ALK - Earnings call transcript Q4 2018

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Operator

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

Matt Grady

afternoon fourth XXXX prepared remarks, update Good us this new connecting Sia. everyone, CEO, In you at thank Thanks, today’s time. Brandon for outlook; the business; with for results us our call for Brad Commercial quarter will share earnings an Chief full-year and our Andrew our Officer, and performance CFO, call our and and of for and on Harrison, overview joining and revenue Tilden, an will costs Pedersen, flows. provide discuss and our our will expectations cash

our Alaska income of As fourth portion the also team net Q&A are to Air quarter the GAAP questions million. usual, members on This call. Group during several of of reported afternoon, management help other $XX hand answer your

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

billion, XXXX, of For $X.X revenues $X.XX. of per $XXX net adjusted income reported of record full-year Air million share Group and the adjusted earnings

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

Brad Tilden

come. far good very America, that with with everybody. how look anniversary Matt, our as the Thanks, two-year and happy over time, marked Last Virgin we’re we’ve of month afternoon we and merger back

Just distinct separate months virtually complementary and ago geographies with and to XX airlines certificates, has of all mention IT Today, two changed. FAA agreements processes in operating not products, labor we that were cultures systems.

processes terrific groups during of all single agreements. everyone fully also capabilities. under and this with also makes team while better and and strength systems competition, collective time new that We’ve these two competition our one new after labor to significant time but To we We has growth our external guests. and from all pressures prices our of to done reliability merged, to responded aligned, in to us want deliver excellent are Our integration. but are be thank navigated operating bargaining of organization together, believe have change our a service period competition and faced material substantially this airlines in so has fuel our sure, been much to bring who’ve continuing employees

for that paid our this We’re earned above proud as will of X% that payouts most reminder a performance-based our we’re million $XXX is in which XXth year employees, they’ve are which proud that tomorrow with X% pay. target, very consecutive and is also bonuses, be

speak. to most mergers, we’re other week, flying begin flight aircraft next routes, appropriate as begun crews airline We’ve finish on a our fleet, pilot the reach already the Across team. know aligned alignment as is very [attendants] Boeing and guest early our single and experience we Culturally, We’re increasingly on integration number compared and to as coming the progress will our next renovating as integrated you a Airbus the are integration with schedules early working on making employees the when great year swap of of which Airbus our is together fronts. we full fleet.

at picture since aggressive XXXX competitive turning same show different. a this point RASM greater we’re year, we financial labor faced and value revenues trajectory. with becoming starting this The seen The opportunities in All to agreements, and the with we’re fuel fastest had time is us. higher advantage on making results. with Today, we’ve and to own a this of reach combined outperformance progress rising always pace our growth, multiple-headwinds Unit we the better we’ve solid and prices. cost continued version quarter ourselves our our looks means, of At represented was rose platform. up margin and very our harvest begin as expect also new that rapidly we ahead the year of from fantastic last scale of competition, fourth

Our growth has slowed.

are down. are of implement solid parts initiatives Investor to at is the overall out we’re laid improvement prices network Newer margin our Demand maturing and we and Day. beginning fuel

We have heading momentum into good XXXX.

Before about recent our like more I provide the of future, people. few I’d talk our on a to accomplishments details

to well. very operation First, continues our run

XX.X% X.X% Our rose it to CD fourth zero was of in zero, at or of and our leaving controllable for time quarter their flat departures minutes XX.X%. XXXX the scheduled within all

Second, momentum industry in is regional the last Horizon productivity where is our the and performance our year. where at was best on-time building improving

milestones our few ended and Flight now are $XXX Third, remaining merger-related our Airbus the we’ve remainder ago. XX% thus strong completed scheduled first to aircraft far getting our integrated underway of productivity And renovations XX or Airbus XX months. network. We’ve will and adjusted the re-paint so our repaid XX%. of program the our we’ve also Interior of fleet sheet we April have XX. refurbished balance debt-to-cap million efficiency and XX% and once will repainted are entered roughly completed service ratio remainder and do weeks improve of Fifth, next Path with Fourth, the by and aircraft an is over of two the debt our items stronger. XXXX and half of our integration employees finally, the

and team, a Many interactive together asked in come this people. ahead. sessions and dialogue, recent face-to-face year. helping honest activities we’re of a workshops so to as and It’s a sort market our culture of about a and that’s have These how with to been something are historical open on Path years this might us Flight of is presentations, of intend Alaska's economic focused volatility reminder, us impact As the and conducting mix series future. you doing we important success continue forecasts thing us our

the value demand Andrew solid, As in the trough internally. move you in of on strong all Most to have our a and communities and we regardless dramatic say know, as we’re on marketplace. more stay moment. a the relative conditions to like focus through elaborate quarter, Nevertheless, We determined market in control focused that’s shareholders. airlines not will and as and will our believe not revenue our employees, the we’ll compared deliver we modestly returns if shifts margins environment other consistent we clearly year’s more importantly, bookings goal. to we is period. in general, guests, produce any we the we unlike that energy this, leadership for suggest uncertainty that factors financial seen industry do But to team seasonal fourth first near-term primary

lower the plan to improving since Andrew by we’ve XX% the taking industry, average our of operation. believe combined capacity a hitting million and can the and our the do delivering and operational produce capacity us cost newly this and platform we talk X% account means process, is controllable increase performance and over in unlock plan. believe year profit to We objectives. which is multi-year X% by parts of next value to is our Brandon cycle our this that moment. our goal these synergies and on initiatives X% this supports to in this in about business margins, for our and year we will more right detailed expectation Summarizing we revenue for of into $XXX you XX% as XXXX, will and the For general growth the

higher We that quarters XXXX to margins that, are years to delivering the has call turn that and we our Andrew. people substantial now behind and With greater XXXX Alaska’s the and route of forward With competitive ahead. on our scale. now reach over over work look just with I’ll most in doing network in to integration we advantage the leverage as road to us, the

