Q4 2023 Alaska Air Group Inc Earnings Call

This call is being recorded and will be accessible for future playback at Alaska Air Dot Com.

After our speakers remarks, we will conduct a question and answer session for analysts.

I would now like to turn the call over to Alaska Air Group's Vice President of Finance planning and Investor Relations Ryan St. John.

Thank you operator and good morning, Thank you for joining us for our fourth quarter 2023 earnings call. This morning, we issued our earnings release, along with several accompanying slides detailing our results which are available at Investor Day, Alaska Air Dot Com on.

On today's call, you'll hear updates from Ben Andrew or Shane several others of our management team are also on the line to answer your questions. During the Q&A portion of the call.

This morning Air Group reported a fourth quarter GAAP net loss of $2 million, excluding special items and mark to market fuel hedge adjustments Air group reported adjusted net income of $38 million.

As a reminder, our comments today include forward looking statements about future performance, which may differ materially from our actual results.

Formation on risk factors that could affect our business can be found within our SEC filings.

Ben Andrew: We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel and as usual we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release over to you Ben.

Ben: Thanks, Ryan and good morning, everyone.

Ben: Alaska Airlines closed out another great year in 2023.

Ben: Before we get to those results I want to address the recent grounding of our 737 Max nine fleet.

Ben: I am deeply sorry to everyone on board flight <unk> for what they experienced on January five and to all of those who have seen their travel plans disrupted by cancellations.

Ben Andrew: We are looking forward to returning to the reliable service you know and expect from us.

Ben Andrew: Our number one value and our absolute priority is and will always be safety.

Ben Andrew: As you May know following the accident, we proactively ground at our 65, Max nine aircraft, which was followed by a directive by the FAA to do so for all U S based operators of the fleet.

Ben Andrew: This had a material operational and financial impact on our business with approximately one third of our January capacity impacted by the grounding.

Ben Andrew: Additionally, we believe it is likely that several aircraft deliveries could be delayed which would further affect our full year capacity plans, which we initially anticipated would be between three and 5% over 2023 levels.

Ben Andrew: Our primary focus right now is the safety of our guests our people and our fleet.

Ben Andrew: We remain committed to working diligently alongside the NTSB.

Ben Andrew: And Boeing to return our aircraft safely to service and ensure this never happens again.

Ben Andrew: As a longtime valued partner, we remain fully committed to our relationship with Boeing but we also intend to hold them accountable. There is work to be done, but we have the utmost confidence with FAA oversight as well as our own that Boeing will emerge with improved quality processes as a better and safer.

Ben Andrew: Sure.

Ben Andrew: I also want to take a moment to thank our employees for their response to this event and its aftermath.

Ben Andrew: Safety and care are at the heart of everything we do and our people continue to demonstrate the highest standards of professionalism and caring for our guests and each other.

Ben Andrew: It has been a long and difficult few years since 2020, and I continue to be amazed at this resilient team of employees railing to meet any challenges put in front of us they demonstrate the Alaska spirit, each and everyday.

Ben Andrew: Now, let's turn to our results as I consider 2023 in its totality I am proud of our company's accomplishments over the year.

Ben Andrew: We competed for the industry's best margin and we're close to achieving this goal in 2023 had it not been for surging international demand and a one five point margin impact from higher West coast fuel refining costs, both of which I believe are transitory impacts to our business. We would have once again posted the high.

Ben Andrew: Margin in the industry.

Ben: Given our strong year of performance I am proud to announce there are people will see another great bonus as we will pay out approximately $200 million.

Ben: Were on average six 4% of an employee salary.

Proved quality processes, as a better and safer manufacturer.

Ben: This is the 14th time in the past 15 years that we've paid above target for our performance based pay program.

I also want to take a moment to thank our employees for their response to this event and its aftermath.

Ben: Our cost execution was unmatched as we delivered the best CASM ex result in the industry down two 6% year over year.

Safety and care are at the heart of everything we do and our people continue to demonstrate the highest standards of professionalism and caring for our guests and each other.

Ben: This result was at the better end of our originally guided range first communicated in December of 2022, it's worth noting that throughout the course of the year. The majority of the industry revised cost guidance higher while we did not.

It has been long and difficult few years since 2020, and I continue to be amazed at this resilient team of employees railing to meet any challenges put in front of us.

Demonstrate the Alaska spirit, each and every day.

Ben Andrew: It proves to me our cost discipline DNA remains well embedded in the company's culture, and we will continue to over the long term have a durable competitive advantage over our peers in this critical area of the business.

Now, let's turn to our results as I consider 2023 in its totality I am proud of our company's accomplishments over the year.

We competed for the industry's best margin and we're close to achieving this goal in 2023 had it not been for surging international demand and a one five point margin impact from higher West coast fuel refining costs, both of which I believe are transitory impacts to our business. We would have once again posted the <unk>.

Ben Andrew: We ran at excellent operation as we prioritize reliability in 2023 hitting record completion rates throughout the summer. We ended the year with a 99, 3% completion rate even as we finally surpassed pre pandemic levels of flying and manage the successful transition out of our Airbus fleet.

Higher margin in the industry.

Ben Andrew: Our process driven operational playbook works.

Given our strong year of performance I am proud to announce there are people will see another great bonus as we will pay out approximately $200 million.

Ben Andrew: We delivered that premium experience our guests have come to expect and we have every expectation to continue to be a best in class operator in 2024, once our nine Max fleet returns to service.

Were on average six 4% of an employee salary.

This is the 14th time in the past 15 years that we've paid above target for our performance based pay program.

Ben Andrew: Our balance sheet remains one of the strongest in the industry with net leverage below our long term target of one five times for the second year in a row we.

Our cost execution was unmatched as we delivered the best CASM ex result in the industry down two 6% year over year.

Ben Andrew: We restarted share repurchases in 2023, reaching $145 million or $3 5 million shares.

This result was at the better end of our originally guided range first communicated in December of 2022, it's worth noting that throughout the course of the year. The majority of the industry revised cost guidance higher while we did not.

Ben Andrew: Which is nearly two times annual dilution our strong balance sheet has provided the foundation for our growth and expansion over the years, including pursuing our proposed acquisition of Hawaiian Airlines.

It proves to me our cost discipline DNA remains well embedded in the company's culture, and we will continue to over the long term have a durable competitive advantage over our peers in this critical area of the business.

Ben Andrew: And as a quick update we initiated the process of obtaining antitrust clearance by submitting our HSR filing this month.

Ben Andrew: We've held the initial conversations with the Doj and the process will continue we believe we have a stronger and differentiated case from Jetblue and spirit and look forward to providing updates as they become available.

We ran at excellent operation as we prioritize reliability in 2023 hitting record completion rates throughout the summer. We ended the year with a 99, 3% completion rate even as we finally surpassed pre pandemic levels of flying and manage the successful transition out of our Airbus fleet.

Ben Andrew: Lastly, we generated a record $10 4 billion in revenue, 46% of which comes from our premium loyalty and ancillary revenues. We brought in $1 6 billion in cash from our loyalty program and added five new global partners, bringing our total partner portfolio to 30.

Our process driven operational playbook works.

We delivered the premium experience our guests have come to expect and we have every expectation to continue to be a best in class operator in 2024, once our nine Max fleet returns to service.

Ben Andrew: Much of the hard work, we put into 2023 will carry into 2024.

Our priorities remain focused on one unyielding safety and investing in our people and culture to elevating our commercial initiatives to deliver a premium brand experience as the only domestic oriented carrier with a comprehensive offering and three maintaining a competitive cost structure.

Our balance sheet remains one of the strongest in the industry with net leverage below our long term target of one five times for the second year in a row.

We restarted share repurchases in 2023, reaching $145 million or $3 5 million shares which is nearly two times annual dilution. Our strong balance sheet has provided the foundation for our growth and expansion over the years, including pursuing our proposed acquisition.

Ben Andrew: The combination of which we know provides the foundation to drive durable financial performance.

Ben Andrew: 2024 has begun under very difficult circumstances, but we are optimistic about what we can accomplish this year.

Hawaiian Airlines: Of Hawaiian Airlines.

Hawaiian Airlines: And as a quick update we initiated the process of obtaining antitrust clearance by submitting our HSR filing this month.

Ben Andrew: Absent the grounding event, we were heading for a significantly improved first quarter results versus 2023.

Hawaiian Airlines: We've held initial conversations with the Doj and the process will continue we believe we have a stronger and differentiated case from Jetblue and spirit and look forward to providing updates as they become available.

Ben Andrew: As I stated in April of last year, we are committed to returning to breakeven or better results in the first quarter and I believe we've made tangible progress toward that goal last year, we lost $115 million in this period and we were on track to drive a 30% improvement this year as the network.

Hawaiian Airlines: Lastly, we generated a record $10 $4 billion in revenue, 46% of which comes from our premium loyalty and ancillary revenues. We brought in $1 6 billion in cash from our loyalty program and added five new global partners, bringing our total partner portfolio to 30.

Ben Andrew: Changes, we made began taking effect.

Ben Andrew: As it has been for years, our goal is to concentrate our efforts on building preference for airline through a premium experience and a fundamentally sound business model that endures over the long run one that is resilient through cycles and creates a durable financial returns for all our stakeholders, we made great progress.

Hawaiian Airlines: Much of the hard work, we put into 2023 will carry into 2024.

Hawaiian Airlines: Our priorities remain focused on one unyielding safety and investing in our people and culture to elevating our commercial initiatives to deliver a premium brand experience as the only domestic oriented carrier with a comprehensive offering and.

Andrew: In 2023, and we are well positioned to do much more in 2024 and with that I'll turn it over to Andrew Thanks, Ben and good morning, everyone.

Andrew Thanks: Today, My comments will focus on fourth quarter and full year results, along with Q1 revenue trends.

Hawaiian Airlines: Maintaining a competitive cost structure.

Hawaiian Airlines: The combination of which we know provides the foundation to drive durable financial performance.

Andrew Thanks: Fourth quarter revenues reached $2 $6 billion up nearly 3% year over year coming in slightly ahead of the midpoint of the revised guidance, we put out in early December.

Hawaiian Airlines: 2024 has begun under very difficult circumstances, but we are optimistic about what we can accomplish this year.

Hawaiian Airlines: Absent the grounding event, we were heading for a significantly improved first quarter results versus 2023 as.

Andrew Thanks: Capacity finished the quarter up 13, 6%.

Andrew Thanks: We saw a strong finish to the year in December with limited weather events and excellent operational performance to support holiday travel. This resulted in record traffic and coupon revenue up 7%.

Hawaiian Airlines: As I stated in April of last year, we are committed to returning to breakeven or better results in the first quarter and I believe we've made tangible progress toward that goal last year, we lost $115 million in this period and we were on track to drive a 30% improvement this year as the network.

Andrew Thanks: For the full year, we generated a record $10 $4 billion in revenue.

Ben Andrew: This was up eight 1% versus 2022 on capacity of 12, 8%, resulting in full year unit revenue down approximately 4%.

Hawaiian Airlines: As we made began taking effect.

Hawaiian Airlines: As it has been for years, our goal is to concentrate our efforts on building preference for airline through a premium experience and a fundamentally sound business model that endures over the long run.

Ben Andrew: The improvement we saw in unit revenue through year end showed a marked strengthening in our core revenue.

Ben Andrew: Unit revenues improved from down 13% in August two down 9% in December notwithstanding we grew December capacity two points more than August year over year.

Hawaiian Airlines: One that is resilient through cycles and create durable financial returns for all our stakeholders. We made great progress in 2023, and we are well positioned to do much more in 2024 and with that I'll turn it over to Andrew Thanks, Ben and good morning, everyone.

Ben Andrew: This is a full point improvement underscoring a strengthening pricing environment from continued normalization of international demand and industry adaptation to post COVID-19 demand realities.

Andrew: Today, My comments will focus on fourth quarter and full year results, along with Q1 revenue trends.

