Good morning, everyone, and welcome to the Alaska Air Group 2024 First Quarter Earnings Call. Today's call is being recorded and will be available for future playback at alaskaair.com. After our speakers’ remarks, we will have a question-and-answer session for analysts. I will now 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. Thank you for joining us for our first quarter 2024 earnings call. This morning, 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. This morning, Air Group reported a first quarter GAAP net loss of $132 million. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported an adjusted net loss of $116 million. As a reminder, our comments today will include forward-looking statements about future performance, which 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. As you are all aware, the most significant event this quarter was the accident involving Flight 1282 and the subsequent four-week grounding of a third of our fleet. Our focus has been on the safe return of our fleet, caring for our employees and guests, and enhancing our oversight of the production of our new aircraft. This event also had a substantial financial impact, totaling $162 million, which Boeing has fully compensated us for. To provide clarity on our core business performance, I will discuss our Q1 results, excluding the effects of Flight 1282 and the MAX grounding. During the quarter, we also received a second request for information from the DOJ regarding our proposed acquisition of Hawaiian Airlines. We are working to respond to these requests as quickly as possible. Given the substantial volume of information involved, we have granted the government an additional 60 days to review our responses, and we'll continue to work with them to advance the process as swiftly as possible. We still believe strongly in the pro-consumer and pro-competitive merits of this deal and are excited by the opportunities this will unlock for Alaska, both domestically and internationally. A year ago, I set a goal for my team to reduce losses in the first quarter, traditionally our weakest, with the aim of progressing towards breakeven over the next three years. I am proud to announce that excluding the grounding impact we have achieved this goal in one year. Our Q1 performance far exceeded our initial expectation of a 30% profit improvement coming into this year. We not only reduced losses, but we turned a small profit, absent the MAX grounding on record revenue for the quarter. Several factors contributed to this positive performance, including disciplined and thoughtful capacity planning, a concerted effort to reconfigure and optimize our network, the return of West Coast business travel, particularly among technology companies, and strong leisure demand throughout our markets. While we strive to do even better going forward, the underlying improvement in our core business in Q1, despite the significant disruption felt across our business from the MAX grounding, is a fantastic result for Air Group. With this outperformance, we're revising our full year adjusted EPS from $3.25 to $5.25, which does not reflect any compensation. We remain encouraged by our Q2 outlook and beyond. We've continued to see robust demand through the spring break travel season and have visibility to double-digit adjusted pre-tax margins in the second quarter despite higher fuel prices. Our commitment to changing the outcome in Q1 positions us at a better starting point, not only for the rest of this year but also in years to come as we look to grow profits and earnings over time from a stronger base. Now looking ahead, our focus remains on driving our strategic initiatives forward and managing the elements of our business within our control. We are excited to be back on track and running a solid operation with our full fleet and service. As I stated earlier, we’ve received $162 million in cash compensation from Boeing, making us hopeful for the total Q1 profit impact related to the MAX grounding. Our long-standing partnership with Boeing is important to us and to our success. The financial agreement we've reached with them is a strong reflection of that relationship. We remain committed partners. But we will hold Boeing to the highest standard for quality out of the factory. To that end, we have enhanced our in-person oversight of our 737 production line and are regularly engaging with Boeing leadership on quality and schedule. Alaska needs Boeing. Our industry needs Boeing, and our country needs Boeing to be a leader in airplane manufacturing. Operationally, we've regained our reliability by returning our entire fleet to service on February 8. The response from our guests has been incredibly positive, with strong demand evident throughout February and beyond. Our teams have dedicated themselves around the clock to restore operational excellence, resulting in an improved completion rate of 99.5% from the second week of February through March, which was in line with our historical standard of performance. A big shout out to our entire maintenance and engineering team for bringing back all our MAX lines into service safely and reliably. Safety is a foundational and uncompromising value for Air Group, and we expect nothing but the highest quality aircraft from Boeing. Regarding 2024 aircraft deliveries, as we've stated before, we expect Boeing will fall short of the planned deliveries to us this year. Andrew will discuss Q2 capacity in more detail, but our objective will be to deliver a schedule with a high level of service and reliability our guests expect and know from us. And Shane will discuss the impact to full year CapEx due to fewer deliveries. As we kick off the second quarter, one of our busiest and most profitable periods, we are optimistic and determined to drive strong results in our business. Safety remains paramount. And we've successfully restored operational excellence. Building on our Q1 profitability improvements, we are now focused on leveraging these strengths to expand profitability and generate free cash flow. With last year's strong unit cost performance as our foundation, we're enhancing productivity across the board, and our careful management of capacity, combined with our focus on a premium guest experience, positions us well to deliver solid financial results over the next three quarters. Lastly, I just want to acknowledge this amazing Alaska team, from our exceptional frontline employees who deliver consistently strong operational results and guest service to our leadership team that holds itself accountable to being better each day. Together, we are driving success every step of the way. And with that, I'll turn it over to Andrew.

