Earnings Call Transcript - ALK Q2 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 Second Quarter Earnings Call. Today's call is being recorded and will be accessible for future playback at alaskaair.com. 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.

Ryan St. John, Vice President of Finance, Planning and Investor Relations

Thank you, operator, and good morning. Thanks for joining us today to discuss our second quarter 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 will 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 income of $172 million. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $215 million. 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.

Benito Minicucci, CEO

Thanks, Ryan, and good morning, everyone. First, I want to acknowledge the operational disruption we experienced earlier this week due to an IT outage. To our guests whose travel plans were impacted, I sincerely apologize. Safety is always our top priority. And upon identifying the issue, we made the decision to pause operations until it was safe to resume. Our teams worked around the clock to restore operations as quickly as possible. We are actively partnering with our hardware vendor to investigate the root cause and we will take appropriate action once the review is complete. Now turning to our earnings. We delivered a strong second quarter result, marking another step forward in achieving our long-term ambitions. Our adjusted earnings per share of $1.78 exceeded the high end of our guidance, clear evidence of our team's disciplined execution and unwavering focus on what we can control, delivering a remarkable guest experience, driving operational excellence and unlocking the value of our newly combined network and commercial platform. Alaska Accelerate is working. The powerful combination of these two networks and the changes we've made are already delivering greater utility and choice for Hawaii residents and visitors alike. These changes drove our Hawaiian assets to its first profitable quarter since 2019 and just 10 months post-acquisition. We're excited to continue building scale, relevance, and loyalty as Hawaii's trusted airline. In total, Air Group generated a record $3.7 billion in revenue with year-over-year unit revenue performance that we are confident will lead the industry. As we continue to implement our initiatives, our sights are set on diversifying our revenues even further from the 50% we generate outside the main cabin today. A key driver of this growth is premium revenue, which continues to outperform. We've now retrofitted nearly 90 of our 737 aircraft, expanding our ability to deliver a more premium experience as part of a seamless end-to-end journey for our guests. Next month, we're launching our newly branded loyalty program and premium credit card, uniting Alaska Mileage Plan and Hawaiian miles. This will better reflect the expanded reach of our combined networks, strengthen loyalty and connect with more guests. In May, we launched our inaugural intercontinental flight from Seattle to Tokyo Narita, marking the first step in establishing an international gateway at our hometown hub. As Andrew will share shortly, the route has gotten off to a very successful start. This September, we'll begin service from Seattle to Seoul Incheon, followed by the launch of our first transatlantic route to Rome next May. To support this international growth, we've also ordered five additional Boeing 787s, bringing our future fleet total to 17 aircraft. With the Boeing 787 crew base established in Seattle, we're laying the foundation to expand our international operations to at least 12 destinations from Seattle in the coming years. Beyond our targeted initiatives at Air Group, the broader industry is also making necessary and meaningful changes. Capacity adjustments continue to align more closely with current demand trends, creating a more favorable setup for the second half of the year and providing further upside. Although demand remains softer than initially expected, it has stabilized and consumer sentiment is gradually improving amid the broader macroeconomic environment. We're also encouraged by the recent uptick in bookings, early signs of positive demand momentum and the potential for easing fuel prices, all factors that position us well for stronger performance in the latter half of the year. Given this improving outlook, we expect to deliver at least $3.25 in adjusted earnings per share in 2025, an important step on our path to reaching $10 in earnings per share by 2027, a target we remain fully confident in. Our focus remains on executing Alaska Accelerate and unlocking $1 billion in incremental profit over the next two years. Early results are promising with synergies and key initiatives tracking ahead of plan. In closing, there is a renewed sense of energy and purpose across our company, driven by our shared vision to transform Alaska Air Group into a larger global airline. With the Alaska Accelerate plan as our guide, our people are moving forward with clarity, confidence, and a deep commitment to what we're building together. I want to thank all our incredible employees for their dedication and hard work on this journey. The opportunities ahead are significant, and we're eager to capitalize on them and position Air Group for long-term growth, success, and value creation.