Andrew Harrison

more good in afternoon on competitive made capacity rose to strong provided growth yield backdrop, network, capacity was brand, America stable years. results. of increased a to to growth favorable X.X%. the X.X%, investments environment loyalty Slower billion acquisition in RASM Virgin quarter the fourth $X.X began revenue while which activate and X% a Total Brad we’ve and Thanks the for several our everyone. largest increase

Day, accretive continue momentum for positive enhance as initiatives. production through we XXXX this at revenue As we outlined into you further synergy capture and Investor our should

some I would plans, Before color turning fourth-quarter to like our on additional our results. provide to future

close-in strong volumes, to due to while the in to growth revenues year, one business than increase, balance. across year two-thirds of positive longer operation our and mileage demand contributed in accretive adjustments markets and points XX% or the and the earlier made Strong capacity part strong in X.X network the contributed delivered and markets of most same-store First, our plan roughly networks, represented of yields RASM.

towards the pleased traveler. strength historically stronger especially the We’re we’ve business with leisure in traffic, a much had orientation considering

are subgroup X% to stores a about represented markets XX about in within one These a positive for same us Next, markets, routes these markets the quarter. our on factor. over between capacity launched points developing contributed are are three yields last these operation years, year. in basis RASM. load fourth and headwind XXXX markets and and that improved the the RASM, in positively a include comping created They up XX% with of Today,

point routes. We less of in continue the quarter, months basis new these to a markets than XX of had XX impact to in RASM. finally, pleased X% markets just represented fourth and the negative And be then capacity with development or operation

year, As growth XXX-basis weaknesses weak the us mentioned high-value continuing weather quarter. period the And product in will we Yields enhance loyalty environment ASMs competitive to believe X% a had than our speaking on the our West impact elevated guidance. in Saver positioning, and to last fourth our with and consistent our Coast RASM, pricing. introduction navigating strong year-on-year, our enable our offering. better program, and Hawaii market of point we Though of this to to of near-term and expect capacity were Fares Hawaii we’re competitors. low-fares is positioning yield continue quarter fourth that’s a down rose quarter, the

momentum over planned translate on XXXX aircraft bandwidth a upgrades of our just a drive deploying these time. XXX of preference for internet and with will this times brand current offering improvements, XX stronger number revenue a To to we're higher continued that our guest year. have few will one, of for a We name first and satellite growth

third on a installing our generation We’re next fleet. of interiors mainline

in-flight along re-imagined program continued of We’re expansion beverage with and food launching a offering. our entertainment

our and equipped cost and Seattle, and first-class Internet We’re a our Embraer will aircraft And entertainment we’re and connectivity. new now flagship of and in-flight XX% more premium handcrafted our premium lounge with coffee finally, opening fleet beverages XXX purchase. approximately adding offer for in and food represent regional upgrading which lounges savings

enhancements their own at on All costs high been deliver value of from a these engineered to relatively and for low our perspective. stand guests will have P&L

are outlined at Investor our on the million As self-help highly synergies from $XXX year, revenues and delivering Day. focused we product improves, we initiatives incremental this also in which

a Let you me of quick update these. on each give

is at Saver competes important year. this to offerings at airlines and deliver basic track million of Fare, is arguably initiatives on $XXX all First, the economy the which most with least other

did enabled out Our and processes smoothly November our January network-wide, us X. on refine it rolling technology product and to went we before which test

and early The have progress look had future. rate you ramped and which a forward encouraging Once our product anticipate QX. by run it’s ahead level time to new, need fully We are the more of related expectations. still updating Saver’s tracked in have mature near on other we revenues to is results

significantly accelerating integration to is underway, remain market fees such in crossed ancillary is to the that first projects Airbus several they Second, our increase in QX, handful should run this rate we before its routes, the and to aircraft initiatives and synergies on Boeing fees, the number exit we that annually are now third, XX behind but XXXX also million by a the of deliver reach $XX In track further QX. second quarter year. revenue rate have run key capture recent and as reaching And increase ancillary us. our initiatives sales on Other a its will change worth quarter. new million bag ability commercial row revenues

increase. revenues, program for at very loyalty Our is a with capacity card, also to perform results remarkable on up which redemption the level quarter. continues and X.X% That’s credit fourth quite a XX% strong

at QX our is similar capacity X.X%. to quarter, first growth Looking to competitive

capacity the growth above be of half quarter and before to own second through X% in year. the Our remain will this second modest expect we the rising it around X.X%, at level

full-year, X%. For still we expect to approximately increase the ASMs

QX this fourth the synergies In modest we quarter. includes the year-over-year terms a meaningful a three revenue X.X% established tailwind shows the it guidance versus quarter of continuing up reasons. range ramping guidance guidance, X.X%, RASM fourth we afternoon saw for deceleration to Though gains of nevertheless in from initiatives and a our this

through then impacts, comparison directions over the we’ll First, XXXX, XXX in we these points of priority year it and difficult year and saw one a revenue we and our be turn since point in a has our leverage our bit I’ll QX are basis a have this commercial exploit Brandon. the line, is is less margin as file higher more the and the pricing revenue expect confidence industry both QX control. plan. entering a QX commercial our quarter. which positive to that did from late largely big number then moved we that, quarter Delivering of continues year. will with QX volatility we in fares the sources momentum, RASM behind expect the fourth margin holiday have this than consistently call significant into RASM QX XXX-basis within team's by second we quarter, year-over-year Despite opportunities of wide in as we to confident achieve is forecast fourth with a we Bottom are negative shift in it self-help and outperform the our the as And will XXXX, quarter, close-in increased do with Since we’re it new improvements last RASM time positive QX. seasonally put change weakest as

Brandon Pedersen

Thanks, Andrew. Hi, everyone.