Ben Andrew: On managed business travel consistent with what we've shared before our belief is that we are seeing a slow and steady recovery for example in the fourth quarter, our portfolio saw strong 15% year over year revenue growth on higher volumes and yields overall.

Andrew: Fourth quarter revenues reached $2 $6 billion up nearly 3% year over year coming in slightly ahead of the midpoint of the revised guidance, we put out in early December.

Andrew: Capacity finished the quarter up 13, 6%.

Ben Andrew: Overall business revenues are within 5% of 2019 levels with most industries now fully recovered the notable exceptions at tech and professional services, which still lag other industries.

Andrew: We saw a strong finish to the year in December with limited weather events and excellent operational performance to support holiday travel. This resulted in record traffic and coupon revenue up 7%.

Ben Andrew: I did see 26% and 14% year over year revenue growth respectively in Q4.

Andrew: For the full year, we generated a record $10 $4 billion in revenue.

Hawaiian Airlines: This was up eight 1% versus 2022 on capacity of 12, 8%.

Ben Andrew: Premium cabin revenues also continued its solid performance in 2023.

Hawaiian Airlines: Resulting in full year unit revenue down approximately 4%.

Ben Andrew: First and premium class revenues finished up 15% and 10% respectively for the year continuing to substantially outpace main cabin revenue.

Hawaiian Airlines: The improvement we saw in unit revenue through year end showed a marked strengthening in our core revenue.

Ben Andrew: At nearly 32% of total revenue our premium product orientation provides a clear point of differentiation against our domestic focused peers.

Hawaiian Airlines: Unit revenues improved from down 13% in August two down 9% in December notwithstanding we grew December capacity two points more than August year over year.

Ben Andrew: Which will continue to be a core competitive advantage for us in years to come.

Hawaiian Airlines: This is a full point improvement underscoring a strengthening pricing environment from continued normalization of international demand and industry adaptation to post COVID-19 demand realities.

Ben Andrew: Regarding loyalty bank cash remuneration also hit a new record, bringing in $1 6 billion for the full year up approximately 13% year over year.

Hawaiian Airlines: On managed business travel consistent with what we've shared before our belief is that we are seeing a slow and steady recovery for example in the fourth quarter, our portfolio saw strong 15% year over year revenue growth on higher volumes and yields overall.

Ben Andrew: We also continue to thoughtfully build value in our loyalty programs through our extensive portfolio of domestic and international partnerships and alliances, which represent approximately 7% of our total revenue.

Andrew Thanks: In 2023, we added five new partners, bringing our total airline partnerships to 30 21 of which we now sell on Alaska Air Dot Com.

Overall business revenues are within 5% of 2019 levels with most industries now fully recovered the notable exceptions at tech and professional services, which still lag other industries.

Ben Andrew: Our pivot to selling patents on Alaskaair com, we believe will be a big unlock for us.

Hawaiian Airlines: I did see 26% and 14% year over year revenue growth respectively in Q4.

Ben Andrew: We expect to further build out our selling platform in 2024, including a significant add in British Airways, who have never sold direct from our website other than for award redemptions selling our partners direct has three significant benefits first our website becomes increasingly valuable as a.

Hawaiian Airlines: Premium cabin revenues also continued its solid performance in 2023.

Hawaiian Airlines: First and premium class revenues finished up 15% and 10% respectively for the year continuing to substantially outpace main cabin revenue.

Andrew Thanks: One stop shop, providing a step change in utility for guests through expanded booking options for both domestic and international trips second it further rewards guest loyalty when al guest book Itineraries on our partners through Alaskaair com they benefit from Alaska as generous policy such as no.

Hawaiian Airlines: At nearly 32% of total revenue our premium product orientation provides a clear point of differentiation against our domestic focused peers.

Hawaiian Airlines: Which will continue to be a core competitive advantage for us in years to come.

Hawaiian Airlines: Regarding loyalty bank cash remuneration also hit a new record, bringing in $1 6 billion for the full year.

Ben Andrew: Change fees, and importantly, full mileage accrual for main cabin and above an old partners, we sell directly which is not available through other channels.

Hawaiian Airlines: Approximately 13% year over year.

Hawaiian Airlines: We also continue to thoughtfully build value in our loyalty programs through our extensive portfolio of domestic and international partnerships and alliances which.

Alaska: Third it drives incremental revenue to Alaska in December 38% of partner revenue sold on Alaska Air Dot Com was attributable to an Alaska operated segment.

Which represent approximately 7% of our total revenue.

Andrew Thanks: In 2024, we plan to sell approximately 5000 tickets per day on partner flights, which is double what we sold in 2023 as we grow partner styles on Alaska Air Dot Com, we will also improve our own operated revenues.

Hawaiian Airlines: In 2023, we added five new partners, bringing our total airline partnerships to 30 21 of which we now sell on Alaska Air Dot Com.

Hawaiian Airlines: Our pivot to selling patents on Alaska Air Comm, we believe will be a big unlock for us we.

Andrew Thanks: Now turning to our outlook and guidance.

Hawaiian Airlines: We expect to further build out our selling platform in 2024, including a significant add in British Airways.

Andrew Thanks: Assuming a gradual return of service of the Max nine fleet through the first week of February we expect to have canceled over 3000 flights during January impacting our first quarter capacity by seven points.

Hawaiian Airlines: We have never sold direct from our website other than for award redemptions selling our partners direct has three significant benefits first our website becomes increasingly valuable as a one stop shop, providing a step change in utility for guests through expanded booking options for both domestic and.

Andrew Thanks: Which will result in capacity being down mid single digits year over year for the quarter.

Andrew Thanks: Given the time of year is seasonally low from a demand standpoint, we've been able to rebook over half of those guests impacted by cancellations back onto Alaska flights.

Hawaiian Airlines: Anil trips.

Hawaiian Airlines: Second it further out rewards guest loyalty.

Now guests book Itineraries on our partners through Alaskaair com, they benefit from Alaska's generous policy, such as no change fees and importantly, full mileage accrual for main cabin and above an old partners, we sell directly which is not available through other channels.

Andrew Thanks: Additionally capacity flexibility at our regional carrier horizon.

Andrew Thanks: Due to lower pilot attrition has resulted in their operation of more than 150 unscheduled flights.

Andrew Thanks: This has allowed us to rebook over 10000 impacted guests and get them to their destinations.

Hawaiian Airlines: Third it drives incremental revenue to Alaska in December 38% of partner revenue sold on Alaska Air Dot Com was attributable to an Alaska operated segment in 2024, we plan to sell approximately 5000 tickets per day on partner flights, which is double what we sold in two.

Ben: As Ben mentioned, we were on an excellent revenue trajectory for the first quarter prior to the Max nine grounding, we had line of sight to unit revenues up 1% to 2% year over year on low single digit growth withheld yields improving one to two points per week to start the year.

Hawaiian Airlines: Thousand 23.

Hawaiian Airlines: As we grow partner sales on Alaska Air Dot Com, we will also improve our own operated revenues.

Ben: This is a significant 11 point change in trajectory in unit revenue performance from Q4 of 23.

Hawaiian Airlines: Now turning to our outlook and guidance.

Ben: As we sit here today Hell yield for February and March is marginally positive with daily sold yield up 8%. This past week clearly we are seeing the benefits from capacity adjustments to new post COVID-19 demand realities strategically reshaping our network and applying our learnings to utilize our assets more.

Hawaiian Airlines: Assuming a gradual return of service of the Max nine fleet through the first week of February we expect to have canceled over 3000 flights during January impacting our first quarter capacity by seven points, which will result in capacity being down mid single digits year over year for the quarter. However.

Ben: Emily.

Ben: We are seeing strong unit revenue performance from bookings in our highest frequency business markets and ensure California, where we reduced capacity double digits year over year.

Hawaiian Airlines: Given the time of year is seasonally low from a demand standpoint, we've been able to rebook over half of those guests impacted by cancellations back onto Alaska flights. Additionally.

Emily: Several new leisure markets are also performing well right out of the gate.

Hawaiian Airlines: Additionally capacity flexibility at our regional carrier horizon due to lower pilot attrition has resulted in their operation of more than 150 unscheduled flights.

Emily: And then lastly, the general fare environment is improving along with the competitive capacity backdrop in our markets.

Emily: For the past six months competitive capacity was up high single digits, but trending towards flat in Q1 ahead of low single digit growth in the second quarter at this point in time, our held load factor does for Q1, our near flat and daily intakes remain positive on a yield basis year over year.

Hawaiian Airlines: This has allowed us to rebook over 10000 impacted guests and get them to their destinations.

Hawaiian Airlines: As Ben mentioned, we were on an excellent revenue trajectory for the first quarter prior to the Max nine grounding, we had line of sight to unit revenues up 1% to 2% year over year on low single digit growth withheld yields improving one to two points per week to start the year.

Emily: Taken altogether absent the impact from the Max nine grounding, we feel very good about the outlook for our core business in Q1 and beyond.

Ben Smith: This is a significant 11 point change in trajectory in unit revenue performance from Q4 of 23 as.

Emily: And in closing we are now a $10 billion revenue franchise and are not the same company. We were a few years ago, we have diversified product mix and all the elements in place to cater to evolving guest preferences, including lounges first and premium class across 100% of our fleet a.

Ben Smith: As we sit here today Hell yield for February and March is marginally positive with daily sold yield up 8%. This past week clearly we are seeing the benefits from capacity adjustments to new post COVID-19 demand realities strategically reshaping our network and applying our learnings to utilize our assets more.

Emily: A global network through our partners and a robust loyalty program.

Andrew Thanks: Yes, there is more to come and we are excited to continue building on future opportunities.

Ben Smith: Emily.

Emily: We are seeing strong unit revenue performance from bookings in our highest frequency business markets and ensure California, where we reduced capacity double digits year over year.

Andrew Thanks: Optimizing premium seating upsells implementation of MDC and better merchandising.

Shane: And increasing the number of premium seats on both our Boeing eights and nines, all of which will help support strong financial performance and long term profitable growth and with that I'll pass it over to Shane.

Emily: Several new leisure markets are also performing well right out of the gate.

Emily: And then lastly, the general fare environment is improving along with the competitive capacity backdrop in our markets for the past six months competitive capacity was up high single digits, but trending towards flat in Q1 ahead of low single digit growth in the second quarter at this point in time.

Shane Smith: Thanks, Andrew and good morning, everyone.

Shane Smith: Before I discuss our fourth quarter and full year results and provide additional information on the impact of the Max nine grounding.

Shane Smith: I will reiterate that safety is and will remain the number one priority for Alaska.

Emily: Held load factors for Q1, our near flat and daily intakes remain positive on a yield basis year over year.

Shane Smith: Our results are secondary to that concern and we will always placed safety considerations for our people and our guests above financial performance.

Emily: Taken altogether absent the impact from the Max nine grounding, we feel very good about the outlook for our core business in Q1 and beyond.

Andrew: For the fourth quarter, our adjusted EPS was <unk> 30 on an adjusted pre tax margin of two 2%, which was above both our initial and our most recent guide for the quarter unit costs ended down six 7% versus 2023, while economic fuel cost per gallon was $3 42.

Emily: And in closing we are now a $10 billion revenue franchise and are not the same company. We were a few years ago, we have diversified product mix and all the elements in place to cater to evolving guest preferences, including lounges.

Emily: And premium class across 100% of our fleet.

Andrew: Our fuel costs remained disproportionately impacted by elevated refining margins on the west coast relative to the rest of the country.

Emily: A global network through our partners and a robust loyalty program.

Emily: Yes, there is more to come and we are excited to continue building on future opportunities.

Andrew Thanks: As a reminder, in the third quarter, our refining margin costs were 30 cents higher than U S Gulf coast margins that.

Emily: Optimizing premium seating upsells implementation of MDC and better merchandising.

Andrew Thanks: That spread held most of the fourth quarter, where west coast refining margins were 34 cents higher.

Emily: And increasing the number of premium seats on both our Boeing eights and nines, all of which will help support strong financial performance and long term profitable growth and with that I'll pass it over to Shane.

