join me for wishing both Andrew and breadth of that.

Our comments today will include forward looking statements about future performance, which may differ materially from our actual results information on risk factors that could affect our business can be found in our SEC filings. We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel and as usual we've provided a reconciliation between the most directly.

Comparable GAAP and non-GAAP measures and today's earnings release.

Thanks, Emily and I would ask you've forgotten. It today is Andrew birthday, So happy birthday from me as well Andrew.

And good morning to all of you and everybody knows we have roughly a year and to this difficult Covid crisis, which has put virtually every airline around the world to the test we've seen a lot of challenges over our 88 years of Alaska, but none has driven such a deep and prolonged disruption as this one.

Our people rose to this challenge and they've done countless times before and the rest of the leadership team and I want to thank them for everything they've done and everything they're doing to ensure the Alaska emerges from this crisis better and stronger we'll talk about those things on this call.

From the onset onset of the pandemic through this uneven recovery, we remain focused on two priorities first the health and safety of our employees and our guests and second ensuring our airline it comes out of this crisis strong and ideally and a better position competitively and when we entered it and these remain our priority.

As of today.

Our COVID-19 work streams continue to align our actions around these two priorities on the safety front. Our next level of care program is providing guests with the confidence they need to fly.

You know about the many measures we've implemented.

We've received external recognition for the east, but we also note that we also know that our guests who are flying with us are having a very positive experience.

And our fourth quarter of Alaska Listens survey, 87% of our guests gave us excellent or very good ratings on health and safety and more broadly our customer satisfaction scores of reached all time highs and the last few months.

One of the great things about Alaska is that often our leaders figure out where we're going to head next and our people figure out how to get us there.

That is certainly the case with our health and safety practices.

And if you haven't had a chance to view our safety dance video, we recommended we provided a link and today's press release.

For some time now we've been analyzing our fleet and determine the best path forward, we were anxious to see if we could use this downturn to reconfigure ourselves and to come to market with the more simple and streamlined fleet.

We were pleased and the last couple of months to bring two transactions two of head.

First we sold our 10 owned <unk> hundred and twenties and second we received we reached terms on a restructured and enhanced order with Boeing for 68, New 737 Dash nine aircraft that will get us largely out of the Airbus fleet by the summer of 2023 and that will provide a host of other benefits.

Channel and we'll talk more about this.

Our customers and employees care greatly about Alaska, being a clear leader and the effort to reduce emissions and our carbon impact and.

And this is especially true given our presence on the west coast, we of long lead the industry are been and the top couple of airlines in terms of carbon emissions per passenger and these fleet moves will do nothing but further our lead.

From a financial perspective, there is so much we could talk about but I really want to focus all of us on just two numbers first.

First our revenues for 2020 were down a staggering $5 2 billion or 59% as a result of Covid.

The second our total debt factoring and lease obligations and backing out cash on hand is essentially unchanged from last year.

I've watched the industry and our company for my entire career and I can't remember a time when two numbers stood and such Stark contrast.

Shane will describe this further but from my part I want to thank the extraordinary leadership team at Alaska, and horizon for aggressively reducing our spending both and variable and fixed areas and to also want and I also want to thank them for running our business profitably over the years such that our starting point was a strong balance sheet and robust.

Cash flow from operations.

Also want to thank the terrific employees of Alaska Air group of standing behind their company during a period of significant change and I, especially want to thank that 10006 hundred of them, who took leaves of varying lengths to help us bring spending down or to save of job for someone else.

Not burdening the company, where the massive amount of new debt means that our balance sheet is unimpaired and strong which means that we can all look forward to using it and the months and years ahead to find new opportunities for all of us.

It's very clear the congress's efforts to support the industry and its employees by providing vital funds to weather the downturn were essential to preserving our balance sheet.

Of the $5 billion of variance between our revenue loss and our $234 million cash outflow from operations $753 million represents of grant, which we received as part of the cares Act and we will receive another $400 million grant and the first quarter.

All of US here want to thank leaders on both sides of the aisle and the both the Congress and the administration for their support of our industry and our employees.

And as Emily said this will be my final earnings call as CEO of this great company before.

Before I sign off I want to express my gratitude to all of you on the buy side and the sell side listening today and of the folks who came before you.

Over the years I've had the opportunity to build relationships with many of you and you have most definitely pushed us to be better.

The financial principles that underpin our management philosophy today, such as maintaining a fortress balance sheet, keeping our pension plans funded and maintaining a low cost structure, our principles that have been shaped by conversations with all of you.

And the early two thousands of Alaska led the industry and establishing clearly articulated CASM goals and after that ROIC Eagles, and then by aspiring to deliver results like other high quality industrial companies not just other airlines.

All of these ideas more simple in concept, but they seem to ambitious and radical and an industry that for many of those years have done nothing but accumulate and negative retained earnings.

Some of the greatest learnings we had came from answering your questions and then walking away realizing that we didn't love the answer we've just given you.

You have sharpened our thinking and so many areas. This is a long winded way of saying. Thank you you've made Alaska and much much better business I've really enjoyed my time with all of you and I've learned so much.

And perhaps most importantly, I want to think of our employees and the guests that we serve this company has come so far and the last 30 years I think all of US are humbled by the success, we've experience and when we were challenged and all airlines are regularly challenged I was honored to be in the trenches with this fantastic team.

Our people have a level of loyalty and dedication to their company that is uncommon and this day and age and if you had to put a point on it and that's why we've done as well as we've done and that's why I'm, so optimistic about our future.

So thanks to all of you serving this great company has been and honor and while I look forward to staying involved my primary job of in the future is going to be the step back and support band and this great team as they take Alaska to the next level or do you have them.

Thanks, Brad and good morning, everyone.

I can't pass on the opportunity to say a bit more of a BREDS impact you and Alaska over the last 30 years.

And this time of the company Alaska went from being one of the smaller airlines and the industry to the fifth largest airline and the country. That's it.

Many of you know of Brad was CFO from February of 2000, and was instrumental of Bill air and creating the balanced business model of providing value to employees and customers owners and communities.

And I want to highlight some of his accomplishments during his career and tenure as CEO.

Or is 30 years, our fleet grew from 117% to 330 aircraft and our guest count grew six fold from 8 million to $46 million.

Todd mentioned, the CASM ex and ROIC goals from our 2010 plan, which were transformative and the industry and he was instrumental and conceptualizing and implementing that plan.

And has laid the groundwork for the financial discipline and we're proud to have today.

And in the last decade, he oversaw tremendous growth along the west coast, including the acquisition of Virgin America Bye.

By 2019 revenues and their brands watch had grown eight times the ninth of 1991 levels.

Brad spoke as was always long term sustainable growth and our company is stronger for it but.

The most of all Brad has always stay deeply connected to our culture, our values and to the 22000 people that make up this great company and.

Any of Alaska of inter station visit Brexit as employees by name and remarkably recalls or last conversation.

You've probably experienced this yourself as part of our Investor community.

And so after 84 quarterly earnings calls I hope, you'll join me and congratulating, Brad and his incredible career.

Alright. Thank you for all of that you've done to make our company. What it is today and I speak for the whole team and I say, Alaska strong position, we're not of impossible without your leadership over the last 30 years.

So turning to our fourth quarter results. When we last spoke with you and October both and claimants and bookings were at peaks for the pandemic period and each month was improving from the last.

That trend stalled and the fourth quarter as and payments and bookings deteriorated in November and state and local closures and federal travel warnings came into effect and response of this third wave.

And the fourth quarter, our revenue was 808 million down 64% from prior year unfavorable capacity that was down 59% from per year.

Sequentially Sellable capacity was up 10 points from Q3, while revenue results improved seven points.

Average daily bookings have been increased and since baseball and November.

From December to January average daily bookings of increased 20% from 49000 to 58000 and we.

The experienced several days at over 70000.

Boosted by the Fantastic work, our commercial team has been doing to promote and stay connected with our guests while customers are demonstrating interest and future travel and payments today remains stall of at around 35% of normal levels or about 40000 passengers per day.

Leisure travel continues to be the majority of our guests both and carried passenger then and future bookings.

Markets with the strongest load factors are warm weather destinations and places with outdoor activities.

And our strongest helped lead our system and performance longer distance routes, including Transcon markets were the worst performers and the fourth quarter similar to what you've heard across the industry.

This is demand continues to be severely depressed and came in at approximately 15% of normal levels.

A bright spot however, and our Q4 results was our operational performance, Alaska and horizon were among the top of the industry and on kind of performance for the quarter. It's important to carry this momentum forward into 2021.

So while we had hoped the fourth quarter results would be better we're cautiously optimistic there will be a step change and demand once the vaccine has been broadly distributed for.

For the past couple of calls I've shared our thinking about the recovery and planning assumptions. We are using the plan for the future first I'd say the recovery has been slow and thus far we expect there will be appointed and it begins to accelerate and Ernest we've been treading water recently and believe sustained progressive improvement will begin when we have of widespread vaccine rollout and states.

Our able to relax restrictions, we are confident leisure will lead the recovery and we believe there is substantial pent up demand for leisure travel.

While we know many of our corporate guests want to get back out traveling we expect the business travel will return to only 50% of normal levels by end of year and this is based on our surveys of corporate customers.

So our focus right now of keeping the company ready for when demand does jump and making sure. We have of business model that is strong and post pandemic.

We remain confident that flying is safe as I shared last quarter. Several independent research studies have shown that consistent usage of masks, coupled with the effect of airflow and filtration systems onboard and create a safe environment for and guests and crew.

This is consistent with our own accumulated experience as well.

This month, we have moved forward with our plans to begin unblocking, the middle seats, and our main cabin, but given the low and passenger recovery. We don't anticipate this to be highly impactful to results for a few months.

We've left the middle seat blocked and our premium cabin through May 31.

And that is of safety precautions, but is the benefit we can provide the guests who are looking for some extra elbow and led growth.

Affordable and accessible testing and streamline clearance of programs also have the potential to reduce travel friction pre.

Pre clearance programs for destinations are required testing of maturing and maybe become more prevalent and December we were the first airline and the industry to offer of Hawaii bond guests pre clearance on the West Coast bypass the airport screening process of upon arrival.

And the CDC has announced the new order requiring passenger is entering the U S to have proof of either and antigen, where a PCR tests taken within three days. We're currently working with our partners and health centers and the international locations, we serve to prepare our guests and our teams for this requirement.

Given all of that I've shared with you. We believe our customers are gearing up for traveling and the spring and summer and the supports our plans to preparing to fly approximately 80% of 2019 levels by summer.

It is prudent for our business and our operation to scale to those levels and a measured way.

As a result, we plan to fly Q1 capacity that is 70% of 2019 levels and expect to carry the load factor of between 40% to 45%.

These load factor of expectations reflect the current state of stalled and claimants, but we do expect health patterns to improve and the next two months and the restrictions will begin to relax. Additionally, the return of warmer weather and the spring is expected to drive continued interest and people getting out and doing things as a result, and we expect the payments to improve and March and beyond.

As we add back capacity, we will focus on our strongest hub and the Pacific Northwest and Alaska, and as California adapts to a more open posture. We will eventually begin to focus on adding capacity back there as well.

These plans do not reflect any closely and cancels that we may utilize that conditions ultimately do not support the levels of flying than we have planned while our capacity plans are consistent with what we share previously changes to our fleet that have been recently announced will impact our workforce planning and Shane will share more of that and the moment.

