Alaska Air Group Inc Q2 2025 Earnings Call Transcript

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

Question: Scott Group - Wolfe Research LLC - Analyst : So I just want to follow up on just like the Q3 to Q4. Is -- 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 as the average for jet fuel for Q3 in the guide? Or is that where you think you sort of end the quarter?

Question: Scott Group - Wolfe Research LLC - Analyst : And then maybe just a little bit of help on the $3 and change this year going to $10 in two years. I mean, that's a big lift and what -- how much of that is market dependent versus just company specific, just -- and how to think about -- that's a big lift, so just any more help to get there.

Question: Jamie Baker - JPMorgan Chase & Co - 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 3:30PM, ALK.N - Q2 2025 Alaska Air Group Inc Earnings Call Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Jamie, it's Andrew. Just to clarify, the 50% is our revenues coming from the premium outside of other areas like bag fees and all the rest of it. But as we shared in our prepared remarks, about 35% of our revenues right now are premium based on 26%, 27%. We are very confident, just given the -- I think we expanded the revenue premium over the main cabin between Q1 and Q2. And we're well on our way of adding premium class seats to our -9s and MAXs. So we feel really good about that trajectory. We're also seeing continued strong first-class cabin, and we're already working on the Airbus 330 and the 787 front cabins as well.

Question: Jamie Baker - JPMorgan Chase & Co - Analyst : Okay. Helpful. And then I thought you did a good job articulating the response to Conor's question on the fourth quarter demand lift. But just to be clear, does your industry capacity forecast assume that we see as much capacity come out October through December as we are in the months prior to that? Because again, I think you gave a good answer as to why it can accelerate, but I didn't hear any supply commentary. And the fact of the matter is there's no guarantee that year-on-year capacity in the fourth quarter is going to tighten as much as it did sort of second half of August and into September.

Question: Catherine O'Brien - Goldman Sachs Group Inc - Analyst : Hey, everyone, Cate O'Brien with Goldman actually, but good to see you guys, good to hear from you. A question for -- maybe for Shane. This year, I believe, more than a typical year, you have some fixed costs you can't take out because of ongoing integration efforts even as you cut capacity, just investments in merging the two operations. Can you help us think about how much of a drag that is to 2025 outlook? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 3:30PM, ALK.N - Q2 2025 Alaska Air Group Inc Earnings Call

Question: Catherine O'Brien - Goldman Sachs Group Inc - Analyst : Okay. Clear. And then maybe one for Andrew. Can you just break down how demand has changed in recent weeks, maybe across the different segments? Where are you seeing the biggest turnaround from a geography standpoint? Like I think you mentioned some corporate uptick. Can you help us think about by -- maybe by geography, by traveler type, like what you've seen over the past couple of weeks if things have accelerated? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. 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 has been up double-digit volumes and revenues being up the same. We've seen lease 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 turn positive. So it's very encouraging, we're seeing it on the leisure side, we're seeing it on the business side. And as has already been articulated the capacity backdrop as we move into the back half of the year, I think, is very constructive.

Question: John Dorsett - Barclays Services Corp - Analyst : This is John Dorsett on for Brandon. 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 I guess, targets for the integration. How far along are you with those? And what kind of progress should we expect into the fourth quarter? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 3:30PM, ALK.N - Q2 2025 Alaska Air Group Inc Earnings Call

Question: John Dorsett - Barclays Services Corp - Analyst : Okay. Great. And just a follow-up. How is the progress going along with the single carrier certificate coming along? Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc., Director 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 a single reservation system, we're launching single loyalty next month. and we commenced joint collective borrowing with all our unions. So as you guys know, that's not the first time we do this. And I just have 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.

