Alaska Air Group Stock

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2026 Second Quarter Earnings Call. [Operator Instructions] Today's call is being recorded and will be accessible for future playback at alaskaair.com. [Operator Instructions]

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

Thank you, operator, and good morning. Thanks for joining us today to discuss our second quarter 2026 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call.

Air Group reported a second quarter GAAP net loss of $76 million. Excluding special items, Air Group reported an adjusted net loss of $102 million. As a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings.

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

Thanks, Ryan, and good morning, everyone. Let me start by directly acknowledging our financial performance. While we beat our initial guidance for the second quarter, we still reported a loss and we're not satisfied with that outcome, especially in what should be one of our strongest quarters of the year. At the same time, it's important to recognize what this quarter represented for our company. It was one of the most consequential and strategically important quarters in our history.

We achieved the most complex technology milestone of our integration, successfully operated the largest summer schedule in our history, and launched our first-ever service to Europe, an investment that has exceeded our expectations right out of the gate. While these accomplishments don't change our financial results, they do reinforce our confidence in the future. The work we're doing today is strengthening our foundation, improving our competitiveness and positioning us to deliver meaningful long-term value.

Most importantly, none of this would have been possible without our people. I want to thank our more than 30,000 employees across Alaska, Hawaiian and Horizon. They delivered these milestones while continuing to provide outstanding care for our guests and their commitment has been the driving force behind everything we've accomplished this quarter.

While there was no way around the overwhelming fuel headwind, we saw an extremely positive earnings trajectory throughout the quarter that only deepens our confidence in our long-term strategy. The momentum we are seeing is clear. Unit revenues strengthened, unit cost improved and we returned to profitability in June with a double-digit pretax margin despite fuel prices up nearly 70% year-over-year. Absent the fuel spike, this would have been a solidly profitable quarter which underscores that our underlying business is running well and that Alaska Accelerate is working.

With significant commercial momentum, industry-leading operational performance and an integration that's paying off, combined with easing fuel prices, disciplined cost execution and demand holding firm were set up for a strong earnings inflection into the back half of the year.

Operationally, the second quarter was a strong continuation and expansion of the themes I highlighted last call. We led the industry in on-time performance year-to-date, up 5 points year-over-year in Q2. At the same time, our team successfully completed the most complex milestone of our integration, migrating to a single passenger service system and establishing the industry's first dual brand PSS platform delivering industry-leading reliability while undertaking a transformation of this scale speaks to the strength of our operation and our people.

Our Net Promoter Scores continue to lead the industry, and our guest experience is only getting better. With the reservation cutover behind us, guest satisfaction has climbed 7 points since last quarter, led by Hawaii, which jumped 10 points. Our investment in Starlink WiFi is driving that experience further with guest satisfaction on Starlink-equipped flights 20% higher than non-equipped flights. The onboard portal is also allowing us to deepen loyalty with nearly 75% of nonmembers signing up for Atmos accounts to utilize this benefit. With 1/3 of our fleet now equipped and the remainder expected by 2027, we're excited to be delivering a best-in-class onboard experience.

On fleet, cabin retrofits across our 737s are now complete, adding 1.3 million incremental first and premium class seats and demand is absorbing them well with premium revenues up 15% in the quarter. Yesterday, we announced our plan to retire the 717 fleet beginning in 2028 and transition Neighbor Island flying to more modern, fuel-efficient Boeing 737s, bringing improved reliability, better economics and more cargo capability as we continue investing in Hawaii. Cargo remains an important strategic growth opportunity for us.

After restructuring our Amazon flying under a more profitable contract we're now moving into the next phase of growth, adding 4 additional 737-800 freighters deployed across Hawaii and Alaska. This further strengthens our position as the only U.S. airline with a dedicated cargo fleet, and as we scale the international operation and capture the benefits of these investments, cargo will become an increasingly meaningful contributor to the profitability of our airline.

Our international long-haul launches from Seattle are off to a strong start. Atmos members told us they were excited to fly internationally with us, and it's materializing. Our new Rome, London and Recubic routes are each carrying 50% or more Atmos members, an early signal of the loyalty demand behind this expansion. With every new long-haul route our global relevance and perception grows, and we move closer to becoming Seattle's largest international carrier.

And last but not least, our new premium semi car continues to perform well. Total account holders are nearly 50% above our expectation with over 60% of new accounts this quarter coming from outside the Pacific Northwest. Taken together, this quarter is proof that our plan is working. Even against a volatile backdrop and an outsized fuel headwind, we made real progress on every front that matters, building a business that can absorb short-term pressures and keep moving forward.

Heading into the second half, we're set up well. Demand is holding firm and our integration milestones are increasingly behind us. We look forward to continuing to deliver on the commitments we've made to our people, our guests and our owners as we build scale, relevance and loyalty for the long term.

Before I close, I want to touch on a recent leadership announcement. Shane Tackett was promoted to President of Alaska Airlines, taking on responsibility for the commercial organization while continuing as CFO. Shane is a 25-year veteran of the company and has been instrumental in guiding us through the Hawaiian acquisition and execution of Alaska Accelerate, and this expanded role reflects the breadth of his leadership as we move into the company's next chapter.

More broadly, we have conviction in our business model and the initiatives we put in place. They're working and the results we're seeing only strengthen our confidence that we're building a business model that is structurally capable of producing the $10 of earnings per share that we originally envisioned and laid out under our Alaska Accelerate plan. We'll discuss this and more about what's ahead for Air Group at our upcoming Investor Day on September 29 here in Seattle.

And with that, I'll turn it over to Andrew.

Thanks, Ben, and good morning, everyone. Today, I'll walk through our second quarter financial performance. Our perspective on the near-term demand and revenue environment and the step change in the results and performance of core levers that underpin Alaska accelerate. In the second quarter, revenue grew to $4.1 billion, a 10% increase year-over-year on capacity that grew 1%. Unit revenues was up 8.6%, which includes a 3-point drag from the historic Hawaii rainstorms.

The second quarter marked the beginning of what I would describe as the full commercial activation of Alaska Accelerate. And what I expect will be a strong ramping of revenue growth loyalty penetration and the elimination of integration friction from our industry-leading guest satisfaction. The foundation of this activation was the implementation of a single reservation system, launch of Europe service, along with our Asia service, strong adoption of Atmos Rewards and a solid operation that has led the industry as the #1 on-time airline in the United States year-to-date. The full activation and achievement of these elements have resulted in an immediate step change in commercial results across Air Group. I want to spend some time unpacking the largest of these.

Let's start with revenue. we had a material acceleration of unit revenues across April, May and June at 5.5%, 8.8% and 11%, respectively with total June revenues up 13.2%. This resulted in a double-digit pretax margin for June despite higher fuel prices, managed corporate revenues. We generated what we believe will be industry-leading revenue increases this quarter. The combination of a single PSS, single loyalty program and network growth has resulted in large share gains.

Portland and San Diego managed corporate share growth of 5 points and 4 points, respectively, with Portland reaching a historic milestone, exceeding 50% share of managed corporate revenues. Looking to Seattle, we have seen the percentage volume of managed corporate passenger exceeds system materially at 9% growth. This is driven by the unlock of new revenues from managed corporate accounts as we begin serving the largest international markets to Europe and Asia out of Seattle, namely London, Tokyo and Incheon as well as our continued growth in scale, relevance and loyalty in our Seattle hub.

Moving to loyalty. Co-brand remuneration reached $663 million in the quarter. That's up 19% year-over-year. The unlock of upmost rewards has been remarkable. Evidence of the loyalty flywheel and Atmos unlock can be seen across our ecosystem, including Active Atmos members up 15%, with attrition down over 30% year-over-year as members engaged more broadly with the program. Hawaii loyalty growth materially outpacing systems performance with a 73% uptick in new cardholders year-over-year and a 34% increase in members in our Huakai, by Hawaiian community.

We saw a double-digit increase in top-tier activity and spend as members strive for the unique benefits offered by our titanium status, including access to same-day upgrades to our suites product. and an 8-point increase in redemption activity on the Air Group network as members shift their global travel activity to flights operated by Alaska. Our loyalty program performance is an undeniable marker that Alaska Accelerate is not only working but also just getting started given our foundational programs and technology are now in place.

Premium products, there is unquestionable demand for our premium products and service. Premium revenues grew 15% this quarter. In addition to our domestic product, premium demand for our newly launched international long-haul service from Seattle to Rome, London, Heathrow and Reykjavik came out of the gate hard. We've already achieved our fair share in premium cabin in U.S. point of sale and across several corporate channels. And we see substantial opportunity to grow share internationally with our fair share in the premium cabin already improving after just recently turning on our ability to sell in the U.K.

Premium revenue now represents 35% of total revenue, up 1.5 points this quarter. We are far from done and have more room to optimize our premium product configuration. It's worth reiterating from a diversification perspective, which premium has helped fuel. More than half of every revenue dollar we generate now comes from outside the main cabin a mix that looks nothing like the airline of even a few years ago.

And finally, Alaska Accelerate has launched us into meaningful cargo revenues, a source of durable diversified revenue. Our second quarter revenues were up 21% year-over-year, well above system revenue growth of approximately 10%. As Ben mentioned, we announced the addition of 4 Boeing 737-800 freighters to be flown in Hawaii and Alaska, nearly doubling our dedicated 737 freighter fleet to 9 aircraft. We expect service to begin in early 2027, and these aircraft will not only strengthen our reliable service for the communities we serve but also create new revenue opportunities.

Now looking forward, we entered 2026 with one of the leanest growth plans in the industry, and we've continued to adjust as fuel prices remain elevated, pulling roughly 1 point of capacity out of both the third and fourth quarters. We expect Q3 capacity to grow approximately 2% to 3%, the entirety of which is Intercontinental. With slightly lower sequential growth in Q4, this puts full year growth right around 2% year-over-year at the low end of our original guidance of 2% to 3%.

Demand has proven durable even as fares moved higher. Bookings into the summer peak and early fall shoulder are pacing well with unit revenues running solidly in the mid-teens year-over-year. We're especially encouraged by the strength of higher-yielding demand. Forward corporate bookings are up 37%, 7 points higher than the 30% achieved in Q2, reinforcing the improved domestic and international relevance of our expanded network. At the same time, our new long-haul international flying continues to gain share as premium demand builds out of Seattle.

Hawaii is also getting back to strength. Loads are recovering and new bookings are coming in at system levels. The historic storms not only impacted spring break, but also peak summer bookings that occur in the second quarter. Summer revenue performance remains well under system in part due to elevated industry capacity, which was up 7%, and we expect the third quarter to have a similar several point unit revenue headwind that we saw in the second quarter. But encouragingly, as we move into the fall, on-hand bookings, West Coast to Hawaii show demand returning to historical levels with September yields accelerating.

Given these trends, we expect system unit revenues to improve sequentially from Q2 into the third quarter reaching low double digits year-over-year. With roughly 65% of Q3 revenue and 15% of Q4 revenue booked, the balance of the back half will be shaped by closer demand, but the trends we're seeing today give us confidence in healthy unit revenue trajectory through the rest of the year.

To wrap up, while the first half of the year was volatile, our June exit rate tells the real story, an inflection back to profitability and strong unit revenue growth. Coupled with prudent capacity, the second half is shaping up well, and we've kept our focus on controlling what we can control while delivering results. Completing the single passenger service system cutover, and enhanced single loyalty program and the launch of a European and Asian network from Seattle was the unlock we've been building towards. It lets us finally deliver the full range of our product and services consistently across our global network.

As we move forward, we're focused on continuing to strengthen and diversify revenue across premium, loyalty, cargo and international to build more durable, resilient earnings power that compounds over time.

And with that, I'll pass it over to Shane.

Thanks, Andrew, and good morning, everyone. As Ben already indicated, we are not satisfied with losses this quarter, but it is important to also look through the result to the underlying business. Absent the added fuel costs, this was a fundamentally healthy quarter. Nonfuel cost performance and the trajectory of unit revenue through the quarter were both strong.

As fuel normalizes, the timing of which is difficult to predict we see a clear path toward meaningful earnings expansion back towards our goal of $10 of earnings per share. Also, with our customer-facing integration milestones now behind us, we are moving forward with strategic momentum as we move to full optimization and harvesting of value from our Alaska Accelerate initiatives.

Regarding the balance sheet, we finished the quarter with $3.8 billion in total liquidity after proactively raising $1 billion of financing during the quarter, a $500 million issue of senior unsecured notes, our first-ever unsecured bond alongside a $500 million term loan. While this transaction was largely neutral from a net debt perspective, it was a deliberate choice to bolster liquidity toward the top end of our target range of 15% to 25% as we navigate an elevated and unpredictable fuel environment.

With all the challenges of the last 2 years, our balance sheet remains strong and is backed by roughly $20 billion in unencumbered assets. However, given fuel cost impacted earnings, we closed the quarter with a debt to capitalization ratio of 65% and trailing 12-month adjusted net leverage of 4.8x. With normalized fuel prices and current demand trends, this could very quickly pivot back toward our long-term leverage goals.

Our balance sheet has long been a strategic asset that underpins our agility and durability and restoring that strength will be a top priority. As the environment further stabilizes and our earnings profile improves, we intend to put excess liquidity to work paying down debt, reducing leverage and ultimately bringing liquidity back toward our target 20% level.

Second quarter unit costs, excluding fuel, rose 6.5% year-over-year, a strong result compared against others who have reported. This result included some significant transitory costs, including above-normal crew training costs related to our 787 fleet ramp and employee recognition expense tied to completing our single passenger service system and material aircraft sale gains booked in 2025 we are comparing against. Setting those aside, core cost growth was up low to mid-single digits on only 1% capacity growth.

Moving into the back half of the year, our cost plan remains on track, and we expect nonfuel unit costs to step down to low to mid-single digits with closer in capacity cuts versus our original plan providing slight pressure. Economic fuel cost averaged $4.43 per gallon, slightly better than our $4.50 guide. While crude has remained volatile between $70 and $90 per barrel, refining margin volatility normalized throughout the quarter. We expect third quarter fuel price per gallon of $3.75. This reflects expected July fuel cost of $3.60 per gallon and $3.85 for August and September, which is simply the recent average spot price we have seen.

At this fuel price guidance range, we anticipate third quarter earnings between breakeven and $1 per share. We expect our second half RASM to CASM ex fuel spread to improve several points from our 2-point spread in the second quarter, evidence that Alaska Accelerate initiatives are working, and the business is structurally strong. Given we've seen recent volatility in fuel prices and further fair movement, we plan to provide an update on full year earnings guidance at our Investor Day in late September.

This isn't the first half any of us drew up, but the demand backdrop and continued execution of our initiatives gives us confidence in where we're headed. With our big integration milestones behind us, our focus now is squarely on optimizing the airline, building strategic momentum and fortifying structural advantages, our scale, our relevance in the markets we serve and the strength of our loyalty franchise. As premium loyalty, cargo and ancillary revenue take an ever larger share of the mix over time, our earnings will become more durable across cycles underpinning our path to steady state earnings power north of $10 a share and double-digit margins. We'll lay out the building blocks of this in more detail at our Investor Day on September 29. So we hope you can join us.

With that, let's go to your questions.

[Operator Instructions] And our first question will come from Atul Maheswari with UBS Securities.

I know you're not providing fourth quarter revenue or RASM guidance, but your peers who have reported thus far seem to point to fourth quarter revenue being higher than third given the potential for a greater portion of fourth quarter coming in at higher fares. Are you able to confirm if we should expect the same for Alaska? And related to that, if you can also provide some puts and takes on the fourth quarter of RASM as it relates to sequential performance versus third quarter, that would be very helpful.

Atul, thanks for the question. This is Shane. Yes, I think we'll steer clear of giving specific guidance on Q4. We were pretty deliberate in wanting to talk more about the full year at Investor Day once we had a chance to better understand both the revenue side of the equation given recent fair changes in the domestic market, which have been positive and obviously, the fuel price part of the equation.

So I think we don't see any change in demand into the fourth quarter. The advanced bookings look very strong at the same or better yields that we're seeing in the third quarter and that we saw at the end of the second quarter. So we don't have a difference in trend that we're seeing from those who have reported before us, but I think we'll stay away from commenting on the fourth quarter in a way that would infer guidance.

Okay. That's fair. And then as my follow-up, Shane, you did mention about the improvement in Hawaii for September. So as it relates to that, are you able to parse out that improvement between demand getting better versus an easing in competitive capacity pressure in this market in September? That would be helpful. And also related to that, it seems like capacity in Hawaii jumps again in the fourth quarter. So how do you feel about potential for continued improvement in Hawaii beyond just September?

Thanks, Atul. Maybe it's worth taking a quick step back just to really talk about Hawaii because it will be a theme, I think, number one, this was a $1 billion franchise for us, and we knew that we needed scale, relevance and loyalty for an $8 billion market, and we've achieved that now, especially with the -- now with a single passenger service system, it's [ engraved ] now into 1 world. We've talked about loyalty growth and all the rest of it. So we've seen really good strengthening and prospects for Hawaii.

Specifically to your question, as it relates to September, we're seeing even in the last week, incoming yields have been greater than system. And so we see strength returning for the reasons we talked about on the Kona storms.

And to your question about capacity, you're right, it has been elevated. I think domestic has been about flat in the second quarter, going into the third, and it's up 8% -- 7% to 8%, but we also know that the schedules are not finalized by the industry for the fourth quarter as well. So we'll be watching that. But we feel good about the momentum we're seeing in Hawaii and all the key levers post PSS that are coming into play to strengthen our position and the economics of that franchise.

And our next question will come from Duane Pfennigwerth with Evercore ISI.

Just a couple for me. On cargo, can you speak to the mission of these 4 800s that you're adding? Are these your aircraft? And is this similar to what you do up and down the State of Alaska or are these in support of outsourced Amazon flying?

Got it. Thanks, Duane. Yes, these are going to be our aircraft. We're taking them from another carrier but there'll be ours. We're going to go and move them. So they're consistent with the rest of our freighter fleet. And they'll be deployed for our own flying. They're not in an arrangement that's a CMI or ACMI they'll be deployed under our brand. with our folks flying cargoes that we go out and ultimately market to customers to carry for them.

I think we said in the release, 2 of them will be in the State of Alaska, I think 2 of them will be in the State of [indiscernible]. There's a lot of opportunity for us to continue to build share in both of those states. We do that sort of small community cargo flying, I think, better than anybody else. And we're excited about cargo going forward. Also as part of the Alaska Accelerate, which we talked about in December of 2024 ultimately contributing an additional point of margin to the business, and we're well on our way down that path. So this was one of the specific ways we were going to go and unlock that we were excited to get to announce it yesterday.

Okay. And apologies in advance for the minutia on my follow-up, but it's something we actually got wrong. So can you just speak to the drivers of variable incentive pay. Is there any relationship between the employee recognition expense and this variable incentive pay. And just how should we think about that line maybe in the back half, flat, up, down? Thank you for any help there?

Yes. If it's a geography question, I'm going to have Emily make sure that we get this clear. I think there's a tax component that goes into one of the lines, and then there's the actual employee recognition cost that goes into another part of the P&L.

Yes. So Duane, the variable incentive pay is a combination of our performance-based pay program, which is the majority of that line. and then our operational performance reward programs. Typically, we see this skew a little bit higher in the back half of the year as we get better certainty about the overall performance of the business. But I think you're going to continue to see the trends that have manifested in the first half, showing up in the back half.

Okay. Sorry, it was, I think, down year-over-year in 1Q, up year-over-year in 2Q. Just on a year-over-year basis, maybe flattish if we had to guess.

Yes, probably flattish.

Our next question will come from Conor Cunningham with Melius Research.

Congrats, Shane, on the promotion. Just, Andrew, maybe we can go back to Hawaii for a quick second. So I'm just trying to understand when you've studied recovery time lines when you have situations like this. When I look back at like the Maui fires, realize it's totally different. Like that recovery time line took a lot longer than I think anyone would have anticipated. So just how you compare this situation to that?

And then is there anything structural within the Hawaii market that may limit the opportunity to push fares that you've seen at other system levels? I just so unique in the sense that like you're seeing the demand headwind time frame you're seeing competitors which supplies of -- yes, just any thoughts there.

Yes. Thanks, Connor. I think a big picture for Hawaii over several years, malifires or other, is somewhat static and if not sort of growing a little bit since COVID. But again, it's a very sort of stable market. We serve -- we have over 40 nonstop routes across the entirety of the West Coast. And I think what I would say here is that certainly, there is ebbs and flows on the recovery. But I think what we have really focused on is all the tools that we have in our toolkit that will help us outperform the general market in Hawaii. And as we've shared earlier, things about loyalty, our loyalty growth, connectivity and our ability to serve the right market with the right aircraft.

Again, I think as we look to Hawaii, we're very focused on the September and beyond. And what we are seeing right now is a recovery, and there is nothing that we see right now to give us a sense that this won't get back to strength in the coming quarters.

And Conor, it's Ben. Yes, I think maybe a couple of things on that. Remember, last year, Hawaii was one of our best geographies in our network. And to your point, it is different than the Maui fires. The Maui fires were catastrophic for Hawaii. And these were torrential rains. They were brutal. But the recovery is going to be different in our view than the Maui fires, just to answer it directly.

And just in terms of the strength and structure, I think Andrew was trying to get to it in Hawaiian there may be other questions. Look, this is an $8 billion premium market where we had $1 billion of it before the acquisition. Now we have about 50% of that premium market in Hawaii. And that was the whole thesis going in. Do we grow organically? Do we retreat or do we double down in Hawaii? And the thesis was double down in Hawaii. It is a premium leisure market where the pie is essentially finite, and we think it's a great market off the West Coast, and it fit our network.

And on top of it, it gave us access to international airplanes to build our Seattle hub, where it was the one arrow in our quiver that was missing, and you could see all the gains we had from international and premium, and you see all the increases and in those areas year-over-year. So I just wanted for you and for everyone else, the whole value of Hawaii, like we are so committed and these are blips, but over the long term, Hawaii is absolutely going to be a huge contributor for us.

Awesome. Appreciate that detail. And then maybe I could speak to next year. And I know that you don't want to give a guide but or anything like that. But just -- when we think about controllable margin spread, I like that we're talking about that a lot more this quarter. But I think that the carriers that have reported as well would also call out a similar cost trajectory opportunity next year. in a reasonable growth environment. But there is obviously this debate around industry RASM, and that's obviously very difficult to pin down. But just there is a lot of opportunity just from the synergies, the tailwinds that you had just from Maui there.

So when we think about next year, like is the rational thought process that RASM will exceed CASM next year. And could you just speak to just any of the idiosyncratic levers that you've already identified that are already like in your playbook now from a revenue.

Yes. Thanks, Conor. Yes, broadly, like if you're asking about the 2027 setup, yes, we're really excited about it. We're confident in next year's opportunity to expand margins mostly through that the expansion of the RASM to CASM ex, I think you just called it the controllable margin spread. We sort of can't wait to get there. We'd like fuel to calm down, and we'd like the economy to remain really strong, but we'll have a chance next year to obviously hopefully participate in a full year of the current demand and pricing environment. So it's really only been with us for half of this year.

We'll get to lap the first year of international, which there's always an opportunity to do better in the second year of these sorts of things. And I think we had a phenomenal first go around this summer, but it should be even better next year. And I'm sure we'll get questions on that, and Andrew can share more detail about that. We'll lap these headwinds in Hawaii that we're talking about and get back to what we believe will be the strength that we were seeing coming into this year from the Hawaii market set. We've got a full year of expanded premium cabins, the last retrofit of which I think we just got done sometime during this quarter.

We'll have 50% of the fleet with StarLink going to 100%. People love that product when they fly on it. And we've got the last tranche of synergies and initiatives to go and unlock. And some of that are sort of basics around running how we run RM. I think you guys know we've talked about it. We're not on a network RM system. We will be on one next year. So others have done that recently and enjoyed really significant RASM improvements from those.

So I think our expectation is exactly what you said that we could achieve RASM growth ahead of CASM growth next year. And as fuel normalizes, go back to what I said in the script, I think the underlying structure of this business is really strong, and we should see and could see earnings expand quite rapidly.

Our next question will come from Savi Syth with Raymond James.

I was wondering if I could -- not necessarily looking for kind of numbers and magnitude, but just any early thoughts on how you're thinking about domestic versus international capacity growth in 4Q and 2027? And just tied to that, like have you gotten an indication from Boeing on kind of MAX 10 deliveries next year?

Thanks, Savi. I think domestic in Q3 was roughly flat. I think it's similar in Q4. I think all of our growth, and we've been pretty deliberate and I think responsible with our growth is international into the fourth quarter. We do take a significant number of airplanes next year. We're really excited about those. We do think that the MAX 10 will get certified here relatively soon. The first use of those aircraft will be to continue to build out our core cities like Seattle and continue to upgauge where we can. And also to retire an aged 737-700 fleet. And the economics of a MAX 10 versus older 737-700 are very, very compelling.

And so we've got really good plans to use the fleet that we're bringing in next year. We have a couple of 787s, that will help us continue to further international growth. It will maybe be a little more balanced in terms of domestic versus international next year. But we do intend for it to be responsible growth rates more than this year, but pretty similar to our target -- long-term target, which I think we've laid out around 4% or something like that.