Thanks, Ben, and good morning, everyone. Today, my comments will speak to our first quarter results with a focus on unpacking our core performance and addressing second quarter trends and guidance. We achieved record first quarter revenues totaling $2.2 billion, up 1.6% year-over-year. This is an incredible result, especially when you consider the $150 million in revenue that we lost due to the grounding. Our team did a masterful job rethinking the deployment of our Q1 network in order to combat the seasonal challenges we face and to best serve the demand in our geographies. Capacity ended the quarter down 2.1% year-over-year, inclusive of an approximate 5.5 point impact from the grounding. This result was better than our initial expectation immediately following the accident due to high utilization, a better-than-expected completion rate, and no significant winter weather. Absent the grounding, capacity would have been up approximately 3.5%, a level we feel was appropriate for the Q1 environment and our network reconfiguration. In addition to our focused network efforts, we were positively impacted by the rapid return of corporate travel revenues and general close-in strength, which drove a strong unit revenue result. For the quarter, unit revenue was up 3.8% year-over-year. Excluding the impact of the grounding, unit revenue would have been up 5%, which is markedly higher than our original guidance of up 1% to 2%. This outperformance was driven by three factors: First, 1.5 points of RASM outperformance came from better-than-expected results related to the reallocation of flying. These changes more successfully met the demand across our markets, as we capitalized on more leisure flying. Second, 1.5 points of RASM improvement came from a material step up in business travel beginning in January, especially from large technology companies. In Q1, managed business revenue grew 22%, approximately 50% driven from yield and 50% from volume. Tech companies saw the biggest improvement with revenues up over 50% year-over-year and professional services revenue an impressive 20%. To put the speed of recovery into perspective, managed business revenues increased 10% in January, a stunning 30% in February, and 24% in March. These results were achieved despite the grounding and book away we experienced. Today, managed corporate revenue has fully recovered to 2019 levels, while tech is approximately 85% recovered. As we've said for some time, we expected business travel to come back, which we are clearly seeing today. While we did not bake this into our Q1 forecast, we do not anticipate any step back in corporate travel in Q2. And third, half point of RASM improvement came once we restored our schedule reliability, and we saw strength in close-in leisure demand return. This strength is especially evident in February, where revenue beat our original pre-grounding expectations despite loss flying and book away at the beginning of the month. Similarly, our total March revenue surpassed our record-breaking result last year on just over 1 point lower load factor, bolstered by yields that improved 2 points in the month driven by strong close-in performance. Taken altogether, these impacts drove a 3.5 point improvement above the midpoint of our original guide for the quarter. Lastly, our Premium Cabin performance continues to support what we believe to be a structural shift in higher demand for premium products. First and premium class revenues finished up 4% and 11%, respectively, during the quarter, with our first class paid load factor hitting monthly records at 68% during February and 69% in March. What makes these premium revenue results even more significant is that they would have been higher had we not experienced the grounding. Our paid premium capacity has come a long way from the days of paid load factors in the 40% range for the mainline and an all-coach regional fleet. As we continue to refine our premium strategy across our products and markets, we have further upside to come and remain committed to building on our premium guest experience, offering the products our guests and loyalty members want. Our loyalty program, which we hope to share more on later this year, also continues to post strong results. With co-brand cash remuneration of approximately $430 million in Q1, up 4.2% year-over-year, notwithstanding the grounding and a major contributor to the 48% of revenues we generate outside the main cabin. Now turning to our outlook and guidance. We expect capacity to step up 5% to 7% year-over-year in the second quarter, with the low end of this range assuming no aircraft are delivered this quarter. Given the uncertainty around delivery timing, following the grounding, we have extended the retirements of several of our older aircraft over the next few months and pushed utilization slightly higher across the Mainline Fleet, where we had opportunity. We also added back more capacity on the regional side through Horizon and SkyWest, given higher utilization from improved pilot staffing. Through the combination of these changes, we are confident in flying a reliable schedule for our guests. While the second quarter will be our highest growth this year, it is also our most profitable growth, with June being a clear peak month for us. While we've added a handful of new routes across our network, the majority of our added flying is focused on additional frequencies in high demand markets, where we have conviction in their profitability. Second quarter bookings so far are encouraging, with yields continuing at healthy levels in April and beyond albeit slightly moderating through the quarter on growing industry capacity. This year, we have seen a more normalized yield and booking curve, building in strength as we get closer in, a trend we expect should persist. Looking beyond Q2, the back half of the year looks to be shaping up well as industry capacity constraints remain in place and competitive intensity dynamics across our West Coast markets stabilize. In closing, the team has done a tremendous job in reshaping our network to produce a strong result for our most seasonally challenged period, and with the full value of our differentiated product offering from premium seating to lounges to global partnerships, I believe we are well-positioned to drive another solid quarter of performance as we move into our peak periods this summer. And with that, I'll pass it over to Shane.