Andrew Thanks: We did see improvement late in the fourth quarter and into the first and today. We are back within 10 cents of U S Gulf Coast.

Andrew Thanks: This phenomenon, although we believe temporary has been material to our results our full year pre tax profitability would have been one five points better had refining margins behaved more normally.

Shane R. Tackett: Thanks, Andrew and good morning, everyone.

Shane R. Tackett: Before I discuss our fourth quarter and full year results and provide additional information on the impact of the Max nine grounding.

Andrew Thanks: Our adjusted EPS for the full year was $4 53.

Shane R. Tackett: I will reiterate that safety is and will remain the number one priority for Alaska.

Andrew Thanks: And our adjusted pretax margin was seven 5%.

Andrew Thanks: Unit costs were down two 6%, while economic fuel cost per gallon for the full year was $3 2021.

Shane R. Tackett: Our results are secondary to that concern and we will always placed safety considerations for our people and our guests above financial performance.

Andrew Thanks: As Ben mentioned in his opening remarks, the strength of our balance sheet remains intact, our leverage levels close the year within our long term target ranges at 46% debt to cap and one four times net debt to EBITDAR.

Andrew G. Didora: For the fourth quarter, our adjusted EPS was <unk> 30 on an adjusted pre tax margin of two 2%, which was above both our initial and our most recent guide for the quarter.

Andrew G. Didora: Unit costs ended down six 7% versus 2023, while economic fuel cost per gallon was $3 42.

Ben Andrew: And during the quarter, we received an investment grade credit rating from Moody's we.

Ben Andrew: We generated approximately $1 1 billion in cash flow from operations during the year, while total liquidity inclusive of our on hand cash and Undrawn lines of credit stood at a healthy $2 3 billion.

Our fuel costs remained disproportionately impacted by elevated refining margins on the west coast relative to the rest of the country.

Andrew G. Didora: As a reminder, in the third quarter, our refining margin costs were 30 higher than U S Gulf Coast margins.

Ben Andrew: Debt payments for the quarter were approximately $40 million and are expected to be $100 million in the first quarter.

Andrew G. Didora: That spread held most of the fourth quarter, where west coast refining margins were 34 cents higher.

We more than offset dilution this year with $145 million in share repurchases.

Ben Smith: We did see improvement late in the fourth quarter and into the first and today. We are back within 10 of U S Gulf Coast.

Ben Andrew: With over $300 million still existing under our current share repurchase program. We intend to continue once again to at least offset dilution in 2024.

Ben Smith: This phenomenon, although we believe temporary has been material to our results our full year pre tax profitability would have been one five points better had refining margins behaved more normally.

Moving to costs. The teams have performed well during the year with continued improvement through the second half and December quarter.

Ben Smith: Our adjusted EPS for the full year was $4 53.

Ben Andrew: Fourth quarter CASM ex ended well below our guide of down six 7% as we continue to execute and outperform against cost targets.

Ben Smith: And our adjusted pretax margin was seven 5%.

Ben Smith: Unit costs were down two 6%, while economic fuel cost per gallon for the full year was $3 21.

Ben Andrew: While milder winter weather helped strong completion rates and ASM production to finish the year.

Ben Smith: As Ben mentioned in his opening remarks, the strength of our balance sheet remains intact, our leverage levels close the year within our long term target ranges at 46% debt to cap and one four times net debt to EBITDAR.

Andrew Thanks: Even more notable our full year CASM ex ended down two 6%.

Andrew Thanks: Then our latest guide of down 1% to 2% and at the better end of our original guide of down 1% to 3%.

Ben Smith: And during the quarter, we received an investment grade credit rating from Moody's we.

Andrew Thanks: Even adjusting for higher capacity, we were within $32 million of our original midpoint on our non fuel cost base of $7 billion.

Ben Smith: We generated approximately $1 $1 billion in cash flow from operations during the year, while total liquidity inclusive of our on hand cash and Undrawn lines of credit stood at a healthy $2 3 billion.

Andrew Thanks: We achieved this result, amidst ramping our operation back to and beyond pre pandemic flying levels doing sort of record completion rates and while absorbing significant wage increases.

Ben Smith: Debt payments for the quarter were approximately $40 million and are expected to be $100 million in the first quarter.

Andrew Thanks: I believe our cost management was clearly differentiated versus the industry in 2023 and provides confidence that we will continue to maintain a relative costs versus our competitors in the years ahead, even if cost inflation has been a clear reality of the industry recently.

Ben Smith: We more than offset dilution this year with $145 million in share repurchases.

Ben Smith: With over $300 million still existing under our current share repurchase program. We intend to continue once again to at least offset dilution in 2024.

Andrew Thanks: The benefits from our up gauging strategy. We're also clear we grew full year capacity 12, 8% on only two 5% departure growth and improved fuel efficiency measured in ASM per gallon nearly 4%.

Ben Smith: Moving to costs. The teams have performed well during the year with continued improvement through the second half and December quarter.

Ben Smith: Fourth quarter CASM ex ended well below our guide of down six 7% as we continued to execute and outperform against cost targets.

Ben Andrew: Attention to cost detail matters to us at Alaska, and we will continue to work on improving efficiencies within the context of lower growth and remaining cost headwinds in 2024.

While milder winter weather helped strong completion rates and ASM production to finish the year.

Ben Andrew: Given the impacts of the fleet grounding, we are opting to provide full year EPS guidance only we also like the idea of shifting focus to margins and cash flow versus unit metrics. We expect our full year earnings per share to be $3 to $5, which assumes a $150 million negative.

Ben Smith: Even more notable our full year CASM ex ended down two 6%.

Ben Smith: Better than our latest guide of down 1% to 2% and at the better end of our original guide of down 1% to 3%.

Ben Smith: Even adjusting for higher capacity, we were within $32 million of our original midpoint on our non fuel cost base of $7 billion.

Ben Andrew: Impact from the fleet grounding.

Speaker Change: While we fully expect to be made whole for the profit impact of the grounding. We do not have details to share today on that process, nor have we incorporated this into our guidance.

Ben Smith: We achieved this result, amidst ramping our operation back to and beyond pre pandemic flying levels doing sort of record completion rates and while absorbing significant wage increases.

Speaker Change: Excluding the approximate $150 million impact.

Ben Smith: I believe our cost management was clearly differentiated versus the industry in 2023 and provides confidence that we will continue to maintain a relative costs versus our competitors in the years ahead, even if cost inflation has been a clear reality of the industry recently.

Speaker Change: At the midpoint, our EPS guide implies a flat to slightly improved results in 2024 versus 2023.

Speaker Change: We expect our full year capacity to come in at or below the lower end of what had been our original expectation to grow 3% to 5% versus 2023.

Ben Smith: The benefits from our up gauging strategy. We're also clear we grew full year capacity 12, 8% on only two 5% departure growth and improved fuel efficiency measured in ASM per gallon nearly 4%.

Speaker Change: Our fleet plan called for 'twenty, three mainline deliveries this year 16, Max nine and seven Max eights.

Speaker Change: We anticipate some of these deliveries may be delayed hence the inability to provide more precision on year over year growth.

Ben Smith: Attention to cost a detailed matters to us at Alaska, and we will continue to work on improving efficiencies within the context of lower growth and remaining cost headwinds in 2024.

Speaker Change: Lastly on costs this lower growth rate, coupled with strong 2023 cost performance results in a tougher comparison baseline for 2024.

Speaker Change: There are remaining cost headwinds the entire industry is facing in 2024, and we do not believe we will be disproportionately impacted by them wages are a large portion of this we will be lapping the pilot wage step up implemented in September which is approximately $90 million for the full year and $60 million incrementally in 2024.

Ben Smith: Given the impacts of the fleet grounding, we're opting to provide full year EPS guidance only we also like the idea of shifting focus to margins and cash flow versus unit metrics. We expect our full year earnings per share to be $3 to $5, which assumes a $150 million negative.

Andrew Thanks: <unk>, we have an agreement in principle with our technicians and we're hopeful for a tentative agreement soon.

Ben Smith: Impact from the fleet grounding.

Ben Smith: While we fully expect to be made whole for the profit impact of the grounding. We do not have details to share today on that process, nor have we incorporated this into our guidance.

Speaker Change: And we have resumed negotiations with our flight attendants and are anxious to reach a ta with them as well.

Speaker Change: As we look forward our outlook and priorities remain unchanged, we will prioritize a strong operation continue to focus on managing costs and recovering pre pandemic productivity ensure.

Ben Smith: Excluding the approximate $150 million impact at the midpoint, our EPS guide implies a flat to slightly improved result in 2024 versus 2023.

Andrew Thanks: Ensure we are deploying our network in a way that is responsive to demand in the market.

Ben Smith: We expect our full year capacity to come in at or below the lower end of what had been our original expectation to grow 3% to 5% versus 2023.

Andrew Thanks: And we will continue to drive our commercial roadmap and emphasize the competitiveness of our premium product offerings.

Our fleet plan called for 'twenty, three mainline deliveries this year 16, Max nine and seven Max eights.

Andrew Thanks: We have a business model configured to compete with anyone in the industry and are optimistic about our ability to continue to deliver on our goal of delivering the industry's best margins and with that let's go to your questions.

Ben Smith: We anticipate some of these deliveries may be delayed hence the inability to provide more precision on year over year growth.

Andrew Thanks: At this time I would like to invite analysts who would like to ask a question to.

Lastly on costs this lower growth rate, coupled with strong 2023 cost performance results in a tougher comparison baseline for 2024.

Andrew Thanks: Please press Star then the number one on your telephone keypad.

Andrew Thanks: For just a moment to compile the Q&A roster.

Ben Smith: There are remaining cost headwinds the entire industry is facing in 2024, and we do not believe we will be disproportionately impacted by them wages are a large portion of this we will be lapping the pilot wage step up implemented in September which is approximately $90 million for the full year and $60 million incrementally in 2024.

Andrew Thanks: And our first question today will come from Ravi Shanker with Morgan Stanley.

Ravi Shanker: Thanks, Good morning, everyone.

Ravi Shanker: So obviously.

Ravi Shanker: As you started the year than we expected and I don't think anyone can really blame you for this but can you share anything you're seeing in terms of brand damage or NPS promoter scores that may be impacted by this and also kind of what youre seeing in the forward booking curve in terms of any kind of Max lingering issues there.

Ben Smith: We have an agreement in principle with our technicians and we're hopeful for a tentative agreement soon.

Hawaiian Airlines: And we have resumed negotiations with our flight attendants and are anxious to reach a ta with them as well.

Ryan Smith: Ryan Good morning, it's Ben.

Ben Smith: As we look forward our outlook and priorities remain unchanged, we will prioritize a strong operation continue to focus on managing costs and recovering pre pandemic productivity.

Ryan: What I can say is I have been overwhelmed with the support.

Ben Andrew: Our customers and.

Ben Andrew: And I think as just attribute to our employees who have.

Ben Smith: Ensure we are deploying our network in a way that is responsive to demand in the market.

Ben: So well in gaining loyalty over the years and they can't wait for us to get back to full service and our anticipation is man our Max nine gets back up that we will fill our airplanes.

Ben Smith: And we'll continue to drive our commercial roadmap and emphasize the competitiveness of our premium product offerings.

Ben Smith: We have a business model configured to compete with anyone in the industry and are optimistic about our ability to continue to deliver on our goal of delivering the industry's best margins and with that let's go to your questions.

Ben: Great. Thank you and just maybe as a quick follow up you said you are looking to hold Boeing accountable and don't have any info to share there any idea of kind of when you might have something together.

Ben Smith: At this time I would like to invite analysts who would like to ask a question. Please press Star then the number one on your telephone keypad.

Ravi Shanker: Ravi as you know my first priority is to get our Max nine fleet back into service and get our schedule back up to a 100% so thats priority number one.

Ben Smith: We'll pause for just a moment to compile the Q&A roster.

Ravi Shanker: Work on the accountability with Boeing.

Ravi Shanker: Accountability is essentially on raising the quality standards at the factory.

