Alaska Air Group, Inc. (ALK) Earnings Call Transcript & Summary

Good afternoon, everyone. Thanks for joining us today. I know folks are still filtering in, so feel free to grab a seat. We're very excited to have you here today at Alaska Air Group's 2022 Investor Day. My name is Emily Halverson. I'm the Managing Director of Investor Relations. And I feel like this day has been a long time coming. We've had 2 years of mostly virtual meetings with folks, and it's just very exciting to have you all in the room here today. I have to admit prepping to stand on stage feels a little bit more exhilarating than prepping to turn on a Zoom to talk to you all. So it's really nice. We've been looking forward to this moment for quite some time. It reflects that we're in a better state than before in terms of the pandemic recovery, which is very exciting. But Alaska also has a really wonderful story to tell you today, and I'm excited to have our executives come up here and join you on stage to talk about that today. You're going to hear from our CEO, Ben Minicucci and several others. Our Chief Commercial Officer, Andrew Harrison, will join us on the stage. You'll also hear from Nat Pieper, our Senior Vice President of Fleet, Finance and Alliances. Sangita Woerner, our Senior Vice President of Marketing and Guest Experience will join us. And then Shane Tackett, our CFO, will also be speaking. We have a guest presenter today, Dean Athanasia from Bank of America will be on later in the program as well. So for those of you who are joining us over the webcast today, you'll be able to listen in to all of our remarks and the Q&A session at the end of the event. And the slides and videos will progress for you in sync as they do here in the room, and then our materials will be available for download later in the day. So you can see our agenda up here, all of the speakers that I just mentioned to you. We'll start with about 2 hours of prepared remarks, and then we'll take a 10-minute break for those who need to step out of the room or clear their plates or anything like that. And then we'll have a Q&A session for just under an hour with our executives. We also have several of our management team here in the room. So when we're doing that Q&A session, you may hear folks chiming in from other parts of the company. And it's also really nice today, we've got several folks from our front lines and our crews. We've got some pilots here, some flight attendants, a mechanic, a CSA and several different folks. So I think you'll get a good flavor from around the company, which is great. Real quick before we move to the rest of the presentation. I do have to call out our safe harbor slides. Our comments today will include forward-looking statements regarding our future performance, and our actual performance may differ from that. Information on our risk factors that could affect our business are available in our SEC filings. And we will refer to certain non-GAAP measures today, which you can find reconciliations for it also in our SEC filings. So with that, I am going to invite Ben up on stage, and he is going to kick us off.

Well, good afternoon, everyone, and welcome. I want to start just by thanking Emily and her team. For those of you who know, this takes a lot of work to put an Investor Day presentation together. And I think I spoke to some of you, this is way better than the Roosevelt. And so Emily, thank you to you and your team. You guys just did an amazing job. It's great to be back in New York. So the last time we did Investor Day was November of 2018, almost 3.5 years ago. Way, way too long, but it's great to be back in New York City. It's great to see so many familiar faces and so many new faces. So I hope by the end of the day, you get to know Alaska a little more, a little better than you did when you came in. I want to recognize some key long-time partners that have been with us. And these partners have been key to our success over several decades, have been with us a long time. I want to call out Ihssane Mounir from Boeing. He's the Head of Sales. Ihssane, where are you? Right there. Ihssane from Boeing long time, great partner of ours. From Bank of America. We just signed a renewed deal to go to 2030. We have Dean Athanasia, who is the President of Regional Banking; and Mary Droesch, Dean is right there. Where is Mary. Mary, where are you? On the other side. There is Mary. Mary heads commercial and small business products for the bank. And from GE, again, a long-time partner that powers our amazing engines, we have Jason Tonich, who is the Head of Sales and Marketing. So thank you to you guys. Without great partners, our success would not be there. So we just want to thank you for being here. I also want to point out Patty Bedient. Patty, I just saw you. Patty Bedient, is our incoming chair. She's replacing Brad Tilden as Chairman in May. So we're very excited to have Patty take that position. Speaking of Brad, so this has been a year I've been in the role now. And when I took over, Brad kind of patted me on the back and say, "Hey, should be all downhill from here. It's all good." That was 2 variants ago and oil was at $58, but seriously, it's been a challenging year, but I love being in the role. It's been an amazing experience, and I've enjoyed it immensely. So today, we're just excited about sharing our story, our story about Alaska. Our goal for today really is to make the case of why Alaska is a great investment. We'll show that we have a proven track record, a resilient business model that works in both good times and bad times, and we believe we're better positioned than any other airline. I want to share -- for those of you who don't know me that well, I want to share a bit about myself and my background. So I'm the son of Italian immigrants. My parents immigrated from Italy in the 50s. It was after the second world war. It was poor and they needed to create a life for themselves and get work. And my parents -- my father was illiterate, my mother only went to fifth grade. And the one thing about my parents is they had this amazing strong work ethic, which they instilled on their kids, my 2 brothers and sister. And it's what I remember, the strong values and the work ethic. And the one thing I remember my dad saying is education is key. He would tell me, "I don't want you to be like me working outside in the elements. I want you to go to work in a suit," he would say. I don't know working in a suit, I suspect. That's his version, I don't want you to work with your arms in your back. So I joined the Military Academy when I was 17, got my Masters in Mechanical Engineering, and spent 14 years in the Air Force on the maintenance side, so leading maintenance quadrants on deployments all over the world. It's where I learned a lot of my leadership and maintenance background came from there. I had a short stint at Air Canada for 7 years and then joined Alaska 18 years ago, and I joined the maintenance and engineering division and then took on the Seattle hub, our turnaround at the Seattle hub, which was an amazing experience. And then I was Chief Operating Officer for over 10 years. I did the Virgin America acquisition, which was always fun doing an M&A, and then, of course, now I'm in this role right now. So what I can tell you, the reason I'm here at Alaska is because -- and I have the values up right here is the values of how my parents raised me and the values of this company but a strong work ethic and delivering on performance and doing the right thing. It just resonate with me, and it's the reason that keeps you at a company and our values are strong, and it's so aligned to how I was raised. Alaska is celebrating its 90 years of service, 90 years. And I kid with Sangita, and I said, "Look, just because we're 90, it doesn't mean we're going to be old in stagy." You can see we're trying to get a new vibe for Alaska, a new vibe for our brand, a vibe that's bold and fresh, and that's energetic. I want to act more like we're in our 20s, responsible 20s, not reckless 20s. The one thing that does remain true about our brand is that our DNA is founded on care. You see it with some of the campaigns we're doing. It's -- we care a lot. And if you've flown us and you experienced us, that's what you feel is this caring. So just on a couple of values I want to touch on: one, and especially with the Chinese accident, it just reinforces in this industry why safety is so, so important. And then we tell our employees all the time, whether you're an employee at Alaska or you're a vendor employee, you have the ability, you're empowered to stop the operation. If you think something is not right or if you feel something is not right, pull the red cord, stop the operation. So it's the most important thing. Now being kind-hearted, again, it's one of the things that I love about our culture, I love about our people. We hire for kindness, and it's something that Sangita is going to talk more about, but you're going to hear more about care and our culture of care. And Shane told me, don't talk too much about the fluffy stuff. These are investors that want to hear the hard financial facts, and those are coming. I promise they're coming. But there's one value here that even with the fluffy stuff is, this team delivers on performance. This company delivers on performance. That's the hard value. We deliver operationally. We deliver financially. We are focused on delivering on our performance, but with care wrapped around it. So that's what we believe. It's interesting. A lot of companies today are talking about serving all their stakeholders. And when I joined the company 18 years ago, some of you will remember and know, Bill Ayer, our CEO back then, we were going through a transformation. Bill brought up -- it wasn't the exact graphic, but it was something similar. He called it the virtuous cycle. And the point I'm talking about it because we've been talking about this at Alaska ever since I've been there, 18 years. And the point I'm trying to make is that we've always, always had a balanced long-term approach at Alaska. We want to take care of our people. We want our people to have a good job, good pay, good benefits. We've never been bankrupt. We've never flushed our pensions down to drain. That's something we take a lot of pride in. We want to take care of our customers. We pride ourselves in providing great caring service. We want to be good in the community. So this goes back to our roots in the State of Alaska, where we connect communities that don't have roads. They wait for our airplane to come in with groceries and food and medicine. And we take that value when we bring it down to the lower 48, we want to connect with our communities. And of course, the last one, of course, we want to be good stewards of -- good financial stewards and provide strong financial returns. So it's something that I always credit Bill for being a pioneer and a visionary way back when 18 years ago because he set us on that track. This leads to our commitment to sustainability, and I'm proud of our ESG journey, but I would tell you we still have lots of work to do. We want to run this business responsibly and for the long term. I think what we're doing on the ESG front, though, is just a little bit different than everyone else. And the reason I say a little bit different because we're holding ourselves accountable to these aggressive goals. We're just not putting aggressive goals and saying, I hope we hit them. We're putting goals that we're going to hold ourselves accountable to and put skin in the game. Let me give you an example. So for our climate goals, we have 2 goals. We have our long-term goal of being net zero carbon by 2040, but we also have a short-term goal of being the most fuel-efficient airline by 2025. And this means about changing the culture of efficiency with our 23,000 employees at Alaska, which means single-engine taxis. It's about not having the AP1 when you come to the gate so you have external power. It's about electrifying our ground fleet. It's about our dispatchers using AI and ML technology to do flight planning. It's all of those things. And we have a carbon impact goal by revenue ton mile that's worth 10% of everyone's bonus for 23,000 people. We used it last year. The Board approved it again this year. And so we've got a plan to reduce our carbon impact for RTM, and it's tied to our bonus program. So that's an example of skin in the game. On the DE&I front, it's the same thing. When the tragic events happened with George Floyd and Ahmaud Arbery, Breonna Taylor, it impacted our companies immensely. And we said we got to make a difference, and we got to make some commitments. And one of our commitments is, 1/3 of our workforce, about 30% of our workforce is BIPOC, black indigenous and people of color, but only 15% of our senior leadership was BIPOC. So we made a commitment to say, look, we got to close that gap. We have to have the same percentage of senior leadership match our frontline, another huge goal setting. Our employees said, "Well, how are you going to hold yourselves accountable to it?" So we did 2 things. One, which is very emotional for us is, we created what we called our commitment airplane. And this commitment airplane was a livery with the faces of 14 black children, children of our employees that are painted on the airplane. And it has 2 quotes on the airplane, one from Nelson Mandela and the other one from Martin Luther King. "It's always the right time to do what's right." And "Education is the most powerful weapon you can use to change the world because we believe the path to racial equity is through education." The second part of our commitments, so we have the airplane, every time I see the airplane I call Andy, who heads our HR, Andy, how are we doing on that goal? Are we making progress? It's a visual reminder. The second thing we did is we tied 20% of our exec comp related to equity to achieving that goal. So again, more skin in the game. So aggressive goals, but with accountability and skin in the game attached with them. I think that's where Alaska is differentiating. On the last point on Board diversity, we have a phenomenal Board. I am so grateful of the excellence of our Board. 