Thanks, Andrew, and good morning, everyone. In what has been a challenging start to the year, our people and our business model have shown amazing resilience. Safety, of course, is our absolute priority, and it will continue to be our top focus above all else. It has, however, been encouraging to see the level of improvement to our core first quarter performance this year. While managing through the difficult circumstances of Flight 1282 and its aftermath, the teams did an admirable job operating safely and on time, and our commercial team put together a network plan that, coupled with strong demand, positioned us well to meet our long-term target to breakeven in Q1. We are not shy about setting ambitious goals for ourselves, and we have a good history of delivering on those commitments. Our financial focus remains on continuing to strengthen our business model and delivering strong financial performance over the long-term. Turning to our results. For the first quarter, our adjusted loss per share was $0.92, which excludes compensation received from Boeing related to our MAX fleet grounding. The profit impact of the fleet grounding in Q1 was $162 million or $0.95 of EPS and 7 points of margin. Fuel price per gallon was $3.08, as West Coast refining margins continue to be a unique margin headwind to our results relative to the rest of the country. Our total liquidity inclusive of on hand cash and undrawn lines of credit stood at $2.8 billion, as of March 31. Debt repayments for the quarter were approximately $100 million and are expected to be approximately $50 million in the second quarter. Our leverage levels remain healthy at 47% debt to cap and 1.1x net debt to EBITDA, while our ROIC stands above 9%. For the quarter, unit costs were up 11.2% year-over-year, 6 points of which are directly attributable to the fleet grounding, primarily from the significant loss of planned capacity. So we also incurred approximately $30 million of incremental operational recovery costs due to the grounding as well. Our core unit costs, absent grounding impacts, were up approximately 5% year-over-year in the first quarter. The drivers remain similar to prior quarters and are consistent with pressures faced by most airlines, the primary of which is higher labor rates for our people. We have completed seven labor contracts over the past two years, including a recently signed agreement with our aircraft technicians, and we continue to prioritize finalizing an agreement with our flight attendants. We remain committed to high productivity in our contracts. And absent the MAX grounding, we would have had a 2% increase in productivity year-over-year, as measured by passengers carried per FTE. We expect continued productivity improvements throughout the year across the company. And in May, we will operate under our new preferential bidding system for pilots for the first time, which will allow for both enhanced pilot productivity and, importantly, schedules that are more aligned with our pilots' priorities. While costs are materially higher structurally for the industry, our margin profile for the first quarter is evidence we are making the right decisions on capacity deployment. And we will continue to prioritize the overall margin health of the company over growth for the sake of unit cost performance alone. We are committed to also retain our relative cost advantage, and we continue to do well on that basis. We achieved the industry's best cost performance last year, and looking at our rolling four quarter unit costs, we have outperformed both Delta and United by 3 points on a stage length adjusted unit cost basis. While we may experience quarterly variances on a unit basis, we are not ceding any of our relative advantage. We have widened the gap over the past 12 months, and we remain focused on managing budgets and delivering strong margin performance. Not only did we improve profitability, excluding the grounding by $120 million year-over-year, when compared to the first quarter of 2019 and 2023, we've closed the margin gap to our largest peers by approximately 2 to 3 points. As we look ahead to Q2 and the rest of the year, capacity, fuel, EPS, and CapEx guidance, consistent with the metrics we shared last quarter and our focus on the overall margin profile of the business. For the full year, as Ben shared, we do not expect to receive all 23 deliveries from Boeing that we had originally planned for this year. We are in discussions with Boeing, and as we gain more clarity on those deliveries, we will update our expectations, but we expect full-year capacity growth at this point to be below 3%. Also, due to lower expected deliveries, we now expect CapEx of $1.2 billion to $1.3 billion versus our prior expectation of $1.4 billion to $1.5 billion. We expect economic fuel cost per gallon to be between $3 and $3.20 for the second quarter and expect refining margins on the West Coast to be more in line with Gulf Coast, which we've seen in the past several weeks. Given the significant spread in West Coast fuel costs versus the rest of the country, we are developing strategies to mitigate this disadvantage. Our first step was to discontinue our hedging program, given refining margins have become the more volatile component of fuel costs, which hedging did not protect us from. The full value of hedging cost reduction will take several quarters to be fully realized. We are also changing our strategy for our annual fuel tender process to obtain better pricing and are likely to begin a program to begin a modest amount of self-supply of fuel later this year and into 2025. While these will take time to fully mature into our results, we expect these actions to close the current fuel headwind we face versus the rest of the industry and will help us to be well-positioned to lead the industry in margins. And as Ben mentioned, we expect full year EPS to now land between $3.25 and $5.25 for the full year and $2.20 and $2.40 for Q2. Despite a likely $0.35 year-over-year headwind from fuel, we have visibility to a path back to healthy double-digit margins in the second quarter on our way to another strong full-year performance. With the immediate impact of the grounding behind us and our operational reliability back on track, we are optimistic about our outlook for the rest of the year. The economy continues to expand with supportive wage growth, recently improving consumer sentiment and trends indicating a continuing preference to prioritize spending on travel and experiences over goods. By remaining focused on our historical strength, safety, operational excellence, and relative cost performance, and continuing to reap the benefits of our commercial initiatives, our business is configured to compete, maintain our relative advantage, and continue to deliver strong financial results. And with that, let's go to your question.

