ALK - Earnings call transcript Q1 2018

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Operator

Good morning. My name is Jesse, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group’s First Quarter Earnings Release Conference Call. Today's call is being recorded and will be accessible for future playback at www.alaskaair.com. [Operator Instructions] I would now like to turn the call over to Alaska Air Group's Director of Investor Relations, Matt Grady.

Matt Grady

Jesse. Thanks, everyone. morning, Good for for you XXXX first earnings call. joining thank our us quarter And

Group help today Brad our Pedersen, our are provide call and on the On reported morning, are CEO, and also team results of who'll an outlook, discuss performance business, a Officer, cash revenue an and CFO, Tilden, the management net Andrew this GAAP Commercial our Harrison, Brandon Chief our quarter share update will Earlier overview will flow. hand first senior answer to income cost Alaska million. questions. Air Several members of $X your on of who

earnings fuel first Air merger adjusted $XX net consensus. costs, mark-to-market a adjusted $X.XX and of Group share of ahead hedging per Excluding call of the reported items special income related and adjustments, million

adjusted a our comments As call, in actual that refer our be business forward-looking future significantly statements to we Information can which financial include now, will could on regarding reconciliation will and from On directly may Brad. non-GAAP turn GAAP today’s most call between as measures provided And risk earnings we And such SEC measures fuel. factors the unit filings. costs a differ non-GAAP our results. our expectations, will today and affect over to our reminder, comparable earnings as usual, release. certain in excluding have the I found

Brad Tilden

from near-term, merger and very shifting is realizing in time executing focus intense forward, getting This Thanks, Alaska's. everyone. it. value of the of to a important part looking Matt, good the to the merger and morning, the our most through for the We're

we a night to the you known that single system, integration of when is a crescendo reaching I to service PSS. passenger think or it's well tomorrow transition most

And see tremendous and we're us strength what amount upon, by we and momentum. always there into XX just months today, see. a the improve sit for to we we learn We're while here merger. is As encouraged something of

control Boeing for single have We Airbus as of We've services in the new have collectively fleets XX% certificate loyalty a place and place single long-term and agreements in agreements contracts, we other our put that we flying of a operational we payroll. and bargained in and integrated also leverage operating move forward. engine new market-based across We've will plan. Seattle, our

our incredible that's a team We us, be single is our that behind will of this work realize an to and benefits us when enabling have expanded of platform. PSS. the cutover system's executing done, new the And integration majority to

same-store those encouraged percentage exceeded last as in in and, the Airbus is now Same-store plan and see see In We to And When potential strength improvement. the were where we vast see of RASM, amount adequate majority our a to versus are The by relevance sequential synergies we become rapid our refining our quarter. being positive, store revenues made first network harvesting by higher offer of legacy believe full of we a adjusting look early is the this of Mileage driver this we new day, network, and Guest program. markets you program new signs the a tailwind combined is growth of loyalty positive negative in we the departure times we still results. loyalty key see stages RASM, markets. quarter pleased RASM, times, our of our a we're don't program Plan tuning loyalty week patterns. frequencies, And attractive. our we substantial more core has the block markets. team markets, see at we including improvement, quarter.

year, the integration our complete bright. important milestones our during the half we first future As most is

than the bigger been, it love the an was XX% are and offer class market. great in of LCC than same best has. cost it always ago the industry's competitive have with U.S. We data, on advantages Number was XX% majority program it historically ago, par We by seats Our the years XX that at look the if recently against that loyalty pitch, platform, fares and industry maintains XX with XXX% experience now, product first our our advantage months just in was a is bigger And legacy airlines. you maintain cabin five premium and which ranked the our customers a the and

& Report. News World

resilient a they by great our evidenced the Ratings. Airline them care impacted future. Number that been and operation and position are winning Our by merger, have about providing our this guests, as the company in Quality recently they people XX, outstanding to and running but They're service

staffing Group's them their They've Gary related As have Beck, they and rate, to working Horizon, the tails publicly rating for At the a hit have now single running operation compliance. handling in you ground know, pilot amazing last accomplished based cancellation is this by our six led on-time Air been team best and the not simply months. performance, team, fully off on is months. customer completion and stabilized. The leadership baggage in business. in thank XX had new the things is the want they leadership I

synergies our that As leverage our Alaska, regardless to natural new the ensure will to exist, strong competitive realize economic advantages continue of we the or optimize shareholders operation to returns we the environment. for we combined and deliver

event with tomorrow integration us. to shift our experience goes – for interact guests been night. As single brand entire everywhere months preparing This has our to organization single and transition our customer our a I ensure mark that PSS mentioned, a will our smoothly to

down Alaskan October, procedures last and we One we're to all the the America tomorrow stations risks Virgin in system, of what booked night. in us process. Virgin actual conversion you Many XX event results be have us This will our to April is after in designed the are. the transition travel to reservations cutover. System. Reservation of America example branding, simple addition, the preparing for reservations step In and of and reservations unique all required no customer how Alaska the preparation for this asked we this for having bleed Beginning allowed approach

who is Shane system hear cutover most our focused more for our the and integration morning our and and key and others who Alaska to we'll throughout it this Tackett milestone are Sandy your host network. on team. PSS a to expanded Chin. our training leading working throughout effort Q&A. be I to the Hollenbeck, Freeberg employees in initiatives really operation will achievement address the over operating Our our are critical are is tirelessly happy to the get questions and Jill during respect out this Rosalie want Andrew hundreds of new remainder will of rolling Toni done, discuss on employees especially year. be revenue, With the working the of we're that Stelling, thank this that a

and as In cover. of mentioned now segmentation overhead on To Brandon schedule revenue productivity a will In changes bottom and With we team essentially costs, our against the platform our deal last that the in the addition out flow call. in on working plan Andrew Alaska's a will on prevalent. we more through get which quarter's revenues proven to details expect front the out from response line. initiatives network is higher fares, the laid a late the merger, summary, also executing regard plan ensure synergies number we provide the we're management. initiatives earlier, to cost focus is fair other We're which and we to fall, industry's to I which are also reenergizing economy moment. well to on roll new basic the

grow of last will X% leverage just years. XXXX capacity we to to XXXX, Our continue substantial our five in growth the as

new will expect produce our that deal incremental revenue addition, an and million combined XXXX. of we revenue initiatives In $XXX for synergies

the are this substantially costs merger-related We all absorbing increases of year.

of of initiatives XXXX and with couple million for next spending new years. produce flow to capital cash profitability With our in budget expect the we XXXX, substantial free and these $XXX

again merger Andrew. our moving With to in along and close, doing of turn excited time. our employees record about the over more integration I be for job midst call that, our I'll leaders our thank could to a I'd As not the complex a I back for great like in and future.

