The operator welcomes listeners to the Alaska Air Group 2023 Fourth Quarter Earnings Call and introduces the speakers. Ryan St. John, Vice President of Finance, Planning and Investor Relations, provides an overview of the company's earnings report and introduces other members of the management team who will answer questions. Ben Minicucci, CEO of Alaska Airlines, discusses the company's strong performance in 2023 and addresses the grounding of their 737 MAX 9 fleet.

The author apologizes for the inconvenience caused by the grounding of their 65 MAX 9 aircraft and expresses their commitment to ensuring safety for their guests, employees, and fleet. They also mention potential delays in aircraft deliveries and their intention to hold Boeing accountable. The author thanks their employees for their response to the event and expresses confidence in their ability to overcome challenges.

In 2023, the company achieved strong financial performance and competed for the industry's best margin. Despite some challenges, they were able to deliver a record-breaking CASMex result and maintain cost discipline. The company also prioritized reliability and successfully managed the transition out of their Airbus fleet. They are confident in their operational playbook and expect to continue being a top operator once their nine MAX fleet returns to service. Employees will receive a generous bonus for their contributions to the company's success.

The company's balance sheet is strong and has enabled growth and expansion, including the proposed acquisition of Hawaiian Airlines. The company has initiated the process of obtaining anti-trust clearance for this acquisition and is confident in their case. They generated a record $10.4 billion in revenue, with a significant portion coming from premium, loyalty, and ancillary revenues. The company's priorities for 2024 include focusing on safety and investing in their people, elevating their commercial initiatives, and maintaining a competitive cost structure. Despite difficult circumstances, the company remains optimistic and is committed to returning to breakeven or better results in the first quarter.

The company lost $115 million last year but expects to improve this year. They aim to build preference for their airline and create durable financial returns. In the fourth quarter, revenues were $2.6 billion, up 3% from last year. For the full year, they generated $10.4 billion in revenue, up 8.1% from 2022. Unit revenue improved from down 13% in August to down 9% in December. The company believes that there is a slow and steady recovery in managed business travel.

In the fourth quarter, the company saw a 15% revenue growth, with most industries fully recovered except for tech and professional services. Premium cabin revenues also performed well, making up 32% of total revenue. The company's loyalty program also saw record cash remuneration, and they continue to expand their partnerships and alliances, with 30 airline partners now, 21 of which are sold on alaskaair.com. The company plans to add British Airways as a direct selling partner in 2024, which will provide benefits for guests and reward their loyalty.

Alaska Air Group benefits from its partnership with other airlines by offering generous policies and driving incremental revenue. Due to the gradual return of their MAX 9 fleet, they expect a 7% decrease in capacity for the first quarter. However, they have been able to rebook a significant number of impacted guests onto Alaska flights and their regional carrier, Horizon, has operated extra flights to accommodate affected guests. Prior to the grounding of the MAX 9, Alaska Air Group was on track for a strong first quarter with projected unit revenue growth and improved yields. As of now, their February and March yields are slightly positive and daily sold yield is up 8% from the previous week.

The company is seeing positive results from making capacity adjustments to meet post-COVID demand and strategically reshaping their network. They are experiencing strong unit revenue performance in their highest frequency business markets and in California, where they reduced capacity. New leisure markets are also performing well. The competitive capacity backdrop in their markets is improving, and the general fare environment is also getting better. Despite the impact of the MAX 9 grounding, the company feels confident about their outlook for the first quarter and beyond. They have a diversified product mix and are continuously working on improving their offerings, such as implementing NDC and increasing the number of premium seats. They are optimistic about their long-term profitable growth.

Alaska's fourth quarter and full year results were impacted by the grounding of the MAX 9, but safety remains their top priority. Their adjusted EPS for the fourth quarter was $0.30 and their adjusted pre-tax margin was 2.2%. Unit costs were down 6.7% and economic fuel cost per gallon was $3.42. Refining margins on the West Coast had a significant impact on their results, but have since improved. For the full year, their adjusted EPS was $4.53 and their adjusted pre-tax margin was 7.5%. Unit costs were down 2.6% and economic fuel cost per gallon was $3.21. Their balance sheet remains strong and they received an investment-grade credit rating from Moody's. They generated $1.1 billion in cash flow from operations and have a total liquidity of $2.3 billion.