The choppy recovery in 2021 and will present us with challenges as we scale our business back, but we have a lot to look forward to our entry into one world is just two months away.

And as we move forward with our partnership with American and this will bring incredible value to our guests and increased opportunities for our airlines and our teams are also laser focused on aggressive cost control increases and productivity and the operational and financial discipline and I'll ask us and all four this will put us on the path back to profitability.

2020 of them in a year like no other but I am proud when they look at what we achieved the ways, we improve and the strength of the carried with us into the new year I truly believe that our best days are ahead of us and our great people are ready for what it will take the climb out of this crisis the over to Shane.

Thanks, Ben and good morning, everyone.

My comments will cover similar areas of the past couple of calls where the focus on liquidity and net debt cost and cash burn during the quarter and expectations going into 2021 of.

Also briefly discuss our recent order and fleet plan.

We ended the year with $1 7 billion and adjusted net debt, which was essentially flat from year end 2019, we believe will be the only airline to achieve flat net debt without having issued equity.

With no impairment to our balance sheet, we are well positioned to capitalize on the recovery.

We were able to achieve this result, even in light of of $5 $2 billion revenue declined from last year and that of because we were running a strong business before the pandemic and because of the speed with which we reduced cash spend throughout 2020.

We removed $2 4 billion and expenses in 2020, shrunk capital spending and move to secure structural cost savings going forward.

The actions, coupled with $750 million and direct grant aid from Congress to maintain industry drops we're able to fully offset our revenue loss to maintain flat net debt.

Regarding liquidity during 2020, we've created access to over $5 billion.

And incremental liquidity and today, we have $3 5 billion of cash on hand inclusive of approximately $266 million that we received last week and then the second round of PSP.

We also have the additional $1 8 billion and available incremental financing through the cares loan program, which we now have until may 28th to determine how much if any we will borrow.

Our adjusted debt to cap is about 61% right now with low Capex plan and 2021, we will be and are positioned to begin to reduce leverage by lowering our cash balance and repaying debt. This year, assuming there is of stabilized recovery from here forward.

In fact, if we were able to return to normal cash on hand levels and use the current excess cash towards debt repayment, our debt to cap would be below 50%, which as you know is within our long term target range.

Turning to costs adjusted operating expenses were down 27% and the fourth quarter two points better than Q3, while capacity and Q4 was up 13 point.

This performance was aided by 3300 employees remaining and leaves or incentive lines reduce costs driven by the now 40 permanently parked Airbus aircraft and several favorable resolution of the vendor negotiations, resulting and onetime savings and.

Additionally, we saw the ramping of several of the structural cost initiatives that we detailed for you and the last call towards the run rate levels, including permanent wage reductions non wage overhead spend reductions and supplier rate reductions.

Variable cost for the quarter were up with the added capacity.

And our Covid business recovery program of goals based bonus program that was designed to align our employees and managing this crisis paid out of a target as a result of our employee fantastic work around safety and our industry, leading cash burn reduction efforts. This drove incremental cost from the fourth quarter of the program with an effective way to align our employees around.

Important tools this past year.

Our GAAP operating expenses include several onetime charges and I'd like to touch on briefly including approximately $255 million of impairment charges associated with the write off of lease assets and recognition of lease return cost estimates for aircraft that we are permanently parked.

We also recognized a credit of $102 million for the revision of our estimated pilot incentive leaves.

As you know we designed our lead programs early in the third quarter.

Since then we have finalized the significant fleet decision that allowed us to refine our schedule, which now reflects the higher mix of Boeing flying.

The cross training and return to work schedules were impacted by these changes.

We have designed the program to have flexibility for just this reason.

While we have done well this year, managing spend and making our cost structure and more variable we have more work to do to return of Alaska. The pre Covid unit costs for 30 years now our formula has been to have low fares enabled by low costs, which are best driven by a high productivity and low overhead mindset.

Achieving those isn't easy and.

It takes leadership focus.

Excellent execution of our operation and buy and from our people and the post pandemic period. We believe the same principles will ultimately be required to drive our business recovery.

Our average cash outflows as defined under the cash burn metrics were approximately $450 million per month, and Q4, which is in line with the expectation we shared with you on our last call our cash burn and the fourth quarter of approximately $3 8 million per day was a sequential improvement from the third quarter driven primarily by improvements in demand.

Despite the Choppiness that developed in November and December.

Beginning today, we are sunsetting and monthly cash burn guidance that we introduced and the initial phase of this crisis. Instead, we will provide quarterly operating cash flow expectations, which are more direct measure of the health of our business as we believe the acute liquidity risks that mattered and 2020 have been mitigated by our available liquidity.

With that I will turn to 2021 cash and cost guidance and then detailed we anticipate operating capacity of approximately 70% of 2019 levels in Q1 and 80% by summer.

This will naturally bring incremental flying costs back into the business.

Last quarter I detailed for you of approximately $215 million and cost initiatives and have already been identified are secured we have since identified an additional $50 million of savings, including $10 million and fleet related savings as we begin replacing the Airbus with Max aircraft $10 million and real estate related reductions and.

And $30 million and productivity related initiatives. Some initiatives are now at the run rate levels, while others will ramp through 2021.

Our current expectation is for Q1 and CASM ex to be up approximately 20% and we expect continued sequential improvement throughout the year on our way back to pre COVID-19 levels. Even if we are a smaller company.

We expect our operating cash flow for the first quarter inclusive of PSP funds to be flat to minus $100 million.

However, I believe cash flow from operations will be positive during the first half of the year. If the vaccine rollout works as we all expect it will and allows demand to snap up and.

Given what I've shared about our liquidity and these cash flow expectations. We currently have no plans to draw any incremental financing and the first quarter.

Having said that our default will be to maintain conservatism until we have more confidence that the recovery of stable. So we may extend or renew some existing debt that is currently slated for repayment and March and April.

But from the before I turn the call over for questions of course would like to touch on the very exciting news that came out just before Christmas regarding the future of our suite. The order, we jointly announced with Boeing provides a clear path to transition into a higher gauge more efficient aircrafts as we return of our leased Airbus fleet.

The partnership between Alaska, and Boeing is as strong as ever and I am very excited about what this order means for both of our companies I think you know we are both located here in Seattle and we.

<unk> employees with spouses parents sons, and daughters that our Boeing and employees.

The ties between our two companies are deep and we're excited about our future together.

With the order over the next four years, we will take delivery of 68, New 737 Dash nine aircraft 13 of them leased which will largely replace our Airbus fleet. We then have options for up to 52 additional aircrafts through 2026 for when we find opportunities for growth the.

The agreement feature of significant flexibility.

And the deferral rates for the majority of the order and full substitution rates the other macs models share.

Shelf of shell the newer generation 737 dash nine aircrafts have material lease superior economics relative to our existing older technology <unk> hundred twenty's due to better fuel efficiency lower maintenance costs and 2000 incremental seats. Each replacement will improved unit costs and provide incremental revenue opportunity for our P&L.

And as noted above the order allowed us to revise our 2021 cash outlays for Capex as we will first consume existing PDP with Boeing before beginning to pay and to PDP and again in 2022.

As a result of our 2021 capital expenditures will remain low at approximately $150 million to $250 million.

Of that we will go to your questions.

At this time I would like to invite analysts and would like to ask the questions. Please press star and the number one on your telephone keypad and get that star one for any questions well pause for just a moment to compile the Q&A roster.

Yes.

The first question will come from Duane <unk> with Evercore ISI. Please go ahead.

Hey, Thanks and.

And Brad Congrats on the transition.

Promise you that we learned of want from you and your team as well over the years.

Thank you Duane.

So big picture your net debt.

Debt is flat versus pre pandemic.

Share count has not changed versus pre pandemic and and relatively that.

And that screens pretty well so what would you say is the biggest driver of that strong relative performance is it simply that you had capital spending flexibility that others did not have.

And was that a function of kind of where you were in and the integration or how you structure. Your contracts. Appreciate just some detail on how exactly you were able to accomplish that.

Yes, Thanks Duane.

It's a good question and I know.

More about US, obviously, then and sort of where others are situated but youre right. We did have.

A lot of flexibility with respect to managing Capex down very quickly this year.

It was one of the important features of the revised the with Boeing we wanted to keep a low level of capex required into next year and so we were happy to be able to restructure of the agreement with them and maintain the low capex posture for 2021 I think the other thing was we rallied really early and I sort of lose the week of the day, but if the sometime in late March.

And we decided this was the crisis was going to be a crisis for an indefinite period of time and we immediately went to the company and so we've got a we've got to sort of stop spending immediately.

And the company responded across the board every every single employee participated.

Brad mentioned, we had over 10000 people take elective voluntary leaves give up their their own.

In order to help the company or save of job for somebody else. We worked with suppliers, we changed our sort of payment terms.

Ended up paying for what we were using not necessarily exactly what contracts call in terms of the minimums.

And so we've just we've had and it's been a a lot of work over the last several months, but the company did a phenomenal job.

<unk> costs out of me.

Mediately getting cash burned down and I think we reached $4 million per day early and this and we've sort of hovered there waiting for demand to come back and I think that's probably the biggest piece of it and then what Brad said, we came into this and a really good position, we had a phenomenal debt balance sheet coming into it we had just gotten done paid out five or $600 million of debt.

The random was happy to have done and I got to go and re borrow.

And so I think the fact that we were we were producing one five or $6 billion and cash flow pre pandemic gave us a lot of runway to not get and a bad position coming out the when you loss of $5. Two you only had to make up three five or $3 seven to get back to flat correct, yes debt unchanged yes.

Good day.

I appreciate those thoughts and then just just for my follow up on the <unk> hundred <unk> that are leaving can you just remind us how does it out of those impact cash flow in other words are there any cash gains.

Are they all leases how does does that go away can you just remind us how that impacts your balance sheet. Thank you.

Yeah, and I'll have a movie of Chris talk about the balance sheet of it but yes. There is we have.

Maintenance requirements and all of these aircrafts are all leased and we have paid maintenance reserves, along the way and so it's going to be a relatively manageable amount per tail as we return lease, but there will be some cash expense to bring them back up to where they need to be brought to you before we return them to the lessor.

But from a balance sheet perspective Christopher.

Yeah, Hey, great.

And we did I mean, it was we impair of about 40 of these Airbus aircraft this year.

All of them were at least I think there were the 10 that we did one that we sold the air lease Corp.

And at least and those back and we compare those as well because the park.

But yes, the cash impact of those leases on the maintenance reserve side, it's really only going to be about the only it's a lot of money and 45% to $50 million and 2021.

So the charge you see all of the P&L, it's certainly not going to turn into cash imminently or narrow and going on right now so.

Okay appreciate the thoughts.

Thanks, Duane Thanks Duane.

The next question will come from Catherine O'brien with Goldman Sachs. Please go ahead.

Good morning, everyone. Thanks for the time and I'm also just going to Echo I'm sure will be everyone's comments congratulating you Brad on your career and what you've accomplished in Alaska.

Thank you so much Katie.

And so my my.

My first question is maybe a follow up on on the fleet decision I know, sometimes moving deliveries around the concrete added cost with the OEM, but.

Given the Max grounding can we assume there was no net negative on pricing.

And existing orders and and perhaps even some better pricing on the new orders and given your decision to cut backs and all Boeing fleet versus the keeping the dual clean EBITDA for us.