completed net margin are quarter income XXX Group basis of million billion, fourth At to Group's be results a this overall After positive Air finished every, per $XXX our us QX note. of our full-year several ASMs share. delivery revenue fewer new guidance year. quarter final improving of, bringing net posted $X.XX invested level XXX financial our or seen, basis in points activity something year, adjusted was that not depreciation and lowest and year XX four below roughly but of growth share the was prior XXXX maintenance them a a year from took of the income and $XX proud our share, planned. costs. lower worth declines, tax or CASM you've having nearly capital of our our earnings or fuel rates We we resulted initial actually a As QX capital. income despite on very noting the adjusted high above Air per X.X% of elevated higher despite net million X.X% than of capacity months cost points $X.XX certainly offset to we during acts in was be. EXXX’s strength on $X.XX This cost with our on better where fourth nonfuel jump the Return the RASM margin highest year-over-year. want significant quarters performance both was combined It’s than per to and

stakeholders. or pay rewards of our example million aligns also regardless pays more When the than our goals. business are of PBP meet balanced or for of strong employees. program, proud we the which because goals. finish of roll As same an benefits every the all around more people safety, combined and said, how majority in people in of that we shared performance-based pay of way PBP, set And financial, pays we’re our $XXX loyalty, achieving because satisfaction this million with unique industry earning run X.X% than based payout to the translates goals, $XXX when it in our with monthly our operational resulted in our guest It’s employee, level to on Brad trying of XXXX. which of we’re it’s a vast

sharing our to incentive benefits and and wages people million good $XXX goals. them hitting pay of with providing important for We’re

shift Our larger QX and owners marks focus step dividend fourth and important earnings our in point was The improving lot getting are turning an few business underscores quarter right I’ll the to product, low fares direction. minutes. left a expansion in from we trajectory, guests that do, talk about margins. in the we’ve to in are higher generating made And and our on a a network work although optimization a and an of have getting

our X% viewing the X.X% of to XXX early in our been cost the of complex Agreements unit last that XXXX points in have basics year. on on capacity delivering cost. amended milestones performance the increase function capacity. a deserve increase we a outperforming the year, some has X.X% about in-light most growth across a CASMex last For XXXX-unit kind been Teams competitive would integration X% observed while aside worth cost to growth, This unit full-year that of in for about rose added headwind It’s executing step we for flat guidance labor CASM back advantage shout-out company cost XXXX. cost us. basis of also

growth. the low ASM up XXXX guided of business improve of is have our consolidating this regional our spend purchasing efforts XXXX our mix to we year. aggressively flying This higher we our an costs Day, be of with across element strong cost will at and important categories. a terms is points partners, about plan X.X% from One expect we nonfuel working multiple basis XXX plan on X% growth, cost Investor X% roughly exceptionally As to and ASM considering headwind

come the today partners them for cost business I acknowledge team leading long-term stress the table is and and our success. who have can reduce effort importance exchange for us. want in to near-term partners supply their this grow future business who help for with already us chain our We're of campaign to to to Our looking this opportunities

complete the labor Our may does any new XXXX. deals of not we guidance include impact in

and cost We with with we representing with ratified Association support in of well guidance fantastic represents employees and aircraft active Mechanics the International negotiations deals service as technicians. as accordingly. We’re remain discussions we as and update ramp Machinists, these which functions, reservations, secure to our do, other Association, and agents, the in aircraft our service, our Maternal hope customer groups will we

this cost unit quarter. expected Our morning provides by performance update

Let where a me CASMex about touch on on investor should X%. the first increase by our expect that in quarter is information summary. quick investors a it, here nutshell, we There’s to understand update but some help

in First, quarterly create the first, the comps the year-over-year that first of side this there cost XXXX. is frontloaded several Those the quarter on compared back year, tough are loaded equation, year. are, significantly to of events maintenance aircraft timing in

the last Path impact the we of XX took through Second, and fall third, months our from of year. depreciation that go employee four last which in workshops, late And ran EXXXs the April. Flight

the that flat half and our will of quarter the capacity growth be is costs of the should growth year, half in regional of the side year second the flying. to On year. the equation, lowest CASM first the but picture, it’s our about of heavily in be higher Big up weighted

the XXXX. in Our I deliver to worked have XXXX on after hard in ability especially great plan, the it, confidence teams on performance their cost and

somewhat although in of Total of cash rate. Turning for from XXXX, should billion flow cash cash. to be million in resulting costs, $XXX was free period, costs. tax we quarter flow $X.XX cash while million cash roughly sheet, balance flow Operating increase ex-integration again the CapEx about the by course the the operations will was with $X.X higher billion year the tempered ex-merger-related same over in improve $XXX the net ended

Our current expectation XX%. is

lower However, grow. to CapEx declines fleet $XXX million with

of free should still versus our materially we’re increase So, cash flow with sharing some immediately XXXX. And owners. that

it our since sixth we XXXX. seen, we initiated dividend to announced in you've As today the increase

$X.XX X.X%. owners our paid will dividend yield quarter X% or representing cash raising year, our share per our and We’re million of $X.XX increasing $XXX to per by be per about about to to that

planning also this in is stock to our million XXXX $XX of however repurchase We’re offsetting dilution, about flexible. plan essentially

year-end at end Our XXXX balance priority lower XX%, strong end our the allocation sheet. number balance capital leases, sheet than and million. we X points one to fully on alone, already better points In of our With debt at adjusted XXXX. debt-to-cap $XXX continues of XXXX, the by XX reduced stood be than fortifying

by the We expect achieve of debt-to-cap in end target our the of XXXX. to range leverage low-to-mid XX%

underscore points four are our strength. Here other balance sheet data that

First, investment reaffirmed ratings. recently our grade [indiscernible] credit

XX Second, unencumbered $X.X aircrafts at we billion. about valued have

undrawn pension XXXX benefit new entrants million credit facilities, been funded. Third, finally to which we $XXX our plans, January and XX% since have have of are all defined close

our success. us been Our they long-term sheet past balance tell conservative hallmark it’s owners value a and a of

heard Let our by that. working reiterating business XXXX and XX% you with We're should a shared the longer-term improve theme achieving is be on returns me close a payment XX% hard this generating. to financial to times several margin a today. you’ve nice down We’ve goal of

merger synergies, markets will Our line from benefit new and initiatives. revenue slower growth, top maturing

is growing, more profit board on- loyalty becoming Our is consistent. our

is achievable. class Our aggressive, plan but

efficient. with fleet team holds. is this are our to balance XXXX is go Our sheet Fuel let's about strong. your questions. that, reasonable And what optimistic is And and very prices fuel