42% are female, 50% are racially and ethnically diverse. And we're proud to have a female Board chair, which I just found out, only 4% of S&P 500 companies have a female chair. So again, we have work to do on ESG, but I think we're on the right path. So a couple of days ago, we were preparing for this conference, and Diana calls me, and I'm on the phone, I can barely hear and she says, Ben, guess what? I say what, you're kind of global airline of the year. I'm like, what? We are a global Airline of the year. And it was such amazing news for me because -- and we have employees in the audience. And these amazing employees, what they've been through in the last 2 years, and our leadership team, to get through this pandemic, this is a validation for all the hard work. And I just want to take a moment just to thank the 23,000 employees at Alaska, the leadership team for doing -- when you look at the criteria for executing the criteria that we have. So this is what we've done, and you're going to hear more on my team on this criteria what it takes to be recognized as a global airline of the year. I'm so, so proud and we believe our airline is special. But when you get external validation, it means a lot more. So I want to thank all the employees that are here and all the other 23,000. Results like this don't happen without a strong leadership team. And I'm incredibly proud of this team. They are experts in their field. They've got 20-plus years of experience, either at Alaska or they have industry experience. They just have a solid track record. And I have worked with people like Shane and Andrew and Constance and Andy and Joe for my entire career at Alaska. We know each other well. We don't hesitate to push on each other. We argue with each other. But I will tell you one thing about this team. This team puts Alaska first. They don't put their self-interest first. We put Alaska first in everything we do. And that's why I'm incredibly proud of this team, and they're a good looking team, too. And the other thing I'll say about this team is they are primed to go execute the next chapter for Alaska. I want to spend a moment on our competitive advantages because I think it is these advantages that have given us our proven track record and allowed us to get through the pandemic and are really forming the foundation of what we're going to do for growth going forward. So -- and your competitive advantages get tested really in bad times. And we've had some bad times in our history. But recently, with the pandemic, and now with the shock of oil prices, I look at these competitive advantages, and they work. Low cost, high productivity is not a popular thing to say all the time in your company. We're going to focus on low cost and high productivity because it's hard work. But if you look at our CASM advantage of 15% over the industry, we're closing the CASM gap to low-cost carriers. This is a major differentiator in our ability to produce our results. I said I spent a long time as Chief Operating Officer, and operational excellence to me is something that we have to do every day. But we don't do it by -- and you guys heard me before at other Investor Days, we don't buy our performance. I don't want -- I don't want excessive block times. I don't want excessive ground times. I don't want low utilization of assets. I don't want low productivity of people. I want to get those results with an efficient operation. And when we couple the 2, the way it works, the way we couple low-cost, high productivity operational excellence, we have our financial team. I think we got Ryan St. John, who's our Head of FP&A. He models this financial -- there, he is, right there. He models what this airline needs to look like with low-cost high productivity. He just doesn't throw the spreadsheet over the wall to Constance. You've got Ryan from FP&A, you got Constance from Ops, you've got Brett Catlin, who looks at our network. So we create a network that our operation can execute with low cost. It's a 3-legged stool. We got -- we have to have operational excellence with a schedule that generates the revenue we need with low cost and high productivity. That's how it works. Now is their tension? Is there fighting on the 3? Yes. And I'm happy when there's fighting because I know if there's fighting, they're going to calibrate and get to the right point. I don't want one person winning. I don't want the schedule winning and then the operation goes to hell in a handbasket. I don't want a budget that's not realistic. I want this thing calibrated. It's the 3 points of calibration that, again, have allowed us to perform in the past that, again, is one of the things we're doing going forward. The other 2 go hand-in-hand as well. This powerful loyalty program we have, this fierce loyalty and one of the things that's just enhanced with the deal with Bank of America, but the powerful loyalty program is not just in the Pacific Northwest. Approximately 50% of our Mileage Plan credit cardholders are in the Pacific Northwest, the remaining are spread across the country. So that's a really amazing fact. So -- and that's for Mileage Plan and credit card holders. And then when you marry that up with our people, whether they're on the phone at the airport or on board that deliver this great remarkable caring services, culture of care. These are the durable competitive advantage that have allowed Alaska to win that build a foundation of our growth plan going forward. And so I feel strong about this is something we talk about a lot every day. These are some proof points of our business model. So if you look at 20 years of pretax performance, the key takeaway here is that over the past 20 years, our business has outperformed our competitors in both good times and bad times. And as we exit the pandemic, we've outperformed our peers. If you look at 2021, we have a 15% CASM advantage over the industry. You look at our second half 2021 pretax performance, far outperformed the industry where everyone lost money. And this concludes 2 variants and some unfortunate snowstorms in Seattle in the back half of December, this would have been way better than it is right here. So we're going to be talking about growth next. And a lot of questions we have is, can you grow, can you make money when you grow, can you have a great operation? So these are just some proof points historically. So from 2014 to 2019, we grew 3x faster than the industry. If you look at our operation, it's growing the operation. You saw our historical pretax margin making money, but also running a great operation. We believe we have to do all 3 when we grow. You cannot do one in absence of the other. So we believe our growth plan needs to execute this. And when we had our last planning session last September, this is exactly what we talked about. We're going to grow. We're going to grow with our fantastic Boeing order of 145 airplanes coming in the next 5 years. We're going to grow -- we can grow up to 40% over the next 4 to 5 years, 40%. That's aggressive growth, but we're going to do it profitably, and we're going to do it while taking care of our people and our customers. That's what you're going to hear from my team. So this is our agenda for the rest of the afternoon. These are the 5 pillars of growth. And Andrew, Nat and Sangita are going to talk about the commercial side, the first 4 pillars. And then Shane, and you'll get a ton of hard facts here coming in the next little bit. Shane is going to bring it home. He's going to talk about the strength of our business model and really the metrics that underpin our management philosophy. You're going to get all this stuff from the team. But before I want to hand it over, I just want to leave you with some thoughts. Again, I just want to press a few thoughts. We have proven over the years that our business model outperforms the industry. We've emerged from the pandemic a stronger position than our competitors. When you look at our balance sheet back to prepandemic levels, when you look at our second -- when you look at our pretax profitability, we've emerged stronger than our competitors. So what you're going to hear from my team is the further actions that we're going to take to strengthen the company and continue this outperformance. So I'm very confident as CEO that we're going to be able to execute. I have the team. I have the people at the airline. We have the culture. We have the values. We have the business model to go out and execute. So with that, and I'm not going to hand it to Andrew yet, we want to show you a cool video that Sangita and her team put together. So why don't we roll the video? [Presentation]

Well, good -- nearly afternoon, everybody. So it's really exciting to be here. As Ben has shared, and so I'm going to talk a little bit now about the commercial. Clearly, Ben has set the bar extremely high for the rest of us as far as what we're going to have to deliver. So we're going to walk you through that today. And it's the first chance, really, what I'd like to do in this section is to really be able to bring you up to speed on where we are today given acquisitions and pandemics to really set the new talk line. And this is really the first chance I've been able to do this. My so-called colleague, Shane Tackett, he benched me in 2020 in case you didn't know. I was not permitted on earnings calls anymore, something about, if you're not part of the solution, Andrew, you're part of the problem. But then again, as -- if I was in charge of revenue, I would have benched myself anyway because it wasn't performing. But the reality is, it was a very important period of time for us in 2019 because we were poised as we were putting the Virgin America acquisition behind us, we were starting to really get our stride. And I remember, we ended 2019, and we had a 4.5% pretax margin for our California franchise, which had -- and was continuing to steadily improve -- and remember, in January and February, our load factors were multiple points higher than the year before. I mean this was going to be the glorious year of all years. And then -- because it was the -- really the beginning of seeing all the hard work of 3 years of putting Virgin America and Alaska together. And then this thing called a variant came out, which I boldly told my team, we don't need to worry about no variants. Let's just start the marketing machine Sangita, let's get some sales going on. Let's get some e-mails going, and we'll take control of this. Yes, well, within a month or so, we'd put 80% of our fleet on the ground, and we're hardly -- we're flying 5,000 passengers a day. And Ben often encouraged me during that period. That was a very, very difficult period, but it's like, Andrew, demand is going to come back. And as a commercial team, we started to focus on, okay, so demand will come back at some point. And that's when we started to work on, let's spend this time. We didn't know how long it was to make sure that when we came back out, we were stronger than ever. Shane and the finance team were getting the finances and getting our cash under control. There really was no revenue to speak of. So that's what we worked really hard for. And what I'm going to share with you today, pretty much all of that was done during the pandemic that we put into place. And that's why I want to really connect for you what we've done through the acquisition and through the pandemic so that you can feel confident that as we move forward, we're going to be in a very strong position. I'm going to share with you $400 million of incremental revenues that we have built and got ready during the pandemic that's going to start starting now over the next number of years. We're going to talk about that. We're going to talk about the network. And I think it's probably the first time we've ever done this, but I'm going to give you a real clear look at our hub strategy. I get asked about it all the time. Brett and I have worked hard on this, and it's like we're going to be bold. We're going to share this with the world obviously, but we're going to have a clear hub strategy. And then what we're going to do is we're going to walk you through our growth. And we're going to talk about a number of things. We're going to tell you how much that growth is through 2025 on average, the range. We're going to tell you the nature of that growth. What does that growth look like? And we're going to talk about the allocation of that growth, where is it all going to be and the infrastructure that's required to support that growth so that you can see clearly that we have all the pieces in place to actually start to execute on what we're talking about. And then Nat is going to get up and he's going to talk about the fleet. And the fleet is very exciting, a lot going on there, and I'm going to let Nat unpack that for you. But really, from a revenue perspective, there's really 2 key things that I do want to make sure you take away from that section. And that is, firstly, with all the fleet retirements and the orders and all the things that he's going to share with you, the fleet and the gauge and the type of aircraft will be very much matched and fitted to the network that I'm going to show you here in a second. And so that we will maximize our revenue, maximize our cost efficiencies to really make this airline hum like we did back in the day in 2016 when we had a single fleet. Secondly, as many of you know or have heard, really premium cabins, especially domestically in the United States, have been a very big success story. We've