Andrew Harrison

significant good our this midpoint nearly result X.X%, competitive showed the on rose growth quarter first to points capacity $X.X Brad declined in X.X% QX two RASM two business everyone. and the a billion guidance. than for to resilience. morning, performance our was better Total capacity our and revenues of our Despite than our of markets, Thanks, quarter better X.X%. Though, fourth points

frontline guidance, our from management three driven Our primarily in hours teams. came outperformance, by growth was revenues of long relative industry loyalty guests adjustments, it any our I was external network Rather, want hard things; estimates. care outperformance who teams to our also good revenue talented of took this acknowledge and quarter. dynamic to None by execution or conservative million XX.X old-fashioned overly our solid work. and record

overall Our can be categorized as RASM quarter follows. performance first

RASM. Card X.X% fourth compares the commission The was the loyalty First supported robust further solid more targets that and up aggressive sign-ups year-over-year. RASM points. quarter Plan of in revenues membership particular, a This and improvement That's same-store sequential program. by This cuts, in credit our by from store operation internal which approach demand, XXXX, came card ahead XX weaker RASM all months. was tracking to Mileage was greater growth in plan. for than January same Credit in down Affinity particularly seasonal period, and in fueled February markets are outperformed to of X.X and

less or in during a second season. as we did The markets operation the category, create one These new markets year. winter tough than expected, headwind, markets especially

accounted accounted in New of our capacity fully decline. RASM our two approximately X% for for markets, point which QX,

We the set markets similar by seasonally better effected as year, and and into a QX markets that capacity our results guidance, new markets estimate demand X% the only continue just by these represented expect by QX. to of RASM, steps perform to this of started mature. point be by a of we our as one handful QX these benefited of to and and we We of Since amount. percentage new will QX is QX to periods QX they enter we about that that decline ASMs impacted stronger

industry this quarter, we to second X.XX%. are Given both that will X.XX% and peak growth down of to Alaskas guiding and range RASM quarter this, capacity fact a the

significant capital, time model last and/or of the economic we've irrespective generate our strong business optimize returns committed on As of to ensure undertaken earnings to we at competitive call, environment. steps we the our invested

current control conviction generate the within the are deep to competitive has our a that fact, only higher necessary In changes fueled landscape to revenues. unit make

Virgin acquiring work became We in more been QX. through Starting start proactive of as planning and to in on let's with dealing our demand network optimize seasonality the our since the fringing days. hard at has lower capacity the in So America increase network, team combined platform. with day adjustments week with

capacity We Havana namely network. also And Virgin freeing We've slots, slot-controlled repurposed several that and allocated the we've Mexico productive four two Havana and America to our to returned exited had City markets, uses. adjustments made aircraft of more for legacy also up City. been Mexico

point right morning reallocating Department this slots executed at and Field, eight us Coast. these strategic First, do which opportunities into we're monetize LaGuardia October, Love should and LaGuardia approval The profitable will choose our announcing perimeter which flying which this under our agreement XX Southwest, and Southwest lease so. these that received of slots, West an at XXXX, to Justice the lease, commences within DCA flying perimeter and while the we using valuable we slots, lease runs DCA. have reassume The out the with to more at slots to enables through of we've have to from within from

JFK relocated Hose, in Francisco. Coast long low Seattle yield Los one Francisco network and while Los maintain and making improvement Angeles Second, unit to San to And are of our markets, our we Cancun, point, San Angeles adjustment robust pretax our a from margins. discontinued Santa JFK to both driving and slots, continuing as utility each we Orlando. leverage while West of we revenues that The schedules and two we ensure such and LA finally, couple main haul, to

lower the move into previous we point of a growth capacity our XXXX this now than year. expect to As grow moderates. second half our guidance. X.X% We a That's

become rate Looking XXXX, our ahead quarter-to-quarter. and at settle consistent to X% about growth in more should

will forward of look opening at be house satellite a terminal, the and and will to square-foot north here terminal, to new exclusive We XX,XXX airport, which lounge. rooftop Sea-Tac modernized Alaska expanded also our the

to We are complimentary airline only paid, that first-class the domestic provides guests our access lounges.

will be by this very So, travelers. a received our well premium

ability the of merger JFK to our service will at system the also lounge new begin how Terminal end capturing We to X synergies. transition single at We discussed unlock our our month. expect quarter in to open a passenger last

tomorrow night, one of this support PSS find the improvements on point our ourselves revenues. in transition integration, and our now major With threshold happening the we to will inflection meaningful that

merger in limited to revenue of that Upgrades of for priced cancelable. model, revenue be Brad to, ticket give called revenues the synergies. permitted Saver million new rear assigned annual and and our We Fare. we be XXXX new the for offering and This to guests guests be believe speaking around not will the excited So will this seats is to improvements, ones will a last. Elites to and the at will changes This changeable aircraft option alluded $XXX you more not board generate we've definition the and evaluating incremental or been our introduce low these. will for will I'm product fall,

of of technology expanded per the changes the implementing six drive series our and policy sale effective manage annual rows increase network through outside addition, million are revenue offering guests collectively, Class These dynamite and post for to include sale, revenue reflects XX leveraging of for million $XX pricing to significant for more eliminating and fee In that revenues full changes, with changes value for June these seats product exit year, options year our Premium believe we XXXX. and waivers introducing expect of in provide days. product. we new another a in now the We better made

will $XX full run approximately initiatives this until back their the year. not rate them half in we expect revenue hit to million do year, these contribute over next While of

as that, Brandon. the as Our to from over is well substantial initiatives the entire turn up synergies lined With the I'll commercial Virgin. deliver organization these to of Alaska unlocking combination on call and