That's helpful. And if I could just quickly follow up on Duane's question on the new cargo aircraft. Is it fair to assume that the freighter costs will step up ratably that the cargo revenue will take time to catch up as you kind of win contracts and use it for reliability? Or is that not a fair assumption given that you might be working on winning contracts with the new aircraft already?

Yes. No, thanks, Savi. A lot of the aircraft, the incremental freighters will go into service early next year. So we've been contemplating this announcement, obviously, for a while. So we've got ideas and plans on how we're going to go fill those freighters up, there's an immediate need for incremental capacity in the state of Alaska and just better overall operational reliability.

The 700 NG freighter fleet that we have is also getting aged. And so they'll be put to good use right away. We're not going to fly empty cargo holes around. And I think there's a lot of opportunity and desire for us to provide service within the islands in the state of Hawaii. So I think this is going to be a quick ramp accretive results from these 4 new freighters.

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

Andrew, I think you mentioned picking up corporate share across your hubs, and I think you specifically called out Portland, but maybe I heard that wrong. Can you speak to the momentum you're seeing there and how it's playing in with your premium mix as well?

Yes. Thanks, Brandon. We've been very excited about the results on the corporate side and the thesis. And I specifically called out, obviously, Portland and San Diego, where we've had capacity growth and our share of the market on the corporate side has followed even at a higher accelerated rate. And we've seen also in Seattle the same thing.

And I think we talked about 30% increase in revenues. I'll tell you right now sitting in July, our revenues are up over 40% for managed corporate travel. So the flywheel of growth and scale in our core hubs of our loyalty system. And then long haul, especially out of Seattle, have really helped fuel the ability to win share and obtain greater exposure to corporate traffic.

And then, Shane, I guess I don't want to push it too hard. But I guess longer term, you guys have been targeting, let's call it, low single-digit CASM ex cost inflation with something like mid-single-digit capacity growth, I think that's right. Has anything changed there? And can you talk to the cost synergies on the Hawaiian side? I think have those been achieved yet or now that you've rolled over to single PSS, is there more to come?

Yes. Thanks, Brendon. No update to that philosophy. I think our mindset is at middle to -- low-to-mid-single-digit growth, we should have low single-digit CASM ex over the long term. The business, as you know, it tends to take in cost sometimes in a more lumpy way when we have to like build up a brand-new fleet type with crew, we're going to have costs that sort of come into the P&L stepwise, not linear, but that's our overall thinking.

We -- I was trying to think of the second part of your question. The thing that I would also mention in terms of synergies, that was the question. We've largely gotten most of the synergies that we could go get immediately on the technology side of the business, certainly on the overhead side of the business. So there's not a huge tranche of incremental synergies to come. There is the opportunity to do a lot more optimization. As we move forward, certainly, as we bring work groups together, we're anxious to get into CBA is done. Those CBAs will come with incremental costs, of course, so there will be some additional costs that go into compensation for employees, which is great, but we will then have an opportunity to get more productive with all of those work groups as well, which will partially offset that.

So I think right now, we're sort of pivoting away from cost synergies and really focused on leaning out the overall business, both the back office and on the frontline productivity front. And that's what you'll hear us talk about going forward.

Our next question comes from Catherine O'Brien with Goldman Sachs.

Congrats Shane. I hope you don't mind, but I'll have to dig in a little bit more on Hawaii. Can you just maybe -- I think it would be helpful to understand like some color around when was the RASM drag at its maximum impact? And how do you expect the trajectory of the recovery to play out over 3 sounds like maybe no impact in September or maybe I'm reading too much into your comments there? And is there any way to just help parse out further, how much of the impact is Torus maybe booking away after the floods and how much is the ramp in seats to Hawaii from industry, maybe being a bit of a mismatch with the stable demand you talked about. I don't know if there's like information for the tourism board, you'd compare to anything. I'll stop there, a bit of a long one.

Thanks, Katie. That's an insightful question. I think the peak of it was sort of when the storms really hit, I think from the top of my head, we might even had a negative booking day here or there with just refunds and all the things that were going on. So really sort of the March, April time frame sort of the spring break was the real deep of the challenge.

I think then as you sort of moved into some of bookings, I think it caused some folks to consider, reconsider. But I do think, to your point, the acceleration or the increase in industry capacity which has far outpaced anything else system-wide domestically. But we've seen that in Latin America and look at the adjustments the industry has made to capacity today from last year.

So I think as we move forward, I think as we find the right water level in the white line, and of course, we have a lot of things on this side, Catie, when we look at our network now, we look at both sides, we look at our loyalty program. We have a lot of levers to pull the marketing machine to continue to get back to strength. And I would say, again, early days, but we are seeing as we move into full travel, a sort of change in the trajectory of bookings. July and August are going to be under system capacity, and we've shared there's going to be a couple plus point drag, but I think that's going to change as we move to the fourth quarter.

Okay. Got it. And then maybe one for Shane, on the balance sheet. Given the volatility and geopolitical uncertainty, makes sense, you raised some incremental capital there, the liquidity to the high end of your range. with the reemergence of geopolitical tensions over the last month, how do you think about when to start paying down debt? Like what are -- what's in the calculus there? And how do the coupons on the new debt compared to tranches you'd ultimately look to pay down.

Thanks, Catie. And maybe Emily can help us with the sort of pricing. I just did want to mentioned, while we have the mic on balance sheet since you asked, it was pretty cool to go out to market and get our first unsecured bond. It had a lot of interest in it. I think it's traded around par above parts, I think a really good issuance to the team did a phenomenal job.

We're anxious to start paying down debt, but we're going to be pretty deliberate a few weeks of stability is probably not long enough for us to call it, and we'd like to see it a quarter or 2 of really stable input prices and return to healthy cash flows. And then we would pretty aggressively start to pay down the debt. And we've got plenty of debt that's prepayable or expiring in the next little bit. So we won't have a problem finding ways to reduce liquidity when we're comfortable in doing so.

But maybe on the pricing, Emily?

Yes. Catie, we did see some modest increase in the coupon on this latest debt just with the interest rate environment. Overall, our weighted average debt interest rate is at about 5.3%. So that's up 0.4% from prior quarter, so a slight increase.

Our next question comes from Tom Fitzgerald with TD Cowen.

Maybe just to stick with CASMex for a minute. Just a couple of finer points. Can you speak to how much stage length is maybe flatter in CASMex in the back half and if that's expected to continue into 2027? And as well, just -- in terms of your longer-term CASMex framework, how should we think about some of the pressures on the maintenance side, especially with the way that -- if your fleet profile changes in the coming years and then some of the real estate investments you guys are making?

Yes, Tom, I think stage length is pretty stable, so it's not helping or hurting right now on the CASMex side. And I even think like aircraft density is not really doing much right now to CASMex. Maybe once these 10s really start to come in, we'll get a little bit of a tailwind from just gauge over the next couple of years.

Yes. I won't go into a lot of detail. You just named the 2 kind of areas where we've got to go work really hard to make sure that -- we're managing those 2 cost categories closely and also finding other areas of the company we can lean out and further optimize in order to support costs that we know we have to bring into the P&L over the next couple of years related to maintaining the LEAP engine fleet, and that should start in earnest sometime next year. And then the airport story is a story I think that's very consistent with the entire industry, and we've been talking for a couple of years.

Most of the big, big programs are now finished. They're beautiful spaces, by the way, I think we have some of the best airport spaces in the country for our guests across all of our core hubs. And it's nice to see all of those walls opened up. Now we get to start paying for it. And that's going to be with us through the end of the decade here, and we've got good line of sight to it. And so I'd just go back and remind that we do have a job to go make sure we lean out other parts of the company to be able to bring these on in a way that keeps that CASM trajectory where we talked about it a couple of questions ago.

And Tom, on the maintenance side, it's definitely going to help between 700 and some -- what's about 30 airplanes. These are 30 airplanes, at least 25 years old, that will have a huge benefit in the next couple of years.

Offsetting the increase in the leaps, it's a good point. Yes.

Okay. That's really helpful. And then just as a follow-up, I was wondering if you'd mind just providing like a teaser trailer for Investor Day. Why now? Why is it the right time? And what should investors be thinking about? I mean, is it -- should we look for more like a mark-to-market report card on Alaska accelerate? Should we be thinking about new initiatives? And I think Ben used the phrasing it structurally capable of producing $10 in EPS and I don't know if that's -- I'm reading too much into it or if that's any change in the verbiage. But thanks again for the time, look forward to Investor Day in September.

No, Tom. No, thank you. We thought it was just time to bring everyone in to give you an update exactly on where we are with Alaska accelerated. There's been a lot that's happened in the last 12 to 18 months. And I think it's time for us to show structurally where the company is, where we're going. There are going to be new initiatives. And everything that we've done to really position the company for stronger earnings in 2027 and beyond.

So we're excited to show it. And I think you'll see from the momentum we've seen in the second half of the year, I mean just to remind everyone, we've lost almost $500 million in the first half of the year, which we don't like. But the second half of the year is going to be a complete mirror image of what's happened in the first half for us. We're going to pretty much reversed that loss and that momentum is going to continue into 2027.

And at Investor Day, we just want to bring all these things together to give you a view of what the future is going to look like because so many things have happened at Alaska in the last 2 years. So it's going to be exciting. It will be at our new global training center, which we're going to love to show off. But I think it's going to be a great day for everybody.

We'll move next to Michael Goldie with BMO Capital Markets.

Can you walk us through how you think of the runway for Atmos and card penetration? Is there a natural share of passengers that you believe can become members versus today? and how you think about card penetration among your passengers and active members over the longer term?

Yes. Thanks, Michael. We see continued increased penetration in both loyalty members significantly, and I'll talk about that in a moment. And then obviously, the credit card, you heard Ben talk about the premium credit card, we have and we'll talk about things at Investor Day and next year. There's some exciting loyalty things we want to share. But with the stallink and the power of that and the sign-up process, bringing on new members through that just like other carriers have done, we found that as an amazing fuel to help grow our loyalty program.

But in general, I think, as we talked about scale, relevance and loyalty in our hubs and in our international and especially Hawaii, and we're already seeing it. We continue to expect and believe that there will be increased penetration of loyalty members on our aircraft, and that's because of 2 things. Number one, the richness and the change in the program, which have been awesome. And then secondly, just the growing scale and relevance of our network to our customer base, both domestically and globally.

And then can you -- you touched on it a bit at the top of the call, but can you give us an update on how the international routes are performing. But more broadly how you think of the margin contribution of these new routes as they ultimately start to mature and move past up the start-up phase?

Yes. I mean I'm not just saying this, but we have been very excited about the initial reception of our European launch. If there was any doubt that Alaska Airlines was going to be a relevant and powerful player in this market. There is no question from what we have seen from day 1. And I think even Rome and you put that down to normal fuel and all the rest of it would actually have been profitable.

The other thing I would share is that, we're sort of just in the first round, some of these new markets, especially London and Rome, others have been selling them 330, 340 days of the year, and we came in late in the piece there. And we're also seeing -- just to be honest, on the Incheon and the ride markets. What I'm seeing is year-over-year, significantly higher booked load factors year-over-year. So the international machine is just getting going, point of sale in the U.K. was turned on recently. So we're very excited about where we can take this and as we continue to grow it, quite frankly.

We'll move next to Scott Group with Wolfe Research.

So just curious where you think you're at in terms of revenue synergies this year and how you think that -- does that accelerate similar number next year Ultimately, what I'm trying to figure out like we still have a few reports to go, we're towards -- it feels like we'll be towards the lower end of RASM growth with credit card and broader synergies, I think the hope was to be towards the better end, I just want to understand like Hawaii has gotten a lot of airtime, like is the entirety of like the delta you think Hawaii? Or is there anything sort of else going on?

Yes, Scott, thanks. This is Shane. Well, one thing -- first of all, we scorecarded all the synergies, they'd be all green across the board just because the fare environment has gone up so much. And when you get the type of step change in the pricing backdrop that we've experienced and everybody else has experienced you got to be careful to declare victory too early. So all of the categories that we had wanted to unlock in terms of synergies, that's what we've tried to speak to in the prepared remarks. That's what we've been trying to speak to in the Q&A. Those are all working really, really well and continue to be the areas of focus.

And so network connectivity, some of the scheduling things we did around banking. We're seeing great catchment area pull over Seattle into Asia. We talked about that at our Investor Day a couple of years ago. I can't remember the exact stat, 20% or 25% of our passengers are actually coming from the Midwest and locations that are not core in our network on the West Coast because Seattle is such a great place to transit -- to go to places like Asia.

Andrew just spoke to the success of international on a fuel normalized basis, we had strong margins in a couple of the new Europe markets. We had reported in the first quarter profitability in one of the Asian markets, the premium expansion that we've talked at length about the launch of a brand-new loyalty program, which is now just crossing over its first year with, I think, 3x as many premium credit cards in circulation as we expected. So like all of the areas on loyalty and premium and the network sort of value of this, we feel incredibly good about more confident in the future than we even did when we did the transaction.

Yes. So I think you're right, like our goal is to ultimately close our GAAP -- our RASM GAAP to the legacies, which means we need to beat them over time on a unit revenue basis. And we're focused on doing that I think the areas we believe that they are performing us are premium and international, which is they've got 10, 15, 20 years of head start on us, and we're going to catch up and it's not going to take us 10 years to do that. And we're already seeing that happen today. And so we're excited about the rest of this year and certainly next year and the year after as we get to mature all of these investments and really start to harvest the value from them.

Okay. Helpful. And then just one more, just like really like quick short-term thing. Just you guys have more fuel volatility, I think, than just some of [indiscernible] like what do you like paying today on fuel, just give a few of the spike. I just want to get some sort of sense.

Thanks, Scott. More than yesterday, a little bit. I'm not exactly sure what it is today. I can tell you our last spot prices, like I think we said it in the prepared remarks, $3.85. I think that was end of last week pricing. We were at for reference $3.08 when we walked into this month, so less than 20 days ago. That's how quickly it's moved. And I think that's how quickly it could move back down. So anyhow, that's what we paid last week. And hopefully, it turns the corner here soon and goes back the way it was going before and that would make all of us extraordinarily happy.

We'll move next to Andrew Didora with Bank of America.

Andrew, I think you said that your June RASM was up 11%. So when we think about the third quarter RASM guide of up low double digits when you factor in sort of the booking curve dynamics and kind of your September yield commentary, why wouldn't 3Q RASM be above June? Any headwinds we should think about there?

Yes. What I can tell you sitting here today, Andrew, is that the sequential year-over-year improvement in July and August and September continues on from what we saw in June and a little higher and continuing to grow. So we are in a good upward trajectory as we continue into the third quarter.

Which is to say Q3 should be above June.

yes.

That's our expectation.

Okay. And then just curious, I know there were some questions with regards to the international route launches I think we see international growth at like 30% to 40% in the next several months. Just curious what that RASM kind of headwind would be because I know I guess, RASM headwind and CASM tailwind would be just because I know they come with lower or both.

Yes. I think just on a pure resin basis, maybe it's a couple of points. So -- but to your point, it affects both sides of the equation. But as Shane has already shared, for the rest of the year, 100% of our growth is long-haul ASMs, which are going to sit around about 8% of our total capacity equation.

I think there's probably a mismatch in timing though. I think on a normalized basis, yes, you run 5,000 mile stage lengths, you should get a help to CASM in sort of a small headwind to RASM. But we're in the build-up stage of this on both sides. So RASM should get better over time and CASM should improve over time. So my guess is we're upside down on that. long-term equation, Andrew, as we sit here today, and it should improve as we move forward from here and certainly as we build more scale out into the international markets. So I think these just get better from here is my point on both sides.

Thank you, Andrew, and thank you, everybody. We hope to see you in September at Investor Day. Thank you for joining us.

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

All right. Awesome. Good morning, everybody. Continuing with airlines here at day 2 of TD Cowen's 10th Annual Future of the Consumer. We're delighted to be joined today by Shane Tackett, Chief Financial Officer for Alaska Air Group.

Shane, thanks so much for being here with us. Before we get into the conversation, any opening remarks you'd like to make?

Oh my gosh! Just excited to be here with you guys this year and looking forward to like a nice little Q&A session this morning, and I can't wait to talk about the company, how we're doing now and how excited we are about the future as well.

Awesome. Let's get into it. Maybe before we dive into some of the long-term stuff, just get some of the near-term questions out of the way. Investors are obviously very focused on how travel demand is holding up in the face of higher fuel. You guys gave an encouraging 2Q unit revenue outlook underpinned by strong domestic yields, accelerating corporate travel and your growing international franchise and robust loyalty engagement. How has the quarter been tracking since April?

Yes, pretty much in line. So all of those things that you just mentioned are -- we're continuing to see good trends on each one of those. We -- I think, Tom, we had this transitory issue with Hawaii, the state of Hawaii. They had storms that were probably the worst they've had in 30 years in flooding, and that had a significant impact on spring break travel in sort of early -- late Q1, early Q2 that did make its way into April and a little bit of May.

But we look closely at how we're doing versus everybody else. And if you take Hawaii out of the mix, and it is starting to recover, we look to be sort of on trend or even in some cases, better than the rest of what we're seeing in the industry. We've seen advances for corporate travel be very, very strong. I think the next 90 days are plus 25% to 30% year-over-year.

And I'll probably get into more of what we're seeing on the loyalty side and the international launch side of the business. I'll find a question that you asked that I can get some of that detail into as well. But those trends you mentioned are all in play still, and the summer is going to be a strong summer.

That's great to hear. Is corporate broad-based? Or are you seeing any particular industries, tech or aerospace or...

Yes. It's relatively broad-based. There's always some hiring and some layoff activity in the tech industry up and down the West Coast that continues. But we've seen good return to travel from tech, from Boeing, from other large Seattle-based companies really across all of the businesses that we cover.

Awesome. So unit costs have been a little more elevated in the first half of the year, but a lot of transitory factors. I think it's about 3 or 4 points of headwind in the second quarter. Are you still feeling pretty good about CASMex decelerating into the back half of the year?

Yes, for sure. I think our cost profile, and we spent some time on the call talking about this. It's very much in line with what we anticipated. I think we don't give the same level of detail as we used to on guidance. And so I think some of the folks who model us had a slightly different number in there. But our costs are performing as we expected them to.

We had some things in the first half of the year like needing to ramp up our crew complements for all the international flying. We were launching out of Seattle this summer, which is now launched. That is -- those are COGS that will now be in the base and with us the whole time, but we'll have the benefit of the flying as well.

We have -- we're crossing over in the second quarter, the sale of a bunch of airplanes last year, which gave us onetime gains into the P&L. So there are things that are not core or structural that are giving us a year-over-year sort of percentage challenge. But the core cost structure of the company, I believe, remains 12% to 13% better than those of the legacy carriers. That's give or take, our target.

So we'll close the RASM gap to them, but we'll maintain a really strong cost advantage structurally over time against the legacy folks. And I think that's the way the business is performing. And we expect a nice exit rate through the year, which we saw last year. And I think folks were skeptical last year, but we delivered what we had said we were going to deliver last year, and we'll see that again this year.

That's great to hear. Fuel has obviously been a roller coaster this year. And any comments on just fuel and some of your key benchmarks quarter-to-date? And then maybe just remind us on some of your longer-term initiatives on building more infrastructure and storage solutions out West.

Sure. Did you want to use the rest of the 30 minutes on this topic? Or do you want like the 3-minute version of this? Yes, it's been really volatile, obviously, not only on the price side, but just the supply side, making sure that we didn't feel like there would be any shortages. And it's, I think, as stable as it has been since mid-February, early March as we sit here today.

I think spot prices, which we're not seeing in the P&L yet, there's a lag, but I think spot prices are sub $3.80 as we sit here today and coming off the highs of $5. And then they were pretty sticky at $4.50, $4.60, $4.70 through the latter half of the second quarter and the first half of -- sorry, latter half of the first quarter, first half of the second quarter.

So that's good. We're seeing that the pricing start to abate. That's really not on the crude side. Crude is still relatively elevated. As you guys know, I think it's up a bit this week, but that's -- the refining margins have come way back down to like what we would consider more normalized. We were seeing $3 refining margins in Singapore. We were seeing almost that pricing in Gulf Coast and West Coast.

I think the last thing I saw Singapore is $0.90. Gulf Coast is right around there. And West Coast is a little bit higher than that. But I think all in, $3.80, $3.85 today. I think the quarter we had guided to $4.50. We need to see the current pricing stay like where it's at or get better to be able to hit the $4.50. Mathematically, there's a chance, but we're certainly in the books in April and May over that number today just because it's taken a little longer for the price to abate.

But I think that is feeling stable and trending in the right direction, subject to whatever happens geopolitically, right? For what it's worth, and you're probably going to ask me and we can talk more, I think the tickets we're selling today are probably covering spot price of fuel in their entirety.

Oh that's great.

As we sit here today. In terms of supply longer term, I'll be super brief. I think -- and we're always -- we wish this weren't the case over time, but it remains likely to be the lowest cost source of Jet-A for us is shipping it in from Singapore to the West Coast. We certainly supply Hawaii from Singapore, and they have done that for a long time. And they've enjoyed a $0.25 to $0.30 pricing advantage for doing that. And so as long as that holds, we'll look to do more of that type of supply.

We would love it if the price of our oil that's produced in the U.S. was below that of which is produced in Singapore and Asia. And I think the big hope that we have over time is to be able to supply the Seattle station differently than we do today. But this stuff takes years to get in place. But I think there's a growing consortium of folks, who are interested in working with us on getting more supply into Seattle.

That's great. More good things to come. So you guys have completed most of the integration milestones related to the Hawaiian acquisition. I know it's probably hard to quantify, but how should investors think about the benefit just from management's strategic focus getting fully back on the day-to-day business?

Yes. It is probably -- I mean, I don't think Ryan puts any of this in his spreadsheet, but I can tell you the -- having done this twice now, what we believe we're really good at is running an airline. I think we understand how to create optimal outcomes from an operational perspective, balance that with the cost side of the business. And I think we've been pretty responsive to the desires and taste of our guests over time.

And that's really what we want to be working on. We knew we were undertaking a lot of additional work with the integration. We kind of knew those playbooks. We've gotten through single operating certificate, single loyalty, single selling and now PSS. That's the big one. That's the one that gets all of the friction out of the way from consumer. And so the -- and we talk about this internally, we're moving from peak friction to peak execution.

And give us a quarter or 2, we'll get back into full execution mode. We expect to optimize the business further to lean out the cost structure further to go get the value from the investments we've made on the premium side of the business and to really enjoy the combined company, the 2 brands and the success, I think, that lies ahead for the companies.

I think that's a good segue into maybe more strategic long-term questions. Airline industry is notoriously difficult to survive in, but Alaska recently celebrated its 94th birthday. Congratulations. Scale, relevance, loyalty played a big part in your success over almost a century. Can you talk about how the Hawaiian acquisition enables you to deepen scale, widen your relevance and drive accretive growth and loyalty?

Yes. For sure. I appreciate the question, too, it's more like longer-term focused and sort of strategic over a number of years. One thing I won't belabor this, I'm going to get the stat wrong, but our prior CEO, Brad Tilden, often talked about when he started, I think we were the 27th largest airline in the country, and we're the fifth.

Now -- and at the time, I don't think we had actually leapfrogged anybody. They just went away. And so that was kind of the history of the industry, sort of heads down, run a good business, understand what drives the economics and consumer choice and just sort of focus on that. I think the industry, as it's situated today is as competitive as ever, but also is in a phase of being able to invest in its product in a way that wasn't the case when I started in the industry in the 2000s when product was being taken off lanes.

And that's what's been so exciting about the last several years for many of us in the industry. We get to go reinvest in experiences for our guests across all of our customer segments in every seat in the aircraft. The Hawaiian acquisition and the bringing into the family, the Hawaiian brand, it just made to us all the sense in the world. We needed more scale. I think scale is going to be an important feature of successful airlines over the next 10, 15, 20 years.

It was in a geography that we had more than 10 years of experience serving. We understood our guests' desires to vacation in Hawaii. And that had been a strong source of durable profitability for the company for a long time. That was impaired a bit when some others chose to come into the market. And it gave us a chance to go and become the carrier of choice not only into Hawaii off the West Coast, which we are, but also amongst resident Hawaiians and all of their flying. There's quite a bit of flying they do anywhere they go. They have to get off the island, whether it's between islands or certainly back here to the Continental 48.

And we're starting to see that. We're starting to see the loyalty accrue back over to the Hawaiian Airlines brand and the Alaska Air Group network. And just as you -- I mean, this is pretty simple airline economics, like if you were flying off the islands before the acquisition, you were terminating at whatever place you landed, you had no chance to continue on, and we can now connect folks.

And so people who are vacationing to Hawaii and Hawaii and out of California, we were flying somebody else for all of the rest of their trips. And there's a huge opportunity for us to go get all of that flying into our network now, given not only our network in the Lower 48, but the American Airlines partnership that we have, which is really a strong partnership with great connectivity around the country and so, if those 2 things entry like into the WCIA with American, the acquisition of Hawaiian, the connecting of these 2 networks. It's a premium market. It's a premium-oriented market.