shared many times on earnings calls the significant increase in occupancy in our first class and premium class cabin. So with all of these fleet changes, and Nat we'll share with you the economics, the uplift of revenues from a main cabin to premium class, but back in 2016, we only lifted 3 million premium seats, that's PC and first class. We only lifted 3 million seats a year. This year, we will lift over 15 million premium class seats and the loads, occupancy rate have never been stronger. So that's another part of the success story that we're going to unpack for you. And then Sangita, she's going to do the heavier lift for us today. She's going to do 2 of these pillars. The first one is on our product. Two things to take away there. We talk a lot about product, and we've done a lot with our product over the years. But one thing like in our cost DNA we have is that we never get our cost advantages from taking from our guests. That's something that we talk about a lot. It was a big mantra of Brad's, Bill's and a mantra of Ben's as well is that, to get low cost doesn't mean we're going to take things from our customers, give them that a little bit less of a cheese plate, shrink the pitch in that aircraft, all of those types of things. So that's really important. The other thing that you may not know, but if you take the big 4 airlines, our stage length, our average stage length coming up to this summer is 30% longer than all of our major competitors. That means you're in our aircraft 30% longer than you are in theirs. And that's why the product, the pitch, the environment, everything in that Boeing aircraft, that really is a magnificent aircraft, everything in there is going to be suited and fitted for longer haul and also revenue premiums that people readily pay for longer-haul flights. Then Sangita is going to talk about the brand. And we are really -- it's a big objective for Ben is to -- we're not -- sometimes we're a little bit too quiet about our brand, and we're going to start to really talk more about that, and you're going to hear about that and our loyalty. And you've heard Ben talk a little bit about the distribution of our loyalty program. And I think the things that Sangita is going to share, I think are going to surprise you. I think she is going to surprise you with the growth rates and the strength that you see outside of the Pacific Northwest. And then of course, there's the bank deal, which is -- Mary is here, obviously, and Dean, you're going to hear from, but Mary and I have become great friends over the last 6 months. But there's a couple of big things I do want to mention, and Sangita will walk through the details. But we went to the bank, and we said, we need your help. We are trying to rebuild our business for the future. And we still had 4 years to go on our agreement. And it didn't take Bank of America very long at all to say, let's do this. Let's do a comprehensive new deal And then we went to work on it. And I think the other 2 things there are our partnership has never been better. We really unpacked each other's businesses to learn about what's meaningful to Bank of America, what's meaningful to us. And so I think this is not just about a contract. This is not about cash flows, although I know the analysts here are already trying to put those in their models, but our partnership and how we're going to grow this together. And I would say to you that I fully expect, before 2030, that the cash flows from our partner Bank of America will exceed $2 billion a year. That's what I expect to see. So all good stuff going on there. So let's get into some of the details now. I know many of you have been waiting for this, the $400 million of revenue, it's really broken up into 3 areas. The fleet upgauge doesn't need a whole lot of explanation. Network and alliances, we get asked a lot of questions about what is one we'll do for you? What does the West Coast International Alliance do for you? What we've tried to do because we like to hold ourselves accountable, and Ben actually wanted to see the spreadsheet on this one. But we said we can't have this noise. So let's be very clear about how we're going to measure some part of the success. It actually is beyond this number. There's a lot of other economics, but it's hard to separate them out. So what we've done is $135 million in, 3 components. First one, which is over half of that number. It is the traffic that oneworld and American put on our networks when they bring traffic into us. The other part of that equation is traffic that we sell on our metal that connects to globally, oneworld and American and also domestically. That's the first part. It is going to drive volumes through our network that we really didn't have before. Second is corporates, corporate customers. One of the great things about the West Coast International Alliance, and of course, the big Microsofts and Amazons and all the big companies, they have to invite us in. But over 90% of all the major corporates have invited us in and said, yes, we want a joint deal that combines Alaska's network and American's network and corporate deals as one single unit. And so we've made huge inroads there. And of course, as business travel starts to come back, you're going to see goodness from that. And then the last element is a little unusual for us, but we're focused on the card, and we said sort of everything from Texas to the East, let's measure the growth. Let's measure the swipes, let's measure the engagement on how much that will grow given our expansive relationship with our partnerships. And then, of course, the last area there is loyalty. Obviously, the bank deal is in there. You may have -- remember an older number, I had $300 million that Shane said was not good enough for him. So we've taken it to $400 million. And so we've revised, and we've got new things in there merchandising. And we're going to unpack this with you as we go forward. But I will say these revenues, as you get through this presentation, these you can take to the bank. Much of this is real, has already happened. There's real agreements and there's real things happening. So there's 5 points of unit revenue here that we're going to be working on to delivering over the time that we've got to bring that to pass. This is a picture of our network, sort of I like this slide, so that's why it's up here, but it's really something that we're really proud of. And you can see the expansiveness of that network, 1,400 daily departures this summer, 120 destinations. In the past 2 years, Brittany's team have quietly, systematically added 50 new markets to our network. Only about 8 cities, and I'm going to talk more about that. But what we're really proud of is no discontinued cities. It's about communities. It's about having a balanced structure just like we have in the state of Alaska. So what I'm going to do now is walk you through our hubs, which we sort of haven't really done before, but I really want to give this group a firm understanding of where we are today, what we've been doing and how we're going to do our growth? So we have 5 hubs as -- just to define that. And of course, our hubs are a little bit different in nature, maybe other than Seattle and some of the big guys. But these are the 5 key ones that we're going to be looking for, okay? So the first one there is Seattle. Obviously, that is the epicenter of Alaska Air Group and our network. In fact, it's not often talked about, but Seattle is the largest single airline hub of any carrier in the United States on the West Coast. Our Seattle hub is bigger than any other carrier's hub in San Francisco or Los Angeles. So it is truly a very significant hub, 350 departures, 60% market share. We were used to be in the 40s, 45s, 50%. We're now at 60%. You can see the 8 points in 2016, and obviously, the #1 carrier there on any measure. Portland has been another critically important airport for us. You can see there, again, we've grown market share. That 50% is a really important number. You -- and I talk about S curves and all that sort of fancy economic stuff, but at the end of the day, once you have over half the seat share, good things start to happen and you become relevant to a lot of people. And again, we've grown our share there since 2016 as #1. And of course, Anchorage. That will always be near and dear to our heart. But again, we've continued to grow our market share there. So let's put up the last 2 here, which is California. So since the -- before the acquisition, we're about 190 departures a day. We're at over 360 today. So we have grown California. And as I shared earlier in my remarks, we were well into profitability, 4.5% is not exactly in our range of acceptability, but it was on the move and headed north. And as we look at the San Francisco, if you sort of do the math there, you can see there that we're 17% of the market share. We are #2, and we have a decent network there, but we've increased by 13 points. That means we were only 4% of the market. Now that is not a winning score for anyone in my books. We were really nobody, and we flew up to Portland and Seattle and maybe we did a little in Mexico, and that was about it. So we have significantly grown. I'm going to talk about infrastructure in a minute on San Francisco. And then Los Angeles, of course, is very important to the West Coast. It's a gateway for global and every carrier calls it a hub. But again, for us, Los Angeles is key, not only for the West Coast, but our partners, oneworld, West Coast International Alliance with American Airlines. And so that is going to be another important area that we continue to work on and grow. So let's talk about growth, I want to walk you through that real quick. 4% to 8%. Through '25, that's sort of the range that we want to sort of look and hold ourselves. Now we might grow 9% 1 year. This year, we're going to sort of grow at the bottom end of this and Shane will give you guidance here shortly. But this is what we believe is good, solid, sustainable growth that will drive profitability, efficiency and good use of capital for this airline. So you might ask, well, "Okay, Andrew, that sounds great, but where are you going to grow?" We're still, on average, going to put 70% of that growth into the Pacific Northwest. I'm going to show you why we think we can do that. And I also think that just continues to strengthen the economic engine that we've built over many, many decades and the people that have gone before us and then 1/3 of it in California. A lot of the other things you're going to see with fleet and brand and all the rest of it are all going to be very helpful for us. And so we want to do California in a measured, solid way, but we think this is good growth and building upon what we have already built there. So that's how much we're going to grow. That's where the growth is going to go. Let's talk about the nature of this growth. 90% of it is going to be in existing markets, Frequency, and you might say, well, Andrew, why is that? Well, the reality is we have a very broad network. What we need to be doing is going from -- in a specific market from 1 flight a day to 2 and from 2 to 3 and from 3 to 4 and from 4 to 5 and so on. That is good for many reasons. It's good on utilization of assets and airport assets. It is fantastic for business travel. Frequency, it helps with IROPs, where you can accommodate on other flights versus having a very, very thin schedule. There is a lot of efficiency and a lot of up the S curve. Just like you have an S curve for an entire hub, you're going to have an S curve for a market. So frequency. 15% of its aircraft gauge, that's going to walk you through how the gauge story works. Again, this is highly revenue accretive at low cost and does wonders for our unit cost. And then stage length. As I shared with you earlier, we have the highest stage length in the industry as it relates into the United States. And again, this fits well with our premium seat product and the efficiency of what we do and how we fly. And of course, the last 10% there is new markets. And of course, we'll do those opportunities where we can. But really, the story is thickening the spokes on that network I just showed you. Let's talk about oneworld for a minute. Of course, with global travel being sort of nowhere, it's been hard to really see what's going on there. But let's talk about Seattle firstly, and way oneworld is important. First thing is, is that just with oneworld and our -- in addition to oneworld, our partnerships, you can see there that we've gone to 11. And there's a partner in there, soon-to-be partner, long-haul carrier that's going to be coming to Seattle that we'll announce imminently, and you'll hear about that. My point there is that people want to come to Seattle now. And I can tell you on our oneworld partner side, they have embraced us like they have never done before. And again, I want to thank the leadership of oneworld and also American Airlines who sponsored us into oneworld, and they have joint business arrangements with pretty much the majority of these oneworld carriers, and it's opened us up now to be able to connect traffic more than we've ever done before. And of course, the elite reciprocity has been huge. One of the biggest issues that Ben reminded me of constantly is, "Andrew, we still have an international problem in Seattle. We have an international problem in Seattle." And by doing oneworld and the West Coast international partnership, that all happened during the pandemic, we've solved that problem now. And you can see there, we're now #1 in seat share, departures and destinations, and this is only going to grow, I believe, and get stronger. So the one area that we had a bit of a weakness and a chink in the arm was our global reach. We've resolved that now, and we are very excited, including the new international arrivals facility at SeaTac is