Brandon Pedersen

net quarter million Air Thanks adjusted Andrew and earlier, posted a morning, Mentioned of profit first Group $X.XX everyone. good $XX or a share.

of our significant during profitability want time new and with fuel and the number in business. merger very of prices, heard in guidance. we're our taking is, remarks. results a not important message Our the meaningful areas activities, integration competitive I That and the initial ex-fuel, our a network. near agreements X%, to our new rising low of near breakeven Brad's we're QX happy of underscore development, labor came you the results rose of steps Andrew's continuing CASM, pressure improve market end to

some the initial QX offset million in pilot in flight that The attendant effect X% $X for to of with expected however, that impact guidance, attendants, new we though Our future not agreement include the impact two-thirds and took shift flight contract the did contract basically quarters our costs accounted we the did into that of QX, increase. initially see the it.

to of groups. clean an list achieving later cost step year. is agreement/contract integration our merger is for toward this sight compensation attendant flight another flight aligns full sharpens also completing seniority of important gives labor all our Our of work extension the visibility. us and It line our contract The attendants fabulous integrated

team cost elsewhere. announced portion to growth identifying those capacity reduction we be done impact creating favorable the that now to pulling The should mentioned, job now our contract of of million largely by today our our is good be have The upward on by deal. Brad a in volume-related XXXX. under pressure we flight has divisional through of is April about X% new explained does CBA, versus year roughly attendant payroll guidance full by variances absorb As but And of cost increase $XX costs, prior X.X%. represented of the We fixed a expect budgets. FP&A cost able unit of up the out and XX% put a

accelerated post July we to example, PSS XX. the from For of headcount planned reductions end this year

basics raising across need of not As only goes for The a additional we not only pressure point employees back full capacity – examples have our In great result, a company. cost the the our two-tenth seeing to general, to reduction. credit of from point frontline productivity also but management to a of of on of leaders, CASM much gains. percentage I'm

Our airports well year-to-date. tracking a both teams and metrics both shout out, maintenance on productivity very get are

The signed million margin significant fall representing QX deal higher last non-fuel are cost flight drivers the contracts the Touching growth. power attendants large increase. on X.X% expect per X.X% cost the We $XX with we were up maintenance cost hour new fuel headwind. and of arising and XX% from be and or to on by up gallon XX% fuel, pilots rose economic expense a total market-based

money. saving Our us fuel is efficient fleet

of ASMs add million this $X producing we Our mainline been QX X.X% fuel have over year. gallon, our quarter costs defined QX current efficiency increased fuel fuel ASMs, efficiency mainline last If year's would as last higher. per

$X addition, In this have call barrel, XX% strike at economic place our the our quarter. With of for of price year, by hedges in options another WTI to consumption with average of barrel. a now the reduced fuel cost WTI remainder planned crude million covering a an fortunate $XX $XX we're

Turning to cash cash at seeing point. modest $X.X it with cash. flows mentioned the operations $XXX was strength the our are affinity and merger-related balance of sheet, as from we're Total million and Andrew quarter in loyalty we pretty of card costs, this million, program well. which flow actually the ex ended

free restructured team other beat big thanks skyline them, was billion in and for costs. Our the $XXX working three-year for CapEx to last cash both QX year accomplish $X and Improving cash and to $XX the again, Boeing XXXX. free flow, our Kudos our integration our partners our QX us. about Meanwhile, affinity and reason resulting To with we in card of generation $XXX nicely fleet was XXXX cash our each, a major quarter CapEx quarter. to million inflows million, CapEx ex planned of during budget. net year million objectives, a and reduced our this delivery flow

get total declining XX%, for impact debt the sheet further after sheet. adjusting year-end with stronger, debt-to-cap of still Our by on-balance to balance balance quarter another balance end flat investment-grade the We further debt-to-cap equity debt adjusted and to committed accounting remain improving new of $XXX on continues to leases, book sheet our million improve revenue We at year course standard. year-end. to sheet to stands the with the year-end. With since conservative XX% for over our reduce adopting expect

During to in dividends We million of share repurchases. $XX combined via returned will $XX shareholders million expect this still $XXX QX, million with stock million million repurchase dividend, which, return to the in about in our and we when $XX to $XX shareholders. year, result

work our sense to do won't lot platform. costs control deliver and We The unlock XXXX in XXXX. and amounts revenue flow we'll capital that, plan we've And cutover. we top synergies. to PSS will this industry Few XXXX on cash important not much have PSS boost Today then and the go initiatives to a if be are. plans, on that and improve should levels in that free spending. return the capacity eminent to shareholders of cash But since seen profitability. generate in things higher for aggressively questions, multiyear We're ability with refining easy. that our to and our approach these have your to let's makes to cutover the should heard about a you've revenue This have We're going line. lowered network larger

Operator

of Please Jamie everyone comes question from [Operator from week. JPMorgan. birthday Instructions] at this ahead. Jamie, XXth Airlines, Your happy go Alaska Baker first

Brad Tilden

Is Jamie there?

