ALK - Earnings call transcript Q2 2019

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Operator

Good afternoon, my name is Fiya, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group's Second Quarter Earnings Release Conference Call. [Operator Instructions]

I would now like to turn the call over to Alaska Air Group's Vice President of Finance & Controller, Chris Berry.

Chris Berry

Thank you, Fiya, and good afternoon everyone and thank you for joining us for our second quarter 2019 earnings call. back all. be to good with you It's

team In our Andrew leaders remarks, during you the our Harrison, your of to updates from will hear management of Brad members call. Brandon Q&A Several today's also questions Pedersen. here answer prepared and other are the Tilden, portion Ben Minicucci,

$XXX This afternoon, second reported Group quarter GAAP million. Alaska Air net income of

of net $X.XX, hedging income income mark-to-market adjusted of to merger-related fuel adjustments, earnings of $X.XX Air of per reported compare adjusted costs, the per earnings call share $XXX of of first XXXX. second adjusted ahead million the and results consensus. quarter and Excluding Group share in $XXX These million net adjusted

per cash XX%. in America million to Our bringing $XXX of total million and share flow of generated Virgin quarter, our adjusted an payment for borrowed margin our debt grew debt XXX pretax We additional free expanded the acquisition. paid basis we the we up down points the $X $XXX billion billion during earnings $X.X and

great quarter goal XX% to XX% our margins. toward This of pretax long-term progress marked

materially affect And actual risk found today reminder, our differ forward-looking Information filings. include on results. in expected our could business a SEC future can which factors our may will that our on performance, as statements comments from be

between provided reconciliation and release. adjusted today's earnings excluding On a financial non-GAAP non-GAAP most fuel. we call, measures we GAAP will unit and cost earnings have today's as certain such as directly refer measures, in to And comparable usual, the

to turn his I'll remarks. for now call over Brad And the opening

Brad Tilden

good and Chris, afternoon, very Thanks everybody. much,

two airline work other to now majority and together. acquisition network We've our system any benefits of our realize groups, done than the significantly bringing of years work integrated and past integration. the America. functions Virgin We're the faster major reservation beginning for our The synergies back now and our from our airlines expanded the office we're vast is integration two-and-a-half

focus fleet, pretax on industry's sheet, relentless cycle. costs, targeted the targeted to move our and of fuel-efficient customer and with service, and generous margin set are well we low to XX% a balance a up best-in-class brand, low our growth And a annual fares toward our most XX% loved plan, over well the mileage fortressed business

great margin our made with years at executing a we shared point implementing ahead. November quarter that margin We in expansion XXX-basis and quarters progress the our our this plan in and last drive Investor initiatives further you to with Day improvement we're

and $X all for to provide owners, we As right you capital growth margin that depend committed for of invested that invest on people team so the the in us. fully our we know, returns given our the right who can and as are producing a the leadership billion of you've benefits

overhead productivity, high working. their performance to on high plan of I formula long-term utilization, relative and leaders Our for our thank want focusing so is cost low this asset year. far operating to division

full-year from after fact, plan, the cost team labor new adding solid able our of back guidance savings cost maintain to even In given was deals. cost our

were we new two to really topic, that deals proud quarter. this on And announce labor

aircraft And aircraft. both technicians our of which and has this of is extension agreement on work two-year been which our to a all all ratified. First, mechanics Alaska mainline with an our allows negotiated

IAM with to with agreements voted represented We're upon the pleased the as come a these to and agreement business in the the ratifies by the we And folks that employees, speak. our IAM, is second, coming we're extension hopeful employees in finest which weeks. represented the X,XXX with five-year being

in quarter. management, in the revenue want our best we've I marketing we teams that improvement On good the unit a revenue revenue thank side, in quarters. the who I had also and seen this e-commerce thought had past to XX result

of earning what along busy care from the that middle Alaska and running of Horizon XXth Leisure, with consecutive the service and the guests. our different for more. at Index, we've It's and our an Travel Alaska job. is received recognition Award, taking and travel Power Genuine in JD great terrific caring other people makes Satisfaction summer Cardenas, doing proud are WalletHub season, many excellent their currently American and folks our folks & our clear Customer and a operation are We're also XX,XXX of we're

as the The category JD changed was first network forward. Power it year And traditional especially have in time categories going our in carrier the XXX point Award for passed this as the category, mark as the is gratifying the we history. award final

for make year Our the and optimistic about of the results the beyond. first us half rest XXXX of

to business you for are all fully very and execute place that a know, to a got to focused We've this place our work, people that for done. do running more owners invest. we our so place plan for our our great work customers and great importantly, great work on our be we're will As getting a to fly, to

call And with the turn that, I'll to Ben. over

Ben Minicucci

Thanks, everyone. Brad, good and afternoon,

X.X% unit well total ahead our initial of to X% increased and increase guide of revenues second a $X.X in X.X%, revenues grew billion the X.X%. In quarter, capacity as

per was improved Our pretax points margin year prior better and basis XX%. XXX our earnings than share XX.X%, adjusted

ahead plenty encouraging. us, As of the Brad have is of but mentioned, we still momentum work

list enhance high Airbus with the and integrated Company more Boeing seniority the agreement and brings together increases, our two-year agreement example, with XXXX. mechanics our certainty of technicians maintenance our through The recently our For giving extension and the in recognizes caliber bonus, pay technicians provides ratified team transition productivity. and a signing

