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good morning my name is thea and i will be your conference operator today at this time i would like to welcome everyone to the alaska air group 2020 fourth quarter earnings release conference call today's call is being recorded and will be accessible for future playback at alaskair.com all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session for analysts if you wish to ask a question please press star 1 on your telephone keypad if you would like to withdraw the question press the pound key thank you at this time i would like to turn the conference over to alaska air groups managing director investor relations emily halverson please go ahead thank you thea and good morning thank you for joining us for our fourth quarter 2020 earnings call this morning we issued our earnings release which is available at investor.alaskaarou.com on today's call you'll hear updates from brad ben and shane several others of our management team are also on the line to answer your questions during the q a portion of the call our business and outlook continue to be significantly impacted by the global global health and economic crises that are underway in the fourth quarter air group reported an adjusted net loss excluding special items in mark to market adjustments of 316 million special items this quarter include 255 million of impairment an estimated lease return charges that were triggered as a result of certain aircraft being permanently parked 22 million of benefit related to the first cares act payroll support program wage offset and 102 million dollar benefit resulting from the expectation that certain employees will eventually be returning from long-term leaves early our average daily cash burn for the quarter was approximately 3.8 million this call marks the end of an unprecedented year but also a few other important milestones as well brad has been with alaska for 30 years serving as the ceo for the last eight and this will be his final time speaking as ceo to our investor audience as he will be retiring on march 31st and handing the flight controls to ben today also happens to be andrew harrison's first day please join me for wishing both andrew and brad the best our comments today will include forward-looking statements about future performance which may differ materially from our actual results information on risk factors that could affect our business can be found in our sec filings we will also refer to certain non-gaap financial measures such as adjusted earnings and unit costs excluding fuel and as usual we've provided a reconciliation between the most directly comparable gas and non-gaap measures in today's earnings release thanks emily and i had actually forgotten that today is andrew's birthday so happy birthday from me uh as well andrew and good morning to all of you um as everybody knows we are roughly a year into this difficult covid crisis which has put virtually every airline around the world to the test we've seen a lot of challenges over our 88 years at alaska but none has driven such a deep and prolonged disruption as this one our people rose to this challenge as they've done countless times before and the rest of the leadership team and i want to thank them for everything they've done and everything they're doing to ensure that alaska emerges from this crisis better and stronger we'll talk about those things on this call from the onset onset of the pandemic through this uneven recovery we've remained focused on two priorities first the health and safety of our employees and our guests and second ensuring our airline comes out of this crisis strong and ideally in a better position competitively than when we entered it these remain our priorities today our coveted work streams continue to align our actions around these two priorities on the safety front our next level care program is providing guests with the confidence they need to fly you know about the many measures we've implemented we've researched we've received external recognition for these but we also know that we also know that our guests who are flying with us are having a very positive experience in our fourth quarter alaska listen survey 87 of our guests gave us excellent or very good ratings on health and safety and more broadly our customer satisfaction scores have reached all-time highs in the last few months one of the great things about alaska is that often our leaders figure out where we're going to head next and our people figure out how to get us there that is certainly the case with our health and safety practices if you hadn't had if you haven't had a chance to view our safety dance video we recommend it we provided a link in today's press release for some time now we've been analyzing our fleet to determine the best path forward we were anxious to see if we could use this downturn to reconfigure ourselves and to come to market with a more simple and streamlined fleet we were pleased in the last couple of months to bring two transactions to a head first we sold our 10 owned a320s and second we reached we reached terms on a restructured and enhanced order with boeing for 68 new 737-9 aircraft that will get us largely out of the airbus fleet by the summer of 2023 and that will provide a host of other benefits channel shane will talk more about this our customers and employees care greatly about alaska being a clear leader in the effort to reduce emissions and our carbon impact and this is especially true given our presence on the west coast we have long led the industry or been in the top couple of airlines in terms of carbon emissions per passenger and these fleet moves will do nothing but further our lead from a financial perspective there's so much we could talk about but i really want to focus all of us on just two numbers first our revenues for 2020 were down a staggering 5.2 billion dollars or 59 as a result of kobe but second our total debt factoring in lease obligations and backing out cash on hand is essentially unchanged from last year i've watched the industry and our company for my entire career and i can't remember a time when two numbers stood in such stark contrast shane will describe this further but for my part i want to thank the extraordinary leadership team at alaska and horizon for aggressively reducing our spending both in variable and fixed areas and also one and i also want to thank them for running our business profitably over the years such that our starting point was a strong balance sheet and robust cash flows from operations i also want to thank the terrific employees of alaska group for standing behind their company during a period of significant change and i especially want to thank the 10 600 of them who took leaves of varying lengths to help us bring spending down or to save a job for someone else not burdening the company with a massive amount of new debt means that our balance sheet is unimpaired and strong which means that we can all look forward to using it in the months and years ahead to find new opportunities for all of us it's very clear that congress's efforts to support the industry and its employees by providing vital funds to whether the downturn were essential to preserving our balance sheet of the 5 billion variance between our revenue loss and our 234 million dollar cash outflow from operations 753 million dollars represents a grant which we received as part of the cares act and will receive another 400 million dollar grant in the first quarter all of us here want to thank leaders on both sides of the aisle and in both the congress and