Q1 2025 Alaska Air Group Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 first quarter earnings call. At this time all participants have been placed on mute to prevent background noise.

Today's call is being recorded and will be accessible for future playback at AlaskaAir.com. After our speaker's remarks, we will conduct a question and answer session for analysts.

Speaker Change: I would now like to turn the call over to Alaska Air Groups by President of Finance, Planning and Investor Relations, Ryan St. John .

Speaker Change: Thank you operator and good morning. Thank you for joining us for our first quarter of 2025 earnings call.

Speaker Change: Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com

Speaker Change: On today's call, you'll hear updates from Ben, Andrew, and Shane

Speaker Change: Several others of our management team are also on the line to answer your questions during the Q&A portion of the call.

Speaker Change: Air Group reported our first quarter gap and net loss of $166 million.

Speaker Change: Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported an adjusted net loss of $95 million dollars.

Speaker Change: Lastly, as a reminder, Ford looking statements about future performance may differ materially from actual results.

Speaker Change: Information on risk factors that could affect our business can be found within our SEC filings.

Speaker Change: We will also refer to certain non-GAAP financial measures, such as adjusted earnings and unit cost exploiting fuel.

Speaker Change: And as usual, we have provided a reconciliation between the most directly comparable gap and non-GAAP measures in today's earnings release.

Over to you, Ben. [inaudible]

Thanks, Ryan. Good morning, everyone. Good morning, everyone.

Speaker Change: The challenging start to this year was not what we expected as air travel demand diverged from the strength we saw just a few months ago. However, what remains certain that air group is our unwavering confidence in our strategy, Alaska Accelerate.

Speaker Change: Group has a proven track record, not just of weathering downturns but of emerging stronger every time. We're operating from a position of real strength.

Speaker Change: One of the industry's healthiest balance sheets, diversified revenue base with nearly 50% generated outside the main cabin, market share leadership in our key hubs, and a substantial 15% cost advantage over our largest competitors. .

Speaker Change: These advantages aren't just meaningful, they're decisive and they position us to outperform in any environment.

Speaker Change: That said, the current landscape has been challenging to predict. While we're not updating our full-year guidance today, we remain confident in our outlook.

Speaker Change: Even in the event of a recession, we expect to remain solidly profitable in 2025 and are fully committed to our sure buyback plan of a billion dollars over the next four years.

Speaker Change: In fact, given where our stock prices trended, the current environment has provided a unique opportunity to accelerate our share repurchase program that is already underway.

Speaker Change: As we outline out our investor day last December , winning in this industry requires scale, relevance and loyalty.

Speaker Change: That fundamental belief is as relevant today as it was four months ago. And we have conviction in our ability to deliver ten dollars of earnings per share by 2027. And do not believe what's happening today jeopardizes that target in any way. [inaudible]

Speaker Change: Our energy is fully committed to driving Alaska Accelerate and unlocking a billion dollars in incremental profit as we continue to strengthen various aspects of our business.

Speaker Change: Importantly, what's in our control is going according to plan. This is evidenced by our year over year industry leading unit revenue performance that is several points ahead of peers. Even those peers who have greater exposure to international markets that are clearly outperforming domestic trends.

Speaker Change: Integration synergies are tracking slightly ahead of plans through the first quarter and our Hawaiian assets are performing well. We delivered a seven point margin improvement in our combined Q1 results year over year, including a double digit margin improvement from our Hawaiian assets.

Speaker Change: The man, too, from and within Hawaii, remains strong, especially in premium cabins, supported by continued loyalty growth and the value we're unlocking through a larger, more efficient network.

Speaker Change: Who Ka-E by Hawaiian memberships are up 90% since year end, and Hawaiian card acquisitions have more than doubled year over year, and we are well on our way to building the scale, relevance, and loyalty needed to lead as a wise trusted airline in this premium leisure market.

Speaker Change: As we continue advancing our vision to connect guests to the world, we're just 18 days away from launching our first intercontinental flight from Seattle to Tokyo, North Korea.

Speaker Change: This marks a major step forward in the evolution of our largest hub as we chart a path to serving at least 12 intercontinental destinations by 2030.

Speaker Change: It's a bold move that positions Air Group to capture high value international demand while deepening our relevance and loyalty across our network.

Speaker Change: We know that delivering a seamless end to end premium travel experience is a key differentiator and we're fully committed to investing in every aspect of it. From our lobbies and lounges to premium cabins, food and beverage and onboard service.

Speaker Change: Even in the current environment, our premium revenues continue to outperform and our premium cabin retrofits are on track to increase our premium seat exposure to 29% by next summer.

Speaker Change: We're excited to expand our loyalty offerings and we'll be launching our uniquely branded single loyalty platform and our premium credit card later this summer. Another exciting step in enhancing our guest experience.

Speaker Change: And as we continue to diversify our revenue streams, our cargo operations are ramping to full capacity. We took delivery of two more Amazon A330 freighters for a total of eight and our cargo revenue is up 36% year over year.

In terms of execution, our integration milestones remain on schedule

Speaker Change: Our teams are working through the process to achieve a single operating certificate by the fourth quarter of this year Work is underway to bring both passenger service systems together by early 2026 and we're starting joint bargaining negotiations across our union groups [inaudible]

Speaker Change: We know we have a good playbook in place and we're focused on executing every step of the way.

Speaker Change: I also want to take a moment to thank our incredible employees. Their hard work and dedication are what make the Alaska Accelerate Vision possible.

Speaker Change: We're currently wrapping up our annual employee engagement survey and I'm thrilled to share that engagement scores are at record levels higher that at any point since we began the survey 14 years ago. That speaks volumes about the alignment and energy across our company.

Speaker Change: Our employees believe in our vision and they're already helping us bring it to life [inaudible]

Speaker Change: We are all energized by the opportunities ahead. Air Group is on a clear path to build scale, relevance and loyalty, lane to foundation for strong long term returns. I'll say this with complete confidence. I'll say this with complete confidence. I'll say this with complete confidence.