Virgin we at milestone seniority groups, and significant with from work agreements integrated our acquired a of now years less have than the date America. three is we agreement Alaska, all list joint and as integrated This

together a to strong the is It accomplishment planned a and synergies us we our continue team, leverage from acquisition. to and come huge allows build on culture fully as the one

signed five-year months, as the we've X,XXX collective represents our several of was represented new I our finalized this all to group past employees. absolute five labor over also amongst ago, agreement years tentative want deal IAM announced thank furthest XX% bargaining their agreement. last professionalism of the about out the groups for market recently our for a employees of over our With and

know our vote improvements I'm more won't day service and a out. We who well well and but these day folks to results for deserved outstanding weeks raises to excited few guest represent the of the deliver get Alaska and so in

and These two other million. bonuses this agreements one-time annually, will costs $XX by costs and million of including approximately approximately million increase signing our and benefit wages $XX year, about $XX

of impact these today. The new is guidance included in our cost agreements

and their continued to together we for provide partnership and to and for come agreements the we great successful stage work want future. people as are pleased the We these for IAM financial and to a set benefits to wages thank AMFA our

few the years guest our experience and to we the as muscle is strive on to for over strengthen focus long-term on improve road initiatives map implementing a our build brand investment Our best-in-class next financial and toward product our strength, owners.

here our back accomplishments. are the of some on Looking quarter, biggest second

mentioned, guests proud day they our awarded testament to to Power were consecutive take of employees more as our people. and hard with put of couldn't the JD XXth our the be operation. in work Award, I our of every First, a Brad great exceptionalism care run a true

from revenue aircraft changes several most months. QX. cost demand. the into increased constrained rate should full the biggest the gauge these travel impact our Boeing higher the unit the in markets lower the peak capacity see We summer overflow the with from during season synergies realizing includes run of now are This the we million $XXX cross-fleeting benefit last of and initiatives we Second, of over launched

renovations, the which we Third, of seating Airbus completed are painting and provide our the will premium more we aircraft per increased revenue through on and interior aircraft. all XX%

of Fourth, we place claimed way in after year-to-date second-place to on-time for to on-time be first happy due year, back rough to and in the and Pacific the Northwest address a these two DOT arrivals to operational storms, I'd measures our start departures Q&A. have nuance the

quarter, were second these among first the we top both categories. the of carriers in For

And is a of year-to-date to regional years. shout team one it margin. Horizon performance number for to in Horizon over couple their entire performance, out in wide I when on the want the leader complete the regional board operational topping turnaround comes give the to a the a by industry past at side,

Company the a little accomplishments tomorrow of lot we pushing We Each are along to the talk everyday today. across day these us dial, better than a improvements. is be incremental of turning to the teams each our about of with make here run

We are always pushing ourselves to be better.

to outperform. the as back, team's dial we turn at and So I'm to now ability continue in the confident our win our with

over I that, the will his updates. commercial with call to Andrew turn And for

Andrew Harrison

And afternoon, Ben. Thanks everyone. good

focus a of absolute and and quarter represents in afternoon the past was in quarter revenue RASM QX My revenue the and third unit a result over years best will quarter. initiatives first on guidance was the best improvement comments revenue seven the guest-facing what environment performance, revenue three welcome second The past the improvement X.X% for volatile revenues years. our unit in this our

pricing quarter, the part close-in as dissipation we included ended stabilized second Industry fares. which the most for of low the

basis a industry we ended had this goal year, outperforming approximately by we of points. As RASM XXX

quarter. and more goal. to industry beat on unit revenue by outliers points this RASM bit year-over-year synergies basis on for We related approximately delivered like revenue XXX increase. Ex-MAX provide Breaking our I'd down that further, initiatives QX carriers, the some detail unit revenue a

terms of in First, challenges.

overlapping pricing quarter, softness the we Although due X%. Hawaii see year-over-year significant as of in first the weighted competitive not capacity as impactful continue to X% to growth to in

peak putting Alaska guided represent of We about through regions points, on than competitive with the also our what State basis industry impacted less Lower Alaska revenues period. capacity our we XX pressure XX XX% is the system, saw into increased which had by yields. This the of some unit to. These negatively capacity originally from continues about two long-haul summer

positive, Turning to by following driven areas. unit revenue performance the was key our the strong

and this ramp during their rate synergies quarter. to they initiatives our full First, and reached run continue

contributor our XXX our which we fares QX to largest to first Saver call These improved quarter initiatives with guided improvement. the RASM on basis by this points,

synergies Investor We to Day last November. the continue initiatives we in million at to XXXX $XXX combined guided and of confident feel

Second, redemptions award points shift of us. in cut-over last redemption structure from away XXX QX that got we after in when our basis the from had another basis impacted changes points tailwinds RASM our from had Easter about XXX reservation negatively and system year

experienced California operating of impacted significantly pricing by positive capacity the improved Third, actions quarter. representing Nine markets regions year-over-year XX QX. revenues underlying XX% our were unit transcon in that and of pricing including steadily stabilized our through

I cancel improve teams improving rights cross-fleeting transcon made changes more and commercial A quick including want note this in and of focused marketing, to operational concerted our effort to all around a We've markets. both performance. thank that region. several rallied performance have and on-time on our

of experience have it's these important and delivering all improve great focused crews been financial Most and station in-flight help on service, consistently to importantly, guest and the routes our working. performance guest