And our first question will come from Andrew Didora with Bank of America.

Hi. Good morning, everyone. Shane, I know you're not guiding to CASM, but if I were to just think about Q1 being up 3% on 3.5% capacity, are there any kind of puts and takes you would call out for 2Q, whereby we wouldn't see kind of CASM step down nicely given you're growing at 6%? And then similarly, as I think about the back half as growth comes down, I would expect CASM to maybe flex back up. Is that a fair assessment?

Good morning, Andrew. Yes, I believe that's the right expectation for this year. We anticipate a noticeable improvement in unit costs in the second quarter due to the company's growth profile. As you pointed out, growth will slow down in the latter half of the year, and we may experience additional pressure on unit costs then. I want to highlight that the company has effectively balanced capacity with unit costs. We have emphasized our commitment to the company's margin health, so we will be strategic about how we manage capacity in the market, and we will continue to compete effectively on unit costs against larger airlines in our regions.

That's great. Thanks, Shane. And then just a follow-up for Andrew. I appreciate all the color you gave on corporate travel. Do you know what percentage of your revenues today are corporate and how that compares to pre-pandemic? And any color you can give us just in terms of what the RASM premium would be on corporate, say, versus leisure travel? Thank you.

Yes. Thanks, Andrew. We don't disclose that sort of information. But I will tell you that we see continued improvement in strength in our Corporate position, the business that is coming our way. And again, as we've shared for some time, this return from West Coast business travel, especially in the technology sector has just been very significant. And I think when you look at others' comments around how much their managed business travel increased, ours increased significantly more year-over-year, which is very encouraging.

That’s great. Thank you.

And our next question will come from Helane Becker with TD Cowen.

Thank you, operator. Hello team. I hope everything is going well. I have a question regarding our outlook for the second half of the year. Does the second quarter maintain the strength we saw in the first quarter? Additionally, how do you view the third quarter in comparison to the second quarter? Some of your competitors have mentioned a change in seasonality, indicating possibly stronger performances in July, while June may also be strong, but August could be weaker. How do you see the travel patterns shaping up?

Yes. Hi, Helane, yes, we're seeing the same thing. I think August and the return of schools and just the exposure of our network across different geographies. June has become the single strongest month. And so what you'll see here is we move capacity around to accommodate that. So we feel pretty good about getting ahead of that mix.

Okay, that's really helpful. Andrew, could you share your insights on the capacity situation in Alaska? I've noticed other airlines increasing their capacity to Anchorage and Fairbanks from various cities other than Seattle. I'm curious if this is affecting your overall market share in the region.

Yes. I think it ebbs and flows. People love to put their capacity into Alaska as we go into the summer period. I would say industry capacity, what I call Alaska long haul is up decently. So that's putting a little bit of pressure. But overall, we feel really good about our position in Alaska and the routes that we serve. And of course, we are very well positioned to serve anybody who is wanting to travel to Alaska.

Great. Top job. Okay. Thanks very much.

Thanks, Helane.

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

Hi. This is Lara on for Savi. What's the general environment that you're assuming for the second half of the year that's reflected in your full year EPS guide?

Yes, hi. I believe the second half of the year is expected to remain strong and stable. Our outlook indicates that it will be consistent with current trends. We do not see any signs of demand slowing down. Fuel costs are slightly higher than our initial plan of about $3, currently at $3.08. However, we anticipate that the increase in costs will be offset by stronger demand, particularly in the business sector. Overall, we have not revised our expectations for the full year and believe the demand environment will continue to be robust.