Speaker Change: Our company is significantly undervalued relative to where we're headed and the strength we're already showing in the areas fully within our control. And with that, I'll turn it over to Andrew.

Andrew: Thanks, Ben, and good morning everyone. My comments today will focus on first quarter performance.

Andrew: But more importantly, the successful trends we're seeing that underpinned our Alaska Accelerate Strategy.

Andrew: In the first quarter, total revenues reached $3.1 billion, up 9% year-over-year, on capacity growth of 3.9%

Unit revenues finished strong, up five percent. [inaudible]

Andrew: First Class, Premium Class, and importantly, Main Cabin, all delivered positive unit revenues year over year.

Andrew: Loyalty continues to show strength. We generated $550 million in cash from Uneration in Q1 from our co-brand cards, up 12% year over year.

Andrew: Importantly, new cards across the Alaska and Hawaiian Networks increased 26 percent, with flown segments by our elites up 34 percent.

Andrew: These statistics demonstrate the power of our combined network and incredible value that accrues to guests enrolled in our loyalty programs.

Andrew: Turning to premium, our revenues grew 10% and represent approximately 34% of our total revenues.

Andrew: Our continued investment in premium cabins are coming to life. By July of this year, 84 of our 900s and dash 9s will have been retrofitted with 6 more premium class seats, with all 159 aircraft completed by year end.

Andrew: In the next several weeks, we will receive our first three max eights configured with 161 seats, including four more first class seats.

Andrew: The conversion of our existing 59-800s into the same configuration begins this summer as we look to improve guest comfort while reducing costs and increasing revenues.

Andrew: Taking a step back, more than 200 of our Boeing 737 aircraft will have additional premium seats by the summer of 2026.

Andrew: and that's without removing any seats from the aircraft. This will add 1.3 million first and premium class seats per year and bring our premium seat mix to 29%.

Andrew: Further strengthening our position in what we believe is a long-term driver of guest satisfaction and revenue and well suited to our network's long stage length.

Andrew: Alcindy and Revenue Initiatives are on track despite near-term macroeconomic volatility.

Andrew: I want to share with you three leverage commercial initiatives that illustrate Alaska Accelerate is working and why this deepens our conviction in our positioning over the next several years to deliver results.

Andrew: In Seattle, in Portland, where we have leading market shares, and the number one brand preference, our schedule banking strategy is yielding significant positive results.

Andrew: We are increasingly more relevant to more guests and driving more connecting traffic through these two hubs.

Andrew: In the first quarter, connecting passengers were up 15% in Seattle, compared to last year, and we see similar trends as we look forward. Our banking schedule in Portland rolled out this month, and connecting bookings for May and June are up more than 200%.

Andrew: in Hawaii. Our recently acquired Hawaiian Airlines operations are producing strong results, including West Coast to Hawaii and

Andrew: Unit revenues of our Hawaiian Airlines assets were up 9% year of a year, nearly twice that of system average.

Andrew: And not surprisingly, as a premium leisure market, we saw strength in premium revenues that were up 17%.

Andrew: Furthermore, we're continuing to grow our loyalty with state of Hawaii cardiac physicians. [inaudible]

Andrew: Up nearly 40% making it one of our highest percentage growth markets. [inaudible]

Andrew: And as Ben mentioned, who are Kayi by Hawaiian memberships for our exclusive Hawaii resident travel program are up 90% since December , and we now have well over 200,000 members in just five months since launch.

Andrew: We just announced a 30% increase in flight starting this fall, including new non-stop service to Chicago, Denver and Phoenix.

Andrew: With these investments, we will have the highest network utility in San Diego by a white margin.

and offer non-stop service to 44 destinations.

Andrew: 26% more than any other carrier. Credit card growth has surpassed our San Diego capacity growth, which is evidence that our network investments are driving outsized loyalty. Thank you.

Andrew: In fact, San Diego now has the highest average card spend of any city we serve within the state of California

Andrew: Our product and offerings are well suited for San Diego, and we are excited to see San Diagons respond positively to our continued expansion and differentiated premium service.

Andrew: Now, turning to our outlook, we expect our capacity to be up approximately two to three percent in the second quarter.

Andrew: Importantly, this growth is all driven by our Hawaiian Airlines assets, which are performing exceptionally well.

Andrew: Hawaiian Asset Growth is slated to be up double digits as we implement network changes and increase utilization, while our Alaska assets are not expected to grow at all this quarter.

Andrew: We still expect our four year capacity growth to be approximately two to three percent.

Andrew: That said, we are currently evaluating certain off-peak capacity adjustments this fall as we continue to monitor the demand environment.

Andrew: Unit revenues are expected to be flat to down low single digits in the second quarter

Andrew: Overall, bookings have stabilized as we look forward albeit at lower yields than originally planned. Hawaii continues to book well with flat to positive loads and yields despite double digit increases in capacity.

Andrew: Manage Corporate Revenue, after posting a record January , ended the quarter up 3% and has also stabilized.

Andrew: We've seen material improvements from two of our largest accounts in the last several weeks after a meaningful step back in February and March, and total forward bookings are up low single digits improved from where they seem to have bottomed out in March.

Andrew: Although the year has not started off as we had envisioned, we remain focused on building scale, relevance and loyalty through our commercial initiatives for long term success.

Andrew: Our revenues are more diversified than ever, and this will only continue to grow as we execute our plan over the coming years.

Andrew: adding strength and resiliency to air group. Our yields, loyalty, traffic and revenue growth all point to a strong foundation that will bring additional revenue upside as the environment further stabilises and ultimately recovers. And with that, I'll pass it over to Shane.

Thanks, Andrew.