In the fourth quarter, debt payments were $40 million and are expected to be $100 million in the first quarter. The company has offset dilution with share repurchases and plans to continue this in 2024. Costs have been well managed, with fourth quarter CASMex down 6.7% and full year CASM ex down 2.6%. This is better than the original guidance and shows the company's ability to manage costs despite challenges. The company's upgauging strategy has also contributed to improved efficiency. Attention to detail in cost management will continue, but guidance for the full year will not be provided due to the impact of the fleet grounding.

The company is shifting its focus to margins and cash flow instead of unit metrics. They expect their full year earnings per share to be $3 to $5, with a $150 million negative impact from the fleet grounding. They expect a flat to slightly improved result in 2024 compared to 2023, with capacity coming in at or below the lower end of their original expectations. The company anticipates some delivery delays and will face tougher cost comparisons in 2024. They are also facing cost headwinds, particularly in wages, but have reached agreements with some employee groups and are negotiating with others. The company's priorities and outlook remain unchanged, with a focus on a strong operation, managing costs, and driving their commercial roadmap.

The company's business model is competitive and they are confident in their ability to maintain high margins. They have seen support from customers despite recent issues with the MAX 9 fleet, and their priority is to get the fleet back in service and then address accountability with Boeing. They are focused on safety and quality.

Shane Tackett, responding to Ravi's question, explains that it is too early to determine the impact of the grounded MAX 9 fleet on future deliveries and CapEx. He mentions that they have enough aircraft to fly the current schedule and are carefully monitoring their fleet. He also mentions that they anticipate a decrease in CapEx compared to last year, but do not have a specific estimate yet. Shane does not provide a cost guide for the year, as it is difficult to predict the first quarter.

The company has lost a significant number of ASMs in Q1 and expects a lower growth rate for the full year. They still need to manage costs and decide how to size the company. There are cost pressures and they hope to get ratified agreements with technicians and flight attendants. However, the company's core cost structure is expected to be more competitive once 2024 is closed out. The $150 million cited does not include any book away impact. The company's capacity will be down mid single digits in Q1, but RASMs may be better than initially planned due to rebooking of lost flights.

The $150 million in losses for Q1 is mainly due to cancelled tickets that couldn't be rebooked and operational stress. There may be some revenue loss in the next few weeks, but the company expects strong performance in the spring and mid-winter break season. The JetBlue Spirit ruling may not have a significant impact on the approval of Hawaiian. The Hawaiian proxy and cash burn are already factored into the company's plans.

The speaker explains that the Hawaiian and Alaska merger is different from the JetBlue Spirit deal that was blocked by a judge, as the two airlines have complementary networks and will benefit consumers. They also mention that Hawaiian's cash burn is primarily due to CapEx and they expect the business to recover in the next few years. In response to a question about other factors that could impact the year's results, the speaker mentions possible delivery shifts and flight cancellations.

During the earnings call, Shane Tackett and Ryan St. John discuss the impact of the 737 MAX groundings on capacity and revenue for the company. Tackett believes that the main issue is the 23 deliveries that have been delayed, and they are working to adjust their capacity accordingly. St. John mentions that they had already planned for low hiring due to the company's growth profile, but they may make decisions in the next few months based on the summer schedule. They also mention a $150 million headwind, but it is not clear how much of it is lost revenue versus cost impact.

In the paragraph, the speaker discusses the impact of the COVID-19 pandemic on the company's revenue, stating that the majority of the $150 million lost is due to canceled flights. They also mention the additional costs incurred, such as overtime and passenger remuneration, as well as the potential impact on future bookings. The speaker then explains that the company expects a 30% profit improvement in the first quarter of 2022 due to changes in their network, which will focus on regions with high demand and adjust to changes in travel behavior.