Ben Smith: And our first question today will come from Ravi Shanker with Morgan Stanley.

Ravi Shanker: As well as making us whole, but that will be secondary right now we're focused on safety and quality and getting our fleet back to a full schedule.

Ben Smith: Thanks, Good morning, everyone. So obviously annoys you started the year than we expected and I don't think anyone can really blame me for this but can you share anything you're seeing in terms of brand.

Ravi Shanker: Very good good luck and good job.

Rafi: Thank you Rafi.

Ravi Shanker: Or NPS promoter scores that may be impacted by this and also kind of what youre seeing in the forward booking curve in terms of any kind of Max lingering issues there.

Rafi: And our next question will come from Savi <unk> with Raymond James Financial.

Rafi: Hey, good morning, everyone.

Rafi: Just to kind of follow up on rather than just kind of questioning.

Rafi: Just to kind of follow up on rather than just kind of questioning.

Ravi Shanker: Ravi Good morning, it's Ben.

Savi <unk>: Especially as you kind of think of your deliveries this year.

Ben Smith: Can say as I have been overwhelmed with the support of our customers and.

Savi <unk>: And maybe kind of next year as well just any thoughts on.

Ben Smith: And I think as just attributed to our employees who have done.

Savi <unk>: Or maybe what is your kind of 2024 outlook kind of based on in terms of deliveries has that changed at all and just any kind of views on on Capex.

Ben Smith: So well in gaining loyalty over the years.

Ben Smith: Can't wait for us to get back to full service and our anticipation is when our Max nine gets back up that we will fill our airplanes.

Savi <unk>: Going forward I know you gave a guide for 'twenty one.

Yeah, Hey, Savi, it's Shane.

Savi <unk>: So the question I wish we had more detail we don't it's just so early and understanding the impact as Ben mentioned, the real focus is getting the Max nine fleet that's grounded back.

Ben Smith: Great. Thank you and just maybe as a quick follow up you said you are looking at the whole Boeing accountable and don't have any info to share there any idea of kind of when you might have something together.

Shane Smith: The scheduled safely.

Ravi Shanker: Well Ravi as you know my first priority is to get our Max nine fleet back into service and get our schedule back up to a 100% so thats priority number one.

Shane Smith: We are we have started to think about.

Shane Smith: The fleet plan going forward, we were meant to take 23 aircraft. This year 16, Max Nines and seven Max Eights and.

Ben Smith: We'll work on the accountability with Boeing the accountability is essentially on raising the quality standards at the factory.

Andrew Thanks: And our suspicion is many of those will get delayed but we don't know for how long, but I can tell you is we have enough aircraft to fly the schedule, we're selling today and we'll be very careful to make sure that that.

Ben Smith: As well as making us whole, but that will be secondary right now we're focused on safety and quality and getting our fleet back to a full schedule.

Andrew Thanks: We've got enough fleet to fly what we're out there selling I think we in December mentioned, one four to $1 5 billion of Capex down from last year.

Ben Smith: Very good good luck and good job.

Ben Smith: Thank you Robbie.

Ben Smith: And our next question will come from Savi <unk> with Raymond James Financial.

Andrew Thanks: I think it's not going to be more than that my suspicion is it will be less.

Ben Smith: Hey, good morning, everyone.

Savi: Just to kind of follow up on Ravi is kind of questioning.

Andrew Thanks: As that becomes more clear, we'll provide updates either at the next caller.

Savi: Especially as you kind of think of your deliveries this year.

Andrew Thanks: An 8-K mid quarter.

Savi: And maybe kind of next year as well just any thoughts on that.

Andrew Thanks: Okay.

Andrew Thanks: Just on the comment on the cost front just curious if you could kind of talk about as we think through the year. If there are any kind of comp news.

Savi: Or maybe what is your kind of 2024 outlook kind of based on in terms of deliveries has that changed at all and just any kind of views on on Capex.

Andrew Thanks: Some headwinds that are greater.

Andrew Thanks: In any part of the quarter quarters, I think go through the year end and also just curious if you have any.

Ben Smith: Going forward I know you gave a guide for 'twenty one.

Ben Smith: Hey, Savi, it's Shane Thanks for the question I wish we had more detail. We don't it's just so early and understanding the impact as Ben mentioned the real focus is getting the Max nine fleet, that's grounded back flying the schedule safely.

Andrew Thanks: And then labor contracts that you might be.

Andrew Thanks: Negotiating currently you can.

Andrew Thanks: Considered in that guide.

Terry: Yes, Thanks Terry.

Terry: We didn't put a cost cut out I think it's hard to predict Q1, we obviously have loss.

Shane R. Tackett: We are we have started to think about.

Shane R. Tackett: The fleet plan going forward, we were meant to take 23 aircraft. This year 16, Max Nines and seven Max eights.

Terry: A significant number of the Asm's, we wanted to carry in Q1 and less material to the full year, but not knowing what the delivery stream is going to look like.

Shane R. Tackett: Our suspicion is many of those will get delayed but we don't know for how long, but I can tell you is we have enough aircraft to fly the schedule, we're selling today and we'll be very careful to make sure that we.

Terry: I think we're going to have a much lower growth rate than we had initially thought we haven't managed costs out of the system for that today.

Terry: And we still need to decide how to size the company given what we ultimately decided to grow I think for 2024, what we're facing are similar cost pressures that you've heard from others.

Shane R. Tackett: Got enough fleet to fly what we're out there selling.

Shane R. Tackett: We in December mentioned, one four to $1 5 billion of Capex down from last year.

Shane R. Tackett: I think it's not going to be more than that my suspicion is it will be less.

Ryan Smith: Certainly annualized <unk> of pilot wage costs and as I said in the script, we are very anxious to get.

Shane R. Tackett: As that becomes more clear, we'll provide updates either at the next caller.

Ryan Smith: Ratified agreements with both our technicians, which we're close I hope to getting the Ta with them. We have an agreement in principle and with our flight attendants, we need to get both of those done.

Shane R. Tackett: 8-K mid quarter.

Shane R. Tackett: Okay.

Shane R. Tackett: And just on the comment on the cost front, just curious if you could kind of talk.

Ryan Smith: And then airport costs and maintenance costs, which are very similar to two competitors theres pressure throughout the year on those I think what I would also.

Shane R. Tackett: Talk about as we think through the year. If there are any kind of comp news or something some headwinds that are greater.

Ryan Smith: Also just mentioned is.

Shane R. Tackett: In any part of the quarter quarters, I think go through the year end and also just curious if you have any.

Ryan Smith: When it all washes out our cost structure is going to be as competitive relative to legacy peers, and I think more competitive relative to the rest of the industry.

Shane R. Tackett: And then labor contracts that you might be.

Shane R. Tackett: Oceania currently Ethernet with it considered in that guide.

Ryan Smith: As we go through this year and close out this year so.

Terry: Yeah. Thanks, Thanks Terry.

Ryan Smith: Even though the unit costs might be pressured because of the growth rate I think our core cost structure is going to be in a better position relative to everybody else. Once we close 2024 hours.

Terry: We didn't put a cost cut out I think it's hard to predict Q1, we obviously have lost.

Terry: A significant number of ASM is we wanted to carry in Q1 and less material to the full year, but not knowing what the delivery stream is going to look like.

Ryan Smith: Makes sense. Thank you.

Ryan Smith: And we'll move next to Scott Group with Wolfe Research.

Scott Group: Hey, Thanks, So I was running the $150 million that you guys cited is there any.

Terry: I think we're going to have a much lower growth rate than we had initially thought we haven't managed costs out of the system for that today.

Scott Group: Does that is that inclusive of any book away impact or are you seeing that and then I just wanted to be sure. So when you talk about capacity down mid single digits now than in Q1, but you've sort of re book half of the loss stuff like does that does that imply that RASM is actually going to be better than that.

Terry: And we still need to decide sort of how to size. The company given what we ultimately decided to grow I think for 2024, what we're facing are similar cost pressures that you've heard from others.

Ben Smith: Certainly <unk> of a pilot wage costs and as I said in the script, we are very anxious to get.

Scott: 1% to 2% than you were initially planning for I just wanted to understand just the moving pieces for the model for Q1, yeah. Thanks, Scott. Thanks, Scott Yeah. The 150 is really tickets that we've had to cancel and essentially refund we couldnt rebook theres some cost of buying tickets on other airlines to re accommodate either certainly.

Ben Smith: Ratified agreements with both our technicians, which we're close I hope to getting that Ta with them. We have an agreement in principle and with our flight attendants, we need to get both of those done.

Ben Smith: And then airport costs and maintenance costs, which are very similar.

Ben Smith: Competitors theres pressure throughout the year on those I think what I would also just mention is.

Scott: Hmm cost in that number over time and just the operational strength that we've had to go through.

Ben Smith: When it all washes out our cost structure is going to be as competitive.

Ben Smith: Relative to legacy peers, and I think more competitive relative to the rest of the industry.

Scott: There is.

Scott: There is no like long term core book away, we think we're going to be.

Ben Smith: As we go through this year and close out this year so.

Scott: Still able to have a very strong spring break in mid winter break season. That's been mentioned we've been hearing from our guests. They can't wait to have that fleet fine again and come back and fly with us Theres certainly some close in.

Ben Smith: Even though the unit costs might be pressured because of the growth rate I think our core cost structure is going to be in a better position relative to everybody else. Once we close 2024.

Ben Smith: Makes sense. Thank you.

Speaker Change: And we'll move next to Scott Group with Wolfe Research.

Scott: Revenue loss that's in the next few weeks from business and even leisure just because its so close to travel that we probably won't get to pick back up and so there's a small portion that you could call book away just over the next few weeks, but I don't think Theres a brand related we don't expect a brand related long term impact if we see one obvious.

Speaker Change: Hey, Thanks, So I was running at $150 million that you guys cited is there any.

Scott H. Group: Does that is that inclusive of any book away impact or are you seeing that and then I just wanted to be sure. So when you talk about capacity down mid single digits now in Q1, but you've sort of re book tap of the loss stuff like does that does that imply that <unk>.

Scott Group: We will.

Scott Group: We will talk about that but right now I think we expect our guests to come back to us.

Scott Group: Capacity down mid single digits, Yes, I think look unit revenues the point Andrew is making as we were on a really good trajectory. We felt great about the network reshaping that his team had done.

Scott H. Group: <unk> is actually going to be better than the 1% to 2% than you were initially planning for I just wanted to understand just the moving pieces for the model for Q1, yeah. Thanks, Scott. Thanks, Scott Yeah. The 150 is really tickets that we've had to cancel and essentially refund we couldnt rebook theres some costs of a buying tickets on other airlines to read.

Scott Group: We felt great about advances into the first quarter. The fact that we're losing a bunch of revenue in the first quarter.

Scott Group: We're also losing a lot of ASM. So I think our revenues could still be positive as we closed the quarter out once that all nets out.

Accommodate other certainly.

Scott H. Group: And that number for overtime and just the operational strength that we've had to go through.

Andrew Thanks: Okay helpful. And then I'm just curious how does the Jetblue spirit ruling change your views on success of.

Scott: There's a there's no like long term core book away, we think we're going to be.

Andrew: Approval with Hawaiian and just any any thoughts or color on just when you go through the Hawaiian proxy some of the cash burn there. If that's all sort of incorporated in everything you laid out for us.

Scott: Still able to have a very strong spring break in mid winter break season. That's been mentioned we've been hearing from our guests I can't wait to have the fleet fine again and come back and fly with Us Theres certainly some close in.

Ryan Smith: When we did that.

Scott: Scott Thank you.

Ben: It's Ben.

Scott: <unk>.

Scott: Revenue loss that's in the next few weeks from business and even leisure just because its so close to travel that we probably won't get to pick back up and so there's a small portion that you could call book away just over the next few weeks, but I don't think Theres a brand related we don't expect a brand really the long term impact if we see one obviously will.

Scott Group: Our view is that the.

Ben: These deals are completely different.