fantastic. But it's also not just the Pacific Northwest, but also let's talk about California. What we've seen here is global partners and even American, they have increased the amount of code, which is essentially a fancy term for marketing our flights in California, they've increased it by 20%. And I want to give you an example here just to see what this looks like. Now you can appreciate Brett gave me one of his better examples. But anyway, nonetheless, it proves the point here is that if you take an Alaska-focused city in California and you take American Airlines-focused city, not one of their hubs, but just a focused city, by this partnership in code, you can see there that the daily seats that Alaska flies in this market has increased 30%, guests are up 50%, the partner-enabled guests have grown by 90%, and our profitability has gone fivefold. And that fivefold required to be happening because it's helped boost the market, but what that's going to help us do is grow further. It's going to help us reduce fares. But this happens day in and day out across markets across California. And so I think that's going to be another really important leverage point for our partnerships as we move forward. These are my last few slides, and we don't talk about these near enough. But the next 2 years is going to be one of the largest unveiling of airport capital in the history of Alaska Air Group. There is currently right now $2.3 billion of capital programs that are being undertaken in our 4 large hubs here, and they will all be coming online in the next couple of years. So we're investing. And again, these facilities, this is like flight crews and airplanes, they actually don't come first. If you do not have the infrastructure and the facilities to fly, you don't buy the airplanes, and you don't hire the workforce to do that. Seattle, we've gone from 32 gates in 2018 to 40 gates today. You can see the increase there. This is the beautiful North satellite. It increased in size by 1/3. But one of the really exciting things you're going to see is our technology and innovation. And we are going to literally gut the lobby of our largest hub in SeaTac and replace it with state-of-the-art technology, self-bag drops, iPad Pros, moving a lot of stuff to cell phones, mobile apps to get you out of the airport. It's going to be an entirely new experience. And what's really cool about this is we are going to be able to double the throughput, double the throughput in Seattle through this technology. So the peak times aren't going to hold us back, and we have huge upgauging opportunities in Seattle. We have Charu Jain here, who is our Senior Vice President of Innovation Distribution. I would encourage you to ask her questions because there has been a step change in our investment here. So that's Seattle. Let's quickly talk about the other ones here. Portland. This is going to be one of the most beautiful airports in the country. Again, a major, major job going on now stitching all these buildings together and creating an entirely new lobby. Again, we're going to have state-of-the-art check-in facilities and guest experience. What you see there is going to be a very large, beautiful new lounge. We already opened a new B concourse there for our regional operations that's just fantastic. And we are now -- we have pretty much the entire south side of Portland. And we have a fantastic relationship with that airport. San Francisco. This is something that when we acquired Virgin America, we got desperately needed gates and infrastructure in terminal 2. The terminal 2 you land locked. Also, oneworld is in the Harvey Milk Terminal in Terminal 1. And so we're going to be moving. We've issued that in the last day or so. We have an agreement with San Francisco. So we will be co-locating with the oneworld partners in Terminal 1. And again, that's going to result in high efficiency, high connectivity and really help us continue to be relevant, both globally and domestically in San Francisco and of course, Los Angeles. Now I was just there this weekend, and there's a lot going on there. Gates are going to increase by 20%, more space. They're doing carpets, everything is going to be renovating that airport, again, for us to be able to grow. So when I look at this in summary, we have the network through hard work of acquisition, through hard work of growth and reframing our footprint during the pandemic, we have the network we want. Our growth will be efficient and it will deepen that network and bring all sorts of good things. And lastly, we have the infrastructure and the partners and alliances to actually execute on this and to make that work. So anyway, so that's sort of the high level where we are. And now I'm going to ask Nat to come on up. His title, Senior Vice President, Fleet Finance and Alliances. He's one VP, but he does the work of 3 VPs, mark my words. Nat, over to you.

Thank you. Great. We do kind of need the airplanes to make this execute it's funny, Ben introduced in the leadership team and how tightly knit it is. I'm kind of the interloper here. I've been here 2.5 years, 24 in the industry, but I feel like, through the pandemic, 2.5 feels like 25. So I think I get credit for that as well. It's great to see so many familiar faces and catching up with you in number that during the week, just great to be together, great to have in-person Q&A, actually be able to react, not worry about your web connections, not see everybody's basement walls, it's super to be in person. My job today is to share with you, in essence, the fleet, the strategies behind it, our thinking and our plan. Never let a good crisis go to waste became one of my favorite phrases in the past 2 years. It's really hard to believe that 2 years ago, we were floundering, trying to find a path to sufficient liquidity, how are we going to get through this pandemic? There's also a period where we're wondering if humans were ever going to fly on airplanes again, but those days we got passed relatively frequently. But once we found that path to liquidity, executing our first-ever EETC, great assistance from the U.S. Treasury Department, we shifted our focus to the future. We examined the structural areas of our business and identified where can we take hard decisions now during this period of great volatility to set us up to outperform in the future. Andrew referenced oneworld. That was one of them. And the second one we did was fleet. Our fleet plans that I'm going to take you through are really based on true -- 2 tried and true plays that many other carriers have done throughout the industry and certainly in my time, I've seen it. First is single fleet and second is upgauge. Single fleet, we'll start there. Simply, it strengthens our competitive advantages, and Alaska Air Group is going to drive the single fleet for our mainline operations and our regional operations, and we think that's worth $75 million in cost savings a year. I find it ironic that I'm actually talking about the benefits of single fleet, when arguably, in a previous life, I was one of the architects of the most complex fleet plan in industry history, after the Delta-Northwest merger. I think in our heyday, we had 10 or 11 fleet types, 35 or 40 variants. We had 11 different 757 types. So you want to talk complexity, that was it. But for that network and for that airline, it was the right thing to do. I'll tell you this, this is a heck of a lot more sane and satisfying to execute and a bit easy. What simply put, single fleet is the best answer for Alaska because it fits who we are. As Ben talked about low cost, high productivity part of our DNA, operational excellence, part of our DNA, so we would go into detail there. What I would like to talk a little bit about is strong relationships. Ben introduced Ihssane and Jason from Boeing and GE, respectively. And if you think of Alaska where our position is, we're never going to be the biggest airline in the industry, but we want to be the best. And there are some specific places where scale matters. And so the Alaska strategy to counter that is we need to over-index in these partnerships, find our key suppliers, find our key relationships, work with them and get them to the point where they are as vested in our success as we are. And Jason, Ihssane, both of you, thankful for your partnership. We'd never be in a position where we are today without it. Mainline single fleet by 2023. So this is an acceleration from our original plan. Coming out of the pandemic, we were thinking 24, but we learned during the pandemic the best financial and operational decision we can make is to get to single fleet as quickly as we can. And so we'll do that focusing on Boeing. Talk a little bit about our Airbus exits. Our 10 A3 -- the time Alaska bought Virgin America, 73 Airbus airplanes came with that deal. The 10 A319s died in the pandemic and certainly never came back. We'll have the A320s out not later than early 2023 and maybe a little bit sooner if we can push it. And that leaves the 10 A321 Neos, which Shane and Ben have both put on the top of my to-do list to find an answer to get those airplanes out by the end of 2023. I think many of us have claimed, and I even stated an ISTAT conference a few months ago that those are the 10 worst aircraft leases I've ever seen. And I've seen a lot of them, but we're going to take a good run at it. It will be the last cog to get to single fleet, and we're so committed to do it that we're going to find a way. We could only be so confident to get to single fleet if we had the faith and the willingness and the desire because of our Boeing 737 MAX order. It's our anchor fleet moving forward. We took our first MAX in 2021. We've got 17 now. In fact, took 2 airplanes on Tuesday of this week. My team and Constance's team kind of made the case ever. We're going to have these 2 airplane days going forward, and I was like, no, no, no. It's just an exception, but super happy to take them. We've got 76 more firm to come through 2024 and then 52 options, '24, '25 and '26. Ihssane pointed out to both Ben and me last night that real airlines take 200, and I told him it was a little early for that. But in time, we'll see where we go. But we're really pleased with the performance of those airplanes. Our guests love them. Our team loves to fly them. Our ops folks think they're great. And frankly, most important to me, the math behind the airplanes are really great. I'll spare you the details there, but thumbs up. On the regional side, we're going to drive the regional fleet to single by year-end 2023. Most of you know that Air Group has 2 regional operators, SkyWest flies E175s on our behalf as they do for a number of airlines, and then we have wholly owned Horizon who flies both Q400s as well as E175s. So in sum, 62 E175s flying for Air Group today, and we have another 20 on order that will come through the end of 2023. And by the end of '23, we will phase out all of the Q400s and again, fleet simplicity anchor on the E175. That's it for fleet simplification. Let's move to the upgauge tenant #2. I've executed a lot of upgauges in my career, and some of you will go down airline, memory lane on these, DC-9s to 737-900 ERs, 50 seaters to 717s, and frankly, my personal favorite, DC-10s to A330s, sorry, Ihssane, but I bought Airbus airplanes, too, in my past. But the central tenet to all of those successful upgauges is you've got to be able to fill the airplanes. And before Alaska jumped in with both feet on the upgauge, we spent some external -- we hired some external resources, worked a lot with our internal network, assessed our current. Here's our footprint, where are we going to fly, and then let's forecast out into 2030, add in oneworld, add in the American partnership, demographic changes throughout the country, what does it look like? And we concluded that to maximize our profits, we needed to get bigger. About 50% of our fleet today is what we would call large airplanes, 175 seats and above. We want to get to 70%, 75% to really generate the most profitability that we can out of our footprint. And the 4 things that, that delivers, #1, greater revenue opportunity; second, more premium seats, Andrew talked a bit about that; thirdly, lower cost per seat, which Shane and I love; And then lastly, what we all love, better environmental profile. We will leverage our 737 MAX order book to upgauge quickly. We're taking airplanes in a really rapid period of time, 145 aircraft. And we envision if we take all 145 of those aircraft, 130 are going to be the large 737-9s and 737-10s. Each 737 plays a unique role for us. The 10 will be our biggest airplane, with the lowest seat cost. The 9 still has large seat capability, with a little bit better performance. And I'd like to think of the -8, which will take our first next year is our utility in fielder. It's got the best performance capabilities for hot and high airports, short runways, and it's also great for medium-sized markets. This is the essence of what single fleet is all about. You've got 3 different airplanes, one cost base and that it can only work with that. So we're very thankful there. As Andrew referenced more premium seats, we've grown our premium seat allocation from 7% in 2016 all the way to 25% in 2023. And you can see the premium fare advantage that's inherent there. The opportunity is especially robust on the regional side as we grow from the Q400, which is single class to the multi-class E175. And the benefits here are attractive to Alaska, even though we're traditionally lower with business mix. Premium leisure is another concept that many of our competitors, and we are seeing as well, out product of the pandemic. This is addressed to go straight and capture that revenue. Now we view and wrap up on the upgauge section with one real-life example that we're actually seeing today. We're placing 150-seat A320 with 178-seat 737-9. This just exhibits the 4 big benefits that I referenced earlier, greater revenue opportunity, 19% more seats, more premium revenue, 4 more first-class seats available to sell. Thirdly, 14% lower seat cost. And then lastly, 25% lower fuel burn per seat, great environmental profile. You roll all of this up, we get 19 more seats -- 19% more seats for only 2% higher trip costs. My mother, the algebra teacher, loves this and so do we. I'm going to wrap up with fleet evolution over the 7-year period, 2 rules in the airline industry. #1, you cannot give a presentation on the fleet plan without pictures of airplanes. There have been 13 for those counting at home. And second, without actually showing a fleet plan. And so here's ours through 2026. You'll see that we're going to single fleet on mainline and regional by 2023. We're going to continue our upgauge as we retire Airbus and take our firm and option MAX airplanes and the results speak for themselves. Our gauge is going to grow 1% annually. Our premium seats 62% more in our fleet by year-end 2026. Most interesting about this from my perspective, our fleet age over this 7-year period is flat. And if you do the math in your head on that, that's pretty amazing. 