Seen or not.

Yeah, Thanks, Katie I might I, probably won't get into the specifics of the deal.

And I can I can say, though that we were a long time on getting to this decision.

And.

We were really clear along the way with our good friends and partners at Boeing and what we needed in order to.

Place and order, especially right now and where we are and the pandemic sort of cycle here that at 60 firms and a lot of options our history with options and if we take all of them and so.

So it could be quite a large order for us.

And a significant amount of capital that we've got to go make work for us so.

I think we feel very good about the deal that we struck with them. We're really excited about the path. We're on now.

Theres a lot of operational efficiencies and savings, we can get by by getting into a single fleet.

But I think I won't get into the any more specifics from that on the deal.

Understood fair enough.

And then a couple of really the ones on the balance sheet.

You know it sounds like.

And we're waiting to see what happens with the recovery, but potentially no more cash burn of cash positive cash from ops and the and the.

First half of the year, so I guess of not scenario, how do you weigh taking more of the carriers one of the end of May and.

And why do you take the loan or not how do you think about your balance sheet. Once we have seen more of a recovery it sounded like from your comments and remaining considering holding on to higher levels of liquidity for now between permanently have the higher liquidity and then you want to stick to them before contemplating and debt pay down and like how do you think through.

A couple of those moving pieces, there and thanks for the time.

Can you the caveats.

Thanks for the question I think our current cash balance is $3 4 billion, which clearly is higher than historically Alaska is carried.

And 2019, we had $1 five so I think youre going to see us carry.

Excess amount until we see sustained revenue recovery and then I think over time, we'll see.

See what the what the landscape is.

Have the choice to pay down debt I do think through certainly through 2021, and we're gonna carry the <unk>.

<unk> pad of liquidity, just until we see sustained revenue recovery.

And I'll just ask you to.

In terms of long term posture, we havent decided that we're going to be at a higher rate.

And then the one five we may end up there, we just haven't done a lot of that planning quite yet, but ultimately will.

And we'll make sure we have the ability to go out and get access to cash and to quickly if we need it but we do want to ultimately bring the cash balance down.

Understood. Thank you so much.

The next question is from Helane Becker with Cowen. Please go ahead.

Thanks, very much the operator and Brad congratulations.

The long time that I assume you know I think I've been on all of those 80 per conference calls with you.

Okay.

And you you might be.

And you and Mike you guys go back.

[laughter].

Because remember our and I won't say staying on.

The lifestyle so.

I don't think of them 35.

So here's a couple of questions for you on the.

And the route network.

Are you thinking about adjusting the route network.

Given the fact that <unk>.

I'm kind of performing so poorly and.

And the are you ready.

Ready to are you, giving up on spring break traffic or are you thinking that we're going to get that back.

And we have a chance of that for not sure who wants to answer that.

And that's a great question for our CEO elect.

Okay.

Yeah, Brett some privileges ease of exercise.

Uh huh.

The way, we think of our route network and working closely with Andrew and his team as we are focusing on the Pacific northwest and where we're adding increasing capacity of 70% and 80% Jake and I see a lot of focus and the Pacific Northwest and state of the state of Alaska, California is going to come back as restrictions ease and.

And we'll add back capacity hopefully and the next 12 to 18 months in terms of transcon.

And spring break and I think we have to see what happens with.

But the vaccine rollout and with how people are feeling and the relaxation of restrictions I think.

I'm optimistic with the bite and administration.

He just announced the $1 5 million vaccines of day.

And 100 days of convening 75, maybe we have of 100 million people and the country vaccinated I think you might start seeing.

The people venturing out of spring break so I think we're going to be cautious I think we're gonna be on our toes and react appropriately and.

The only thing.

Yeah.

Oh just.

Been answered I just to put a couple of numbers to it I think like a new York Transcon, and youre going to be down, 80% and the first quarter as the fourth quarter, San Francisco is going to be down 68%. The same as it was in the fourth quarter. So it has no demand and places like Hawaii, we're gonna be up 15 points and capacity and as Ben said.

You know of Pacific Northwest and and then we're moving things around like we've got 10 additional mainline flights.

Three of them of Cancun, and six of them of Florida, and one of the Hawaii. So as we progress and we're moving out of airplanes around the go where the stronger demand as though that's the way we're at on that.

Okay. That's very helpful. Thank you and then just on one world and I know the goal is.

And what March 31st I think and.

But that's mostly international connection opportunity connecting opportunities.

And as that is your thought getting in to Oneworld because it makes sense to do it now and then you get the benefits and and second half of 'twenty, one or into 'twenty, two or is it the idea that you don't you.

Yeah, I guess, that's the question.

Thanks.

It's a great question, we got Matt and Andrew here, but what I'll say, what the one of all of this a couple of things, it's the partnership with American and which we call the West Coast International Alliance and we have the one of our old partnership we have.

For international flights starting here and.

And the next couple of months, we have and Im.

See if I have qatar that starting from them.

We have Shanghai.

Starting from Seattle, Bangalore, and we have and.

And London so.

So to your point I think Andrew and team are working hard on getting corporate customers to see that with Alaska was broad and that brought the domestic network and Seattle and now with the international alliances that we have that Alaska really can provide a.

Service to our business and even the leisure travel all around the world. So we're really excited with that and when you coupled with the Americans the.

The partnership we have with the West Coast Alliance.

And the domestic side, it's really a powerful powerful.

Network that we can have that we can offer not only from Seattle actually, but all of our west coast hubs and Ben.

And I think that's one of the things we've talked a lot about is even even though international and down there are people that like to consolidate their international travel with their domestic and I think and they're gonna do international down the road and so that customer the travels internationally once or twice a year, but six to eight times domestically and we just get into the much better chance of getting that customer into the Alaska Air.

And the mileage plan right.

That's great. Thank you very much everybody.

And thankfully and thankfully.

The next question will come from Jamie Baker with J P. Morgan. Please go ahead.

Hey, good morning.

And Brad My heartfelt best of you and your family and I'm curious if this means you'll be doing more flying and thank you for non lumping me with the old Timers club just now.

And.

And for <unk>.

Thank you and for Andrew Happy birthday, I know many of them.

Aged about three or four years and the last single year.

So hopefully hopefully you did better than that.

So a question on ticket pricing and I'm going to try to ask it in a way of it doesn't waste your time and your comfortable answering so of common question is what level of discounting is going to be needed to coax people out of their homes.

And personally it's not clear to me that any discounting would be necessary, but I realize the ticket pricing is a lot more complicated than that.

The reason I wanted to ask because perspective is it seems that you've been running a fair number of promotions, but at a time when people are nervous about flying so can you at least comment on what sort of response, that's driven and whether we should assume that's a blueprint.

For the future.

Is that something you're comfortable commenting on.

Okay.

Thanks, Jamie and.

We had very significant stimulation and I'm very proud of the marketing team, we had very heavy promotions and December and got out brand out there and got our employees engaged and we had the highest level of first class bookings highest level of debt.

Friday Saturday boarding bookings that we've had all pandemic.

To your point I think that of lot of that was focused on future traffic, we have a lot of seats to sell into the future and so we use that opportunity.

Coupon and you was down about $7 four.

Four per cent I'm joined this quarter so to your point, it's going to be that fine line, but we are off the demand right now and volumes.

And then we would volumes come pricing, so that's sort of where we are right now okay.

Helpful and as a follow up to that and this relates to one world.

And kind of piggy backs of what.

Lane was bringing up with connecting travel presumably that yield is going to be dilutive.

Which isn't it and say, it's not accretive it's just dilutive.

So is that something that we should be considering on our models because you know hopefully youre and affirming.

Core yield environment as the year progresses, but at the same time youre going to be carrying more connecting travel is that going to be impactful is it going to mean that your yield could lag that of the industry just given the coincident timing of the Oneworld entry.

You know I mean, I think and the fourth quarter I think out of international connectivity and <unk>.

The down 93% and so that's going to take some time to come back I don't necessarily think it's going to be dilutive at all.

Some yield and <unk>.

And what type of I will tell you on the loyalty of the business on.

On the connecting of all network and the loyalty program with both American and Oneworld I think it is all going to be good news for US. Okay. That's helpful and if I could just speaking of quick third do you have the average pilot seniority of today versus this time last year.

Oh Wow, Jamie this is Shane.

We did retire 130 off the top out of 3000, and but I don't think its moved a ton just based on that so a couple of hundred and 230 that take care of layouts.

But that's it.

And has been relatively muted besides that got it. Thank you very much everybody.

Thanks for taking the.

The next question is from Savi <unk> with Raymond James. Please go ahead.

Hey, good morning, and Brian I'd like to take care of all the comments here on the call and Andrew and happy birthday, and I'm, sorry that you were spending it with us here today.

[laughter] Shane and my.

[laughter] chamois from I'd ask on the on the fleet and you have other providers, maybe kind of by air.

And the next couple of years, just what you expect in terms of deliveries and and and exits.

Yes.

Yeah, I cant because Theres a chart right here.

Front of me.

And.

Yes, so actually not why don't you take this you know these numbers.

And so every week.

And a lot of time, obviously with this chart.

But so we're gonna take 13 737 of Dash Nines, and 2021 nine directly from Boeing and the.

And then for on lease.

From Air lease Corp will take 30 units and 2022.

The 13, and 2023, and then 12 and 2020 or so that gets us to our 68 firm and then we of 52 options, that's called and a few and 2023, and then $24 25 and 26.

So it gives us some good flexibility and Optionality Shayne mentioned this in his script as well.

We've got a lot of deferral rates on those two so that was one of our motivations with Boeing one of them.

Flexible here and as the revenue recovery is still a bit murky.

That's helpful. Just on the Airbus side, when do you expect that kind of gave some of the remaining ex the <unk> hundred 20 ones. The rest of the to go out.

The $3 20.

For the most part and it's pretty consistent and 22 and 'twenty 310 to 15.

The leases expire and as Chris mentioned earlier, we will work with lessors to accelerate some of those because most of those airplanes.

Yeah.

And the lion's share and so we've matched up our deliveries from Boeing pretty akin to those air bus units going away.

I think it was the three.

And you talked about the 321 of the spend I think the 320 ones. There are 10 of them, they're going to stay and our fleet and the foreseeable future but.

We're open to.

And to possibility of the what we can do for that but for now there and our fleet and we intend to operate them.

That's helpful and if I might ask and just a clarifying question on the Opex outlook for <unk> and just kind of wondering how much of that is impacted by the PSC to requirements and and.

And of the $2 50 to 300 debt you're kind of targeting how much has been is kind of reflected and in that number.

Yeah, Savi sort of the PSP, we ended up having to bring back a few folks mostly on the management side.

And.

And that we had.

And unfortunately had to risk on October 1st and so they are entitled to come back through the period. The PSC covers through March.

On the frontline side, there wasn't a lot of the additional recall that had to happen and we've already been and the middle of of recalling folks to get ready for both the Q1 and Q2.

The path that we're going to deploy.

The the I think you're speaking to the structural cost savings when you were talking about the the $2 15 or $2 35.

Yeah, Yes, some of that line card or management head count reduction, it's a minor amount, but some of that is impacted.

But that's really at full run rate today.

A lot of like the other things that we're tracking towards like.

