I apologize for being a couple minutes late. The five minutes between sessions is just not working with the bathrooms here. And I was thinking, actually, Dennis Tager suggested this. I really need a flight attendant to follow me with a galley cart when I go into the, you know, and block it. You know, I'm kind of one of the pilots of this event. I'd like to be able to, you know, use the facilities. Yeah, I shouldn't start out with, let's talk about the bathrooms. Ben, it's great to see you Thank you so much for making the trip You're certainly no stranger To the J.B. Morgan 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, the 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?

Yeah, well, thanks for having me, Jamie. Great to be here with everybody. You know, 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, we would have been better than our midpoint on our Q1 guidance. I would say consistent with the commentary of others' demand, It is the bright spot, and it continues to be for Alaska. But let's talk about fuel for us. You know, with 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 six months, one recently in San Francisco, one in L.A., which really drives that volatility for us, having fuel, you know, maybe 20 cents a gallon more than everyone else. And the bright spot was, you know, we got the acquisition of Hawaiian. 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 fuel. So, but a few things that we're going to do on fuel is, you know, prior to Hawaii, 65% of our fuel came from West Coast. Post-Hawaiian, it's 56%. And now we've got an initiative over the next two 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, 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 two 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?

You know, 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. 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've 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. But that will normalize as well.

And remind me, did you disclose what your embedded fuel price assumptions or range of assumptions were as part of the full-year guide, 350 to 650?

Yeah, so we were, as we exited 25 and, you know, 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, you know, the fun math, you know, I always like keeping airline economics math simple when we talk in the boardroom about stuff. So, you know, we spend about 100 million gallons of fuel a month, you know, 1.2 billion gallons a year. So 100 million gallons of fuel a month. So if it goes up a dollar, it's $100 million of extra additional cost. It's a massive amount. And then when you balance that with the coupon revenue is we produce about a billion dollars of coupon revenue a month, right? So roughly $12 billion, excluding loyalty, cargo, and everything else. And so to offset $100 million of fuel cost on a billion dollars of coupon revenue, you essentially 10% increase in coupon revenue. And that 10% on our average fare.

It's sort of a big number.

It's a big number. On our 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, you know, can take on an airplane, you know, their Starbucks and a muffin. You know, 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 it going forward, you know, 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, you know, fares have to go up to offset fuel. And, you know, 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 expensive it becomes? Or is that just giving the U.S. consumer a little bit too much credit? And I'm not trying to discredit them by that, but I just don't know how the average person thinks 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 were saying, look, we're going to go on 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 buck my fare now before our fares go up. So I think we did see a little bit of that, just to be honest.

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

You know, it is subject to that. And we have seen higher fares, quality fares from our international, you know, the flights that we do have. Well, I will say I am pleased with our international, though you mentioned it. You know, we launched out of Seattle, you know, Tokyo and Seoul last year. So, you know, in less than a year, you know, 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, you know, the cabin isn't even ideal right now. We've got a lifelike cabin, but there's not a premium economy yet in the 787s, which we're working on in the next two years, which will be further tailwinds for us. but we're seeing strong international demand and Rome launches in five weeks I think you guessed it last time we met when I was trying to be cagey where does Mini Cucci want to fly out of Seattle

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 that's when I knew I might be right

It's a shame my CFO was giving me the little, don't do it, don't fall for it. No, we're excited. Rome's 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 One World, but this is just an amplification of that where we're putting our own mettle. 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 booked a flight to London. I booked a flight to Rome. I'm on Keflavik. I'm going to Tokyo, Seoul. And so we're excited. And we're just the initial stages of this. And, you know, like my view is that this is where, you know, 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. You know our premium story is strong. But international, for me, is something we're building from the foundation. And, you know, we'll have over 12 flights a day. We'll have, like, 40 wide bodies at Alaska by 20 into the early 2030s. 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.

Something like that.

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 timeline, or is that reading too much into the law?

No, I think it's exactly how you should be reading it. 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, you know, we have the loyalty. And right now, when they go international, they're giving the loyalties to someone else. And we have, just to give you a sense, just out of the Seattle hub and not even from 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. you know uh they're going to redeem those you know going international uh and um and and then the 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 they fly to seoul they're going to london and and with our one world partnership the connections through london through the through different um cities that we can fly from there uh it's it's it's it's just building and growing and uh which makes this super, super exciting for us, so, you know, and the one thing, like, I tell people, what makes you so excited? It's rare, you know, that you have, and we have 30,000 people, we're the fifth largest airline, so, but it's still pretty big, you know, 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 to 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've had them for 15 years. We've had the best operations industry overall in the last 15 years. You know, we've had strong financial performance. We have, you know, a fantastic balance sheet. So everything is in our favor to go make this thing work. And so I feel really good about it.