Jamie Baker

me? with lot our you Can are hear a here. of having We phones troubles

Brad Tilden

birthday. happy Jamie, Yes,

Jamie Baker

momentum. curious you as merely a loyalty? have of I’m members the I momentum cards? you. that? driving mean, an start that expectations. terms conservative flyer think up Okay, whether to on Virgin if just that in to how the speaks in came the you don't it having do do trying of have ahead to or, frequent Anymore finish gauge know, color is closer estimate yes. current signed to many Thank Alaska for loyalty forecast mentioned What we're I'm you in or I

Andrew Harrison

Jamie, Andrew. hi, it’s

strong going that what question without different, sensing out Pacific people very we're that Northwest, same product. exciting. our our And we get best it's fare new the the is California much seeing believed what to very is everything as this roll into network, belief our is that one really from that that My that people, to answer the seeing too for to structure, the product, going us and and makes something stronger continue way and we we're personal our in think detail is I in new them. us continue just to that. seeing so sensing we're day this about is, combined something stronger that are And much what is

Jamie Baker

fares, think behind issue calling this there basic point. me. a appreciate are But curious economy and And economy basic on a to sounds know the saver Is second, that. is I'm not consumers trademark Okay, means. like I And increasingly or it just logic people something? to. guess, about it small what used most I what

Andrew Harrison

will always when you one saver get assignment. Alaska I I core economy will you not mean, get basic in as don't the full a a book you case our I fare, our the mean that is significantly is is very which Airlines, different, And you brand, on assignment. the seat are flights you book tell if that but today, know. really thing when while I of seat –

rules extremely I to that's policies guests. think meets the different ground. think one I basic, across structure think is It's Jamie, look I around And of it. if and people. important people our have to you And very structure here that important middle our the

Jamie Baker

Okay, so Thanks much. enough. fair

Andrew Harrison

Jamie. Thanks,

Operator

question Raymond Syth comes Savi with from James. next Your

line Your open. is

Savi Syth

Hey, good morning, everyone.

Brandon Pedersen

morning. Good

Savi Syth

as cutover. next Just kind Could about year those of going them when even see and kind of remind the to synergy, this and start timing the, obviously, on the the synergies, will you of integration the of PSS year? kind lot – rollout again we on me go yet of after a you the through

Shane Tackett

cost I to the of Tackett. got $XX million we $XXX XXXX, in million we've numbers, million. Savi. synergies. we And end XXXX, Hi, In Shane just Airbus growth, are XXXX. go that trackable. now sort This the to do – revenues. that actually configuration can and think Yes, basically loyalty behind By we of most $XXX we're of They are right all And for all And of interior to had ramp we're of all us. there of cabins, things of that these $XX feeling or the those closely. cargo those, as of track props from on or this then million. either XXXX, stuff quoted unlocking with is by We about leading is track have good where now at the at pretty PSS is almost

Savi Syth

of Got question. just up might with it. new, if And of bit I follow then – kind the Jamie's

On fare happen. the is there coming that the I'm the showing is Just months in how up guessing out rollout is if starts just around out that… if any it in – color environment two fall? the the comes like might later fall, rollout new product, it in

Brandon Pedersen

right we'll about Essentially, distribution in and roll And really Savi. sort and out which We'll on Shane team beginning, actually of correct, smart January. the working that’s are then fall. Yes, excited it e-commerce be about. whole start I'm and now the side, the really

it and this industry is done it. the do been And has at working few we how how for hindsight we everyone to think a have years. has and here the deciding on want on looking I beauty

Savi Syth

Make you. sense. All right, thank

Brandon Pedersen

Thanks, Savi.

Operator

Bank. Deutsche Your Linenberg question with next from Mike comes

open. is line Your

Mike Linenberg

Hey, everybody.

gates DCA Love here, LaGuardia, about through and of that you Southwest, questions back, you and to the Andrew, were Field talking into leasing of couple that. Just the

to Is what today, airports – Now is you you it Field, just is were nonstop from I that what referencing? those that just what Love only you fly guess, that is? two

Andrew Harrison

of within-perimeter of Both those if Mike. slots, right, you That’s will. sort

as of fly sort or part Field really geography. of only Love as can the that we So far

we October. So that that's of discontinuing that be And today. fly where we'll course, come

Mike Linenberg

not I year? you'll money per error and – how more million of $XX million, that get is the from Is that, a think? $X rounding I of gates The – the, lease or we Southwest slots. something is mean, like I'm that guess, the should the that

Andrew Harrison

and I Alaska. our You the That's Southwest comment for base is able can't really privy important maintain But us. all I will know, you being slots obviously, and around future flying that on monetize and what to the asset for important is tell to magnitude. move

Brad Tilden

than Mike, we getting the configured. just want to have And it our is more network payments probably important the lease configured way

is Our to whole – idea was build of strength. pockets to

the Northwest LaGuardia California. hear loyalty the of at point push loyalty and company's cities. into from fly, we want to the and Reagan in this those not time history, have And fantastic You us Love Flying all we in both this as then National, about to and Dallas talk out folks strategic. Field was

we're this that and so And with happy do assets our aircraft to line up our transaction, our so we can strategies.

Mike Linenberg

look – now route pilots in you performance and about pilots three a six to those all. have like and that, the Is the Brad getting months, yet on combination Portland about the mean, routes that But earlier like then been the of right longer-haul sounds that of cuts? situation out that of either it at cancellations it’s network at lot more mention I not I that, And thought just have last, with control. And when Seattle EXXX, I interpretation right, call I been Is getting is the a of saw that was network under-performance? when did right. under some It’s line in call that that over of cut. the there Horizon pilot the

Andrew Harrison

out Portland changes. of just Mike. we’ve And mid lot stuff And rounds a of fuel, with think looked of right. is rising we’ve had to Andrew. That’s Yes, cuts that. I This make at exactly we’ve decided

Mike Linenberg

much. very Thank great. Okay, you

Brad Tilden

Thanks.