332 airplanes, they obviously, like all of us, age per year. But to keep that flat over a 7-year period gives you a sense of how many new airplanes we are injecting as we move forward through this. And then lastly, newest technology airplanes, only 3% in 2019, the MAX, as a proportion of our fleet, is 41% by year-end 2026. I'm really confident that we're going to be able to deliver on this for 2 reasons. Number one, again, these are tried and true fleet plays, go to single fleet and upgauge can totally do it. But more importantly, it's classic Alaska. It's a simple plan. It's a straightforward plan, and it all based -- that depends on execution, and I'm super confident that we can do that. So with that, we're going to end in essence, I'm not sure how the finance person got into the commercial section, but that will be corrected I'm sure. What will save all of you is that Sangita is going to talk to you about brand and much more interesting things, and we won't make the finance person do that. Thank you.

Okay. So when Shane asked me to speak at Investor Day, sounds great. But then I had to pause for a minute and I'm like, c***, I have to put on a suit, put on heels, and it's -- I'm very uncomfortable right now. But I'm excited to be here, and I propose next time we do jeans and hoodies. So Shane, if you can make that happen for me that'd be awesome.

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What. Yes, there you go. Okay. So Andrew talked about the strength of our network and Matt talked about our fleet plan that will efficiently deliver against that network. My job and our team's job is to deliver the best possible value proposition for our guests and to build brand love. And we believe both of those teams -- both of those things continue to drive growth for Alaska. So let's start with our guests. We have a wide range of guests, everything from the suited-up flyer to the dollar-driven flyer. And we've come a long way since 2015. We launched -- we had first class and main cabin, only 2 cabins back in 2015. And then in 2016, we launched premium class and then 2019, we launched saver. So we now appeal to a broad range of guests, and we have a fantastic value proposition. We offer a high-quality product at a competitive fare. And one thing I've learned in my 7 years at Alaska, we are obsessed with low cost, and you've heard about that from Ben as well, and you'll hear about it from Shane. But we're very strategic and deliberate about investing in that guest experience. We never make a trade-off when it comes to the guest. So let's start with our premium cabins. Looking at gorgeous first-class cabin. I think this is Andrew's second favorite slide behind the route map. It is a great first-class cabinet at 40 inches of pitch, which leads the competition. And comfort matters, particularly for that suited up or that high flyer. And so over 60% of our capacity is deployed in markets with flights over 4 hours. And so think Bay Area to Hawaii, that comfort really -- the 40 inches of pitch matters, the cup holder, the seat rest, the fresh hot meal, all those details make a difference in comfort and for enjoyment for that flyer. And then in PC, we sit at -- sorry, wrong side. PC, we set at 35-inches of pitch. 35 inches pitch, which again, beats out the competition. So when I first started working for the airline, we were going through layouts of the cabin. I thought how much does it -- and truly matter? I stand at 4 feet 11 inches tall and let me tell you, every inch matters in that cabin. It really does make a difference. And so again, a fantastic premium cabin. So I'm really proud of our guest products team. We actually compete with the big guys on a quality product offering, but we also have some really cool key differentiators that actually outpace the competition. Let's start with our lounges. So we're the only lounge program that allows access to paid first-class passengers. We also can have one of our lounge concierge make you a handcrafted Starbucks espresso beverage with our Brezza station. And our leads have access to a global lounge network through oneworld. When it comes to entertainment, our philosophy is our guests can bring their own device and enjoy their favorite movies and TV shows, But we make it really easy for them. We have conveniently located power right at eye level. We have a device holder that can hold your tablet or your phone on that seat back. And so it's a really great experience for our guests. When it comes to connectivity, we partner with Intelsat, the largest multi-purpose satellite operator in the world. And pretty soon, in the coming weeks, we're going to have a very exciting announcement around that, that our guests are going to love. And finally, I'd like to just close with Box Water. We launched Boxed Water back in November 2021. And it reduces -- it tackles the biggest sources, in-flight waste out there, which is plastic bottles. We eliminate 1.8 million pounds of plastic a year with the launch of Boxed Water. And our guests are loving it. We've gotten fantastic reviews, particularly from folks in California. And we've been leaders when it comes to onboard sustainability. We launched -- we are the first to launch onboard recycling, and we're also the first to eliminate plastic straws on board as well. So our value proposition is really clear. We offer a quality product with some really cool differentiators at a competitive fare, but what I want to leave you with, I think the 2 most important things that really set us above the competition, above anything else, it's our brand of care that Ben talked about, and it's our loyalty program. It's those 2 things why customers come back to us time and time again and continue to drive to a stronger bottom line. So let's start with our brand. All right. So how many -- probably not many of you maybe grew up in the Seattle market. But when I moved from Chicago to Seattle back in 2010, you wouldn't meet people, whether it's at parties or in the neighborhood, and people would randomly say, "I love Alaska." And I would have to clarify, I'm like, okay, you mean the state or the airline? No, no, they meant the airline. And they -- and again, people -- so many people would say, I love Alaska. And to me, that's just incredible deep loyalty. And we share the stage. This is brand love in Washington, and we share the stage with some of the most loved brands in the world. That's phenomenal. I actually worked at Starbucks for almost 5 years. And when I moved over to Alaska, I was incredibly proud to say that I work for Alaska Airlines. The brand love is phenomenal. And -- so -- but what is it? What is it that guests love about Alaska? And so -- and Ben talked a lot about this as well, we boil it down to one single word, and that's care. And we're going to own the heck out of care unlike anyone else out there. And I really believe we care more than any other airline out there. We can really genuinely own that for sure. So we define care. We created a one-page brand DNA to be super clear about what do we mean by care? How do we define it? And it's really 2 things. It's kind of that emotional side of how our frontline treats you? How do you feel on your day of travel? It's providing joy empathy and ease? And this is truly our secret sauce. We have -- in Alaska we have a survey system called Alaska Listens, where we survey. We get 25,000 survey responses every single month from our flyers to understand their guest experience. And consistently, over 90% of those guests rate us as excellent or very good in terms of how well we took care of them on their day of travel, which is phenomenal. We had a reception last night, I met 100,000 elite flyer based here in New York. And I said, what is the one thing you love about Alaska, and he's like it's your people. It's how you make me feel on that day of travel. So that is truly what care means for Alaska is how we make them feel. But it's also the value. The value is super important. And we talked a lot about the value in terms of the quality product that they get, the nonstop routes, but it's also our loyalty program, which you'll hear a little bit more about in a second. So to deliver care, we're going to continue to invest in our people, and our employees genuinely do care. Ben mentioned, it's our 90th anniversary, and we're known and recognized for our tremendous service. But we are hiring 3,000 people this year. So we need to continue to nurture and raise the bar in care. So this fall, we're going to launch an in-person workshop called the Care Retreat. And we're going to bring all of our front line through and it's going to do 2 things: one, codify our secret sauce of care, but also enable us as leaders to reconnect with and realign with our employees after 2 years of being in the pandemic. And this kind of service strength isn't new for us. We actually led the industry back in 2015 with what we call beyond service. And every 3 to 5 years, we have an in-person employee workshop just to reconnect with our employees, build our culture of care and make sure we're all aligned to deliver against our growth plans. So our employees are going to show the care, which they always have. But we're not going to be so humble anymore. We're going to actually start to really shout care and own that outright. And so we launched a major marketing campaign in the Bay Area, just launched last month. And we're going to go out there, and we're doing TV, print, radio, out-of-home and really shouting care. So our vision is for people across the country, and for my dad who lives in Detroit, Michigan, to know what Alaska actually stands for, and we want to stand for care. We want to be known as the most caring airline in the world, and that's our mission. And I really believe we're again, we're the only airline that can genuinely deliver against that. And we know that from our experience in the Pacific Northwest, we've built care impact Northwest, and that's why people love us and come back to us time and time again. Okay. So now on to the most exciting part of my presentation, which is our loyalty program. This is the single biggest source of value to our guests. We consistently get recognized and awards for our loyalty program. And I want to be really clear, we are very deliberate about investing in our loyalty program, making sure our guests get more value from our loyalty program than anyone else out there. We can easily be less generous. We could give less bonus miles. We can make it harder to hit elite status. We could give less complementary upgrades, but we don't do that. We really invest in making sure our guests feel that loyalty and feel that value. And so we're very purposeful about that. So let me show you the value. This is actually a seatback card that's actually on the aircraft right now. So if you flew with us tomorrow or today, you'd see this in the seat back. Let me walk you through the mileage plan. So you can earn at least 30% more with our Mileage Plan program. And so we actually took a trip. We took SFO to Boston, a round trip, you compare Alaska versus the other airlines. And it's the same trip, same fair and you get 54% more miles with Alaska versus the other guys. Credit card, our competitive set is not only the other airlines, but it's also cashback cards. And so you add up the value, if you take a round trip, spend on average every year as well as 2 free check bags, you can save -- get an annual value of $440 a year, and that is nearly triple the value of a cash back card. It's tremendous value. But the most valuable thing on this list is the annual companion fare. I cannot tell you how generous that is. People love it. You can go to Hawaii and take in companion for $99 and there's no blackout dates. It is the most lucrative benefit in the competitive set of cards that is out there. The other thing too is we know the investment in our loyalty program does pay off. We actually took the annual revenue, the revenue from a mileage plan member versus a non-Mileage Plan member, and we get 3x the revenue from a Mileage Plan member versus a nonmember. So they truly come back to us time and time again. And they book directly on alaskaair.com. A significant portion of our Mileage Plan member base is going directly to alaskaair.com to book on us, which is very beneficial for us. Okay. Ben mentioned this as well. Nearly half of our Mileage Plan member base and our credit card base is outside the Pac Northwest. We are very geographically diverse in terms of our Mileage Plan members and cardholders. And, which is super interesting is, we took ASM growth since 2016 and line that up with Mileage Plan growth and credit card growth. So for every 1% increase in ASM growth, we grew 9% in Mileage Plan members outside the Pac Northwest. What's also really interesting and more valuable even for Alaska is the credit card growth. Again, when we grew 1% of ASM growth, we grew 10x of credit card growth outside the Pac Northwest, and that growth is phenomenal. Which leads me to my next slide, is with continued growth and our new deal with the Bank of America, let me walk you through some of the highlights. It goes through 2030, which you've already heard, we're going to meaningfully expand that already highly valuable card with some more guest benefits that we'll be announcing later this year. And we have a significant increase in marketing and technology funds to continue to drive growth up and down the West Coast. We've enjoyed a 12% annual -- compounded annual growth rate from 2016 to '21 for our card portfolio. And with the new deal, what we can share is we'll have an increase of 30% in total bank compensation from '21 to '22. So that leads me to our special guests of the day. We could not be more excited about not only a new deal with Bank of America, but a renewed and deeper partnership with them. We want to continue to offer highly valuable benefits to our current cardholders, but also get that card in more people's hands in the geographies we operate in. And so to underscore that commitment to deeper penetration in the geographies we operate in, we're extremely happy to have Dean Athanasia, President of Regional Banking from Bank of America to come on up and share a few thoughts.