It fits everything that we felt you'd need to be able to say that you were able to go incredibly do to have a viable business model in the future of the industry, which is scale, is premium orientation that generates the ability to get people off of other airlines and on to you for flights they're already taking. And that is -- was the thesis of the acquisition. And honestly, I'm trying to go through all the math, it's proven out as we look at sort of the post-audit on all of the stuff, it's working really well.

Yes. So at Investor Day, there was a lot of various initiatives that you outlined. I think the team targets about $400 million in incremental profits on the network side, about $175 million of those from acquisition synergies. Would you just maybe dig into the network flywheel of the deal creates a little bit, whether it's opening up long haul out of Seattle, the Portland becoming more of a connecting hub, enabling some growth in San Diego and then just adding the premium market in Hawaii. I would imagine a big redemption market for some of the West Coast travelers.

For sure. Well, you sort of named them, Tom, but I'll repeat kind of what you said. Let's start with Portland. Portland is an amazing market for us. I think we've been the largest carrier there for the entire time I've been at the company. We want to grow Portland further. We're going to grow Portland further. We just opened this week a brand-new lounge down there. It's amazing.

They did a big, big overhaul of the lobby experience and the gate experience in Portland. It's one of the nicer airports that you could possibly go through. It's also really good for connecting traffic just operationally. It's less constrained than Seattle. So I think our Portland connections are doubled today versus last year, which is probably faster than we had anticipated. And that just says we need to put more nonstop flights in and then bring more connecting traffic through.

The big unlock with that is a better customer experience if you're coming out of Boise, you say, it doesn't matter if you go to Seattle or Portland. It's a great airport, really quick connections. But that allows us to open up space in Seattle, which is more constrained to take connections for international flying, which we've been really amazed at the amount of connectivity that we've drawn through the middle of the country through Seattle to Asia, for instance and then to recapture local customers who are probably spilling to competitors today.

And I think we've talked about that being -- the growing thesis is that's what we need to do. We need to upgauge Seattle, get more of the local folks back. Every time we do go supply the market with more seats, we see people come back to us that we were probably spilling to others. And we got to keep those connections open to fill the wide-body aircraft.

And so that network sort of thesis is working really, really well. San Diego, I think we saw an opportunity to go into a market that looks like a market that would really appreciate what we have to offer and bring the way that the Northwest does. And it just -- the demographics, they just feel a lot like the type of guests that are naturally attracted to us. It's been really fun to watch. I mean we've put more capacity in there more quickly than I think we've put anywhere in the recent history of the company, and it's doing quite well.

I mean it's going to take time to mature. But if you just ran the math of this much capacity versus what it should do to unit revenues, you would have thought it would have done appreciably worse, and it's actually holding its own. So I think the products, the brands, what we're bringing to the market, the loyalty program is the fastest market -- growth market for loyalty and credit card sign-ups that we have in the network today, and we're excited about what we can do with it in the future.

And I think the only other thing I'll say, where you really want to see the benefit of network effects is loyalty and loyalty cash remuneration even before the new bank deal. And certainly, volume growth in both just membership and credit cards are 12%, 14%, 15% year-over-year. And I think we're going to continue to look to have double-digit growth rates as we go forward. There's a lot of remaining opportunity in the new loyalty platform, which we've named at most.

Would you remind us where you see Seattle going in terms of being a global hub by the end of the decade and just your 787 order earlier in the year?

Yes, yes. And we -- I think very early on, put a bold vision out there, 12 cities served by 2030. We have line of sight to 17, 787 aircraft by 2035, great order book with Boeing. Hopefully, all of those aircraft are Seattle originating. There could be uses for those aircraft out of Honolulu as well. But yes, 12 cities, it's going to be the places people want to go.

If you look at our initial composition of traffic, it's pretty remarkable. Tom, like London, I think, is 70% loyalty members out of the gate. And Rome is 55% or [ 70% ] loyalty members out of the gate. Reykjavík is 55% or 60%. Asia is 30% or 40%. I actually think those numbers are like interesting. On the one hand, it tells us we're taking -- we're making the right choices like this is where people wanted to go, and they were going to go on somebody else because we didn't have a way of serving them. But it also says there's a huge opportunity to go get new customers into the fold.

Like I actually would like to see those numbers a little bit lower because I want new people who don't know us coming in, and they are. It's just so many of our members want to take these flights now. So I think it's been encouraging. The Asia stuff I mentioned before, the connectivity we're seeing out of the middle of the country through Seattle. I mean we've long talked about it's the least [ secure test ] route into Asia over Seattle.

So we have an opportunity to continue to attract folks into the loyalty program and really earn their loyalty over a long period of time. And I think we're in the midst of rolling out Starlink on every one of our flights. It will be free, but you will have to become a member of Atmos to get it for free. So that will be a nice new hook to get on the loyalty journey with folks that aren't with us today.

Yes. It's a nice care and stick. Looking forward, still haven't been on Starlink's life, but looking forward to it.

You've never taken one.

No, not on Starlink.

You can go find. Find a plane with it and do it. You'll love it.

Put on the docket. Yes. So loyalty was another big component of Investor Day, and you raised the bar on your targets recently with the new credit card agreement. It leaves an incremental $1 billion in remuneration by the end of the decade.

Could you just walk us through some of the drivers of upside in loyalty, whether it's a single program with Hawaiian, in group scale, the new economics on the agreement you just announced, things like a new premium credit card and things like that?

Yes. Yes. I think there's really significant upside. In fact, we're going to have an Investor Day in September. I think we mentioned -- I think we announced that or something. And this should be one of the clear focus areas that we take you through. If you recall, when we announced the synergies with respect to the acquisition, we sort of backdated a lot of loyalty.

Loyalty actually wasn't that large. There were some like initial benefits of bringing the 2 programs together. But now that we have the single loyalty platform, we've got the premium credit card out in the market. We've got the new bank deal in hand. Now we can really start going and growing the platform at the rates and with the value that we think are available to us.

We are seeing and we would love to see more the credit card move towards top of wallet in some of the key markets that are new to our network in terms of the depth that we have there like San Diego, certainly in the state of Hawaii, I believe 70% of the adults are now members of our program and many of them have the card. The credit card I think it represents 6% of the local GDP than in Hawaii. I think there's an opportunity to continue to grow how much folks are using our credit card.

I believe -- I mean, we're convicted about this. We routinely receive recognition for being the best loyalty program, the most value back to consumers and guests across the industry. And I think that's happened multiple years in a row. And this -- the Atmos program was recognized the same way when we launched it. And so we'll continue to invest in things that are good for guests and then watch the value sort of accrue over a period of time with respect to loyalty.

But we expect further penetration just in terms of growth of loyalty folks. We know those folks are more likely to fly with us and give us all of their flying or most of their flying. And then obviously, the credit card is a huge sort of exponential growth driver in terms of the economics that come from the loyalty program.

And the new deal with the bank, I think, for the first time, really puts new incentives in for us to jointly grow the program together, and Bank of America has been a phenomenal partner. One of their strategic imperatives that they announced at their Investor Day is loan balance growth, which is going to require them to be working with us to grow our part of that pie as well since we are their #1 co-brand partner by a wide, wide margin.

So there's a lot of incentives that are now completely aligned between the 2 companies to go and drive this. The last thing I'll say, there's other areas like we would love ultimately for the proprietary cards that our bank partner provides to be able to convert to points and redeem. And I think those types of things are all opportunities for us under the new contract.

That's really exciting. That's a fascinating stat on being 6% of Hawaiian. I think, it's like $125 billion.

Yes.

How do you think about designing the program to widen appeal beyond some of your core stronghold in the Pacific Northwest, especially given some of the geographic advantages that channel has as a connecting market?

Yes. I love this topic. We have 12 minutes. I'll spend like 30 seconds or a minute on this one just because we need a little time to really build this out. But what your question kind of speaks to is we have an underlying belief that if we build the Atmos platform the right way, we can attract other partners from non-air parts of the travel ribbon that would be very compelling to a broadened customer base that doesn't have to geographically reside in our core markets.

And I mean, it's not completely unchartered territory. Maybe it is a little bit for airlines, but we've specifically designed this in a way to give ourselves the flexibility to go partner with, say, a cruise line to give folks better -- more redemption opportunities and broaden the appeal of just joining the program as well.

And we -- like we've toyed with ideas, smaller partner airlines could Atmos be the currency for their loyalty program as well. These are all like sort of ideas on the whiteboard that we haven't had a chance to execute on or really go and look at too closely, but it's now what we're starting to think about since we're past sort of PSS and able to go focus on the future more.

But I think we won't talk a lot about this until we feel like it has real value coming into the P&L, but we're certainly going to go explore those opportunities, and we're relatively optimistic that there are going to be value drivers that we can do with those types of partnerships.

Yes. No, for sure, it seems like a lot of white space there for you guys. I think loyalty dovetails really well with the secular strength the industry has seen in premium demand coming out of the pandemic. I think I have this -- correct me if I'm wrong, but you've grown premium revenue from 27% prior to COVID, 33% before the Hawaiian deal. Now I think it's around 36%.

Maybe just walk the audience through your longer-term premium strategy and how maybe things like your stage length and just your geographic core strongholds really help you lean into that.

Yes. You help me by giving all the stats. I don't have to remember them. But this is -- and look, I think it's broader than airlines. Airlines, it gets talked about a lot, but I think the sort of the consumer move towards premium experience is beyond just the airline experience alone. So we're following, I think, a very broad and durable and we believe, long-term trend of consumers wanting better experiences.

And I think we've -- we started this journey with premium economy. We've always had first class. That's always been part of our product set. It was mostly an upgrade product. And then we put premium economy in, which we call premium class 10 or 11 years ago, something like that. I may have that slightly wrong. But we were more focused on just delivering a really consistent experience across the entire aircraft, and we weren't investing more of the experience into those cabins.

And I think that's what we have started to do, and we've started to see it really provide strong returns for us. I think all of the revenue growth on a year-over-2 basis, year-over-3 basis has really come out of the premium end of the airplane. That's where most of the new demand is coming. So existing demand plus a lot of new demand is to be in premium economy or first class or lie flats on international products.

And so we've improved food and beverage. We've improved the soft product. We've expanded first class on our 800 fleet. We've expanded premium economy on our 900 fleet. We have begun to sell our exit rows as a premium economy seat product. And then we will remodel the A330s and the 787s in the next few years to get a traditional international premium economy section into those and the A330s need more modern suites upfront as well.

I think 33%, 34%, 35% of the seats for us will be first class or premium economy or lie-flat. That seems to be what we believe the sweet spot for us will be. I know some are slightly over that, some are a little bit under, but I think that's kind of the target that we're headed towards. And I think much like some of the stronger airlines you're seeing right now, the share of revenue that's outside of Main Cabin, I think we're over 50%, and we'll be moving towards 60% over the next couple of years.

I think that's going to be the largest sort of underlying margin driver, margin expansion driver that we can unlock, and we're well underway executing initiatives to do that. Yes. And then the last thing is just we've done a ton of work on the airport experience as well. Seattle is now starting to pull construction walls down. It's a beautiful sort of remodeled lobby that we have.

We have a suites check-in area that is as good as any you can find in the industry that's private for folks who are flying international lie flat or who are titanium on us. We've got a new lounge that's going to open next summer that's going to be world-class as well. And yes, I think this end of the market is one that we're going to pay a lot of attention to, but not forget about the entirety of our customer set and making sure that there's a good experience for everybody.

How do you think about that from a capital allocation standpoint balancing? Obviously, with the fleet, very cap intensive, but just also the importance of the nonaircraft side, whether it's in the lounges or technology or cabin retrofits?

Yes, it's a good question. Look, I think the lounge experience is as important as -- I mean, the flight experience on a long-haul international flight is really important. But I think what we tend to see is folks who are going on those flights start their trip in the lounge. They're there a couple of hours early. They like to like relax sort of get in the mindset of going away to Europe or whatever.

And I think that they're becoming more choiceful about what types of lounge environments want to be in. And I think we are clear-eyed about that, and that's why we've been going through a series of remodels of our lounges, where we've completely overhauled our food and beverage offering in the lounges. We brought in outside partners who do this really well, who we've just started in Anchorage, and we're going to bring them through the rest of our lounges.

It's just -- I think that cannot any longer just be a space that's away from the hold rooms, where people just go and sit in sort of a generic environment. They really want it to feel nice and comfortable and premium. And so that's the type of experience that we are going to give them.

And then I think like Thomas, you know, like it's more important for us to be able to deliver on the premium experiences in the airport and have a good experience for all of our guests and certainly in premium economy and first class domestically, if we're going to capture the folks who are buying lie-flat tickets to Europe. And once you buy lie-flat ticket to Europe, you're likely to give all the rest of your flying to that same airline just because of the loyalty effects of -- for status and for accruals, it's so large on those tickets. So it all fits together as my point. We had to do all of this end-to-end in order to make international work as well as we need it work.

Yes. And then I think you mentioned the retrofits on the A330s at some point. You guys have been, I believe, also on the 737 fleet. Would you remind us how that's going and then the benefit of that government?

737 is done. I think there's -- I'm not allowed to say completely done. There's a few aircraft that are going to go after the summer, but we're 99% done. So again, expanded first class by 4 seats to 16 on the 800s and expanded premium economy by [ run row ] on the 900s to 30 seats now. And then we added selling the extra rows as premium economy. That's all complete. And then the 330s, 787s, those will be like a 2028 type of item.

Okay. There's been a lot of noise outside of your control over the last -- this year or last year that has impacted the results, and you've been going through the integration process. But it just seems like there's a lot of leverage in the model that can be unleashed if some of the events -- some of the macro and the fuel stuff normalizes and then you start to harvest the benefits from the acquisition. Would you just maybe kind of walk us through how investors think about that over the long term?

Yes. One thing I would share is the -- when you get these types of unexpected, but very material shocks to your business, you sit down and you look at all of the strategies that you've adopted and invested in and had been convicted on and just make sure that those are the right strategies.

I mean it's incumbent on us to do that. And we got a chance to do that leading up to a Board meeting we had here in May. And I'll tell you, we came out more convicted perhaps than we were even 6 months ago that all of the things you would say you need to be doing to build a long-term durable, strong financial model at an airline are the things that we're doing. And we couldn't be happier with the timing of the Hawaii acquisition, the results that we're seeing, notwithstanding this kind of like 30-year storm pattern that they got, all of the loyalty and network effect that we've already talked about. And then while we're in the middle of delivering on it, I think we got going on this need to go put more premium into the market a few years ago. And so we'll get through that quicker than others who are now play catch-up, we'll be through it.

And so with PSS behind us, if we can get the world to settle down a little bit, and we get to go focus on really optimizing this airline and really running at peak execution, the underlying earnings power is there. I think all the right strategies have been deployed, and I think execution is now getting closer to the end than the -- and so we're excited about a period of stability.

And look, and others have said it, it's like any of us who've been in this industry a long time, there's a -- I think what we're seeing is durable demand as long as the economy holds. People want to go travel and they want good experiences when they travel. That's been super clear since sort of the revenge travel out of COVID, and it hasn't abated.

There's no reason to think it will naturally abate without -- with a strong economy behind us. And so I think there's a really good chance that input costs normalize, and we have a really strong revenue environment, and there's a very, very healthy business there if that sort of is what prevails in the next quarters or so.

Absolutely. We're almost up on time here. Shane, I really appreciate you being here with us. Any closing remarks you'd like to make in less than the closing seconds?

Yes. I think, Tom, I just -- I appreciate the question set. I do think it's easy and normal for us to get very hyper-focused on the news of the day, and there's always so much news of the day. And I think you'll see us continue to talk about the investments we're making in the future and the future is not 10 years away. It's within line of sight. It's going to be here relatively soon.

Everything we laid out at our Investor Day, Alaska Accelerate, those are the right strategies. And you're going to hear us increasingly be convicted about we are doing the right things. We're executing those things well, and they are going to show up in financial results sooner rather than later.

Awesome. Well, Shane, thanks so much for being here. Really appreciate it. Thanks -- to Shane Tackett, CFO of Alaska Group.

Thanks very much for having us.

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2026 First Quarter Earnings Call. [Operator Instructions] Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question-and-answer session for analysts.

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

Thank you, operator, and good morning. Thanks for joining us today to discuss our first quarter 2026 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call.

Air Group reported a first quarter GAAP net loss of $193 million. Excluding special items, Air Group reported an adjusted net loss of $192 million. As a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release.

Over to you, Ben.

Thanks, Ryan, and good morning, everyone. To start, I want to thank our more than 30,000 employees across Alaska, Hawaiian and Horizon for their continued focus, professionalism and commitment to taking care of our guests through another unpredictable start to the year. The operating backdrop shifted rapidly this quarter. Sharply higher fuel prices, driven by geopolitical events created uncertainty across global markets and meaningful pressure on the airline industry. At the same time, our network faced more disruption than normal from once in a generation rainstorms in Hawaii to civil unrest in Puerto Vallarta. Through it all, our teams have demonstrated remarkable resilience. The response day in and day out remains the foundation of our performance and the long-term success. While these events created close-end challenges, we remain convicted and excited about our strategy in the future we're building at Air Group as we continue to unlock the initiatives we laid out under Alaska Accelerate.

Throughout our history, we have leaned into periods of disruption to strengthen the company. After the 2001 downturn, we built a transcontinental network. Coming out of the 2008 financial crisis, we established our Hawaii franchise. And most recently, following the COVID pandemic, we acquired Hawaiian Airlines, secured more than 50% market share in Hawaii and launched long-haul international travel out of Seattle. Each of these moments shaped who we are today.

The near-term pressure facing the industry today is real. Fuel costs were more than $100 million higher in the first quarter, and we expect incremental fuel cost of $600 million or more in the second quarter. That represents approximately a $0.70 impact to earnings per share in Q1 and over $3 in Q2. Offsetting some of that pressure is a strong demand backdrop with fair increases holding. Andrew will share more in his comments.

Importantly, our position of strength allows us to manage through environments like this while continuing to build long-term earnings power. Today's backdrop reinforces why we designed Alaska Accelerate the way we did, to create a structurally stronger more diversified and more resilient airline capable of delivering value across cycles for our owners, employees and guests. Scaled relevance and loyalty with an emphasis on premium experiences and international travel remains central to that foundation. And while fuel volatility may dominate near-term headlines, the initiatives most critical to our trajectory remain firmly within our control, and we will continue to execute on them because it is the right strategy.

Now turning to the business. We continue to make meaningful progress on Alaska Accelerate, advancing our priorities and not standing still, even in a challenging environment. From an integration standpoint, we've completed preparations for our single passenger service system cutover, our final major guest-facing milestone. Beginning tomorrow, our systems will operate on a single platform, eliminating the friction of a dual environment. This is a significant moment for Air Group. We're moving forward with our combined and globally expanding network, an award-winning loyalty program and premium offerings across our entire fleet. Along with the PSS cutover, Hawaiian Airlines has officially joined oneworld, expanding benefits for our loyal guests in Hawaii, attracting new oneworld guests onto the Hawaiian brand and extending our global reach to meet the full range of business and leisure travel needs.

Our network continues to grow as we connect our guests to the world. We launched Rome next week in London and Reykjavik later this spring, all tracking toward full flights. I cannot be more excited to see the Alaska brand set foot in Europe for the first time in our 94-year history, marking a major milestone in becoming the fourth global carrier in the United States.

At the same time, our premium and guest experience continues to improve. Premium retrofits on our 737 fleet are now more than 90% complete, increasing our share of premium seats across the network and driving higher premium revenue. Our entire regional fleet is now retrofitted with free Starlink WiFi and Boeing 737 installations are underway, further enhancing our end-to-end guest experience. Guest satisfaction has already improved 15 points across all Starlink equipped aircraft and nearly 30 points on regional jets.

Another core pillar of Alaska Accelerate, our loyalty platform continues to gain momentum. We recently agreed to a multiyear extension with enhanced economics and a deeper partnership with Bank of America, supporting continued growth in our loyalty ecosystem and reinforcing loyalty as one of the most powerful earnings drivers in our business. We're also pleased to have reached an agreement with Amazon that eliminates losses under the legacy Hawaiian terms and creates mutual value as the relationship evolves with still more to do.

And finally, despite winter weather and severe rainstorms in Hawaii, we delivered the industry's #1 on-time performance in the first quarter, along with very high Net Promoter Scores, another indicator that integration friction is in the rearview mirror for Air Group. Collectively, these initiatives are reshaping the composition of our revenues and making our business more durable. Today, more than half of our revenues come from outside the main cabin, driven by premium products, loyalty, cargo and ancillary streams, and we expect that share to keep growing.

To close, Alaska is operating from a position of strength. We have a healthy balance sheet, strong liquidity and a fleet and network that provides flexibility as conditions evolve. I want to reiterate my confidence in our people, our strategy and our future. We are navigating this environment with discipline, clarity and purpose. The challenges we're navigating today do not change our longer-term trajectory our ability to achieve a $10 EPS target or remain a top margin producing airline. While the path is rarely linear, the direction is clear and our conviction in where we're headed has not wavered. Airlines with caring and committed people, strong brands, loyal guests, disciplined cost structures and financial flexibility are best positioned to emerge stronger, and I firmly believe Air Group fits that profile.

And with that, I'll turn it over to Andrew.

Thanks, Ben, and good morning, everyone. Today, I'll walk through our first quarter financial performance, our perspective on the near-term demand and revenue environment and the significant progress we're realizing on the core initiatives that underpin Alaska Accelerate.

Total Q1 revenues reached $3.3 billion, up 5% year-over-year on capacity growth of just 1.7%. Our unit revenues were up 3.5%, in line with our initial expectations for the quarter and building on a strong prior year comparison. From a demand and revenue perspective, performance in the first quarter was resilient despite the volatile macro backdrop and material demand headwinds uniquely impacting our spring break revenue given our network. Specifically, we experienced significant headwinds in Hawaii and Puerto Vallarta, which together represent approximately 30% of our system capacity.

In Hawaii, unprecedented storms with rainfall reaching as much as 3,000% of normal historical levels during March, disrupted travel plans and drove a spike in cancellations and near-term book away. In Puerto Vallarta, where Air Group is the largest U.S. carrier, civil unrest leading up to the spring break travel period had a meaningful impact on demand as well. Together, these impacts reduced first quarter unit revenues by nearly 1 point with effects continuing into April and May. In response, we've reduced Puerto Vallarta flying by approximately 30% in the second quarter to better align capacity with demand. In Hawaii, we have maintained near-term capacity as the severe weather was transitory.

We are busy taking great care of local travelers and welcoming visitors with the Hawaiian experience they know and love. And this past week saw bookings return to last year's level on strong fare increases.

Setting aside these regions, we saw broad-based strength across our network. Premium demand continued to outperform the system and was up 8% year-over-year. With over 90% of our premium fleet retrofits complete, we're on track to sell all 1.3 million incremental premium seats across the network ahead of the peak summer travel season. Encouragingly, first-class revenue continues to produce positive unit revenues even as capacity increases 5%.

Internationally, the relevance of our network continues to drive strong results as guests are choosing to file with us in more ways than ever before. Seattle Tokyo reached profitability in March, less than a year after its launch and load factors for both Seattle to Tokyo and Seoul exceeded 90%. We're extending this momentum with the launch of Rome next week, followed by London and Reykjavik next month. Early booking trends are tracking in line with expectations with demand building nicely and premium cabins performing particularly well. Notably, more than 70% of guests booked on our new Rome service are at most members, materially higher than the rest of our network.

Managed corporate travel was exceptionally strong, up 19% in the first quarter. Our international expansion has meaningfully increased Alaska's relevance with corporate customers. As a result, we are competing for and in some cases, exceeding our fair market share in business travel on these long-haul routes, particularly in the U.S. point of sale. We're also seeing improved domestic corporate relevance as global connectivity strengthens our value proposition for corporate travelers. Managed corporate demand remains robust in the Q2 with held revenue, over the next 90 days, up almost 30%. We are seeing broad-based strength across all industries, in particular, manufacturing, financial services and technology. and are beginning to see traction through greater sign-ups for small and medium businesses in our Atmos for business platform.

Turning to loyalty. Growth remains a priority for Alaska. Every major initiative we're executing on is driving relevance and growth for our members. These large-scale enablers, such as the Hawaiian acquisition and resulting domestic and international network expansion, the launch of our Atmos Rewards platform, issuance of a premium co-brand card and free Starlink WiFi on board for Atmos members, are all designed to accelerate growth across our portfolio and deepen engagement with our most valuable guests and it's working.

In the first quarter, we generated $615 million in cash remuneration from our co-brand cards, that's up 12% year-over-year, while active membership in the Atmos program grew by 13% year-over-year. Importantly, we're seeing particular strength in our Hawaii loyalty metrics, with double-digit year-over-year growth across members, new cardholders and card spend. Over 70% of the Hawaii adult resident population is now enrolled in Atmos Rewards, reflecting the strong value proposition of our combined network and loyalty program, with 2 beloved airline brands and oneworld's expansive global connectivity.