Non wage overhead stuff, just cutting consulting costs and all of the discretionary spend and that's at full run rate today and I don't think we've given specific amounts on every one of these but that's a full run rate productivity with the frontline and some of the real estate reductions that we're going to go forward with those.

And those are things that will ramp throughout the year and.

Honestly, we need a little more volume in order to help those ramp.

And then some supplier negotiations for about 50 per cent of the way through capturing that and so we will follow up with the specific number because I'm not going to total up and.

And my head on the fly here, but.

But by category and that's kind of where each one of those.

Are at from a run rate perspective.

Helpful. Thank you.

Yeah.

The next question is from Darryl Genovesi with vertical research. Please go ahead.

Hey, guys. Thanks for the time congrats.

Congrats to everybody.

I get the Andrew the there's the better.

Federal excise tax holiday on airline ticket purchases that expired at year end. So I guess this is somewhat of a ball gave me but.

I think the attacks are not pulling back of equates to about 10 per cent of the base fare.

And do you anticipate any kind of yield pressure specifically related to that I don't I guess, specifically, we're calling on the raising.

The higher fares and when that tax and that way, but I assume the revenue management system is probably think of some kind of elastic response and.

Maybe it's early to tell but just wondering kind of how you think that plays out and in.

In particular do you think that if there is a drag that it lasts into Q2 because of the booking growth.

Yeah, I don't want to comment too much about pricing I havent checked recently, what when this first.

No got reinstated I think the industry kept that fairly well and then I think and pockets it started to erode, but I think for us.

The biggest opportunity is $30 $40 and I'll get back the gaps and the reality is is that we need to fill these airplanes.

All of them is what's going to bring our revenues back for now and then we're going to worry about yield later on and so and we think that's the lowest fare option and that's the best for our brand and it's the best and keep the blood flowing through our hubs.

Cool, Thank you and then Ben.

I think.

You know operational excellence and that's been kind of of key tenant for you guys.

It's very evident that that's kind of focus and so just wondering what you're taking on more.

CEO of responsibility remember remembering everyone's name and what have you.

You know what needs to happen underneath you the kind of backfill what you've been doing I don't recall you announcing any specific personnel appointments. So if you don't Wanna mention specific names of that's fine, but just generally speaking what kind of the strategy for backfill and U.

We've worked hard on succession on the operation side and with Gary back here.

He's been with us.

The four Gary member of Us for over 10 years right now.

And we are of a strong succession plan. So the operations team is solid through and through our playbook is is mature and I don't have worried on the operational side, Daryl so well.

And we'll announce.

More of that and the near future but.

And I feel really confident.

Alright, thanks, everybody appreciate them.

And that's where we take the next question is you all kind of keep it to one question from here on out we've only got a couple of minutes left and some of them before.

Thank you.

The next question will come from Joseph de Nardi with Stifel. Please go ahead.

Oh thanks.

And just maybe one and a half but I won't ask the follow up maybe for Andrew can you just talk about the nature of your business traffic customer in terms of what industries. They come from and whether you think that that is more or less susceptible to kind of the the virtual meeting headwind and potentially just thinking about it from a tech.

The exposure perspective, and then whether you think you need to revisit cabin configuration and light of some of the uncertainties around the business traffic demand longer term or whether youre kind of happy with the what.

What you have now or whether that's kind of being evaluated at the moment. Thank you.

Yes, I think so how business is down and whether you measure of bi bookings or revenues just like everybody else's I think where we have a unique strength is especially on the and the in the Alaska and the commercial slopes of the fisherman.

The oil workers and those types of things.

And we we have strength and.

And just the nature of our business, we still have a lot of small business travelers.

Who do a fair bit of travel the big ones that all of the challenged obviously, the Microsoft and the Amazons with very strict policies right now and no travel.

And I think.

Ben mentioned, what we're excited about is that we believe will take a step change up and our participation and business travel and once it returns with one world and the international and our partnership with American.

And then your second question was having the cabin configuration, we feel really good we are.

Very thankful that we maintained our non life flat position, we think of first class seats are spot on from the demand environment and as you heard Ben mentioned, the premium class cabins come a little bit on the pressure, obviously with the lack of business demand and that's why we're blocking the middle seat, there and I'm, giving the folks extra reason to buy up into that Kevin as we come through.

At this period of time.

Thank you.

And so.

The next question is from Michael Lindenberg with Deutsche Bank. Please go ahead.

Oh, Hey, good morning, everyone and that gets done and Brad will hold up well.

And for the spin.

And like we've.

I've learned a lot from you.

I think back to when you set me up and email plenty of.

And I was calculating really wrongly so and I. Thank you for the Navy.

And what.

And it's absolutely right.

And I believe you're wrong, and where you like.

And hopefully we got it right.

<unk>.

Anyway, I guess, that's sort of thing it's a quick one here Andrew.

You know this is locked and the middle seat and the permit.

And the cabin.

And actually meet debt eat better product and your first class at least for now.

One of the additional space many of you wont be as far from people as possible. So is there and the risk of cannibalization I mean, I guess, it's great and Youre doing it and it's gonna be quite clear premium product yeah of course.

Lots of you know our board and succeed.

Any thoughts on that.

Adverse consequences.

Yeah.

We haven't seen that and I think you know we've just recently opened up the first class cabin obviously.

Since January six but you know that.

And first class cabin is a nice product and we have we actually have.

Full foodservice not hot but we have good foodservice and and of course, a lot of out of the benefits that come with the first class cabin. So you know what we'll say and of course, we can always adjust pricing along the way as we go forward and see what happens and so I'm not overly concerned I will say that we have great premium seats, and I wont get sitting and.

Those if we can make those available.

Alright, very good thank you everyone.

Thanks, Mike.

The next question is from Hunter Keay with Wolfe Research. Please go ahead.

Hey.

Brad Congratulations ma'am, good stuff and the issue.

The audit.

And we're going to make of it.

I'm sure you will call me anytime.

And if that's actually true so.

And Andrew.

You talked about obviously important to drive and volume right I get it.

To get those load factors up, but how confident and argue that the new RM system. The implement is going to be able to get you. There given your debt limit experience with it and if you could talk about how the forecast tools performed during COVID-19 and how youre going to think about using it going forward and get your loads up thanks.

Thanks, Tom.

Hospitals completely worthless will tell you that much.

The reality is.

That obviously history was no predictor of it I know and I kind of speak of the details of that test and MRI and who heads up on my RM group worked with on the dialysis and I came up with some very clever tools to help the analysts and manage the demand environment that we're in.

And yet to your point, we won't see the RM system really tested until we get volumes running through the pipes, but we had a fantastic implementation team is fully trained ready to go and so I'm still confident that the great things as well as the automation is going to occur there.

Thank you I might just add having spent time and our EM debt I think.

Unintended sort of benefit.

Having demand go to zero is actually a net good for our RM new.

The new tool like I think there's a lot of risk when you've got these over and midstream at normal levels of volumes and the we get the training the forecast perfectly now as it comes back at the man comes back so I'm actually positive momentum.

Thank you Shannon.

The next question will come from Brandon of Glinski with Barclays. Please go ahead.

Hey, good morning, everyone and congrats the brand and then and after birth the hedger.

My one question is probably a longer term one.

Ben but you have the Boeing and we're looking now.

Conservative balance sheet, the Oneworld agreement coming up.

<unk> is the future looking bright and what have you re imagining and a post COVID-19 World is this the time for you guys to be a bit more aggressive babies and in the past.

It's a great question Brandon.

First and foremost I mean were looking short term and long term first and foremost we're gonna get on solid financial footing and getting to positive cash flows and getting back the profitability is job one and rebuilding the network and really getting this one of our partnership to work, that's really and our sites I think if you look at our history of this.

Thanks to Brad is we've always positioned the company to take advantage of opportunities out there and we don't know exactly what they are but being on our toes and looking what's going on with the environment and then being opportunistic as what Alaska zone at his whole career. So we do have the strategic plan, but we also look at opportunities out there and we're going to take it as it comes and we're and that's just a fantastic.

The position to do it.

Yeah.

Thank you.

Okay.

The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.

Good afternoon, everyone, Brad and good luck of the future of Ben Congratulations.

Maybe a couple of follow up and I'll kind of.

What do you discuss so far one of your commentary on the.

The ramp and traffic that do you expect the back half of the your and your focus on filling the plans.

First of really stands out I mean is it fair to say that you expect.

And to outgrow the rising tide through 'twenty, one and 'twenty two given that it looks like you are going to be a little bit more aggressive.

And second are you seeing any evidence of the booking curve extending or kind of picking up in the back half of the year for transcontinental routes specifically.

Hey, Ravi this is Jay and I'll, let Andrew take the booking curve question I think he may have been talking about our capacity ramp as we go forward.

And yes, I mean right now like we are.

The thing that I would convey is we're right on the initial play and we set which was to be you know 80% of our formal former size by the summer.

The fleet order gives us the chance to get back to full capacity full sort of pre COVID-19 capacity in 2022, if demand is there and then the the potential for growth beyond that and we want to get back to relatively high rates of growth.

But we'll only do that if we've got the financial machine underneath it working.

And sort of justify and those investments and.

It'll be sort of interesting to see how demand comes back and and what the shape of the economy.

And this kind of new post pandemic period is.

And we will be able to I think be good at the business and any of.

Economic situation and if there are good opportunities to grow will be first to go after them is the way we're thinking about it.

And just on the on the booking.

I think we've seen this in December there was a strong demands of book into the spring and summer.

You know COVID-19 cases of being down on a steady downward trend for the past three weeks from the seven day Rolling average and we've seen a steady increase on air bookings and our net bookings.

Year over year and steadily improving pretty much every day and in fact yesterday was another very very solid booking day.

The California, starting to open up a little bit here. So a lot to come but we are on a improved true trajectory and I'm not guaranteeing and that's going to continue but we certainly headed and a good direction Andrew for <unk>.

Several weeks now we've had bookings that are 50% higher than our employment. So its definitely is optimism about the future that's right.

Yeah, Let's go ahead and take one more question and then we'll wrap the call up.

The final question will come from Dan Mckenzie with Seaport Global. Please go ahead.

Oh, Hey, Thanks for squeezing me and I'm proud of course I have to echo huge congrats Ben is just spot on with your accomplishments.

And Andrew Happy birthday, and wouldn't and it wouldn't be a proper birthday of of course of we didn't celebrate with the question here.

So I guess just.

And the expectation for business travel to return to 50 per cent by year end.

You know to what extent of the a a relationship and entry into one world. The accelerate that March back two of 100 per cent and as you know is the expectation that you could potentially get there in 2022.

I think the way to think of that business couple of real quick.

Dan is is that and number one we need to get the vaccine out and get that going well and we still got a ways to go there and number two couple of managers have to decide on the duty of care and how much friction and they're going to put in for people to travel.

And so that's an area and number three corporate America has to open up and receive people for business that is yet to happen and then the fourth one of the CFO factor, obviously, I think budgets are going to be reduced for a while.

All of that being said there will be I do believe and the back half a strong step change and demand and as we've shared working with American Airlines and one word on our global partner were seeing very solid and strong interest and new contracts in terms of network and utility that we can provide a corporate contracts. So we're very.

Bullish on getting a bit of increase.

The increased share of business travel.

Okay. Thanks for the time you guys.

Okay.

Thank you very much Dan and I think this does wrap it up. Thank you everybody. It's been fantastic I know that Ben and team or we'll look forward to talking with you all of the 90 days. We appreciate your interest and the company and the.