Operator

Darryl UBS. from Genovesi question comes next from Your

Your open. line is

Darryl Genovesi

color some you Hi, more us Andrew, the morning. I this I model. guys. was revenue wondering Good gave Thanks time. year. for evolution, on the about guess,

available. I million at the last half? $XX you think ramps in think up to come Day, new you the had to, fully the or from second one supposed that the of year-end through that? I something Investor Is so. product. premium process think, that was more I incremental that That realizing is back Are referred currently

how revenue generation the wondering going. Just is

Andrew Harrison

That’s correct.

some the I’ll In let on that. give here, fact him Shane mastermind color

Shane Tackett

Darryl. Yes,

rolled I price year. got all a Class, Premium country. think easy referring we’ve our just entire of which out of price earlier to sort an kind We strategy, finally fully or started for you’re been of three reconfigured phenomenal. It’s with this the three with fleet four Boeing –

expectations price us. of on around all product phenomenal our based and of been now we’re We’re It’s internal of for a demand ahead well moving sort announcement.

Darryl Genovesi

you’re So million number? to relative $XX ahead the

Shane Tackett

Yes.

Darryl Genovesi

full you the the million on half we think Well, half. a the as year. number? and Should think first then, you’re $XX I Brandon, guided second in it for the don’t being non-op. But similar about about

Brad Tilden

I less than being it as think that. of slightly

be, We’re have if I at QX, to probably this QX. $XX guess, a point, million quarter probably in to tracking

Darryl Genovesi

guys. Well, thanks very much

Operator

Your question Buckingham Dan from McKenzie next with Research. comes

open. is line Your

Dan McKenzie

Hey, morning, the is statistic XX% Andrew, that of guys. the I is to thanks. travel revenue business spend. tied Good believe

average much the does this by And reconcile how just saver Alaska? what first, to premium so And economy an for economy? to million has following it with on you’ve and fare going the on big business basic of estimate perspective given the how deteriorated I’m some is $XXX get the look introduction like trying that three? fares

Andrew Harrison

commentary any Dan, Shane might closing. if has I on –

provide what more I’m Here’s probably would going and color. I say to

amazing have course, can basically and new we Vice our with optimistic about go As I sales What coming working we where all says Sales, of and is at you am our a of will may Oppenheim. new President been just the it’s from, very sales. I of him where And David it’s have with that, network. contracts heard, structure, looking

the let I’ll I comment Specifically on stuff. sales the closing Shane some to your just upside But see on of question, side.

Shane Tackett

some there demand I several would just quarters. sort – had the that you expect. been oddly fares, across think, they’re is On really closing We’ve the network. It of we’ve watching what these to for low, relative are Yes. last generally good

I seen kind think of the demand all on had everybody’s across that. There’s fallout side. been business good no We’ve APs. really

that focus new But these had of time. competitive don’t So that’s more we to real sort on why more would of levels the And we’ve the to it’s that initiatives really on over normalized can to low data the on get control. on or depend is fares we backdrop. anticipate to important economic some revenue us focus the things

Dan McKenzie

in And question. then that down transcon, XX% Just relative and inter-California is XX% the to the trending? to it. Got how

Shane Tackett

Sorry, Dan.

to Just XX% what’s XX% the from? the is –

Dan McKenzie

Yes.

earnings I’m some trying call XX%. on XX% had You have to fares how in down the walk inter-California those and get transcon, last that inflected. to were just mentioned perspective up

Brad Tilden

That’s good. Yes.

moving some Some sort bit and we market still honestly California and specific markets still don’t there have around the back. transcon rebounded are And market. of others depressed – that before. are But and they’re that were come I it’s quite quoting recall a of by

on dynamic pricing from the just pretty Coast, So today. a West standpoint it’s

Andrew Harrison

move I I the stronger But other. anything, again, basically demand periods, the we third when as or say worse. last and into mean to dynamic that, the continue if it’s actually the think any evolve not the we But we’ll quarter. And second in it’s would quarter, than better spoke see one I way

Dan McKenzie

do Airbus the How expect Got third fleet? then the second of quick many And and the rollout? of What’s second have to reconfiguring that in planes the just in a it. here. we quarter? quarter pace question terms done housecleaning Where

Shane Tackett

We September aircraft at XXXX, a first Shane our going get of something produce start Dan, in we’ll to this month. reconfigured. And five like is again. we’re

are are some some three, seven. Although,

the fleet of half is whole XXXX. done about XXXX. by There we So of by we’ll go pretty how the of XX ratable We’ll summer them. the the get to aircraft through have fleet through. year done end have It’s

it’s once So going, get five we a about month.

Dan McKenzie

Okay. Thanks guys.

Shane Tackett

you. Thank

Brad Tilden

Dan. Thanks

Operator

comes Lalwani question with Stanley. from Morgan next Your Rajeev

is open. line Your

Rajeev Lalwani

morning, Hi, Good gentleman.

Brad Tilden

Good morning, Rajeev.

Rajeev Lalwani

for Brad actually you. question a

And just call this [indiscernible]. for progress? made talked and too, Virgin you’ve Do challenges to like the call you significant associated you’ve feel you maybe the about some of here? with beating you of responding last laid targets out operations that and you? of stuff can And have you the that the On deal start that some ahead of behind line is the sight

Brad Tilden

But to Thanks if for look you up Systems, is night. the important. up say payroll. a would night the new great side at I you do. certainly It very, us we’ve forward. And But it us a agreements. have a that’s of merger tomorrow list settled that work into sets it’s is sets get accomplishment. Rajeev. And that. anyone are cultural deals. a today, I XX labor, The bite seniority tell market-based big up and lot. collectively it. we the And through do think – you we’re I very question, months mergers of will get stuff to And more That’s moving bargained our that’s sort got which huge integrated do. to got of XX% cultural been

the huge that all As decisions But onboard The we’re beginning it. the with brand, PSS you stuff a that’s with And of begin to outside of airplane, accomplishment. to the now know, in deliveries year. receiving is many, all service over many position t at done. behind loyalty stuff, really systems cut a of of us, leverage

this of through the way think of of network have. So XX, we’ve product focus as quarter, by are the XX% end – really shared we’re just way June I By taking think be last, this XX% our of we’ll we And merger. the the moment, this we the think do the incredible of XX% fares merger. we on incredible and through advantage to that or

are think today. good question. So, the a appreciate in yes, we really I position I