Spend from our Hawaii-based cardholders increased 19% year-over-year and now accounts for nearly 6% of the state's GDP. Our top-rated Atmos Rewards program is clearly resonating attracting more guests, keeping them within our ecosystem and reinforcing the strength of our loyalty flywheel.

As we look to further accelerate the growth and relevance of our Atmos Rewards program, yesterday, we announced a long-term extension of our multi-decade relationship with Bank of America. This newly expanded agreement delivers improved economics, all new capabilities and a significant step-up in marketing investment as we move to a single issuer of utmost branded co-brand products. Through 2030, the agreement secures an additional $1 billion of total cash remuneration while offering what we believe will be a step change in portfolio growth. These economics are incremental to what we shared as part of the Alaska Accelerate vision and go meaningfully beyond the $150 million of loyalty profit we targeted by 2027. We're grateful to the team at Bank of America for their long-standing and continued partnership.

Turning to our outlook. We ended the year with one of the most prudent growth plans in the industry. The vast majority of our 2026 growth is concentrated in long-haul flying out of Seattle as we continue to build our new global hub and generate new revenue streams. At the same time, in response to current fuel environment, we proactively trimmed nearly 1 point of capacity in May and June, including reductions in Mexico and select late night departures in high-frequency markets. We now expect second quarter capacity to be up approximately 1% year-over-year, again, among the lowest growth rates in the industry, comprised entirely of our long-haul international service out of Seattle while our North America capacity is down slightly year-over-year. The overwhelming majority of our capacity remains deployed in core hubs where we have scale, relevance and strong loyalty.

As conditions evolve, we will continue to prioritize margins consistent with the disciplined actions we took last year when we were the first large airline to reduce capacity in response to a challenging macro environment. Demand has shown resilience in the face of higher fares. Incoming yields for Continental U.S. markets have sustained an increase of 20% plus year-over-year in recent weeks, pushing held unit revenues in these regions to up double digits for the back half of the quarter. Given that we still have 35% of revenue to book in the quarter and provided this demand continues, we would expect to see the system achieve high single-digit unit revenue gains with a path to 10% in Q2 despite an overall 2-point drag from Hawaii specific impacts in the quarter.

To wrap up, while the near-term environment remains volatile, we continue to make strong strides on the initiatives that matter most to the long-term value of this business. And importantly, we are not standing still as evidenced by our new co-brand agreement with Bank of America and the transition to a single passenger service system this week, which will unlock the depth and breadth of our guest products and services seamlessly across our global network. We're executing against Alaska Accelerate, improving the durability and quality of our revenue, maintaining prudent capacity discipline and investing in areas that strengthen our earnings power over time. I remain confident that the actions we're taking today position Alaska Air Group to emerge stronger as conditions evolve.

And with that, I'll pass it over to Shane.

Thanks, Andrew, and good morning, everyone. While we entered 2026 with strong momentum, geopolitical events have quickly disrupted that trajectory, driving an acute run-up in fuel prices that has put pressure on the entire industry. In moments like this, it's important to separate what has changed from what has not. Fuel has moved sharply higher and remains volatile. Demand for air travel has remained both resilient and strong and we have continued to execute on both our integration and the Alaska Accelerate plan, which is focused on building strength into the business for the long term. While we are once again navigating an unexpected and challenging backdrop, we know that successful airlines will be those with scale, relevance and loyalty. The Alaska Accelerate plan delivers in each of those areas and also broadens our commercial model as we expand internationally and in our premium offerings, two areas of the industry where demand continues to grow rapidly.

As we navigate the near term, we will double down on our core business model: operational excellence, high productivity and providing award-winning service to our guests while also delivering on continued investment in the initiatives that will grow our earnings over time. Against that backdrop, our first quarter adjusted loss per share of $1.68 came in better than the midpoint of our revised guidance, reflecting both the resilience of demand and the discipline with which we're managing the business. Absent fuel, which alone accounted for approximately $0.70 of incremental EPS pressure versus our original plan and the impactful though transitory events in Puerto Vallarta and Hawaii that Andrew mentioned, we would have been well above the midpoint of our original guide.

Our financial position also remains strong. We have approximately $2.9 billion of total liquidity, including cash on hand and our undrawn line of credit and $20 billion in unencumbered assets. Net leverage was 3.3x, and our debt-to-capital ratio finished the quarter at 61%. During the quarter, we repaid $340 million of debt and we expect to repay $65 million in the second quarter. Given the dislocation in our share price in March and April, our share repurchases accelerated, bringing our year-to-date total to $250 million which should more than offset dilution this year. We have $180 million remaining under our $1 billion authorization, but we'll pause further repurchases to evaluate the outlook for the remainder of the year.

Turning to first quarter results and the second quarter outlook. First quarter unit costs were up 6.3% year-over-year in line with our expectations as we lapped the final quarter of our new flight attendant CBA and experienced some pressure from winter weather and storms in Hawaii. Unit costs for the second quarter, given a close in reduction of 1 point of capacity, will be modestly higher than our first quarter result. There are 3 areas driving this that are transitory in nature. These include the crew training costs for ramp-in of our 787 international flying, a headwind year-over-year given gains on the sale of our 737-900 fleet last year and a planned employee recognition expense tied to achieving a single PSS system, the last major customer-facing milestone of the integration.

There were several positive trends in our core costs in the first quarter as well, including strong improvements in both aircraft utilization and in productivity across our operation, which were achieved while moving back into the position of the industry's best operation. We also had strong performance in our maintenance division and positive trends in selling-related expenses where we will continue to realize incremental synergies as we drive revenue growth.

Our first quarter fuel price averaged just $2.98 per gallon, reflecting the initial increase in fuel costs that began in late February. We have seen refining margins more than double and in Singapore refining margins spiked more than 400% during the quarter. As a result, fuel sourced from Singapore, which historically has been consistently the lowest-cost portion of our supply, became the most expensive, impacting roughly 20% of our total consumption. Given how dynamic the current fuel price and demand backdrop are, we are suspending our full year guide until conditions stabilize and we have better line of sight to earnings beyond the current quarter.

For the second quarter, the range of potential financial outcomes remains wide and difficult to predict. In just the past 7 days, fuel prices have moved to as high as $5.15 per gallon and as low as $4.45. Given this, we are providing more detailed information on close-in unit revenues and unit costs than last quarter, where we focused our guide on an EPS range and capacity only. In the future, we plan to revert to EPS focused guides as the long-term health and earnings capability of our business remains our top financial priority.

For the second quarter, we expect unit cost to be about 1.5 points above our first quarter result, given we have reduced 1 point of capacity close-in. Unit costs will inflect down in Q3 and Q4 to low single digits. Assuming continued strength in demand where the balance of bookings that come during the quarter are at currently observed yields, we expect a path to unit revenues of 10% and for fuel, in April, we will pay approximately $4.75 all in. And given the current forward curve, we would put the quarter average at $4.50 per gallon. As of today, we are recovering approximately 1/3 of incremental fuel costs. We are also assuming a 32% tax rate, though this could change meaningfully depending on both in-quarter performance and also our full year outlook as we exit the quarter. Any tax accrual changes are not expected to have cash flow impacts as we expect to not be exposed to cash taxes in the near term.

These assumptions result in an EPS estimate of a loss of approximately $1 per share. It is important to step back from the immediate challenges of fuel price as fuel alone is driving the change in our expected immediate financial performance, and we believe that will normalize over time. Fuel price assumptions are adding $600 million of expense versus expectation for the second quarter which is a $3.60 impact to EPS alone. The underlying business model is strong, and we see it getting stronger with all of the work we are doing on the commercial side of the business.

Absent the fuel price spike, we would have expected to be guiding to a solidly profitable quarter and absent the transitory Hawaii headwind to RASM, we believe our unit revenue trends are as strong as others who have reported. While this is not how we envision starting the year, the underlying demand environment gives us confidence and the work ahead of us is clear. We are now on the eve of our single passenger service system cutover, a peak integration milestone that once complete, puts much of the integration friction firmly in the rearview mirror. That unlocks a simpler, faster moving airline and allows us to fully turn our energy towards the opportunities in front of us.

We remain fully committed to deepening the structural advantages that drive long-term success in this industry: scale, relevance and loyalty. Over time, we expect our revenue profile to increasingly reflect that shift with a growing share of premium loyalty and ancillary streams that provide greater earnings durability across cycles. We are building the right business model making real progress on the areas within our control and don't anticipate slowing down in that pursuit.

With that, let's go to your questions.

[Operator Instructions] And our first question today will come from Jamie Baker with JPMorgan.

So when thinking about the RASM commentary that you just gave, so let's just stick with that 10% round number. Obviously, year-on-year, there are a lot of initiatives that are impacting that, plus some headwinds in Hawaii, which you laid out. I guess the question is, if we looked at same-store RASM, in the second quarter, what do you think that number would look like relative to the 10% path that you've cited?

Sorry, Jamie, if I'm quite understanding your question. When you say same-store, which is year-over-year, which is sort of what we gave you, capacity, I think, was marginally consistent year-over-year. I'm just trying to understand specifically, you're asking about synergies and initiatives impact?

Well, yes. So basically, it's what that 10% RASM number would look like without the synergies and the initiatives, just get down to sort of the core. So yes. Yes, that's the question. What would the core RASM be without the synergies and initiatives that you've cited? It's a RASM question, not capacity.

Sure, sure. It's probably a couple of points. But again, as some of these things like loyalty are just embedded in the core of our revenue now. But I would say a couple of points just to give you an answer on that.

Okay. And then second, just a quick question. On the PSS kind over, I know you were drawing down reservations on the outgoing system. Is the number of [ PNRs ] that you have to port over, I guess, by hand, consistent with what your expectations were?

Yes. Actually, it was a very small number. I think 10,000 might be give or take on that. But essentially, we drain down the vast majority of the system and at 6:30 Eastern Time this morning, our Incheon-Seattle, our Haneda-Honolulu and now our JFK-Honolulu check-ins have already started and passengers are already booking in and things are going fantastically.

And our next question will come from Conor Cunningham with Melius Research.

Shane, maybe I could jump to you. Just I was hoping you could unpack the puts and takes on the second half cost trajectory? I mean, I realize you called out a fair bit of near-term headwinds. I'm just trying to understand how those potentially roll off? And then maybe just directionally, how you see each quarter? It's -- the only reason why I bring that up is that comps are all over the place. So just any help there, I think, would be good.

Yes. Conor, thanks. Appreciate the question. Happy to unpack this a little bit. I just -- I want to reiterate, and we said much of this in the script, but just to frame in the second quarter were a bit up from the first quarter. I think there's 3 to 4 points in the second quarter that are not really structural to the business. We cut 1 point of capacity close-in, that's always tough to remove the costs when we do that. But it was totally the right thing to do. We've got a point of buildup of crew for our 787 Seattle international flying that's going to normalize in the business as we begin this line in earnest out of Seattle, which obviously starts here in a couple of weeks into Rome and then throughout the summer.

We do have some planned recognition for employees given all that they've been through over the past 1.5 years or so with integration and we're lapping some asset sales from last year. So I think like structurally, the core business is not at sort of closer to the 8%, but probably more like 4% to 5% on a really low growth rate. In the second half, what you're going to start to see, I do think a lot of this is enabled by getting through this last PSS integration milestone. We really are at peak friction over the last couple of quarters with integration. And now we can go to like peak focus on optimizing the airline, like unit wages will exit the year at a rate that's equivalent to or lower than our Q4 2025 results. So we're starting to see productivity really tick up. There's more to come. We've got a lot of fleets. We've got a lot of opportunity over time to continue to rightsize the network, the banking in our airports and ultimately, rationalize the fleet over the next several years and accrue some more productivity gains through those efforts.

Our third-party costs for the operation where we use partners to manage ramp and manage airports, those are down on a unit basis, and we'll continue to reduce on a unit basis through the second half of the year. We're absorbing all of the inflation -- core inflation in those contracts through just getting more productive with those partners. Aircraft maintenance per block hour, you'll see continue to perform well throughout the second half of the year. Aircraft maintenance is always a little bit spiky, it'll go up and down quarter-over-quarter with volumes, but we expect 2026 in total to be less on a per block hour basis than it was last year.

We mentioned in the script, we have a structurally lower cost of revenue through selling expenses. And even though selling expenses likely rise with much higher revenues and fares on a structural basis, they're lower cost than they were pre-integration. Those are a few of the areas. The places where we have challenges that are more structural, we've talked about, there's nothing new, airport costs. We have generational investments in the West Coast, very similar to the rest of the industry. Those are still normalizing into the cost base, will be for the next couple of years. And then we have these buildup costs that are really related to transforming the airline into an international player in Seattle. Obviously, I mentioned crew and then we have some guest-facing costs as well.

The last thing that we have in front of us is joint CBAs. We need to bring the Hawaiian employees up to Alaska rates. There's no real timing on that, I think the backdrop make some of those discussions probably spread out a little bit. But -- the last thing I'd say, and I know this is a longer answer, I just wanted to give you guys all of the detail. Nothing that we see in the cost side of the business is a surprise to us. And we actually see most of the areas that we're really focused on performing better and over time, really starting to gain traction. And I think you'll see that in the third and fourth quarter of the year, and we'll have a lot to say about it when we get to those earnings calls.

That was a very detailed answer. Just -- and then, Ben, the conviction level on the $10 figure still sounds really high. It sounds more like it's floating now rather than '27 number, and you can correct me if I'm wrong there. But just gear words, you talked about it being an unpredictable environment over the past like 15 to 16 months. So what is working that gives you so much conviction? It seems like international is better, loyalty is a lot better, but there is obviously a lot more headwinds associated on the cost side that are kind of just out there in the world. But just what gives you more conviction on this $10 figure long term?

No, Conor, it's a great question. Thanks for asking it. Look, I -- from where I sit, absent fuel, our company is firing on all cylinders. When I look at Alaska Accelerate, when I look at each and every initiative that we laid out there, this company is executing. If you look at PSS, this is a major, major milestone. We're executing it. It's going to be a flawless execution. And so I feel really good. One of the things, and I'm surprised we haven't got the question yet, even with 2027. So a couple of things. One, this new Bank of America deal, again, I'm not sure if you got cut it in Andrew's script, it's $1 billion of incremental cash over the next 5 years, which in 2027, well at a point of margin. We've restructured the Amazon deal from losses to not having losses, and we've got a little more work to do on there as well.

And then overall, I think if you believe that fuel prices will moderate, I'm not saying it's going to go back to what it was pre the crisis, but if they moderate and some of these fare increases are sticking, we're getting an average of -- in the $25 on an average fare, give or take, which market it is, I believe we have a strong chance of coming on at the 2027 and hitting that $10 EPS.

Now I can't tell you from where I sit today because the world is unstable. But as we get into the third and fourth quarter, we'll have some pretty good line of sight to tell you where we'll be. But I will tell you, if it's not '27, it's coming, I have never been more convicted, things are working. Our strategy is working. We're executing, and I feel really good about it.

We'll move next to Andrew Didora with BofA Global Research.

I guess maybe moving to demand a little bit. Yes, one of the bigger questions we get from investors is just around kind of demand elasticity. Just based on your prepared remarks, it doesn't seem like there's much evidence of that at all. But I guess, one, are there any particular markets where you might be seeing some pushback on this higher pricing, obviously, outside of, say, Hawaii or Mexico? And then second, if not, how do you generally think about demand elasticity in this environment? And are you thinking about positioning your network differently than what is planned today in order to get ready for that?

Thanks, Andrew. I will just say on a personal note. Of course, there is elasticity in demand in my personal view. In fact, we've seen it here personally. We've had all these fare increases that are being great and then the RM folks had to go in and manage some of the buckets down, and we found a really good sweet spot. So there is absolutely elasticity. But I think in the current environment that it's well able to absorb the double-digit increases in the fare environment, people want to fly, the airplanes are full. So I think that's all good stuff.

I think as it relates to the network, Andrew, we're only really growing to 3 areas, really. We're growing San Diego at around 20%. We're growing Portland in the high teens, and we're growing in international gateway. And I think those are all areas of opportunity and strength loyalty, revenue, seat share. So we feel really good. And as I said in my prepared remarks, the reality is that the only real absolute growth because the Portland and San Diego was moving seats around domestically is really international. And we're just very excited and we're seeing loyalty fairs, front cabin. We have a long way to go to get really proficient here. So it's really good. So as we sit here today and as long as demand holds up, we feel really good about our network shape.

And Andrew, it's Ben. The other thing I'll add to what Andrew said, and I think you asked it, look, we have a fantastic fleet now. What's different between before Hawaiian and post Hawaiian is we have a much more diverse fleet that we can be more creative in exploring new markets where we see higher revenue potentials. We've got -- we've got 30 wide-bodies now, and that's a lot of dry powder for us to do some pretty novel things. So like -- there's a lot of things that we can do that we're going to do to make sure that we get the most revenue coming in at this company.

And then just my second question. Obviously, industry consolidation has been in that in the headlines recently. You've been one of the very few acquirers over the last decade or so in the space. Do you think further consolidation is something Alaska would want to continue?

Look, I think consolidation can only happen, having had the experience of doing it. It's got a big hurdle, Andrew. I mean it's going to be pro-consumer and pro-competitive. Those are the 2 hurdles that you have to get over and with the DoJ, with the DoT and a lot of other stakeholders out there. So we know how hard it is to get past those 2 big hurdles. We have the experience. We know how to do it. But like I said, I am super excited about our organic growth plan. I am still focused on a $10 EPS, and that's where we think a lot of value is going to come with our plan.

Now look, I believe with our plan is always to look at what's good for our company and the stakeholders that people care about Alaska. So what do our employees customers and our communities as well as our shareholders looking for Alaska, and we will always make the right choice given that.

We'll move next to Savi Syth with Raymond James.

Just curious on the -- you mentioned kind of long-haul operations and how Seattle is progressing. I was curious how the kind of the Hawaiian long-haul operation is progressing?

Savi, as you may recall, we made some adjustments to the Hawaii. We discontinued [indiscernible], we discontinued Narita, moved that to Seattle. So it's -- on a year-over-year basis, it's improving. We're mostly left with Japan and Australia and we continue to move unit revenues forward there. And the other thing I should add, too, is now the Hawaii long haul will welcome oneworld into the fold, which will give all these elite guests and whether it's [indiscernible] or Japan Airlines fantastic benefits.

I appreciate that update. And can I ask on the -- I think you mentioned in the opening remarks, improvements to the Amazon contract. Just wondering if you could give an update on just cargo in general?

Yes. Thanks. Thanks, Savi. And maybe I'll hit Amazon very quickly, and I don't know if Jason wants to say just cargo in general because I think it was a bright spot here for us in the first quarter. We really enjoyed getting to work more closely with these -- the folks at Amazon. We know them because they're neighbors of ours. We have folks who used to work at Alaska over there. So we've -- we've worked on deepening the partnership, and I think it's going well. The partnership is getting better, it's getting healthier. We're continuing to talk about how we can deepen it further in a way that's mutually beneficial to each other. And so we had a nice sort of update to the agreement that's in force today that helps us on the economic side, and we're hopeful that we can expand that through more partnership over time.

And maybe just very quickly, Jason, because we're going to try to move to...

Savi, this is Jason. Just on the high level on the cargo piece at the start of the year, we did get to our own single cargo system at the start of the year, which really allowed us to unlock that connectivity, which we've been talking about. And we're just really beginning to start to harvest from that.

Our next question will come from Scott Group with Wolfe Research.

So historically, whenever we see fuel go up, RASM goes up a lot. We're seeing that right now. And then when fuel goes back down, usually RASM goes back down with it. Do you think it's different this time?

Maybe I'll sort of try to take a shot at answering that, Scott. I think -- we believe that there's a lot of reasons that it could be different this time. I do think 15 years ago, we had different reasons but a similar sort of spike in fuel tough economy, structural changes in the industry and then fairs that were modestly higher coming out of it and actually did great from an earnings profile perspective for several years.

I think the rapidity with which some of the fares have gone up and the stability with which bookings that we've seen over the last several weeks, suggest like Andrew said, people really want to travel. And when they have discretionary income, one of the priorities that they have, it would appear as to go out and experience the world. And I think some of these fare increases, $10, $15, $20 on the total cost of vacation is pretty modest. So that's -- that's on the sort of consumer side. It's really important that people that are on our airplanes feel like they have a lot of value for the fare that they're paying, and we're focused on investing in all of the experiences that we have throughout the entire aircraft and on the ground and also digitally. And so we're super conscious about the incremental price being paid, and we need to deliver good value for that.

I think on the other side, the industry structurally has to get healthier. You've got multiple airlines at near failure before $4, $4.50 fuel and that just doesn't work structurally long term. And so I just think there's a lot of factors that suggest this could be stickier, but we don't know. I think it's really dependent on how the economy unfolds over the next several quarters.

And then just one quick follow-up. I think, Andrew, in an earlier question, I think you were sort of implying that of the 10 points of RASM, like 2 points or so that is -- a couple of points is like more company-specific or synergy, whatever you want to call it. Like do you think that couple points continues at that pace? Does it -- can it accelerate from here with credit card deal? Does it naturally, at some point, start to just slow? How do you think about that 2 points going forward?

Yes. I think I'm just looking at my CFO and CEO here, that's an imperative that it will continue. But jokes aside, we have dynamic pricing about to hit. We've got O&D coming, as I shared, the economics of the bank relationship, that $1 billion over the original term, which is sort of going to happen, it doesn't include actual incremental growth from our historic growth rate, which started to flatten out. So I think overall, we absolutely still have the view that we can close the RASM gap to the industry and that we will continue our unique momentum on the revenue side.

Yes. And Scott, I'd just remind like a lot of the synergy -- sorry, a lot of the initiatives value were to come. So we're just completing the 800 remodels. We haven't begun selling the full fleet of those. We have other things that we need to do in the widebodies, which are beyond '27, but will be further initiatives that we control that aren't really subject to the rest of the industry. So there's a lot of initiatives that are still to come for us to keep driving something like 2 points into the P&L for a while yet.

Our next question comes from Thomas Fitzgerald with TD Cowen.

Maybe just sticking with the bank deal again. I think you talked about being a step change in portfolio growth. Could you maybe elaborate that a little more? And then just maybe put a finer point on the cadence and any benefit this year and then in between the point of margin '27 and as you get to that $1 billion by 2030?

Yes. Thanks, Tom, and maybe I don't know if Shane wants to get the second part of that. But just to be clear, because it's a really important thing that's going on here is, what's happening is that with our partner with Bank of America and this -- really this refreshed agreement with many different elements in it that have changed, going to help us realize the benefits of number one, obviously, the acquisition of Hawaii; number two, the launch of Atmos Rewards; number three, the expansion of a long-haul network out of Seattle.

And so we're already starting to see -- and of course, the marketing investment, there is a big step change there. So I think what I'm trying to say is that at the end of the day, the changes in Air Group's business and fundamentals and the changes in the agreement, I think we're going to have and create for ourselves a much longer-term wider pathway for growth in loyalty and especially in credit card, which, as you know, are very important to our economics.

And quickly on the margin, it's roughly 0.5 point of margin this year and a full point of margin next year. And that is before what Andrew was just sort of alluding to, which is portfolio growth that could be stronger than we're seeing today. And that's our expectation, but we're not putting any of that into a forecast or guide at this point.

Okay. That's really helpful. Appreciate that, guys. And then just thinking about some of the network initiatives, the growth of San Diego, the rebanking of Portland, would you mind maybe just running through your hubs, maybe either by RASM or profitability, but just rank ordering them, where are you seeing the best performance, where maybe room for improvement?

Thanks, Tom. Yes. That's -- those are the questions I'm not -- we don't really answer. But obviously, Seattle is our largest hub, Honolulu our second largest. And if you look at what we're doing, and I think those are 40, 50 -- nearly 65-plus percent of our total capacity. We've got 2 large accelerants in both of those. One, obviously, in Seattle, rebanking and obviously, global long haul and then in Honolulu, Hawaii in general, with the integration and all the good things that come from that. So we continue to feel really good about the improvement in the economics there. And then again, in places like Portland and San Diego, we just believe our product, our customer service, what we're offering are going to be -- continue to be very valuable.

Our next question will come from Atul Maheswari with UBS Securities.

I had a question on costs. So is the back half low single-digit CASMex a good run rate for us to use for 2027 as well, now that the PSS integration is behind us? Or are there any puts and takes specifically as it relates to 2027 on the cost side that we need to be aware of?

Yes. Thanks, Atul. No, I think -- look, our -- a couple of things I want to say. One, our long-term view on growth is like something around 3% to 4%. We haven't grown at those target rates for a couple of years. We think the core cost inflation in the business is 4% to 5%. So we need to ultimately get into the 3% to 4% range to have an opportunity to fully offset the core inflation. But there should be opportunities to go get at least 1 point of better unit cost performance through optimization of the business and through productivity. So that's our thinking structurally about the business over the next year or 2.

We do have, as I mentioned before, joint CBA deals that are in front of us. It's hard to say if those will be in cycle or out of cycle with the rest of the industry as those other deals come up on other properties, but that would be the one outstanding area that we're going to have to ultimately get deals with our employees on and absorb those into the P&L. I don't think they're super material, but they are the one sort of outstanding item that's kind of nonstandard.