Okay. Sounds good. And then one more. If you can provide any color about your recent commercial initiatives like Alaska Access and your expectations for the contribution from these programs, that would be great. Thanks again.

Well, I'm glad you noticed Alaska Access. I think what you're really seeing here is that we are continuing to broaden the products and services that we offer. That's obviously something that's quite small. The reality is the distribution landscape is materially changing. You've got NEC, but you've also got various order, settlement, and delivery; these technology changes are going to massively increase our ability on the revenue side to distribute our various products and services. So what you're going to see us continue to do is to bifurcate all the products and services that we have and continue to distribute those in different forms and ways over time. So we are really excited about just the technology that's coming our way to help us generate greater revenues.

Okay. Thanks.

And our next question will come from Ravi Shanker with Morgan Stanley.

Thanks. Good morning, everyone. So just on the closing commentary, your comments on the strength of close in was particularly notable because some of your competitors have been having some challenges with close-in strength or weakness, actually. So are you doing something differently as the strength idiosyncratic to you as the weakness idiosyncratic to them? If you can unpack that, that would be great.

Hi. I can't specifically speak to other carriers. What I can tell you sitting here looking into April is that demand is coming in very nicely with double-digit increases in unit revenues year-over-year as we move through the month of April. And as we look to May and June, where we have, obviously, a little bit more industry capacity. We are also seeing a very positive direction in the yields that are coming in through our system. So overall, we feel that Q2 is going to continue to be strong. Our network is well configured. Our premium class is performing. Our ancillary revenues are performing; they were actually up 6% in the first quarter, even though passengers were down. So we feel good about our setup for the second quarter.

Ravi, I want to mention that the West Coast has been slower to recover in terms of business, but it seems to have improved quickly in the first quarter, which may be benefiting us. Additionally, the premium segment is where the majority of demand growth is occurring, and I believe we are effectively meeting that demand.

Got it. That's helpful. And maybe a follow-up to that. Thanks for the detail on the slides in the CASM and the RASM walk. Can you maybe help us understand kind of what that gap between CASM and RASM might look like in 2Q and maybe for the rest of the year as well?

Well, Ravi, we are not providing guidance on those two unit metrics, but I think CASM will likely perform better in the second quarter than it did in the first, considering the increased capacity. We should see improved results, potentially approaching flat. We will know more if we reach the midpoint of our capacity guidance based on deliveries in the coming months. As for unit revenues, they might still be somewhat pressured by the grounding impact of 1282 and some changes during spring break in the first quarter, but I believe they will remain strong and continue to rank among the best in the domestic market. Overall, I expect a strong second quarter from a margin perspective, which aligns with what we stated earlier.

Understood. Thank you.

Thanks, Ravi.

And we will move next to Duane Pfennigwerth with Evercore ISI.

Hey, thank you. Can you talk a little bit about what you're seeing in Hawaii, how you're thinking about the recovery in Maui, and your capacity recovery there? And what you're seeing competitively, any changes there?

Yes, hi, Duane. Yes, so on Hawaii, actually, we were very pleasantly surprised as far as just the general framework and strength of Hawaii in general. That said, I think our capacity was down close to 40% out of Maui in total, still going to be down 20% as we move through. So outside of Maui, Hawaii is performing within expectations. I think it's going to be some time before Maui recovers, just to be frank. And so we are adjusting our capacity to meet the demand that we are seeing there. But it's certainly a slow journey.

Okay. So maybe the down 40% recovers to down 20% and you kind of wait and see at that level, is that a fair way to think about it?

Yes, I think the way to think about it is we get through this summer and then as we look into the back end of the year, which is more seasonally weak, we are going to assess how demand is and we will adjust capacity appropriately.

Okay, great. And then, I guess, Shane, you piqued my interest with self-supply of fuel. Can you just elaborate on that?

Sure, Duane. Thanks for asking about fuel supply. Look, I think we've been pretty passive other than the hedging program on managing the fuel line in the business. As you know, we've had significant headwinds that are unique to us relative to the rest of the industry. I think it prevented us from being the top margin producer in the industry last year just on a refining margin basis on the West Coast relative to Gulf Coast. So we are not going to sit idly by and let that continue to impact our results. We spent a lot of time in the first quarter understanding why we have a $0.30 differential relative to the rest of the industry. And one of the things we believe we can do is ultimately buy our own fuel from other places around the globe and ship it into some of our larger cities. It takes a while to get that done. Other airlines do it. It's not a brand new idea to the industry. I think there will be a way of saving a few cents per gallon, which we are going to go after later this year and into next year. We will say more about it as we firm our plans.