Rajeev Lalwani

Yes. or question Shane you. it. for Got a Andrew

Just been the just there it? the then be hopefully in can you’ve how XQ opportunity the were pricing, of And as on What’s seeing RASM your are as it. associated could that’s competitive to headwinds sense as as I’m provide capacity or Obviously – the on embedding that move as forward. in markets tailwind what of get about, with improving. If development some a tailwind you you we on what just perspective? a trying talking RASM the from far you far the

Brad Tilden

this. crack take I’ll Rajeev. Yes, a at

noted QX Just, reduction to I’ll the for revenues the on pricing unit from entire really get and the was script, question. as in new market. Andrew But

stores think very [indiscernible]. the I So been and same resilient strong have

don’t us. for think the real total the that know all I’ll sort that don’t real be pricing But down. net will competition I and closing have I and the question question, break do of growth pricing. of and how that I view on of is – know a impacting we much QX for us

QX, we I would higher sort right are to to be. these are as – get them But we we there. sometimes look see don’t be now. especially, get up hard that’s right we at fares call they as expect quotes we makes what And think months, and of look know to holding demand until we into now, what June because

Andrew Harrison

other that capacity I is The shared prepared thing remarks industry quarter high obviously will to also add looks out is, second growth growth. the the in but And be as of watermark I my changes three move to a dramatically, going the key it into unless two factors. we four declining as or a you’re relates and those as think you see world if I tailwind, will, to

Rajeev Lalwani

Excellent.

what a you development guys the are in expecting XQ provide on in Sorry, the as to which was markets, number or XQ? you hit can

Brad Tilden

this the new revenue He script. was in mentioned in impact. the quoted had QX really X.X% reduction Andrew, the entire market

Rajeev Lalwani

Thank Got it. Very guys. you helpful.

Brad Tilden

Thanks, Rajeev.

Operator

Keay comes Your Hunter Wolfe next from Research. question with

Your line is open.

Hunter Keay

you’re Hey, everybody, how doing?

Brad Tilden

Hey, Hunter.

Hunter Keay

just Love make given about the you Can lay your particularly sorry. merger? deal it Southwest more And for they Field require want I’m it Just me DOJ get sure it what time, then I right. us said approved out the does again? tell approval one to when regulatory I

Brad Tilden

payers, the is a and Dallas, back from if National So, LaGuardia the during Reagan It’s we come which this back. parameter to Field, have that a is were point they – we They XX-year could did XXXX. go their period, Hunter, and to justice Alaska. with done approval. a have is to It couple have they through get require this Alaska and slots deal. There Airport. become Love XX XX-year could come take department that. We approval both those slots they did slots XXXX, to And back provision that of lease to does it regulatory at outside the

provisions. basic the are those So

Hunter Keay

channels you some and – a is one actually Andrew, products new the Well drive think Okay. be content mention into going e-commerce, I Sabre. for ability might to distribution around the going segment that as to keep And Cool. a then you your agreement contract with best next and time Sabre customization home you GDS is Shane that Sabre. to – of some consider Sabre to really position Are stuff some push where as up your for you are partial here with and is the work a content but some to the forward? think you your you in able question be – consider this Alaska with

Shane Tackett

GDS, I negotiations of sort That’s on. them. obviously, Honestly going amount of and spent really with and a big, deal us the with imagine, a will future Content, question. lot it big one is be an to excellent just center we’ve everything else front into

today. of Just providers know, we long-term here most so our a we you agreement pretty as with sit GDS got

would that. this we to were of years of in So a able be, if couple outside future the

Hunter Keay

That’s Okay. helpful. Shane. Thanks

Shane Tackett

Thanks, Hunter.

Operator

comes from question of Helane Cowen. next Your Becker

line Your open. is

Helane Becker

much you very Thanks Hi very thank operator. the much and for time.

think you quarter So adjustments year, my you when first is next expect capacity and into about forward question you that this first the as made go fourth year, can we of quarter you made the more therefore, adjustments the this be capacity more in kind changes happy network and seasonality there or are of more year. and would that route with or you seasonality

Andrew Harrison

Andrew. it’s Hi,

I the think seasonality. we’re still working through

make so Ben and is, working the to back adjustments to teams are you final I fall think and and very capacity into some of early our adjustments over and there. requirements their efficient President our half Minicucci adjusting other the additional schedule how that on staffing working with probably align network. were making And myself share closely thing productive I currently with will our We’re this work the sort extremely sure is our and their to with together us highly XXXX

Brad Tilden

we’re world Helane, it’s But a is getting that capacity important I ever been. do think where than this in right exactly

forward. a lot or a important of about adjustments on environment we’ve it’s those week today revenue stuff night we’ll going requirements the as spending last So and be been this as is last making on in mentioned day on it’s light night the the the Saturday that energy ever night Wednesday

Helane Becker

Thank and associated cost And just with time just going? has on delays a the last then with that’s and congestion. the at if that that the SeaTac the Can going kind you. had construction at you adjusted, you capacity airport us airport. don’t little that so follow-up in of my and you And past update talk been question, Okay. what’s there about limitations how on have because you bit

Ben Minicucci

not say Seattle the I uncommon to morning, we constraints, peak will gate of have lined Seattle, got Ben. Yes, space up see it’s is constraints. takeoff Helane times air Good XX full, have day. you will it’s tell for airplanes I we got at

gone So up. taxi have times

construction So going are gone have cost this to operate SeaTac is at to the to airport. full; up. up to doubt there costs positions in during situation. SeaTac is hard no to But stand help at operate there’s create SeaTac

Helane Becker

mitigate doing you I are what to But my that, Right. question? guess really that’s