Got it. That's helpful. And then as my second question, I was reading some energy reports that global refining capacity is basically down 6% to 8% since the war started. So the question is how long can this disruption persist in your view before it causes real jet fuel availability problems in markets like Singapore where you source from? So what are you seeing in that market right now? And how are you preparing the business should fuel shortage actually become an issue there?

Yes. Thanks, Atul. I'm going to answer as much as I can. We obviously are not the absolute expert on global oil supplies or refineries. We do understand our markets really well and our supply chain really well. We don't foresee any disruption any time in the foreseeable future across our network. We are not so sourced out of Asia or Singapore into any of our markets. And if we need to supply Hawaii as an example, from the domestic market that is totally within our ability to do so. I do think our hope is long term, it normalizes, Singapore refineries come back on strong and those costs return to where they were pre conflict as it was a really nice lower cost source of fuel for us into the network, and we would like to enjoy that structurally over time.

And then we've talked about this a bit, we won't go deep in it. From an industry perspective, we need to work on the West Coast JetA supply issue long term. There's just increasing desire to fly and demand for JetA and we don't have the pipeline infrastructure refinery infrastructure that the Gulf Coast or the East Coast has. So that will take time, but it's something that we're focused on, and I think other airlines are starting to focus on along with us.

We'll move next to Catherine O'Brien with Goldman Sachs.

Maybe just on some of the route network changes. You know that Seattle, the Tokyo route has already reached profitability, full load factors are really strong. Can you speak to the profit swing from moving those aircraft from more leisure-focused Japan point-of-sale flights to more mixed travel purpose U.S. point of sale? How big of a bottom line impact was that in 1Q? Or just really any way to think about what that swing could look like? How that's ramping versus your expectations back when you announced the transaction?

Yes. Thanks, Catie. I think just high level, what I will tell you is, and we track this as part of, honestly, our synergies, is the movement from Honolulu to Narita to Seattle Narita, there has been meaningful increase in the profitability of that route. And of course, it obviously accrues significantly to our loyalty base, corporate base, and we're already seeing numbers there. So I think what it's really helped us do is from a network perspective, invest and continue to grow Seattle. So I think that's been a very good move.

Catie, I don't think we've priced sort of the losses that were associated with the aircraft we are using for these markets. But they were in the tens of millions. So it's a meaningful change to the underlying economics of the company.

That's great. And maybe just a little bit of a follow-up on the corporate angle here. On the 19% managed corporate revenue growth, is it possible for you to break out what the domestic growth was versus the total? I'm just trying to get a sense of how meaningful layering in that international connectivity is? And do you have enough international fine to maybe try to go after additional share in your next round of corporate negotiations?

Yes. Thanks, Catie. Just to really put this in perspective, the vast majority of all of our managed corporate travel is obviously still North America and domestic. And we'll probably give a little bit more visibility over time. What I can tell you, obviously, London is going to be huge. But we're already seeing, as a percent of our managed corporates, it's a very low percentage, but I'm already seeing that number move up and revenue multiple points ahead of the actual passenger share as well. So I think more to come, we're in very, very early innings here. And I think as we get these all launched, and single passenger service system and loyalty and all the rest of it, I think we'll have a lot more exciting things to share, but it's headed in the right direction.

Our next question will come from Brandon Oglenski with Barclays.

Ben, I guess I appreciate the confidence in hitting $10 at some point here. But at the same time, I mean, it's different issues, but the second year that we're talking about fuel prices and specifically West Coast challenges. And I think maybe Shane hit it there that longer term, there could be an issue here. So how are you positioning your business, I guess, from a commercial perspective to potentially deal with maybe a higher differential on the West Coast?

It's -- Brandon, it's a great question. Look, I think if you would have asked me 3 years ago with the stand-alone Alaska, it would have been a lot more difficult for us. But now I think we have -- we're flying to different geographies, and we have the airplanes to access any part of the world today. And what gives me confidence to say, look, the world and believe me, I'm not looking at this through rose-colored glasses. I know that every year, there's something happening in the world where you have to pivot and move the business somewhere else. And I think we're becoming good at it.

We're getting through this acquisition. This acquisition is making us a more resilient, bigger, stronger airline. And we will have, from what I believe are strong hubs that we operate from scale relevance and loyalty to build on those networks. So I'm confident. I can't predict the future, but I can predict the way we're executing. I know what we have. We have a phenomenal group of employees who are excited. We have great assets. We have a great balance sheet, and we have a track record of delivering and executing. So that's what gives me confidence. I'm not going to predict the future, but I'm going to bet on Alaska.

Brandon, just on the second part of the question on fuel structure, and I alluded to some of it. I think long term, one, we do think Singapore is going to be a nice, stable source of much lower cost field than Gulf Coast. We're doing 20% of our fuel from there, and we like the idea of moving that up materially, maybe even to 30% or 40% over time. The other thing we're doing is building with some partners who are working on building infrastructure here in Seattle to be able to take tankered fuel into Seattle, which would be a game changer for us in terms of the supply chain. I think there's a lot of interest in ultimately getting that work done. These are long tail investments, though. And so it's nice to talk about them, but it's probably a ways away before we structurally are able to begin to resolve this.

Just one last reminder, we've had a 10% to 15% -- $0.10 to $0.15 fuel disadvantage structurally for our entire life out here on the West Coast, so this isn't new for us, and we've even with that, been able to outperform most of the industry on margins over time.

Okay. I appreciate those responses. And just maybe really quick for Andrew, is the new co-brand deal included in your RASM guide for 2Q? Or should we expect those benefits actually ramp later in the year?

Yes. The -- so the agreement is reflected in the second quarter results as it ramps in. And as Shane mentioned, 0.5 point of margin this year, ramping to a point of margin on the structural changes, and I think we can do even better than that.

And we'll move next to Duane Pfennigwerth with Evercore ISI.

Just on pilot training, can you speak to changes across the 2 segments you said you're back to growing Alaska, but overall growth is flattish. Maybe just speak to what's growing versus what is shrinking. And then what are the drivers of increased pilot training costs? Is this all aircraft that are coming over from Hawaiian? Is attrition a component? And when do you expect that to normalize?

Thanks, Duane. So there was a few questions on pilot training. It is not attrition. So attrition is effectively 0 absent retirement. So we have normal retirement patterns. We're not seeing our folks leave for other airlines. That was done a long time ago. the majority of this in Q1 on a year-over-year basis is really building up the Seattle international flying. We've announced and have opened a pilot base here in Seattle on the 787 and that flying takes more pilots per flight than Honolulu to the West Coast, even on a wide-body would have taken. So we've just got to get that ramp up into the base, get the flying started and then it will normalize on an annualized basis as we take 1 or 2 787s per year over the next few years.

On the Alaska side, we're just coming out of the last couple of years, we had -- we had room in our productivity within the current number of folks we had on the property for Alaska. And we're back to starting to look forward to taking incremental units throughout the back half of the year, and you got to train early to get ready for summer flying. So we've got some modest incremental costs year-over-year on the Alaska training side.

And then just a quick follow-up on cargo. Can you frame how big of a headwind it was to your recent results? And is the goal to get this to like breakeven or something better than that? And if the goal is breakeven, then why do it?

Thanks, Duane. Maybe I won't share where the specific economics on the freighters were. No, no, no, we -- if we're going to go put time into flying aircraft around, we feel like we need to earn a reasonable margin, not a breakeven margin. That's not really our philosophy in terms of investments. So we'll be focused on generating decent returns on this line. I do think over the next year or 2, we're excited regardless of the freighter contract, the opportunities with belly cargo on the wide-bodies, the opportunities to continue to grow our own freight market share up in the State of Alaska and along the West Coast, and we're anxious to get to talk more about that over the next year or two. Appreciate the question, Duane.

All right, everybody. Thanks for joining us, and we'll talk to you next quarter.

This does conclude today's conference call. Thank you for attending. You may now disconnect. Goodbye.

Ben, it's great to see you. Thank you so much for making the trip. You're certainly no stranger to the JPMorgan Industrials Conference. It's great to have you back.

We've gotten several updates from your competitors this morning. The narrative is pretty good. In fairness, first quarter really didn't have that, given the refining lag, not that many days of really elevated fuel, but that's clearly been a challenge for Alaska in the past. How should we be thinking about the first quarter in light of everything going on in the world right now?

Yes. Well, thanks for having me, Jamie. Great to be here with everybody. At this point in time, we're not going to change our Q1 guidance. And just to give you some context, if not for the conflict in the last few weeks, it would have been better than our midpoint on our Q1 guidance.

I would say, consistent with the commentary of others, demand is the bright spot and it continues to be for Alaska. The -- but let's talk about fuel for us. Fuel, we're a little disadvantaged on the West Coast because of refinery margins. I'm frustrated in California, two refinery margins closed in the last 6 months, one recently in San Francisco, in L.A., which really drives that volatility for us having fuel maybe $0.20 a gallon more than everyone else. And the bright spot was we got with the acquisition of Hawaii, we got fuel from Singapore, and we pay less per gallon for Hawaii fuel getting tankered there than we do on the West Coast.

And if you just pause that, you say like how could that be? But that's just to give you the context of the disparity. And so that's where we're with fuel. But a few things that we're going to do on fuel is prior to Hawaiian, 65% of our fuel came from West Coast. post Hawaiian, it's 56%. And now we've got an initiative over the next 2 years to take that reliance down to somewhere in the low to mid-40s.

And how we're going to do that is tanker fuel from Singapore to the Pacific Northwest to Seattle. So right now, we're working with some partners to build the infrastructure to how to tanker fuel to bring that reliance down and reduce our gap of what we pay per gallon down from the rest of the industry. So it's an audacious plan that we're working on, but we could see somewhere in the order of hopefully, a $0.10 impact per gallon within 2 years if it works. So we'll keep you guys posted. But what we have to do is really try and mitigate this disadvantage that we have.

And is there any expectation that West Coast refining spreads would just sort of normalize on their own as more production comes online? Or is it better to plan the business around the assumption that you're always going to be paying something of a penalty out there?

I wish there were more production coming online. At this point, that's nothing that we see with refinery margins coming in line with the rest of the country. We hope -- I mean, hope is not a strategy unfortunately. So that's why we're taking issues in our own hands. I think we'll see it stabilize.

But at this point, we don't see it going lower than the rest of the country. And so I think it's something we're just -- we said, look, we got to live. It's going to be part of our business model, but how do we reduce that risk. And this is what we're going to do is we're going to try and build up some capacity for tankering from Singapore once -- I mean, right now, Singapore fuel is higher than West Coast fuel. So -- but that will normalize as well.

Remind me, did you disclose what your embedded fuel price assumptions or a range of assumptions were as part of the full year guide, $350 million to $650 million?

Yes. So we were -- as we exit '25 and January of '26, we were in the $250s, somewhere in the $250 range, $250-ish. So that's basically midpoint of the guide would assume like a $250-ish cost per gallon. And we'll see where it lands right now. I mean the good thing is there's -- as you know, there's been a couple of fare increases that have stuck.

And the fun math, I was like keeping airline economics, math simple when we talk in the boardroom about stuff. So we spent about 100 million gallons of fuel, 1.2 billion gallons a year. So 100 million gallons of fuel a month. So if it goes up $1, it's $100 million of extra additional costs. It's a massive amount. And then when you balance that with the coupon revenue is we produce about $1 billion of coupon revenue a month, right? So roughly $12 billion, excluding loyalty, cargo and everything else.

And so to offset $100 million fuel cost on $1 billion of coupon revenue, you essentially need 10% increase in coupon revenue. And that 10% on average. That's a fair number. It's a big number. On average fare of $200, it's $20. Now some people might say $20 is nothing, especially when you consider what people spend on an airport, can take on to the -- on an airplane, they're Starbucks and a muffin. I'm sure it's $20.

And so you would say, well, that's nothing, but $20 on fare. So the question is right now, it's sticking. And you could see and say going forward, we're not touching guys because, look, right now, it's sticking and there's a possibility offsetting even if it's $1 per gallon at the worst case, but it would have to stick. And I think that's the question. So does it -- fares have to go up to offset fuel. And we've been pleased that we've been able to get people to buy at the higher level so far.

So a question that I've asked others at the conference. Are consumers purchasing tickets any differently given the reality of higher fuel? Is there a run in the bank? I guess that wouldn't really be the right term. But are people pulling forward their decisions because they have come to the conclusion that the longer they wait, the more it becomes? Or is that just giving the U.S. consumer a little bit too much credit? And I'm not trying to discredit by that, but I just don't know how the average price in this regard.

It's very -- it's an intuitive comment. I think when prices did spike, we did see a spike in demand. And maybe some folks are saying, look, we're going to go on a vacation anyway. Spring break is coming. But I think for Q2, I think we saw some likely accelerated bookings. I think they've leveled off now. But I think people got this initial, wow, if this thing is going to go crazy, I better book my fare now before fares go up. So I think we did see a little bit of that, just to be honest.

And you have a very small international footprint at this point. But are those flights subject -- domestic fuel surcharges aren't permitted internationally, they exist, particularly across the North Atlantic. Are -- is your handful of international capacity right now subject to that? And is that helping accelerate the recapture because of the formulaic nature?

It is subject to that. And we have seen higher fares, quality fares from our international -- the flights that we do have. I will say I am pleased with our international note, you mentioned it. We launched out of Seattle, Tokyo and Seoul last year. So in less than a year, for the spring breaks, we're seeing load factors into the 90s. And so we're super excited about that.

And even more excited that the cabin isn't even ideal right now. We've got a life-like cabin, but there's not a premium economy yet in the 787s, which we're working on in the next 2 years, which will be further tailwinds for us. But we're seeing strong international demand and Rome launches in 5 weeks. I think you guessed it last time we met when I was trying to be KG and Minicucci, where does Minicucci want to fly out of Seattle?

Well, it was funny. We had an event out in Seattle. And I was like, "Oh, I bet the next market is Rome, and Ben wouldn't look me in the eye. I'd be like that's when I knew I might be run.

Shane, my CFO was like giving me the -- don't do it. Don't follow for it. No, we're excited. Rome is booking fantastic. We're seeing a ton of fantastic redemptions on it. And look, this was our thesis going in. We have massive loyalty in the Pacific Northwest.

We were part of oneworld, but this is just an amplification of that where we're putting our own metal. People love us, and they're excited. Every time I meet people in the Seattle community, that's the first thing they tell me, "Hey, I book the flight to London, I book the flight to Rome. I'm on K I'm going to Tokyo, Seoul. And so we're excited. And this -- we're just in the initial stages of this. And like my view is that this is where the big carriers have made money leaning into premium and international in the last few years. We saw premium.

We're well ahead of premium. Our premium story is strong. But international for me is something we're building from the foundation. And we'll have over 12 flights a day. We'll have like 40 wide-bodies at Alaska by into early 2030. So we've got 30 wide-bodies today, building up to 40, a fleet of 787s and 330s that will be super well configured and help, again, diversify our revenue streams going forward. So we feel really good about the strategy.

And I guess you don't really have a baseline to compare it to. I mean you flew to Russia, what, 35, 40 years ago. But I would think that given the advent of loyalty that the international markets would ramp more quickly than they otherwise would because presumably, to your point, a measurable percentage of your passenger base is already going to London. They've just not been doing it on you, and now they have that option. Is that the way -- as we think about the ramp of each international spoke you add from Seattle, is that how we should be thinking about it sort of an accelerated time line? Or is that reading too much into the law?

I think it's exactly how you should be reading it is, look, I think I always tell people, and this is why our employees 30,000 are so excited about what we're doing about our strategy. We have the highest engagement scores. The community is excited every time I go out is we have the loyalty. And right now, when they go international, they're giving the loyalty to someone else.

Somebody else.

And we have -- just to give you a sense, just out of the Seattle hub and not including Portland and all the small communities we fly to, is we have 2x the domestic capacity than any competitor there. So they're flying us domestically and they're loyalty members and they're gaining all these domestic miles they're going to redeem those going international.

And then what we're seeing from corporate side, the corporate side is building as well because now they're saying, well, okay, Alaska flies to Tokyo and their flight to Seoul. They're going to London. And with our oneworld partnership, the connections through London through the different cities that we can fly from there, it's just building and growing and which makes this super, super exciting for us.

So and the one thing like I tell people what makes you so excited? It's rare that you have -- and we have 30,000 people. We're the fifth largest airline, so -- but it's still pretty big, $15 billion in revenue. I can tell you, every time I fly, I can't tell you how engaged our people are. They want to make this thing work. They're saying, what can I do to help them make this work. They're excited about the vision, but they know that it's going to take work.

You don't do anything bold and audacious without saying it's going to take work to build this international muscle, this international know-how. But everyone has rolled up their sleeves. They're with us. We have, if not the highest Net Promoter Scores in the industry. We had them for 15 years. We've had the best operations industry overall in the last 15 years. We've had strong financial performance. We have a fantastic balance sheet. So everything is in our favor to go make this thing work. And so I feel really good about it.

Okay. And actually building on that and your observations about the workforce, something that has come up at today's event. Delta for years, has talked about the moats around their business, largely nonunion workforce employment costs in Atlanta, the MRI. There are things that make that franchise different. And United has begun discussing that in recent years. What do you think are the moats around Alaska that differentiate the franchise from your competitors?

So one, and I know everyone says this, one, definitely our people and our culture. I think when people fly us, I get it over and again. We feel the difference. I just got an e-mail from a customer who's loyal to another airline and said, I flew you guys a few times, and the culture and the service is palpable on your airline. He says, people are nice. And I don't take that lightly. It's nice as a nice statement, but one of our core values is be kind and caring. We hire for that.

And the interview process is made to look at a person's core DNA to say, is this person at the end of the day, kind and caring and do they really want to be in the customer service business. And if we throw -- if we don't hire that person. And sometimes we miss people get through. But having that kind and caring culture engenders loyalty. And so that's a big part of it. A big part is we know that having scale, relevance and loyalty matter. And so we focused on the West Coast. So in the Pacific Northwest, we have that. We've been going toe-to-toe with the largest competitor in the whole world for the last 10 years, protecting what we say is our home.

That's our hometown, and we will never give it up, and we've done it. We have 2x domestic capacity. We've continued to build loyalty. We've launched a new loyalty program called Atmos Rewards, which at the launch of a premium credit card, we already have 90,000 sign-ups on a premium credit card that is doing fantastic for us. And so loyalty is the other big moat for us in the geographies we fly.

The acquisition of Hawaiian, we had a $1 billion franchise and said, look, this is a fantastic franchise that we can build. It went from a $1 billion franchise to a $4 billion franchise. This is a premium leisure market where we fly 60 times a day from the West Coast from our hubs, all our hubs from Seattle, Portland, SFO, LAX, San Diego, 60 times a day. to Hawaii, owning that West Coast traffic. And then again, now with this introduction of international and now bringing some of those business and corporate travelers that maybe we lost because we didn't have that international, that moat continues to widen.

So we feel like we're making that moat deeper and wider. It was deep and wide, but we're making it deeper in water with things that we've done and continue to lean in on what we've always done well and -- but actually adding new elements to our product and to our brand.

Let's talk about the path to $10. It's off on a rocky start given last year, given what's happening with oil prices right now. But when I kind of think back to when you first articulated that target, I'm trying to think about at the industry level and specific to Alaska, what's gotten better, what's gotten worse, what perhaps hasn't changed at all. I would think that corporate momentum may be in excess of what you embedded in your forecast.

So I put corporate into the good category. Domestic capacity has only tightened since the time you articulated that. Again, I don't know what your underlying assumption was from the outset, but I would put the domestic capacity environment into the good category. I think that labor rate escalation is probably in the neutral to bad category. So I'd be interested, particularly some of the work rule challenges that you're going to be facing with the flight attendants. And of course, the buyback was not at least publicly articulated, might have been in the internal plan. So what are the other buckets in getting to $10 that fall into those 2 categories better and worse?

Yes. No, it's a great question. So what I will say is when we put Alaska Accelerate into place, what got us there was $1 billion of additional pretax profit that was going to be generated through synergies, revenue initiatives and cost savings and roughly 1/3, 1/3, 1/3 by year. And we are on track or better on that.

So what I would say is the Hawaiian acquisition is doing extremely well for us. And if not for that, I think we'd be in a worse position for that. So I'd like to -- it's doing extremely well. What's changed in our assumption is the macro. So last year, what -- from the industry backdrop, the macro was a $500 million to $600 million headwind for us. So -- but for that macro, we would have been right on track. Now the assumption to '26 is we're going to recover maybe not all of that macro, that $600 million plus what it would have been going forward. Recover...

Why wouldn't you recover?

Well, it was just an assumption in terms of our guide that we recover a portion of it. So our guide would say, look, if you get all the macro -- and plus, of course, you get to the right side of the guide. But the midpoint of the guide would have been an assumption that you recover some portion of that macro. And so if the macro recovers and fuel stays relatively on the exit rate of the $2.50 to $2.60 range, we hit -- and we continue to execute on our initiatives. And with the buyback on top of it, there -- the math just falls into place and so you should get to a $10 EPS.

Now the reality is the reality, right? We're facing right now, $350 a gallon. Fuel, not for the fare increases, we'll see how that pans out. And the macro, again, is on target, I think, some of the macro, we feel pretty good about so far. But the reason we had our range as well as we did. We said, look, we -- there's just a lot of volatility, right? And we don't know. So we wanted to give ourselves some leeway to be in that range. So we are still resolute on the $10 EPS. And we're going to do everything we can control to go get that $1 billion of pretax -- on the share buyback, we're -- we did $570 million last year.

We're $100 million into this year. We're going to do up to $250 million this year by midyear. So we'll have $750 million out of the $1 billion done. We'll see where the economic picture looks like by the second quarter where fuel is at. If we want to continue to accelerate in '26 or do something different, and so what I would say -- and you talked about labor.

Well, let me talk about the integration. We have one major big integration milestone coming up. This is the one where you integrate both reservation systems from both airlines. That's happening in April, April 22, I think. So a big, big milestone. And 3 big integration milestones will been done. We'll have then single operating certificate. We'll have then single loyalty, single reservation system. And the last one, which is always a big one, is collective -- it's one that's tough, right? It's joint collective bargaining agreements. And each union moves at a different pace depending where they are.

And again, we're the only airline that's done -- the last two acquisitions is it's Alaska. We know what we're doing. We're good at it. And discussions are all in progress with our unions, and they'll take from 12 to 36 months to get done. And our view with labor is, look, we're going to pay -- we're a global airline now. We're a large domestic line. We're going to pay competitively with the big 4. And so we're not going to be at a disadvantage from a labor, but not like we were 15 years ago, we had an advantage. But now look, we realize we're a big player, and we got to pay our employees competitively.

But if I'm not mistaken, the wage differential between Alaska and Hawaiian and the cockpit is not particularly material. I mean you'll still have to work out seniority integration, what have you, and that can always be time consuming. But there are some fairly material differences in flight attendant work rules.

Yes. And on our flight attendant work rules, the big difference is at Alaska, we pay by trip versus by our traditionally. So Hawaiian has what everyone does, and our contract is pays by trip, just like Southwest does. And that's a legacy thing from a long, long time ago. And that's going to take time to merge. So that's the one that's probably going to take the longest. But we'll get there.

Like we have a great group of people talking about it. The good part is people want to go execute this vision to go international. And so they realize that we're not reinventing the rules on how flight attendants have to run internationally. There are big airlines doing it out there. So there's a template, and we just have to figure out how the new combined airline needs to work within that template.

Excellent. Mark Streeter, you got a question?

Yes, I do. Ben, you mentioned that Alaska has had success consolidating the industry. When you look at Hawaiian going well, you obviously have the Virgin acquisition before that and so forth. Is there -- how should we think about the future for further U.S. industry consolidation. When would Alaska -- is there a green light that turns on in the executive suite that says we're ready to consider a new deal because we've reached -- the consolidation light turns green because you've further integrated Hawaiian or you've reached your milestones? How should we think about that?

There's a button under my table just where I sit, there's a green light, red light.

We're going to send you a lamp. Just so you understand why.

Okay. Mark, you just gave me a beautiful visual. Look, I'll share it with my team when I see them this week. No, look, I'll say a couple of things on that. Number one, we're focused on Alaska accelerated and $10 of EPS. We -- it's we've got to complete this integration. We're not going to get distracted and that is, first and foremost, what we're going to do.

The same thing I'll say is -- and this is the discussion we have in -- at our Board meetings is Alaska, for as long as I've been there for over 20 years is we've always done what's best. No matter what goes on in the industry, we said, what is best for all the stakeholders of Alaska shareholders, employees, customers and the communities we serve. And we're a little unique there because State of Alaska, I think that's why we did so well with the acquisition of Hawaiian.

We understood how unique and special Hawaiian was. But we will always do what's in the best interest of all our stakeholders as this industry, whether it changes, it evolves, we're going to look at it and say, what is best for all the stakeholders for Alaska.