the administration for their support of our industry and our employees and as emily said this will be my final earnings call as ceo of this great company before i sign off i want to express my gratitude to all of you on the buy side and the south side listening today and to the folks who came before you over the years i've had the opportunity to build relationships with many of you and you have most definitely pushed us to be better the financial principles that underpin our management philosophy today such as maintaining a fortress balance sheet keeping our pension plans funded and maintaining a low cost structure are principles that have been shaped by conversations with all of you in the early 2000s alaska led the industry in establishing clearly articulated chasm goals and after that roic goals and then by aspiring to deliver results like other high quality industrial companies not just other airlines all of these ideas were simple in concept but they seemed ambitious and radical in an industry that for many of those years had done nothing but accumulate negative retained earnings some of the greatest learnings we had came from answering your questions and then walking away realizing that we didn't love the answer we just given you you've sharpened our thinking in so many areas this is a long-winded way of saying thank you you've made alaska a much much better business i've really enjoyed my time with all of you and i've learned so much and perhaps most importantly i want to thank our employees and the guests that we serve this company has come so far in the last 30 years i think all of us are humbled by the success that we've experienced and when we were challenged and all airlines are regularly challenged i was honored to be in the trenches with this fantastic team our people have a level of loyalty and dedication to their company that is uncommon in this day and age and if you had to put a point on it that's why we've done as well as we've done and that's why i'm so optimistic about our future so thanks to all of you serving this great company has been an honor and while i look forward to staying involved my primary job in the future is going to be to step back and support bannon this great team as they take alaska to the next level over to you ben thanks brad and good morning everyone i can't pass on the opportunity to say a bit more about brad's impact here at alaska over the last 30 years in this time with the company alaska went from being one of the smaller airlines in the industry to the fifth largest airline in the country as many of you know brand was cfo from february of 2000 and was instrumental with bill air in creating the balanced business model providing value to employees customers owners and communities i want to highlight some of his accomplishments during his career and tenure as ceo over his 30 years our fleet grew from 117 to 330 aircraft and our guest count grew six-fold from 8 million to 46 million brad mentioned the chasm x and roic goals from our 2010 plan which were transformative in the industry and he was instrumental in conceptualizing and implementing that plan it has laid the groundwork for the financial discipline we're proud to have today and in the last decade he oversaw tremendous growth along the west coast including the acquisition of virgin america by 2019 revenues under brad's watch had grown eight times tonight up of 1991 levels brandt's focus was always long-term sustainable growth and our company is stronger for it but most of all brad has always stayed deeply connected to our culture our values and to the 22 000 people that make up this great company at any alaska event or station visit brad greets employees by name and remarkably recalls their last conversation you've probably experienced this yourself as part of our investor community and so after 84 quarterly earnings calls i hope you'll join me in congratulating brad on his incredible career brad thank you for all that you've done to make our company what it is today i speak for the whole team i say alaska's strong position would not have been possible without your leadership over the last 30 years so turning to our fourth quarter results when we last spoke with you in october both employments and bookings were at peaks for the pandemic period and each month was improving from the last that trend stalled in the fourth quarter as employments and bookings deteriorated in november as state and local closures and federal travel warnings came into effect in response to this third wave in the fourth quarter our revenue was 808 million down 64 from prior year on sellable capacity that was down 59 from prior year sequentially sellable capacity was up 10 points from q3 while revenue results improved seven points average daily bookings have been increasing since they stalled in november from december to january average daily bookings have increased 20 percent from 49 000 to 58 000 and we've experienced several days at over 70 000 no doubt boosted by the fantastic work our commercial team has been doing to promote and stay connected with our guests while customers are demonstrating interest in future travel employments today remain stalled at around 35 percent of normal levels or about 40 000 passengers per day leisure travel continues to be the majority of our guests both in carried passengers and in future bookings markets with the strongest load factors are warm weather destinations and places with outdoor activities our strongest hubs lead our system and performance longer distance routes including transcon marcus were the worst performers in the fourth quarter similar to what you've heard across the industry business demand continues to be severely depressed and came in at approximately 15 percent of normal levels a bright spot however in our q4 results was our operational performance alaska and horizon were among the top of the industry in on-time performance for the quarter it's important we carry this momentum forward into 2021. so while we had hoped the fourth quarter results would be better we're cautiously optimistic there will be a step change in demand once the vaccine has been broadly distributed for the past couple of calls i've shared our thinking about the recovery and planning assumptions we are using to plan for the future first i'd say the recovery has been slow thus far we expect there will be a point that it begins to accelerate in earnest we've been treading water recently and believe sustained progressive improvement will begin when we have a widespread vaccine rollout and states are able to relax restrictions we are confident leisure will lead the recovery and we believe there is substantial pent up demand for leisure travel while we know many of our corporate guests want to get back out traveling we expect that business travel will return to only 50 of normal levels by end of year and this is based on our surveys of corporate customers so our focus right now is keeping the company ready for when demand does jump and making sure we have a business model that is strong post pandemic we remain confident that flying is safe as i shared last quarter several independent research studies have shown that consistent usage of masks coupled with effective airflow and filtration systems on board create a safe environment for our guests and crew this is consistent with our own accumulated experience as well this month we've moved forward with our plan to begin unblocking middle seats in our main cabin but given the lull in passenger recovery we don't anticipate this to be highly impactful to results for a few