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

You know, so one, and I know everyone says this, Well, one, definitely our people and our culture. I think when people fly us, I get it over and over again. You know, we feel the difference. I just got an email from a customer who was loyal to another airline and said, you know, 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 is 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 in it if we don't we don't hire that person you know uh and sometimes we miss you know people get through but having that kind and caring culture engenders loyalty and and so that's a big part of it uh a big part is uh you know we know that having scale relevance and loyalty matter okay uh and so we've focused on the west coast uh so and the pacific northwest we have that moat uh we've been uh you know 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 at most rewards which you know at the launch of a premium credit card we already have 90,000 signups on a premium credit card that is doing fantastic for us and so loyalty is the other big moat for us in the geographers we fly The acquisition of Hawaiian. We had a billion-dollar franchise and said, look, this is a fantastic franchise that we can build. It went from a billion-dollar 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, SFOLAX, 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 mode continues to widen. So we feel like we're making that mode deeper and wider. It was deep and wide, but we're making it deeper and wider with the things that we've done and continuing to lean in on what we've always done well. But actually adding, you know, new elements, you know, 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 an 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 two categories, better and worse?

Yeah. No, it's a great question. So what I will say is when we put Alaska Accelerator into place, what got us there was a billion dollars of additional pre-tax profit that was going to be generated through synergies, revenue initiatives, and cost savings, and roughly a third, a third, a third 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 it's doing extremely well. What's changed in our assumption is the macro. So last year, from the industry backed up, the macro was a $500 million to $600 million headwind for us. 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. Why wouldn't you recover? Sorry to interrupt. Well, it was just an assumption in terms of our guide that we recover a portion of it. And 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, you know, on the exit rate of the 250 to 260 range, you know, So we hit and we continue to execute on our initiatives. And with the buyback on top of it, the math just falls into place and says you should get to a $10 APS. Now, the reality is the reality, right? We're facing right now $3.50 a gallon fuel, not for the fare increases. We'll see how that pans out. And the macro, again, is on target, I think. So the macro we feel pretty good about so far. But the reason we had our range as wide as we did, we said, look, 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 VPS, and we're going to do everything we can control to go get that billion dollars of pre-tax. On the share buyback, we did $570 million last year. We're $100 million into this year. We're going to do up to $250 this year by mid-year. So we'll have $750 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 22nd, I think. So a big, big milestone. And three big integration milestones will have been done. We'll have done single operating certificate. We'll have done single loyalty, single reservation system. And the last one, which is always a big one, is joint 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. 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, you know, from 12 to 36 months to get done. And our view with labor is, look, we're going to pay, you know, we're a global airline now. We're a large domestic airline. We're going to pay competitively with the big four. And so we're not going to be at a disadvantage from the labor, but not like we were 15 years ago. We had an advantage, but now, look, we realize, you know, we're a big player and we've got to pay our employees competitively.

But if I'm not mistaken, the wage differential between Alaska and Hawaiian in 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.

Yeah, and on our flight attendant work rules, the big difference is at Alaska we pay by trip versus by hour traditionally. So Hawaiian has what everyone does, and our contract 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, you know, 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, you know, we're not reinventing, you know, 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.

Mark Streeter, you got a question? Yes, I do. Ben, you mentioned that Alaska has had success consolidating the industry. You look at the Hawaiians going well. You obviously have the Virgin acquisition before that and so forth. How should we think about the future for further U.S. industry consolidation? When would Alaska, you know, 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, you know, these. Yeah, the consolidation light turns green because you've further integrated Hawaiian or you've reached your milestones. How should we think about that?

You know, 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 things on that. Number one, we're focused on Alaska Accelerator and $10 of EPS. 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 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 the 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, you know, this industry, you know, 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 billion-dollar, 750, 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. You know, we've got sort of a very sort of binary camp, right? We've got United, we want it, we're going for it, 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?

Yeah, I think the question is both. And we definitely, within, you know, by the time we achieve Alaska Accelerator 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 VPS, with, you know, 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 years. You know, 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, you know, 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, 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, in a follow-up on that, your share price has lost more than 30 percent and 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 desire and temper your desire or willingness, I should say?

Yeah, I think we're going to do $250 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, two 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 yeah so we don't have a good line of sight into retirements what 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 um so I'm really pleased with the last big order we put with Boeing, you know, 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, you know, 41 of those wide bodies and the rest narrow bodies. And that gives us a 4% growth 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 go 4%. Now we can modulate that quicker or slower, depending on what's going on from a cash perspective. And the idea is we want it to level set a billion and a half of CapEx a year, give or take, as we go through. So now there's renewals of fleets. You know, we've got an older 717 fleet that we have to address in the state of Hawaii that does inter-island flying. But, and we have some, you know, 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 because I've been here a long time. And so, you know, 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 widebodies 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 E-2? I'm sorry.

No, no, listen. I've been clear with my people. I'm a maintenance and engineering guy from training, right? I said, the one thing I care about, you know, as you guys are getting 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, you know, they save a lot of gas. We'll see what the maintenance costs on those engines from a life cycle perspective. But I want a bulletproof engine. That is my number one requirement, bulletproof engine. And it's got to serve the needs of the residents of 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, you know, 12 months. I think we have a little time on the 717s, but not that much time to figure out, you know, 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. No, you know what, and I hope to be here next year.

I'll start with the guide, as we do know your audience. Yeah, no. Look, I'm super excited what we're doing with AI. And a couple 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 partnered with a company called Uplabs. They're a company that creates companies to go solve problems for the industry or for a certain company. So for me, 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's seven mini 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 six 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 seven and three work and three 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 working 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 then, but thank you, Ben. Really appreciate it. Thanks, everybody.