Great. Let me ask one follow-up because you led me there with the discussion of the share repurchase program and the $1 billion, $750 million and so forth. When you and Shane and the Board sit down and talk about the long-term balance sheet goal to be investment grade or not. We've got sort of a very sort of binary camp, right? We've got United, we want it. We're going forward. We're trying to grab that investment-grade ring. You've made comments in the past like being investment grade would be great. But clearly, you've chosen in the near term to buy back more stock rather than push for upgrades. So what's the debate like in the boardroom about this?

Yes. I think the question is both. And we definitely within -- by the time we achieve Alaska Accelerate 2027, we want to be at -- like we're a notch below with two agencies for investment grade. The goal is to get to investment grade.

I think with a $10 BPS with strong cash flows, paying down debt and reducing our net leverage is what we're going to be focused on going to the next couple of years. Right now, the balance sheet is strong. I would say whatever happens, like we've got $3 billion in liquidity. We've got $18 billion of unencumbered assets between over 100 airplanes and our loyalty program, which was actually priced at before Hawaiian. So you could say that there's -- that value is even higher.

So we feel like we're in a great financial position, and we're just sequencing what we want to do. So given where the stock price is at, some of the -- when we go back in history, some of the regrets we've had is we should have taken advantage of the lows. And what we're doing now is we're taking advantage of the lows, knowing that the long-term goal is to get to investment grade. And as the plan continues to execute, that's the goal is to get there.

Well, and a follow-up on that, your share price has lost more than 30% fewer than 30 trading days, which historically is a buy signal for most airline stocks. On the other hand, there's a fuel problem at the industry level right now. Should you be leaning into the buyback more aggressively in light of the chart? Or does fuel sort of sober up that temper your desire or willingness, I should say?

Yes, we're going to do $250 million this year. And given the price, you'll probably see us do it a little quicker than we thought.

Okay. So last month, you placed -- well, 2 months ago, you placed your largest aircraft order in history. We don't have good line of sight into retirements and/or -- well, you don't have a lot of leased aircraft.

No.

Yes. So we don't have good line of sight into retirement. What should we think about sort of a longer-term capacity CAGR? And what internal measures do you look at before deciding to grow the franchise?

So I'm really pleased with the last big order we put with Boeing. With all the lack of slots available from the OEMs, we wanted to tie in the next 10 years. So this last order gave us 10 years. We go from 400 airplanes to 500 airplanes over 10 years, 41 of those wide-bodies and the rest narrowbodies. And that gives us a 4% growth rate per year, including somewhere in the order of 75 retirements. So that's kind of how you should think about it. We have the capacity to grow 4%. Now we can modulate that quicker or slower depending what's going on from a cash perspective.

And the idea is we wanted to level set $1.5 billion CapEx a year. Give or take, as we go through. So now there's renewals of fleets. We've got an older 717 fleet that we have to address in the state of Hawaii that doesn't travel in flying. But -- and we have some older -- it's funny when you join the airline, you're like, gosh, I remember bringing that airplane in when I was in maintenance and pretty soon, I'm going to have to retire that airplane. It's kind of sobering, I've been here a long time.

And so some of those older airplanes are going away. We got rid of our 900s. Some of the 800s are getting older. And so we just have a really good narrow-body fleet renewal program. The wide-bodies are coming in exactly when we want them to come in. And it all makes sense in terms of how we're going to manage cash flows and CapEx over the next 10 years.

And since you brought up the 717, Mark and I were recently skiing with a former Hawaiian executive, and we were talking about the 717s. And this individual's view was that the optimal aircraft was a 145-seat turboprop. Of course, that aircraft doesn't exist. So that's going to be a long wait for that airplane. So in light of that reality, good to see you, Charles. What do you think is the most logical replacement for the E2?

No, no. Listen, it's -- I've been clear with my people is I'm a maintenance and engineering guy from training, right? I said the one thing I care about when as you guys give me options, I want an engine that can last. That thing does a ton of cycles, and it's got to be a bulletproof engine and not an engine that's going to cost us a fortune that's not reliable.

As we know the new engines of today, they save a lot of gas. We'll see what the maintenance costs are those engines from a life cycle perspective, but I want a bullet-proof engine. That is my number one requirement, bulletproof engine, and it's got to serve the needs of the residents have Hawaii in terms of seats and frequencies, and it needs to fall into our cost profile, obviously, of the overall Alaska. So I built the box, and I said, go solve the problem. And their job is to come back to me here in the next 12 months. I think we have a little time on the 717s, but not that much time to figure out what our options are going forward.

And I'll lead the witness one last time if there are no hands going up in the audience. So hopefully, you'll join us again next year. I'm going to ask you next year what role, what influence AI had since you and I last sat here, which is now, what do you think your answer will be next year? It may not be my opening question.

Yes. No. Look, I'm super excited what we're doing with AI. And a couple of things when you're an airline, you're so busy running an airline that it's hard to devote a lot of resources to AI. So we've partnered with a company called UP.Labs. They're a company that creates companies to go solve problems for the industry or for a certain company

So for me, it's -- we're focused on a few parts of the business. One, safety, operational efficiency, the guest experience, back office, and the commercial side of our business. So those are five -- there are seven many companies that we've started that are focused on those five areas right there. And they're all in different phases of where they are, and I'm super excited on the safety one, for example, and this is how people report. How the data gets analyzed, how the data predicts where some of your safety issues are going to be.

That's just one example that's close to launch. In the next 6 months, and I hope to say, look, this is a tool. We've got a few more that are making a ton of progress. I hope to say, look, these were seven projects. And I know not all of them are going to work. I'm just saying if I do 7 and 3 work and 3 end up bringing $100 million of benefit to the bottom line, which is not contemplated in the long-term goal, but I do believe AI is going to bring savings. That's what I'm looking for.

So I'm super excited about this. We've got a dedicated team, small team working with this UP.Labs. I'm saying, look, let's not distract us running what we have to do, but let's work this in parallel and integrate it with the airline as it comes in. So I'll give you an update in 12 months.

All right. We'll see you then. I'm sure I'll talk to you before that. But thank you, Ben, and really appreciate it. Thanks, everybody.

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 Fourth Quarter Earnings Call. [Operator Instructions].

Today's call is being recorded and will be accessible for future playback at alaskaair.com.

After our speakers' remarks, we will conduct a question-and-answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning and Investor Relations Ryan St. John.

Thank you, operator, and good morning. Thanks for joining us today to discuss our fourth quarter and full year 2025 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew and Shane. Several other of our management team are also on the line to answer your questions during the Q&A portion of the call.

Air Group reported fourth quarter and full year GAAP net income of $21 million and $100 million, respectively. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted fourth quarter and full year net income of $50 million and $293 million, respectively.

Our comments today will include discussion of Air Group reported results and forward-looking guidance compared to prior year pro forma results as if Alaska and Hawaiian were a combined company for the full periods referenced.

Lastly, as a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release.

Over to you, Ben.

Thanks, Ryan, and good morning, everyone. Before we dive in, I want to start by thanking our 30,000 employees for their efforts throughout 2025. Last year was a year of transformation where we laid the groundwork for the next chapter of Alaska Air Group. It did not come without growing pains, but we delivered bold initiatives, strengthen our competitive position, improved our relevance and set the stage for long-term growth under our Alaska Accelerate vision.

Our employees navigated a lot of change last year, and I can't thank them enough for their commitment to helping us realize our long-term potential and for taking care of our guests every step of the way. My belief in our future has never been more evident in the last few weeks as we secured the largest aircraft order in our history with Boeing. This solidifies our growth through 2035, resulting in an outstanding order book of 261 aircraft, if all options are exercised. This now includes firm orders that will take our 787 fleet to a total of 17 aircraft supporting our goal of building Seattle into a world-class global hub with at least 12 destinations.

I want to thank Boeing and Transportation Secretary Duffy for their support and our commitment to being the country's fourth global airline. While 2025 did not result in the financial returns we had initially laid out at the start of the year, we strongly delivered against our Alaska Accelerate vision, ticking off many major milestones with several of them outperforming expectations.

By many measures, 2025 was a major success for our company. We firmly control the areas within our control. Synergies finished ahead of plan for the year, notably on the network side as the power of the combination of Alaska and Hawaiian was evident all year long. Hawaii was by far our strongest region in the network on a year-over-year basis, demonstrating the benefits of the utility the merger has created.

We embarked on our journey to build Seattle into a world-class global hub launching flights to Tokyo and Seoul, and we're thrilled to begin service to London, Rome and Reykjavik this spring, 3 iconic European destinations that elevate Alaska's global relevance.

Our unified loyalty program, Atmos Rewards, went live in August, creating a single platform for engagement and brand reach. We launched an industry-leading and premium credit card that saw 75,000 sign-ups in just 4 months, exceeding our expectations by 3x, demonstrating the power of the industry's best loyalty program.

Importantly, we achieved a single operating certificate in October, just 13 months post merger, an impressive accomplishment and the hard work behind the scenes was completed for our combined passenger service system with operational cutover scheduled for April of this year. This will deliver a seamless, cohesive guest experience, eliminating friction from operating dual systems.

These accomplishments demonstrate our ability to execute a complex integration while transforming ourselves into the country's fourth global airline. While many things went exceptionally well last year as we rolled out a slew of new initiatives at a record pace, we know there is room for improvement. Our goal is to build world-class technology infrastructure.

The two outages we experienced last year were painful for our guests, employees and financial results. Corrective actions are underway and will continue throughout the year, supported by third-party experts as we invest in both near-term fixes and long-term sustainable solutions.

Turning to 2025 results. For the fourth quarter, we delivered adjusted EPS of $0.43 and for the full year, adjusted EPS of $2.44 both ahead of our revised guidance put out in early December. As we had shared at the time, results were impacted by the IT outage, elevated fuel costs and the impact from the government shutdown.

In the end, we've delivered a better cost result and benefited from slightly lower fuel in December than anticipated. Given our conviction in Alaska Accelerate and our ability to generate $10 of earnings per share by 2027, we executed $570 million of share repurchases when our stock price was below its long-term potential. This puts us more than halfway through the $1 billion buyback authorization, we unveiled at the end of 2024.

As we look ahead to 2026, our overarching focus is on harvesting the investments we made in 2025 and driving margin expansion as we progress toward our goal of $10 per share by 2027. We expect full year earnings per share to be in the range of $3.50 to $6.50, representing a meaningful improvement over 2025, this reflects continued delivery of incremental earnings from our $1 billion Alaska Accelerate plan, the benefit of lapping transitory challenges experienced in 2025 and the trajectory of the macroeconomic environment and industry capacity growth.

At Air Group, we feel the momentum building and accelerating in 2026 as our bold strategy comes to life. Our team is inspired and motivated to win. We have a winning business model and are continuing to configure it to meet the market where it's headed, more premium experiences, more international and fierce loyalty.

And with that, I'll turn it over to Andrew.

Thanks, Ben, and good morning, everyone. Today, my comments will focus on fourth quarter and full year results, along with our outlook and trends for 2026. For the fourth quarter, we delivered total revenues of $3.6 billion. That's up 2.8% year-over-year on 2.2% capacity growth. This resulted in unit revenues up 0.6%.

I'm proud of the team for delivering positive unit revenue performance considering we had one of the industry's most difficult year-over-year comparisons in addition to contending with a government shutdown.

As we shared in our investor update back in early December, the government shutdown impacted fourth quarter earnings by approximately $30 million or $0.15 of earnings per share. Bookings were solidly positive going into the heart of the shutdown, then went negative on a year-over-year basis for a short period and rebounded in early December, back to positive territory to finish the year out strong.

For the full year, we delivered total revenues of $14.2 billion, up 3.3% year-over-year on 1.9% capacity growth resulting in unit revenues up 1.4%. This performance reflects our continued leadership in unit revenue growth, which we believe will finish the year ahead of the industry average, illustrating the benefits of our Alaska Accelerate synergies and initiatives.

As has been the case all year, we continue to see strong demand in our premium cabins. In the fourth quarter, First and Premium Class revenues were up 7.1% year-over-year, outperforming Main Cabin by 9.5 points. Premium revenues represented 36% of total revenue, up 1 point from Q3. Main Cabin revenues were down 2.4%, which is a modest improvement versus the third quarter.

The fourth quarter has a much harder comparison than the third quarter, so the improvement in Main Cabin performance is encouraging as we look to 2026. For the full year, premium cabin revenues increased 6.7% and outperformed the Main Cabin by 7 points. We are excited to see continued growth in our Premium Cabin revenues and now have 86% of our 218 Boeing 737 aircraft seat retrofit complete. All that remain our 31-737-800 aircraft.

As a reminder, all these retrofits will be finished in time for selling into the summer travel, enabling us to sell all 1.3 million incremental premium seats across our network, which will help us fully realize $100 million in incremental profit we outlined as part of Alaska Accelerate.

Managed corporate revenues in the fourth quarter were up 9%, notwithstanding the government shutdown and related flight reductions, a 2-point quarter-over-quarter sequential improvement. I'm also pleased to report that our share of corporate travelers in our business class cabins on our Seattle to Tokyo and Seoul routes is about to cross over our fair market share demonstrating that we have successfully tapped into the lucrative international corporate revenue pool of the West Coast that we previously did not have access to.

Forward-looking business bookings for 2026 are also very encouraging. Held managed corporate revenue on the books is up 20% year-over-year for Q1, with significant increases in the technology, manufacturing and financial services sectors.

Turning to loyalty. The launch of Atmos Rewards, our new single loyalty program, including our new premium credit card, the Atmos Summit card drove unprecedented increases in absolute card spend and new card members.

In the fourth quarter, loyalty revenues, which include bank cash and member redemptions were up 12% year-over-year. For the full year, bank cash remuneration was $2.1 billion, up 10% year-over-year.

Turning to credit card. Acquisitions for the full year finished up 17% year-over-year with a significant portion of those coming after the launch of Atmos in August. Our new premium card, the Atmos Summit card has been a resounding success.

To put it in perspective, in Q4, we had record card acquisitions for any single quarter in our history and nearly 1/4 of those new acquisitions were for the Summit card. This is particularly important because premium cardholders are spending 2x more than holders of the base credit card, demonstrating the value this new card product has brought to our portfolio from these high-value travelers.

The demand for new global benefits that come with the card when combined with our global network expansion was truly amazing.

Importantly, in the fourth quarter, nearly 60% of all new card accounts came from outside our core in the Pacific Northwest with 25% of new accounts coming from California. Our thesis that the new program and our new card products would appeal to a wider audience has proven true in the first 4 months post launch, helping us expand our reach.

The Atmos Rewards business card also had an impressive quarter. New accounts are up more than 185% year-over-year, benefiting from the new Atmos for business platform we launched, which is aimed at making travel for small and medium businesses more integrated and seamless.

Looking forward to 2026, as Ben said, this will be a year of harvesting and optimizing the investments we made in 2025 with a focus on our guests and other key touch points. These include the premium seat expansion I already touched on, which will be complete by spring, offering an overall better experience for our guests and higher revenue generation across our fleet.

We're rolling out expanded lounge footprints and new food and beverage program and introducing curated onboard experiences for international service. We believe our new international service will be measured amongst the best. We now sell in 6 foreign currencies and recently unveiled our Japanese, Korean and Italian language-based websites, helping us drive point of sale outside of the United States to support our new international service.

Starlink Wi-Fi installation is already underway on the Alaska branded fleet with 24 aircraft complete. Adding these 24 to the existing Hawaiian branded fleets, a total of 66 or 16% of our aircraft are now equipped with Starlink. We expect to have 50% of the fleet online by the end of 2026 and 100% complete by the end of 2027.

We will offer this for free to Atmos reward members, and we believe Starlink is a clear differentiator as it's the fastest Wi-Fi in the sky.

Turning to our outlook. Growth will be modest this year given only six 737 deliveries as we await certification of the MAX 10. We'll also take one 787 delivery and four Embraer 175s. The MAX 10, when it's delivered, will add 5.5% more seats and increased first-class seats by 25% when compared to the MAX 9.

We expect first quarter capacity to be up 1% to 2% with full year capacity projected to be up between 2% to 3%. Given that the demand environment is still recovering from the economic shocks experienced in 2025, we believe our low growth rate is prudent given the current backdrop. 100% of our net growth is represented by new long haul out of Seattle, and we have moved our domestic capacity around to focus on higher growth in both Portland and San Diego, which are geographies, our brand, product and loyalty base is poised for further growth.

As Ben mentioned, we are also eager to launch flights to London, Rome and Iceland. All 3 new markets are selling extremely well. Not only have we turned on network access beyond Tokyo and Seoul, but we've also recently enabled access beyond all 3 European cities.

We're also finalizing regulatory approvals for 17 code-share destinations beyond London, which would bring us to 55 total destinations and enable us to take our guests to all the high-demand cities in Europe. Additionally, we were awarded more favorable departure times on our Seattle to Seoul inch on route, which will improve connectivity options deeper into Asia effective late April of 2026.

Advanced bookings across the network have been robust since we started the year, well into the double digits since January 6. We have seen several of the highest booking days in Air Group's history the last few weeks. The falloff in bookings and yields last year began the first half of February when demand was hit hard, so we expect sequential improvement each month throughout the quarter.

First quarter industry capacity is also projected to remain in line with macroeconomic growth. With strong demand momentum and a constructive backdrop, we expect solidly positive unit revenue growth in Q1 on the back of the toughest industry comp.

Recall last year that even with the shock in demand, our first quarter unit revenue still finished up 5%. I want to close by stating what might seem obvious. 2025 was a monumental year for the commercial team at Alaska Air Group with respect to systems integration, synergies and guest benefit unlock.

Not only did our synergies and initiatives finished the year slightly ahead of plan, but we also built the new foundation for our commercial engine and are just getting started on maximizing its potential. There is plenty of optimization and maturation opportunity within initiatives that have already been rolled out. And we unveiled dynamic pricing later this year and begin rolling out our new O&D revenue management system in 2027.

While 2025's progress was slowed by macroeconomic challenges and integration friction, bookings momentum has been building since last July, and we are off to a strong start to the year. Managed corporate business is looking strong. We continue to roll out new premium seats for sale, hub banking efforts continue to bear fruit, and we're excited to land our first scheduled service in Europe. We are well on our way to realizing the full $800 million in incremental revenue by 2027 that we laid out in Alaska Accelerate.

Importantly, our guests will begin to experience the full breadth and depth of what a seamless and integrated airline can offer, both domestically and now globally because of a single passenger service system, single loyalty program with seamless benefits across both brands, full oneworld unlock.

Co-location of airport operations and completion of construction in the Seattle and Portland lobbies, a single website and app reflecting two brands and alignment of Hawaiian and Alaska guest policies along with enabling technologies. We are now poised to see all the benefits envisaged by Alaska Accelerate come to life.

And with that, I'll pass it over to Shane.

Thanks, Andrew, and good morning, everyone. As our fourth quarter earnings indicate and as Ben and Andrew both shared, we exited 2025 on a strong trajectory, which has continued to strengthen further in the first 3 weeks of the year. At this time last year, we were coming off of our Investor Day, and we're experiencing a similar historically strong demand backdrop, which felt like a very constructive start on our path to $10 of earnings per share by 2027. Ultimately, the macroeconomic backdrop in 2025 played out differently, reducing revenues by more than $500 million and underscoring that our industry remains a volatile one.

Changes can occur quickly in either direction and that direction has been increasingly positive since September of last year, trends which were only briefly interrupted by the government shutdown. While slightly below our guide, which was snapped a couple of weeks after our full flight schedule was restored when the government reopened, our fourth quarter unit revenues finished closer to our original plan versus any other quarter in 2025.

Demand rebounded quickly post shutdown, flattening modestly through the holiday and has since accelerated further with current bookings now improved on a year-over-year basis on difficult comps versus January and February 2025.

Given our 2026 capacity growth is in line with forecasted overall economic growth, we expect this trend can continue, hopefully backfilling the entire macro-driven revenue reduction from last year. This strength, along with further synergy and initiative execution is expected to drive healthy earnings expansion this year.

For the fourth quarter, we reported adjusted earnings per share of $0.43. $0.33 above the guidance we released in early December. Roughly half of the beat was attributable to better nonfuel cost performance with the other half coming from a combination of lower fuel in December as West Coast refining margins normalized plus a lower tax rate due to higher earnings.

For the full year, we reported earnings per share of $2.44 with an adjusted pretax margin of 2.8%, which is down about 1 point compared to 2024 on a pro forma basis. In addition to the macro-driven revenue gap to expectation, our full year earnings were also impacted by approximately $100 million of transient items we do not expect to recur moving forward.

Despite the headwinds from macro and these transitory items, we generated $1.2 billion of operating cash flow for the year. Our total liquidity inclusive of on-hand cash and undrawn lines of credit stood at $3 billion at year-end. Debt repayments for the quarter were approximately $130 million and are expected to be approximately $240 million in the first quarter.

As Ben mentioned, we repurchased $570 million of ALK stock in 2025, including $30 million of repurchases in the fourth quarter. With these purchases, we more than offset dilution and reduced our diluted share count to 117 million shares, down from 129 million shares last year and well below pre-pandemic levels.

We expect to continue to execute share repurchases in 2026 to at least offset dilution. Our debt-to-cap ended the year at 61% with our net debt-to-EBITDA at 3x. Our long-term target remains 1.5x, which is achievable as earnings expand, though could shift to the right slightly given macro factors and our share repurchase activity in 2025 that modestly slowed our debt repayment cadence.

Fourth quarter unit costs were up 1.3% year-over-year ending the year below guidance and on a trajectory in line with our original plan. As we pass integration milestones, we anticipate we will increasingly be able to fully focus on running excellent and productive core airline operations allowing us to return fully to our historic strength of cost discipline.

For the full year, unit costs were up approximately 4.7% year-over-year on just 1.9% capacity growth. Given this capacity was 0.75% less than our original plan and given a nearly 2-point cost headwind from market-based labor deals, I view our overall cost performance as very strong. This was partly helped by the unlocking of early cost synergies from the merger.

Turning to our outlook. First quarter adjusted earnings per share are expected to be a loss of $1.50 to a loss of $0.50, while full year adjusted earnings per share is expected to be between $3.50 and $6.50. First quarter earnings per share is expected to be approximately flat year-over-year, which would mark another sequential improvement towards earnings expansion.

With planned CapEx of $1.5 billion, we expect to generate positive free cash flow this year. Our guidance range is wider than normal, but as I noted at the top of my remarks, our industry remains volatile. For further context, our range generally assumes the following: That we deliver on synergy and initiative value as we did in 2025 that we lap onetime issues that impacted earnings this year, and the low end of the range would require a deceleration of current booking strength due to macroeconomic factors or supply-demand imbalances in the industry or there is extreme price pressure on fuel.

And the high end of the range can be achieved if current demand trends hold and fuel prices steady with normalized refining margins. As we talk today, the macro backdrop, bookings and overall supply side of the equation look quite positive. But fuel has been volatile in January. And for context, every $0.10 change for the full year in fuel price translates to $0.75 of earnings per share.

We remain committed to driving $10 of earnings per share. This requires that we execute on our $1 billion of profit unlock, which we are progressing well on and that the macro backdrop looks as it did when we first set that goal. We are excited to see how 2026 plays out to fully execute year 2 of our Accelerate plan and to deliver on our commitment of generating durable financial performance for our people and our owners.

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

[Operator Instructions]

And our first question comes from Duane Pfennigwerth from Evercore ISI.

Just on the increase in managed corporate travel, that 20% number, what's interesting about that is the comps aren't easy yet. I think that's more of a late Feb, March event. So how do you interpret that 20% growth? Do you think this is catch-up from travel that's deferred from the fourth quarter? Are there just differences kind of seasonally year-over-year? How do we think about that?

Duane, I think a couple of things. It's sort of in general, up in line with bookings. What we've really seen on the managed corporate side is driven by volumes. But the other thing I'll just tell you is that I think as it relates to technology and some of those industries, we've just seen a real significant bump. I also think that what we're starting to see is the fruits of our labor as it relates to our expanded network footprint global. We're getting more and more penetration into our corporate contracts. And so I think it all stems to what we've been working on is to become more relevant for the corporate traveler.

And then my follow-up is just on systems. You rattled off a lot of positives. And I just wanted to check with you, are those all in the bag? Or are there specific integration milestones from a systems perspective that you expect as we think about 2026?

Thanks, Duane. What's really exciting on the guest-facing systems, we cut over in October for all flights beyond April '22 on a single PSS. The last major milestone is actually in April where we people start flying on the new PSS. But other than that, all major guest-facing commercial systems, whether it's loyalty and all the rest of it are all single and in place now. So that's why we're very confident that our guest experiences in 2026 will be materially smoother and more seamless than they were in '25.

And our next question comes from Conor Cunningham from Melius Research.

Maybe we can start off just by the guide for '26 in general. So I think it's pretty clear at the high end on how you get there and if demand remains here and fuel normalizes, all that stuff, it's pretty easy to get to. But just trying to understand the downside a little bit better. You cited macro factors, but if you could just talk about how that could play out for you if the low end of the range was actually in play. Is it really more of an industry dynamic? Or is it macro? Just how do you think about the risks in general?