months we've left middle seats blocked in our premium cabin through may 31st not as a safety precaution but as a benefit we can provide to guests who are looking for some extra elbow and legroom affordable and accessible testing and streamline clearance programs also have the potential to reduce travel friction pre-clearance programs for destinations that require testing are maturing and may become more prevalent in december we were the first airline in the industry to offer hawaii-bound guests pre-clearance on the west coast to bypass the airport screening process upon arrival and the cdc has announced the new order requiring passengers entering the u.s to have proof of either an antigen or a pcr test taken within three days we're currently working with our partners in health centers and the international locations we serve to prepare our guests and our teams for this requirement given all that i've shared with you we believe our customers are gearing up for travel in the spring and summer and this supports ur plans to prepare to fly approximately eighty percent of 2019 levels by summer it is proven for our business and our operation to scale to those levels in a measured way as a result we plan to fly cumulin capacity that is 70 of 2019 levels and expect to carry a low factor of between 40 to 45 percent these load factor expectations reflect the current state of stalled employment but we do expect health patterns to improve in the next two months and that restrictions will begin to relax additionally the return of warmer weather in the spring is expected to drive continued interest in people getting out and doing things as a result we expect employment to improve in march and beyond as we add back capacity we will focus on our strongest hubs in the pacific northwest and alaska and as california adopts to a more open posture we will eventually begin to focus on adding capacity back there as well these plans do not reflect any closing cancels that we may utilize that conditions ultimately do not support the levels of flying that we have planned while our capacity plans are consistent with what we share previously changes to our fleet that have been recently announced will impact our workforce planning and shane will share more at that in a moment the choppy recovery in 2021 will present us with challenges as we scale our business back but we have a lot to look forward to our entry into one world is just two months away as a and as we move forward with our partnership with american this will bring incredible value to our guests and increased opportunities for our airline our teams are also laser focused on aggressive cost control increases in productivity and the operation and financial discipline that alaska is known for this will put us on the path back to profitability 2020 has been a year like no other but i am proud when i look at what we achieved the ways we improve and the strength we carry with us into the new year i truly believe that our best days are ahead of us and our great people are ready for what it will take to climb out of this crisis now over to shane thanks ben and good morning everyone my comments will cover similar areas as the past couple of calls with a focus on liquidity and net debt costs and cash burned during the quarter and expectations going into 2021. i'll also briefly discuss our recent order and sleep plans the end of the year with 1.7 billion dollars in adjusted net debt which was essentially flat from year end 2019 we believe will be the only airline to achieve flat net today without having to shoot equity with no impairment to our balance sheet we are well positioned to capitalize on the recovery we were able to achieve this result even in light of a 5.2 billion dollar revenue decline from last year and that is because we were running a strong business before the pandemic and because of the speed with which we reduced cash spend throughout 2020 we removed 2.4 billion in expenses in 2020 shrunk capital spending and moved to secure structural cost savings going forward those actions coupled with 750 million dollars in direct grant aid from congress to maintain industry drops we're able to fully offset our revenue loss to maintain flat net debt regarding liquidity during 2020 we've created access to over 5 billion dollars in incremental liquidity and today we have three and a half billion dollars of cash on hand inclusive of approximately 266 million that we received last week under the second round of psp we also have the additional 1.8 billion dollars in available incremental financing through the cares loan program which we now have until may 28th to determine how much if any we will borrow our adjusted debt to cap is about 61 percent right now with low capex plan in 2021 we will be in a position to begin to reduce leverage by lowering our cash balance and repaying debt this year assuming there is a stabilized recovery from here forward in fact if we were able to return to normal cash on hand levels and use the current excess cash towards debt repayment our debt to cap would be below 50 percent which as you know is within our long-term target range turning to costs adjusted operating expenses were down 27 in the fourth quarter two points better than q3 while capacity in q4 was up 13 points this performance was aided by 3 300 employees remaining on leaves or incentive lines reduced costs driven by the now 40 permanently parked airbus aircraft and several favorable resolutions of vendor negotiations resulting in one-time savings additionally we saw the ramping of several of the structural cost initiatives that we detailed for you on the last call toward run rate levels including permanent wage reductions non-wage overhead spend reductions and supplier rate reductions variable costs for the quarter were up with the added capacity and our coveted business recovery program a goals-based bonus program that was designed to align our employees in managing this crisis paid out at target as a result of our employees fantastic work around safety and our industry-leading cash burn reduction efforts this drove incremental costs in the fourth quarter but the program was an effective way to align our employees around important goals this past year our gap operating expenses include several one-time charges that i'd like to touch on briefly including approximately 255 million dollars of impairment charges associated with the write-off of lease assets and recognition of lease return cost estimates for aircraft that we have permanently parked we also recognized a credit of 102 million dollars for the revision of our estimated pilot incentive leaves as you know we designed our lead programs early in the third quarter but since then we have finalized a significant fleet decision that has allowed us to refine our schedule which now reflects a higher mix of boeing flying cross training and return to work schedules were impacted by these changes we had designed the program to have flexibility for just this reason while we've done well this year managing spend and making our cost structure more variable we have more work to do to return alaska to pre-coveted unit costs for 30 years now our formula has been to have low fares enabled by low costs which are best driven by a high productivity and low overhead mindset achieving those isn't easy it takes leadership focus excellent execution of our operation and buy-in from our people in the post-pandemic period we believe these same principles will ultimately be required to drive our business recovery our average cash outflows as defined under the cash burn metric