Although head momentum double-digit margins QX. we experience a significant improvement see ways go, RASM as to in year-over-year we into California and we transcon did have in continued and increases we

in And continue loyalty X.X members lastly, points were is which credit and to passengers. on Mileage strength points our quarter we improved of respectively, flat our very the increased flyers cardholders Plan during see percentage which The that revenues, and encouraging. X.X% X.X

commercial enhancements is product and we that calls, As the have network guests a in focused team mentioned on our this previous year embraced. number of

XX of by to is and our First, XXX network with Hong direct Aviv. all the with or flights expanding Kong, members Seattle with more This partnership partners, from Tel to worldwide. and our out EL Francisco than our and global Singapore to Mileage redeem earn Global Dublin Tokyo, our miles our been to addition have partners. Plan San new destinations Alaska again With Partners new service is added direct in can announced AL

our and a We've in renovation our and we new been on mentioned, Premium seat interiors Class both First seats. greater guest of positive. aircraft guest count beautiful installing reaction total that completed align are XX far. Second, the increases Each XXX-XXX are mix and Ben experience. Airbus so cabin These aircraft extremely as and improve and Airbus has builds

This, of in sky, completed along has with movies guests experience. provides and our the mainline entertainment feedback our with installation guess XX from in-flight been have the in-flight most satellite aircraft fantastic. our boasting just our Wi-Fi a the top-notch now on we Third,

on-board and fact, In with regional entire jet is Wi-Fi our fleet also equipped entertainment.

lounge Seattle finally, here Satellite in flagship we Phase for two lounge of We've ago, XX,XXX rooftop North also our in open foot we a new to guests. weeks construction on our wing started the next that new X opened expect And Francisco terminal square of featuring year. stunning San a

many earlier. to we So and X% of that our the up synergies, revenue QX, looking capacity season, of initiatives to X% peak I our by flying X% our QX offset approximately in modestly are pricing reflecting seeing summer picks and continued benefit growth and mentioned pressures to our expectation is the RASM long-haul Alaska range our stable through guidance merger Hawaii

and to achieve our our objective network with financial We XX% to margin pretax enable are long-term designing product, XX% revenue to processes growth management goals. the

we system, next Management recently better implementing are a - XXXX result new will next of by fully will year deployed which Amadeus In be fact, announced in and that beyond. revenue and middle our we Revenue the performance state-of-the-art by in year

the With made our platform on forward accounts. revenue RASM our we've and industry for structural XXXX model, feel used outperform look to in to continue objective to changes to this we building confident solid

I'll that, And over Brandon. with call turn the to

Brandon Pedersen

good Andrew, Thanks everybody. and afternoon,

marks the better profit second $XXX margins and XXXX. year-over-year This It's quarter and net since that of our evidence million share of is year-over-year is QX quarterly XXXX. consecutive adjusted the margin increase working. in improvement than quarter XX% $X.XX per earnings to our of second of plan improve both were second returns largest Our

the Andrew on performance. touched revenue

So impact QX X% touch on faced small to cost I'll between on of for keep to we roughly the X.X% this the no in aggressive new the and outlook XXXX. cost a labor We rest before deals. any up an X% increase unit set performance with cost plan and year the and of growth pressures given task capacity, for

that we've and and Teams the at to full-year the AMFA deals way of of the maintain Company initial range costs half risen of been the across impact absorbing in the talked cost low our able guidance first the falls end that such in Ben a after even the to have that year occasion managed about. IAM

pay approximately annually, including impacting this These we million in half million year wages base that bonuses this expect agreements the million in will with year, signing QX. $XX $XX million in and to add of approximately $XX back $XX

now full in. the For we year, X.X% unit all cost to non-fuel expect grow by

some by quarter, than of to X%, X.X%, half costs plus the cost although guidance beat much rose the as solid our outperformance of ex-fuel at is of certain result unit back of XXXX. Looking the much of a the initial shifting execution, better

QX half of fleet the Pilot of mainline are $XX little QX, expected, from types great a than training cost as bidding example, a now put productivity training cross later costs this between on is pilot million shifting pressure but will to happening, year. into and up first the

control in to continue overhead and we encouraging Nevertheless, productivity ability costs. to see improvements our

me provide few examples. Let a

capacity First, cost Horizon's X.X% by measured is overall FTE down productivity passengers up on are ex-fuel per this quarter XX% unit XX% growth. and

congratulate Productivity in Ops has is and Horizon significantly these time want hard particularly a the to results. especially training EXXX. Division bright fantastic on on spot as declined the improved, the team I have Flight costs

have to working Second, chain as results outstanding. been lower we our on The supply call, mentioned been to our has we team a prices pay last vendor plan partners. our