Operator

Please Raymond come will question first The ahead. Instructions] from James. Savi with Syth go [Operator

Savi Syth

Hi, good afternoon.

core been realize expected? trend I’m it’s the swapped First and and is can pretty still you of changes, underlying if markets the Boeing understand early Transatlantic kind I’ve the you swapping in trying you wondering to have question improvement on would fleet what with I with where the Airbus assume the that stage Aircraft, Transatlantic, the the the have

Andrew Harrison

we to especially that the prepared pretty Savi, affected area. it’s in New the in wanted do, York we Essentially we’ve Hi, Andrew. as said our much remarks, cross-fleeting

really from March is a we really added transcon, to here, our quarter, traditionally we’ve forward. we trough this in in we’ve what capacity on and done QX real period kick what benefit actually the and think going weakest is so see start I so to expect the see

synergies changes part these key our and they revenue about are of good XXXX. for course really a of feel we So,

Savi Syth

on the X% kind And macro of kind like of how I from on notice pulling early it’s the uncertainty few here the with and flexibility front. wondering thinking notice was I I capacity a just updated that on about Thanks. that but X%, what capacity is, still are back front, XXXX to of year, lot you in X% know the especially to

thoughts high-level here. on Just growth

Andrew Harrison

this Again, is Andrew.

I that of think year capacity one know increase range. you give as this the for feel we things we a about the

have think I on, our we happens things XXXX is fleets we that revenue pilots also it training the multiple through generation is key but one environment, that are the growth at with look that continue as going margin how need our have of the grow. area a on be have house and we and people what to through looking are training, course with getting for effect at, to continue we we pilots will that will going so to where also, another of to at

Savi Syth

Thank you. Okay.

Brad Tilden

Savi. Thanks,

Operator

Deutsche Bank. will question go ahead. Linenberg with next from Please Michael come The

Michael Linenberg

the I in afternoon that Andrew, I it pressure or questions seeing XXX it guess you points here. March out quarter, improvement? basis RASM was Is said Hi, weakness like how in guys. –are headwind think called good similarly Hawaii, into the under was two quarter? we trending is fourth you the some of that

Andrew Harrison

Yes.

advised the weakness carry be capacity go fourth into for into saw that the is then is started California that where so months the also will quarter. for weaker from think quarter, first time, to has especially first would have a given first as forward in we there. mostly elevated to just the but that same less you growth modelling Capacity slow interesting forward we into and quarter, geography we get I especially in want you I stronger and the carry wise the might the first just

Michael Linenberg

like look Okay, of question at other I know Finnair, sense at like at day the or you the great. of Fiji, that one when Aer you one for your joining world Alaska the that Investor partnerships would – Japan better just all lot at maybe on, maybe and not associated world one-world just it complications alliance, in the relationships joining and even the Lingus are taking JV, one-world on for the maybe a in at they’re now kind some have are side? just are where keeping think – mean, they Aer or companies said over kind hinted you Day, with And make doing, one you where of you it seems approach many what not better two I of would of or of is Airlines, you yet, for from that Lingus, into off go bilateral through point but with perspective? either those I then the Alaska’s they think, one for know lots last what’s of end with pain world, even going of announced be I quarter to carriers, the

Andrew Harrison

because impressed impressive. put knowledge I’m with that detailed going Mike, to on you time your alliance very of my I Airlines, was am

your version very really we a one. bilaterals, much you about was what mean, mentioned a but considering so one-world think I points full connect, and talking fair membership, had we’re lighter connect your need not are I so, is still

at independent. look where you of the if them and our partners – our have our we bilateral think one-world also partners we with majority agreements I portfolio, have good some

any So, it think, if we there as research today. I with we’ve there we got benefit if but as think look phase, good to partners, in the our strategy again, this looking all a we’re American, but we’re stands not, including is just much is just at see very

Michael Linenberg

you. Thank great. Okay

Brad Tilden

Mike. Thanks

Operator

Please Didora come Bank will with America. ahead. from next of question The Andrew go

Andrew Didora

afternoon everyone. good Hi,

some that, you of corporate more and revenue seen or in you you further, of have your I how more a given booking haven't America little it because visibility had First maybe since guess bit seen how curve? little of gives curve a change that just as your for just question you follow-up a if practices but a bigger closer and to picture bit maybe to question, Andrew, change integrating focus Virgin are management the move have there out that maybe booking

Andrew Harrison

closer that for bookings saw any it JFK, Transcon we competitive comfort but very, the more we there, example. level I markets a a made to to used will our I take so lot is adjusted we further a that traditional Shane say curves booking our a of, obviously might booking lot and America pull in, very a classic of Virgin we out more of and the changes was the made so long start on now that them to time, of are certainly practices but I out lot earlier take LA know and

and we we know that look we’ve I to don’t you’ve other adjust that, at So, got Shane to book but how add. commentary how had any if

Shane Tackett

I mean Andrew. of nailed that we if great when would strategy then Andrew when it it hold on, traditionally your the you add, like I or is you out hope further and bad and yield curve. to doesn't sort you for that feel you just manage trade-off out comes spot the about and not, it Thanks, feel it and just does booking

change So, to the we gate, you changes all usually have which you downside wrong gives little is get seen get approach out opportunity of a these you optimize. longer. the an whenever bit California little your The a bit booking of it of curve

us I is this you're So, towards part better. managing market seeing smarter about and what getting think and it of now smarter