Shane: For the first quarter, we reported an adjusted loss per share of $0.77, which was $0.7 or just $10 million a profit below our guide. This was a strong result given our more than 90% domestic exposure and the rapidly changed demand backdrop the entire industry experienced in the quarter.

Shane: More importantly, Execution of the very early stages of our 2027 Alaska Accelerate vision we shared at Investor Day last year is going extremely well.

Shane: The only disappointment in the first quarter was the softening macro environment. Our synergy ramp, our commercial initiatives and our cost performance were right on or better than our plan and our domestic revenue led the industry.

Shane: These are strong initial steps on our path to achieve at least $10 in earnings per share.

Moving to our balance sheet and liquidity [inaudible]

Shane: Our total liquidity, inclusive of on-hand cash and undrawn lines of credit, stood at $3.3 billion at quarter end.

Shane: Scheduled debt repayments for the quarter were $155 million, and are expected to be approximately $100 million in the second quarter.

Shane: Our debt to cap stood at 58% with our net leverage at 2.1 times. [inaudible]

Shane: Sharey purchases have totaled $149 million a year to date, and nearly 400 million in the last six months, or approximately 5% of our market capitalization.

Shane: We plan to continue to execute repurchases aggressively at our current low market valuation, given our conviction and our ability to drive future earnings.

Shane: and we'll do so while maintaining our commitment to a healthy balance sheet.

Shane: First quarter unit costs were up 2.1% year over year coming in better than expected and reflecting the new contract we ratified with our Alaska flight attendance in February .

Shane: Our cost expectations remain unchanged and on track for the year with the largest areas of year-over-year increases in wages and real estate costs as we've discussed before.

Shane: Also, as indicated last call, the second quarter will be the most pressured this year with improving unit cost trends in the second half of the year.

Shane: For the second quarter, Unicuffs are expected to be up mid to high single digits, consistent with our original plan and on capacity growth of just two to three percent.

Shane: Our fuel price averaged $2.61 per gallon, consistent with our original expectation.

Shane: While crude prices came down recently, West Coast refining margins spiked in the last three weeks of the quarter to well above 70 cents due to unplanned refinery maintenance events.

Shane: Margins have since come back down over the past two weeks

Shane: For the second quarter, we expect EPS of $1.15 to $1.65 to $1.25.

Shane: Stathoulopoulos, reflecting approximately six points of revenue impact from the demand backdrop. .

Shane: Absent this softer outlook. The areas of our business within our control are performing well and remain in line with our prior expectations.

Shane: While we've started to see stabilization, the environment remains challenging to predict. And for now, we will pause on providing an update to our full year expectations.

Shane: To provide some context to the rest of the year, however, we have seen a five-point deterioration of revenue for the first half and if this continued throughout the rest of the year we still expect to be solidly profitable and expect to continue to outperform on a domestic unit revenue basis.

Shane: Demand fluctuations in uncertainty are not new for our industry or our team.

Shane: We are well versed in navigating these environments, and we will again continue to focus on building strength into Alaska. So when demand returns to more robust levels, we are poised to capitalize on it and outperform our peers.

Shane: We have an exciting future ahead of us with many unique drivers of value and are pleased with the initial stages of delivering on both integration and our Alaska Accelerate commercial and synergy initiatives this quarter.

Shane: We believe we have a business model that can outperform in any industry backdrop and have the best domestic setup for the long term.

And with that, let's go to your questions.

Speaker Change: Thank you. At this time I'd like to invite analysts who would like to ask a question to please press star than the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: And our first question will come from Catherine O'Brien with Goldman Sachs.

Katherine O'Brien: Good morning, everyone. Thanks so much for the time. I just want to dig in on the two-cue guy a little bit, if you'll allow it. Can we just talk about some of the moving pieces underlying that six-point headwind in the flat-to-down Rasmguidance? Maybe first, just to set the baseline, how much of that quarter's already booked? Okay, let's go.

Katherine O'Brien: And then it sounds like corporates moved off the bottom, internationally beginning a little better, cargo is growing, you've got new premium card launching this summer, Hawaiian synergies are ramping ahead of schedule you noted in the prepared remarks.

Katherine O'Brien: So, you know, a couple of pauses that we go into 2Q, just trying to get a sense of how you're assuming trends in some of these buckets evolve in a second quarter and what's offsetting the pauses. I know obviously the macro is a little bit worse, but just how all those pieces fit together will be super helpful. Thank you very much.

Speaker Change: Hi, Katie. Morning. Thanks for the question. So a couple of things. We're about 62, 63 percent booked for the quarter. I would say a couple of things about the environment. And number one, I think, holistically it is about the general environment as we're seeing all the softness.

Speaker Change: It's not in any of our synergies, our initiatives, we're seeing all of our hub banking, working, we're seeing strong loyalty growth, we're seeing strong Hawaiian assets.

Speaker Change: The industry is growing at 2x domestically than it was in the first quarter.

Speaker Change: and the other important thing is I think we're very excited about we might have reached a new baseline for

Speaker Change: Rasm for the first quarter as we have really worked hard to...

Speaker Change: James, the seasonality and get to a better place. So as we sit here today, the macro environment is about the only thing that, you know, is weighing us down and on the business side. Again, we're sort of seeing a stabilization there of bookings. There are some sort of in the manufacturing and high tech that are still soft. And then there are others and professional services that are doing well. [inaudible]

Speaker Change: So overall flat down, down, mid single digits is sort of what we're seeing today.

Speaker Change: Okay, got it. And maybe just to focus it on Hawaiian for a moment, 14-port margin improvement that's impressive in this environment.

Speaker Change: Is there some element of a longer booking curve helping in that business in the first quarter, or are you expecting a similar level of improvement to Q? And with the wine being a more premium leisure destination, are you seeing any negative impacts on our bookings or are that holding a little bit better system? Thanks so much for the time. Thanks so much for the time.

