Alaska Air Group Inc Q4 2024 Earnings Call Transcript

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

Question: Brandon Oglenski - Barclays Estimates - Analyst : Hey, guys. Good afternoon or good morning. Thanks for taking the question. I guess, Ben, it seems like everything's firing on the right cylinders here. As you look at the network reallocation this year, what is most important? Because we hear a lot of moving pieces here, like launching a Narita flight out of Seattle. But then also, I think the bank structure at Portland and Seattle, as well, sound pretty important. So can you maybe elaborate more on that? Or maybe that's a better question for Andrew. I'm not sure. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Well, maybe I'll start and then I'll just get Andrew. I think, overall, you're right, Brandon. It's a great question. We have a lot going on. And fortunately, I have just an outstanding team across the company. We've got an integration that we're doing, so we've got to keep our eye on executing a single operating certificate this year and a unified reservation system. But along that, we've got all these synergies coming through. And so connecting the networks is extremely top of mind for us. As Andrew mentioned, all the synergies that come from that, international flying, getting the operation, really focused on not missing a step, is where I'm just keeping the company between the guardrails. But Andrew, just a little more color on that. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah, I think -- Hi, Brandon. As you see with our guidance, our capacity growth is very low this year. So what we're really focused on is moving our aircraft around and positioning them in the best way possible. I think with the rebanking, again, just moving our aircraft around and being very deliberate about what connects to what. And we've seen significant goodness there. The last thing I will say is that we launched 19 new markets in December and January of this year to replace capacity in the first quarter that hasn't been performing. And I think that's a big part of what we've done. All but one of those markets is seasonal. So again, we're trying to use our assets that we have today to unlock the synergies and to be very purposeful about where we fly and how we fly. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call

Question: Brandon Oglenski - Barclays Estimates - Analyst : Appreciate it. Thank you. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Brandon.

Question: Conor Cunningham - Melius Research - Analyst : Hi, everyone. Thank you. Maybe just sticking with the banking situation. That number on Seattle, about 20%, was obviously a lot. Is that -- are you already benefiting from the network connect of Hawaiian to legacy Alaska? Is that what's driving that or is it just the changes that you've made to the legacy Alaska network that's really being the needle mover there? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. Hi, Conor. I mean, it's obviously both. But I think the significant part -- and you got to remember, our load factors have always been a challenge in January and February. So there's plenty of room on our airplane. And we've just reconfigured the flights to maximize our connectivity, and the team's getting much better at that. In fact, I'm excited sitting here today that we're sitting on just above 80% load factor for January, which has always been our goal. And we've struggled to do that, and we're there this year. So it's just really exciting to see. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director And Andrew, we have 350 flights a day, up to 400 in the peak, in Seattle. So that's just a lot of flights coming in, connecting. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call

Question: Conor Cunningham - Melius Research - Analyst : Great. Thank you. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Conor.

Question: Scott Group - Wolfe Research - Analyst : Hey, thanks. Morning. I want to just follow up again on the high-single digit RASM. Maybe if you can unpack it a little bit more between what you're seeing in legacy Alaska versus Hawaiian. How is cargo that's really, really strong right now contributing to that? And then maybe just with that, I remember last year, after the MAX issues, March ended up being a really strong RASM period for you. Do you feel like you've -- that month, do you feel like you've captured the comp getting tougher later in the quarter in this? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Hi, Scott. Yeah, just to check through a couple of those. Both the Hawaiian assets and the Alaska assets are performing well on a unit revenue basis. There's just a lot of noise that occurred last year. You had the rollover impact from the Maui fires. You had Flight 1282. We had a very different network. We didn't have the combined network and co-chair. And as we've shared in the past, January and February are always the most opportunity for us to improve. And you're seeing that, and that's being done. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call March and spring break, I think, are always good for us. I think we have a better setup this year as far as our network and what we're doing. And just to reiterate, we have all the goodness of the synergies and connectivity coming through. So we are very excited about how this season is shaping up.

Question: Scott Group - Wolfe Research - Analyst : Helpful. Thank you, guys. Appreciate it. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Scott.

Question: Andrew Didora - BofA Global Research - Analyst : Hey. Good morning, everyone. First question for Andrew. I know it hasn't really been long since Investor Day, but have you noticed any changes in competitive capacity or competitive behavior after outlining your plan and starting all of your rebanking efforts? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Hi, Andrew. I would say very little. There's some things around the edges. There's some equipment changes by some carriers here and there. But on the whole, what we've seen is the industry continue to play out and seasonal schedules get trued up further on. But other than that, pretty the same as what we were seeing when we met with you six weeks ago. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call

Question: Andrew Didora - BofA Global Research - Analyst : Maybe I could sneak one more in. Any thoughts on potentially what you could do with the payroll relief loans as that resets, I guess, later this year on the first tranche? Thanks again.