Ben Andrew: The Jetblue spirit was blocked by the judge essentially because it would eliminate the low cost competitor and our case between Hawaii and Alaska. These are two very similar business models. There's the networks are very complementary and in fact, when you combine the networks, there's only 12 overlap routes.

Scott: We'll talk about that but right now I think we expect our guests to come back to us.

Ben: Through the combination so it's very.

Scott: Capacity down mid single digits, Yes, I think look unit revenues the point Andrew is making as we were on a really good trajectory. We felt great about the network reshaping that his team had done we felt great about advances into the first quarter. The fact that we're losing a bunch of revenue in the first quarter.

Ben: Pro consumer and its also very pro competitive customers and Hawaii will have an expansive network to fly to the United States and internationally our customers on the West Coast will have more options to fly to Hawaii in international So it's very different from the Jetblue spirit and look after the deal would become a little bit larger airline.

Scott: We're also losing a lot of ASM. So I think revenues could still be positive as we closed the quarter out once that all nets out.

Ben: To.

To compete stronger against the network carriers and now we have a strong domestic network with a strong international network. So we feel our cases differentiate it and we'll work through the Doj on that process.

Scott: Okay helpful. And then I'm just curious how does the Jetblue spirit ruling.

And Scott mentioned very quick on Hawaii Hawaiian Catherine since you also asked about that.

Scott: And your views on the success of.

Ben Smith: Approval with Hawaiian and just any any thoughts or color on just when you go through the alliant proxy some of the cash burn there if that's all sort of incorporated in everything you laid out for us.

Scott Group: In everything we've laid out the cash burn is really principally tied to the delivery stream.

Scott Group: And I just note that there is an asset behind that that has value that we want and so.

Ben Smith: When we did that.

Scott: Scott Thank you.

We're not funding significant or material operating cash losses, the negative cash flow is really about the capex right now and we think that that business is going to recover over the next couple of years as Asia comes back and as they get Amazon up in the 777 up in Maui recovers.

Ben Smith: It's Ben.

Ben Smith: Our view is that.

These deals are completely different.

Ben Smith: Now the Jetblue spirit was blocked by the judge essentially because it would eliminate the low cost competitor and our case between Hawaii and Alaska. These are two very similar business models. There's the networks are very complementary and in fact, when you combine the networks, there's only 12 overlap routes.

Scott Group: Awesome. Thank you guys appreciate it.

Scott Group: Thank you thanks Scott.

Scott Group: And our next question comes from Duane <unk> with Evercore ISI.

Through the combination so it's very.

Scott Group: Yeah.

Ben Smith: Consumer and its also very pro competitive customers and Hawaii will have an expansive network to fly to the United States and internationally our customers on the West Coast will have more options to fly to Hawaii in international So it's very different from the Jetblue spirit and look after the deal would become a little bit larger airline.

Scott Group: Hey, thanks.

Scott Group: I guess other than the <unk>.

Scott Group: <unk> from flight cancellations can you just talk a little bit more about.

Scott Group: Maybe deliveries that you think could shift or what other pieces. There are that could influence where you ultimately end up for the year.

Scott Group: Yeah, Duane on capacity I really think it's at this point the deliveries I think given the guidance. We got yesterday, we have a good sense of when we can get the full Max nine fleet back operating and it really just comes down to the 23 deliveries. We did have some planned retirements and we.

Ben Smith: To compete stronger against the network carriers and now we have a strong domestic network with a strong international network. So we feel our cases differentiate it and we'll work through the Doj on that process.

Ben Smith: And Scott just mentioned very quick on Hawaii Hawaiian Catherine since you also asked about that it's it's in everything we've laid out the cash burn is really principally tied to the delivery stream.

Duane Wilson: Had some allocation for work to.

Duane Wilson: Refurbished some interiors so we've got.

Duane Wilson: Some moving parts and pieces, we can sort of flex around to get to the right capacity number but as we mentioned.

Scott: And I just note that there is an asset behind that that has value that we want and so.

Scott: Funding, a significant or material operating cash losses, the negative cash flow is really about the capex right now and we think that that business is going to recover over the next couple of years as Asia comes back and as they get Amazon up in the 780 <unk>.

Duane Wilson: As we look at it today, it's going to be below the range. We had originally thought which was 3% to 5% and it could well very well be below 3% at the end of the day.

Andrew Thanks: Thanks, and then just Relatedly have you made any changes with respect to hiring have you have you paused hiring have you pause training, resulting from this event.

Scott: Seven up in Maui recovers.

Scott: Thank you guys appreciate it.

Scott: Thank you thanks Scott.

Ryan: Hey, Duane this is Ryan.

Scott: And our next question comes from Duane <unk> with Evercore ISI.

Ryan: We already came into the year, given the low growth profile with not much hiring required I mean, some of course to backfill any attrition, but we've sort of lap some optionality on the table. We've got a couple more months to make some decisions on that relative to our summer schedule.

Scott: Hey, thanks.

Scott: I guess other than the lost ASM from flight cancellations can you just talk a little bit more about.

Scott: Maybe deliveries that you think could shift or what other pieces. There are that could influence where you ultimately end up for the year.

Ryan Smith: So we'll be talking about that the next few months, obviously, if there is any delivery delays or anything maybe we don't need some of those last training classes in the spring, but we've still got them available if we need them. If we can find the capacity.

Scott: Yeah Duane.

Duane: Capacity I really think it's at this point the deliveries I think given the guidance. We got yesterday, we have a good sense of when we can get the full Max nine fleet back operating.

Ryan: Okay. Thank you.

Ryan: Thanks, Brian.

Ryan: And we'll move next to Conor Cunningham with Melius research.

Duane: And it really just comes down to the 23 deliveries we did have some planned retirements.

Conor Cunningham: Hi, everyone. Thank you sorry to go back to the $150 million headwind, but I'm not quite clear, it's not quite clear what actually is lost revenue versus cost impact I don't know if you could provide any clarity there that would be helpful.

Duane: And we had some allocation for work.

Duane: Refurbished of interiors, so we've got.

Duane: Some moving parts and pieces, we can sort of flex around to get to the right capacity number but as we mentioned.

Ryan: Yeah, Hey, Conor this is Ryan again.

Duane: As we look at it today, it's going to be below the range. We had originally thought which was 3% to 5% and it could very well be below 3% at the end of the day.

Ryan Smith: So the majority of that 150 is revenue cost I would say are kind of a wash because obviously all of the canceled flights, we saved on fuel and landing fees, but as you can imagine we've incurred significant overtime as our.

Ben Smith: Thanks, and then just Relatedly have you made any changes with respect to hiring have you have you paused hiring have you pause training, resulting from this event.

Ryan: Operational employees are working around the clock to keep the new schedule going a lot of passenger remuneration and things like that so it's mostly been revenue and as Shane mentioned there is a small assumption for maybe some booking challenges in February as we get the fleet back operating.

Ryan: Hey, Duane this is Ryan.

Ryan: We already came into the year, given the low growth profile with not much hiring required I mean, some of course to backfill any attrition, but we've sort of left some optionality on the table. We've got a couple more months to make some decisions on that relative to our summer schedule.

Ryan Smith: But we're sort of assuming by March we are back on the original trend there.

Ryan Smith: So that's kind of what it breaks down as its pretty much mostly revenue than the point being that its at least another $150 million, because obviously any changes to delivery streams or capacity might further impact that but it's pretty much cancels to date, plus a small amount of booking impact in February.

Ryan: So we will be talking about that the next few months, obviously, if theres any delivery delays or anything maybe we don't need some of those last training classes in the spring, but we've still got them available if we need them. If we can find the capacity.

Ryan: Okay. Thank you.

Shane Smith: I Gotcha. Okay. That's helpful. And then you mentioned the 30% profit improvement on network changes in <unk> can you just.

Ryan: Thanks, Brian.

Ryan: And we'll move next to Conor Cunningham with Melius research.

Conor Cunningham: Can you just provide some details on what that actually means and what's driving that change because it seems like a pretty significant long term impact for you guys. So any help there would be great. Thank you.

Conor Cunningham: Hi, everyone. Thank you sorry to go back to the $150 million headwind, but I'm not quite clear, it's not quite clear on what actually is lost revenue versus cost impact I don't know if you could provide any clarity there that would be helpful.

Andrew: Hunter, it's Andrew.

Andrew Thanks: Essentially it's it's the reshaping of the network I mean, we have significant double digit increases in certain.

Ryan: Yeah, Hey, Conor this is Ryan again.

Ryan Smith: So the majority of that 150 is revenue cost I would say are kind of a wash because obviously all of the canceled flights, we saved on fuel and landing fees, but as you can imagine we've incurred significant overtime as our.

Hunter: Regions of our network, which performed very poorly.

Andrew: Last year due to the lack of business and just the change in behaviors and then we have some very high double digit growth in.

Some of our son destination than other core routes.

Ryan Smith: Operational employees are working around the clock to keep the new schedule going a lot of passenger remuneration and things like that so it's mostly been revenue and as Shane mentioned there is a small assumption for maybe some booking challenges in February as we get the fleet back operating.

Andrew: So it's really just.

Andrew: 'twenty two is obviously.

Andrew: An interesting year with all the huge demand surge in but we're now in a normal place. So as we've looked at it it's really revenue driven it's just reshaping and flying where the demand is getting better day of week seasonality, California versus the Pacific Northwest and we're very very happy with the results.

Ryan Smith: But we're sort of assuming by March we are back on the original trend there.

Ryan Smith: That's kind of what it breaks down as its pretty much mostly revenue and the point being that it's at least a $150 million because obviously any changes to delivery streams or capacity might further impact that but it's pretty much cancels to date, plus a small amount of booking impact in February.

Andrew: And kind of I'm going to add that remember our goal is.

Andrew: As to reduce losses in Q1 and get to breakeven or better. So that is the are the long term objective.

Andrew Thanks: I appreciate it thank you.

Ryan Smith: I Gotcha. Okay. That's helpful. And then you mentioned the 30% profit improvement on network changes in <unk> can you just.

Andrew <unk>: And our next question will come from Andrew <unk> with Bofa Global research.

Ryan Smith: Can you just provide some details on what that actually means and what what's driving that change because it seems like a pretty significant long term impact for you guys. So any help there would be great. Thank you.

Andrew <unk>: Okay.

Andrew <unk>: Hey, good morning, everyone.

Ben.

Andrew Thanks: It's very early days.

Andrew Thanks: But the comment today and.

Andrew G. Didora: Hunter, it's Andrew.

Andrew Thanks: In the National Media. This week, just where does your relations Boeing after this.

Andrew G. Didora: Yes, essentially it's the reshaping of the network I mean, we have significant double digit increases in certain.

Andrew Thanks: What needs to happen to make you rethink your single fleet type at this point.

Hunter: Regions of our network, which performed very poorly.

Thanks for the question Andrew what look.

Hunter: Last year due to the lack of business and just the changing behaviors and then we have some very high double digit growth in.

You know where I stand as slide 12, 82 should never have happened should never have happened at all so we have a long standing deep relationship with Boeing.

Hunter: Some of our son destination than other core routes.

Hunter: So it's really just.

Michael O'Leary: But like I said, it's not acceptable what happened, we're going to hold them accountable and we're going to raise the bar on quality on Boeing. So we have the relationship we're having tough candid conversations and Michael is the CEO of this airline is for every airplane that comes out of that factory. It is going to come out with a higher degree of quality and reliability that has been.

Hunter: 22 is that obviously.

Hunter: An interesting year with all the huge demand surge in but we're now in a normal place, though and as we've looked at it it's really revenue driven it's just reshaping and flying where the demand is getting better day of week seasonality, California versus the Pacific Northwest. So we're very very happy with the results.

Michael O'Leary: In the past so I think it's the virtue of our relationship that we can have these tough conversations maintained the relationship to continue we've got 231 730 sevens that we've been happy with and until the sensing and we were happy with the Max We have 185 on order that are coming to us.

Hunter: And kind of I'm going to add that remember our goal is.