We divisions. expect more costs impacting year this $XX many save across million to positively than

attendant flight pay. to relates example third premium A

reliance is the better all it our heavy sure covered. make use Today, having our premium much a less were much normalized to of in-flight operation flights pay of in During department. transition, a team because we processes on to the more and had

overhead finally, $XX far million about X% is down by than this And more year. or so

that speed our our changes last the to frontline seeking. but to year, the the employees. we management seek more as towards tightly costs staff leaders reduce and the our both more importantly size our of our and Company positively and layers payroll and to manage are between important customers improve we are made to These and only of future Over save number changes not our we've agility

in in decline X% guidance a full a fourth we QX, expect approximately year capacity, up imply costs to would be unit increase to CASM X.X% our in which given X% Looking on quarter. the

pay increase cost $XX shifts the one million impact we'll third I variable including earlier expectation and new of the timing during reflects in The cost said time labor mentioned, quarter. quarter expected as pay the agreements, I of captive accruals the our that

of planning beginning annual the process. marks our July

maintains As our of costs low competitive our ensures XXXX, mode so our way and expands unit need we grow, achieve the legacy or aggressively that that in continue target. to margin XX% XX% versus mindful carriers. to Doing our a can offer we long-term about think to cost we're manage fares,

in costs, ended costs was $XXX flow balance flow million with marketable free year cash six months cash while the Total sheet, related securities. ex-merger $X.X ex-integration This of again billion resulted $XXX CapEx was first to million. $X.X from than in $XXX we nearly Turning million which XXXX. net the higher for quarter six the of and the first the of cash operations nearly was months billion

At consensus, more amount cash in XXXX That's be CapEx X order and produced direct flow about flow. of of our full-year operating the spending cash improve XXXX, assuming $XXX year. free would early in this million billion of reduce times be about million to in would cash the we result flow to $X.X capital free the $XXX than outcome decision

produced cash free a for record We've capital Maintaining part our allocation row for nine track operating of XX in this now of strategy. flow more positive years. cash and cash flow years flow free consecutive an is positive than important

million the lower to offset quarter costs, as debt, to rate that new of given tight Company in move also borrowings A to fortressed was hallmark advantage borrowing June that third and year, effort take inverted the and - some with to broader in spreads the fixed back repayments low environment, yield of of We've our more some part that will our Company that years in were this curve. position. and rate balance - we're moving sheet for far quickly this this back quickly many for debt including repaid made a so $XXX

billion billion adjusted and borrowed $X and for they've our been banking reach a $XXX debt-to-cap treasury give we we're on goal the reduce rates work to to leases, off our about million at by for partners in downward. XXXX the paid have about and $X.X We're track who and the already our team to debt of XX% shout to thank doing end out on year quarter-end pace want sometime stood XXXX. adjusted the our at merger. balance our With XX% I XX% we've in

million We unencumbered credit. Embraer and NGs undrawn have and of XXX $XXX lines EXXXs Boeing of

to million is to million We to $XXX share will repurchases, returned close. a hit dividend which plan and set owners it, have the to $XXX this a nice way via and return year our we shareholders

today, heard examples of plan on of encouraging. delivering operational performance award we it. number our service You've we're is executing We're a where are customer a set winning. The and industry-leading results and

cost we'll On and the the we flow be balance margins, plan quartile revenue and and to industry financial for the top strong our profit side, execute we is balance in and our sheet if free sheet momentum have continue generation. cash strength, in

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

Operator

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

Savi Syth

delivering cost wonder have about and they you that we an XXXX? bit progress but good look done tailwinds if unfair what because of as side, some just me think XXXX in really question you you're XXXX, on A XXXX you just I lately, how and walk of to the for headwinds through a seeing through be the can

Brandon Pedersen

maybe then super That's Savi, start important can it's Brandon. jump as and in. to a XXXX think we plan. the start about question I'll Shane

time are low that forward. continue advantage into a we're mentioned, costs to an go for a that important we've competitive and competitive we We waiting that process. recognize I as will be long already important had advantage super As

to momentum want Day, a a have goal. place And of initiatives to provide got that I us it's on into we I big bunch that of at be the we benefit getting margin A that of walked Investor stuff. to we've of lot said part as you lot our think a XXXX, through in will XX% XX% to? going Shane,

Shane Tackett

I add be might generic. something. only I'll a little

There's of along that lot forward with lease specific I goes have of complexity a going just these biggest all that. think sort the is returns. we challenge

cost However, save there of and operation of continue the lot to to is of a Company. out opportunity out the

those back Investor utilization it's all is I this Day, can manage There's yet. on next about to talked things we haven't tons starting year of couple we in tapped of we of muscle more more do to really fully the years, costs productivity, those about down really and aggressively. manage say would stuff getting at the

Savi Syth

side. now the a we just bit I affects of - if think how the of was then going peak about network could wondering network being unit and is you And talk seasonality if here XQ summers we network good. your a the to much kind on understand how should This that's year and those weaker, of about think how know guide you if as kind we you're have how quarters? kind revenue affecting little changes and should a - that should about really the

Andrew Harrison

Savi, it's Andrew.

this comes were we and peakey, stronger. QX in I actually it now back us America when problems made deeper more QX to Virgin think QX were acquired opportunity and QX and

forward very what So we and working going at see worst, for QX we network pattern, we and balanced forward. how are QX much much QX our sort you'll and make traditional QX of move look I being we as think the on more stronger hard is solid, XXXX, as the

Savi Syth

so necessarily And just 'XX going that fair? XQ is in for but forward, not place

Andrew Harrison

continuing finalize to in implemented first and we're being quarter changes those. the already There's

process. we in the So are

Operator

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

Jamie Baker

that really I'm Seattle loyalty declining? primary losing is there what's aggregate competitor got scheme. as improvement, but in about curious if be consolidated the pushes I me, obviously enthusiastically loyalty loyalty any Seattle own I've imagine you're driving Would loyalty why returns, to observation, returns specifically. have was discuss assume you in to spoke - willing You a wouldn't it excuse curious if share is been. market your quarter. I'm its the loyalty California