Andrew R. Harrison, CFO

Thanks, Ben, and good morning, everyone. Today, my comments will focus on second quarter results, continued progress on our Alaska Accelerate vision, and demand trends we're seeing for the third quarter. For the second quarter, total revenues reached a record $3.7 billion, up 2% year-over-year on capacity growth of 2.7%. We expect that our unit revenue performance will meaningfully lead the industry, finishing on the better end of our prior guidance, down less than 1%. As we had expected, the industry capacity backdrop pressured monthly yields sequentially throughout the quarter, but our planes flew full, with a second quarter load factor of 84%. This performance, despite softer-than-anticipated main cabin demand across the industry highlights the strength of our loyalty program and continued guest preference for the Alaska and Hawaiian experience. Not surprisingly, outperformance of first and premium class revenues have persisted. Second quarter premium revenues were up 5% year-over-year, led by our Hawaiian assets with premium up nearly 19%. As Ben highlighted, we're making strong strides in expanding our premium offerings. We've now completed 40% of our 737 retrofits, increasing premium seat share from 26% to 27%, a segment that already drives 35% of our total revenue. We're targeting 29% premium seat share by next summer when all 218 Boeing narrow-body aircraft retrofits will be complete. We will also be elevating the guest experience by upgrading our Airbus 330 fleet with refreshed interiors and enhanced amenities. These strategic investments are not only meeting a structurally growing demand for premium travel, they're diversifying our revenue base and reinforcing our long-term competitive edge. Touching on loyalty. We generated $558 million in cash remuneration from our co-brand cards, up 5% year-over-year. Card spend and acquisitions remain robust with active cards in the portfolio up 10% year-over-year. And just this week, Alaska Mileage Plan was named U.S. News Best Airline Rewards program for the 11th year in a row. We're gearing up for the mid-August launch of our newly branded unified loyalty program, along with our new premium credit card with unique benefits targeting global travelers on the West Coast with an international companion award certificate, shareable lounge passes, and 3x points on foreign spend. This card is strategically positioned to attract a high-quality mix of new cardholders across broader geographies and drive greater engagement from our most loyal members, especially our high-value elites, which we believe will accelerate significant program growth in the back half of the year. Turning to synergies and revenue initiatives. These are on track and continue to deepen our conviction in our path forward. Hawaii has continued to produce strong network-leading results with robust bookings and high single-digit yield growth throughout the quarter. Neighbor Island has improved significantly, posting double-digit margin improvements. Our bank schedules are also performing well in Seattle and Portland. In Seattle, this has supported strong load factors with connecting passengers up mid-single digits for the quarter. There is opportunity to further optimize our Seattle banks in 2026 to leverage the seasonality of our business, winter versus summer, as well as feed our growing international gateway. In Portland, we carried over 130% more connecting passengers year-over-year and future connecting bookings are over 200% higher. Our Portland team has done an outstanding job supporting the expanded flight schedule, and we're very excited to open our new and expansive 12,500 square foot lounge in 2026, complementing one of the nation's newest and most impressive terminals and lobbies. I also like to briefly highlight the launch of our global Seattle Gateway. We've commenced Seattle Narita service on May 12 with ticket sales starting only in December of 2024. For the month of June, we achieved a load factor of greater than 80% and stage length adjusted RASM was 18% higher than our discontinued Honolulu Narita service for the same period last year. I want to personally recognize both the commercial and operational organizations. Taking Air Group from zero Seattle long-haul capability to announcing and launching long-haul operations from Seattle within just eight months is an incredible achievement. We are well positioned to launch Korea in September and Rome in May of 2026, with plans to add more destinations at a steady cadence as we build to our fleet of seventeen 787s while continually improving our product and commercial selling infrastructure. Our goal remains clear: to serve at least 12 long-haul destinations from Seattle by 2030. To wrap up our Q2 discussion, Cargo revenues are performing extremely well, up 34% year-over-year. We successfully brought the last two of our ten Airbus 330 Amazon freighters into service this quarter and look forward to maturing and growing this relationship. The launch of our Seattle, Tokyo Narita route has rapidly expanded our international cargo capabilities from Asia's third largest market. We've already surpassed our initial cargo volume targets on this route and have effectively backfilled much of the volume we anticipated might shift from Honolulu with the new high-value revenue streams.