The same will be talking to you down the road thanks very much.

Yeah.

Thank you for participating in today's conference call. This call will be available for future playback and of Alaska Air Dotcom you may all disconnect at this time.

[music].

Good morning, My name is Thea and I will be your conference operator today at this time I would like to welcome everyone to the Alaska Air Group 2024th quarter earnings release Conference call. Today's call is being recorded and will be accessible for future playback and Alaska Air Dot Com all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session for analysts if you wish to ask a question. Please press star one on your telephone keypad. If you would like to withdraw the question press the pound Keith. Thank you at this time I would like to turn the conference over to Alaska Air Group's managing director Investor Relations Emily Halverson and please go.

Ahead.

Thank you Fiona and good morning, Thank you for joining us the fourth quarter of 'twenty and 'twenty earnings call. This morning, we issued our earnings release, which is available at Investor day at Alaska Air of Dot Com on today's call, you'll hear updates from Brad and share.

And several others of our management team are also on the line to answer your questions. During the Q&A portion of the call.

Our business and all the continues to be significantly impacted by the global and global health and economic crises that are underway and the fourth quarter reported and adjusted net loss, excluding special items and mark to market and adjustment of $316 million.

Special items. This quarter included 255 million of impairment and estimated lease return charges that were triggered as a result of certain aircraft being permanently parked twenties of millions of benefit related to the first cares Act payroll support program wage on that and.

The $2 million benefit, resulting from the expectation of certain employees will eventually be returning from long term lease early and our average daily cash burn for the quarter was approximately $3 8 million.

This call and marks the end of the unprecedented here, but also a few other important milestones as well Bradley.

And the last for 30 years, serving as the CEO for the last eight and this will be and final time speaking of the CEO to our investor audience and he will be retiring on March 31st and.

And even the likes to talk to that and so they also happens to be Andrew Harrison and birthday. Please join me for Washington, both Andrew and breadth of that.

Our comments today will include forward looking statements about future performance, which may differ materially from our actual results information on the factors.

The business can be found in our SEC filings. We will also refer to certain non-GAAP financial measures such as the adjusted earnings and unit costs, excluding fuel and other you've always provided a reconciliation between the most directly comparable GAAP and non-GAAP measures and today's earnings release.

Thanks, Emily and I had actually forgotten that today is Andrew birthday, So happy birthday from me as well Andrew and.

And good morning to all of you and everybody knows we have roughly a year into the difficult Covid crisis, which has put virtually every airline around the world to the test.

We've seen a lot of challenges over our 88 years of Alaska, but none has driven such a deep and prolonged disruption as this one.

Our people rose to this challenge and that they've done countless times before and the rest of the leadership team and I want to thank them for everything they've done and everything they're doing to ensure the Alaska emerges from this crisis better and stronger we'll talk about those things on this call.

From the onset onset of the pandemic through this uneven recovery, we remain focused on two priorities first the health and safety of our employees and our guests and second and ensuring our airline. It comes out of this crisis strong and ideally and are better positioned competitively and when we entered and these remain our priorities.

Good day.

Our COVID-19 work streams continue to align our actions around these two priorities.

And the safety front, our next level of care program is providing guests with the confidence they need to fly.

You know about the many measures we've implemented we've we've received external recognition for the east, but we also note that we also know that our guests who are flying with us are having a very positive experience and.

One of the great things about Alaska is that often our latest figure out where we're going to head next and our people figure out how to get up there that is certainly the case with our health and safety practices. If you hadn't had if you haven't had a chance to view our safety dance video, we recommend we provided a link and today's press release.

For some time now we've been analyzing our fleet and determine the best path forward.

We were anxious to see if we could use this downturn to reconfigure ourselves and the come to market with the more simple and streamlined fleet. We were pleased and the last couple of months to bring two transactions two of hand.

First we sold our 10 owned <unk> hundred Twenty's and second we received we reached terms on a restructured and enhanced order with Boeing for 68, New 737 Dash nine aircraft that will get us largely out of the Airbus fleet by the summer of 2023 and that will provide a host of other benefits.

Channel and we'll talk more about this.

Our customers and employees care greatly about Alaska, being a clear leader and the effort to reduce emissions and our carbon impact.

This is especially true given our presence on the West coast. We have long lead the industry are been on the top of couple of airlines in terms of carbon emissions per passenger and these fleet moves will do nothing but further our lead.

From a financial perspective, there is so much we can talk about but I really want to focus all of us on just two numbers.

First our revenues for 2020 were down a staggering $5 2 billion or 59% as a result of Covid.

But the second our total debt factoring and lease obligations and backing out cash on hand is essentially unchanged from last year.

I watched the industry and our company for my entire career and I can't remember a time when two numbers stood and such Stark contrast.

Cash flow from operations.

Also want to thank the terrific employees of Alaska Air group of standing behind their company during a period of significant change and I, especially want to thank the 10006 hundred of them, who took leaves of varying lengths to help us bring spending down or to save of job for someone else.

Not burdening the company, where the massive amount of new debt means that our balance sheet is unimpaired and strong which means that we can all of us forward to using it and the months and years ahead to find new opportunities for all of us.

It's very clear the congress's efforts to support the industry and its employees by providing vital funds to weather the downturn were essential to preserving our balance sheet.

All of US here want to thank leaders on both sides of the aisle and the both the Congress and the administration for their support of our industry and our employees.

And as Emily said this will be my final earnings call as CEO of this great company before.

Before I sign off I want to express my gratitude to all of you on the buy side and the sell side listening today and and the folks who came before you.

Over the years I've had the opportunity to build relationships with many of you and you have most definitely pushed us to be better.

All of these ideas more simple in concept, but they seem to ambitious and radical and an industry that for many of those years have done nothing but accumulated negative retained earnings.

Some of the greatest learnings we had came from answering your questions and then walking away realizing that we didn't love the answer we've just given you.

You've sharpened our thinking and so many areas. This is a long winded way of saying. Thank you you've made Alaska and much much better business and I really enjoyed my time with all of you and I've learned so much.

And perhaps most importantly, I want to thank our employees and the guests. The we serve this company has come so far and the last 30 years I think all of US are humbled by the success, we've experience and when we were challenged and all airlines are regularly challenged I was honored to be in the trenches with this fantastic team.

So thanks to all of you serving this great company has been and honor and while I look forward to staying involved my primary job and the future is going to be the step back and support ban and this great team as they take Alaska to the next level or do you have them.

Thanks, Brad and good morning, everyone.

And I can't pass on the opportunity to say a bit more of a breath of impact you and Alaska over the last 30 years.

And this time of the company Alaska went from being one of the smaller airlines and the industry to the fifth largest airline and the country at the.

And many of you know of Brad with CFO from February of 2000, and was instrumental of Bill air and creating the balanced business model of providing value to employees and customers.

And communities I want to highlight some of his accomplishments during his career and tenure as CEO.

Or is 30 years, our fleet grew from 117 to 330 aircraft and our guest count grew six fold from 8 million to $46 million.

And I had mentioned the CASM ex and ROIC goals of our 2010 plan mature transformative and the industry and he was instrumental and conceptualizing and and implementing that plan.

And it has laid the groundwork for the financial discipline and we're proud to have today.

And in the last decade, he oversaw our tremendous growth along the west coast, including the acquisition of Virgin America.

2019 revenues under Brad's watch had grown eight times the ninth of 1991 levels.

Brad spoke as was always long term sustainable growth and our company is stronger for it.

The most of all Brad has always stay deeply connected to our culture, our values and to the 22000 people that make up this great company.

And if any of Alaska of inter station visit Brexit its employees by name and remarkably recalls or last conversation.

You've probably experienced this yourself as part of our Investor community and.

So.

After 84 quarterly earnings calls I hope, you'll join me and congratulating, Brad and his incredible career.

Alright. Thank you for all of that you've done to make our company and what it is today and I speak for the whole team when I say, Alaska strong position, we're not of impossible without your leadership over the last 30 years.

So turning to our fourth quarter results. When we last spoke with you and October both and claimants and bookings Red peaks for the pandemic period and each month was improving from the last that trend stalled and the fourth quarter as and payments and bookings deteriorated in November and state and local closures and federal travel warnings came into effect and response to this third wave.

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And the fourth quarter, our revenue was 808 million down 64% from prior year unfavorable capacity that was down 59% from prior year sequentially.

Sequentially Sellable capacity was up 10 points from Q3, while revenue results improved seven points.

Average daily bookings have been increased and since baseball and November.

From December to January average daily bookings have increased 20% from 49000 to 58000 and <unk>.

We've experienced several things at over 70000 and note that boosted by the fantastic work. Our commercial team has been doing to promote and stay connected with our guests while customers are demonstrating interest and future travel and payments today remains stalled at around 35% of normal levels or about 40000 passengers per day.

Leisure travel continues to be the majority of our guests, both and carried passengers and and future bookings.

Markets with the strongest load factors are warm weather destinations and places with outdoor activities are strongest helped lead our system and performance longer distance routes, including Transcon markets were the worst performers and the fourth quarter similar to what you've heard across the industry.

This is the bank continues to be severely depressed and came in at approximately 15% of normal levels.

A bright spot however, and our Q4 results was our operational performance of Alaska and Horizon were among the top of the industry and on time performance for the quarter. It's important to carry this momentum forward into 'twenty and 'twenty one.

So while we had hoped the fourth quarter results would be better we're cautiously optimistic there will be a step change of demand. Once the vaccine has been broadly distributed for the past couple of calls ive sharing our thinking about the recovery and planning assumptions, we are using the plan for the future.

First I'd say the recovery has been slow and thus far we expect there will be appointed and it begins to accelerate and Ernest we've been treading water recently and believe sustained progressive improvement will begin and when do we have of widespread of vaccine rollout and states are able to relax restrictions. We are confident leisure will lead the recovery and we believe there is substantial.

Potential pent up demand for leisure travel well.

And while we know many of our corporate guests want to get back out traveling we expect the business travel will return to only 50% of normal levels by end of year and this is based on our surveys of corporate customers.

So our focus right now of keeping the company and ready for when demand does jump and making sure. We have of business model that is strong and post pandemic.

The forward with our plans to begin unblocking, the middle seats, and our main cabin, but given the low and passenger recovery. We don't anticipate this to be highly impactful to results for a few months.

We've left the middle seats blocked and our premium cabin through May 31, none of the safety precautions, but of the benefit we can provide the guests who are looking for some extra elbow and led growth.

Affordable and accessible testing and streamlined the programs also have the potential to reduce travel friction.

The clearance programs for destinations are required testing of maturing and maybe become more prevalent and December we were the first airline and the industry to offer of Hawaii found guests pre clearance on the west coast of bypassed the airport screening process of pilot on arrival and.

And the CDC has announced the new order the crime passenger is entering the U S to have proof of either and antigen, where a piece of your intense taken within three days. We're currently working with our partners and health centers and the international locations, we serve to prepare our guests and our teams for this requirement.

Given all of that I've shared with you. We believe our customers are gearing up for travel in the spring and summer and the supports our plans to prepare and to fly approximately 80% of 2019 levels by summer.

It is prudent from business and our operation to scale to those levels and a measured way.

As a result, we plan to fly accumulate capacity that is 70% of 2019 levels and expect to carry the load factor of between 40% to 45% the.