were approximately 450 million per month in q4 which is in line with the expectation we shared with you on our last call our cash burn in the fourth quarter of approximately 3.8 million dollars per day was a sequential improvement from the third quarter driven primarily by improvements in demand despite the choppiness that developed in november and december beginning today we are sunsetting monthly cash burn guidance that we introduced in the initial phase of this crisis instead we will provide quarterly operating cash flow expectations which are a more direct measure of the health of our business as we believe the acute liquidity risks that mattered in 2020 have been mitigated by our available liquidity with that i will turn to 2021 cash and cost guidance has been detailed we anticipate operating capacity of approximately 70 percent of 2019 levels in q1 and 80 by summer this will naturally bring incremental flying costs back into the business last quarter i detailed for you approximately 215 million in cost initiatives that had already been identified or secured we have since identified an additional 50 million dollars of savings including 10 million dollars in fleet related savings as we begin replacing airbus with max aircraft 10 million in real estate related reductions and 30 million dollars in productivity related initiatives some initiatives are now at the run rate levels while others will ramp through 2021. our current expectation is for q1 chasm x to be up approximately 20 percent and we expect continued sequential improvement throughout the year on our way back to pre-coveted levels even if we are a smaller company we expect our operating cash flow for the first quarter inclusive of psp funds to be flat to minus 100 million dollars however i believe cash flows from operations will be positive during the first half of the year if the vaccine rollout works as we all expect it will and allows demand to snap up given what i've shared about our liquidity in these cash flow expectations we currently have no plan to draw any incremental financing in the first quarter having said that our default will be to maintain conservatism until we have more confidence that the recovery is stable so we may extend or renew some existing debt that is currently slated for repayment in march and april but further before i turn the call over for questions i of course would like to touch on the very exciting news that came out just before christmas regarding the future of our fleet the order we jointly announced with boeing provides a clear path to transition into a higher gauge more efficient aircraft as we return our least airbus fleet between alaska and boeing is as strong as ever and i'm very excited about what this order means for both of our companies i think you know we are both located here in seattle and we have employees with spouses parents sons and daughters that are boeing employees the ties between our two companies are deep and we're excited about our futures together with the order over the next four years we will take delivery of 68 new 737-9 aircraft 13 of them leased which will largely replace our airbus fleet we then have options for up to 52 additional aircraft through 2026 for when we find opportunities for growth the agreement features significant flexibility and deferral rates for the majority of the order and full substitution rights to other max models shell for shell the newer generation 737-9 aircraft have material superior economics relative to our existing older technology a320s due to better fuel efficiency lower maintenance costs and 28 incremental seats each replacement will improve unit costs and provide incremental revenue opportunity for our p l and as noted above the order allowed us to revise our 2021 cash outlays for capex as we will first consume existing pdps with boeing before beginning to pay into pdps again in 2022. as a result our 2021 capital expenditures will remain low at approximately 150 to 250 million dollars and with that we will go to your questions at this time i would like to invite analysts who would like to ask a question to please press star and the number one on your telephone keypad against that star one for any questions we'll pause for just a moment to compile the q a roster the first question will come from dwayne vanningworth with evercore isi please go ahead hey thanks um and and brad congrats on the transition i i promise you that we learned a lot from you and your team as well over the years thank you um so so big picture you know your net debt is is flat versus pre-pandemic uh your share count has not changed uh versus pre-pandemic and and relatively uh that screens pretty well so so what would you say is the biggest driver of that strong relative performance is it simply that you had capital spending flexibility that others did not have and was that a function of kind of where you were in in the integration or how you structure your contracts appreciate just some detail on how exactly you were able to accomplish that yeah thanks dwayne um it's a good question it's it's i know more about us obviously than sort of where others are situated but you're right we did have a lot of flexibility with respect to managing capex down very quickly this year it was one of the important features of the revised deal with boeing we wanted to keep a low level of capex required into next year and so we were happy to be able to restructure the agreement with them and and maintain a low capex posture for 2021. i think the other thing was we rallied really early i sort of lose the week or the day but it was sometime in late march where we decided this was a crisis it was going to be a crisis for an indefinite period of time and we immediately went to the company and said we've gotta we've gotta sort of stop spending you know immediately and the company responded across the board every every single employee participated as brad mentioned we had over 10 000 people take elective voluntary leaves give up their their own income in order to help the company or save a job for somebody else we worked with suppliers we changed our sort of payment terms we ended up you know paying for what we were using not necessarily exactly what contracts called in terms of minimums and so we've just we've had a it's been a a lot of work over the last several months but the the company did a phenomenal job um pulling costs out immediately getting cash burned down i think we we reach four million dollars per day early in this and we've sort of hovered there waiting for demand to come back and i think that's probably the biggest piece of it and then what brad said we came into this in a really good position we had a phenomenal balance sheet coming into it we had just gotten done paying off five or six hundred million dollars of debt uh that brandon was happy to have done and i got to go and re-borrow um and so uh i think the fact that we were we were producing 1.5 or 6 billion in cash flow pre-pandemic gave us a lot of runway um to not you know get in a bad position coming in so when you lost 5.2 you only had to make up three five or three seven to get back to flat correct yeah dead unchanged yeah good good change i appreciate those thoughts and then just just for my follow-up on the a320s that are leaving can you just remind us you know how to how do those impact uh cash flow in other words are there any cash gains um are they all leases uh you know how does you know does debt go away can you just remind us how how that impacts uh your balance sheet thank you yeah and i'll have emily or chris talk about the