Shane R. Tackett, COO

Now turning to our outlook. We expect third quarter capacity to be down about 1%, nearly two points below our prior expectations shared back in April. This is predominantly driven by deliberate reductions in off-peak flying. Similarly, we have reduced fourth quarter flying by approximately two points, bringing our full year capacity growth to around 2% year-over-year. These adjustments are expected to be margin accretive. Importantly, much of our growth continues to be sourced from increased utilization of our Hawaiian assets, which comes at very low incremental cost. Coupled with domestic industry capacity now expected to be nearly flat in the third quarter, we're confident that our continued commercial momentum will drive sequential improvement throughout the third quarter, resulting in unit revenues flat to up low single digits. Demand has stabilized following the abrupt pullback we experienced earlier this year, and we're seeing encouraging signs of resilience. Our Q3 builds have seen a strong inflection since late June with our traffic, yield, and total revenue intakes moving from negative to positive. We have experienced this on Alaska and Hawaiian assets alike. Although the strength is mostly close-in at this stage, with recent July revenue intakes up low double digits, August low single digits, and September flat, we are seeing positive momentum. In summary, builds have been positive and improving on a year-over-year basis since late June. This is the first time all three have been in the black since early Q1. As mentioned earlier, Hawaii continues to book well with high single-digit yield growth and solid load factors in the second quarter, momentum that is carrying through year-end and supports the region's continued outperformance. Managed corporate revenue declined 5% year-over-year in Q2, primarily due to lower yields. While large managed corporates, particularly in sectors like manufacturing and technology remain cautious, small and medium businesses continue to demonstrate resilience. Factoring in small and medium business performance, total corporate revenue was down only 1%. Encouragingly, July has seen an uptick in closer-in managed corporate bookings, a shift from what we saw in early Q2. Most importantly, despite a more challenging corporate setup on the West Coast compared to our peers, we still delivered industry-leading unit revenue in Q2, and we're well positioned to do so again in Q3. With greater economic clarity ahead, we're cautiously optimistic about renewed corporate confidence offering potential upside to corporate travel in our geographies. Our second quarter results and outlook reinforce our confidence in our commercial strategy. Alaska Accelerate is working and continues to drive meaningful progress across the network. The synergies we've targeted are taking hold, validating our strategic direction and operational discipline. Even in a dynamic environment, Air Group's revenue performance reflects the strength of our brands, the loyalty of our guests and the adaptability of our teams. Importantly, we are not standing still. We are making necessary adjustments to support improvements in overall unit revenues and profits. And as conditions improve and we continue to execute, we are well positioned to build on this momentum and deliver even greater value and resilience over time.

Operator, Operator

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

Conor T. Cunningham, Analyst

If we were to reflect back a little bit, I think you guys were probably the most accurate in terms of just flagging the issues that kind of presented from an industry level in June and July. So kudos there. But I was curious if you could just talk a little bit about the ramp in your expectations from 3Q to 4Q. What is underpinning your bullish? Is it an assumption that demand continues to step up from the current booking patterns? Or is it just a combination of that and the competitive capacity environment continuing to significantly trend down?

Benito Minicucci, CEO

Conor, thank you for the praise. Looking at the second half of the year, it's clear that it will be better than the first half. Last year, we achieved nearly $1 in EPS for Q4, and much of that improvement occurred late in the quarter. Currently, we're experiencing positive momentum that began in late June and early July. If this momentum persists into Q4, we believe we'll have more favorable conditions than we had last year. Additionally, if we factor in synergies, I think we can surpass last year's Q4 performance. That's why we're confident in our projections. Transitioning from $1 to $1.5 doesn't feel like a significant leap for us; we believe $1.5 will help us reach $3.25. We're feeling optimistic when we compare our expectations to last year.