Question: Jamie Baker - JPMorgan - Analyst : Oh, hey. Good morning, everybody. So I'm not at all trying to detract from your momentum, but I think I have a fair question to ask. As you now understand the Hawaiian franchise inside and out, what, if anything -- and there has to be something, I hope, that has surprised you to the downside. And let me give you an example, because you may recall I asked this question shortly after the Virgin integration kicked off. And one of the things you cited then were aircraft leases. Virgin had really good economics, but a lot of duration in those leases. So that sort of thing. Anything you can call out that has disappointed you?

Question: Jamie Baker - JPMorgan - Analyst : All right. I appreciate the thorough response. And just as a quick follow-up, you mentioned in your prepared remarks getting the Hawaiian franchise to first quarter profitability somewhere down the road by applying some of the, I think you said, lessons or best practices learned at Alaska. Can you remind us in your mind what you think are the largest building blocks or moving pieces that need to be addressed that get Hawaiian to a future first quarter profit? What's standing in the way? Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Just one of the things that we did with Alaska is just we want to have the right amount of capacity for the demand that's available in a weaker first quarter. It's putting the right airplanes in the right markets. It's staffing. It's productivity. It's all those things that we've honed over the years that we're going to duplicate on our Hawaiian brand. And I think there's just a lot of opportunity there. We've learned a lot on the Alaska side, and I think you're going to see some of that experience and discipline be forced onto that network.

Question: Catherine O'Brien - Goldman Sachs Research - Analyst : Hey. Good morning, everyone. Thanks for the time. Let me -- first, just two quick follow-ups on the unit cost trajectory question earlier. I guess first is the 1.5 points of flight attendance incremental cost in the proposed contract. Is that in the 1Q guide and the full-year outlook? And then second, I understand second quarter sounds like CASM gets a bit worse with some of the comps there. But just trying to understand how much better cost could get in the second half based on the tailwinds you're talking about. I guess the first half overall is maybe a bit worse than this 1Q guide. Is second half good enough for full-year CASM to be better than the 1Q inflation you're running to? And I realize that was not two quick follow-up, so thanks for the time.

Question: Catherine O'Brien - Goldman Sachs Research - Analyst : Great. And then maybe just one more, if you don't mind. You've noted a material improvement interisland would be upside to our outlook. I guess, were you expecting Hawaiian to see interisland RASM up double digits in the fourth quarter and hope for Hawaiian overall to flip to a pre-tax profit in 2Q? I think that's the first time since the pandemic. When you set these targets in December, just trying to understand how things have performed since you set that [575-plus]. Thanks.

Question: Catherine O'Brien - Goldman Sachs Research - Analyst : Great. Thanks. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Katie.

Question: Tom Fitzgerald - TD Cowen - Analyst : Hi, everyone. Thanks so much for the time. I'm wondering if you would mind touching on the cargo business for a little bit, just any new updates since Investor Day company-wide, but also specifically on the Amazon flying. Thanks so much.

Question: Tom Fitzgerald - TD Cowen - Analyst : Okay, thanks. That's really helpful. Appreciate that, Jason. And then just as a follow-up, you might maybe just -- I don't know, maybe for Andrew, just touching a little bit more on California. San Diego was a big focus at Investor Day, as well as just curious how the inter-California markets performing as well as maybe Transcon. Thanks again. Congrats, everybody. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. Thanks, Tom. We actually had a fair bit of growth in San Diego this year and -- as in 24. And it's absorbed it very, very well. And so we're very happy about that. The very unfortunate situation with the LA fires, we've seen inter-California down quite a bit as a result of those and Burbank, but the rest of the LA stations are continuing on a somewhat normal trend. Overall, I think Transcon, especially for California and the product that we have, the MAX 9, have been doing well. So again, I think across all tides here, we're really pleased. And again, these synergies are all impacting both the Pacific Northwest and California. So again, as we move forward, those areas of our business continue to get stronger. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Tom.

Question: Ravi Shankar - Morgan Stanley - Analyst : Morning, everyone. So I know you guys only just got started, but when will you know if you can bring forward some of the timing on the integration gains, especially the combined booking system, the loyalty program, and such? Is that something you'll know right out the gate as you start or does that come in innings five and six? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah Hi, Ravi. Yeah, there's a very clear and definite timetable for that. We'll start the single loyalty process this summer. And it'll be fully complete, including the launch of the premium credit card, by the way, by October; and then a single passenger service system by April. These are hard dates that we and the teams are very focused on because both those unlock greater synergies from where we are today, and we're on track to meet those deadlines.

