Alaska Air Group Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Catherine O'Brien - Goldman Sachs - Analyst : Good morning, everyone. Thanks so much for the time. I just want to dig in on the 2Q guide a little bit, if you'll allow it. Can we just talk about some of the moving pieces underlying that 6 point headwind in the flat-to-down RASM guidance? Maybe first, just to set the baseline, how much of that quarter is already booked? And then it sounds like corporate has moved off the bottom, international may be getting a little bit better, cargo is growing. You've got new premium card launching this summer. Hawaiian synergies are ramping ahead of schedule you noted in the prepared remarks. So a couple of positives as we go into 2Q. Just trying to get a sense of how you're assuming trends in some of these buckets evolve in the second quarter and what's offsetting the positive? I know obviously, the macro is a little bit worse, but just how all those pieces fit together would be super helpful. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Catie, thanks for the question. So a couple of things. We're about 62%, 63% booked for the quarter. I would say a couple of things about the environment. And number one, I think, holistically, it is about the general environment is where we're seeing all the softness. It's not in any of our synergies, our initiatives. We're seeing all of our hub banking working. We're seeing strong loyalty growth. We're seeing strong Hawaiian assets. The industry is growing at 2 times domestically than it was in the first quarter. And the other important thing is, I think we're very excited about we might have reached a new baseline for RASM for the first quarter as we have really worked hard to change the seasonality and get to a better place. So as we sit here today, the macro environment is about the only thing that is weighing us down. And on the business side, Again, we're sort of seeing a stabilization there of bookings. There are some sort of in the manufacturing in high tech that are still soft and then there are others in professional services that are doing well. So overall, flat to down mid-single digits is sort of what we're seeing today.

Question: Tom Fitzgerald - TD Cowen - Analyst : Hi, everyone. Thanks so much for the time. I'm just wondering -- thinking about demand, if we could talk about California for a little bit and maybe comparing and contrasting San Diego with SF and LA and how do you characterize the competitive environment in those markets? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. Thanks, Tom. I think as you can see publicly in the tape, there's been a very significant increase in ASMs in San Francisco as a major carrier there gets back and above pre COVID levels. So I think we're sort of seeing pressure there. But I will say that in San Diego and that's what you see us leaning into that has just performed very, very well on our growth that's performed very, very well. So that's a place that we're going to continue to invest in.

Question: Conor Cunningham - Melius Research - Analyst : Hey, everyone. Thank you. Just on the $10 earnings number by 2027, surprised you guys kind of have so much conviction. It sound like you have a ton of conviction. So I'm just curious if you could just unpack what you're seeing that will bridge us from here until then? It just seems -- obviously, the macro is different, but you've had more time to integrate the two companies. You're seeing how the competition is responding to your long-term plan. So if you could just talk about why you feel so confident in the outlook come 2027. Thank you.

Question: Conor Cunningham - Melius Research - Analyst : And now I'm going to ask you a really short-term question. I'm sorry. The -- can you just talk -- maybe to Catie's original question, I think we're all trying to understand how the booking curve and pricing in general is moving throughout the quarter. From what I think about like March, you guys probably have a lot of that booked in February before things really started to change. So like as you sit here today, are people discounting in June more aggressively than they are in April? And I mean I'm just trying to understand like what's contemplated within the near-term outlook as you try to manage through things in general. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call

Question: Conor Cunningham - Melius Research - Analyst : Appreciate the detail. Thank you.

Question: Andrew Didora - BofA Global Research - Analyst : Hi. Good morning, everyone. So Shane -- both, I guess, you and Ben have spoke several times about the potential for accelerating your buybacks. Just curious, like, how should we think about the potential size of what you could accelerate here? Or I guess, kind of your comfort level of how that could be like are there any kind of balance sheet or liquidity guardrails that we should be aware of that could be somewhat limiting factor in the near term? Just trying to think about what the buyback potential could be kind of very near term here. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Great question, Andrew. I'll start and then I'll give it to Emily to provide some context on the liquidity questions you had. Look, I said in my script, I think we're significantly undervalued. We announced our $1 billion share buyback at Investor Day. And we were, again, in the $60, $70 range. So this is just a significant opportunity for us to accelerate. So we've done some math, and I'll just hand it over to Emily, just to give you some context on how we're thinking about it here in the next few months. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call Emily Halverson - Alaska Air Group Inc - Vice President of Finance and Controller for Alaska Airlines and Alaska Air Group What the opportunity is to accelerate this program this year and the balance sheet impact that, that would have. It really will be de minimis in terms of where we're at today with debt to cap and our net debt-to-EBITDA metrics. So we could do up to half the program and have essentially no change in trajectory for those metrics.

Question: Andrew Didora - BofA Global Research - Analyst : That's great. Thanks, everyone.