Question: Andrew Didora - Bofa Merrill Lynch Asset Holdings Inc - 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 in 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 Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. Thanks, Andrew. Really, I'm talking about bookings. And as we shared in the prepared remarks, obviously, the closer in bookings are coming in the strongest. And we're seeing very good bookings in August. And we're very -- we're booked to a very load factor. But again, all of these months, we're getting better than they were three weeks ago. So I fully expect to see those continue to improve as we move forward. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 3:30PM, ALK.N - Q2 2025 Alaska Air Group Inc Earnings Call

Question: Duane Pfennigwerth - Evercore Inc - Analyst : I was hoping we could go a little deeper on the margin opportunity from repositioning of your widebody 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 premerger baseline? And just remind us how big is this opportunity? And how long will it take for you to realize it?

Question: Duane Pfennigwerth - Evercore Inc - Analyst : I've had a lot of time to refine the question, so thank you. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. No, Duane, a couple of things. The widebody is 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 widebody out of anchorage at 2 AM 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.

Question: Duane Pfennigwerth - Evercore Inc - Analyst : Great. And then just a follow-up on just broadly on fleet simplification. Again, from a margin opportunity perspective, what are the biggest opportunities? And any thoughts on timing?

Question: Shannon Doherty - Deutsche Bank AG - 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. I'm just curious to know if you're seeing any particular yield pressure in response as you build out 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 Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. So a couple of things. We are, have been very pleased with where we see things are at. Just to be very clear on Seattle, the way we're positioned, our loyalty, our network, our share, we are extremely well positioned to be very successful in any long haul that we endeavor out of Seattle, especially with a 787 as well as our oneworld partners and connectivity. And you've heard about changes that are coming in the loyalty program. So overall, we are very bullish on the Seattle situation. As far as hubs goes, we've been growing Portland and San Diego, which have been very successful. You heard in my prepared remarks that there's 200%-plus of increasing connecting passengers over Portland. We've had high single digit over Seattle, and I think there's more optimization work to be done there. We're feeling a little bit of pressure in San Francisco because industry seats there are up. But overall, given the dynamic of our growth, our revenues and initiatives, and the network and then the industry's sort of lower level of growth, we feel very good about the construct as we move into the back half of this year.

Question: Dan McKenzie - Seaport Global - 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, 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.

Question: Dan McKenzie - Seaport Global - Analyst : Yes. Second question, where is Alaska making investments in machine learning? And how do we think about the multiyear productivity story? I guess how many years off in the future is it before we might see AI in the cockpit, for example? Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc., Director Dan, it's Ben. Look, I think our focus on AI right now, and we're excited about it like everyone, is really on the safety and operations side. And we started this well before anybody else in 2018 - 2019 with our flight planning with a company called Flyways and that's just about the safety and efficiencies of our flight plans. We're looking at how it improves operations, our safety data. And the other thing is we're looking at initiatives that put really the guest experience at the center of it all. And those are the things that really excite us a lot. So that's where it's going to be our focus now, whether that's in call centers and improving the experience of call centers, the experience in lobbies, the experience through the app, those are all things we're looking at in terms of improving REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 24, 2025 / 3:30PM, ALK.N - Q2 2025 Alaska Air Group Inc Earnings Call the guest experience and in parallel, how do we improve safety and operations. So that's all our thinking around AI. That's where we want to drive it. That's where we think we can have the biggest bang for our buck with this exciting new technology. All right. I think we have time for one more question.

Question: Ravi Shanker - Morgan Stanley - Analyst : I know it's early days on the international routes, but do you have data on what kind of traveler you're attracting here? Is it an Alaska fan, who is now flying international with you? Are you taking share from international or domestic mainline peers? Is it corporate? Any data there will be helpful. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc., Director Ravi, let me start just giving you context about our Seattle Global hub. So just for context, we have the largest domestic network out of Seattle, 2x beyond anybody else. Our loyalty program, we have -- so we were just named for the 11th year in a row, best loyalty program in the country. So between having the largest domestic share, a great loyalty, and we always said scale, relevance, and loyalty really drives results. We believe we're going to get the leisure passenger, the business passenger to fill these airplanes. And so we're super confident we're getting 17 787s in our fleet over the next five years, five, six years. we're going to have up to 12 global destinations. And if we can win, we're going to win in Seattle because that is our hometown, it's our hub, and it's where we have strength.