balance sheet a bit but yeah there's we have um maintenance requirements on all of these aircraft they're all leased we have paid maintenance reserves along the way and so it's it's you know going to be a relatively manageable amount per tell as we return these but there will be some cash expense to to bring them back up to um where they need to be brought to you before we return them to the lessor but from a balance sheet perspective christopher yeah hey dwayne yeah we did i mean it was we paired with 40 of these airbus aircraft this year all of them were released i think there were the ten that we did own that we sold to early's court but at least in those back we've impaired those as well because they're parked um but yeah the cash impact of those leases on the maintenance reserve side is really only going to be about well only it's a lot of money 45 to 50 million dollars in 2021 um so the charge you see on the p l is certainly not going to turn into cash uh imminently or or nearly you know right now so okay appreciate the thoughts thanks wayne the next question will come from catherine o'brien with goldman sachs please go ahead good morning everyone thanks for the time and um also just want to echo i'm sure what will be everyone's comments congratulating you brad on your career and what you've accomplished at alaska thank you so much katie um so um my my first question is maybe a follow-up on on the fleet decision you know i know sometimes moving deliveries around can create added costs with the oems but you know given the max grounding can we assume there was no net negative on pricing um on existing orders and perhaps even some better pricing on the new orders given your decision to go back to an all-boeing fleet versus keeping the dual fleet maybe that's for uh shane or nat yeah thanks katie um i might i probably won't get into the specifics of the deal um i can i can i can say though that we've worked a long time on getting to this decision uh and i think we were you know really clear along the way with our good friends an partners at boeing on what we needed in order to you know place an order especially right now in where we are in the the pandemic sort of cycle here that had 68 firms and a lot of options our history with options is we take all of them and so it could be quite a large order for us um and a significant amount of capital that you know we've got to go make work for us so um i think we feel very good about the deal that we struck with them we're really excited about the path we're on now um there's a lot of operational efficiencies and savings we can get by by getting into a single fleet um but i think i won't get into any more specifics than that on the deal understood fair enough um and then a couple related ones on the balance sheet um you know it sounds like we're waiting to see what happens with the recovery but um potentially no more cash burn or cash positive cash from ops in the in the first half of the year so i guess in that scenario how do you weigh taking more of the cares loan at the end of may and then whether you take that loan or not how do you think about your balance sheet once we have seen more recovery it sounded like from your comments you're maybe considering holding on to higher levels of liquidity for now um but will you permanently have a higher liquidity minimum you want to stick to before contemplating debt pay down like how do you think through a couple of those moving pieces there and thanks for the time katie katie it's now um thanks for the question i think our current cash balance is 3.4 billion which clearly is higher than historically alaska has carried year in 2019 we had a billion five so i think you're going to see us carry an excess amount until we see sustained revenue recovery and then i think over time we'll see what what the landscape is and have that choice to pay down debt i do think through certainly through 2021 we're going to carry an additional pad of liquidity just until we see sustained revenue recovery and i'll just add katie in terms of long-term posture we haven't decided that we're going to be at a higher rate um you know than the 1-5 we may end up there we just haven't done a lot of that planning quite yet but ultimately we'll we'll make sure we have the ability to go out and get access to cash in a quick way if we need it but we we do want to ultimately bring the cash balance down understood thank you so much the next question is from helene becker with cowen please go ahead um thanks very much operator and uh brad congratulations it's been a long time that i've known you i think i've been on all those 84 conference calls with you yeah you might be you and mike you guys go back [Laughter] because remember i still think i'm 35. um so so here's a couple of questions for you on the um the root network how how are you thinking about adjusting the root network given the fact that transcon is performing so poorly a and b are you um ready to are you giving up on spring break traffic or are you thinking that we're going to get that back or we have a chance at it so i'm not sure who wants to answer that elaine that's a great question for our ceo elect so uh thanks uh you know brad still has some privileges he's exercising you know the way we think about root network and you know working closely with andrew and his team is we are focusing on the pacific northwest so where we're adding increasing capacity to 70 and 80 percent you're going to see a lot of focus in the pacific northwest and state and state of alaska you know california is going to come back as restrictions ease uh and we'll add back capacity hopefully uh in the next 12 to 18 months in terms of transcon uh you know and spring break helen i think we have to see what happens with um with the vaccine roll out and with how people are feeling and relaxation of restrictions i think um i'm optimistic with uh the biden administration uh you know he just announced one and a half million uh vaccines a day uh if you know in 100 days it could mean you know 75 maybe we have 100 million people in the country vaccinated i think you might start seeing um you know people venturing out at spring break so i i think we're going to be cautious i think we're going to be on our toes and and react appropriately andrew anything you want oh just uh ben answered i just put a couple of numbers to it i i think like on new york transcon still going to be down 80 in the first quarter as a fourth quarter san francisco is going to be down 68 the same as it was in the fourth quarter so where there's no demand but then places like hawaii we're going to be up 15 points in capacity and as ben said um uh you know pacific northwest and then we're moving things around like we've got 10 additional mainline flights um three of them are cancun six of them are florida and one to hawaii so as we progress we're moving our airplanes around to go where the stronger demand is so that's where we're at on that okay that's very helpful thank you and then just on one world um i know the goal is what march 31st i think and um so but that's mostly international connection opportunity connecting opportunities so is that is your thought getting in to one world because it makes sense to do it now and then you get the benefits in in second half of 21 or into 22 or is it the idea that you don't you know you do yeah i guess that's the question thanks uh ellen it's a great question we got matt and andrew here but you know what i'll say with one world it's a couple things it's the partnership with american which we call the west coast international