That's great. Could you provide some insight into the regional mix? Specifically, how do you anticipate the percentage of regional capacity to compare this year versus last year? I understand you’re not providing exact figures, but I’d appreciate a general perspective on how this could influence RASM as a tailwind, CASM as a headwind, and any potential effects on margins. It seems like there are areas in your network that could benefit from increased regional capacity. Please help us understand that. Thank you for addressing these questions.

Yes. Thanks for the question. I think from your perspective, it's give or take around 10% of our capacity is regional. I don't see that materially changing. That said, the regional businesses are profitability, just with the return of utilization and redeployment has jumped significantly, and they've been a valuable partner, both SkyWest and Horizon, to help us with our Boeing deliveries and those Embraer 175 backfilling some markets that we otherwise couldn't serve.

Yes, this is Ben speaking for Horizon. Horizon is performing exceptionally well. Our margins have increased. We have focused heavily on our regional business over the past few years, and it is doing very well. We expect this positive trend to continue for the remainder of the year.

Okay. Thank you very much.

Thanks, Duane.

Your next question will come from Jamie Baker with JPMorgan.

Good morning. I had to look up Alaska Access, which is a bit embarrassing to admit. It's clear that the corporate momentum is strong. Can you discuss how corporate travel patterns compare to those before COVID? I'm curious about the trip duration and how the booking timeline has changed, especially with the removal of change fees, and what behavioral changes you might have observed.

Yes. Thanks, Jamie. I think I probably will have a better answer for you next quarter. As I shared, the rapid up 10, up 30, up 24, just in this first quarter with everything else going on was something we need to better digest as we move through the second quarter. But I am seeing a lot of the traditional demand return as we've seen it historically. But I'll have a better answer after we've digested this quarter and get through the second quarter.

Okay. Well, then you won't fault me when I ask the same question in 90 days, that's good. So second question, just on the revised full year guide, first quarter was solid, you've got good visibility. And in the second, I guess I'm wondering what's driving the $2 range in the guide? I mean, to be fair, United has a $2 range as well. Is it just stylistic that you chose to maintain that range? Or do you really think there's that much variability and uncertainty in the second half? And if so, what are the most uncertain inputs in your model besides fuel?

Yes. Hey, thank you, Jamie. There's probably a large component of it that's just habit. Like we've habitually done a $2 range, and we tied it… maybe in the fourth quarter or something. I do think fuel is the largest immediate driver typically that we see that will run us up or down that EPS guide. But yes, I do think the $2 range is more just out of habit than anything that we are trying to architect around like a specific set of outcomes on the worst-case side versus the best-case side.

And just if I can sneak in a clarification, earlier in the call, did you say double-digit RASM on 3% capacity in April?

What I said was that our intakes coming into the months are up double-digit for April. Like the tickets we are selling as we move through the month. Not the entire.

Yes, that makes sense. I was pinged by a client about that. So I hadn't heard it that way either. So thank you for the clarification. I will cede the floor to somebody else. Thank you.

Okay. Thanks, Jamie.

And we will move next to Scott Group with Wolfe Research.

Hey, thanks. Good morning. So I just want to follow-up on that last point because if you assume that CASM is approaching flat, it feels like the guidance assumes RASM that's flat to down and you're saying it was up 5% in Q1. You sound like everything is really, really good in Q2. So I'm not sure if I'm missing something or if there's a lot of conservatism in the guide, or any color would be helpful.

Yes, I think the key point to remember in the first quarter is that it is our weakest seasonally. The second quarter is very strong, and industry-wide capacity is clearly growing more in the second quarter. It’s all relative. Your comments about CASM and RASM are accurate. As we have mentioned before, looking ahead to our margins and profitability for the second quarter, they are very strong. Additionally, as we progress through this quarter and beyond, West Coast capacity in the industry is decreasing and growth is slowing, which sets up well for the second half of the year.

Okay. I think I understand. And then you had a comment about we will tell you more at some point about loyalty, but maybe just give us a little bit of some thoughts about what you're referring to, and that would be helpful.

Yes, Scott. I think in general, I'm not going to share much today, but we have a number of things in the works that we are working on. And at the right time, we are going to be sharing more. I just really wanted folks to know, especially on the revenue side, we have some really good things in store, and we are not ready to share those yet.

Andrew was just teasing, Scott. But look, there's a lot of things that we've got a lot of irons in the fire in terms of loyalty and products and stuff. So yes, when the time is right, we will provide more color on those, but I'm really excited about it.

Okay. Thank you guys. Appreciate it.

Thanks, Scott.

And your next question will come from Stephen Trent with Citigroup.

Hi. Good morning, everyone, and thank you for taking my question. My first question is somewhat hypothetical: if Alaska and Hawaiian were to merge and there were no significant capacity adjustments required by the DOJ, could you indicate at this time whether your exposure to West Coast refining costs would increase with the merger of Hawaiian, or would it likely remain the same, or is it too early to determine?