Ben Minicucci, CEO of the airline, expressed his satisfaction with the results and mentioned the goal of reducing losses and reaching breakeven in the first quarter. He also addressed the recent incident involving a Boeing airplane and stated that the relationship with the company will continue, but they will hold them accountable and demand higher quality and reliability. The airline has a long-standing relationship with Boeing and has been happy with their 231 737s, but will ensure that future airplanes meet their standards. Another executive, Shane, will answer the next question.

The speaker, Shane Tackett, is responding to a question about concerns over domestic capacity growth in the airline industry. He mentions that there were many predictions about the new normal of demand after COVID, but it was uncertain. However, demand is holding well in the first quarter of 2020. He also praises the team's response to the situation and mentions the desire for more planes. Another speaker, Andrew Didora, thanks everyone, and then Ben Minicucci responds to a statement about the speaker's opinion not mattering much.

In the paragraph, the speaker praises the team's handling of the MAX situation and asks a question about the impact of Silicon Valley Bank's implosion on California demand. The speaker then discusses the performance of California and the possibility of revising guidance, including accruing for the flight attendant contract. The next question is about the return of the MAX 9 and its potential impact on customers.

Benito Minicucci and Andrew Harrison of Alaska Airlines discuss the reentry of the MAX 9 into their fleet after the grounding. They assure that their customers trust the company and their goal is to give their employees confidence in the safety of the aircraft. They also address concerns about schedule reliability and assure that they expect to have a completion rate of 99% and on-time goals. They also mention an indicator that caused the aircraft to be moved out of the Hawaiian market, but they believe that over time, confidence in the MAX 9 will be restored.

Ben Minicucci is addressing a question about the recent issues with the airline's planes. He clarifies that the issues were unrelated, with one being a pressure controller issue and the other being a faulty door plug from Boeing. He explains that the pressurization was never a problem and the decision to restrict flights over water was simply a precaution. He appreciates the question and takes the opportunity to explain the situation in detail.

Catherine O'Brien asks a question to Shane Tackett and Andrew Levy about the impact of the MAX grounding on capacity and unit revenue. Shane explains that there is a seven-point headwind to CASMex due to the lack of cost management, while Andrew discusses drags on unit revenue such as tech corporate lagging and Maui, and mentions a competitor's recent boost in corporate revenue.

Andrew Harrison, CEO of an airline company, discusses the company's performance in the fourth quarter and first quarter, specifically mentioning their capacity and demand in Maui. He also notes the impact of the MAX 9 on corporate travel and the continued momentum in average fares for business travel. In response to a question about their loyalty, ancillary, and premium data, Harrison shares that 46% of their revenue comes from these sources and that they still have room for growth in this area. He also mentions plans to add more premium class options in their aircrafts.

The airline is facing the challenge of balancing top-tier leads in the front cabin while also looking at the right seats and densification of premium cabins. The company's success is due to its premium offering and differentiated business model, which competes with network carriers. The company is seeing success even with the shift between domestic and international demand. The company is also seeing benefits from the Hawaiian acquisition. The company is starting to see industry acknowledgement of post-COVID demand realities and has seen a shift in competitive capacity in some markets.

The speaker, Stephen Trent, thanks the team for taking the time to answer questions. He mentions that most of his questions have been answered and has one quick question about the credit rating. He asks how much of a difference one or two moves up or down in the credit rating make when negotiating with co-branded card and fuel hedge counterparties. The treasurer, Nat Pieper, responds and says that the investment grade rating from Moody's is a great affirmation of the company's strong story and helps with negotiations in the capital markets and other areas. It also gives the company confidence in their strategic decisions, such as the recent Hawaiian acquisition.

Dan McKenzie from Seaport Global asks about Alaska's plans for NDC and upselling on third-party GDSs. Andrew Harrison responds that 2024 will be a big year for NDC, with 12 APIs being built to unlock its benefits. He also mentions that they are transitioning to the cloud for cost savings and have been doing so for the past six to seven years.

The speaker discusses their partnerships with Microsoft and other companies in the Pacific Northwest. They mention the cost increase and scalability of using technology, particularly artificial intelligence. They plan to hold an Investor Day later in the year to discuss the benefits of technology and AI for the company. The call concludes with thanks and a promise to keep investors updated on progress with the 9 MAX.

This summary was generated with AI and may contain some inaccuracies.