Question: Jamie Baker - JPMorgan - Analyst : Hey, good morning, everybody. So obviously, not Air Group's first downturn ever, but obviously, one difference to this downturn is that several of your competitors are already struggling with profitability so ordinarily, I might be thinking about Alaska coming out the other side even stronger than if the downturn hadn't happened, never let a good crisis go to waste, all that kind of stuff. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call But your plate seems pretty full at the moment. So I guess my question to Ben is if one of your lieutenants came to you with an incremental idea, I'm not talking M&A, I'm taking more from a network perspective, taking advantage of OA pressures, do you think you'd execute or the preference just to kind of keep your head down and power through. I'm just trying to decide if the downturn structurally helps you longer term, and it's not clear to me if it does. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Jamie, I love your questions because I think they're actually very thoughtful. Look, I think if you we're deeper in our team. Our team mindset is we never look a great idea away, and we will make trade-offs to what is best long term for Alaska Air Group. So if we saw an opportunity and we needed to make a trade-off and move something off to the right so we can put another initiative in that we think would have greater value to the company, we would do that. We weigh all the possibilities and make a move. We are nimble, we are decisive and I think we have the team to go pull it off. So that's just how we think.

Question: Jamie Baker - JPMorgan - Analyst : Okay. Perfect. Thanks for the answers, Ben. Appreciate it. Take care.

Question: Scott Group - Wolfe Research - Analyst : Hey, thanks. Morning. So I think you talked about premium and Main Cabin unit revenue, both positive in Q1. Can you just talk about like directionally the spread between the two? And to what extent or how much is that spread widen into Q2? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Thanks, Scott. I think what I would say on that is that the first class cabin, and I'm not going to get into specific spreads here, but the first class cabin actually is really doing strong and outperforming. I think as you know, with the premium class, it's undergirded by main cabin seats. So the real opportunity there is the roughly 15% of revenues on the sell-up and I think as we go into Q2, again, that's why we are very focused on keeping full airplanes, full airplanes results in premium class performing better than it would when they were not full. So I would say, though, that PC is probably a little softer than certainly first class. But overall, we see the relationship holding as we go in. And just to say it on the Saver side, we still have very generous availability on that, it's around 60%. But in the first quarter, we were able to actually expand our upsell from Saver in the main cabin. So we've got pricing and yield from that. So we're getting better and smarter about how to manage Saver in this downturn environment.

Question: Brandon Oglenski - Barclays Estimates - Analyst : Hey, good afternoon. Thanks for taking the question. So Ben, maybe if I can just merge Andrew and Jamie's question together and ask it maybe a little bit more directly. I mean we see a lot of unsustainable airline business models out there and maybe more treacherous balance sheets across the industry. I mean, why accelerate a share repurchase in this environment, especially not knowing where demand is going to end up and potentially like other industry opportunities that can present themselves over the next few years, you guys have been the most acquisitive of anyone, I think, in the last decade. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Yeah, great question. And it's good to push us on this. Look, I just think we know where we're going to be with our long-term plan in 2027. We're so confident what that's going to deliver, so we just think it's a significant opportunity. Everything else we're doing is in our control. We're executing and we believe that we're going to get through this turbulence. And if you -- we look at past downturns, whether it was in 2008, the great Recession or before that, these things will last 6 to 12 months, and we want to be on the right side of it. And airlines always make that same mistake, Brandon, that we buy back stock when it's high and then don't buy back stock when it's low. So we're not going to make that mistake this time. And I think we're convicted that the company is undervalued. And I think we have enough assets and a balance sheet that if other opportunities were to come up, I think we can take advantage of those in addition to what -- to buying back stock.

Question: Brandon Oglenski - Barclays Estimates - Analyst : Well, yes, Hawaii, but maybe more broadly, too? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yes. I think number one, our growth is low. And I think the industry right now is in the business of reducing capacity, not increasing it. And I think when you see in times of softness, people go to their strength. And I think the way I look at this right now is that we are playing to our strengths. And so I feel pretty good about the macro network landscape as it sits here today, and yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Hey, thanks. Most of my questions have been asked, but maybe we could just play back what happened in the back half of March. It feels like -- and maybe this is a misinterpretation by us, but it feels like your tone was relatively more constructive at that time when some of your peers were guiding down. So what shifted for you? Was it perhaps later? Was it more of a corporate or leisure dynamic? Can you just walk us through the time line since mid-March?

Question: Duane Pfennigwerth - Evercore ISI - Analyst : And then just for Maui specifically, I don't know if you have this data in front of you, but how recovered is your capacity to Maui from maybe the pre-wildfire baseline? And what does the booking curve look like into the summer for Maui versus last year? Are you seeing how booked up are you and what do yields look like? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. I would say just in Maui specifically, I think the horrific fires and all of that obviously was terrible, is really from a demand somewhat behind us. Hawaiian never really, at that time, really pulled down much of their capacity at all. And given what we're doing now, we've pretty much restored it. And as Maui versus Honolulu, it all sits in the same ecosystem. So those things are behind us. And I think what we're doing right now is looking to continue to make more connections and grow that.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Okay. Thank you Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director And Duane, I think overall, what we're seeing is Hawaii is a bright spot for us. That's the big takeaway. It's just a bright spot. Everything we're doing is ahead of expectations.