Conor, it's Shane. Yes, you actually just answered it at the very end. I think -- the two things that really could take us to the low end of the range in our mind is either a step back on the macro side, which we're hopeful doesn't happen and we're not expecting, but it did happen last year. And so we're a little bit informed by last year's experience in terms of putting a guide out for this year or we just saw fuel prices spike.

And just for reference or context, $0.10 of fuel price increase for the year is $0.75 of earnings. So $0.20 fuel price increase could take us down there, all else equal. Again, we're not expecting that, but just given the volatility in the industry recently, we thought it was the right thing to do to widen the range a bit and share more details about why we would approach the low end. All of the things that are in our control, synergies initiatives, running a great operation, lapping some things that happened to us last year, we're going to execute really, really well, and we're confident about that.

Okay. Okay. And then, Shane, maybe sticking with you. Just -- so in the past, you've talked about like 4% to 5% capacity growth. And then in the context of that, it's like flat unit revenue. I know you're not giving unit revenue trajectory, but just hoping you could talk about the building blocks here because the way that I think about you're growing 2.5%, I assume you're back to hiring some you have some investments that are in place, but you also have cost synergies. So if you could just help with the trajectory of costs throughout the year, I think that, that would be helpful.

Yes, sure. So a couple of things. One, we did in the middle of the year, have a couple of large sort of step-ups. This is in '25 in certain categories we had -- and we mentioned this in the script, market-based labor deals. We're not fully lapped there. So we've got to get through the first and second quarter to fully lap those. And then we've talked about this thematically for a few years now, real estate costs continue to be sort of the highest cost CAGR in the P&L. And that's because of all the investments that were necessary but are being made in a lot of our core hubs.

And we're excited about the spaces that our guests are going to get to experience as those come online, but there's a cost reality that comes with it. A lot of that comes in the middle of the year, so it hit us in Q3 and Q4, and we've got to lap those as well. So I think with low growth in the first quarter, which is the right thing for us to do with our seasonality and lapping those were the most challenged on a unit cost basis in Q1 and Q2. And then as we get to grow a little bit more into the summer and the latter part of the year and lap those, I think we're going to have a really nice cost trajectory out of the end of the year as well this year.

And our next question comes from Jamie Baker from JPMorgan.

So my first question, I guess it kind of builds on Duane's second question on integration, Slide 9. You note that the selling cutover is behind us. That represents the most significant phase. I completely understand all that. What's not clear to me is what remaining risk is there? I mean you mentioned being able to unify guest experiences after April. What exactly is that? Again, the goal is just trying to assess PSS risk from here.

Jamie, so of course, my technology team are much more wound up, but I have full confidence in where we are. But essentially, every ticket sold after October beyond April was on Alaska, single systems and all the rest of it. So all that really has to happen on April 22 is that when people actually start flying those flights, our systems need to point to the Hawaiian operational systems versus Alaska systems because they're not all integrated. But the team is all over it. We've done this before. I have full confidence, and we have good plans in place. So from a revenue and a commercial perspective, all things going well, we're in a very good place for 2026.

Okay. That's helpful. And then second on Atmos, when we think about I'm personally very disappointed with the overall level of industry disclosures. But when we think about rank ordering the industry's loyalty programs by profitability, where do you think Alaska ranks? And what gives you the confidence in your answer?

Thanks, Jamie. I think -- well, there's 2 sides to loyalty. Obviously, there's the guest perception of loyalty. And then, of course, there's the airlines' economic reality. Both of those are critically important. I can unequivocally say we're at the top. I believe based on what we've heard from industry experts, banks and others that we're in a really good place. I also know that we win year after year on guest generosity. And we are very purposeful about how we manage our loyalty program that the value of points that we provide to our guests. We don't depreciate and mess with materially. And the good news is that we're always growing. We're expanding our network. We've now got an international network and the platform and the Hawaii franchise and the network there.

So personally, what we have that others do not have is a real step change in our underlying business that's only going to, I think, attract more loyalty and the new program is even more expansive and generous.

And our next question comes from Tom Fitzgerald from TD Cowen.

I was wondering if you could touch on some of the growth in San Diego, both from a transportation perspective and the loyalty program sign-up and how that's been absorbed?

Yes. Tom, actually, really good. I think -- and one of the key things that my team is very aware of as we move into '26 is with the increased utility, we fully expect and are seeing increased membership and most importantly, increased card sign-ups. We're working hard with the operations teams to make sure that this growth is seamless. But overall, all the leading indicators about what you would expect to see from growth, which is share, share of corporates, card sign-ups, loyalty sign-ups, we're seeing come to pass.

Okay. Great. That's really helpful. And then just one for Shane. I'm wondering if you could, I guess, a, just touch on maybe unpack some of the drivers of the nonfuel cost beat and the execution there in the fourth quarter. And then maybe just an update on some of the IT overhaul investments and the improvements in IT hygiene coming down the pipeline in '26.

Thanks, Tom. Yes. Yes, we -- and I obviously covered this in the prepared remarks, but really good performance by the team across the board in terms of cost management and focus in the fourth quarter as we exited the year.

The good news, I think, from my perspective is it was in many, many categories. It wasn't one single area that we just sort of got an unexpected benefit out of. So as we crossed over getting our single operating certificate, it really is the moment that we're able to go and put more of our full focus on running really efficient, effective quality core airline operations. And I think the fourth quarter is just evidence of what we can do when we're able to really focus on running the airline well.

So we had benefit versus our guide or forecast internally in wages and productivity on the maintenance side of the business and selling and distribution expenses. And anyhow, it's just a lot of like little things that added up to a nice beat. So well done by the leadership team and everybody else at the company in the fourth quarter on cost.

On the IT side, yes, we're making headway on investing in resiliency and redundancy. We've got a lot of sort of detailed plans ready to execute in the first quarter here, and we've spent a good amount of time in the fourth quarter, understanding exactly what we need to do. And we're on our way of executing all of that. And all of the investments are already contemplated in our guide for next year, both the CapEx side and the EPS side.

And our next question comes from Andrew Didora from Bank of America.

Shane, maybe a follow-up there on -- just on costs. I guess you are making a change to CASM. Can you maybe talk about -- the way I understand it, there's still some profit share that's going to be in there. Could you maybe just talk to the change you're making, why you're doing this now? And I guess more importantly, does this change like influence the way we should think about kind of your CASM trajectory versus -- in conjunction with your capacity growth? Any thoughts around that would be helpful.

Yes. Yes, thanks. I think Andrew, you're sort of referring to the restatement of CASMex to remove profit sharing. Honestly, it's just become kind of an industry convention that we were a little bit of an outlier in. So we decided to adopt this year. We just had to choose a time to do it. It's not going to change our focus on driving cost performance in the business and margin performance in the business at all. There isn't really any other "profit sharing in the adjusted number." There are some incentive payments that we have for customer satisfaction and for operational performance that employees can earn that remains in our core CASM because it's not really a profit sharing metric.

So it's really just like the rest of the industry has done, remove the volatility of year-over-year profit sharing from adjusted CASMex.

Got it. Okay. It was that portion that's remaining that I was referring to. Okay. That's helpful. And then just, Shane, you alluded to this at the end of your prepared remarks, but just the $10 in 2027 EPS, you obviously still express confidence in at least the building blocks to get there. I'm not asking about '27. I guess, can you maybe walk us through what we need to see happen in 2026 in order to make this goal seem much more achievable today?

Andrew, I'll jump in. It's Ben. Well, look, our thesis hasn't changed from our December 24 Investor Day. What we laid out under Alaska Accelerate was a plan to unlock $1 billion of pretax with the integration. And as Andrew mentioned, we're well on track, slightly ahead of plan on that. And that is all the network synergies, the loyalty, the premium leaning into international, the elements where the big airlines are getting a lot of the profit accretion from.

So these are things that are coming, they're harvesting for us in the next couple of years. And -- but for the -- as Shane laid out, the macroeconomic volatility that we saw last year and a little bit of the pressure on fuel that we're seeing from West Coast refinery margins, we are on track. And I am as convicted and as committed as ever to $10 of EPS to that goal. And just that's how we see it. And if this trajectory continues, we're off to a good start in '26. If this trajectory continues, then we'll be solidly on the right-hand side of our guide.

And our next question comes from Brandon Oglenski from Barclays.

So Ben, I asked a similar question from your competitor this week. But effectively, we didn't see any industry revenue growth in 2025, even though GDP was pretty positive. And I think the prevailing thought here is that industry pricing has really been the culprit. It's not underlying demand that's the problem. Would you view that similarly? And just given the changes we're seeing on the low-cost side with capacity coming out, do you think that's going to be where the industry can get some traction again on yields and margins?

Yes. I'll take this one, Brandon. I think it was one of capacity outrunning economic growth in 2025. I think it was clearly documented in the third quarter. That was very significant. And as you fully aware the multiple shocks to demand throughout '25 were significant. I think as we look to 2026, I think as you look out and just read the commentary, I think there is a much closer alignment between economic growth and capacity growth. And as you referenced, there's a lot of carriers that are actually reducing.

So I think overall, I think we're in a better position in going into '26 than we were in '25 as it relates to GDP aligning more closely with the capacity growth for the industry, which should then, therefore, be positive on both the unit revenue side and as we've been talking about some of that lost economic demand coming back in 2026.

I appreciate that, Andrew. And maybe as a follow-up, too, I know you guys were focused on maybe moving more domestic flow through Portland and restructuring Seattle for more international connectivity. How is that progressing?

Yes. Thanks, Brandon. We -- it's one of those exciting things you get to do when you look at your network and one of the wonderful things of having a Portland hub 130 miles down the street from Seattle is we're able to focus both hubs to collectively take our local and connecting traffic across our network.

We continue to see significant increases in flow of volumes through both those hubs through this. And of course, Seattle is very constrained, and we're also able to make room for those local passengers that we need to serve out of Seattle when we can put connections over to Portland. So I think there's going to be a lot of work -- further work to be done this year, but it's a real gift to be able to have both these hubs to do what we need to do with.

And Brandon, maybe just to maybe to summarize all that. I think where you're seeing strength with the legacy carriers is in the premium space and in the international space. And if you look at our strategy under Alaska Accelerate, that's exactly where we're leaning into. We're adding more premium seats. Andrew mentioned 36% of our revenues are from the premium space. Our international, we have 2 flights today. We're going to 5 up to 12. We're really leaning into the space where we can capture some of that revenue that's really been strong over the last several years. So this is why Alaska Accelerate is beginning to work. It is working, and we're confident moving forward on that.

And our next question comes from Scott Group from Wolfe Research.

So I know you're guiding to solidly positive RASM in Q1. I'm just hoping to get a little color on like what that means. I think back like last January, you said it would be high singles in Q1, it ended up mid-single. So like the comp gets obviously a lot easier. Like if we just take like current trend and just assume it holds and then get the easy comp, like what could this mean for Q1 RASM?

Scott, so a couple of things. I think we achieved, I think it was 5% unit revenue increases in the first quarter of '25, which was industry-leading, notwithstanding the massive shocks that happened there. We still have about 1/3, about $1 billion of revenue to come. And of course, that's going to be influenced by the continued strength and growth in both demand, both leisure and domestic.

So I think -- and again, Shane is not allowing me to give any guidance here, but the reality is that if continue -- conditions continue, this could get better and stronger. And I think the network dynamic, what we're seeing and I think the opportunity we have, especially in the premium cabin, I think we have more upside there could only get better.

Okay. And then, Shane, just sort of like big picture, like you're saying -- you're saying solidly positive RASM in Q1 and flat earnings, but then earnings for the year are at the midpoint kind of double. Like what changes from Q1 to the rest of the year to see such a massive sort of change? Is it just the comps? Just some thoughts on that thought.

Yes. No, I appreciate the question, Scott. A couple of things, and I will answer specifically to what's going on in Q1 this year for us. But I think it's important to remind folks, we are the most seasonal airline. I think the second most seasonal airline prior to our merger was Hawaiian. And so Q1 is going to be the toughest quarter for us. We're committed long term to still getting to breakeven in this quarter at a minimum. I think the core Alaska network was really close to that last year.

And really, our cost profile sequentially coming out of Q4 into Q1, it's -- the costs are pretty flat sort of quarter-over-quarter. Like I had talked about, we have to lap these labor deals and the real estate step-up. And really, had we seen the demand environment we're seeing today for the entire Q1 booking window, we wouldn't be talking about a flat result. We'd be talking about a material improvement to year-over-year performance in the first quarter. And so it really is ultimately how quickly this macro backdrop can recover. And had it recovered a little bit sooner than it ultimately did, I think we'd be in a different place in terms of the year-over-year comp.

But again, if you sort of just take what's happening today forward and then have to take it up from today forward, the rest of the year looks really, really good. And I'll just remind everybody, you guys know this, but the biggest sort of missing revenue quarters for us last year in the whole industry were Q2 and Q3. And so that's really where we expect to see the biggest expansion of earnings this year.

Our next question comes from Atul Maheswari from UBS.

I have a question on fuel first, which is like do you have a view on what's driving the volatility in the West Coast fuel, like what's driving the elevated prices? And what really needs to happen for some of the spreads to come down? And given all the volatility that we're seeing in the West Coast fuel, what can you do to reduce the reliance and how quickly can that be achieved?

Yes. Thanks, Atul. We do have a view on this, and it's pretty straightforward. We really need the West Coast refineries, particularly in California, to stabilize. They just are not up and operating consistently enough and not operating at the level that they did for the last 23 years that I was at the company before the last 2 where it's really become very volatile. And so that's what we need. That's the driver. It's all on the refining margin side of the business. Some just sort of, I think, good facts for folks to understand. We get about 50% of our fuel is exposed to West Coast and 25% is really in Hawaii, and that's coming out of Singapore, and that's the lowest fuel all-in cost, I think, that you can get in the industry.

And then we get 25% from the rest of the country, call it, U.S. Gulf Coast types of pricing. So we're about half the fuel bill is exposed to the West Coast. We do need to see this volatility go away. And I think, by the way, it's not just Alaska, it's every airline that needs to see this over time and guests up and down the West Coast. So we're going to increasingly work with local communities and probably federal agencies to see what we can do to ultimately help smooth out the frequency with which the refineries come offline.

And in addition to that, we need to bring more fuel supply into the West Coast that's not reliant on the refineries. And we're working to do that in our biggest hubs, but that is a longer-term initiative. It's probably a 2-year sort of initiative to get that in place. But ultimately, we're going to be able to, I believe, move back to parity, which we have to as an industry on the West Coast in terms of all-in fuel prices.

Got it. That's very helpful. And then as my follow-up, assuming you do the midpoint of the guidance for this year, which is, say, call it, $5 in EPS, then in that scenario, is $10 in EPS for 2027 still in play? And if so, can you please give us a bridge to go from that $5 to the $10. And I think that will be helpful for all of us to understand how reasonable that $10 estimate is?

Sure, Atul. I'll not fully verbat and repeat what Ben said. But yes, it's still in play. And I'll just step back and sort of remind people of the high-level math that got us to $10. We started with our 2024 result. We normalized that for the fleet grounding that had happened in the first quarter of that year. And then we added $1 billion of profit unlock from our Alaska Accelerate plan, which we're on track to outperform at this point over the 3-year period. And that really got us above $10. There was some buffer. We've never sort of shared the buffer. We're not going to share that today.

And then the other underlying assumptions were that macro organic revenue growth in the industry that we were exposed to and everybody else was exposed to roughly offset the cost growth of the company. And that's how we got to above $10. Fuel was roughly what it was back in '24 as we exited '24. That's the underlying assumptions. All that's really gone negative on us is the macro backdrop, and it looks like it's coming back. And if it comes back fully, and we get all of the $500 million or $600 million that we were missing out of last year, plus a little bit of macro growth on top of that, which should have naturally been happening in '26, '27. By '27, we are back into $10-plus range.

So we're in month 13 of a 3-year plan, way too early for us to be saying we can't achieve this. We wouldn't say that anyway. We're committed to this number. And I think owners and our employees should expect that we go and achieve $10 ultimately. That's the right way to be thinking about driving the business aggressively forward. So we're super committed to it. We've got a lot of year left before we know what happens in '26 and what the setup for '27 is. But we're optimistic and we're going to go drive the synergy and initiative and the controllable piece of this extraordinarily hard over the next 2 years.

Our next question comes from Catherine O'Brien from Goldman Sachs.

So not to be harping on the 2026 EPS range, but I just wanted to clarify on what drives the midpoint. It sounds like for the high end, you just need demand to stay on the current trajectory and I guess fuel will come down a little bit from where we are today. So at the midpoint, does that also entail a step down in the macro or maybe a flattening of the acceleration you're seeing? Or is that current macro plus higher fuel than where you'd be at the high end?

Thanks, Catie. You guys are good at your jobs. I don't -- we're trying to be as clear as we can, but also acknowledge it's a volatile industry, and we're in January. And so we're really, we really like the current setup and the demand feels very good right now. And we're -- we expect and hope that it maintains over the rest of the year. But I'll be super clear. The midpoint is essentially 2025 EPS, lapping transient issues that should not happen to us again that did impact earnings last year, delivery of incremental synergies and initiatives and a little bit of recovery in macro. That's how we get to the midpoint.

And we're right now, the macro line is above that modest recovery scenario, but it needs to hold to get above the midpoint. But that's essentially how we got to the midpoint. And we feel really good about the setup as we sit here and talk to you today. And hopefully, in 90 days, we feel even better about it. But anyhow, that's the -- those are the elements that you can sort of use as you think about the way to bridge '25 to '26 midpoint.

That makes sense and feels prudent. Maybe just one more quick one on loyalty. I know you referenced that some of the initiatives are running ahead. It feels like that $150 million loyalty might be conservative just given the success of the joint program and new loyalty card or new credit card. I guess like is that what you're seeing? And relatedly, of the 60% of new premium card sign-ups outside of the Pacific Northwest, I understand a decent amount of that was in California, but where is the rest?

Catie, yes, I from where I sit today and what we're seeing, I do believe that there is a lot of opportunity here. I just -- this is just a throwaway anecdote, but just our 1 million miler base in the last 12 months has increased over 30%. You only get that from flying on our aircraft. We're just seeing across the Board a step change. And the other thing I'll add is the Bank of America have been an amazing partner. They understand that we need to grow. They have leaned in with us and leveraging the depth and the breadth of their brand and their network, along with our increased brand and network, it's just a fantastic result. So I look for good things this year.

And our next question comes from Savi Syth from Raymond James.

Shane, I might try to bring everything together on the cost discussion that's been done so far on the call. And just trying to understand very simplistically. Historically, you've talked about growing 5% to keep unit costs flat. This year, you have kind of some headwinds and tailwinds kind of in terms of just initiatives or kind of merger synergies coming online, but then also dissynergies coming online. How should we think about that relationship this year? And like when do you kind of -- do we get back to that historical relationship? Or is there something in the environment that's changed that doesn't get us there?

Yes, Savi, I make sure I fully understand it. But the relationship of needing to grow roughly 4% to 5% to fully offset sort of core inflation in the business, that's the essential question. Are we going to get back to that relationship?

That's correct.

Yes. Yes. No, I think we will. I think we will. And that is what our business model is built on. That's how we think about projecting what we need to do longer term in terms of cost performance or incremental revenue to offset the inflation in the business. Look, we're merging 2 airlines, we're making a lot of investments in the business. We're making a lot of investments in airports. And so it is a little more volatile around that relationship for the next -- for last year and this year than it will be going forward.

Once we stabilize all of this, which I think we're well on our way to doing, we fully expect to get back to offsetting unit costs, having flattish or marginally up unit cost with 4%-ish growth. And it will be good to get back there. I think our teams are really capable of delivering on that. And I don't know that it's exactly going to happen in '27, but in the next 24 months-ish, I think that's what you'll start to see as we get through the last of the integration milestones and really get to focus on running a productive airline again.

That's helpful. And if I might, on the cargo side, I think all the aircraft that you -- the freighter aircraft that you're planning are in and you're not getting a lot of extra net aircraft growth this year, but you're also doing international flying. I'm curious how you're thinking about what cargo can do this year?

Savi, we're going to have Jason Berry, our Chief Operating Officer, answer that.

Savi, this is Jason. Good question. We're continuing to -- as we brought these 2 airlines together, we saw a lot of synergies and opportunities, and those are happening. And the top end revenue and the margin is really good coming in on the cargo side. We're seeing good momentum on all sides. We just actually got to a single selling platform earlier this month, and that's really actually helping us unlock and making it a lot simpler for our customers on the cargo side to book with us. So we expect to continue to see positive growth on that as we bring in the new wide-bodies and continue to just work the network.

And Savi, I think if you were asking about, yes, we have 10 Amazon airplanes, freighters. And right now, that's where we're at. That number is not going up.

So maybe cargo growing faster than you would normally expect in the kind of the Alaska Hawaii system?

Yes, I think that's totally true. And our goal is to have Jason talk to you a lot more about this as it does that and expands. He's got a big lift to go and fill these planes up and they're doing a nice job out of the gate, especially internationally to Asia, and we're excited about the future of cargo.

I think we got time for maybe one more question.

And our next question comes from Ravi Shanker from Morgan Stanley.

And I apologize for asking you another 2026 guidance EBIT walk question. But to the point of the high end of the guide points to current trends continuing, I think there's broad consensus that U.S. domestic continues to remain well short of normal strength. So is that guidance baking in the current level of U.S. domestic. So if U.S. domestic does normalize to the year, is that upside to the high end of your guidance?

Yes, Ravi, I think, yes, current trends are sort of how we -- and I think I did just mention this, like if they flatten out from here, we're still feeling very good about the midpoint or better. If they continue to improve, that and backfill the amount of missing revenue from last year fully, then you get to the high end of the range. And I do think domestic for us was -- I think we believe it was a better story in Q4 than the other airlines. If you just look at some of the main cabin results that have been released by others relative to ours, we actually, I think, had the best relative quarter in Q4 in the main cabin and also in our basic economy, what we call Saver Fare category in the fourth quarter. So that actually saw a nice bump as well.

And Andrew mentioned this in a prior answer and also in the prepared remarks, we've really seen the improvement in the demand profile across every segment of the business. But certainly, premium and loyalty are the biggest drivers of that. But I think we actually like the trends we're seeing in Main Cabin right now.

Understood. And maybe on the IT side, I know you guys mentioned that you're pretty confident in '26 and there's no incremental cost. But can you actually share some of the key takeaways from the IT audit and kind of what some of the issues were and kind of what actions you guys are taking to ensure that this won't happen again?

Yes, Ravi, it's Ben. Look, the IT outages were very painful, as I said. And like what I will frame it as, it's not for a lack of investment. We were investing in IT. I think it was more of a configuration. We had hardware failures. We had backup systems and triple redundancies that didn't kick in. And so experts came in. They're still helping us really understand how to take this investment we're making, and we'll add to it to really address the configuration of our infrastructure so that we stay resilient to a really high degree.

And that's really why we're not saying we're going to have this extremely onerous cost in IT because we already invest a lot in IT. It's just getting experts here, really helping us configure it. And long term, if there's migration to cloud and stuff, we'll get you guys up to speed on what we're doing. But in the short term, we're putting a lot of mitigation in place. And like Shane said, that spending is already in our budget.

All right, everyone. Thanks for joining us, and I'm sure you'll have a lot of follow-up with Ryan and team. Thank you so much.

This concludes today's conference call. Thank you for attending. You may now disconnect.

Okay. Hello, everyone. Welcome back to the Goldman Sachs Industrials Conference. I'm Catie O'Brien, the Head equity research analyst covering the U.S. airlines and the U.S. listed aircraft leasing companies. Today, I have the great pleasure of introducing Shane Tackett, Chief Financial Officer of Alaska Airlines. Thanks for being with us, Shane.

Yes. Thanks, Catie, for having us. We're excited to be out here. Yes.

A lot going on.

A lot going on and the first time we've been in front of the market and investors for quite a while, given the fact that we didn't have the earnings call.

Well, I'm happy you chose us. So thanks.

So Shane, you guys put out an 8-K earlier this morning calling out various transitory impacts, some Alaska specific, some industry-wide, LA crack spreads, IT outage, government shutdown impact. If you'll [ humor ] me, I just wanted to dig in on each of those, get the short-term ones out of the way. So this morning, I've been fielding quite a few investor questions on the language in your 8-K around the shape of this government impact, investors focus on the language that you said you're almost back with some of your peers saying, they are back. Can we just go through the replay of what you saw, how far off are we? Maybe not that far at all, that would be great.

Great. I appreciate the question. I'm going to do focus groups with investors before we do 8-K language in the future to make sure that it hits exactly how we intended it to hit. We actually wrote that meaning for it to come across as relatively bullish. And I think it's been read a little bit as bearish. And so I appreciate you letting me sort of set the record straight.

So going into the cancellations that were part of the government shutdown, which didn't start, right, immediately upon the government shutdown, but ultimately were a feature of it. We actually had been experiencing or seeing bookings and revenue look as good on a year-over-year basis as it had all year. And we've been waiting for that trend to return, as you guys know, sort of mid-February, the big fall off, especially in domestic sort of industry revenues had been starting to creep their way back up through August and September and October and had continued on that positive trend back towards closer to the levels we had seen exiting last year and entering this year, and were as good as they had been on a year-over-year basis, right before we had to start executing the flight cancellations.