Conor T. Cunningham, Analyst

Okay. Helpful. And then your conviction level around the $10 in earnings power by 2027 is still really high, and that's obviously pretty impressive just given what's kind of happened out there. But can you just talk a bit about the buyback? Like if you are, again, right on that assumption, it just seems like you should be incredibly aggressive here given where the stock is, and I just don't think it reflects your potential power overall. So just thoughts on the buyback and how that could play out going forward.

Shane R. Tackett, COO

Thanks, Conor. It's Shane. I appreciate that. We agree that the stock doesn't reflect the earnings power of the company. I think we mentioned that in the script. I think we were really pleased with the rate that we were able to buy back shares in the first half of the year, and we can have Emily share some of that detail. We want to be balanced, though, as we look forward. We do want to see some of the earnings come back, which we expect that they will in the second half before we continue to show the level of aggression we did in the first half of the year. We're not going to ultimately finance large share repurchases. We were able to do the first half of the year really comfortably with the balance sheet, and we're just going to continue to balance that. But you should expect if the stock is undervalued in our mind and we see the earnings coming back, we'll continue to be aggressive on the capital allocation front.

Thomas John Fitzgerald, Analyst

I was wondering if you could talk about some of the outperformance in the Hawaiian franchise and maybe unpack a little bit, like how much was the merger synergies, how much was maybe just the overall competitive dynamic in that market getting better?

Andrew R. Harrison, CFO

Thanks, Tom. It was actually across the board. Revenues were up 17% in the franchise. Unit revenues increased by 4%, capacity rose by 13%, and unit costs decreased. Overall, much of this was driven by synergies, connecting the networks, and integrating everything. The joint brand of Hawaiian and Alaska is performing exceptionally well. Additionally, the stability in industry capacity has also contributed positively.

Benito Minicucci, CEO

Yes, Tom, to add to that, this was all part of our due diligence when we acquired Hawaiian, and it has exceeded our expectations. Having Hawaiian produce a quarterly profit for the first time in 2019 is a significant achievement and highlights the strength of connecting these two networks. Additionally, we have been moving assets around effectively. We currently have 330s flying to Anchorage and have repositioned more 330s from Seattle to Hawaii. These actions are maximizing the Hawaiian assets in a way that really benefits our bottom line. It has been excellent work by the entire team.

Thomas John Fitzgerald, Analyst

That's really helpful, Ben and Andrew. And then just as a follow-up, should investors be looking for similar or better performance as we move into 2026 out of the Hawaiian franchise, synergies ramp as the network you start picking all the low-hanging fruit?

Shane R. Tackett, COO

Yes. For sure, Tom, like that's our absolute expectation that the Hawaiian assets will continue to improve in the profit side of the business. All the same reasons. We've got lots of synergies still to unlock on the commercial and on the cost side. And then we still have things to do like get to a single operating certificate, get to a single passenger service system, get the planes in the exact right places that we want them to be in. And so I think there's just a lot of upside yet to come.

Scott H. Group, Analyst

So I just want to follow up on just like the Q3 to Q4. Shane, is your view, is this just like the new seasonality where Q4 and Q3 are a lot more similar than they've used to be? Or would you maybe say it differently that maybe Q3 is just an under-earning quarter? And then maybe just with that, did I hear $2.45 is the average for jet fuel for Q3 in the guide? Or is that where you think you sort of end the quarter?

Shane R. Tackett, COO

$2.45 is the average, Scott, just to take that first. I think your question is a good question. If I had to bet, I would think that Q3s of the future should be stronger than they have been in the last couple of years. I think there's a lot of demand like people want to go out and travel. And we saw that our planes are relatively full this summer. And I think they're going to be full into the back half of the year. And I just think the industry dynamics were the principal issue in Q2 and Q3 this year. And I think that probably fixes itself over time. That would be my guess.

Scott H. Group, Analyst

Okay. Can you provide some clarity on the increase from 3 to 10 in two years? That's a significant jump. How much of that relies on market conditions compared to company-specific factors? Any additional insights on achieving that target would be appreciated.