Speaker Change: and the mainland with all the connections, the banking, the selling of each other's metal. It's just been performing very well and we're actually seeing positive unit revenues in that regard. So, very, very good place there. Thank you very much.

Speaker Change: And Katie, it's been, and what we're forecasting, I know it'll depend again on the macro environment of all's but the last three quarters for a Hawaiian should be close to break even so we're feeling we're feeling extremely positive about how our acquisition is performing. Thank you for joining me.

Thank you so much for the time.

Thanks Katie.

Tom Fitzgerald: And our next question will come from Tom Fitzgerald with Cowan & Company [inaudible]

Thank you. Thank you.

Speaker Change: Hi everyone, thanks so much for the time. I just wondered thinking about demand if we could talk about California for a little bit and maybe comparing and contrasting San Diego with SF and LA and how you characterize the competitive environment in those markets.

Speaker Change: Yeah, thanks, Tom. I think that you can see publicly in the type there's been a very significant increase in ASMs in San Francisco as...

Speaker Change: Major carrier there gets back and above pre-COVID levels so I think we're sort of thing pressure there but I will say that in San Diego and that's what you see is leaning into that. It's just performed very, very well on our growth that's performed very, very well. So that's a place that we're going to continue to invest in.

Speaker Change: Okay, okay, that's really helpful. And then I guess I don't know, has there been any change in how you're thinking about just the premium product overhaul and that the retro fits just given the softening and demand and given there's been a lot of growth in that market just really just thinking they're just giving all the change in the macro. Thanks again for the time.

Speaker Change: Yeah, thanks. If anything, I'm actually very excited that we actually did that for a couple of reasons. Number one, just looking at that first-class cabin.

Speaker Change: It's sort of been now infected by the macro environment right now. We've seen very strong double-digit increases in revenue.

Speaker Change: We've also had obviously given the acquisition of very big change as well as some program changes.

Big step up in our elites. [inaudible]

Speaker Change: and so we need to make sure we continue to have premium class seats available for our top elites that they can upgrade into and again overall as I share to my prepared remarks we've not removed any seats from our airplanes and in fact on the 800 we've increased the seats so we feel very well positioned with how we're rolling out our premium product.

Thank you, Tom.

Speaker Change: And our next question comes from Conor Cunningham with Milius Research Thank you very much.

Connor Cunningham: Everyone, thank you. Just on the $10 earnings number by 2027, surprise you guys kind of...

Speaker Change: have so much capability. You sound like you have a ton of conviction, Rod. So I'm just curious if you could...

Speaker Change: You could just unpack what you're seeing that will bridge us from here until then. It just seemed obviously the macro is different but you've had more time to integrate the two companies. [inaudible]

Speaker Change: You're seeing how the competition's responding to your long-term plan. So if you could just talk about why you feel so so confident in the outlook, come 2027. Thank you.

Hey Connor, this is Shane, thanks.

Speaker Change: Appreciate the long term oriented question which we love to talk about. Look, I think and you heard a lot of this on the script. [inaudible]

Speaker Change: All of the things that we laid out an investor day in terms of commercial initiatives, the synergy ramp, integration milestones, cost management we delivered on in the first quarter. In fact, each one of those things was on plan or better than plan and, you know, we tend to

Speaker Change: Be very focused on delivering the things that we set the company down a path to go and execute and we're really, really happy with how we performed in the first quarter. So if you look at the billion dollars of incremental profit from initiatives and from

from Synergy's

Speaker Change: There's no reason to think that we can't go deliver all of those. [inaudible]

Speaker Change: We're also going to buy a lot of shares back if the price remains undervalued like it is today and so look we're not going to predict a three year recession that's super deep so if we believe that the macro environment will come back it'll rebound I don't know when if it's in the second half of this year or if it's sometime next year but when it does there's no airline better position domestically to get it to, um...

Speaker Change: to ultimately capitalize on that, and that will be happening while we're still executing on this billion dollar ramp of initiatives and energies. So no reason for us to believe we can't go get at least $10 of EPS by 27.

Speaker Change: Okay, love that. And now I'm going to ask you a really short, different question. So I'm sorry. The

Speaker Change: Can you just talk, maybe to Katie's original question? I'm just trying to, I think we're all trying to understand.

Speaker Change: and how the booking curve and pricing in general is moving throughout the quarter. You know, from what I think about like March, you guys probably had a lot of that booking February before things really started to change. So like, as you sit here today, are people discounting in June more aggressively than they are in April ? And I mean, I'm just trying to understand what's contemplated within the near-term outlook as we try to manage three things in general. Thank you. Thank you.

Speaker Change: Andrew, I want to just piece of context. I think we said it. We had a three point revenue sort of headwind from macro on Q1 and we believe it's six points in Q2. That is...

Speaker Change: really what's driving the short term. I think it's consistent on a domestic basis with what we've heard from other airlines, so I don't think we're in any different.

Speaker Change: Situation, but Andrew can maybe say more about sort of where we were booked a few weeks ago for Q2 and what we're seeing in terms of stabilization and fair environment. Yeah, I think just on the sequential, I think April is going to be a little bit stronger and I think we've seen some good close in demand just to be frank as we move into April . . . . . . . . .

Speaker Change: and a little bit softer in May and June , where ASMs are up a bit more and have been more fully exposed.

Speaker Change: to the fullness of this downturn that sort of happened in February . So, that's...

Speaker Change: really what's going on and I think again we sit here today if you look at our load factor in the first quarter what we believe our loads are going to be in the second quarter volume we're not concerned about I think we've got good solid demand for our product it's just working out where the industry pricing is going and what we need to do to fill those seats.

Appreciate the details. Thank you. Thanks, Scott Conor.