Question: Mike Linenberg - Deutsche Bank - Analyst : Hey, good morning for you guys. Andrew, your comments about the San Diego buildup and the network and now being in a position where you sort of offer the most utility to the customer base in that market, I found that interesting. It does look like that it's being funded by pulling down some markets that I would have thought were core to Alaska, like Alaska to DC -- or excuse me, San Francisco to DC and San Fran to Chicago. And so it does seem like that San Diego's gain is San Francisco's loss because it does seem like it would reduce the utility of your product in the SFO market. How should I think about it? And are those the types of moves that we should expect from you going forward from a network perspective? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yes, Mike, that's a very perceptive question. Thank you for looking at the details behind it. But here's what I would say is, number one, we continue to reshape California to make sure that it's in the best place possible. I would say, if you're referring to places like Dulles, we fly lucrative DCA markets, so we've not really lost the utility there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call We have a great partner in American Airlines, in Chicago where our leads can earn and accrue miles and all of that. And Nassau, just to be honest with you, was a post-COVID market that is more of a cruise stop destination, we couldn't work. So we used those loss-making markets, we reinvested them in San Diego, which has actually been more profitable. So net-net, we're doing it smart, we're doing it incremental, and I think overall Air Group and our guests are going to benefit from this. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director And Mike, just let me be clear, San Francisco and Los Angeles are still a key part of our California strategy and in no way interpret these moves as putting less focus on SFO and LAX. It's SFO, LAX and San Diego as part of the strategy.

Question: Tom Wadewitz - UBS Equities - Analyst : Yeah. Thank you for giving me some questions here on the call. Yes. I wanted to get your -- maybe a higher level on a lot of the questions you've had on kind of premium. How do you think about the I guess, macro backdrop that would give you greater concern on weakening and premium and first class and that kind of broader category. I think we were thinking that a big step down in the equity market could cause some pressure, some risk. It could be going into a mild recession. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call But I guess you could say, well, maybe that income cohort is so well protected that you could do a mild recession. You could go into a mild recession and maybe you would still be resilient. So just wanted to see if you could offer some thoughts about how do you think about how premium would go through a downturn and an economic downturn and how resilient it might be. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. I think, Thomas, the question on those have been asked a few ways. I think we're just not seeing it. I'd just be clear about that. We are not seeing any pressure certainly in the front cabin. And I think as we've shared in Investor Day, we have the long, if not the longest domestic stage length of any carrier in the United States. So when you look at a quarter of our capacity, Hawaii alone is flying 6 hours, let alone, everything else, there is a real demand for our premium and first-class product where most of our network is flying 4, 5 hours on any given day.

Question: Tom Wadewitz - UBS Equities - Analyst : And then just a second one would be, how do you think about capacity in second half? It sounds like maybe more careful approach on it. But are you -- what would you kind of need to see to really take it down more aggressively? Or do you think you're kind of -- even if you saw some further weakening in main cabin, you would kind of stick with the capacity plan for second half? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. The good thing a little bit is the second and the -- especially the third quarter are our lowest growth quarters already. So we've got a natural hedge there. And as I did share on my prepared remarks, we are already looking at some of the fall and beyond and looking at some capacity cuts. I will say that as we have shown and we demonstrated that if there was a continued weakness, we would definitely be looking at capacity and how we ensure that we position this airline well for that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call

Question: Ravi Shanker - Morgan Stanley - Analyst : Great. Thanks. Morning. Thanks for speaking to me here. Just a few high-level questions on Hawaii, going back to the earlier commentary on the booking curve. There's some speculation that US travelers may not want to go international as much as maybe the last couple of years. Do you see any potential or evidence that Hawaii may be a natural alternative there? And also, there is some talk locally in Hawaii, maybe restricting the number of tourists coming in is that an opportunity on mix or a risk on volumes?

Question: Ravi Shanker - Morgan Stanley - Analyst : Maybe a quick follow-up on that as well. Kind of good to see the momentum in Hawaii loyalty there. Is that something we would -- we should expect to see be really strong out of the gate of this acquisition? Or is that something that will accelerate later on once you've completed the operating certificate, PSS, loyalty program combination? Is that going to add to -- kind of peak later? Or is that like the most you see now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 3:30PM, ALK.N - Q1 2025 Alaska Air Group Inc Earnings Call Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yes, I think we're very excited. We just think loyalty is going to continue to accelerate. We go to a single loyalty program this summer. And we have -- we're making continual changes to our program, which we'll be announcing, and we also have a premium card. And then Elites will get full access across the breadth and the depth of both metal as we get to a single PSS. So we're just excited that there will be continued momentum on the loyalty side. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director And Ravi, if you remember from Investor Day, one of our big priorities on our Alaska Accelerate vision was be Hawaii's trusted airline. This is the trusted airline that will take people between neighbor island travel, which is hugely important, that are going to take them internationally out of Honolulu and we'll connect people from the islands to the West Coast to our massive network from the West Coast to the rest of the Continental US so we're seeing gains. To be honest, I think we just scratched the surface on this. I think we're going to see this accelerate more as the year progresses and when we become on one single reservation system, a single loyalty program, which is going to be in place here by August, I think you're going to see this continue to grow and then we'll achieve that vision of being Hawaii's trusted airline.