Hunter: As to reduce losses in Q1 and get to breakeven or better so that that is the.

Hunter: The long term objective.

Hunter: I appreciate it thank you.

Hunter: And our next question will come from Andrew <unk> with Bofa Global research.

Michael O'Leary: We believe with the network configuration. We had this is of course XY and the network.

Michael O'Leary: Configuration, we have the Boeing airplane is 737 is well suited for our network. So that is a long term plan, but.

Hunter: Hey, good morning, everyone.

Hunter: Yes.

Hunter: Well, it's very early days.

Speaker Change: But the comments today and in.

Michael O'Leary: We're going to we're gonna whole Boeing speak to the fire to make sure that we get good airplanes out of that factory.

Speaker Change: In the National Media. This week, just where does your relations Boeing after this and I guess what needs to happen to make you rethink your single fleet type at this point.

Ben Andrew: Thank you Ben and then as a.

Shane Smith: My second question for Shane Geoff to say like most of the calls last year. I think you were certainly a bit worried about industry domestic capacity growth over the course of 2023.

Speaker Change: Thanks for the question, Andrew well look.

Speaker Change: You know where I stand as slide 12, 82 should never have happened should never have happened at all so we have a long standing deep relationship with Boeing.

Shane Smith: As we sit here in January of 2020.

Shane Smith: Are you.

Shane Smith: Most.

Michael: But like I said, it's not acceptable it happened were going to hold them accountable and we're going to raise the bar on quality on Boeing. So we have the relationship we're having tough candid conversations and Michael is the CEO of this airline is for every airplane that comes out of that factory is going to come out with a higher degree of quality and reliability that has been.

Shane Smith: Getting the next nine back up and running.

Andrew: Yeah, Hey, Andrew.

Andrew: Cut up just a tiny bit at the end, but yes I think.

Andrew: And Andrew was alluding to it.

Andrew: It's been there's been a lot of predictions across our management teams across analysts and observers about what the new normal of demand would be coming out of COVID-19.

Michael J. Linenberg: In the past so I think it's the virtue of our relationship that we can have these tough conversations maintained the relationship. It continue we got 231 730 sevens that we've been happy with and until the sensing and we were happy with the Max We have 185 on order that are coming to us.

Andrew Thanks: I think it was a little bit anybody's guess and we were all trying to respond to the best information. We had last year. We were also trying to get our company is back to pre COVID-19 operational levels, which made sense and so.

Andrew Thanks: Lot of that.

Andrew Thanks: Seem to come at the tail end of the huge demand surge that started in 2022 and sort of carrying through 2023 summer.

Michael J. Linenberg: We believe with the network configuration. We had this is of course XY and the network configuration. We have the Boeing airplane is 737 is well suited for our network. So that is the long term plan, but.

The good news is it seems like demand is holding very well into the first quarter of this year.

Andrew Thanks: I think the airlines.

Michael J. Linenberg: We're going to we're going to hold boeing's feet to the fire to make sure that we get good airplanes out of that factory.

Andrew Thanks: Across the board are starting to understand that demand is looking.

Andrew Thanks: A little different than it did pre COVID-19, but but but probably not as different as we all thought it might have been.

Ben Smith: Thank you Ben.

Ben Smith: My second question for Shane.

Andrew Thanks: And so there is still seasonality in the business that looks a lot like pre COVID-19 and I think I think Andrew and his team have done a great job responding to that this year as evidenced by the improvement of the Q1 profile ex the grounding. So we're feeling really good about our capacity outlook.

Ben Smith: Say like most of the calls last year I think you were certainly a bit worried about industry domestic capacity growth over the course of 2023 as we sit here in January of 2020.

Ben Smith: Most.

Andrew Thanks: We obviously want these planes, we felt like we had a good plan for them this year if.

Ben Smith: Getting the Max nine back up and running.

Andrew Thanks: If we don't get them, we've got some work to do to make sure we maximize.

Shane R. Tackett: Yeah, Hey, Andrew.

Shane R. Tackett: Cut up just a tiny bit at the end, but yeah I think.

Andrew Thanks: The results, we can get with the current fleet.

Shane R. Tackett: And Andrew was alluding to it.

Shane R. Tackett: It's been there's been a lot of predictions across management teams across analysts and observers about what the new normal of demand would be coming out of COVID-19.

Andrew Thanks: Okay.

Andrew Thanks: Thank you everyone.

Andrew Thanks: Thanks, Andrew.

Andrew Thanks: And we'll move next to Jamie Baker with Jpmorgan.

Andrew: I think it was a little bit anybody's guess and we were all trying to respond to the best information. We had last year. We were also trying to get our companies back to pre COVID-19 operational levels, which made sense and so.

Hey, good morning, everybody.

Andrew Thanks: Dan I can only speak for myself.

Speaker Change: Im not under the illusion that my opinion for Lytton, how does that much to you but.

Jamie Baker: I actually think the team has been handling the Max situation.

Andrew: Lot of that.

Jamie Baker: Very very well.

Andrew: It seem to come at the tail end of the huge demand surge that started in 2022 and sort of carrying through 2023 summer.

Jamie Baker: My first question actually relates to Silicon Valley Bank in closing last year.

Jamie Baker: Coming up on the anniversary in March can you remind us how California in particular, California demand behaved in the aftermath, both in terms of magnitude and duration.

Andrew: The good news is it seems like demand is holding very well into the first quarter of this year.

I think the airlines.

Andrew: Across the board are starting to understand that demand is looking.

A little different than it did pre COVID-19, but but but probably not as different as we all thought it might have been.

Jamie Baker: Hey, Jamie you're testing my memory here, but what I recall at the time.

Andrew: And so there is still seasonality in the business that looks a lot like pre COVID-19 and I think I think Andrew and his team have done a great job responding to that this year as evidenced by the improvement of the Q1 profile ex the grounding. So we're feeling really good about our capacity outlook.

Jamie Baker: In relation to our California network. It was not that significant there was already a high tech softness.

Jamie Baker: I will tell you the take the opportunity that we've been very happy.

Andrew: We obviously want these planes, we felt like we had a good plan for them this year and.

Jamie Baker: With California performance, we remain 18% down pre COVID-19 level, but we've seen unit revenue performance.

Andrew: If we don't get them, we've got some work to do to make sure we maximize.

Andrew: The results, we can get with the current fleet.

Jamie Baker: California, This year and 23 outperformed system average, we've seen whether it's profitable and in fact, it continues to close the margin gap from our system.

Andrew: Thank you everyone.

Andrew: Thanks, Andrew.

Andrew: And we'll move next to Jamie Baker with Jpmorgan.

Andrew Thanks: So we feel really good about the continuing refi.

Andrew Thanks: Refinement and strengthening of our California franchise.

Speaker Change: Hey, good morning, everybody.

Speaker Change: Ben I can only speak for myself.

Andrew Thanks: Okay. Thanks for that and then just quick question on guidance most of my earlier questions have been addressed but assuming you do revive.

Speaker Change: Im not under the illusion to my opinion.

How does that much to you but.

Speaker Change: I actually think you and the team have been handling the Max situation.

Speaker Change: Very very well.

Andrew Thanks: <unk> fuel CASM guide after this quarter will you be accruing for the flight attendant contract.

Speaker Change: My first question actually relates to Silicon Valley Bank in closing last year.

Jamie Baker: Thanks, Jamie.

Speaker Change: Coming up on the anniversary in March can you remind us how California in particular, California demand behavior, but EMEA aftermath, both in terms of magnitude and duration.

Jamie Baker: I think that we will guide when we're prepared to do so inclusive of all of the costs that we think are coming our way this year.

Jamie Baker:

I don't think we would start accruals.

Jamie Baker: It hasn't been our practice in the past and I don't foresee us changing that practice.

Speaker Change: Hey, Jamie you're testing my memory here, but what I recall at the time.

Okay helpful color. Thank you everybody.

Speaker Change: In relation to our California network. It was not that significant there was already a high tech softness.

Jamie Baker: Thanks, Jamie Thanks, Jamie.

Jamie Baker: And our next question will come from Helane Becker with TD Cowen.

Jamie N. Baker: I will tell you the take the opportunity that we've been very happy with California performance, we remain 18% down pre COVID-19 level, but we've seen unit revenue performance from.

Andrew Thanks: And thanks, very much hi, everybody.

Helane Becker: So I just have kind of two questions here one is.

Helane Becker: As you think about the.

Helane Becker: Max coming back into next nine coming back into service do you think you'll have.

Jamie N. Baker: From California, this year and 23 outperformed system average, we've seen where there it's profitable and in fact it continues to close the margin gap from our system.

Helane Becker: Customers and do you think youll have to discount to encourage them to fly the plane or do you think that Ah plains plane to a customer who may not be as sophisticated observer.

Jamie N. Baker: So we feel really good about the continuing.

Jamie N. Baker: Refinement and strengthening of our California franchise.

Ben: Good morning, it's Ben.

Jamie N. Baker: Okay. Thanks for that and then just a quick question on the guidance most of my.

Ben: Like we said before.

Ben: We have.

Jamie N. Baker: Earlier questions have been addressed but assuming you do revise.

Ben: Customers, who love our company.

Ben: Trust us they know we put safety and reliability first there is no doubt that the Max line has.

Jamie N. Baker: Ex fuel CASM guide after this quarter will you be accruing for the flight attendant contract.

Ben: A lot of attention and people are looking what they're flying but our goal right now as we reenter the Max Nines is to give our employees, particularly our crews the confidence that Alaska has done everything it can to put.

Jamie N. Baker: Thanks, Jamie.

I think that we will guide when we're prepared to do so inclusive of all of the costs that we think are coming our way this year.

Ben: Our Max line safely and in airworthy condition back in service and to communicate with our guests and then if they have any concerns to reach out directly.

Jamie N. Baker: I don't think we would start accruals it hasn't been our practice in the past and I don't foresee us changing that practice.

Ben: To us to our crews.

Jamie N. Baker: Okay helpful color. Thank you everybody.

To assure them that the aircraft are on are safe and we won't put any of course, an aircraft back in service.

Thanks, Jamie Thanks, Jamie.

Jamie N. Baker: And our next question will come from Helane Becker with TD Cowen.

Ben: But I think at first people will have some questions. Some anxiety just like they did two years ago or.

Jamie N. Baker: And thanks, very much hi, everybody so.

Helane Becker: I just have kind of two questions here one is.

Ben: Glenn.

Ben: After all the.

Ben: Deep certification process the aircraft went through but I believe over time.

Helane Becker: As you think about the Max.

Helane Becker: Max coming back into next nine coming back into service do you think you'll have.

Helane Becker: The confidence we'll get back into this airplane and Helane I just might add real quick that but what we've been seeing in is just really scheduled reliability and that's been a concern, but it's sort of a in <unk>.

Customers and do you think you'll have to discount to encourage them to fly the plane or do you think that Ah plains plane to a customer who may not be a sophisticated observer.

Helane Becker: Days from now we'll have the nine fully back deployed al.

Ben Smith: Helen Good morning, it's Ben.

Helane Becker: And we fully expect DAU completion rates to go right back to 99% of our on time back to our goals. So that our guests can be assured that when they book on Alaska, Youre going to get to where they need to go safely and on time.

Ben Smith: Like we said before.

Ben Smith: We have.

Customers, who love our company.

Ben Smith: Trust us they know we put safety and reliability first there is no doubt that the Max line has.

Helane Becker: Okay. So can I push back just a tiny bit in say from what I've read and if I'm wrong.

Ben Smith: It has a lot of attention and people are looking what they are flying but our goal right now as we reenter the Max Nines is to give our employees, particularly our crews the confidence that Alaska has done everything it can to put.

Helane Becker: The reports are wrong, that's fine just tell me.

Helane Becker: And there was an indicator light that went off a few times that caused you guys to move the aircraft in question out of the Hawaiian market, where it was flying and overland in case, something happened and of course something did happen.

Ben Smith: <unk> safely and in airworthy condition back in service and to communicate with our guests and then if they have any concerns to reach out directly.