Andrew DeDora: Next question comes from Andrew Didora with Bank of America. [inaudible]

Andrew DeDora: Hey, good morning, everyone. So Shane, both, I guess you and Ben have spoke several times about the potential for accelerating your buybacks. Just curious, how could we think about the potential size of what you could accelerate here? Or I guess kind of your comfort level of how that could be? Are there any kind of balance sheet or liquidity guard rails that we should be aware of? That could be somewhat limiting factor in the near term, just trying to think

Andrew DeDora: about, you know, what the buyback potential could be kind of very near term here.

Speaker Change: A great question, Andrew, I'll start and I'll give it to Emily to provide some context on the liquidity questions you had.

Speaker Change: Look, I sit in my script, I think we're significantly undervalued, you know, we announced our billion dollar share by back an investor day and we were, you know, again, in the $60-70 range. So this is just a significant opportunity for us to accelerate. So we've done some math and I'll just hand it over to Emily just to give you some context and how we're thinking about it here in the next few months.

Emily: What the opportunity is to accelerate this program this year and the balance sheet impacts that that would have, it really will be de minimis in terms of where we're at today with debt to cap and our net debt to eat with our metrics. So we could do up to half the program and have essentially no change introductory for those metrics.

Speaker Change: Got it, very, very helpful. And then, Shane, maybe a little bit of a longer term question, though, you may not like it. I know you're not getting to 25, but I guess I'll ask the 26th question. The flatish chasm that you put in your slide deck, you know, in 4Q. Should we think of that as a good exit read into 2026 or any, you know, puts in takes you would like to add right now. Thank you. Thank you.

Speaker Change: Thank you, Andrew. If you're asking if we're going to have a flat calzamex in 2026, I can't answer that question. Although our head of FP Day was just setting up the budget review calendar already for later this year.

yesterday, but...

Speaker Change: I think, look, we'd like to grow a little bit more. Obviously, we're planning to take a good number of Boeing aircraft at the end of the year. We've got some more 787s coming to the end of the year.

Speaker Change: We continue to look forward to expanding internationally to Seattle next year. And I think we've got to get into that growth range. We talked about it investor day somewhere around three or four percent.

to have, you know, more of a flatish mindset around, around Unikovs, but...

Speaker Change: The thing, and you guys, I know we talk about this all the time, we will always talk about this, our relative cost performance. I think even this year will be amongst the best in the industry, if not the best on one of the lower growth rates.

Speaker Change: Lots of synergy opportunities, lots of opportunities to get productivity out of the aircraft assets from Hawaiian and all of our folks as well.

Speaker Change: and we're going to go execute on those. So I think from a cost competitive position, we're going to be really, really well positioned over the next few years, and that's going to serve us well ultimately in terms of driving earnings.

Speaker Change: Hey, and I'll just add this, Ryan, some of our cost energies really ramp up in the fourth quarter. So a lot of that annualizes in 2026. I do think we'll have a pretty good tailwind on at least the cost energy side next year, which will obviously help offset sort of any core inflation.

That's great. Thanks everyone. Thanks, Andrew.

And we'll move next to Jamie Baker with J.P. Morgan.

Jamie Baker: Hey, good morning, everybody. So obviously not air groups, you know, first downturn ever, but obviously one difference to this downturn is that several of your competitors are already struggling with profitability.

Jamie Baker: You know, ordinarily, I might be thinking about Alaska coming up the other side even stronger than if the downturn hadn't happened, you know never let a good crisis go to waste all that kind of stuff, but your plate seems pretty full at the moment. So I guess my question to Ben is

Jamie Baker: You know, if one of your lieutenants came to you with an incremental idea and I'm not talking M&A, I'm taking more from a network perspective, you know, taking advantage of away pressures. [inaudible]

Jamie Baker: Do you think you'd execute or is the preference just to kind of keep your head down and power through? I'm just trying to decide if the downturn structurally helps you longer term and it's not clear to me if it does . . . .

Jamie Baker: Jamie, I love your questions because I think they're actually very thoughtful. Look, I think if you...

Jamie Baker: We're deeper in our team. Our team mindset is we never look a great idea away, and we will make trade-offs.

Jamie Baker: to what is best, you know, long-term for Alaska Air Group. So if we saw an opportunity and we needed to make a trade-off and move something off to the right so we can...

Jamie Baker: put another initiative in that we think would have greater value to the company. We would do that. We weigh all the possibilities and make them move. We are nimble, we are decisive, and I think we have the team to go pull it off, so that's just how we think. Thank you very much for the opportunity. Thank you.

Okay.

Speaker Change: and then my follow-up, you know, what would be the Av Geekiest thing you've ever done? Oh no, wait, sorry, you were outside at the Wings Club. On slide 10.

Speaker Change: You know, progress underway with the FAA on the single operating certificate in fourth quarter, it seems, you know what I'm not in the weeds, but it seems that everything involving the FAA takes longer these days than anticipated. So if that timing slips. Let's go.

Speaker Change: Does it push the other two milestones to the right? I could see maybe it would do that for the red system but it wouldn't preclude the collective bargaining momentum. Is that the right way to think about it if the second milestone does shift to the right? No, no, no, no, no, no.

Speaker Change: Yeah, I think that's the right way to think about it. Right now what I'll say is single operating certificate, we just completed our second submission.

Speaker Change: The third one is going in. Sorry, the second submission was accepted by the FAA. The third submission is in.

Speaker Change: Single Operating Certificate is really tracking the plan, so we're really confident about the October day.

Speaker Change: RPSS as you know, we did it last time. That is really well in hand with our team.

Speaker Change: and the joint bargaining are just beginning right now so that they really are not interrelated, we're starting those.

in the penalty of the other milestones and...

Speaker Change: and you know we've done this before so we know how to go do this, the playbook is clear for us and so I have a lot of comments that the team, the team really knows how to go do this and the other thing I'll say is our employees are excited like I mentioned in my script . . . .