alliance and we have the one world partnership we have uh four international flights starting here uh in the next couple months we have uh and i'm gonna see if i if we have uh qatar that's starting from doha we we have um shanghai uh starting from seattle we've got bangalore and we have um in london uh so uh so to your point i think andrew and and team are working hard on getting corporate customers to see that with alaska's broad network broad domestic network in seattle and now with the international alliances that we have that alaska really can provide uh service to our business and even leisure travel all around the world so real really excited with that when you couple with the americans the partnership we have with the west coast uh alliance it it on the domestic side it's really a powerful powerful uh network that we can have that we can offer not only from seattle actually from all our west coast hops and i think one of the things we've talked a lot about is even even though international is down there are people that like to consolidate their international travel with their domestic or they're thinking they're going to do international down the road and so that customer that travels internationally once or twice a year but six or eight times domestically it just gives us a much better chance of getting that customer into the alaska airlines mileage plan right that's great thank you very much everybody thanks the next question will come from jamie baker with jp morgan please go ahead hey good morning um brad my heart felt best to you and your family i'm curious if this means you'll be doing more flying and thank you for not lumping me with the old timers club just now and and for thank you and for andrew happy birthday i know many of us feel we've aged about three or four years in the last single year so hopefully hopefully you did better than that um so a question on ticket pricing and i'm going to try to ask it in a way that doesn't waste your time and you're comfortable answering so a common question is what level of discounting is going to be needed to coax people out of their homes and you know personally it's not clear to me that any discounted would be necessary but i realize ticket pricing is a lot more complicated than that so the reason i want alaska's perspective is that it seems that you've been running a fair number of promotions but you know at a time when people are nervous about flying so can you at least comment on what sort of response that's driven and whether we should assume that that's a blueprint for the future is is that something you're comfortable commenting on ah thanks jamie and uh you know we've um we had very significant uh stimulation and i'm very proud of the marketing team um we had very heavy promotions in december it got our brand out there it got our employees engaged we had the highest level of first-class bookings highest level of thursday friday saturday bookings that we've had all pandemic to your point i think that a lot of that though was focused on future traffic we have a lot of seats to sell into the future and so we use that opportunity um our coupon yield was down about 7.4 percent um during this quarter so to your point it's going to be that fine line but we are after demand right now and volumes um and then with volumes come pricing so that's sort of where we are right now okay that that's helpful and there's a follow-up to that and this you know relates to one world in kind of piggybacks of uh what lane was bringing up you know with with connecting travel presumably that yield is going to be dilutive uh which isn't to say it's not a creative it's just dilutive so is that something that we should be considering on our models because you know hopefully you're an affirming you know core yield environment as the year progresses but at the same time you're going to be carrying more connecting travel is that going to be impactful is it going to mean that your yield could lag that of the industry just given the coincident timing of the one world entry you know i mean i i think um in the fourth quarter i think our international connectivity you know connections were down 93 so that's going to take some time to come back i don't necessarily think it's going to be dilutive at all there may be some yield in give or take but i will tell you on the loyalty on the business on the connecting of our network and loyalty program with both american and one world i think is all going to be good news for us okay that's helpful and if i could just sneak in a quick third do you have the average pilot seniority today versus this time last year oh wow jamie this is shane um we did retire 130 off the top out of 3 000 but i don't think it's moved a ton just based on that so we had 120 130 that took early out but that's it you know attrition has been relatively muted besides that got it thank you very much everybody the next question is from savvy sis with raymond james please go ahead hey good morning um brad i'd like to echo all the comments here on the call and uh andrew happy birthday and i'm sorry that you're spending it with us here today um shane if i am shane if i might ask on the on the fleet are you able to provide maybe kind of by year at least for the next in a couple of years just what you expect in terms of deliveries and and exits yeah i can't because there's a chart right here in front of me uh yeah so actually now why don't you take this you know these numbers happy too man savvy we we've spent a lot of time obviously with with this chart um but so we're going to take 13 737-9's in 2021 nine directly from boeing and then four on lease um from early's corp we'll take 30 units in 2022 uh 13 and 2023 and then 12 in 2024 so that gets us to our 68 firm and then we have 52 options that fold in a few in 2023 and then 24 25 and 26 so it gives us some good flexibility and optionality shane mentioned this in his script as well we've got a lot of deferral rights on this too so that was one of our motivations with boeing want to be flexible here and as the revenue recovery is is still a bit murky that's helpful just on the airbus side wendy expects uh kind of some of the remaining xd a321s the arrest to go out the 320 uh for the most part it's pretty consistent in 22 and 23. 10 to 15 leases expire and as chris mentioned earlier we will work with lessors to accelerate some of those because most of those airplanes are parked so an alliance share and so we've matched up our deliveries from boeing pretty akin to those airbus units going away i think it was the three yeah at 70 you talked about the 320 ones that span i think the 321s there are 10 of them they're going to stay in our fleet in the foreseeable future but i think we're open to um you know um you know to possibilities of what we can do for that but for now they're in our fleet and we tend to operate them yeah that's helpful and if i might ask you just a clarifying question on the opex outlook for 1q i'm just kind of wondering how much of that is impacted by you know psp2 requirements and and of the 250 to 300 that you're kind of targeting how much has been is kind of reflected in that number yeah uh savvy so the psp we ended up having to bring back a few folks mostly on the management side um that we had unfortunately had to to riff um on october 1st and so they're entitled to come back through the the period that psp covers through march on the front line side there wasn't a lot of the additional recall that had to happen we've already been in the middle of recalling folks to get ready for both the q1 and q2 capacity that