Andrew Didora

for and later in into you but as Interesting, Brad, you. continues question kind entity in drive to then Horizon clearly second my of And remarks year. that XXXX, the prepared mentioned your get growth thank then you eases an your that’s

as made XXXX? you have changes those or of can Horizon, changes management maybe your about talk what ago how look for expectations I you at think the you Horizon and to initiatives versus some you performed into have Thanks. a it’s year so

Brad Tilden

question. Thanks, much that for very asking Thanks Andrew.

going of about, and of think stunning. has work took terrific the him, President of has are bit the years actually to took and as fine did need has the A know nearly those today, a Alaska, and successful Operations comfortable between actually management say you a of Group somebody it get years little Horizon And has we into super impressed part on were Muehlen horizon [indiscernible]. think of totally their fact right something history, a leaders. leadership Beck to EXXXs. and turnaround over with and Flight been Horizon, sitting you’re by week not to despite companies I and we has different and back I also, been he with were we’re want that cultures – a von operationally] all in You Vice super back the XX tenure down attraction ago fleet. XX Hornibrook, now, we I to is have schoolhouse – lot’s done and the Gary more so that than of ago for [mess there Constance become job. just after in year guess a end the two They’ve to of ourselves is been that half room on doesn't ago, most I and pilot now, but with with came up sort what a this enough incredible Air They a up week saw I was Alaska's was with, an industry team not John of it’s CEO a team forth Gary

XX So, in XX/XX. being short a of period and you XX all gone EXXX from soon an you’ve pretty will be time QXXXs. to QXXX

So, group thanks heap people a little and just it’s question job. fantastic praise Andrew on have for done a chance to the a of easy the that

Andrew Didora

it. Brad. Thank Appreciate you, Great.

Operator

Pfennigwerth question from with The next come will Duane Evercore.

Duane Pfennigwerth

thanks. Hi,

they Just the with sort dependent March the upon fourth way quarter that it than to that? quarter respect the about Or impact with periods more just a differently was quarter sort there highly is conservatism is did given are the into if fact March? conservatism ex-shutdown the your isolate of respect to of to behaving commentary off-peak in close-in, first

Brad Tilden

Yes.

other, really lot apart where level. first Day January the to a really periods and demand weak. February there off-peak And industry, fares the after the the as you down January and lowest see I and and really from are King across is think of quite of really not go a few and the week Luther January Martin February this

shared period. So, America, first of the got far and our as acquisition this again, but been as for as a has Virgin weakest previously really us, – history just our heavier with quarter

on So, continue we work that. to

down say, will although continues that, at to goes not date we material fares have there the impact this as far any As seen challenges and and all relates shutdown if travel be government it some to to operationally. as if wants comment per real road Ben

Ben Minicucci

Andrew seeing it’s TSA just front we're country track. solved on soon and the gets thing is the across exactly along that. get Everyone challenges some hopeful this and things back

Duane Pfennigwerth

seeing off-peak fourth in clarify, the as quarter the you that fourth quarter? Just some well, to you in not had where

Andrew Harrison

is the up quarter the was Christmas back, down business the general, business and got momentum fare fares happened fares as longer The and all tried fourth sort of and fares down, think I then the have but to of came softer period. this took in we up there to collapsed coming where what come come in coming fill good be came leisure little industry a the sort seen to Christmas and So, seats have back. to

way. capacity still putting first think even as fare filings its X% finding and we general again, look at in quarter, the the So, more it’s I is industry in

really So, I think the a the say in quarter what fourth I'm little with to just was confidence is, more there stability. trying

moved more out. we of couple is season first the in settle into Christmas activity the little about just been over filing we’ve and weeks this what the of saw holiday a going the and first cautious happened where bit fare January, to As quarter

Duane Pfennigwerth

to taking with single an for Fair moving your enough. And road? then give to thinking Thanks just, type potentially can a analysis questions. the the update you on down respect us fleet and

Mark Eliasen

Eliasen. Hi Duane, this is Mark

we’ve know, mainline on XX claims got As you orders.

with make we that eight the So, we looking time have got a continue question a We're fleet, return We’ve can we’re at to is but that whether you decision mix growing and said XX. Boeing don't right to to year, all of away. XXXneo’s see at long it. Boeing a we’re airplanes or we the We’ve some the do time for that fleets.

Airplane. the about supports its as the we're way that and a we Airbus and lot a So, Airbus learning lot customers about We're learning XXXneo, operate its launch customers.

we’ll So, looking be decision good we're able to forward as we decision. evaluate and to a make that the plane,

Duane Pfennigwerth

Thanks Mark.

Operator

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

Helane Becker

around if for quarter, much Program you Thank there, too credit or acquisitions where just your the time and your in didn’t the Andrew, that Hi, update give to I on card about point talk To everybody. us you, little you and a operator Flyer the this Frequent acquisitions was gotten wondering fourth just could time. slowed? if it’s

Andrew Harrison

That’s has sharing I continued. No, reality a that question. trend mean, I very thanks been the all is Helane. have year the that fair

very, of the like maybe just continuing transparent just to the I in as perform, be America program felt that fourth over I Virgin sure concerns make plan think did and a but the about our lot mileage redemptions and and the think, little a serve is and bit highly credit and run and the feeling people remarks wanted for made about – initially to solid doesn't program XX%. revenues it about continued I We my integration. just includes brand prepared us well probably as quarter card long in really which has to was that we

so, was quite it And significant. very, very

Helane Becker

you very much. That’s Okay, my that’s great. questions. really all Thank

Brad Tilden

Thanks, Helane.

Helane Becker

guys. Sure

Operator

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

Jamie Baker

everybody. Hi, Thanks.