Speaker Change: They want this integration to happen. They want to get it behind us and look forward to a combined company who's going to go do big things.

Speaker Change: Okay, perfect. Thanks for the answer. It's been appreciated, ticker.

http://TheBusinessProfessor.com

Speaker Change: Hey, thanks. Morning. So I think you talked about premium and main cabin unit revenue both positive and Q1. Can you just talk about like directly the spread between the two and to what extent or how much is that spread widen into Q2?

Speaker Change: Thanks, Scott. I think what I would say on that is that

Speaker Change: The first class cabin, and I'm not going to get into specific spreads here, but the first class cabin actually is really doing strong and outperforming. I think as you know with the premium class, it's. [inaudible]

Undergirded by Maine Cabin Seats

Speaker Change: So, the real opportunity there is the roughly 15% revenues on the sell-up. [inaudible]

Speaker Change: But overall we see the relationship holding as we go in. And just to say it on the savor side, we still have very generous availability on that around 60%. But in the first quarter we were able to actually expand. [inaudible]

Speaker Change: out upsell from Saver in the main cabin, so we've got pricing and yield from that, so we're getting better and smarter about how to manage Saver in this downturned environment.

Speaker Change: Okay, and then Shane, I don't, maybe, I know you don't have a full year guide, so maybe there's not much to say, but...

Speaker Change: In that scenario you laid out, there's a five point revenue headwind in the first half, if we just assume that that...

Speaker Change: continues stabilizes, but that similar five point headwind to revenue in the second half. Is there reason to think Q3, Q4 are any better than Q2 as synergies ramp or I don't know maybe seasonality makes that harder? How would you think about that? Q3, Q3, Q3, Q3, Q3,

Yeah, I think, um...

Speaker Change: I think, first of all, if the situation we see today persists, we still think we're going to be amongst the top three industry margin producers. So, hence the comment and the script that will be solidly profitable still. The synergy ramp is pretty, I think, firm. We've got to really end just to the question, Jamie asked on integration and timelines and these things. So, I think we're going to be able to do that.

Speaker Change: These things are pretty tight in terms of each of the initiatives we need to execute on for integration and as we integrate we unlock some of those synergies. Now, like the things that we have

Speaker Change: Dunn first, like, coding across each other's network and sort of turning on connectivity. Those have been working really, really well and maybe even a little better than plan, so there's a chance that we'll find out that...

Speaker Change: The initiative is even as they come in on time are a little bit more valuable than we had thought before and certainly we hope for that but we won't know until we sort of cross those dates.

All right, thank you, thanks Scott, thanks Scott [inaudible]

We'll move next to Brandon Oglenski with Barclays Capital.

Speaker Change: Hey, good afternoon. Thanks for taking the question. So Ben, maybe if I can just merge Andrew and Jamie's questions together and ask it maybe a little bit more directly. I mean, we see a lot of unsustainable airline business models out there and maybe more treacherous balance sheets across the industry. Thank you.

Speaker Change: I mean, why accelerate a sharey purchase in this environment, especially not knowing where demand is going to end up, and potentially like other industry opportunities that could present themselves over the next few years, you guys have been the most inquisitive of anyone I think in the last decade.

Speaker Change: Great question. It's good to push us on this. Look, I just think we know where we're going to be with our long-term plan.

Speaker Change: and 2027. So we're so confident with that that's going to deliver. So we just think it's it's a significant opportunity.

Speaker Change: Everything else we're doing is in our control. We're executing and...

Speaker Change: We believe that we're going to get through this turbulence and if you look at past downturns, whether it was in 2008, the Great Recession or before that, these things will last six to 12 months and we want to be on the right side of it.

Speaker Change: and you know, airlines always make that same mistake, Brandon, that we...

Speaker Change: We buy back stock when it's high, and don't buy back stock when it's low, so we're not going to make that mistake this time.

Speaker Change: and I think we're convicted that the company is undervalued, and I think we have enough assets and a balance sheet that if other opportunities were to come up, I think we can take advantage of those in addition to what the buying backstock. Thank you very much.

Speaker Change: I appreciate the message there. And Andrew, I know you've gotten a lot of questions on competition, but maybe...

Speaker Change: Just specific to Hawaii and a big competitor change with their price instructor coming up later. I'm not asking to talk to their change but just, how do you see industry competitive dynamics especially going into peak summer months here? [inaudible]

Speaker Change: Specifically to Hawaii, is that your question? Well, yeah, Hawaii, but maybe more broadly too.

Speaker Change: Yeah, I think, you know, at number one, our growth is low, and I think the industry right now is in the business of reducing capacity, not increasing it. And I think when you see in times of softness, people

Go to their strengths, and I think-

Speaker Change: The way I look at this right now is that we are playing to our strengths. And so I feel pretty good about the macro network landscape as it sits here today. And yeah.

Thank you.

Speaker Change: And we'll move to our next question from Duane Pfennigwerth with Evacore ISI.

Hey, thanks.

Speaker Change: Most of my questions have been asked, but maybe we could just play back what happened in the back half of March. It feels like, maybe this is a misinterpretation by us.

Speaker Change: But it feels like your tone was relatively more constructive at that time when some of your peers were guiding down.

Speaker Change: So what shifted for you? Was it perhaps later? Was it more of a corporate or leisure dynamic?

Can you just walk us through the timeline since mid-March? Yeah.

Hey, Dwayne. Thanks.

Speaker Change: Interesting interpretation. I think that wasn't intentional at all. I don't think we feel incrementally worse about the business today than we did in March. In fact,

Speaker Change: We've seen, as we mentioned, a lot of stabilization in the demand backdrop. We're going to fill airplanes in the summer. We're going to run

Speaker Change: Loach Actors consistent, I think, with historically what we do in the summer.

Speaker Change: I'm not sure what the venue was or why we sort of came off that way. We did make a choice to not update guidance in the midst of the quarter. We weren't that sort of some of the conferences that others were using to update.