Ben Minicucci

In operations? terms of cost or

Helane Becker

them. of both maybe Well,

Ben Minicucci

Well the now costs because there so time side, that up showing block got the to add up, of operate cost block block to the the to as operation are part market you you’ve time up. XX%, time are taxi that go at times goes so on XX% so increase times

and So, charges ground what so. actually times airport get and the up. you course times in of block And the the of see you adjustments in investments go is, rates make translated that

Andrew Harrison

going many the will believe in taking gets ports over each five a increasingly be very ability since clear to on it’s and real of that have Ben’s forward all the companies is exist last time. so the to to Helane, I at gives five-year term, efficient lease, didn’t now have be again line least, over Andrew, us is that and then a we the is this we before, one better back SeaTac I infrastructure thing which sort comments it operation of manage was big our deal years will, the going which how it to of next sight the where quarter

Helane Becker

time. gentlemen, Okay, that’s the really thank helpful. you for Thanks

Ben Minicucci

Helane Thanks

Andrew Harrison

Helane Thanks

Operator

Your Pfennigwerth Evercore. next question comes Duane from with

open. is line Your

Duane Pfennigwerth

Hey, thanks. morning. Good

Andrew Harrison

Duane.

Duane Pfennigwerth

planning to to continue were things that they from specifically the seasonality some of respect here? had you perspective study from an network to time to Andrew, a the see as perspective did what from more room with you’ve optimization Virgin improve

Andrew Harrison

credit, to JFK, day size and markets, flights the they and the of Los seasonality lot given lot of quite you’ve rent mean a Yes, got have year. just America I six their give of lot Angeles, I really a a didn’t mean opportunity to sort I any of frankly. Virgin do a

our part And and even connecting so in combinations beyond and network I of and the markets, and half. think permutations new connections with our

the reduce doing, that’s think forward we’re around, we going real directly. might be with moving you what see I doing a that and there opportunity is slots and that seasonality, to

Duane Pfennigwerth

of Thanks. about, revenue talked dynamic series et with to with pricing, waivers, And the that you exit just initiatives respect to stay cetera. you rows, fee

threw all $XX get I the number those one. not half out things think for of you million on back switched day but obviously

you on And how taking the think So thanks would questions. about for those combined annual an basis?

Andrew Harrison

rate saver $XX fare was an on XXXX. you about run Again, XXXX annual million the million put about at out the we’ve run rate, just $XXX and ones mentioned,

Duane Pfennigwerth

you. Thank

Operator

next Your from question comes Joseph DeNardi Stifel. with

open. line is Your

Joseph DeNardi

Thank and Brandon to change it’s made chose Thank what why then of you if it you you is Mileage statement. Andrew do a And what guys important? or you other revenue income Yes. – to about your represents. the you. in could talking think revenue, just two spend I’m that? you. what side break Why minute wondering just Plan a or

Brandon Pedersen

take it’s Yes, I’ll one. good that Brandon, morning

actually sell of So one in when most Plan to some is two line is the what the that then element, call them other that. other in And commission the other those the the will, Mileage basically, earn excuse other might revenue for which miles you that if airlines things marketing costs settlement the members redeem – we that has it we me to minus net that’s our the line. travel and benefit on pay is having earn airlines we banks,

more his talked that would balance but of sheet I and Chris work, move the footnotes take what that to did decided sense. than the it we makes always number We to actually deserve about the had terms and think presentation, don’t much. to probably team in that and love credit base of I In

a a to wanted little you’ve the and given As pointing very been important we out its magnitude. business of it part it’s visibility give more

Joseph DeNardi

flat it CASMex capacity those at can with this And kind realistic and is down, of what targets Okay. just Brandon next point? is another is, the X% on it you remind just goal us year, you growth are one how the then for

Brandon Pedersen

to to thought guidance it if we we to where come we down. but wasn't slightly go. It was said planning needed quarter’s mindset think costs or having Yes, I you flat go a back call, we had be of directionally last to

at think cost been I over you look step our there's cost changes the of in couple if the last some structure. years,

have lot As look think at opportunities with things I do cost of we to we structure. it, the a

but working, to to what are we of been really initiatives is fair we of also thinking you going we already that that part are focused the continue cost year make into maintain of success, our costs absolute next. the about advantage this gotten We thinking on actively on are fact, And undertake a the company’s there's energy XXXX tell but not this are perhaps, really mindful so focus going sure to against we big budget only keep we a I the we have amount legacy the and about change can point haven't to competitors. will of XXXX even year-over-year that been

Joseph DeNardi

Thank you.

Operator

comes Citi. Your from next with question Kevin Crissey

is line Your open.

Kevin Crissey

Thanks it, opinion. have probably everyone. assumptions Hi you achieved Andrew, markets as have numbers for been sense my by other been what Maybe a rolled then to you haven't and to that's how airlines in talk I $XXX limitations to competition can of fare know saver general working responds remotely how out, contribution, least but describe percent thrown I to taking in assumptions you maybe the time. the million Generally, that maybe XXX the for it. go out what at the I get there. wanted about in think

want to you. I what $XXX understand you've million? made your So in assumptions Thank

Shane Tackett

got don't don't the probably of much the Kevin. we're I percentage terms than are right, of attached I variables in I as – into of and just We might probably but good think product thanks we're that, of have numbers the – of sort less it. if specifics quoted, know seeing large are fair a all that number not the have what this the wouldn't because actual know sellout people It’s Yes, get a Shane. other would I we you've to business rates, assuming classes we exposure. network

sort heard of assumed quote. a haven't level we've that others we So

Kevin Crissey

you. Thank Okay.

Brad Tilden

fair in competitively, the to say today. this is It is marketplace

this. product with So expect This is reaction a lot up to in a competitive we with coming were place incremental we I is are are already. other offered of and think the that actually today what market don't we

Andrew Harrison

yes. correct, entirely that’s Yes,

Kevin Crissey

your if was markets, And X.X%, those in you. capacity markets? capacity your what those was in up growth RASM thank same-store was growth what Okay, same-store

Andrew Harrison

same-store think I down. was, I think,

Brandon Pedersen

most basically in Slightly, flat, markets… are new growth entirely of our we is

Kevin Crissey

flat I'm kind demand strong where Yes, that just trying RASM Okay. reconcile that's to of has and comes capacity X.X% from?