Michael the my as with love so submitting team Linenberg, to competing obviously Airlines resume You know well. I

by one in the just throughout you I necessarily quarter-to-quarter at reasonably thoughts be that’s expect could Easter whether of high year. the that to another not You'd would phenomenon, to trends that know trends ordinarily which RASM the in the moderate that. for QX I second am asking turning kind well, you the RASM regional math, as of to that? bodes on shift, endorse that is the guide, offset contribution would believe turn flying, also Any trying said level know, suggest would well helped you it’s obviously I'm wanes somewhat which you the Just initiatives understand half? regional your revenue second but you mean though RASM that consistent with quarter,

Andrew Harrison

into go things. couple but so of can you That the Department, RM

the X% growing excuse are growth. where the our On up the adding all these regional our side, X%, regional maturing with up new ASMs in revenues a regional that the cabin, And me, we’ve in I actually aircraft, are first also, these side of new been actually the class markets first-class X% markets for house. are they lot of all think

fleet bringing – So, the which continue to class has lot cabin premium revenues, sell. have regional to but as higher although a want we of was it well, also unit

first-class and that December referred point, other to your fee, it steep quarter, out was bring the the still our cross-fleeting, into very market out We're you see first as came markets if whether I is the product you Class. upside so think, and regional a we to first quarter. X, during came then And network first look I I mature continue the more know, revenue flying and Premium on earlier. bag the to initiatives, we though, at Fare the X, ramp-up Saver which which January more

have unit quarter beyond through really you revenue will revenue a still hold in see really them the take initiatives, we So, full lot that second and the to guidance. they a really come than but of start confidence it's

Jamie Baker

Okay, comments? any pricing missed follows Duane's that's somewhat you close-in afford, did helpful. but Thank maybe to and it, in bit question, on you. regard geographic those this mean, a little little I around just And Is the catch any? second, by comments I me did it surprise. on the Transcon? choppiness SoCal? Maybe just additional it if color, a geographic commentary broad-based, bit was

Andrew Harrison

on on in I look, been in just system and varying depending we think the you but fares. the markets, take general, the related I market. – But that its depending the as across think has active go degrees to if industry to very saw a

any where there's again, and our But nothing been down January, little December lot specific specific geographic there. of cautious been comment with it'll drive it just falls. look that compete, we back a given where just and coming network bit and to would and fare adjustments through a we've fall just You up even that because

Jamie Baker

you Take very care. gentlemen. Thank Perfect. much

Operator

The next go Please ahead. Morgan Stanley. question with is from Lalwani Rajeev

Rajeev Lalwani

or there volatility of coming Andrew, while. far picking problem doing some attribute issues? couple fares, demand afternoon. your in You've competitive as as is it to? actually questions Just it on good a up been Hi, the it just of close-in the some that thoughts given there's for with indicate history. you a maybe Does what do last

Andrew Harrison

speaking especially first saying just people a I around moving from then a go there up you've first went been and Rajeev, I'm very know lot into saw and fare little and know again, period Yes, world not think we seen volatile. and lot. that a good everyone's it's between, also as ready been It's January activity. Christmas to of the just quarter our we a we is pretty really It's you just actually as bad. you for getting – active. corner was just the and quarter. Fuel only February, of or guidance just the think the shift I decent I'm

ahead, look into as backend into things we we as second. especially we more period move to a calm start the solid down, So, quarter expect move in the and of to first the

Rajeev Lalwani

And fuel. then on Okay. lower

of cards for last the this amount. around a end pushed benefit for be then time down. fuel, Why buyback move that might big I we relating before year? had think year? this capacity decent that Alaska lot a the in the a maybe I think keep saw growth isn't And of could program that, around you a the to the Should Brandon. start mean you does

Brad Tilden

So, with understand fuel we make lower asking question. to more? why Just aren't I your growing sure you're Rajeev,

Rajeev Lalwani

Yes. couple That And of you've that done historically, right? was a ago. years

Brad Tilden

back step to thinking a speed just we're everybody take and Yes. things. with to Maybe how about get up

We to to I sort That's added to the aircraft that – enable airline. we an catch growth higher here as right the well. aircraft. up through throttled here getting aircraft the internally going pilots affect lot pilot a type huge our on Virgin a language pilots by There's on And use around, mods bit. America, interior as right amount supply moving training, a trained little of a of capacity going those opportunity there's that we've markets. we also, get been bought sort are would markets We is activate the back following history. of And

is just bit. think year, now I this a just So, it the think settling to of little sort of way X% in we're

at is, X% about is call this growth ask our we're What us saying of locked in to in amount not the beyond. look business. is wrong growth the We're we for and now on think us to this really right I XXXX X%. as right

advantage. we of grow you by think. As create that. we can competitive is an business will I'm we summer in We incremental if this our we value optimist. over route all the believe how this the owners as years. growing, in into the our I all we believe we If think get done Personally, of for we've months, know network, – believe

summer was would you that. it's find I that's there box answer if we going we now. a Brandon, right whether that in I'll When think world. we related I put to stock – conditions. those find want think back we're don't I But let how on we're we to them, think looking really be didn't grow, the question and at buy more

Brandon Pedersen

we flows heard the is this to of the excess more but that repurchase want were flow? of stock with sheet we plan we're on certainly balance Rajeev flow, to cash the know, flexible. it flexible. stronger but I remarks, we said, cash excess that than to maybe lower doing ability. And we would be because expecting really the $XX if had this correctly We're was And out back is buyback going focused this repurchase we think plan question, should to We're start if said, with maybe. the answer In fortress people the we do I is year, million also close, fuel prepared damn share getting if it. cash turn we have in prices, more

Rajeev Lalwani

Thank you, was guys. it. That

Brad Tilden

Rajeev. Thanks,

Operator

from go Catherine Please ahead. is Goldman question O'Brien next Sachs. with The

Catherine O'Brien

everyone. Hi,

So, throw I an I Day, the partner this there, think Alaska correct Do to said, believe selling could consider that as Jamie prepared with partners. At Mike the early I on Investor mentioned it my a without update but you you be you the sure and as you airline I'm global any tickets also here? have question but in not future. year. in connection if hat and me ring I'm wrong, I'm have