Shane R. Tackett, COO

Certainly. In December, we addressed many of these questions, and while our confidence level in reaching $10 was never absolute, it was very high. We recognize the missing demand from the first half of the year that we need to recover over the next couple of years. However, I want to point out that the potential for the business is greater than what we initially projected with the $10 figure, and we've been open about that. We're not going to disclose the maximum possible earnings we believe the company can achieve, as there are many fluctuations in this industry. We anticipated reaching a number even higher than $10 without requiring significant external factors, and I still believe we don’t necessarily need much outside assistance. The trend seems positive as we approach late June and early July. Our initiatives are projected to generate $1 billion in net profit, and everything is performing on or above target. Additionally, we repurchased a significant number of shares that we hadn't factored into our calculations back in December. We will address both sides of the equation, including the profit aspect of the business. Looking ahead, we remain confident and committed to achieving that number.

Jamie Nathaniel Baker, Analyst

So a couple of my questions have already been asked. One clarification. I missed the premium comment earlier. Did you indicate when premium is expected to overtake the 50% mark of total revenue? And how does that compare with what you were thinking when you held your post-merger Investor Day?

Andrew R. Harrison, CFO

Jamie, it's Andrew. To clarify, the 50% figure represents our revenues from premium offerings, excluding other sources like bag fees. As we mentioned earlier, about 35% of our current revenues come from premium, which was previously around 26% to 27%. We are very optimistic since we've increased the revenue from premium compared to the main cabin between Q1 and Q2, and we are on track to add premium class seats to our -9s and MAXs. We are quite positive about this growth. Additionally, we're seeing ongoing strength in our first-class cabin and are actively working on the front cabins of the Airbus 330s and 787s.

Shane R. Tackett, COO

Well, just to go back to where our expectations were last December. I think we still have an open question about how much of the revenue can be generated outside of the main cabin, but we certainly think it's above 50 and into the mid-50s. It's why we're doing things like adding more premium seats to the fleet. I think you'll continue to see us do that. And we've got lots of other potential sources of new revenue like cargo. And so we'll continue to diversify the revenue streams. And I think ultimately, we'll get close to the mid-50s to high 50s outside of the main cabin.

Catherine O'Brien, Analyst

Good to see you all and nice to hear from you. I have a question for Shane. This year, it seems that more than usual, you have some fixed costs that cannot be eliminated due to the ongoing integration efforts, even as you reduce capacity and invest in merging the two operations. Can you help us understand how much this might impact the outlook for 2025?

Shane R. Tackett, COO

Thank you for the question. We grew as expected in the first half of the year and have adjusted our growth expectations for the second half. We've reduced our mainline capacity by 2.5 points while increasing our regional capacity by 5 points. This mix will likely have a negative impact of about 0.5 to 1 point for the remainder of the year. Additionally, because we've pulled capacity in too closely, it's challenging for us to reduce variable costs that aren't directly linked to flight departures. This has resulted in a one-for-one impact, where a point of lost capacity directly affects our CASMex by the same amount. We recognize that this is not an ideal situation and do not want to operate in a way that underutilizes our capacity. However, we will make capacity decisions that focus on margin improvement. If cutting capacity closer leads to a better margin outlook, we will proceed with that approach. Our aim moving forward is to operate at the capacity levels we originally set.

Catherine O'Brien, Analyst

Clear. And then maybe one for Andrew. Can you break down how demand has changed in recent weeks across different segments? Where are you seeing the biggest turnaround geographically? I think you mentioned some corporate uptick. Can you help us understand, perhaps by geography and traveler type, what you've observed over the past couple of weeks that indicates acceleration?