All right. Thank you, Sangita for that introduction. And where is Ben. Ben, thank you. He may not be here -- there, he is back there. Ben, thank you. Thank you. Sorry, I lost you. I thought you were over here. But thank you for allowing me to come speak today. It's quite an honor, and I really appreciate it. And I know our colleagues here do appreciate it as well, there's a lot of Bank of America folks here in the audience. So thank you. For those of you that don't know me, I'm not usually this tan. I flew in from my -- I look more like Android. But I flew in from my vacation this morning because I thought this was such a fantastic opportunity to be here. This is a -- I don't know if you guys know, this is a 3 decades partnership between Bank of America and Alaska Air, 3 decades. I've been at Bank of America 26 years. I think I'm the older person on the team, but -- so this relationship predates me. And they do -- they're one of our best clients as well on both the commercial and investment banking side. We do a lot of business with them. And then also, as you heard Sangita talk about on the consumer side, with our co-branded credit card. So a phenomenal client, and we're happy to partnership with them. We're happy to back them in any way, shape or form, and they have all of our resources behind. That's sort of what I'm going to talk about today. But one thing I did notice, when I listened to Ben talk and I listened to Sangita talk and everyone, Andrew talked today, there is one thing I noticed about the organization, and you've noticed the same thing at Bank of America, if Brian Moynihan was up, our CEO speaking. This is intense care around our clients. That's 2 things. That's why I think we partner so well together. At Bank of America, it's all about the client or the guests, as you call them, everything. We're even -- we're not organized by product groups. We're organized around client segments. Everything is for the clients, products, services, anything we design, we invest, we don't care. It's all about client care, retaining clients, growing clients. So if you come here, I think I would say our cultures are exactly the same and they line up. So we're ecstatic, and we're excited about extending the co-branded relationship up to 2030. It's going to be a phenomenal partnership for us as well, and I want to convey 2 things today. One, just what this partnership means to me and Bank of America. So for us, I mean, there's a lot in it as well, and we're happy to back it, and we're happy to spend money. We're happy to see it grow, and we're committed to that. And then I'm going to shed some light on those growth opportunities and just give you a little bit of value, a lot of things that Sangita talked about, but just the pure metrics, the pure client bases we're talking about, the resources we're talking about to get that growth. I don't have any slides. So it's just me. You have to -- I am the entertainment today. All right. So -- and Ben, I swear I didn't put this in, but just a little bit of history. Like Alaska, Bank of America has a true Southwest. We were founded by A.P. Giannini as a Bank of Italy back in 1906 after the San Francisco earthquake. I don't know if people know that, but just helping people recover and businesses recover from a disaster, similar to what we've done over the last couple of cycles. Back in 1939, I believe, I have that date right, we became -- we moved from being Bank of Italy to Bank of America. And we still operate with that national bank charter number that we had from the origin. So we are -- just like Alaska, we have all of our routes out West, and that's a huge, huge market and franchise for us, and I'll hit some of the numbers on that. So since then, Bank of America has grown to be the first true coast-to-coast bank, financial centers across Coast. We were the first ones to do it. I know there's others now, but we did that a long time ago in our history. We do business with 1 out of every 2 households in the U.S. We have leading market -- if you look at the top 30 markets that drive about 87% of the U.S. GDP. We have the most #1 positions. In fact, we have more #1s I think 14 and 15. We have more #1s and #2 and #3 combined. That's how big we are in consumer. We have 67 million clients, and all those resources we bring to bear and help Alaska Air out in any way we can. In California, I know we talked about that, but we have particularly strong positions in California and the West Coast, #1 market positions in L.A., San Francisco, Portland, Seattle. We have over $400 billion in deposits and over 11.5 million clients in California alone. So just a huge growth market for us. And again, that's why we match up. That's why the synergies are there because as you can see, we give Alaska Air access to all those clients. And so using that as a foundation for growth, last year was a record year for us in 2021, helping our clients emerge from a crisis standing behind them, helping them repair their balance sheets, whether that's a commercial client or a consumer client. So we helped clients recover. And we saw the highest level of retention, the highest level of client growth. And since I've been here, running it, we now have 67 million consumer clients out there from across the country. We serve them in a number of different ways, 4,200 financial centers, our phone centers, text and chats on the phone and then also digital. We actually have the 67 million, 54 million or roughly 80% are digital and interact with us every single day. Our clients log in to our mobile or online app over 10 million times a year. So think about that. The reason I mentioned all of our distribution is because Alaska Air has access to that. So think of somebody logging in. If they're right for this program, we are putting up value-added offers in front of them. We're advertising Alaska Air. We're trying to make that work. We're showing them the value of being a guest at Alaska Air. So I'll talk a little bit more about that. But you get, the distribution system is there, and we're pointing it and it's all behind this program and helping them out. So our plan is to grow in the West Coast and to grow in all markets, and that's why Alaska Air. It's the only airlines headquartered on the West Coast, a perfect partner for us. You've heard all the numbers, they dominate air travel. 50% market share in air travel in the Pacific Northwest, the incredible and the loyal guests and clients that they have, their distribution system is phenomenal as well. If I get these numbers correctly, Mary, 85% of the sales of that credit card and that program go through the Alaska Air's or from the Alaska Air distribution, whether that's digital, online or on the plans as well. So we're trying to get behind that. We're trying to add our distribution network behind that and accentuate that and grow it and add our part to it. So that will help growth and that will move it along. And then they have features that, as a bank, you just can't replicate. So I think the last thing that Sangita talked about the companion fare, incredible, the free baggage, the access to lounge, all those things that we cannot replicate on our own cards, Alaska Air can offer that to clients, and we can add that to the value of our distribution. So we all share a common goal to expand in California in the Northwest. We're committed to making this co-brand even stronger and adding to it all of my resources, all of my expenses. It's not about that. It's about client care. Once you have client care, you can grow your client base, you can continue to acquire. We're committed to serving Alaska Air. Clients like they're our own, so that's our commitment to them. We're committed to making any product to service enhancement on behalf of the clients. And then we're also committed to attracting new clients to the program. And the timing couldn't be better. If you look at what's going on, and we look at all of our consumers, those 1 out of every 2 households. Consumer spend this period, this year, year-to-date is up 21% year-over-year. Think about that. But what's driving it is this return to travel, return to services. Spend on credit cards for travel is up 95% year-over-year. So we are hitting this just right. We're getting in front of it with a phenomenal program, and we're going to capture and ride that growth all the way up. So the opportunity is immense, and I'll sort of end what I think are the 5 business opportunities. And again, these are from Bank of America's standpoint, right? Because Alaska Air was running their program, they're doing great. Here's the 5 biggest opportunities, I think. One, and this is a commitment to any of our Bank of America clients that fly at Alaska Air, but don't use the Mileage Plan card, we're going to get offers in front of every day, think of that. You log in, you ride for that program. We know who you are. It's not intrusive because there's a great value to it. We're getting them in front of that program. Any Bank of America client purchasing tickets on rival airlines, not mentioning who, but we'll go after them, and we'll get the card in front of them as well, right? That's our commitment. Advertising and marketing for the Mileage Plan card in all of our financial centers, in digital and everything we do, we're committed to get that out there and making sure we get the offers to the clients that we talked about. And then for Bank of America, obviously, us being able to -- if they don't have a checking account with Bank of America, they're not online. They don't have digital, opening up, showing the value of Bank of America partnering that up because then you get even more access to that client, that's a huge opportunity as well. And last, I'll say 5 because you really can't talk about everything we're going to do. I have such -- again, Sangita partnering with -- I also run digital and marketing for the company, David Tyrie, Mary Hines Droesch is here, who runs product for the company. You heard her introduce, but they are very creative people. We'll look at it. We'll innovate. We'll get in front of clients in different ways. There's things that we didn't think about. We're constantly innovating, constantly working with our Alaska partners to make this partnership even better. So -- and I'll sort of end on this last slide that I can see, but you can't see. But when you think about it, because there are a number of different programs that banks and airlines run together. But what makes this one different and how do we differentiate ourselves? And you have to sort of know what partnership is all about. So partners, good partners for any program, think alike, right? It's all about the clients. It's everything for a client, spend for the clients, client care, guest care, absolutely imperative at both companies. That's why we have such a great bond just to start. Second is, we have similar cultures. We care about our clients, communities and our employees, right? All 3 of those. If you went to Bank America, you would hear that over and over and over again, and it's similar to what Ben showed in his slides. We have similar goals. We want to grow in our core markets, the West Coast, certainly being one, but all across the country, right? So we can partner up on that to help each other achieve them. And good partners, they don't care who -- it's a win-win. We look for the win-win, right? It's not about we win and they lose or they do -- I'm happy to pay the revenue out that Sangita talked about, happy to, because that means we're growing. If they're growing, we are growing, we'll commit all our resources to it. And together, we can grow this portfolio, access more clients and do more business together. And I guarantee, once we get clients into the program, they love it. They stay there forever. It's a great retention vehicle as well. So I'll end where we started. The partnership is really. It's been successful for 3 decades, and I'm not going to mess it up, trust me. I may not be here for the next 3 decades. I'm looking forward to that, but I know I'll be here for the next year, the next 8 years out to 2030, and we're focusing on that and making this the very best program out there in the market today. So again, Ben, thank you. I appreciate it. Sangita, thank you, and it's great working with you and your team and Andrew and everyone else. Thank you.