Andrew Harrison

question. Thanks This your Andrew. for is

are base only the pushed full but and Mileage normally Northwest Northwest. have harder specifics, can us Pacific has the in tell Pacific is steam see have lower continue what continues Pacific all we solid you here Certainly loyalty Although that that growth percentage-wise larger ahead. things in absolute question actually credit increases the I in obviously stronger the to we Plan talk been a on don't without California just and in going there, and And we to cards members on the revenues work of Northwest. and

Jamie Baker

Excellent.

as tell, succeeded. question, they know fare correct industry not Hawaii several that did is Second attempts have curious quarter? increases as of during some if raise for quarter? as been I'm you're Is there have pricing given late, I to challenged near interpretation? still the could there we I RASM out get fares out the calling any - as market as that a cause that just that Or optimism, the headwind in

Andrew Harrison

- for has think Hawaii at at I has There nothing little pushing a been the things there Yes, side, all. major been on marginal attempts bit. up

is we're really what year-over-year marketplace. increases this in seat think I fighting here significant

we fares. know you so, filling cheaper the at although And but airplanes are

that's in some again, the cases, all in with First But things overcome Class, some are fares. here help, Saver the to have assets and of working of new one Premium softness of we the Class that Fare product, these

Operator

Please Evercore ahead. The next question will Pfennigwerth with from come Duane ISI. go

Duane Pfennigwerth

Given outlook see and get bucks aggressive the your year, buyback? would flow of this to need X to more informal you free what cash again Brandon on for north

Brandon Pedersen

just in the the script? You based I used the math numbers on did

Duane Pfennigwerth

Yes, sir.

Brandon Pedersen

balance we've remarks, my re-deleveraging say been I what is balance what prepared in time. a has company been a long Here's fortressed a the this of really we've I really sheet, hallmark on focused would as called sheet for said

strong. super super, balance sheet is Our

once sheet it, about going we now think want the there. where we capital exactly right deploying then and to to get keep think broader we're return getting really to to I balance shareholders

Duane Pfennigwerth

consistent next provide is specific capabilities that follow-up there system? You've around you And clear that. What risk been system rotate sort to think with any transition piqued middle upgrade that on do And very you you? then of will Thanks. just my the my this for and of year. Amadeus for interest over RM as

Andrew Harrison

and question. Andrew. that. build around manage risk. lot off to to technology honestly transition had always reports of design and great We worry That's is we've a This working a We're technical XX-year-old about

capabilities the it's to our will pricing, on allow so next be will today can have individual art. to going analyst It lot O&D generation to get lifting just which also will of also there heavy So more results. the off be the and us focused analysts be we any and this we allow take much teams state don't do the doing a better matters, our system and of for level, macro at the

about more initiative to to risk we system, that. so it's So the ready that the fantastic they we'll the And bit as risk, start to talk but going into a independent have is We're move on share we revenue revenues of an real if always plan in XXXX, yet. you tied not markets to are then from little as team overlap, to layer you has a an that will.

a don't going measured so we're manner, that risk. And this in to so do cautious to revenue we expose ourselves any significant real

Brandon Pedersen

with in to time, or of and vendors the out true go segment - gate, then change to a move to -- go we'll stick but O&D we'll to going not pricing We're pricing

Andrew Harrison

we roll O&D them those then just to with pull will and certain we'll continue start new regions out. that ready be in turn the later system are and we'll the on to trigger when will on and on,

Operator

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

Catherine O'Brien

couple a here. questions your just on of outlook So cost

your clarify, peers as CASM First, include seen signing recent you're do? outlook some contract does your wanted of item the gratification, I special bonus to not from meaning as your

Brandon Pedersen

signing it's our guidance Cathy, cost bonus. the includes Yes, Brandon.

Catherine O'Brien

there the - CASM year. new for about your are XX bonus outlook here signing are my The math. So the to basis headwind point rates and

only that CASM XX points in than your better is what and previously basis forecasting. mean outlook I including So you were new

things the maybe made quarter. continue So and that the some I trend better guys despite what's few up in of driving an there that in strength new than improvement, guess about talked most a is June I the But I that are think half, deal? opportunity trending know down, see to cost math back leaves that my expected. of you that even

Shane Tackett

it's the a Thanks of The in fantastic did we question. what managing the and reiterate said job Shane. for and costs remarks. on said QX Cathy, prepared team sort I'll what you QX.

ourselves surprised even we managed a we bit may little think them. have how well I

few we the those, pilot an really opportunity other expenses, shifting, revenues half And in some up that year. some the which X% do we X%, managing on down we're back costs the result. selling mentioned a is I seeing if costs were to of Brandon just the productivity, in think is areas, selling expenses there There but of are know quarter, are were training overhead, example, strength that, continue managing managing a that as and real wonderful still

go and up those together Usually correlate the at same rate.

the the and in to over So mind Company that half. continue improve we're finding the areas we'll to place all marginally second

Catherine O'Brien

impressive really It fares just math And trending quarter how expected, a expecting be waiting Saver hearing should we've for at I is [indiscernible] there, gotten for about Andrew. maybe on fully June $XXX annual least, comments Any keep better then one deal. my offset there think the performance new more the by we better We million that there officially raise but at target. than point? some don't still testing or because,