we're going to deploy um the the i think you're speaking to the structural cost savings uh when you're talking about the the 215 or 235 okay um yeah yeah some of that like our our management head count reduction it's a minor amount but some of that is impacted uh but that's really at full run rate today um a lot of like the other things that we're tracking towards like um non-wage overhead stuff just cutting consulting costs and all the discretionary spend that's at full run rate today and i don't think we've given specific amounts on every one of these but that's a full run rate productivity with the front line some of the real estate reductions that we're going to go forward with those are things that will ramp throughout the year and honestly we need a little more volume in order to help those ramp um and then uh some supplier negotiations were about 50 percent of the way through you know capturing that and so i'll get we'll follow up with the specific number because i'm not going to total up in my head on the fly here but uh but by category that's kind of where each one of those um are at from a run rate perspective all right helpful thank you the next question is from daryl genovese with vertical research please go ahead hey guys thanks for the time uh congrats to everybody um i guess andrew the there's this federal access tax holiday on airline ticket purchases uh that expired at your end so i guess this is somewhat of a fall to jamie's but um i think that tax that now coming back equates to about 10 of the base fair um do you anticipate you know any kind of yield pressure specifically related to that i don't i guess specifically recall anyone raising you know filing higher fares when that tax went away but i assume the revenue management system is probably seeing some kind of elastic response and you know maybe it's early to tell but just wondering kind of how you think that plays out and you know in particular do you think that if there is a drag that it lasts into q2 uh because of the booking pro yeah i don't want to comment too much about pricing i haven't checked recently when this first um you know got reinstated i think the industry you know kept that fairly well and then i think in pockets it started to erode but i think for us the biggest opportunity is 30 40 point load factor gaps and the reality is that we need to fill these airplanes volume is what's going to bring our revenues back for now and then we're going to worry about yield later on so and we think that's the lowest fare option and that's the best for our brand and it's the best to keep the blood flowing through our house cool thank you and then uh ben um i think you know operational excellence has been kind of a key tenant for you guys um it's very evident that that's going to focus and so just wonder with you taking on more you know ceo responsibilities remember remembering everyone's name and what have you um you know what needs to happen underneath you to kind of backfill what you've been doing i don't recall you announcing any specific personnel appointments so if you don't want to mention any specific names that's fine but just generally speaking what's kind of the strategy for backfilling you you know we we've worked hard on succession on the operations side and with gary beck here uh he's been with us uh for gary you've been with us for over 10 years right now uh and we have a strong succession plan so the operations team is solid through and through our playbook is uh is mature and uh i don't have worries on on the operational side daryl so um uh we'll announce uh more of that in the near future but um i feel really confident great thanks everybody appreciate before we take the next question if you all could keep it to one question from here on out we've only got a couple minutes left and several people to get through thank you the next question will come from joseph denardi with stifel please go ahead oh thanks uh this may be one and a half but i won't ask a follow-up um maybe for andrew can you just talk about the nature of your business traffic uh customer in terms of what industries they come from and whether you think that that is more or less susceptible to kind of the virtual meeting headwind potentially just thinking about it from a tech exposure perspective and then whether you think you need to revisit cabin configuration in light of some of the uncertainties around uh business traffic demand uh longer term or whether you're kind of happy with uh what you have now or whether that's kind of being evaluated at the moment thank you yeah i think joe um how business is down whether you measure by bookings or revenues just like everybody else's are i think where we have a unique strength is especially in the in in alaska in the commercial slopes of the fishermen um the oil workers those types of things um we we have strength um and you know we just the nature of our business we still have a lot of small business travelers um who do a fair bit of travel um the big ones that are the challenge obviously the microsoft and the amazons with very strict policies right now on on no travel so i think um as ben mentioned what we're excited about is that we believe we'll take a step change up in our participation and business travel once it returns with one world in the international and our partnership with american and then your second question was cabin configuration you know we feel really good we are very thankful that we maintained a non-life flat position we think our first class seats are spot-on for the demand environment and as you heard ben mentioned uh premium class cabins come a little bit under pressure obviously with the lack of business demand um and that's why we're blocking the middle seat there and giving folks extra reason to buy up into that cabin as we come through this period of time thank you thank you the next question is from mike linenberg with deutsche bank please go ahead oh hey good morning everyone and uh just uh brad what up what a long fun trip it's been um like you know i've learned a lot from you i think back up to when you sent me an email telling me that i was calculating wrongly so i thank you for that was i calculating it wrong or you michael whatever you know what that actually make that a better product than in your first class at least for those who want the additional space maybe you want to be as people as possible so is there just the risk of cannibalization i mean i think it's great if you're doing it it's going to be great for your premium product um you know four seats and blocked you know four and six seats any thoughts on that um that could have had her consequences yeah you know we haven't seen that and i think you know we've just recently opened up the first class cabin obviously uh since january 6 but um you know that's our first class cabin is a nice product and we have um we actually have you know um full food service not hot but we have good food service and and of course a lot of other benefits that come with the first class cabin so um you know what we'll see and of course we can always adjust pricing along the way um as we go forward and see what happens there so i'm not overly concerned i will say that we have great premium seats and i want guests sitting in those if we can make those available all right very good thanks everyone the next question is from hunter key with wolf research please go ahead hey uh brad congratulations ma'am good stuff gonna miss you thank you uh we're gonna miss you i'm sure you will uh re call me anytime if that's actually true so um uh andrew um you've