These load factor of expectations reflect the current state of stalled and claims, but we do expect health patterns to improve and the next two months and debt restrictions will begin to relax. Additionally, the return of warmer weather in the spring is expected to drive continued interest and people getting out and doing things as a result of we expect the payments to improve and March and beyond.

As we add back capacity, we will focus on our strongest hubs and the Pacific Northwest and Alaska, and as California adapts to a more open posture. We will eventually begin to focus on adding capacity back there as well. These plans do not reflect any closely and cancels that we may utilize the conditions ultimately do not support the levels of flying that we have.

Planned while our capacity plans are consistent with what we share previously changes to our fleet that have been recently announced and will impact our workforce planning and Shane will share more of that and a moment.

The choppy recovery in 2021 and will present us with challenges as we scale of business back, but we have a lot to look forward to our entry into one world is just two months away.

And as we move forward with our partnership with the American This will bring incredible value to our guest and increased opportunities for our airlines and our teams are also laser focused on aggressive cost control increases and productivity and the operational and financial discipline and I'll ask us and all four this will put us on the path back to profitability.

2000, Twenty's and spent a year like no other but I am proud when I look at what we achieved the ways, we improved and the strength of carry with us into the new year I truly believe that our best days are ahead of us and our great people are ready for what it will take the climb out of this crisis the over to Shane.

Thanks, Ben and good morning, everyone.

My comments will cover similar areas of the past couple of calls with a focus on liquidity and net debt cost and cash burn during the quarter and expectations going into 2021 of.

Also briefly discuss our recent order and fleet plan.

We ended the year with $1 7 billion and adjusted net debt, which was essentially flat from year end 2019, we believe will be the only airline to achieve flat net debt without having to issue equity.

With no impairments to our balance sheet, we are well positioned to capitalize on the recovery.

We removed $2 4 billion and expenses in 2020, shrunk capital spending and move to secure structural cost savings going forward.

These actions, coupled with $750 million and direct grant aid from Congress to maintain industry drops we're able to fully offset our revenue loss to maintain flat net debt.

Regarding liquidity during 2020, we've created access to over $5 billion and incremental liquidity and today, we have three and $5 billion of cash on hand inclusive of approximately 266 million that we received last week and then the second round of PSP we.

We also have the additional $1 8 billion and available incremental financing through the cares loan program, which we now have until may 28th to determine how much if any we will borrow.

Turning to costs adjusted operating expenses were down 27% and the fourth quarter two points better than Q3, while capacity and Q4 was up 13 point.

This performance was aided by 3300 employees remaining non leaves are and kind of lines reduce costs driven by the now 40 permanently parked Airbus aircraft and several favorable resolution of the vendor negotiations, resulting and onetime savings.

Additionally, we saw the ramping of several of the structural cost initiatives that we detailed for you on the last call toward run rate levels, including permanent wage reductions non wage overhead spend reductions and supplier rate reductions.

Variable cost for the quarter were up with the added capacity.

And our Covid business recovery program of goals based bonus program that was designed to align our employees and managing this crisis paid out of a target as a result of our employees' fantastic work around safety and our industry, leading cash burn reduction efforts this drove incremental costs and the fourth quarter. So the program with an effective way to align our employees around.

Important tools this past year.

Our GAAP operating expenses include several one time charges that I'd like to touch on briefly including approximately $255 million of impairment charges associated with the write off of lease assets and recognition of lease return cost estimates for aircrafts that we are permanently parked.

We also recognized a credit of $102 million for the revision of our estimated pilot incentive leaves.

As you know we designed our lead programs early in the third quarter.

Since then we have finalized the significant fleet decision that allowed us to refine our schedule, which now reflects the higher mix of Boeing flying.

Cross training and return to work schedules were impacted by these changes.

We have designed the program to have flexibility for just this reason.

While we have done well this year of managing spend and making our cost structure more variable we have more work to do to return of Alaska. The pre Covid. The unit cost for 30 years now our formula has been to have low fares enabled by low costs, which are driven by a high productivity and low overhead and mindset.

And she even though it isn't easy and.

And it takes leadership focus.

Excellent execution of our operation and buy and from our people and the post pandemic period. We believe the same principles will ultimately be required to drive our business recovery.

Our average cash outflows as defined under the cash burn metrics were approximately $450 million per month, and Q4, which is in line with the expectation we shared with you on our last call our cash burn and the fourth quarter of approximately $3 8 million per day was the sequential improvement from the third quarter, driven primarily by improvements in demand.

Spite the Choppiness that developed in November and December.

Beginning today, we are sunsetting, the monthly cash burn guidance that we introduced and the initial phase of this crisis.

Ted we will provide quarterly operating cash flow expectations, which are more direct measure of the health of our business as we believe the acute liquidity risks that mattered and 2020 have been mitigated by our available liquidity.

With that I will turn to 2021 cash and cost guidance has been detailed we anticipate operating capacity of approximately 70% of 2019 levels in Q1, and 80% by summer of this will naturally bring incremental funding costs back into the business.

Last quarter I detailed for you of approximately $215 million and cost initiatives and have already been identified are secured we have since identified an additional $50 million of savings, including $10 million and fleet related savings as we begin replacing the Airbus with Max aircraft and $10 million and real estate related reductions and <unk>.

And $30 million and productivity related initiatives. Some initiatives are now of the run rate levels, while others will ramp through 2021.

We expect our operating cash flow for the first quarter inclusive of PSP funds to be flat to minus $100 million.

However, I believe cash flows from operations will be positive during the first half of the year. If the vaccine rollout works as we all expect it will and allows demand to snap up.

Given what I've shared about our liquidity and these cash flow expectations. We currently have no plans to draw any incremental financing and the first quarter.

But from the before I turn the call over for questions I of course would like to touch on the very exciting news that came out just before Christmas regarding the future of our fleet. The order, we jointly announced with Boeing provides a clear path to transition into a higher gauge more efficient aircrafts as we return our leased Airbus fleet.

The partnership between Alaska, and Boeing is as strong as ever and I'm very excited about what this order means for both of our companies I think you know we are both located here in Seattle and we.

The employees with spouses parents sons, and daughters that or Boeing and employees.

The ties between our two companies are deep and we're excited about our future together.

With the order over the next four years, we will take delivery of 68, New 737 Dash nine aircraft 13 of them leased which will largely replace our Airbus fleet. We then have options for up to 52 additional aircraft through 2026 for when we find opportunities for growth the.

The agreement feature of significant flexibility.

And the deferral rates for the majority of the order and full substitution rights to other Macs models share.

Shelf of shell the newer generations of 737 dash nine aircrafts have material lease superior economics relative to our existing older technology and <unk> hundred twenty's due to better fuel efficiency lower maintenance costs and 2000 incremental seats, each replacement will improve unit costs and provide incremental revenue opportunity for our P&L.

And as noted above the order allowed us to revise our 2021 cash outlays for Capex as we will first consume existing PDP with Boeing before beginning to pay and to PDP and again in 2022.

As a result of our 2021 capital expenditures will remain low at approximately $150 million to $250 million.

And that we will go to your questions.

At this time I would like to invite analysts and we'd like to ask the questions. Please press star and the number one on your telephone keypad and get that star one for any questions well pause for just a moment to compile the Q&A roster.

The first question will come from Duane <unk> with Evercore ISI. Please go ahead.

Hey, Thanks and air.

And Brad Congrats on the transition.

Promise you that we learned of wide from you and your team as well over the years.

Thank you Duane.

And so so big picture of your net debt is flat versus pre pandemic your.

And your share count has not changed versus pre pandemic and and relatively.

It screens pretty well so what would you say is the biggest driver of that strong relative performance is it simply.

That you had capital spending flexibility that others did not have.

And was that a function of kind of where you were in and the integration or how you structure. Your contracts. Appreciate just some detail on how exactly you were able to accomplish that.

Yeah. Thanks Duane.

It's a good question and I don't know.

More about US, obviously, then and sort of where others are situated but youre right. We did have.

A lot of flexibility with respect to managing Capex down very quickly this year.

It was one of the important features of the revise the with Boeing we wanted to keep a low level of capex required into next year and so we were happy to be able to restructure of the agreement with them and maintain the low capex posture for 2021 I think the other thing was we rallied really early and I sort of lose the week of the day, but if the sometime in late March.

But we decided this was the crisis it was gonna be a crisis for an indefinite period of time and we immediately went to the company and said we've got a we've got a sort of stopped spending immediately.

And the company responded across the board every every single employee participated and.

As Brad mentioned, we had over 10000 people.

Elective voluntary leaves give up their their own income in order to help the company or save of job for somebody else.

Working with suppliers and we changed our sort of the payment terms, we and.

We ended up paying for what we were using not necessarily exactly what contracts call in terms of the minimums.

And so we've just we've had a it's been a a lot of work over the last several months, but the the company did a phenomenal job.

Pulling costs out immediately getting cash burned down and I think we've we reached 4 million per day early and this and we sort of hovered there waiting for demand to come back and I think that's probably the biggest piece of it and then what Brad said, we came into this and a really good position, we had a phenomenal debt balance sheet coming into it we've just gotten done paid out five or $600 million of debt.

That Brandon was happy to have done and I got to go and re borrow and.

And so I think the fact that we were we were producing one five or $6 billion and cash flow pre pandemic gave us a lot of runway to non.

Got you know get and a bad position coming out. So when you lost 5.2, you only had to make up three five or $3 seven to get back to flat correct, yes debt unchanged yeah. Good change.

Are they all leases.

Does that go away can you just remind us how that impacts your balance sheet. Thank you.

Yeah, and I'll have Chris talk about the balance sheet a bit but yes. There is we have maintenance.

Hence requirements and all of these aircrafts. They are all leased and we have paid maintenance reserves, along the way and so it's going to be a relatively manageable full amount per tail as we return lease, but there will be some cash expense to bring them back up to where they need to be brought to you before we return them to the lessor.

But from a balance sheet perspective, Christopher and Mike.

Yeah, Hey, Greg.

Yeah, we did I mean, it was we impair about 40 of these the Airbus aircraft this year.

All of them were at least I think there were the 10 that we did one that we sold the air lease Corp, but there'll.

And at least and those back and we've been pair of those as well because they are part of them but.

But yes, the cash impact of those leases on the maintenance reserve side, it's really only going to be about well only it's a lot of money and $45 million to $50 million and 2021.

So the charge you see all of the P&L, it's certainly not going to turn into cash imminently or nearly picking the right now and so.

Okay I appreciate the thoughts.

Thanks, Duane Thanks Duane.

The next question will come from Catherine O'brien with Goldman Sachs. Please go ahead.

Good morning, everyone thinks of the time and I'm also just one of Echo I'm sure will be everyone's comments congratulating you Brad on your career and what you've accomplished.

Alaska.

Thank you so much Katie.

And so my.

My first question is maybe a follow up on on the fleet decision and I know, sometimes moving deliveries around the can create added costs of the OEM, but.

Given the Max grounding can we assume there was no net negative on pricing.

On the existing orders and and perhaps even from better pricing on the new orders and giving your decision to cut backs and all Boeing fleet versus keeping the dual screen, maybe that's where I've seen or not.

Yes, Thanks, Katy I might ask.

Probably won't get into the specifics of the deal.

I can I can and I can say, though that we were a long time on getting to this decision.