Andrew R. Harrison, CFO

Yes. Thanks, Catie. I would say it's across the board. And as Ben well-articulated, the various factors, whether it's capacity coming down, our synergies and initiatives really starting to ramp, but I do think when you look at business demand in the last two weeks, it's been up double-digit volumes and revenue has been up the same. We've seen leisure agencies are actually up 7%. So all of these factors that we're seeing are continuing to get stronger. I would say that, as we said in our prepared remarks, there was this real hard inflection point across the system where yields and volumes all turned positive. So it's very encouraging. We're seeing it on the leisure side. We're seeing it on the business side. And as already been articulated, the capacity backdrop as we move into the back half of the year, I think, is very constructive.

John Dewey Dorsett, Analyst

Congrats on the second quarter results. Just wanted to follow up on an earlier question on the integration. On Slide 4, you kind of have bucketed the synergies initiatives and the quantitative targets for the integration. How far along are you with those? And what kind of progress should we expect into the fourth quarter?

Ryan St. John, Vice President of Finance, Planning and Investor Relations

Thanks for the question, John. Yes, the Alaska Accelerate slide is more than just synergies, as we mentioned back in December. Some of this work was in progress even before the merger. This year, we anticipated about $200 million in synergies, which we mentioned in December. Currently, we're exceeding that expectation, which is encouraging. We've noted that this will ramp up throughout the year. In the first quarter, we didn't capture as much synergy as we could have if the deal had closed sooner last year. However, the fourth quarter will yield the most significant results. Year-over-year, we expect the highest amount of synergies in the fourth quarter, and if we were to annualize that figure, it would be much higher than $200 million. Overall, we're tracking positively, exceeding our expectations. As we look to 2026 and aim for $10 earnings per share, next year will be even stronger as we annualize these results and introduce new initiatives. Additionally, we have yet to launch the new loyalty program and premium credit card, which we anticipate will also contribute positively in the fourth quarter.

John Dewey Dorsett, Analyst

Okay. Great. And just a follow-up, how is the progress going along with the single carrier certificate coming along?

Benito Minicucci, CEO

John, what I'll say is it's going extremely well. We're on track for October and not just only on the single operating certificate, but on the single reservation system. We're launching single loyalty next month, and we commenced joint collective bargaining with all our unions. So as you guys know, this is not the first time we do this. And just a big shout out to all the teams. This is a lot of work while we work on all these initiatives. So I'm super proud of our entire Alaska Group team for really executing well on all these milestones.

Andrew George Didora, Analyst

First question maybe for Andrew, maybe a point of clarification. Maybe it's just me, but I was a little confused around your revenue intake commentary in your prepared remarks. I think you said July up double digits, August up low single digits and September flat. I guess what exactly does revenue intake represent? And I guess why would it be kind of decelerating as you go further out into 3Q?

Andrew R. Harrison, CFO

Thank you, Andrew. I want to focus on bookings. As mentioned in our prepared remarks, we are seeing the strongest performance in closer-in bookings, with very good results in August. We booked at a very low load factor, but overall, each month is showing improvement compared to three weeks ago. Therefore, I expect this positive trend to continue as we progress. Yes, the cargo piece is, as we talked about in December, we're bullish on where we can go with this as we combine the two networks, and we're already seeing synergies from the Alaska-Hawaiian combination. The Narita flight, we're bringing cargo directly to the Mainland to connect across the Lower 48. Our freighter franchise up in the state of Alaska that we've got two new airplanes in the 2024. Those are really now giving us an outsized year-over-year performance, and we're gaining market share. And then on the Amazon piece, we finally got up to 10 aircraft. It took a while, and we're beginning to see now that business start to finally spread its wings and really see what we can do. The Amazon team, we have a great relationship with them. They're our neighbors. They're right up the street from us, and we're working with them to continue to build that out, and we're encouraged by where it's going.

Duane Thomas Pfennigwerth, Analyst

I was hoping we could go a little deeper on the margin opportunity from repositioning of your wide-body aircraft. You touched on it, but maybe give us an update on any kind of route profitability improvement anecdotes you have. How do margins today on long haul compare to your system average now and maybe the pre-merger baseline? And just remind us how big is this opportunity? And how long will it take for you to realize it?