talked about obviously the importance of driving volume right i i get it um to get those load factors up but how confident are you that the new rm system that you implemented is going to be able to get you there give you got limited experience with it and if you could talk about how the forecast tool is performed during covid and how you're going to think about using it going forward to get your loads up thanks thanks santa full forecast calls completely worthless we'll tell you that much um the reality is um that uh obviously history was no predictor but i know and i i can't speak to the details but kirsten emery who heads up my rm group um worked with amadeus and they came up with some very clever tools to help the analysts manage uh the demand environment that we're in yet to your point um we won't see the rm system really tested until we get volumes running through the pipes but we had a fantastic implementation team is fully trained ready to go so i'm still confident that great things as well as the automation is going to occur there thank you i might just add having spent time in rm that i think unintended sort of benefit um having demand go to zero is actually a net good for our rm new tool like i think there's a lot of risk when you cut these over midstream you know at normal levels of volumes and that we get to train the forecast perfectly now as it comes back um as the man comes back so i'm actually positive on this thank you shane the next question will come from brandon oglinski with barclays please go ahead hey good morning everyone and congrats uh brad and ben and happy birthday andrew um like my one question is probably a longer term one uh ben but you know you have the boeing deal with you now pretty conservative balance sheet the one world agreement coming up you know is the future looking bright and what are you reimagining in a postcode world is this the time for you guys to be a bit more aggressive maybe than in the past it's a great question brandon uh you know first and foremost i mean we're looking short term and long term first and foremost we're going to get on solid financial footing you know getting the positive cash flows and getting back to profitability is just job one rebuilding the network and really getting this one world partnership to work that's really in our sights i think if you look at our history and this is you know thanks to brad is we've always positioned the company to take advantage of opportunities out there and we don't know exactly what they are but being on our toes and looking what's going on with the environment and then being opportunistic is what alaska has done its whole career so we do have a strategic plan but we also look at opportunities out there and we're going to take it as it comes and we're in just a fantastic position to do it thank you thank you the next question is from ravi shanker with morgan stanley please go ahead thanks uh good afternoon everyone uh brad good luck with the future ben congratulations um maybe a couple of follow-ups kind of what you discussed so far one is your commentary on uh the the ramp and traffic that you expect the back half of the year and your focus on filling the planes uh first uh it really stands out i mean is it fair to say that you expect uh to outgrow the rising tide uh through 21 and 22 given that you look like you're you are going to be a little bit more aggressive and second are you seeing any evidence of the booking curve extending uh or kind of picking up in the back half of the year for transcontinental routes specifically hey ravi this is shane i'll let andrew take the booking curve question i think you may have been talking about our capacity ramp as we go forward um and yeah i mean i right now like we're i think the thing that i would convey is we're right on the initial plan we set which was to be you know percent of our formal former size by this summer um the fleet order gives us the chance to get back to full capacity full uh sort of pre-coded capacity in 2022 if demand is there and then the the potential for growth beyond that not you know we want to get back to relatively high rates of growth but we'll only do that if we've got the financial machine underneath it working uh in sort of justifying those investments and you know it'll be sort of interesting to see how demand comes back and and what the shape of the economy uh in this kind of new post-fandemic period is and we'll be able to i think be good as a business in in any economic situation and if there are good opportunities to grow we'll be first to go after them is the way we're thinking about it and just on the on the booking um you know i think we've seen this in december there is a strong demand to book into the spring and the summer you know covert cases have been down on a steady downward trend for the past three weeks on the seven day rolling average and we've seen a steady increase on our bookings and our net bookings year-over-year and steadily improving um pretty much every day in fact yesterday was another very very solid booking day california starting to open up a little bit here so a lot to come but we are on a improved trajectory and i'm not guaranteeing that's going to continue but we're certainly headed in a good direction andrew for several weeks now we've had bookings that are 50 percent higher than our employment so this definitely is optimism about the future that's right yeah let's go ahead and take one more question and then we'll wrap the call up okay the final question will come from dan mckenzie with seaport global please go ahead oh hey thanks for squeezing me in brad of course i have to echo huge congrats ben is just spot on with your accomplishments um and andrew happy birthday and it wouldn't be a proper birthday you know of course if we didn't celebrate with a question here um so i guess just on the expectation you know for business travel to return to 50 percent by year end um you know to what extent does the aaa relationship and entry into one world accelerate that march back to a hundred percent and is you know is the expectation that you could potentially get there in 2022. i think the way i think about business travel real quick then is is that um you know number one we need to get the vaccine out and get that going well and we've still got a ways to go there number two trouble managers have to decide on their duty of care and how much friction they're going to put in for people to travel and you know so that's an area number three corporate america has to open up and receive people for business that is yet to happen and then the fourth one is the cfo factor obviously i think budgets are going to be reduced for a while all that being said there will be i do believe in the back half a strong you know step change in demand and as we've shared working with american airlines in one word on a global partner we're seeing very solid and strong interest in new contracts and terms and network and utility that we can provide our corporate contract so we're very bullish on getting a better increased share of business travel okay thanks for the time you guys thank you thank you thank you very much dan and i think this does wrap it up thank you everybody it's been fantastic i know that ben and team are we'll look forward to talking with you all in 90 days we appreciate your interest in the company and uh this this team will be talking to you down the road thanks very much thank you for participating in today's conference call this call will be available for future playback at alaskaair.com you may all disconnected this time