And I think we were really clear along the way with our good friends and partners of Boeing on what we needed in order to.

Place and order, especially right now and where we are and the the pandemic sort of cycle here of that at 60 firms and a lot of options our history with the options as we take all of them and so it could be quite a large order for us.

And a significant amount of capital that we've got to go make work for us so.

I think we feel very good about the deal that we struck with them. We're really excited about the path. We're on now.

Theres a lot of operational efficiencies and savings, we can get by by getting into a single fleet.

But I think I won't get into the any more specifics from that on the deal.

Understood fair enough.

And then a couple of really the ones on the balance sheet.

You know it sounds like.

And we're waiting to see what happens with the recovery but.

Essentially no more cash burn of cash positive cash from ops and the and.

And the first half of the year, So I guess of nuts scenario, how do you weigh taking more of the cares and one at the end of May and and then why do you think that loan or not how do you think about your balance sheet. Once he has been more of a recovery it sounded like from your comments you're making.

<unk> holding on to higher levels of liquidity for now but.

But we permanently have of higher liquidity, and then you want to stick to before contemplating and debt pay down and like how do you think through a couple of those moving pieces there and thanks for the time.

Katy Katy it's Matt. Thanks for the question I think our current cash balance is $3 4 billion, which clearly is higher than historically, Alaska as Terry yearend.

Year end 2019, we had of $1 five so I think youre going to see us carry.

Excess amount until we see sustained revenue recovery and then I think over time.

See what the what the landscape is.

Have the choice to pay down debt I do think through certainly through 2021, we're going to carry the and additional pad of liquidity just until we see sustained revenue recovery.

And I'll just ask you debt in terms of long term posture, we havent decided that we're going to be at a higher rate.

And then the one five we may end up there, we just haven't done a lot of that planning quite yet, but ultimately will.

And we'll make sure we have the ability to go out and get access to cash and a quick way if we need it but we do want to ultimately bring the cash balance down.

Understood. Thank you so much.

The next question is from Helane Becker with Cowen. Please go ahead.

And thanks, very much the operator and Brad congratulations.

The long time that Ive known you I think I've been on all of those 80 per conference calls with you.

You ask.

And you you might be.

And my first call and you guys go back.

Okay.

Because remember our and I would say think of it.

Myself.

Don't think of them 35.

And so here's a couple of questions for you on the.

The route network.

Are you thinking about adjusting the route network.

Given the fact that transcon is performing so poorly and and.

Are you.

Ready to are you, giving up on spring break traffic or are you thinking that we're going to get that back.

And we have a chance of that for not sure who wants to answer that.

And that's a great question for our CEO elect.

Thanks.

Yes, Brett so some privilege and sees the exercise.

Uh huh.

The way, we think of our route network and working closely with Andrew and his team as we are focusing of the Pacific northwest and where we're adding increasing capacity of 70% and 80% youre going to see a lot of focus and the Pacific Northwest and state of the state of Alaska, and California is going to come back as restrictions ease.

And we will add back capacity hopefully and the next 12 to 18 months in terms of transcon.

And spring break and I think we have to see what happens with.

But the vaccine rollout and with how people are feeling and relaxation of restrictions I think.

I'm optimistic with the bite and administration.

He just announced the $1 5 million vaccines of day, you would see.

And 100 days of can mean.

<unk> five and maybe we have 100 million people and the country vaccinated I think you might start seeing.

And you know people venturing out of the spring break so I think we're gonna be cautious I think we're gonna be on our toes and react appropriately.

And Andrew or anything of that.

Oh, just been answered I just to put a couple of numbers to it I think lack of New York Transcon still going to be down 80% and the first quarter as the fourth quarter, San Francisco is going to be down 68%. The same as it was in the fourth quarter. So when there's no demand and places like Hawaii, we're gonna be up 15 points and capacity and as Ben said.

Our Pacific Northwest and and we're moving things around like we've got 10 additional mainline flights.

Three of them of Cancun, and six of them of Florida and wanted to Hawaii. So as we progress we're moving out of airplanes around the go where the strongest demand is and that's where we're at on that.

Okay. That's very helpful. Thank you and then just on the one world and I know the goal at March.

March 31st I think and.

So, but that's mostly international connection opportunity connecting opportunities.

So is that is your thought getting in two one world because it makes sense to do it now and then you get the benefits and in second half of 'twenty, one or into 'twenty, two or is it the idea.

And you don't.

You know you do yeah, I guess, that's the question.

Thanks.

It's a great question and we've got the Madden and Andrew here, but what I'll say, what the one of the world. It's a couple of things, it's the partnership with American and which we call the West Coast International Alliance and we have the one of our old partnership we have.

The four international flight starting here.

And the next couple of months, we have and I'm going to.

We have Qatar that starting from Don.

We have Shanghai, starting from Seattle, they've got and bank.

The lower and we have.

And London so.

Service to our business and even the leisure travel all around the world. So we're really excited with that and when you of coupled with the Americans the.

The partnership we have of the West Coast Alliance.

And the domestic side, it's really a powerful powerful.

Net work that we can that we can offer not only from Seattle actually for all of our west coast hubs.

And I think that's one of the things we've talked about is even even though international and down there are people that like to consolidate their international travel with their domestic and theyre thinking they're going to do international down the road and so that customer of that travels internationally once or twice a year, but six or eight times domestically. We just gives us the much better chance of getting that customer and to the Alaska.

One of the mileage plan right.

That's great. Thank you very much everybody.

And thankfully thankfully.

The next question will come from Jamie Baker with Jpmorgan. Please go ahead.

Hey, good morning.

And grabbed my heartfelt best of you and your family and I'm curious if this means you'll be doing more flying and thank you for the Lumping me with the old Timers club just now.

And the people.

And for <unk>.

Thank you and for Andrew Happy birthday, I know many of the field.

Aged about three or four years and the last single year.

So hopefully hopefully do better than that.

And so <unk>.

On the ticket pricing and I'm going to try to ask it in a way that doesn't waste your time and your comfortable answering so of common question is what level of discounting is going to be needed to coax people out of their homes and personally it's not clear to me the any discounting would be necessary, but I realize the ticket price of uses a lot more complicated than that.

The reason I wanted to ask because perspective is it it seems that you've been running a fair number of promotions, but you know at a time when people are nervous about flying so can you at least comment on what sort of response, that's driven and whether we should assume that that's a blueprint.

For the future.

Is that something you're comfortable commenting on.

Yeah.

Thanks, Jamie and.

We had very significant stimulation and I'm very proud of the marketing team.

We had very heavy promotions in December and got out brand out there and got our employees engaged and we had the highest level of first class bookings highest level of a Thursday Friday Saturday boutique bookings that we've had all pandemic.

To your point I think that of lot of that was focused on future traffic, we have a lot of seats to sell into the future and so we use that opportunity coupon new was down about $7 four per cent I'm joined this quarter. So to your point, it's going to be that fine line, but we are off the demand right now and volumes and then we would follow.

<unk> come pricing, so that's sort of where we are right now okay. That's helpful and as a follow up to that and this relates to one world and.

Kind of piggy backs of what.

Lane was bringing up with connecting travel presumably that yield is going to be dilutive, which isn't to say, it's not accretive. It's just dilutive. So is that something that we should be considering on our models, because hopefully youre and affirming the.

Core yield environment as the year progresses, but at the same time, you're going to be carrying more connecting travel is that going to be impactful is it going to mean that your yield could lag that of the industry just given the coincident timing of the Oneworld entry.

You know I mean, I think and the fourth quarter I think out of international connectivity.

Connections were down 93%.

And so that's kind of take some time to come back I don't necessarily think it's going to be dilutive at all.

There might be some yield and you just.

Given the tight but I will tell you on the loyalty of the business on the connecting of our network and the loyalty program with both American and one World I think it's all going to be good news for US. Okay. That's helpful and if I could just sneaking a quick third do you have the average pilot seniority of today versus this time last year.

Oh Wow, Jamie the Shane.

We did retire 130 off the top out of 3000, but I don't think it's moved a ton just based on that so okay. The 102 hundred 30 that took early outs.

But that's it.

Attrition has been relatively muted besides that.

Thank you very much everybody.

Thanks, Nick.

The next question is from Savi <unk> with Raymond James. Please go ahead.

Hey, good morning, and Brian I'd like to take care of all the comments here on the call and Andrew and happy birthday, and I'm, sorry that you were spending it with us here today and.

[laughter] Shane.

Hi.

Sandy I might ask on the on the fleet and you have other providers, maybe kind of by year and at least for the next couple of years, just what you expect in terms of deliveries and and and exits.

Yeah, I cant because Theres a chart right here.

In front of me yes.

Actually not why don't you take the as you know these numbers.

And so.

We've spent a lot of time, obviously with with this chart, but so we were gonna take 13 737 of Dash Nines and 2021 nine directly from Boeing and.

And then for on lease.

From Air lease Corp will take 30 units and 2022.

13, and 2023, and then 12 and 2020 or so that gets us to our 68 firm and then we of 52 options, that's cold and a few and 2023 and the $2004 25 and 26.

So it gives us some good flexibility and Optionality Shayne mentioned this in his script as well.

We've got a lot of deferral rates on those two so that was one of our motivations with Boeing one of them.

Be flexible here and as the revenue recovery is still a bit murky.

That's helpful and just on the Airbus side, when do you expect and kind of some of the remaining ex the <unk> hundred 20 ones. The rest of the to go out.

The $3 20.

For the most part and it's pretty consistent and 22 and 'twenty 310 to 15.

The leases expire and as Chris mentioned earlier, we will work with lessors to accelerate some of those because most of those airplanes.

And <unk>.

So the lion share and so we've matched up our deliveries from Boeing pretty akin to those of Airbus units going away.

I think it was the three.

And you talked about the 321 of the spend and I think the 320 ones. There are 10 of them theyre going to stay and our fleet and the foreseeable future but.

We are open to.

The possibility of the way, we can do for that but for now there and our fleet and we intend to operate them.

That's helpful and if I might ask you just a clarifying question on the.

The opex outlook for <unk>, and just kind of wondering how much of that is impacted by you know the PSC to requirements and and of the $2 50 to 300 debt.

You're kind of targeting how much has been is kind of reflected and in that number.

Yeah, Savi sort of the P. S. P. We ended up having to bring back a few folks mostly on the management side.

That we had unfortunately had to risk on October 1st and so they are entitled to come back through the period that the PSC covers through March on the.

Frontline side, there wasn't a lot of the additional recall that had to happen and we've already been and the middle of of recalling folks to get ready for both the Q1 and Q2 of.

The capacity that we're going to deploy.

The the I think you're speaking to the structural cost savings when you were talking about the the $2 15 or $2 35.

Yeah, yes, some of that like our our management head count reduction, it's a minor amount, but some of that is impacted.

But that's really at full run rate today.

A lot of like the other things that we're tracking towards like non wage overhead and stuff just cutting consulting costs and all of the discretionary spend and that's at full run rate today and I don't think we've given a specific amount on every one of these but that's a full run rate productivity with the front line some of the real estate reduction that we're going to.

Go forward with.

Those are things that will ramp throughout the year and honestly, we need of a little more volume in order to help those ramp.

And then some supplier negotiations for about 50% of the way through capturing that and so we'll follow up with the specific number because I'm not going to total up and my head on the fly here, but.

But by category and Thats kind of where each one of those.