Speaker Change: and maybe we should have, but what we're seeing is like very similar trends to everybody else, except we also have unique drivers of value going forward and so we're fueling...

Speaker Change: As excited about the long-term as we were in December and we can't wait for the demand environment to get back to the really robust place that wasn't Q4 and Q1 and whether that happens this year or next we'll be ready for it.

I appreciate that.

Speaker Change: How looked up are you and what do you look like? Thank you for taking the questions.

Speaker Change: Yeah, I would say just in Maui specifically, I think the horrific fires and all of that obviously was terrible is really...

from a demand somewhat behind us.

Speaker Change: Hawaiian never really at that time really pulled down much of their capacity at all and given what we're doing now we've pretty much restored it and as Maui versus Honolulu it all sits in the same ecosystem so...

Speaker Change: Those things are behind us and I think what we're doing right now is looking to continue to make more connections and grow that.

and just on the booking curve.

Speaker Change: Yeah, I'm not seeing any, in general, booking curves are holding out to where they were before, I think...

Speaker Change: The question a little bit is, it gets a little complicated because now we're playing a little bit with Yale to maintain the bookings coming in.

Speaker Change: on traditional curves. But again, not seeing anything majorly unusual there.

Okay, thank you.

Speaker Change: And Duane, I think overall what we're seeing is Hawaii is a bright spot for us. That's the big take away. It's just a bright spot. Everything we're doing is...

is Head of Expectations.

Very good, thanks Ben.

Thanks, Duane.

and we'll move next to Michael Linenberg with Georgia Bank.

Oh, yeah, hey, um...

Speaker Change: Good morning for you guys. Andrew, your comments about the San Diego build-up and the network and

Speaker Change: You know, now, being in a position where you sort of offer the most utility to the customer base in that market. I found that interesting. It does look like that it's being funded by

Speaker Change: pulling down some markets that I would have thought were core to Alaska, like Alaska to DC, excuse me, San Francisco to DC, and San Fran to Chicago, and so it does seem like that San Diego's gain is San Francisco's loss because it does seem like it would reduce the utility of your product in the SFO market.

Speaker Change: How should I think about it and are those that type some moves that we should expect from you going forward from a network perspective?

Speaker Change: Yeah, Mike, that's a very perceptive question. Thank you for, you know, looking at the details behind it. But here's what I would say is number one, we continue to reshape California to make sure that it's in the best place possible. I would say if you're referring to places like Dallas, we...

Speaker Change: We fly lucrative DCA market, so we've not really lost the utility there. We have a great partner in American Airlines.

Speaker Change: at Chicago where our elites can earn in a crew miles and all of that. And that's how just to be honest with you.

with a COVID-19.

Speaker Change: Post-COVID market that is more of a cruise stop destination we couldn't work so we used those loves making markets we reinvested them in San Diego which has actually been more profitable so net net.

Speaker Change: We're doing it smart, we're doing it incremental, and I think overall a group and our guests are going to benefit from this. And Mike, just let me be clear, as San Francisco and Los Angeles are still a key part of our California strategy, in no way...

Speaker Change: Interpreting these moves as putting less focus on SFO and LAX. It's SFO LAX and San Diego.

It's part of the strategy.

Speaker Change: Great, make sense, and just my second question, you know, I'm obviously seeing all the, you know, you put out a release about the co-location [inaudible]

Speaker Change: You and Hawaiian coming together in some of these key airports. Are there any airports in your system where you're going to run into real estate constraints? And it looks like San Diego is actually going to be a huge opportunity because they're building out. And I'm sure you're getting a lot of gates there. But are any of the other key airports in your system, not just California, but like CTAG, Portland, where you're going to run into some real estate constraints over the next year or so. Thanks for taking my question. Thank you.

and the rest of us. Thank you. Thank you.

I think just from a network I would... [inaudible]

Speaker Change: sort of say no, I think certainly on the infrastructure we get great economies of scale with the Hawaiian assets flying on all the cities on the west coast we just absorb those into our network. I think we're in a really good position in our core hubs and managing capacity and gates so big picture I don't see any. I don't know. I don't know. I don't know.

Material issues with bringing the networks together. [inaudible]

Speaker Change: and being able to have adequate space. Mike, just to remind you like an investor day we said, Portland is a huge opportunity for us. It's got it's got it's got a panic capacity. [inaudible]

Speaker Change: and it's a great relief valve for Seattle as we bring international flying into Seattle. And so we're creating a connecting complex in Portland. So, Portland, there's a huge investment, there's a phenomenal lobby, if you haven't seen it, I think it's the nicest lobby in the country.

Speaker Change: and we've invested heavily in it, so CS Invest More in Portland is what and creating that connecting complex as an opportunity to help offload Seattle a little bit.

Great, thanks everyone.

And we'll move next to Tom Wadewitz with UBS Financial.

Tom Wadewitz: Yeah, thank you for, thank you for giving me some questions here on the call. I wanted to get your maybe higher level and a lot of the questions you've had on kind of premium. How do you think about the. Thank you.

Tom Wadewitz: I guess macro backdrop that would give you greater concern on weakening in you know premium and first class and that you know kind of broader category. I think we were thinking that you know big step down the equity market could cause some pressure some risk.

Tom Wadewitz: You know, I could be going into a mild recession, but I guess you could say, well, maybe that income cohort is so well protected that you could do a mild recession, you could go into a mild recession and maybe it would still be resilient. So just wanted to see if you could offer some thoughts about

Tom Wadewitz: You know, how do you think about how premium would go through a downturn and economic downturn and how resilient it might be?

I think Tom it's

Tom Wadewitz: The question I know has been asked a few ways. I think we're just not seeing it. I'll just be clear about that. We are not seeing any pressure, certainly in the front cabin. And I think as we've shared in investor day, we have

Tom Wadewitz: The long, if not the longest domestic stage length of any carrier in the United States. So when you look at a quarter of our capacity, Hawaii alone is flying six hours, little alone, everything else, there is a real demand for our premium and first class product.