Yes. Thanks, Steve. I'm not going to speculate too much, but I will say that fuel prices in Hawaii are significantly lower than what you see in the Continental U.S.

Okay, very clear. Super. Thank you for that. And just one quick follow-up. I mentioned 90 days ago about what you guys are doing and the nice work you've done and having that investment grade credit rating. Could you refresh my memory sort of what the push might be to get an investment-grade rating from all three agencies?

Yes, Stephen, good question. I think we deserve it, and we are hopeful that they review us soon and reconsider their ratings. We are not actively out talking with the other two agencies right now. We've got a lot going on, and we are really focused on hopefully closing the proposed acquisition of Hawaiian; we've got to go to market potentially and raise some money to do that. So that's our focus right now. We will get that behind us, and then I think we've got really good debt metrics, credit metrics. I think we are definitely deserving of reconsideration by the other two agencies, and we will keep making our case over time to them.

Oh, great. I appreciate that, Shane, and thanks everybody.

Thank you, Steve.

And we will move next to Conor Cunningham with Melius Research.

Hey, everyone. Thank you. Regarding Boeing, are you planning to completely overhaul the order book? It seems like your comments today indicate a stronger focus on 2024, but is there a chance to stabilize that over the next few years? I'm just trying to understand what you envision for a new delivery schedule from them moving forward. Thank you.

Yes, thanks, Conor. There are a couple of factors at play regarding their ability to resume production rates that ensure a consistent and reliable delivery stream, with the quality and safety of the manufacturing process being our top priority. We need to resolve that issue. Currently, we also prefer the MAX 10, although it hasn't been certified yet, and we need to decide when to anticipate that certification. I believe it will take longer than we originally expected, which was the second half of next year. Additionally, if the proposed transaction moves forward, we will have to consider another 60 to 65 aircraft on top of the 330 we currently have. We need to take time to assess these variables and develop a new plan for the Boeing MAX deliveries. Directionally, I anticipate that the delivery numbers will likely be lower than we had anticipated a year ago. This should positively impact our capital expenditures and free cash flow over time, but we require another quarter or two to thoroughly evaluate this internally and in collaboration with our partners at Boeing.

That's helpful. Regarding the Premium revenue compared to your Saver option, there's a noticeable spread. I'm trying to understand your long-term perspective on this spread, particularly in relation to the main cabin Saver Fare. Additionally, I noticed that your inventory isn't being sold as far out as it used to be, and you mentioned closing. Are you considering a change in how you manage your inventory to better capture close-in demand given your premium offering? I apologize for asking many questions, but thank you for your insights.

Yes, I’ll respond at a high level. I believe the Saver Fare has been a very positive product for us. We’ve made it much more available compared to last year, and we’ve seen significant revenue increases from Saver purchases. It serves as a valuable tool for managing seasonality in our network. Historically, we’ve focused heavily on filling seats, but now we are shifting our attention more towards yields and how we set prices for our cabins, including Main, Premium, and Saver. I can assure you that we are becoming increasingly intentional about managing our product lineup in our cabins, and I believe this will lead to positive outcomes.

Very helpful. Thank you.

Thanks, Conor.

Good morning, everyone. Andrew, you have a great perspective on the growth of close-in leisure. I believe this trend gained significant traction during COVID, largely due to last-minute re-openings. Before COVID, it seemed to be mainly for bereavement fares or perhaps a last-minute ticket to a concert. However, it appears to be growing in importance. I’m curious if it represents about 5% of your different segments, such as corporate or discretionary travel. Can you discuss this evolution? It might not have been a prominent category before, but it seems to be gaining momentum and could positively affect RASM.

Thank you for the compliment. We learned a great deal from COVID. We adjusted our capacity because we were focused on maximizing loads during a strong leisure demand period. When I refer to leisure, I also mean loyalty programs and major agencies like Costco. What we’ve observed is that we have optimized our cabin and demand strategy to prioritize closer-in bookings while reducing those booked further out. We’ve recognized that there is a significant group of leisure travelers who tend to book last minute, and we are intentionally making seats available for them now. Given the pricing strategies in place, our yields for these last-minute bookings are significantly better compared to those booked further in advance.

Absolutely. Absolutely. That makes sense. And then just my second, I know you did talk about a couple of teasers and things that we should look out for. You did drop loyalty. I know Ben mentioned loyalty, if anything. Are we up for renewal this year?