Andrew R. Harrison, CFO

Message understood, Shane. No, Duane, a couple of things. The wide-bodies, obviously, a large percentage are dedicated from Honolulu up to the West Coast. And those are experiencing strong uplift from network connectivity, from synergies and all the things that we've already discussed. Ben was just talking to an agent the other day, and we're launching a wide-body out of Anchorage at 2:00 a.m., completely full. So markets like 20 flights today between Seattle and Anchorage, the widebodies have been really good. We're continuing to look at all the widebodies, the 330 specifically, obviously, and where they're directed and how they're dedicated, but we still continue to see upside in optimization of that aircraft, both from a utilization perspective, revenue configuration, and maybe some marginal tweaks around the edges there on the actual network itself.

Duane Thomas Pfennigwerth, Analyst

I mean are we barking up the wrong tree? Is that one of the most significant margin movers you have going forward?

Andrew R. Harrison, CFO

I wouldn't say it's the most significant. I think the 321s, obviously, you're seeing a lot of benefit from that with this much higher utilization. And obviously, we're going to be reconfiguring the 330 and increasing the first-class cabin, the J cabin. We're going to be putting premium international premium economy seats on that. So those over the next few years will generate significant revenue than they do today. And we have about 24 of those units.

Shane R. Tackett, COO

Thanks, Duane. That presupposes we're going to do fleet simplification, which I don't think we've talked much about, but I appreciate the question. We do have some decisions to make on the long-term sort of contours of the fleet. We're, as you know, very committed to Boeing and the MAX aircraft. We're excited to get the -10 into the fleet, hopefully later next year or early the year after. We're really excited about getting our next and fifth 787 into the fleet. Those aircraft are going to be cornerstones of the Seattle geography for us. I think we expect to have the rest of the fleets here for a while. The 717s are really, really well suited to the Neighbor Island flying that they do, very hardy airplanes, great engines for that environment. And I think Hawaiian had made good decisions in terms of the narrow-body fleet. The A321 works really well into the West Coast for them. And obviously, the A330 is the backbone of what they do flying internationally and off to the West Coast. So nothing imminent to talk about. We're retiring our oldest 900s on the Alaska side. We're in the middle of doing that. We'll need to retire 700s next. I do think five years from today, we'll probably be simpler than we are today. But we've got some time to go and make those decisions and make sure they're optimized for the network we see ourselves flying in the future.

Shannon Doherty, Analyst

This is Shannon Doherty on for Mike. For the first one, can you guys discuss some competitor dynamics out of Seattle? We saw some responses to your launch of Rome next year, which is probably expected. But I'm just curious to know if you're seeing any particular yield pressure in response to the buildout of the hub? And then can you talk about some of the benefits you're seeing from increasing the network connectivity through Seattle and Portland?

Andrew R. Harrison, CFO

We are very pleased with our current position. To clarify regarding Seattle, our loyalty, network, and market share put us in a strong position for long-haul routes, especially with the 787 and our Oneworld partners, alongside the upcoming changes in the loyalty program. Overall, we are optimistic about Seattle. In addition, we've been growing our hubs in Portland and San Diego, both of which have been very successful. As I mentioned earlier, we’ve seen over a 200% increase in connecting passengers in Portland and a high single-digit increase in Seattle, with more optimization work still to be done there. We're experiencing some pressure in San Francisco due to increased industry capacity. However, given our growth initiatives and network dynamics compared to the industry's lower growth, we feel confident about our prospects as we enter the latter half of the year.

Shannon Doherty, Analyst

That's great. And maybe just a follow-up to Catie's question. Can we dig more into the corporate revenue backdrop? You called out some green shoots from large managed corporates with business demand and volumes up double digits. But then you noted in the script that West Coast exposure is a headwind. Shouldn't you guys be best positioned to capitalize on a corporate travel recovery that's like lagged in this region? Or do you think that corporate travel patterns just on the West Coast have structurally changed?