Andrew Harrison

actually details, that but to we're about. little the not stick versus XXX because the very well out to Katie, we updating breath doing I we than shared, very level go us. than high plan numbers solid thought, fares better less had some it's Saver the all don't specifics others to just tell though, performed into has bit going a and hold you that but very, we other feel on giving would your that we for

Operator

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

Rajeev Lalwani

for of Andrew, a straightforward couple questions you.

on and markets you? quarter And on what seeing opportunity and as impact any or or your ahead the in it's guide guide? far are and whether much that's competitive And of or color there, sort finally, benefit you is whether capacity then quarter there your second read maturity how development there MAX, trending? not more then latest your third As of

Andrew Harrison

Yes, downs thanks. the talk accommodate in as we're way saw of number The MAX dealing me for to by the knowledge a and seats the MAX. pull very to best what at to industry look about we with and is really public closer just is carriers

So recipient that. we've of a sort of been

a X.X% basis you is look our the on though, capacity competitive If actually third quarter. forward in weighted down

down, coming capacity to small out which in brings I that think that's part think I for is capacity again carried good industry And things no everybody discipline the way. when

on I seen is would really thing good we the other improvement. still tell in new we've maturity, the markets have, you The that

I a the bit think and markets to XX% to some especially and continue were normalized about average so. of on of Some improve up little they California yield

there still us for is mature upside to we continue as So these markets.

Catherine O'Brien

quantify last maybe more that go? how how you seen is to Can or I much so one. much far you've mean, there

Brad Tilden

now, figure but no, it see still I we to dollar high much in to to to you. single I relates our what revenue have our see want guide unit our developing of to were our As what double-digit to but for which RASM number we continue don't in markets, percentage a smaller those think, network quantify in the want markets, that increases

Operator

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

Helane Becker

to had two questions. and think about you is and be related to there it? are serving market will that So, I what doing not field Is way My first anymore? the that question you what

Andrew Harrison

Field. Love serving absolutely are we No, Andrew. is this Helane,

the day. you I think XX that, as in is a and there's we what's going lawsuit of touch but that on have that, a have little we to Kyle got second, flights I'll lawsuit there, on. we all a let there is gauge have on on know going confusing

What is, end on is that how around what's we've happening. done going lawsuits to uncertainty up there

more So, we had scheduled flights.

doing day. which on now for the comment? that's flying concentrating what and you XX flights a is foreseeable Seattle, to What is of So, here we're what be we are Francisco, is we're full Los Angeles. San want And to sort holding did Kyle, Then doing Portland, our markets, going future. to

Kyle Levine

Helane. it to or there the not not. In scheduled up among the been judge the has and the settlement progress hi Yeah, been applauds and are I'm sticks there see although on, we'll to so trial keeping and discussions the much if very to in really active Sure, meantime far people go afraid say talking. September, that just city litigation carriers

Helane Becker

and on Okay, then second was my transcon. question

didn't So summer? mentioned second kind hear improved was think I whether that was in you and quarter that for looks I that a first problem how the of and in the the quarter a

Kyle Levine

sharing Helane. with there. first in quarter are what we've was very, problem been encouraged it Yeah, remarks real what's the a and Thanks was, happened prepared and very as it just we the in

third those aircraft, ground, just XX.X% making those magnificent notable experience the in on double-digit the transcon the job in revenue focusing rate, both seen significant have part, service around stabilized a the rallied that's and around we and we unit flights in into during get the on guest employees continued so a We the routes all in guest completion on part are the was second and that the those in satellite we're making of quarter increases have difference. increases sure our it's pricing really margin markets, SoC getting done there, has

Helane Becker

with you And then, I MAX? just that Okay. to follow up the consider backfill question. MAX could keeping one AXXXs Would

Brandon Pedersen

that is I'll take this one. Helane, Brandon.

are to plus know, that and process one that due another. You now the time between XXXX be XXX going airplanes and Those end stick already return of to or the degree being. in for AXXX are to three we we're have with

MAX in to few next out last was they we like if three first things we're that were one not to come perhaps are out two probably in We we year, play the going Those It's months hearing exposure might of small, do get year, coming quarter. play in have our MAX is now. the supposed will pretty this get this darn year.

isn't some for nearly So, acute the is capacity for issue as operators. MAX as other us it

Operator

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

Michael Linenberg

through color third pricing just quarter? and additional is and continuing the improved you maybe then show Yes. Hey, the could some trajectory trended things quarter, out in called into you to us it's stabilized give improvement the continuing, that indicated that Andrew, how

Andrew Harrison

very the very, biggest it's our during quarter. first low is business around fares obviously I think in I problem - would fares, pricing really environment, say we're close the and Yes,

a going substantially away are those So in stabilized.

environment sort making the the revenue fare all we're we've of way the number to that stable The still these areas lot is with say a business. again, and are would course new of but little of changes a of overcome I in year-over-year, bit initiatives a and down

way me the to I demand actually quite Alaska for not are we changes with be personally, demand seeing stability So, and for robust. and is in would of describe continue is working we're and the any one environment that real fair

Michael Linenberg

these as of it's carriers, of start-up just who at are realize you operation, flew make to are be they, about been Seattle, Paine And passengers out from is other are the it's you can this how formerly Field look Field but curious clientele, what start-up, they going. may new well. the I just coming Paine customers, Andrew, you the early how and with second the then question. the has And when