Ben Smith: To us to our crews.

Conor Cunningham: Is it that the indication.

Conor Cunningham: To assure them that the aircraft are on are safe and we won't put any of course, an aircraft back in service that are on.

Conor Cunningham: He didn't tell you where the problem was or is it that.

Conor Cunningham: Maintenance started with faulty how should people think about that because when your channels like us on in your car you check it out.

Conor Cunningham: But I think at first people, who will have some questions. Some anxiety just like they did two years ago or.

Conor Cunningham: <unk>.

Conor Cunningham: After all the.

Conor Cunningham: I'm glad I'm glad you asked the question because I want to set the record straight on this and I'll, probably take a little bit of time and Youre, making me put on my old operations and maintenance engineering hat back on which I'm glad I love, putting it back on so I'm going to say it right from the start the issues were completely unrelated and I'll explain why here if you.

Conor Cunningham: Deep certification process the aircraft went through but I believe over time.

Helane Becker: The confidence we will get back into this airplane and Helane I just might add real quick that but what we've been seeing in the is just really scheduled reliability and that's been a concern, but it's sort of a in eight.

Helane Becker: Days from now we'll have the nine fully back deployed al.

Conor Cunningham: Give me some leeway we had was a pressure controller issue and the pressure controller has three modes of operation. It's got an automatic mode. It's got an alternate mode and it's got a manual mode. What failed, but that liked that youre talking about that went on was the automatic mode switching to ultimate mode and.

And we fully expect DAU completion rates to go right back to 99% are on time back to our goals. So that our guests can be assured that when they book on Alaska, Youre going to get to where they need to go safely and on time.

Helane Becker: Okay. So can I push back just a tiny bit and say.

That's perfectly in line with the pressure control. It has one primary in two backups. So the pressurization and was never an issue on the airplane. The reason we restricted it from going over water and this is stuff when I was back in maintenance is we taken abundance of caution we're saying look we have other airplanes that we can send over water. This one the light went on it's still working perfectly well.

Helane Becker: From what I've read and if I'm wrong or if the reports are wrong. That's fine just tell me.

Helane Becker: There was an indicator light that went off a few times that caused you guys to move the aircraft in question out of the Hawaiian market, where it was flying and overland in case, something happened and of course something did happen.

It's legal to send over water will be a little more cautious we'll keep it over land. So we can watch it and keep it between maintenance spaces. So I just wanted to be totally clear. These two issues were totally unrelated. This was an issue with the door plug we got a faulty door plug from Boeing totally unrelated to the light or to the pressurization issues.

Is it that the indication.

Helane Becker: He didn't tell you where the problem was or is it that.

Helane Becker: Maintenance started with faulty how should people think about that because when your channel that.

Helane Becker: Because on in your car you check it out.

Okay, well I appreciate that explanation because as I said, I Didnt know and now I do.

Speaker Change: I'm glad I'm glad you asked the question because I want to set the record straight on this end.

Speaker Change: I'll, probably take a little bit of time and Youre, making me put on my old operations and maintenance engineering hat back on which I'm glad I love, putting it back on so.

Andrew Thanks: Okay. Thanks, Alright, my pleasure.

Catherine O'brien: And we'll move next to Catherine O'brien with Goldman Sachs.

Catherine O'brien: Hey, everyone. Thanks for your time.

Speaker Change: Say it right from the start the issues were completely unrelated and I'll explain why here. If you give me. Some leeway we had was a pressure controller issue and the pressure controller has three modes of operation, It's got an automatic mode.

Catherine O'brien: Maybe one for you first so you guys called out that you expect to lose about seven points of capacity from the Max grounding in the first quarter.

Catherine O'brien: With capacity now to be down mid single digits can you just help us think about what you were targeting pre Max.

Speaker Change: Got an alternate mode and it's got a manual mode, what failed, but that like that youre talking about that went on was the automatic mode switching to ultimate mode and that's perfectly in line with the pressure controller. It has one primary in two backups. So the pressurization and was never an issue on the airplane. The reason we restricted from going over.

Catherine O'brien: For CASM ex sounds like capacity is going up.

Catherine O'brien: Low single digits from doing that math correctly, I'm guessing a lot of the fixed costs remain.

Catherine O'brien: Is it safe to say like there's about a seven point headwind to CASM X versus what you were expecting on the growth rate or any color there would be super helpful. Thanks.

Speaker Change: Water and this is tough when I was back in maintenance is we taken abundance of caution we're saying look we have other airplanes that incentive or water. This one the light went on it's still working perfectly well, it's legal to send over water will be a little more cautious we'll keep it over land. So we can watch it and keep it between maintenance spaces. So I just wanted to be totally clear. These two issues were totally.

Catherine O'brien: Sure.

Catherine O'brien: Yes, I mean, I sort of gave a previous answer Katie we didnt, we havent manage any costs out of the system Ryan I know, it's a little bit of a puzzle Ryan told you that the 150 million really is revenue because of the cost swash.

Ryan Smith: We've incurred some additional costs certainly with with the passenger remuneration re accommodation costs, a lot of overtime and premium.

Speaker Change: <unk>. This was an issue with the door plug, we got a faulty door plug from Boeing totally unrelated to the light or to the pressurization issues.

Ryan Smith: Cost saves are really landing fees food and beverage and fuel so theres more net cost headwind in the quarter.

Speaker Change: Okay I appreciate that explanation because as I said, I Didnt know and now I do.

Ryan Smith: And and we didn't take any other costs out of the business because obviously it happened.

Speaker Change: Okay. Thanks, Alright, my pleasure.

Ryan Smith: January 5th and there was no time to react so.

Catherine O'brien: And we'll move next to Catherine O'brien with Goldman Sachs.

Ryan Smith: Certainly the its almost a one for one impact to the quarter, but we haven't.

Catherine O'brien: Hey, everyone. Thanks for your time.

Catherine O'brien: Maybe one for you first so you guys called out that you expect to lose about seven points of capacity from the Max grounding in the first quarter.

Ryan Smith: <unk> also guided to what we thought Q1 was going to go to we just feel like.

Ryan Smith: We need to get certainty around what this looks like and then we can give a full year guide if we choose to do so in the future.

Catherine O'brien: With capacity now to be down mid single digits can you just help us think about what you were targeting pre Max.

Ryan Smith: Okay fair enough.

Ryan Smith: And then Andrew maybe one for you as well.

Catherine O'brien: For CASM ex sounds like capacity is gonna be up.

Andrew: Can you help us size some of the drags here unit revenue from Caf corporate lagging Maui anything else you want to highlight in the fourth quarter and then how those items are trending into the first quarter. You know one of your competitors called out recently, a boosted corporate at the start of the year in part driven by Tech. So would just love to kind of hear.

Catherine O'brien: Low single digits, I'm doing that math correctly, I'm guessing a lot of the fixed costs remain.

Catherine O'brien: Is it safe to say like there's about a seven point headwind to CASM X versus what you were expecting on the old growth rate or any color there would be super helpful. Thanks.

Andrew Thanks: Here, how long do some of the drags in <unk> trending into <unk>. Thanks, so much.

Catherine O'brien: Sure.

Ryan Smith: Yes, I mean, I sort of gave previous answer Katie we didnt, we havent manage any costs out of the system Ryan I know, it's a little bit of a puzzle Ryan told you that the 150 million really is revenue because of the cost swash.

Andrew: Yes, Thanks Katy.

Andrew: Just to touch on Maui real quick we had already.

Andrew: Adjusted out capacity.

Andrew: I think like 14%, 15% in the fourth quarter, it's down even more in the first quarter. So we feel like we've got al capacity somewhat aligned with demand in Maui.

Ryan Smith: We've incurred some additional costs certainly with with passenger remuneration re accommodation costs, a lot of overtime and premium.

Ryan Smith: Cost saves are really landing fees food and beverage and fuel so there.

One of the unfortunate challenges as I shared in the Q4, we were seeing good momentum in corporate travel of course anything from zero to 14 days was severely impacted by the Max nine in January So that's a little hard for us to comment on the business side, but again, we have continued to see.

Ryan Smith: There's more net cost headwind in the quarter.

Ryan Smith: And and we didn't take any other costs out of the business because obviously it happened.

Ryan Smith: January 5th and there was no time to react so.

Ryan Smith: Certainly the its almost a one for one impact to the quarter, but we haven't.

Andrew: Good good momentum in.

Andrew: Average fares for business travel and I don't see why that would not continue.

Ryan Smith: Also guided to what we thought Q1 was going to go to we just feel like.

Ryan Smith: We need to get certainty around what this looks like and then we can give a full year guide if we choose to do so in the future.

Andrew: Great. Thanks.

Katie Ryan: Thanks Katie.

Katie Ryan: And our next question will come from Mike Lindenberg with Deutsche Bank.

Ryan Smith: Okay fair enough.

Ryan Smith: And then Andrew maybe one for you as well.

Katie Ryan: Hey, good morning, everyone.

Andrew: Can you help us size some of the drags here unit revenue from Caf corporate lagging Maui anything else you want to highlight in the fourth quarter and then how those items are trending into the first quarter. You know one of your competitors called out recently, a boosted corporate at the start of the year in part driven by Tech.

Katie Ryan: Andrew I appreciate all the color you gave around loyalty and for Larry some of the premium data I think calling.

Larry: Calling out that 46% for premium and ancillary and other.

Larry: Not sure I see that number before and that was actually a bit higher than what I thought it would be.

Andrew: Just love to kind of hear how maybe some of the drags in <unk> trending into <unk>. Thanks, so much.

Larry: It was from an aspirational perspective, where do you think you can get that and how often does that aspirational goal change in the event that you decide to do lie flat maybe in some of your domestic markets.

Katy: Yeah. Thanks Katy.

Just to touch on Maui real quick we had already adjusted.

Katy: Adjusted out capacity.

Katy: Down I think like 14, 15% in the fourth quarter, it's down even more in the first quarter. So we feel like we've got our capacity somewhat aligned with demand in Maui.

Andrew: Thanks, Mike.

Andrew: A couple of things.

Andrew: We are continuing to see good demand for our premium product.

Katy: One of the unfortunate challenges as I shared in the Q4, we were seeing good momentum in corporate travel of course anything from zero to 14 days was severely impacted by the Max nine in January.

Mike Lindenberg: The team both on the revenue side and how we manage it and also we still have a lot of marketing opportunity and up sell to go so I still expect good strength there.

Katy: So that's a little hard for us to comment on the business side, but again, we have continued to see good momentum in <unk>.

Mike Lindenberg: We added a row now 175 additional premium class, where also we will be adding.

Mike Lindenberg: Additional premium class on our eights and nines without some about reconfiguration.

Katy: <unk> for business travel and I don't see why that would not continue.

Mike Lindenberg: The challenge always is making sure that we don't completely squeeze out our top tier relates from the front cabin and we feel like we've received a full good balance there, but and overall, we continue to look at our cabins and we continue to look at our network and we continue to look at what are the right seats and densification of our premium cabins given the environment.

Katy: Great. Thanks.

Katie Ryan: Thanks Katie.

Katie Ryan: And our next question will come from Mike Lindenberg with Deutsche Bank.

Katie Ryan: Hey, good morning, everyone.

Larry: Andrew I appreciate all the color you gave around loyalty and for Larry some of the premium data I think calling.

Mike Lindenberg: And especially if we continue to see this all remains strong and Mike I just want to shine a little more of a light on your question.

Larry: Calling out that 46% for premium and ancillary and other.

Larry: I'm not sure I've seen that number before and that was actually a bit higher than what I thought it would be.

Mike Lindenberg: Again, we had a seven and a half pretax margin.

Mike Lindenberg: Close to United and Delta.

Larry: It was from an.

Mike Lindenberg: Again without.

Larry: Operational perspective.

Mike Lindenberg: Without the international tail lands with a with a fuel headwinds and yet our margin was as high as it was simply because of your question because of our premium offering our business model competes with the network carriers.