Andrew R. Harrison, CFO

If you look closely, Shannon, we have four major technology companies that are very important to our corporate travel sector, along with a significant aerospace manufacturer. It's well known that these businesses are experiencing changes, leading to reduced travel. My remarks pertain to the broader business landscape, which includes these large corporations that are shifting their strategies. In fact, over the past few weeks, we’ve seen a notable increase in booking volumes, particularly on the West Coast where most of our corporate and business travel comes from. As we move into new global contracts and engage with our largest clients, the new global gateway will also aid us in enhancing our diversity and expanding our corporate travel offerings.

Daniel J. McKenzie, Analyst

Congrats on the second quarter. The demand commentary has been really helpful. But bigger picture, if we just put a little bit of a finer point on it, how immune or resilient is the consumer today to, say, really bad headlines or really bad macro news? And is it the leisure travel that's more impacted? Or is it the corporate traveler? And I guess just tied to this, just to put a finer point on it, are the idiosyncratic revenue initiatives in the fourth quarter, if you can just help us understand how many percentage points of RASM they might contribute?

Andrew R. Harrison, CFO

I’ll provide a high-level overview. We won’t disclose the exact contribution beyond synergies, which are projected to be at least $200 million, and as Ryan mentioned, we expect to exceed that by the end of the year. We also have additional initiatives beyond that. Both the commercial roadmap and the synergies are crucial to our revenue growth. Regarding our commercial initiatives, I want to remind everyone that we are largely implementing strategies that have been successful in the industry. We are excited to launch a unified loyalty program this summer and introduce our premium credit card, which has proven successful for others, and we fully expect it to succeed for us as well. We are increasing the number of premium seats on our aircraft at a low capital cost by simply adding extra rows to both the 800s and 900s, which we believe has a high likelihood of success and may even exceed our initial estimates, as we have observed in the first half of the year. As for the overall consumer sentiment, I think that’s a key question, and I won’t claim to have insights that are better than others. However, similar to other airlines and economic trends, we find that customers who prefer to purchase premium cabin tickets have shown remarkable resilience, which has continued through the first and second quarters and seems likely to persist into the third and fourth quarters. If consumers feel more optimistic about the future, which appears to be the case, they seem more inclined to travel again in larger numbers. Additionally, we expect corporate travel to rebound as well. Overall, things are looking positive right now, and we hope that this trend continues.

Benito Minicucci, CEO

No, Ravi, let me provide some context about our Seattle global hub. We have the largest domestic network out of Seattle, with twice the reach of anyone else. Our loyalty program has been recognized as the best in the country for the 11th consecutive year. With our dominant domestic share, strong loyalty, and our belief that scale, relevance, and loyalty drive results, we are confident in attracting both leisure and business passengers to fill our airplanes. Over the next 5 to 6 years, we will be adding 17 787s to our fleet and expanding to up to 12 global destinations. If we succeed, it will be in Seattle, our hometown and hub, where we have a competitive advantage.

Shane R. Tackett, COO

Yes, thank you, Ravi. I want to clarify that we didn't anticipate a significant recovery in travel from Asia to Honolulu, largely due to currency exchange rates and similar factors. That aspect was not included in our forecast. I'll have Andrew provide an update on how those markets are performing. We did expect, and are witnessing, an improvement in flights from Hawaii to the West Coast and Neighbor Islands, which is why those segments have become profitable for the first quarter since 2019. Now, Andrew, could you elaborate on Honolulu International?

Andrew R. Harrison, CFO

Yes. Thanks, Shane. Ravi, the international, I would say, is still on the softer side with the existing headwinds. But again, there's sort of like six flights a day. There's all sorts of different markets. One thing I will say, though, on that is that we are starting to connect more folks over Honolulu on some of those international markets, and we haven't talked about it yet, but Huakai by Hawaiian our local loyalty program has really grown in leaps and bounds. So as we move forward and we're working with distributors, we're working across all of our loyalty levers with Qantas putting code on the Hawaiian metal now, so we have a lot of tools in our tool chest that we continue to work to continue to move the international out of Honolulu forward.

Benito Minicucci, CEO

Thanks, everybody. Thanks for joining us. We'll talk to you next quarter.

Operator, Operator

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