Andrew Harrison

Can you repeat that?

Kevin Crissey

but that – indicated your just markets you that capacity growth of RASM You've you've have the X.X% reconcile weakness flat strong in doesn't if those in demand in the and core comes terribly markets, that kind from got well. same-store

Brandon Pedersen

markets, Kevin, capacity that many mean, second you is significant capacity we know – starts same-store abate and we and flat in is get the number growth, half Alaska the as did the the the then peaks really it competitive QX I as in have other year. to of to

Kevin Crissey

you. Thank that. I that. Ok, appreciate thanks for

Operator

Donofrio Susan question with from comes Capital. Macquarie next Your

open. line is Your

Susan Donofrio

Yes, good morning gentlemen.

Brandon Pedersen

Good morning.

Susan Donofrio

that sales look there's I'm assuming you're XX% loyalty that wondering on and of program, Question like at I'm even that thinking of nice just this you there seeing is if been customer, to you're by looks increase you channels, could XXXX, target kind of? direct if a to a strength XX% ramp-up, and more year-end still given

Shane Tackett

direct happy virginamerica.com know sales that just we we given sales those all to mostly app also but on certainly didn't of migrate of off Susan, Yes, the very basically how this Shane. I is well. we we well. starting in getting reservations had we've exactly, website through were direct and the our as that ours, over as to actually down alaskaair.com we've California increased our It's would mobile think with do been

ended – because up of it super by ultimately direct folks business see to as little just fares Meda's how through we agencies. most feeling and hard But see XX% number bookings our to air.com. typically, about a XX% their some continue through the Meda it’s opportunity has that So we on good booking coming as to in we're range pretty – of

up we're we ultimately it here So and it from certainly focused on go up, if end could can. driving

Susan Donofrio

Great, thank you.

Benito Minicucci

Thank you.

Operator

question comes Barclays. Oglenski Brandon next from Your with

is Your line open.

Brandon Oglenski

thank for me call. and good morning the Hey everyone you good getting afternoon on

store internal a that activities the Brad, in on quarters perception unit Can two that managing has or the guys commercial And better? that if So facing I was competition revenue. seeing sales could maybe prior maybe core changed is think some Virgin related network same or you demand what now since talk that quarter was saying ago challenges. positive I about are just are ask, inflection just you merger you're it

Brad Tilden

is Brandon, around. moving I just stuff markets think are The dynamic.

great about, as got extraordinary, they I bring bought bring has Virgin XX program, brings that fares. America the think think performance, amount new fares think of operation the level the We've do lots we of the that was like then the and I capacity in more LCC with up that did lot what a the market. experience others something been folks I also differentiated added I with has followed Andrew XXXX a when think reaction a amazing fantastic low we in as Alaska the a routes appropriate match seats of majority capacity that's a well. and is to to demand talked Alaska matched or – getting in basically given market, loyalty and of

also customers as and and are difference a appreciating I bit things places the personally I Alaska think think and around I little settling think that down brings. are recognizing move that So market

Brandon Oglenski

then in your Is should comp down thinking guide Andrew, full I that the you we that quickly the decline than that X% else have said placement XQ for attribute follow-up XQ, quarter? about be the point think could appreciate impacting there? markets X And new first new a Okay, with drag there the in and something markets. they Easter actually can bigger XQ holiday you Is RASM a did or midpoint, at to that. on

Andrew Harrison

is a in basically and that If strength new point quarter. comes we they're RM the period XX out building much look strength one are third team, we've – you We of been the marketing, coming these reality starting the quarter, steam. the pretty together the that we and in in into started demand our all our new quarter the to up the all really of an nature markets so mean just headwind levers now systems network, so our quarter and take there all started are in the quarter, have first know that at all about second I anything second what point. serving, are if you was extra of markets,

maturity I see So, go personally we forward with markets. continued and just as new to strength these continue

Brandon Oglenski

Thanks for the clarification.

Operator

last Hackel Your question from comes with Imperial. Adam

open. Your line is

Adam Hackel

side? sort And, thanks the quick what for taken on crowd, how of of questions, credit they is things Hey squeezing card the that on have in guys side here. Silicon sign-ups wondering is of Couple strength of me to on guys? the Valley driving sort the loyalty Just you

Andrew Harrison

aspects, are I you that that tell we've big all time a community, I we're think details, saying been getting I the into given across aspects area. part not particular and long, of much there one other loyalty but mean seeing very Silicon a long that Valley have will but we been just

Adam Hackel

then just just bit. a I'm of Okay, great little peak from, and one and kind wondering period last off

about the adding talk we as in quarter how I of the you? be guys presume year, of some your and how first they period. saw also Thank some about post off-peak I in the came actually first you going in about off-peak, thinking peers weakness that for side. the that's towards to We Southwest, probably wondering were kind was capacity that quarter in the the on forward One should back talked the talking of about loyalty

Andrew Harrison

little to quarter are question adjustments. us think we fourth stronger shoulders late seasonality, coming I really proactive softer, in understand the a and it's are significant peaks making and for very your I were back the if

general, industry the the think the as shoulder top over it sits I with capacity period So, than today, the historically. even difficult in more

Adam Hackel

Great, guys. thank you

Andrew Harrison

Adam. Thanks,

Operator

the have That's for the today we turn to Brad back that Tilden questions time I'll that call all with

Brad Tilden

to of operator, you Thank we talking forward All choosing the look to right, thanks at thanks second today, you. quarter. for in the end everybody

Operator

for today's Thank now you may at you available for in call future playback will This be call. participating disconnect. www.alaskaair.com, conference

Alaska Air (ALK) 23 Apr 182018 Q1 Earnings call transcript