No, we have moved beyond that. However, I want to emphasize that loyalty is a significant and vital aspect of our business. If you examine the current environment, you'll see that loyalty programs are evolving, and there are ongoing changes. We are assessing how our loyalty program needs to adapt and develop. I believe there is substantial potential here. Once again, we are not ready to disclose any specific details today, but this is an area we are prioritizing.

Okay. Very good. Thank you.

And we will move next to Dan McKenzie with Seaport Global.

Good morning. Thank you. I have a couple of questions. My first one is about the comparison between headcount and fleet count. What number of deliveries are you hiring for? I'm also curious about the overhead costs that Alaska is experiencing since the deliveries are slightly below expectations. Additionally, is Boeing covering any of those costs?

Thanks, Dan. A couple of things here on this one. I think we originally had anticipated 23 deliveries. Of course, when they come is an important variable as well. As evidenced by our revised full year capacity guide and CapEx guide, we expect to get fewer than that. Boeing has 10 aircraft essentially built and going through the final review and ticketing process. So we expect to get all of those and probably some additional units beyond that. So we are thinking somewhere between 10 and 20. We have a number of aircraft we are planning to retire. So many of those aircraft were going to replace older 900 classics. So our headcount situation is in really good shape relative to the delivery stream coming our way. We are not going to be materially overstaffed. I don't believe in any part of our business. We watch that closely. We had to staff up a bit throughout the end of last year to get ready for this year and the spring, but I don't think that we are going to be in a significant drag position from a cost perspective. And to the extent that we are having conversations with Boeing in terms of compensating us for that.

Yes. Very good. Okay. And then I guess, Shane, another question for you here. In the 10-K, Alaska highlighted 200 million gallons of SAF through 2030. And I guess I'm just curious how many gallons you're planning to buy here in 2024? And what is the cost differential today of that versus West Coast jet fuel? And then where do you think that differential can go, say, in 2 to 3 years' time? And I guess what I'm trying to get at is probably a small percent of your overall volume, I'm just trying to get a sense of the margin headwind from that.

Thanks for the question. It's a small part of our overall fuel purchasing primarily because it represents a minor portion of the global supply. In 2024, we anticipate it will account for about 1% of our total fuel, sourced from a few suppliers. There is a premium for green fuel compared to Jet A. We are fortunate to have strong corporate partners who are co-investing in sustainable aviation fuel to help offset the scope 3 emissions from their business travel. We are actively working in the market to enhance and expand the sustainable aviation fuel sector, which includes exploring cost reduction for different technologies and producers.

Dan, thank you, Diana, for the insight. I don’t believe there will be a significant margin pressure from this matter this year. Certainly, it's a factor for the entire industry as we progress and it becomes a more major component of supply, but we are likely a few years away from it impacting fuel costs for the plan in a substantial way.

Yes, okay. Thanks for the time you guys.

Thanks, Dan.

And your next question will come from Chris with Susquehanna Financial Group.

Good morning. Thanks for taking my question. Shane, the comment you said for 2Q, I think it was flattish CASM. Just want to confirm that, that's ex the freighter cost? And then freighters are not typically discussed here. I think you're sizing up that fleet. Can you just remind us of the current size and where that's going this year? Thank you.

Thanks, Chris. Yes, and that comment is ex freighter cost. But you'll be able to see the year-over-year, I don't think it's going to be materially different even if you included freighter costs in both years. Yes, we had a fleet of three, which is a small fleet. They do a lot of work for us up in the State of Alaska. It's really important to our customers up there. It's something we are proud of being able to do. We've been the predominant cargo carrier in the State of Alaska for most of our history. We are moving to five dedicated freighters. Again, most all of that lift will be in the State of Alaska. And who knows over time, if we will be able to continue to increment from that base of five. We would certainly like to if the business remains strong.

Okay. And just my follow-up, Ben, I think you said in your prepared remarks that you're anticipating a better supply-demand balance in the core markets in the second half. And so we've had a competitor retreat from parts of L.A. It doesn't look like they're coming back. Outside of this, I'm curious how confident are you in this supply backdrop or this sort of new dynamic, if you will, going forward. Thank you.

Hey, Dan, well, okay. I think if you look at how Q1 turned out for us and again, it was just an amazing quarter from what it was in Q1 of 2023. So we are just looking at just the higher water level we are starting from in Q1, and that's translating forward into Q2. Just based on everything we are seeing in terms of demand and Andrew touched on a lot of those things, we just feel like we are well-positioned. So that's why we are forecasting double-digit pre-tax margins. And so we are feeling really strong. It's our most profitable quarter. And so I think we are really set up well for Q2 and the rest of the year.

Okay. Thank you.

Thank you, Chris, and thank you, everyone, for joining us. Have a great day, and we will talk to you next quarter.

This concludes today's conference call. Thank you for attending.