Thank you Dean. Thank you. Thank you, Dean. I wrote myself a note, It says bench Andrew, and he comes back with $400 million of revenue. So a lesson learned, Andrew, we'll do it next time, too. So I'm going to close this out, get us over to Q&A. Could not be more excited to see you all in person, had a chance to chat with several of you out in the lobby. It's a great space, by the way, I think, Ben mentioned that. I think it's a step up from where we have been in the past. And it's been fun to get back out into New York and see it busy with life. Again, I was here in May of last year, and it was just starting to come back, and then it sort of went back down, and it just feels like normal New York now. So I'll tell you this date, we were sort of going back and forth. Do we do this in December? Do we do it in January? Do we do it in March? We couldn't really decide, and we finally said March a long time ago, 6 months or so ago. And it really has served as an important date for us for a number of reasons, not only to get back in front of you all and share what I think is a really compelling story, and that's mostly what I want to talk about is the investment case for Alaska. But it gave us a chance to at least regularly go look long term at the business. We've been dealing with -- it seems like a weekly crisis for the last 2 years. And every time you thought you were sort of taking a step out, and we were going to be able to go and stabilize things and look forward something pulled us back into another near-term crisis. And so I don't know what the rest of the year is going to be -- going to look like. I don't know what the geopolitical backdrop if everything is going to be stable or if there's going to be other variants, but it's been really fun for us to start thinking about what we can deliver for guests and for owners and for our employees over the next several years. And airlines, we're here to take people around the world and connect people. People don't fly for unimportant reasons. That's why we all love what we do. Nobody gets on a plane for something they don't care about, right? So we're excited to see full planes again, our flight out was phenomenal we were on. My first trip, believe it or not, on a Dash 9 MAX aircraft. It's a phenomenal airplane. You should get out and take a ride on one of ours, with our credit card companion fare, you can take somebody with you. Am I doing good on the marketing stuff, Sangita, so far? Alright, alright. So anyhow, it's just really fun to be back in front of people. I'm not going to belabor. I will say, and I want to underscore it, we -- at Alaska, we know our success is in large part due to the fact that we have partnerships with some of the best companies in the world. Not only that, but they want us to succeed, and I hope that's what you've heard today. That's why -- we want a GE here and Boeing here and Bank of America here. We know that in order to do all the things we want to do, we need people who are bigger than us and who are experts in their field to also support our strategies and plans, and we're very fortunate to have these partnerships. I'm going to mostly talk about the investment case for ALK, I think we're very well positioned to outperform. I think I'm going to sort of take you through a few proof points of that. And the one thing I would say, and it's probably intuitive, but our biggest goal through the pandemic, once we stabilize the business, we had raised enough money to -- and the CARES Act came through and we felt like, okay, we weren't at risk of failure having to have 80% of our planes on the ground for a long period of time. We've really thought about what do we want to be as the pandemic emerge -- as we emerge from the pandemic, what is the position we want to be in. And we've tried very hard to make all of the decisions and choices that we felt like we needed to, to position us to capitalize on a recovery cycle. And I think you all know those of you have followed us for a long time, we've done well in recovery cycles. We've typically used downturns to rethink our business strategy, recommit to the things we knew that worked to make changes to things that weren't working as well. And so when demand came back and the economy stabilized and things in this case, got opened again, we were going to be out of the gates first and able to capitalize on a recovery better than anybody else. And I think we've done a fair job of that, and that's what I want to share with you today. If I were an analyst, which once upon a time I thought maybe I wanted to be an analyst, and I was looking at this industry. I'll tell you a funny story later about putting airlines in a [ mart ] portfolio in college. But my finance professor didn't think it was a good idea is the punchline. But I would be like, okay, I want to see a company that has durable competitive advantages. And Ben shared some of those with you, ours have been there for 20 years. We really haven't changed them. And we've doubled down on them multiple times and they've continued to work for us through every cycle, every challenge we face, competitive incursions, economic sort of downturns in cycles, financial crisis, you name it. These competitive advantages have worked for us time and time again, and so check the box on that one. I want to know that there's a leadership team that was capable of delivering over the next several years that they were seasoned. They've been through cycles in this industry, and they've proven that they can make the decisions and go and execute. And I think Ben already shared the team with you, many of us have been in this industry a long time. We've been a part of the Alaska story to those cycles. So check the box there. I want to see an airline with an already strong financial position. And I think we've got that. I'm going to show you the balance sheet again because we are happy where it's at, but we have the most repaired balance sheet in the industry already. And we did it without issuing equity, which we're also proud of. So we're coming from a very strong foundation relative to our competitors. I want to see an improving competitive position. I'm going to show you, I think we're on a different trajectory relative to our competitors on costs. I think that we are going to close some of the small yield gap to the industry we've had over the last several years given our revenue portfolio. I'll talk more about that. And I think our competitive positioning in our network, and I'm going to share some data, it's relatively less intense. The competitive backdrop we're facing as we emerge from the pandemic versus when we were sitting here in 2019. And so if you got a better cost structure, a really good revenue story and a better competitive positioning in terms of the competitive intensity in your network, those just algebraically are going to work in your favor. And so I think we've got a really solid setup if that wasn't enough, I'd go and say, "Hey, is there a track record of performance here". We've been an industry margin leader for a long time. ventured some of that before. And have they actually made the strategic decisions necessary to go unlock value. And -- we are trying to keep it simple. I think Matt did a phenomenal job simplifying the fleet upgauging the fleet. These are tried, tested, true ways to drive marginal economics in this industry. I'll speak more about the network. I think we've done a phenomenal job reshaping the network to play to our strengths. And the new agreement with Bank of America is going to be a significant driver of that revenue story. And so we've done a lot of the things we needed to do to actually unlock this value. Now we just need to go execute. I now sit here and talk about, I just want to wake up in 3 years and see like, oh, it all work, of course. But we don't have that we're going to go out every day and make sure that we now deliver on the road map that we've set forth. Let's start with the balance sheet. I'm not going to belabor this. Many of you know this story. We're already in our target range. We're below 50% debt-to-cap leverage. We -- we are the most improved or repaired balance sheet in the industry as we stand here today. This is really a byproduct of a philosophy at the company that always starts with the financial foundation, which is our balance sheet. We've been disciplined about it for a long period of time. And we're proud to be able to say we didn't issue equity, notwithstanding many of you in this room pitching equity to mean that, we love all of you many, many times, but we didn't feel like that was the right thing to do. It's underscore sort of our commitment to owners and gives you a window into how we think about our responsibility back to shareholders as really a key important part of what we do as a leadership team. And so as others sort of go forward, they're going to have to contribute some portion of their cash flows to balance sheet repair most likely. And we probably will see ours continue to improve and repair, but it's something that largely has already done and we can go focus on growing the company and taking advantage of other strategic opportunities. The second piece, if the financial foundation is the balance sheet, the network is the core asset of an airline, and our network looks phenomenal. Every airline has taken the pandemic has a chance to go reshape where they're going to sort of fly and focus. We, of course, have done that. I think Brett and Andrew and the commercial team have done a phenomenal job really playing to our strengths, as I said before. We are now going to, I think, better mix peer growth markets with growth in places that we already have in a natural ability to win and to do very well with them. So I think our growth can be profitable, right out of the gate because it's really focused on core areas of strength that we already have. And as you look at what other airlines have done in terms of their network, and this could change tomorrow. These are our current schedules, plans can go anywhere as we know. We're seeing less competitive overlap through our network and not insignificantly. And that's just a really good setup for us to go forward and outperform the rest of the industry over the next couple of years. I talked about costs. I believe that we are widening our cost gap against the industry. And in fact, I think we're improving our cost competitiveness against every single one of our core competitors. I don't think there's one of our core competitors that were not either widening our cost gap against or shrinking if we were actually more costly than they were. And we've managed cost of this company in a disciplined way. It's been a hallmark of the way we operate. You've heard a lot about it today. We're no less committed to it. We've enjoyed a 14%, 15% cost advantage relative to the industry. This is all stages like the -- just total system. And we think based on guides that it's going to grow to as much as 20% by the end of this year and that includes our new guidance that we put out today. And behind these numbers, if we were to tease out LCCs, we're a lower-cost producer than our friends here in New York, and they're a great company, JetBlue. But I think we're already on a stage length adjusted basis, producing flight seats at a lower cost than them. And I think for the first time in 20 years, it's been a long road. We've always had this as a goal sort of in the back of our mind is to ultimately close the cost gap with Southwest. And they're another phenomenal company, but based on guidance out there right now, we think that we'll ultimately be at parity this year, if not a little bit below from a unit cost perspective, which is just a phenomenal foundation for us to then work from as we go out and compete in the next several years and grow. You guys know not every variable in your models are equal. This one should matter a lot. This is how airlines ultimately are able to endure competition, they're able to grow and endure the ups and downs and cycles of the