Are at from a run rate perspective.

Helpful. Thank you.

Yeah.

The next question is from Darryl Genovesi with vertical research. Please go ahead.

Hey, guys. Thanks for the time.

Congrats to everybody.

And I guess, the Andrew the there's the federal excise tax holiday on airline ticket purchases that expired at year end and so I guess this is somewhat of a ball games, but.

I think the attack not pulling back of equates to about 10% of of the base fare.

And do you anticipate any.

And he kind of yield pressure, specifically related to that I don't.

Specifically, we're calling on the rating.

Finally, higher fares and when that tax and that way, but I assume the revenue management system is probably seeing some kind of of elastic response and.

Maybe it's early and it's all but just wondering kind of how you think that plays out and the owner.

In particular do you think that if there is a drag that it lasts into Q2.

Because of the bookings growth.

Yeah, I I don't want to comment too much about pricing I havent checked recently, what when this first.

<unk> got reinstated I think the industry kept that fairly well and then I think and pockets that started to erode, but I think for us.

The biggest opportunity is $30 40 point of load back the gaps and the reality is is that we need the Phillies airplanes volume is what's going to bring out revenues back for now and then we're going to worry about yield later on and so and we think that's the lowest fare option and that's the best for our brand and it's the best to keep the the blood flowing through our hubs.

Cool, Thank you and then Ben.

I think.

You know operational excellence has been kind of of key tenant for you guys.

It's very evident that that's kind of focus and so just wondering what you're taking on more.

CEO responsibilities.

Remember remembering everyone's name and what have you.

What needs to happen underneath you the kind of backfill what you've been doing I don't recall you announcing any specific personnel appointments. So if you don't want to mention any specific names that's fine, but just generally speaking what kind of the strategy for backfill and U.

We've worked hard on succession on the operation side and with Gary back here. He is.

And then with us.

And for Gary of them with us for over 10 years right now.

And we have a strong succession plan and so the operations team is solid through and through our playbook is.

As mature and I don't have worried on the operational side Daryl so.

We'll announce.

More of that and the near future but.

And I feel really confident.

Alright, thanks, everybody appreciate them.

That's why we take the next question of you all could keep it to one question from here on out we've only got a couple of minutes left and some of them before the guy. Thank you.

The next question will come from Joseph de Nardi with Stifel. Please go ahead.

Oh thanks.

This may be one five but I won't ask the follow up maybe for Andrew can you just talk about the nature of your business traffic customer in terms of what industries. They come from and whether you think that that is more or less susceptible to kind of the the virtual meeting headwind potentially just thinking about it from a cash.

The exposure perspective and.

And then whether you think you need to revisit cabin configuration and light of some of the uncertainties around the business traffic demand longer term or whether youre kind of happy with the.

What you have now or whether that's kind of being evaluated at the moment. Thank you.

Yes, I think so and how.

And how business is down and whether you measure of bi bookings or revenue is just like everybody else's.

Where we have a unique strength is especially on the and and the Alaska and the commercial slopes of the fisherman.

And the oil workers and those types of things.

We have strength.

And.

And just the nature of our business, we still have a lot of small business travelers.

Who do a fair bit of travel of the big ones that all of the challenged obviously, the Microsoft and the Amazons with very strict policies right now and no travel.

So I think.

Ben mentioned, we're excited about is that we believe will take a step change up and a participation of business travel and once it returns with one world and the international and our partnership with American.

And then your second question was having kind of cabin configuration, you know we feel really good we are.

Very thankful that we maintained our non life flat position, we think of first class seats are spot on from the demand environment and as you have been mentioned the premium class cabins come a little bit on the pressure, obviously with the lack of business demand and that's why we're blocking the middle seat, there and I'm, giving the folks extra reason to buy up into that Kevin as we come through.

At this period of time.

Yeah.

Thank you.

And so.

The next question is from Michael Lindenberg with Deutsche Bank. Please go ahead.

Oh, Hey, good morning, everyone and not get stuff and Brad what went up quite a lot of a bunch of the spin.

And like.

I've learned a lot from you and fact that I think back to when you set me up and email tiny but that was cash.

And really.

And it wrongly so thank you for that and maybe kind of line.

No.

That's the right.

Hi.

And I believe you're wrong, and where you like.

Hopefully we got it right.

No.

Anyway, I guess that's of interest.

The thing.

Well Andrew.

You know this is locked and the middle seat and the pervasive and cabin.

And actually make that a better product and you.

First class for the.

Once the issue of space, maybe you want to be as far from people as possible. So is there and the risk of cannibalization I mean, I think it's great and you're doing it it's kind of.

The quick for your premium product.

Of course seats and lots of four and succeed.

Thoughts on that and <unk>.

Worse consequences.

Yeah.

And seeing that and I think we've just recently opened up the first class cabin obviously.

Since January six but.

And first class cabin and the nice product and we have we actually have.

Full foodservice not hot but we have good foodservice and and of course, a lot of all of the benefits that come with the first class cabin and so you know.

And what we'll say and of course, we can always adjust pricing along the way as we go forward and see what happens and so I'm not overly concerned I will say debt, we have great premium seats, and I won't guess sitting and those if we can make those available.

Alright, very good thanks very much.

And thank Mike.

The next question is from Hunter Keay with Wolfe Research. Please go ahead.

Hey.

Brad Congratulations ma'am, good stuff and the issue right the audit.

And we're going to make of it.

And I'm sure you will.

Call me anytime.

And if that's actually true so.

And Andrew.

You talked about obviously the importance of driving volume right I get it.

And you get those load factors up, but how confident and argue that the new RM system. The implemented it's going to be able to get you there given your debt limit experience with it and if you could talk about how the forecast tools performed during COVID-19 and how youre going to think about using it going forward to get your loads up.

<unk>.

Thanks on the.

Forecasts bowls completely worthless, we'll pay that much.

The reality is that.

And that obviously of history of is no predictor of it I know and I and I can't speak to the details of that test and MRI and who heads up on my R&D group worked with Amadeus and I came up with some very clear the tools to help the analysts and manage the demand environment that we're in.

Debt to your point and we won't see the RM system really tested until we get volumes running through the pipes, but we had a fantastic implementation payments fully trained ready to go and so on.

And I'm still confident that the great things as well as the automation is going to occur there.

Thank you I might just add having spent time and our EM debt I think.

Unintended sort of benefit.

Having demand go to zero and is actually a net good for our RM new.

New tool like I think there's a lot of risk when you've got these over midstream at normal levels of volumes and that we get the train the forecast perfectly now as it comes back at the man comes back so I'm actually positive momentum.

Thank you Shane.

The next question will come from Brandon of Glinski with Barclays. Please go ahead.

Hey, good morning, everyone and congrats Brandon and then and have the perfect answer.

And my one question is probably a longer term one.

And but you have the Boeing and looking now pretty conservative balance sheet, the one where all of the agreement coming up.

Is the future of looking bright and what have you re imagining and the post Covid World is this the time for you guys to be a bit more aggressive maybe than in the past.

It's a great question Brandon.

First and foremost I mean, we're looking short term and long term the first and foremost we're going to get a solid financial footing and getting positive cash flows and getting back to profitability is job one rebuilding the network and really getting us one of our partnership to work, that's really and our sites I think if you look at our history of this.

Thanks to Brad is we've always positioned the company and take advantage of opportunities out there and we don't know exactly what they are but being on our toes and looking what's going on with the environment and then being opportunistic as what Alaska and zone at his whole career. So we do have a strategic plan, but we also look at opportunities out there and we're going to take it as it comes and we're and it just a.

The position to do it.

Thank you.

Thanks, Brian.

The next question is from Ravi Shanker with Morgan Stanley. Please go ahead.

Thanks, Good afternoon, everyone, Brad and good luck of the future of Ben Congratulations.

Maybe a couple of follow up and kind of what you discussed so far one is of your commentary on the the.

And the ramp and traffic that you expect the back half of the your and your focus on filling the plans.

First.

And really stands out I mean is it fair to say that you expect.

To outgrow the rising tide through 'twenty, one and 'twenty two given that it looks like you are going to be little bit more aggressive.

And second are you seeing any evidence of the booking curve extending or kind of picking up in the back half of the year for transcontinental routes specifically.

Hey, Ravi this is Jay and I'll, let Andrew take the booking curve question I think he may have been talking about our capacity ramp as we go forward.

And yes, I mean right now like we are.

I think the thing that I would convey is we're right on the initial play and we set which was to be 80% of our formal former size by the summer.

The fleet order it gives us the chance to get back to full capacity of sort of pre COVID-19 capacity.

In 2022, if demand is there and then the the potential for growth beyond that and we want to get back to relatively high rates of growth.

But we'll only do that if we've got the financial machine underneath it working.

And sort of justify and those investments and.

It'll be sort of interesting to see how demand comes back and and what the shape of the economy.

And this kind of new post pandemic period is.

And we will be able to I think be good at the business and any air.

Economic situation and if there are good opportunities to grow will be first to go after them is the way we're thinking about it.

And just on the on the booking.

You know I think we've seen this in December there was a strong demand and book into the spring and summer.

Covid cases of being down on the steady downward trend for the past three weeks and a seven day rolling average and we've seen a steady increase on air bookings and our net bookings and <unk>.

Year over year and steadily improving pretty much every day and in fact yesterday was another very very solid booking day.

California, starting to open up a little bit here, so I'll ask to come but we are on a improved.

And three and I'm not guaranteeing and that's going to continue but we're certainly headed and a good direction Andrew Sir.

Every week now we've got bookings that are 50% higher than our employment. So that's definitely is the optimism about the future that's right.

Yeah, Let's go ahead and take one more question and then we'll wrap the call up okay.

Okay. The final question will come from Dan Mckenzie with Seaport Global. Please go ahead.

Oh, Hey, Thanks for squeezing me and I'm proud of course I have to echo huge congrats Ben is just spot on with your accomplishments.

And Andrew Happy birthday, it wouldn't and it wouldn't be a proper birthday of course, if we didn't celebrate with the question here.

So I guess just.

And the expectation for business travel to return to 50% by year end.

You know to what extent, there's the a a relationship and entry into one world. The accelerate that March back two of 100 per cent and as you know is the expectation that you could potentially get there in 2022.

I think the way to think of that business travel of real quick.

And then as is the number.

Number one we need to get the vaccine out and get that going well and we still got a ways to go there and number two couple of managers have to decide on the duty of care and how much friction and they're going to put in for people to travel and.

So that's an area and number three corporate America has the open up and receive people for business that is yet to happen and then the fourth one of the CFO of factor, obviously, I think budgets are going to be reduced for awhile.

And all of that being said there will be I do believe and the back half a strong step change and demand and as we've shared working with American Airlines and one would on a global upon the we're seeing very solid and strong interest and new contracts in terms of network and utility that we can provide a corporate contracts. So we're very.

Bullish on getting a better.

Increased share of business travel.

Okay. Thanks for the time of guys.

Okay.

Thank you very much Dan and I think this does wrap it up. Thank you everybody. It's been fantastic I know that Ben and Tamar will look forward to talking with you all and 90 day. We appreciate your interest and the company and the.

The same will be talking to you down the road thanks very much.

Okay.

Thank you for participating in today's conference call. This call will be available for future playback and Alaska Air Dot Com you may all disconnect at this time.

Q4 2020 Alaska Air Group Inc Earnings Call

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