Larry: Where do you think you can get that and how often does that aspirational goal change in the event that you decide to do lie flat maybe in some of your domestic markets.

Larry: Thanks, Mike.

Mike Lindenberg: <unk> differentiated domestically with our competitors, our airplanes are 100% fully configured and premium again with our loyalty program with the way the business model is set up with lounges. So it is a reason why we see success, even when there is a shift between domestic and international and and again, we will have more.

Larry: Are things.

Larry: We are continuing to see good demand for our premium product.

Larry: The team both on the revenue side and how we manage it and also we still have a lot of marketing opportunity and up sell to go so I still expect good strength there.

Larry: We added a row now 175 additional premium class. We're also we'll be adding.

Mike Lindenberg: Success.

Speaker Change: With the Hawaiian acquisition, so I just wanted to shine a bit more of a light on that.

Andrew: Great. Thanks, and just sort of a follow up and maybe it's just sort of leads to this next question, which Andrew you sort of making that comment about par.

Larry: Additional premium class and our eights and nines without some about reconfiguration.

Larry: Of course, the challenge always is making sure that we don't completely squeeze out our top tier late from the front cabin and we feel like we've received a full good balance there, but and overall, we continue to look at our cabins and we continue to look at our network and we continue to look at what are the right seats and densification of our premium cabins given the environment.

Andrew Thanks: Part of the industry really starting to acknowledge what you referred to as these post COVID-19 demand realities and I am curious at least from the low end.

Andrew Thanks: In any of your markets, what youre seeing on competitive capacity, maybe any notable markets that you want to call out where you've seen some meaningful shifts that should be to your benefit.

Larry: And especially if we continue to see this.

Hawaiian Airlines: <unk> strong and Mike I, just want to shine a little more of a light on your question.

Andrew Thanks: Any any color there would be great. Thanks.

Andrew Thanks: Yes, I think the only color I'd, probably add there Mike is an ISO when we look at it we look at a weighted average capacity in our markets and we just see a trend that's getting less and less.

Hawaiian Airlines: We had a seven and a half pretax margin.

Hawaiian Airlines: Close to United and Delta again without.

Hawaiian Airlines: Without the international tail lands with a with a fuel headwinds and yet our margin was as high as it was simply because of your question because of our premium offering our business model competes with the network carriers.

Mike Lindenberg: We've seen some carriers, who play more on the east coast.

Mike Lindenberg: Moving to the west coast and reduce their capacity again as the industry looks to make sure that their revenues and the costs all work to make sure margins are strong and healthy. So we see the construct for the industry right now is one that's positive.

Our differentiated domestically with our competitors, our airplanes are 100% fully configured and premium again with our loyalty program with the way the business model setup with lounges. So it is a reason why we see success, even when there is a shift between domestic and international and.

Mike Lindenberg: Okay very good thanks.

Mike Lindenberg: Thanks, Mike Thanks, Mike.

Mike Lindenberg: Yeah.

Mike Lindenberg: And our next question comes from Stephen Trent with Citigroup.

Hawaiian Airlines: Again, we will have more success.

Hawaiian Airlines: With the Hawaiian acquisition, so I just wanted to shine a bit more of a light on that.

Stephen Trent: Good afternoon, everybody and thanks for taking the time.

Hawaiian Airlines: Great. Thanks, and just sort of a follow up and maybe it's just sort of leads through this next question, which Andrew you sort of making that comment about <unk>.

Shane Smith: Most of my questions have been answered just one really quick one this might be for you Shane when do you think about that that very good credit rating you guys have for Moody's.

Andrew: Part of the industry really starting to acknowledge what you referred to as these post COVID-19 demand realities and I am curious at least from the low end.

Shane Smith: To what extent does.

Shane Smith: I'm wondering one or two moves up a one or two moves down.

Shane Smith: Make a meaningful difference as you guys go and negotiate with their co branded card in fuel hedge counterparties and other similar entities. Thank you.

Andrew: In any of your markets, what youre seeing on competitive capacity, maybe any notable markets that you want to call out where you've seen some meaningful shifts that should be to your benefit.

Shane Smith: Hey, Steve.

Shane Smith: Steven Great question, it's Matt.

Andrew: Any any color there would be great. Thanks.

Matt: One of the many hats I wear as treasurer and getting a ratings agency question as just manna from Heaven. So thank you.

Yes, I think the Ali.

Andrew: Well I'd, probably add there Mike is in <unk>.

Andrew: Also when we look at it we look at a weighted average capacity in our markets and we just see a trend that's getting less and less.

Matt: Really excited that Moody's gave us the investment grade rating, we've got a really good story has been hit through in his commentary cost execution terrific operation balance sheet has been core for so long and we look at that investment grade rating just as affirmation from an external source.

Andrew: We've seen some carriers, who play more on the east coast.

Andrew: Moving to the west coast and reduce their capacity again as the industry looks to make sure that their revenues and the costs all work to make sure margins are strong and healthy. So we see the construct for the industry right now is one that's positive.

Matt: <unk>.

Matt: Our story is very strong it certainly helps us when we go into the capital markets. We go to negotiate whether it's for leases fuel contracts etcetera as as you say and it also gives us confidence is with the Hawaiian acquisition and really moving forward.

Andrew: Very good thanks.

Thanks, Mike Thanks, Mike.

Andrew: And our next question comes from Stephen Trent with Citigroup.

Andrew: Good afternoon, everybody and thanks for taking the time.

Duane Wilson: <unk> recognition from external parties that the Alaska story is strategically sound.

Andrew: Most of my questions have been answered just one really quick one this might be for you Shane when do you think about that that very good credit rating you guys have for Moody's.

Duane Wilson: Really appreciate it thanks for the color.

Duane Wilson: Thanks, Steve Thanks, Dan.

Andrew: To what extent does.

Andrew: One on one or two moves up a one or two moves down.

Duane Wilson: And we'll move next to Dan Mckenzie with Seaport Global.

Shane R. Tackett: Make a meaningful difference as you guys go and negotiate with their co branded card in fuel hedge counterparties and other similar entities. Thank you.

Dan Mckenzie: Oh, Hey, good morning, Thanks for squeezing me in here.

Andrew Thanks: So I guess my first question is for Andrew going back to the script and the more to come comment.

Shane R. Tackett: Hey, Steve.

Shane R. Tackett: Steven Great question, it's Matt.

Dan Mckenzie: Of course, that's going to be my question here, but.

Dan Mckenzie: But yes, so optimizing upsells and D C better merchandising I guess first has Alaska cut over to N. D. C. At this point and then related to that.

Matt: One of the many hats I wear as treasurer and getting a ratings agency question as just manna from Heaven. So thank you.

Really excited that Moody's gave us the investment grade rating, we've got a really good story has been hit through in his commentary cost execution terrific operation balance sheet has been core for so long and we look at that investment grade rating just as affirmation from an external source.

Dan Mckenzie: Many bookings in how much revenue is on third party gds's today, and I guess, what I'm really trying to get at is just the percent of tickets Alaska is upselling today on third party GDS is in and what that upsell take rate might look like on Alaska Air Dot Com.

Andrew: Thanks, Dan just in short we are.

Matt: <unk>.

Matt: Our story is very strong it certainly helps us when we go into the capital markets. We go negotiate whether it's for leases fuel contracts et cetera, as as you say and it also gives us confidence is with the Hawaiian acquisition and really moving forward.

Dan: This 24 is a big year for US is something like 12, API is that we're building out to fully unlock in D. C. We have a number of modules already up and running on folks like help us. So it's actually small percentages right now.

Dan: But we're seeing the benefits of it.

Dan: And it's going to be really good for US 25 is going to be the year of N D. C for US we're building the pricing this year is what you're saying.

Matt: <unk> recognition from external parties that the Alaska story is strategically sound.

Dan Mckenzie: Okay understood.

Really appreciate it thanks for the color.

Dan Mckenzie: And I guess another question on tea.

Matt: Thanks, Steve Thanks, Dan.

Dan Mckenzie: Has alaska begun the transition to the cloud and if that's something you're looking at could you help us size that level of cost savings from that shift in and also elaborate a little bit on timing.

Matt: And we'll move next to Dan Mckenzie with Seaport Global.

Oh, Hey, good morning, Thanks for squeezing me in here.

Matt: So I guess my first question is for Andrew going back to the script and the more to come comment.

Dan Mckenzie:

Dan J. McKenzie: Of course, that's going to be my question here, but.

Dan: Thanks, Dan.

Dan: <unk>.

Dan: We have been transitioning to modern platforms for awhile, starting six seven years ago through the Virgin transition, we are starting to move more of our car T and.

Dan J. McKenzie: So optimizing Upsells N D C better merchandising I guess first has Alaska cut over to N. D. C. At this point and then related to that.

Dan: More of our sort of commercial ecommerce technology stack into the cloud.

Andrew: Many bookings in how much revenue is on third party gds's today, and I guess, what I'm really trying to get at is just the percent of tickets Alaska is upselling today on third party, gds's and and what that upsell take rate might look like on Alaska Air Dot Com.

Dan:

Dan: Big fans of our partners up here in the Pacific Northwest, Microsoft, but we also use other other folks as well as them I think the big thing is it's a cost increase of the Capex increase initially and then you need to scale over the over many many many years.

Andrew: Okay.

Andrew: Thanks, Dan just in short we are.

Andrew: 24 is a big year for us there's something like 12 API is that we're building out to fully unlock in D. C. We have a number of module is already up and running on folks like hopper. So it's actually small percentages right now.

Dan: I think it's going to bode well ultimately for our cost efficiency in the years to come. The other thing is we are going to benefit from artificial intelligence Gen II.

We've stood up a full team to go focus on that we're lucky to be in sort of.

Andrew: We're seeing the benefits of it.

Andrew: And it's going to be really good for US 25 is going to be the year of MDC for us we're billing the pricing this year is what you're saying.

Ryan Smith: One of the Tech capitals of the World who are working on this stuff with a really great partner of Microsoft up the street, so not not anymore today, because the time is over or I would've gone on for five minutes with you, but we're going to get an investor day together this year and we want to talk about technology and AI and the benefits to the company when we when we get in front of all of you guys.

Andrew: Yes, okay understood.

Andrew: And I guess another question on <unk>.

Andrew: Has Alaska began the transition to the cloud and if that's something you're looking at could you help us size that level of cost savings from that shift in and also elaborate a little bit on timing.

Ryan Smith: Later this year.

Ryan Smith: I appreciate everybody's question will have been wrap it up thanks, everybody for joining us on our call. Thank you. So much we will keep you updated on our progress with the Nymex and thank you so much and talk to you next time.

Andrew:

Thanks, Dan.

Andrew: <unk>.

Andrew: We have been transitioning to modern platforms for awhile, starting six seven years ago through the Virgin transition, we are starting to move more of our car T and.

Ryan Smith: This concludes today's conference call. Thank you for attending.

Andrew: More of our sort of commercial ecommerce technology stack into the cloud.

Ryan Smith: Big fans of our partners up here in the Pacific Northwest, Microsoft, but we also use other other folks as well as them I think the big thing is that its a cost increase it's a capex increase initially and then you need to scale over the over many many many years.

Ryan Smith: I think it's going to bode well ultimately for our cost efficiency in the years to come. The other thing is we are going to benefit from artificial intelligence journey II.

Ryan Smith: We've stood up a full team to go focus on that we're lucky to be in sort of.

Ryan Smith: One of the Tech capitals of the World who are working on this stuff with a really great partner, Microsoft up the street, so not not any more today because the time is over I would have gone on for five minutes with you, but we're going to get an investor day together this year and we want to talk about technology and AI and the benefits to the company when we when we get in front of all of you guys.

Ryan Smith: Later this year.

Ryan Smith: I appreciate everybody's question would have been wrap it up thanks, everybody for joining us on our call. Thank you. So much we will keep you updated on our progress with the Nymex and thank you so much and talk to you next time.

Ryan Smith: And this concludes today's conference call. Thank you for attending.

Ryan Smith: The host has ended this call goodbye.