Andrew Harrison

from Hi, your Thanks Katie. you. hear question. Nice for to

that continuing we route. So, are

are we speak. fact, In actually we testing that as

heavily alaskaair.com, maybe Francisco you to you that look now. In Sydney would up a There're were on We're not it. to limitations flight. find to San on Qantas actually marketing right fact, if

we first-class to or premium-class a sell talking about yet of to things, other trials with on into in our and well partners buy but our are their few metal many can't You alaskaair.com. starting partners our

Catherine O'Brien

And interesting. going would – be I you've year? XXX Really above would the then, for that initiatives assume in got this million

Andrew Harrison

Well, that's an interesting question.

and selling that, initiatives of going we course be around I'll have have is that to portfolio. and internationally what part Here's say we of loyalty is loyalty

increased code the X% share] In fact, traffic in [our actually first interline quarter. in

asset our So, us. a been partners our actually working with network and has for real

Brad Tilden

bring strategy to think as but a loyalty grow – a huge shop one-stop Katie, is a is customers to have there, incremental of and that big to business. going our I real revenue be to full-service Alaska, one-stop sort does Qantas shop, don't us grow a program provider. for selling being our value The be able to

Catherine O'Brien

belt And – if Thanks. initiative like all you say I one quick under system inning terms Understood. you What cross-fleeting, refinement, we're the last in kind could after reservation spring? network of just over cut of get the in maybe your ask follow-up. just had of would to

Ben Minicucci

Great Minicucci. Ben it's question. Katie, Hey,

it. still out but describe complete, heard I year pretty downhill optimistic the the of QX. tone we're years we're I think is you way – all of the going call coming this What's from darn integration. as into two would We're – not is this feeling up

pilot downhill. interior Airbus these the converting scheduling, maintenance major like are We've whether And inning, So, it's crew and big systems seventh to it's some to that getting customer still complete. just we're going got standpoint, the our from all integrate, dispatch ones. inning, a eighth system, Alaska systems

end at and our pretty the got done. we by back like we've wind – we're But So, the of good. just downhill, feeling going the we're we're year, we're feel

Catherine O'Brien

for so guys. Thanks that much

Brad Tilden

you. Thank

Operator

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

Hunter Keay

Love Hi, a situation everybody. Delta. becoming mess is Field and kind of This between Southwest

kind middle You are of the it. of in guys caught

couple that some the the if in contingency place happens? to airport run how contain sort Does is operating then the clause? And case takes settlement a around in questions – language merger of weird that guys long from conditions MAC that this. core any legal leave So, to event there allows the Virgin this you if you that like a of change turn

Kyle Levine

Hi, to Hunter, I'll this it is first Kyle. turn then take and back Andrew. one the

if important our with decree gates they solution that justice that could do refusal property far of propose were a would does that with those over the move firm. it it. at as and Love litigation or us though wish standing ever generally good We to court a to But cooperating judges are, other take around we it. the to Even at all. as we're the that's have consent a the want we're allow so. from and go our shot department outcome right us The could Virgin purchased order Dallas Our Field We America. from to wish justice have we view those goes, the not as to circumstances just on parties,

Hunter Keay

has earnings these adjust and how calls Kyle. last to Thanks, Brandon how months? Matt; growth or a enough. good changed many over That's year then, Okay. listened If has and And you that of for employees sort headcount. XX the

Matt Grady

say Hunter, I most. would

Ben Minicucci

just union kind I they we them. to know Hunter, what about I of listening our X,XXX after webcast. actually and hour Hunter, do numbers. summarize a and We the own of we have don’t pockets to call. airport to this, we ESPP over do honest, all we And leaders And rush with our I then, if participate interested. in of people here are honest, people They talked that who there's right really an be They're listening talk folks, We've a we our the great on program talk know shares think to we Ben, in. be Alaska. also is to then when have I got it about employees. in. of an entire we lot

of how So that's it. we kind about think

Brad Tilden

talking to to pretty know I'm that this Percentage thing, Hunter, a do ownership Call. many positive the figure, but that that webcast are listened we connected be high. do do, some something employees not when are I share do shares more our sort about – to. of this we about is – it how the you they'd How while saw recently in we lot company. Analyst guys of There own

Hunter Keay

in nature an XX over The that? to during calls sort the the was, wondering confidence the the struggles anything And found dialing the of whether or morale that's if I'm so? employees question you've and stock margins to months last these of with of XX of a if more kind or like lot indicator or

Ben Minicucci

I'll it we openly. about talk tell you,

workshops and running Path a shareholders shareholders And get customers We been look, employees say, we've have a job business provide is communities. pressure months we we Flight about and our care Brad that when price under for owners. good these about and our we When last we place get and about. balanced taking talked XX of to the returns can to stock to talk where in the honestly the

about So, And with we transparent our are they understand. that. totally employees

Hunter Keay

great. appreciate That’s that. Thanks. I

Ben Minicucci

Thanks Hunter.