Question: Ravi Shankar - Morgan Stanley - Analyst : Understood. We'd love a specific guide for a few quarters until we get into the swing of things, just FYI. Thanks, everybody.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Hey, thank you. I don't know if you should be adding anything to the guides. What you're doing seems to be working. So anyway, on the transition of wide-bodies into Alaska hubs, can you just remind us where we are in the ramp of that, and when are the peak seasons that we should be watching as that spools up? Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Hey, Duane. So we have two 787s right now. We'll have three more next year. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director This year. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah, in 2025, excuse me. So five through the end of this year, and then another three next year. What we publicly announced is obviously Narita starting this May and Incheon this October. Those will both be year-round markets. And we're working, and at the time -- at the right time, we'll announce the further growth out of Seattle. As we shared on Investor Day, we're looking to have 12 markets launched by 2030. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director And the first market, Andrew, will be on 330s to launch. Eventually, we'll be moving to -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 4:30PM, ALK.N - Q4 2024 Alaska Air Group Inc Earnings Call Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. 787s in the fall, yeah.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Thanks. And then maybe just for a quick follow-up, just on competitive capacity. And I'm talking here more OA, capacity cuts. Where do you think you're seeing a bigger benefit right now? Is it on the Alaska side or on the Hawaiian side? And I guess, how do you see that evolving 1Q, 2Q, versus the trends that you were seeing in the back half of the year? Thank you for taking the questions. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah. Thanks, Duane. Just sitting here, I'm not seeing anything abnormal or unusual. And I think it's been well-documented that industry growth period is extremely low. Industry capacity growth is only like 1.5 % in the first quarter. So I don't think there's anything in our networks. We're seeing some relief in the neighbor islands starting in April. But other than that, I think it's fairly stable.

Question: Mike Linenberg - Deutsche Bank - Analyst : Oh, yeah. Hey. Good morning, everyone. Congrats on some really solid results and a great outlook. I want to go back to some of the connecting commentary, Andrew, that you brought up. I mean doubling in Portland, up 20% in Seattle, obviously impressive numbers. But I have to think it's off of a pretty low base, which obviously lends itself to more potential upside as you become more of a connecting carrier. If we look at Seattle or Portland today, rough numbers, local versus connect, what are we, 70-30, 80-20? If you could just provide some color on that. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah, those numbers are in the ballpark. And I suppose I should remind folks again, these volumes in connecting traffic are at our low periods of time. And I think the whole plan was to have a wider catchment area. As we get into our peak spring breaks and summer, our airplanes are very full. So we're going to be revenue managing that and being very careful about the traffic we take. So I would not expect to see these levels of connectivity, obviously, continue at this rate. But in the low seasons, it's been hugely beneficial for us.

Question: Mike Linenberg - Deutsche Bank - Analyst : Okay, great. That's helpful. Thanks. Benito Minicucci - Alaska Air Group Inc - President and Chief Executive Officer of Alaska Air Group, Inc. & Alaska Airlines, Inc., Director Thanks, Mike.

Question: Dan McKenzie - Seaport Global Securities LLC - Analyst : Oh, hey. Thanks. Good morning, guys. Andrew, maybe a couple questions for you. Thanks for the perspective on international revenue. Just given the number of new markets, what percent of revenue could international represent, say, into the year versus, say, in two to three years? And I'm curious how you'd characterize the contribution from one world as you start to ramp up that international flying. Andrew Harrison - Alaska Air Group Inc - Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc. Yeah, I think the international, when I say that, there's long-haul internationals, like about 5%. So we're adding three aircraft a year. So I think for the next few years, it's going to be a small percentage of our total capacity. I think a lot of it for us, too, is just the huge loyalty and utility play for us out of Seattle and the world that we can offer directly on Alaska [Metal]. As far as the alliances go, I think they're continuing to track along very well. We're very happy with this setup that we have with our partners. And again, we're looking at, as we grow, what can we do to strengthen these relationships and partnerships over time?

Question: Dan McKenzie - Seaport Global Securities LLC - Analyst : Okay. Thanks for the time, you guys.

Question: Tom Wadewitz - UBS Equities - Analyst : Yeah, good morning. So it may be a bit of a high-level question, but you beat by a lot in 4Q. Industry backdrop is pretty favorable, maybe not different than you expected. But I'm wondering why you didn't -- why you chose not to raise the 2025 guide. Is that just, hey, there's even more upside versus the guide than we thought before? How do you think about that just in light of the pretty big upside in 4Q and a good industry backdrop?

Question: Tom Wadewitz - UBS Equities - Analyst : Okay, that's fair. What about just the -- how we build on the good news in 4Q and 1Q? Were there items that you'd say, hey, I mean -- I know you've mentioned a lower tax rate 4Q, but were there any other items that you'd say, oh, it's idiosyncratic to 4Q? We're just like temporary for 1Q. Or should we say, hey, the cost in 4Q and the revenue for 1Q, those are continuing things?