Andrew Harrison

about, to Seattle, markets has and little probably we much know, a Pain new a did remember starting, little port got Paine capacity there. been we don't we Portland you in with amazing, off what I with got excuse and starting frequencies eight probably too much, me, quite XX too other than and

whole, the startup on of are impressed has and operation load its into markets average three with after up. the excited think more gone. and be factors now how of all I couldn't we But these And yield way is months well our working only that the

are, lot is non-core they lot at flyers close initial has loyal very, habits our a I location we're flying got break. the lot actually will we probably of a the Field But of loyalty hard very Paine be non-frequent and of taking on, exciting demand really what's seen seeing a to of members been will a good. customers some of Field advantage and my are are say that would Paine

Operator

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

Hunter Keay

much? adjusted. very but take of that, expenses. that's by it is more on How mentioned Brandon. last you you the item down? guys I reclassification something to you way, of away bonuses for you do that you if know with noticed. not by I doing that's there signing pulling much the is and the some Brandon, want excited know get to I of you just this millions accounting tens this How years. appreciate today Thanks. Is really It's still over Shane down special question Virgin? that out are good to stuff, it's a of selling is renegotiated that like have even dollars sound or down I couple What go? so

Shane Tackett

renegotiate to did Hunter, Shane, of we deals yeah, opportunity is that get an this pretty lot Virgin had much a you closer. got that noted,

those are lot same basically bring are and agencies includes last through the years actually two, of that Our of has last stuff cost year over those so passenger to also like all partners the rates cases down our medic we of taken rates really in rates travel We of distributing and not only time, place it that and or at system. core attractive a renegotiated Company. the able our GSSs tickets but the service three the

Hunter Keay

is then? So thing such a there merger synergy as a

Shane Tackett

go. you There

Hunter Keay

served smaller fine a there's narrowbody little do bit not and but was if good. high-level a outer a more last know with Okay, is lot XX able where, years and this the there's MAX question, being previously is for over the long-haul really neo's communities Island of destinations that neotechnology without And sort technology. to time has these market I but more you've and to noticed, a of from MAX lot more Hawaii changed

bit starting a Alaska. little in that we're feel I to see

issue the at this? a fly being and with to to put example over overflow the are in like some Anchorage, that is of Airlines mentioned you as about Seattle, you the neo's. sort How sort are own prepared are their of you're American need a neo's, for if You XXX permanent neo you thinking MAX’s doing for seeing your a into with you do connecting get Hawaiian more prepared cannibalize traffic of Phoenix

Andrew Harrison

Yes, actually, I do is observation spot Hunter, you're on. it's

Seattle. way East destinations for mean I the others opportunity those opportunity that the we is, us. equal for Coast is at think it the all from same fly I we look of

in the have We into feed. obviously Alaska of actually We strong, fly including state strong Chicago. a network

a couple of things. think I So

of think some to given could I the aircraft self. us type that do there be for going opportunity forward, our

fly the as true we and very day, a a forward. end where very, we of strong basis that loyalty the have a have is go There will over will Alaskans be there, where go we non-stop network on traffic challenges but continue very, at and need up to occasions there we to fly might strong proposition, and getting, very

Brad Tilden

flying are members our Andrew, be Plan. Alaska into for I Alaskans three of of for would out two if like more Mileage should longer with And a competing agree something desire that. is we Hunter, hubs, there distance Yeah,

in just be timber, just other government, is State we talking Alaska Seattle or tourism relationship the The of industry extraordinarily in fishing, the is economies between whether of or might are or connections lot business those and particular note close, it's thing whatever here. I'd the whatever, a about, in

Houston have oil business. or to that lot doing that, flight. actually someone But customer going a I it is compete we for to to want If to something for Seattle that's since doesn't are think go they're a like of if mortgages

Andrew Harrison

it's just summer And the well. as of in really just peak been a season lot

Brad Tilden

right. exactly That's

Operator

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

Joseph DeNardi

X%, RASM Andrew, in just on points performance initiatives. XQ, up X.X from about so or the

modest that, So capacity a PRASM in want why increase X% in a in it core good that kind isn't Why call led result? growth? maybe given PRASM X.X capacity like to to is you increase traction of there your more if

Andrew Harrison

and at and firstly, that's initiatives you industry there our at unit XXX if the revenue look we've with revenue is synergies I industry points. simplistic mean, number one, to, the committed what the I has also way and in basis about want the look and line way is, grow revenues in to we this initiatives

their what the basis really to So right, top saying we're is of another includes that initiatives, that. XXX we're points on is going grow at plus industry the

a bit in downward mix about thinking. seeing long as as also, also significant increase little are length, we think also regional and well think strong how on a puts our result. I their I'll length by even second revenues quarter, stage more, that's We X.X% very pressure stage So unit the gets in we're haul. increased business the that's during which

and is last margin. thing So I'll our point to the just then overall,

second for We our have the in both have and we left quarter revenues. margin XX% and a close powder to cost

XX% as to it right, you're so this and a seeing overall, thing margins XX% and is to we're So track will continue be what it better you're better we a can move be forward. that to headed

Joseph DeNardi

the that technology. And generation upgraded given airline that? frequently, revenue thought have why revenue that more you're is using surprised bit that a Andrew, is opportunity a bit was important I what I so XX-year-old that? little guess business from his I is doing how then, would And little

Andrew Harrison

in a So change it's system. think And business. acquired complexity size much what of step of looking our when again, have priorities. and Virgin America, again, the we And all massive just I here we we're

So we system. new definitely it's for a time

We including as you will there. our will sharing with the part revenue outlook be our for of be, initiatives XXXX revenues what

we're prepared to to speak not So those today.