Operator

McKenzie Research. with from will Please ahead. go The come next Dan Buckingham question

Dan McKenzie

Hi, good afternoon. Thanks, guys.

differential respect housecleaning guys one upsell you average Fares. Saver the are that to today? Where on with Just question at

Andrew Harrison

We've not about spoken really that.

with as And with that that share said year. weeks this two-and-a-half we're we very, like met it's it. that very we pleased prepared But only we're be how confident you, $XXX remarks, tracking. the million we're on think I into very our will

more On the of give on that. quarter call, brief next we'll a

Dan McKenzie

the just I fuel fares on that off-peak see, demand some it be over it I clarity. that of how much the of bit guess leading lower through dead XX%? I or And a do guess here, little horse XXX% benefit? And is then, the at the I'm of we potentially lower than spread kind the that this just and the going year from to risk of lower of year? link potentially of is of lot of thinking you about the something here? Alaska revenue choppiness back capture related just the a more rolling Should kind kicking choppy just between as benefit capacity? trying less to network. kind potentially across course to Okay. fuel think Is think to this, can Or get we

Andrew Harrison

I first on don't Just want this sure I choppiness. one – make to the again, overplay

just switch from and really quarter increases what been industry-wide. quarter the that capacity that and think given the I is fourth then I've we're the first into saying seeing

around. business very, strong moving seeing I very fare of active just think the end demand, the demand day at think the But been with our there's fuel as we're is management well. strong I still

question? sort that's the I to Shane So of want Brandon fuel where – know just are we or that. on answer don't

Brandon Pedersen

probably point. as at fares guess down and with it move I what mean, through happens really And the anybody's comes just this quarter you March to into beyond.

Dan McKenzie

see. I

then And guess. we can a move here? year of talked maybe connecting San your little Passengers middle. think onto just fully more turned through an on wondering from to In had just partners, from Is the partners widebodies it Okay. guys at here. this I'm bit reverts seeing? you on one that? that revenue really I into about as at Francisco going What the I follow-up San question elaborate connecting more material are get more I earlier that's if from that Francisco could past, kind you And here. point? from you the have coming just connecting Katie something Is

Andrew Harrison

not partners. earlier, really They they body. help wide shared Brad It's our As our real getting on loyalty they Alaska pay passenger of to more in is incremental program, program that our loyalty haul on our their accrue much and the partners so the getting long tickets to benefit access flights. a members miles stay us,

feed That's miles. really ecosystem globally allows to global States, good that a the how it's partners we into earn the members our our world. access at for us and United it So, good, strong and look good allows

Dan McKenzie

that. clarification. thanks Appreciate for the Okay,

Brad Tilden

Thanks Dan.

Operator

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

Joseph DeNardi

you but you our anymore prepared for going remarks, want to on say said you. you in was time. loyalty provided of the Andrew, the thank be for so the to additional transparent going Thanks detail programs, then thank to I didn't you say I'm all not

expected? for for similarly Just quarter. get of RASM in whether than to XQ better was X.X, up in XQ, Just trying coming was ended constructed first guidance to close guidance much you initially the on sense at fourth X, a was quarter to how X.X the that

Andrew Harrison

booking and a business to level high in. revenues. like I for think change you amount trends the the load think unit can that. used else a factors we with of in give of I been and our forecasting it's And someone to and at one haven't really Well, stuff just a forecasting couple in actually jump two-point We XXXX, been we've revenues Street. We lucky from went unit range. be – range three point Really, to

forward. on quarters as parts we get more the we there additionally, think So, belt, was I we of more sure. the how But all for probably and our came this some about think more and confident our that forecast. But the forecasting I we're in undershot moving with more quarter going get in strength our under business, fourth

Joseph DeNardi

Okay. And had then, in investor which left a XXX the you buybacks reduction. deployment deck over day about debt million capital for waterfall Brandon, showed for XXXX, more or

your for imply XXXX. year? left all uses, a Can mean, I XX back your debt, the Does dividend? guidance buyback million after chart waterfall year? million assumption mentioned You comment cash other into the that that million flow flow plug over for cash we leftover XX the XX the and the that what's on is CapEx, in there's the into for on

Brandon Pedersen

Yes.

back on we were clarity our because guidance you kind thinking we give flow that the way tried that today. the cash allocation. chart, into to likely You call as were We could capital of of constructing about the year more

billion I think for just consensus and that cash produces operating if flow. numbers, take roughly $X.X $X.XX example, you to you billion of say

repayments specifically. we take CapEx down XXX, cap that do. capital to points. funding we've some got dividend That two could around XXX, stated. yet got I as XXX, we of leaves could what with decided do for that [of] probably of use million integration left $XXX debt We to roughly – You debt you've haven't It share probably additional know to another repo XX buybacks or probably

Joseph DeNardi

Okay.

consensus because had outlook for So, your XXXX that is that it's have less cash imply less flow going to than than to chart? you what not leftover you're in

Brandon Pedersen

apply to trying weren't that. We anything like No.

Joseph DeNardi

you. Thank Okay.

Operator

ahead. question Oglenski with Barclays. Please Brandon from final go come The will

Unidentified Analyst

this question. Thanks for my Brandon. actually on for Matt Hi, is taking

one me. a from Just quick

in business times about coming from the initiatives through just Q&A strong. a Is the this is think being talked about business Any or general the You kind the about? strength commentary of Day Investor through of something Alaska and that regard? couple surge are fares we corporate should at initiatives from in there in this

Andrew Harrison

Hi, Matt, the for thanks question.

the baked anything the there's that. not into to initiatives in Specifically, materially XXX, really

a me about I from quarterly business think network. more expanded our on hear tad you're going new basis to just a given

a build President just Corporate actually we're there. with And Vice a our more have We starting lot of new doing and muscle stuff to cool network. of Sales

better from a think of travel now hear insight good measure you'll into what is actually part business, corporate So, of us I which the is economy. have and we

hear about you're So, I talk should think that more doesn't massive mean necessarily on for that. just It we you XXX. initiative us some going little a be the to have from counting

Unidentified Analyst

Thank great. you. Okay,

Matt Grady

this I Thanks, for thank tuning everybody want call. in Brandon. And quarter's to for

career very call. to want last much. Thursday something you thanks. all with This you I XX deals quarter, Eliasen break, airplane conference years airplane that. analyst thank fantastic we conference Thanks As deals. of a lots a to and Mark's and terrific Talk retire financing next next like or XX calls Mark also Alaska thank want this with for is for Air you to Group. company, Mark, I

Operator

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

You may now disconnect.

Alaska Air (ALK) 24 Jan 192018 Q4 Earnings call transcript