And then like everybody else, bookings sort of hollowed out and went negative on a year-over-year basis for the duration of the cancellation portion of the shutdown. And then they came back relatively quickly and continue to improve every day that we look at revenues. They're just not quite back to that level the day before. We had to start canceling, but they are still better than 95% of the days that we have observed this year to date on a year-over-year basis. And so as we sit here, they may actually be back fully to what they were the day before the cancellation started.

So it's really been a strong response and recovery of booking trends and revenue trends coming out of the shutdown. And in fact, we -- last week came in stronger than we had expected had you asked us a week ago. So I think everything looks to be on the right trend line to us, and it looks like we're going to exit the year with a good base of strong demand going into next year.

So maybe just to put a pin in. I just heard you say as we sit here, we might be back. I'm assuming that means when you say it's not quite back, it's real close.

Very close. Yes.

Okay. And then as we roll into the first quarter, are you as booked as you would expect it to be? Is the pricing level and those bookings similar? Like, I guess, a long way of asking, are 1Q bookings looking as you would have expected to be impact?

Yes. When we look at the first quarter today, we're roughly maybe 30% booked in January, a little bit less in the other 2 months and right where we would have expected it to be. So hard to, at this point, believe that there was going to be a knock-on impact in the first quarter based on the shutdown until you actually fully book out some of those periods, you won't know for certain. But right now, I don't think the impacts are likely to linger into next year.

Okay. Great. On the IT outage, this is another one that's come up in my investor conversations recently. Can you just give us a little more detail on what happened? I've been personally getting questions on, is this related to the merger? Is it just a fluke and some bad luck?

Yes, it's not related to the merger. There's nothing systemic about bringing the Hawaiian systems over to the Alaska data center and certainly the Hawaiian volumes over to the Alaska data center at all. So those things are separate. The only way you would maybe tie any of this together is we are pushing a lot of change right now through the company. We're both integrating our operation. We're integrating our systems and we're pushing what we would call innovation or initiatives at the same time.

As an example, we just launched a brand-new loyalty platform, completely different value proposition and needed to make a lot of updates to our technology, our apps, our website in order to support that. So we're pushing lots of change. It's the same team who has to manage all of that now, spread maybe a tiny bit thin. But really, these were pretty isolated, I would call them, fluke incidents in that as we've brought third-party experts in to give us a sense of, are we missing something?

There are certainly some things that we can go do that we would call hygiene, just like we can create a little more resiliency, a little more redundancy at a relatively low cost. We can increase the amount of observations we're doing on the daily production environment and technology, but we don't have a systemic architecture failure in our data or infrastructure which was good to hear. And we were open-minded to like, are we missing something on the architecture side of it? Have we just under-resourced ourselves? That's not what they found. And so a lot of the things that we're hearing that we should be doing are pretty quick win types of things and we fully expect to be stable and resilient in a way that people can have confidence that we're not going to have infrastructure data center-related interruptions in our operation at all.

And just the last thing I'll say, Catie, is we had, I think, almost a 10-year run of never having -- like the last time we had an event was almost 10 years ago from a data infrastructure data center perspective. So we know what good looks like. We've run data centers for a long time with excellence, and we'll be back there very, very quickly.

All right. Great. Final one on the headwinds before we move to some tailwind discussion. On the refinery fire, are you back to paying pre-fire prices at the pump? And maybe just a little bit of a longer-term one. Are there any longer-term solutions to help solve for some of the volatility issues we're seeing on the West Coast just with all of the refining capacity that's come out?

Yes. So we are -- to answer the first question, we're back paying what we had been paying before the fire. In fact, we're paying less today in spot prices. So refining margins are in the low $0.70 range on the West Coast. They happen to be in the low $0.70 range or maybe in the high $0.60 range on the Gulf Coast. So the premium for the West Coast has gone back to near parity and we don't even have that refinery back online yet. So there's capacity still yet to come back online.

So that part of the volatility seems to be behind us. We don't obviously plan on closures like this based on fires at refinery. So we're not going to assume that, that happens to us in the future. I think, yes, we do need to find a way to continue to bring consistent predictable supply with less volatile pricing into the West Coast. And we are working on that. We have some ideas. I think they're reasonably likely to be able to happen. The timing is the biggest variable. It requires local support politically, and it also requires working with large oil companies. And essentially, it is bringing in ships of oil or [indiscernible] supply from Asia, Singapore into somewhere on the West Coast, Portland, Seattle.

And I think we can do that. It's done in L.A. today. It's where all of Hawaiian Airlines fuel largely comes from into Honolulu. It's not like a novel idea. We just have to go execute it up in Seattle. So we're going to work on that pretty aggressively over the next several quarters until we make it a reality.

Okay. Great. Let's talk positives now.

All right.

You launched the new premium co-brand card a couple of months ago that drove material acceleration in cash remuneration in September. You were estimating back at Investor Day roughly a year ago, that would drive $40 million in incremental profits by 2027. Can you speak to how that's tracking versus goal? Some pretty impressive numbers. I'm assuming it's doing better than you were initially expecting, a little bit more?

Yes. So we launched Atmos, the new loyalty platform, which brought both HawaiianMiles and Mileage Plan, which was Alaska's incumbent loyalty program together into a single program, and we've seen really, really great initial interest and great response throughout all of our core markets with the largest areas of growth in growth markets for us like San Diego. So I think the platform has been really well received. We think it's best in industry. We think it converts the most value back to our guests over time for the loyalty relative to other loyalty programs in the industry.

And then we also, at the same time, launched the premium credit card, which other airlines have had out there for a while. We kind of understood the value of those and the economics of those. The number of cards that we have already authorized is multiples of what we expected to be at today. And so we're already ahead of where we thought we would end the year at by a wide margin in terms of number of cards in distribution. So it's a great base of initial card demand. Question you could ask that I cannot answer is, does that mean our line moves up for the next 3 years or did we just get all the cards earlier than we thought we were going to.

Now as a CFO, obviously, I hope we're just moving the line up. And we will push the team to increase their targets, but it's a little too early to tell if we're going to end up running right over that end of '27 target. The way that the economics work is you get initial remuneration sort of on a bonus basis when you initially deliver the card. And so when you're above your original expectations, it leads to immediate outperformance. So probably not a continued tailwind of that to the same degree as we go forward from here.

The real value, though, is the loyalty, the flying that the customers do with us. And then that card will become top of wallet and they'll spend on their everyday expenses on it, and then that really starts the engine with the co-brand partner and cash remuneration over time. And that's what we're going to be focused on now is getting it top of wallet, getting the spend and turnover on the card up. And hopefully, it's well in excess of the $40 million, but we're not ready to change that estimate yet.

Maybe next year.

Maybe. Yes.

Okay. Another thing that to me seems to be going better than planned is the performance on the Hawaiian assets. So if I think back to a year ago, I think the thought process was that entity would probably [ lose ] around $200 million this year. I check back, at least on a GAAP basis, 9 months ended, you're closer to breakeven. I know the fourth quarter isn't the best for North American carriers, although decently strong for someone who was a beach destination. So can you just speak to how the Hawaiian assets have gone this year versus your expectation? And what's been better?

Yes. It's been phenomenal. But it is a remarkable brand with loyalty that we believed was true, and now we're seeing in real time every month just how strong brand loyalty is both all along the West Coast, certainly in California, certainly in strength markets like Portland and Seattle and also in Hawaii amongst residents of Hawaii. And so the early sort of earlier-than-expected improvement in the core economics of those assets has been a really nice feature of this year. We had given ourselves a little more time, thought it would take a little bit more time to see those losses kind of lead the system and mature towards profitability.

They'll still lose like Hawaii, Hawaiian will still lose money this year on that Q1, obviously, hadn't had the full benefit of the combined networks. It was still very fresh and very new coming out of the close of the transaction late last year. And so we should see a much improved Hawaiian asset performance, I believe, Q1 over last year's Q1. But yes, we were breakeven to Q2 and Q3, and Q4 is typically a little bit challenged, so likely to dip back into small losses. But we're also doing things like starting to look at the network and make changes where we need to. And those are hard changes for us to make for the employees, for the community, but really necessary changes.

We exited a couple of markets from Honolulu into Asia that hadn't really been able to turn profits for a number of years, like 5 to 10 years, and we didn't see a way to do that. And we saw really good opportunities for those aircraft to be deployed elsewhere. And so in all cases where we've reduced capacity, somewhere we've increased it somewhere else. And those shifting the capacity around has been really net positive to the network for them. And we're going to get a full year of that next year, and there's less tweaking we expect next year on the core network from those aircraft, but maybe a little bit and then a full year of benefit from the connectivity that we've created through banking in Portland and Seattle, and then certainly, the West Coast connectivity we're starting to build in places like San Diego at a much more aggressive pace.

Okay. That's great. Maybe shifting to cost side of the ledger into next year. Based on your delivery schedule, we're forecasting that fleets up low single digits in my model, I've got ASMs up 3%. I realize we don't have '26 guidance yet, but on that level of growth, layering in the ramp in cost synergies, is low single-digit unit cost inflation on the table? What are some of the key puts and takes we should have in mind?

Yes. I'm only ever hesitant because like you guys take it as guidance, if I say. I think we're going to exit the year very, very close to what we had said we would exit the year at, which is a low single-digit rate. I think we have 1 point of headwind because of the capacity pullouts that we had to do with the shutdown and then some incremental costs from the outage that we had to ultimately absorb, take those away and we would have exited right in line with what we had told you guys a year ago.

So we had a couple of fumbles maybe on the cost side in the summer, a tiny bit, but we're back to where we had expected to be, and we're exiting the year in a really good place. The way we've always thought about this is we got to grow 4-ish percent to have a flattish over time, CASMex result. I think your guess at capacity is reasonable. And so there's going to be some pressure on CASMex. But I think with synergies layering in and the fact that the growth should be relatively -- it's not expensive growth. It should be -- we're not investing in new things like new -- big new markets or having to go and front load a lot of cost to deploy the growth. It's relatively ratable.

Every fleet is going to get more efficient next year on some level even as we build up the 787 flying out of Seattle. So I think there's a lot of things that should give us reasons to believe that we can be pretty aggressive on cost next year.

Maybe just one follow-up on the fleet mix part of your response. I know this year, there was some outsized regional flying just based on some of the cuts you had to make close in on the mainline side, which was the pressure on unit cost. Is that an issue that continues into next year? Or should we see -- we should see a better mainline versus regional mix [indiscernible]

Yes. No, I think there are a couple -- in general, no, we shouldn't see a mix issue next year. I think the regional fleet is largely fully utilized at this point. It was wonderful that they were able to pick up some of the lost ASMs on the mainline side. They're great operators, Horizon in particular. And we do have a few aircraft coming next year, E175, but it's really small on the fleet of 400 aircraft that we have. And then with the growth on the 787 side, and continuing to get more utilization out of our 737s, you're not going to have a mix issue. If anything, it will slightly go the other way.

The one variable that everybody who has these aircraft has to deal with is the Pratt & Whitney engine. And by the way, they are -- that team is very committed to helping all of the operators be as efficient with the engine as possible and getting engines through their checks. But there's a chance that we have to go down a couple of lines of flying on the A321 side just because of the GTF issues, and we're still working through that. But absent that, I would say it's going to reverse and you'll have more mainline proportionality, which will be helpful to unit cost ultimately.

Okay. Great. Another on the tailwind side, I want to drill down for a moment on cost synergies tied to the merger. So I know there's a $200 million target that's net of labor cost of synergies, which I think in the original filing was $60 million. So if we just put labor -- new labor contracts aside for a moment, those are lumpy. What are the biggest buckets of the cost synergies? And what are like the gating factors to each of those buckets being able to kick in? I think we just might have hit one of them with a single operating certificate. Would love to hear how headcount optimization post single operating certificate plays a factor into next year?

Yes. The biggest buckets are -- they're all overhead related, and that does include headcount, which is really tough. And we've had a couple of gates that we've already passed where folks who had given their lives and careers to Hawaiian aren't still here with us and I don't want to sort of talk too publicly about it in a way that's seemingly positive because it's not a positive, but it is a reality. We knew going into it. And so that process of rightsizing back-office headcount has started and it continues. And yes, as you cross through things like single operating certificate and then single PSS, there's some more of that to come.

That's the biggest sort of stand-alone bucket. There are certainly large cost synergies that come from supply chain, single contracting, throughout both of the businesses, technology savings where you have duplication today and you can go to a single instance approach. All of those kind of happen one by one as we get systems cut over and a lot of that stuff. Some of it is with us already, some of it is still to come. But it's just like lots of little amounts that add up to relatively large amounts. But it's -- and then the last thing is just sort of airport efficiency co-location. There's actually not a ton of that because they're very -- like Hawaiian's operation is huge and Hawaii ERs is reasonably sized, but not like nearly as big as theirs. So there's not a ton, but some synergy there. And then all along the West Coast, obviously, we have already large sort of footprints in these markets that we now jointly serve.

So airport sort of space efficiencies, technology efficiencies, supply chain and then, yes, there's back-office headcount impacts as well, and we'll continue to unlock more of that through next year.

Okay. Got it. Maybe switching to fleet. You had just gotten back to single fleet type post Virgin America acquisition when you announced the Hawaiian transaction, a little bit of trouble over that. But obviously, with the international network, you need a wide-body fleet. Once you already have one sub-fleet, is it just a very different discussion than what you were thinking post Virgin acquisition? And then -- or are there opportunities on the domestic fleet to be rightsized? I know the 717s are a little bit long in the 2. So I guess how are we thinking about fleet over the next couple of years?

So I think it's different in a couple of ways. One, because you have to have 2 fleets you may as well ask yourself the question. Do you -- does 3 cost that much more? Is there that much more friction? So it's at least on the table, whereas on the Virgin side, and you guys know the story, we inherited aircraft that weren't really a good fit for mission relative to the 737 and were amongst sort of the highest cost -- ownership cost versions of those aircraft that you could find in the market relative to what we believe are incredibly great ownership costs on the 737 side of the business.

So even if we love the airplane, and we do love like the A321, it's a great airplane, there was no way we were going to keep those aircraft, just given their ownership costs and they were almost all leased. And so there wasn't a way to like really fix for that other than doing a fleet transition. So that was sort of like going backwards. Your question is about forwards.

The same basic criteria comes up, there isn't really a reason in our mind to have 2 pieces of equipment that do the same thing. If you can get one at much better economics than the other. And so we have an amazing partnership with Boeing, obviously, and we have a very, very good order book for MAX aircraft that takes us years into the future. And we have small non-Boeing 737 fleets on the Hawaiian side of the business in the narrow-body part of the business. And so there's no decisions made, but it's not -- like I'm not going to like fool you guys, but like the 717s need to be replaced, they'll likely be replaced with 737s of some sort, although we will look at, is there a different sort of purpose-built short-stage length, high-cycle aircraft that could live in Hawaii better than the 737 and then the number of A321s we have is too few. And so you need double that number or 0. And it's going to be binary one way or the other. If we saw line of sight to doubling the size of that fleet, we would pursue that opportunity. If we don't and today we don't, then we'd probably end up in a place over time that was a single narrow-body fleet.

On the wide-body side, we're going to fly to wide-body aircraft for as far as we can see into the future. And there's no imminent plans to change any of that. We're actually extending leases and buying out of leases on the A330 side of the business today. And then we secured 5 additional options on the 787 side from Boeing recently. So we're going to have up to 17 787s in Seattle, funding the Seattle International complex we're building and some large number, perhaps 24, which is what they have today, A330 is operating out of Honolulu for the foreseeable future. And Airbus has a great team. The product is really good. It's perfect for that mission profile. And so we feel good about that.

And the one thing I would say about the only difference is, in addition to like -- these are well-priced aircraft and they're operating like perfectly for their -- like they're perfectly built for their mission. Because of the geographic distance in the bases, it makes less sense necessarily to go in exchange aircraft like we weren't going to fly a narrow-body Airbus and narrow-body Boeing base in Seattle. It just made no sense to do that, whereas it's likely the geography of Hawaii and Honolulu versus the West Coast sort of make it easier to keep sort of crew where they're naturally wanting to be based in Hawaii or off the West Coast. So you have less of the training drag by training across fleets. So I think there's -- it's not going to be that costly for us to operate 2 wide-bodies is what I'm trying to say in a really long way.

I always love the details personally, but maybe we'll bring it up higher level for the next slide. It's been over a year since the Hawaiian merger closed. Would love to hear more on what surprised you? What's gone better? Maybe what didn't go as well? And are there some areas that are just larger opportunities than you would have been able to tell before the books closed?

Yes. I mean -- and we said a little bit of it at the outset, and it's not as if we didn't believe in the value of the brand we did. I mean that's why the first decision and Ben has talked about this that he made was like we are keeping the brand. Like there's like full stop, no question. And even today, when we get questions about it or people think maybe they're not, are they serious? Like yes, we are as serious as we could be about any strategic business decision. The brand is super valuable. And you see that when we fly both the Alaska brand, which has incredible value as well and the Hawaiian brand in the same market over to Hawaii, like the Hawaiian brand gets a premium. It commands a premium seat for seat.

People want -- they enjoy starting their vacation as they walk onto the plane, if you will, that the environment that Hawaiian has built in their culture and their service model and the way that they invite you into basically already being in Hawaii before you even start your trip. It's just special and unique, and you can't replicate it, nobody could, right? And so that has been really fun to watch and to see. And we're learning now at a much more detailed level, where we think there's a lot of value to that brand. And that's why we've talked about anything that's like to, from or within Hawaii over time is likely to be in the Hawaiian brand because that's where it's like most valuable, and that's what people want to experience. So that's been great.

I think the excitement and interest in places like California have been really fun to watch. We were in San Diego recently for a week-long leadership thing, and we did a number of community events. And I'm always amazed by anybody who will give up their night to come out and spend time with airline people. But it's amazing you can fill rooms up. I don't like -- I don't know if I would go to your [indiscernible] I would come here. But if you did come to dinner and have fun talking about Goldman Sachs, maybe I would. I don't know I shouldn't say that. But people love to come and talk to you. We had hundreds of people down there. They couldn't be more excited about the new loyalty platform, the new service we're bringing, our combining with Hawaiian. It's just like -- so those things are exciting that give you energy, give you reason to believe you can be successful over the long term and that you made the right decision. And I think that is all true.

The other thing, it's not a surprise. I would just -- and we'll continue to remind that the traffic -- inbound traffic from Asia is still relatively depressed, and it's at some point, I think, going to be a tailwind. I just can't tell you when, but -- and I was just over in Japan recently, and people want to go to Hawaii. It's just -- it's expensive right now to do it given the exchange rate. So whenever that all sort of normalizes, I think we're going to see a lot of demand to come back to Hawaii from Japan and other points in Asia and they're going to be able to do it in a way that they hadn't before because of our Oneworld partnership and our partnership with JAL, which should just strengthen connectivity through Tokyo and down into Hawaii amongst other places.

So I just think there's a lot of long-term upside to that. And that's fun to see. We're just kind of waiting for it to mature. On the other side of the business, there's I think, really understanding where we need to optimize the networks. We kind of knew we're going to have to make some tough choices. But when you have to make them, they are hard, they're sobering. They had impacts on the people down there who served those communities for a long time. But I'm glad -- I'm proud of the company for making the tough decisions and doing it relatively deliberately and being transparent with the community. But there are more optimizations to come. I think we're excited about the long term on the cargo side of the business. We don't talk a lot about that. We hope to talk about that more in '26 and '27. But there is optimization that has to happen as an example on the CMI part of the business with Amazon.

It's a tough business. It's only 10 aircraft. It's a whole different operation than the passenger side of the business. And we've got to make that work long term as well. So there's -- there are parts of the business that are going to require focus to optimize. And I don't know that it's a surprise, but it's now clear where we have to go and sort of fix pieces that were a little bit broken when we closed the transaction.

Got it. And maybe just quickly, you named a few things you're excited about. Like if you had a top 3. I won't hold you to 3, so it would be 4 or 5. But if you had a top punch list for like what you think the biggest tailwinds of '26 are, as you say?

Yes. I mean there's so much. One, I'll just tell you, and this is too airline boring, but we have launched as much change at Alaska this year and at our people. And even to our guests, most of it is super positive, but as we have in any year I've been there, I just -- honestly, yesterday was my 25th anniversary with the company. And it's going to be really fun to now just focus on running a high-quality core airline, again, that is operationally excellent, best-in-class because that's kind of where everything starts for us. When that engine is running well, the rest of the business can run well. And there's no reason that we can't sort of be back to that next year.

And then you get into the stuff that we're doing around loyalty, the Atmos platform, the international growth out of Seattle. I mean, these are like things that, I don't know, you never even really dream of when you worked at Alaska Airlines or Hawaiian 5 years ago or 10 years ago, like we're going to get to launch a brand-new loyalty platform, get to launch new products like premium cards into the market, have hundreds of people in San Diego come out to party with us and celebrate it. And then like fly internationally out of Seattle and welcome all of our loyal guests back who unfortunately haven't had the chance to be flying on us on their trips to Europe and Asia. And there are a lot of them.

And just like the level of excitement in Seattle to get on flights to Rome has been, I think, even beyond our wildest expectations. So there's just folks in Seattle want to fly with us. We are their hometown airline. They love us as much as we love our company. We're just part of the fabric of the city. And it's just like -- you can imagine like we get into the day-to-day of it and it gets like you forget to be excited about we're going to launch London and Rome in the next 4 months. And like that's a once-in-a-lifetime opportunity to launch international service from this network.

So I think we're going to have a lot of fun with it. There's learnings along the way. We're going to have to get better at doing it every day, but I think we can compete with anybody in our onboard service, the way our frontline employees treat our guests, the value that we bring to them through loyalty. We'll have a high-quality product. We'll be flying beautiful 787s. So that's probably the most exciting thing. And I'm not going to be on the inaugural flight, but I'll like wave to it as it goes. I think Ben will be -- I think Ryan plans to be somewhere on that flight as well, but it's going to be a lot of fun to see that launch for both our customers and our employees.

Maybe before my final question, I have to say, I'm really surprised that you're surprised you could fill a room with airline geek because don't you get cornered at every cocktail party you go to ever.

You do. And I never like -- it never seems it's so amazing that people want to talk about this industry so much. Yes.

It's aspirational.

I guess so.

Okay. Final question. we talked about what the setbacks have been [ nauseam ] earlier this year, Alaska specific industry. How has this changed your view, if at all, on the $10 2027 EPS target? Your view hasn't changed. What gives you the confidence?

Yes, it hasn't changed our view. And I'm glad that people ask us and I think it's appropriate to pressure test us and ask us, well, why not? If you look at that -- if you look at the $10 goal and commitment, we started with 2024 base, right, as profit base. And then all we did to 2024 as we added back the fleet grounding that we had experienced early in 2024 because we knew exactly how much revenue we had lost. We added that back into the profit base. And then we just said $1 billion, add $1 billion, and that's all stuff that's up to us. It's not really reliant on macro. The synergies are -- in this instance, they're clear, they're calculable. We'll continue to walk people through them in detail as they want to understand them.

And then the initiatives are things that other successful airlines have already done, and that's the point we continued to try to make at Investor Day last year and then throughout this year, it's like unlocking an additional role of first-class seats or premium economy seats or putting a premium credit card into the market or things that are tried and true. And the math is relatively straightforward. And all of those things are on track. It's been clouded by everything else that has happened this year, but they're all on track and they're going to continue to track towards that $1 billion. So we got the $1 billion. What happened was macro took a bunch of that base away, $3 a share or so of our base.

So we obviously didn't put $10 out thinking we could only achieve $10. We talked about at the time there's a buffer. You guys asked us what's your buffer? It's like really, I'm not going to tell you my buffer. So yes, the $3 has taken away the buffer and maybe a little more than the buffer because we didn't have a $3 buffer. But we're not as far away as you think. And then you ask like, Shane, do you guys have any other ideas that could unlock additional profits relative to what you said last year? Of course, we do. We're not ready to talk about them yet. But we're not going to stand still. We'll respond to the environment around us. And I think there are material incremental profit unlocks that we can achieve in the next 24 months for sure that helps us close that gap further. And that's before macro improves anymore from where it is today. And it's anybody's guess. You guys will have to write into your own model what you think about macro. But if it didn't improve at all from today just with static from where it is today forward, I think we have line of sight to get there. We got to go execute. It's not going to be easy, but we have line of sight to get there. And if macro actually does improve a little bit, I think then you get a little buffer back and confidence level goes up.

So you guys will ask us this every, I predict, quarter and conference from here through '27. But no, we are -- and we talked a bunch about this at our last Board meeting, no reason to believe that we should pull off of that idea.

And I guess to be fair, the $10 didn't include any buybacks and you're already 50% through the program.

Correct. On both, yes.

All right. Well, on that upbeat and hopeful note for the future, we'll call it a day. Thanks so much, Shane.

Thank you. Thanks, Catie. Thanks, everyone