Joseph DeNardi

it is And Yes. material?

Andrew Harrison

Yes, yes it is.

Joseph DeNardi

you. Thank

Brad Tilden

up Its analytics have team maybe systems. the commercial top-notch and the bit revenue analyst that management, a makes that leadership, we upgrading for little us

Brandon Pedersen

And moving not have where software, it's platform all Good. an are we the updated to. it's to now, new we’ve like with but it's that vendor it's a

I think might Kevin Crissey be next.

Operator

Crissey ahead. Please go with Kevin Citigroup.

Kevin Crissey

focus just thank international the for on quickly, Yes, Thank an maybe continue of that forward you. that does best some much. component, more that selection? other going aspect you is very with vendor it I was a suggest And reason the or is of my understanding choose Amadeus there the international is why Amadeus

Andrew Harrison

for into details. network at wanted capabilities, a came vendors down our the down Team RFP We RM to to needed going Without and it our down our starrer what it to very did it future all and cost, today came network. and looking came

that decision. that's, the was So

Brad Tilden

I new big think clear, be international that don't to But don't a was think driver. service. I

Andrew Harrison

Not long haul no. service,

Operator

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

Matt Wisniewski

is This actually for Brandon. Matt Wisniewski on

kind looking X% be secondary there of would a And margin the year, to starts you for for share know wondering it's I growth. could growth what turn as ramp I growth any at as the context Thanks. potentially of I'm early are return specifically attributes So XXXX. the a of to X% context to on we mean, in the next if in to flexibility the that, targets? much But how are priorities in that. in how growth then what, and should be

Brad Tilden

it's Brad in Matt, I here. might jump

in first Pacific I Northwest. think got just we've the priority, engine in the economic the incredible

the Oregon. and of need first the of grow Washington, state everything engine that out Alaska, the defend of and we in sort doing to priority be state markets of state of do to the would So feeding

I doing provide I California State do need important just of the Francisco be in markets think base think flying and business utility the the to for we particular, that in second those others priority we've got some travelers in San the would to markets. and those in important LAX, new geography and it

think after I that. And

There's Andrew strategic are. I job opportunities of the for do our to And connecting think hinted there of at of parts us better a different in sort this. network ways.

that think I be the so third would And priority.

to Coast back city to friendly West frequencies got in that from have middle times that opportunity make flying multiple forth Finally, to we've to those are always are to of pair make and country sure are the sure Coast well West we're make sure the flights when customers. the timed we a an

we sort mind, a those top of would So, future are be of priority my about how own think are of growth. sort would about that sort in to bottom those

might Matt be like line. the Sounds off

Matt Wisniewski

No, thank I really it. appreciate helpful. you. That's

Operator

The final Research. with Please go McKenzie question is ahead. Dan Buckingham from

Dan McKenzie

you characterization? versus And not merchandizing gives many more today. as a question presumably what as that capability that well, you have fair Is

Shane Tackett

Shane. as just we've but there with merchandising We We're really the got do to Amadeus. that, with our was it's one. to merchandising good robust I actually because be could but Fair an Dan, opportunity We really move system. a well. partnership person platform I'll if happy a Logics to well, We super them have Amadeus use today. today. the installed this, have take as has one good who fare

Dan McKenzie

premium come terms seats Airbus, as about is you think you the the a real from until online critical technical there the respect either increased of other conservatism plaintiffs? with coming in of time mass, sort on you The as reseat, revenue these aircraft that to they or can question reach some manage seats or the here

Shane Tackett

Dan, launched this Shane PC. again, I

one that sell if the up. I making I'll we conservatism only too. is this take shows So real sure guess, the seat PC seat The

a we assign in. shell a know, really you specific market until don't closer we're to As

sell when through. we try aircraft the assign six go seat that's So that's of to ahead months trying to the always, a we calculus, actually

entire these period to So ramp pre-sell a that there doesn't to as take up window. come able is a for little bit it to, online, of but the through us long be

Dan McKenzie

sell premium characterize the like for don't first new delay? the comes at maybe you premium a month on So how these or seats on would aircraft a

Shane Tackett

worth not about we worth sell quarter XX quarters to , do we two just but in. planes we'd XX then so it, Yes, the three planes and get XX we sell planes way burn coming a might might the XX we worth sell quarter have take technical next quarter to planes next like or too for then

Dan McKenzie

then How if in talk restrictions And you to here, thinking could Hawaii. the you final wonder Airbnb passed about are question one that or that impact were Hawaii? recently might or I might travel demand to not

Shane Tackett

I my think, offline other think costs you we understanding everyone all watching only. again, are inventory to better a of coming But watching Hawaii we'll a be we Yes, may islands. It for people that's and of X,XXX over result islands four know in those units about the flying flight availability I for that, is like and something time.

demand. and about going how many of bigger supply at into focus the is Our end because day, obviously is the Hawaii, seats Hawaii

Brad Tilden

Okay.

hear speaking to We XX to Thanks for all we're in from you again. I going look operator in the not today for Thank you. quarter forward call. think everybody time. with again our tuning days second

Operator

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

disconnect. now may You

Alaska Air (ALK) 25 Jul 192019 Q2 Earnings call transcript