Tom Wadewitz: where most of our network is flying for five hours on any given day.

So then, I guess you're... [inaudible]

Speaker Change: My question was more if you had further weakness, not what you're currently seeing.

Tom Wadewitz: But it sounds like you think even if you saw, you know, an actual recess, I think it would still be resilient.

Speaker Change: Sure. Well, I think it's, you know, at some point that there may be, you know, um...

Speaker Change: softness in those fares. But again, as I've shared, it's not like we've removed any seats from our aeroplane and our unit costs went up and we're banking on that. We still have the same amount of seats. So yeah, there will probably be yield pressure if we saw that turn, but I think we're very well positioned versus other carriers who are just literally taking seats off aeroplanes.

Speaker Change: Yeah, Tom, this is Ryan. I think our theory, um, based on what we've seen is the relative gaps between first pre-PC main and saver would likely remain, of course, if the overall environment got worse, everything may come down by some amount, but I still don't, I think we're going to see first and PC outperform the main cabin, you know, even in a downturn. [inaudible]

Speaker Change: Yeah, right, okay, that makes sense. And then just the second one would be, how do you think about capacity in second half?

Speaker Change: You know, it sounds like a maybe more careful approach on it, but you know, are you, what would you kind of need to see to really take it down more aggressively, or do you think you're kind of even if you saw some further weakening in main cabin you would kind of stick with the capacity plan for a second half?

Speaker Change: You know, the good thing a little bit is the second and especially the third quarter are our lowest growth.

Speaker Change: Quarters already, so we've got a natural hedge there. And as I did share on my prepared remark, we are already, you know, looking at some of the fallen beyond and looking at some capacity cuts.

Speaker Change: I will say that as we have shown and we demonstrated that if there was a continued weakness we would definitely be looking at capacity and how we ensure that we position this airline well for that.

Thank you for watching!

Speaker Change: So if you had further weakness than you would, you'd be willing to cut a bit more or just tear back a little more. Okay. Okay, great. Thank you for the time.

Speaker Change: Yeah, Tom, just our history is, as we will respond, we'll respond quick, if there is a massive quick downturn, we will take the appropriate action now, because you know, Alaska, you know, our growth.

Speaker Change: for the whole year was two to three percent. It was never high and was really baked on utilization. A lot of other airlines have brought down their capacity, which I think will benefit the second half of the year and we'll see how that paints out based on what happens.

Speaker Change: Okay, thank you for one more one more question. Okay Yeah.

Speaker Change: Thank you. That question will come from Ravi Shanker, with Morgan Stanley . [inaudible]

Ravi Shankar: Great thanks, Morning. Thanks for speaking to me in here. There's a few high level questions on Hawaii going back to the earlier commentary on the booking club. There's some speculation that US travelers may not want to go international as much as maybe in the last couple of years. Do you see any potential or evidence that Hawaii may be a natural alternative there? And also there's some talk locally in Hawaii of maybe restricting the number of tourists coming in. Is that an opportunity on mix or Arizona volumes? Yeah.

Hey Robbie, um...

Andrew can jump into. Look, we've...

Ravi Shankar: We talked about this a bit over the last 12 months. We think international, you know, doing great right now over the last couple of years and it's certainly helping those folks who have a lot of capacity pointed that way. We've always thought it's going to normalize over time. Let's go ahead and see what we can do.

Ravi Shankar: and it's one of the reasons we love the partnership and acquisition of Hawaiian to premium leisure market. It fits our network perfectly. I think, you know, folks want to go to Hawaii many of...

Ravi Shankar: Many of us off the West Coast go there regularly and we did before, you know, the acquisition. So I think it's a durable premium market.

Ravi Shankar: that we're going to serve really well. We have over 50% of the market share today. And yes, as folks, for whatever reason, decide to not travel as much internationally, I think Hawaii is a great destination for those folks who will be the people who are carrying them there.

Speaker Change: Gardening, quick follow up on that as well, and I'm good to see the momentum and Hawaii loyalty there. Is that something we should expect to see be really strong out of the gate of this acquisition, or is that something that will accelerate later on once you've completed the operating certificate, PSS, loyalty program combination? Is that, is that going to add to kind of peak later, or is that like the most you see now? Yeah.

Speaker Change: Yeah, I think we're very excited. We just think Loyalty is going to continue to accelerate. We go to a single loyalty program this summer.

Speaker Change: and we have, we're making continual changes to our program which will be announcing and we also have a premium card and then elites will get full access across the breadth and the depth of both.

Speaker Change: Metal, you know, as we get to single, you know, PSS soap. [inaudible]

Ravi Shankar: We're just excited that there will be continued momentum on the loyalty side. And Ravi, if you remember from an investor day, one of our big priorities on our Alaska Accelerate vision was be Hawaii's trusted airline. This is the trusted airline that will take people. . . . . .

Ravi Shankar: Between Neighbor Island Travel, which is hugely important, that are going to take them internationally out upon the Lulu, and will connect people from the islands to the west coast to our massive network from the west coast to the rest of the continental US. So,

Ravi Shankar: We're seeing gains. To be honest, I think we just crashed the service on this. I think we're going to see this accelerate more as the year progresses and when we become on one single reservation system, a single loyalty program, which is going to be in place here by August .

Ravi Shankar: I think you're going to see this continue to grow and then we'll achieve that vision of being Hawaii's trusted airline.

Wonderful. Thank you.

Thanks.

Speaker Change: I think we're out of time, so I want to thank everyone for joining us and we'll follow up with any questions with anybody and we'll talk to you next quarter. Thank you so much.

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

The host has ended this call. Goodbye Goodbye.