industry. And so we're long committed to this, and you're going to see that in the next several years as well. I might say, I might go back there. We do have cost pressures, and I'm sure we'll talk about this in Q&A. We are going to get new labor deals. We have some that are open and overdue and they need to be closed, and we're anxious to do that. There's inflation in the business. Hard to predict exactly what that's going to be. We'll have to see over the next few quarters, what happens in the economy as a whole. Andrew just shared with you that he's got an unlimited appetite for airport, improvements in airport costs, which we're going to have to figure out how to rain in here soon, but that's going to be an inflationary pressure in the company, too. But that is largely going to be helped by these tailwinds from structural cost initiatives that we announced 1.5 years or 2 ago. And then what we're talking about today, single fleet efficiencies, which are significant and the benefit of upgauge. We're going to fly about the same number of departures over time, maybe a few percent more, but get a lot more seats on those departures, super efficient way to grow. And Andrew shared that mix with you. On the -- oh I'm going to pivot. I was going to go to revenue. But listen I want to talk mostly long term. We've been getting a lot of questions recently on the price of oil. So I thought I would reacquaint folks in the room with where we are on our hedging program. Most of you know, we've hedged for a long time. We view it as insurance. It's $20 million to $30 million a year is what we pay for those options. It's super simple. It's robotic, it's automatic. We start 18 to 24 months out, and we layer on strips up to 50% of our plant consumption at whatever the spot prices of oil is actually we're now using 20% out of the money call options. We -- you guys are all pretty kind to us, but you do ask us, is it worth it none of your other airline partners folks in the industry, except for Southwest do this is sort of just a waste of money. And we endure those critiques and we're okay with that. We understand the question. And then we get into a period like this, and we're always feeling good that we've got these. And it's mostly because it allows us time to make informed decisions. We don't have to do knee-jerk reactions. We've got a strong balance sheet, and we're able to, at least in the near term, have a differential position relative to others in terms of the price of -- the input price of oil. And so it's been a good program for us. I think it's modestly beneficial over the 20-year period that we've been doing it, and we're happy to talk more about it. But it's been working well for us. And certainly, it's going to pay this year to have had these hedges. So getting to the revenue, and I want to talk maybe about the -- your right-hand side of the slide first. I just want to underscore $400 million. A lot of times, we talk revenue, and it's like, yes, is it incremental? Is it displacing other revenue? Is it actually going to happen? And I'm not going to give percentages, but I will tell you, a lot of this is high confidence revenue. You should put a high level of confidence on it, a low discount on it, you look at the fleet upgauge that's going to happen. The seats are going to fly, we'll fill the seats. And we'll get whatever fares are out there at the time. I think they're going to be good fares. I don't think they're going to be low fare, like sort of at the low marginal fare, because a lot of this is going to go into capacity-constrained airports like Seattle, where they're just out of infrastructure, we cannot add more departures at key times. So every seat we can put into the peaks of the schedule are going to -- they're going to get filled with really good yields. The loyalty and product, the vast majority of that is the new bank deal and the vast majority of that number of the bank deal is bank economics, it's not growth. There is some growth in there, but it's relatively modest, and it sort of looks like the growth we've had over the last several years. And so most of that is just what we've been able to do with our partners at Bank of America. So that secured. It's done. It's going to flow through the P&L. Network & Alliances, there is more demand coming our way with one world with the West Coast International Alliance, we are going to have more connectivity across our network. We're going to see some of these markets that were okay or struggling to get very good as, as that partnership really grows and certainly as international begins to open up again. So I have a lot of confidence in these numbers. It's why we're here sharing them with you today. And then if you look at the other side of the chart, and I mentioned this at the top, we've had over the last several years, really starting with the competitive buildup in Seattle and then sort of going through the Virgin acquisition, an industry yield gap on a stage-length adjusted basis relative to our competitors. And we exited last year, and it's sort of weird because it's pandemic. I don't know exactly what the drivers were, but we exited last year back at parity with the industry on a yield basis. And I think that we've got an opportunity with this revenue road map to close what was a 7%, 8%, 9% yield gap relative to the industry. We've been there before. There's no reason we can't get back there again. I will tell you throughout those years, and we put it in Box, just so I wouldn't forget like we were still an industry margin leader. We have not really looked at yields as the way to drive outperformance on a pretax basis. We're going to continue to invest value in the guests. I don't think our long-term target is to be at the industry average, but I don't think we need to live at negative 8%, negative 9%, negative 10% either. So you've got improving cost competitive position, a really good network backdrop profile and an opportunity to close the yield gap relative to our competitors. And it's not much more in the business than those 3 things, plus a really strong balance sheet. And I think we've got a really strong investment case to make for ALK. And I'm going to ask you a question about that at the very end because there is a chart I'm going to show you that sort of puzzles me if you put all of this together. If those things weren't enough on a go-forward basis, I'd say, hey, do we have a track record of performance then shared this with you. I think even based on 2022 and '23 consensus estimates, we're expected to outperform the industry from a pretax margin perspective. When we dipped, which was coming out of the integration work with Virgin, we were still the third best margin producer in the industry. So we could go back to '05, we could go back to 2000. We've done very well on a comparative basis relative to our peers. And I think we are poised to continue to do so. And if 10 years or 20 years of history is too much, we can just look over the last couple of years. And these were all important to us during the pandemic. We talked about these with you all on earnings calls. We were pretty vocal about some of our goals that we set forth. We were the first to get to zero cash burn, the first to get to operating cash flow positive. First, profitability first to get to pre-COVID levels of leverage without issuing equity. I wanted a bunch of other first on there, but they were #1, and we didn't want to put a hashtag in front of them. So we're going with those 4 first. And I think a pretax profile that's very different than the rest of the industry. And I'll tell you, I think the West Coast has been behind in terms of the recovery cycle that we've tended to be a little more closed, a little slower to get back to travel. And so even though others who have geographies and places that were more open more of the time, throughout the pandemic waves and throughout the recoveries, like we were able to go produce really outsized margin performance. And I just think it underscores what we've got working for us already in our favor. The things that we've done with the business are going to work as demand comes back. So again, I go back to how excited I am about the future and about demand coming back in full planes. Okay. So we're going to talk guidance a little bit. Most of you have probably digested this, and we can go more in detail during Q&A. But I'll walk you through it over the next couple of slides. We updated Q1 guidance, really no change to capacity. We did improve revenue by 400 basis points. It's been a particularly strong demand environment as we got into March. One thing I'll note to you all, our spring break in our network is largely in April. We have a little bit of spring break in a couple of places in March. Most of the rest of the country is really heavily concentrated in March with a little spill over to April, most of our spring break as in April. And so I think we're going to see a very strong read-through as we go through the next few weeks and fill up for spring break, and I do think plans are going to be full. CASM, we updated slightly and then economic fuel at 262, it looks like that's where it's going to be, probably a bit higher than that as we sit here today for Q2, but for Q1, that's where we'll end up. '22 guidance. And the one thing I would point to first is that we have included a margin guide for the first time. We wanted to do this. Emily had designs on doing this for a long time. It's just never been like, is it stable enough to go out and actually give margin guidance, and we just thought now is the day to do it. We're in front of investors for the first time in a few years. I think you can expect us to talk about annual margin guidance as we go forward, and we'll update this guidance on earnings calls. It's got a lot of assumptions in it and are happy to share some of those as we get to Q&A if you're interested. But right now, we see the business producing between 6% and 9% margins. I'll tell you that those -- there's 2 things to note. One of those, it includes essentially current oil prices for the rest of the year. It does give some estimate on what we think yields will do for the rest of the year, and it does exclude lease return fleet exit costs. And we're happy to talk about those fleet exit costs at length. If you're interested in them, I think we've tried to be very transparent about the cost of return the A320s and the A321 fleet. But I think the core business is really what we're interested mostly in getting to, and that's why we're accelerating the fleet exit. And so we're giving you both cost and margin guidance ex the fleet transition costs. We've got a fair amount of capital ahead of us, as you saw with the fleet order. I couldn't be more excited to go and get those aircraft into the fleet and the network. But even with that level of CapEx, which is elevated from normal, we see ourselves in our target debt to cap rate. We don't see leverage getting back above 50% for any period of time. I think we'll -- with reasonable margin assumptions to be able to pay cash for all of these aircraft based on what we've already got in the bank. And if we got to margins that were in the upper range of our guidance, and those were stable over a period of time, I actually think you'll see this continue to flow down towards 40% and perhaps below. The other thing we wanted to do, that's sort of Q1 or yes, Q1 update in 2022 full year guidance. We do want to start talking about long-term metrics again. And we haven't been able to do this for a couple of years. And I think it was important for us to get in front of you all and start to think about like over the next cycle, what do we feel like are achievable targets that we can set for ourselves. It's still early, right, in trying to understand how stable the backdrop is if we're going to go back into waves or an economic downturn. So I think these could potentially improve over time. But as we sit here today, we've got a few targets that we're talking about. One is we want to be a margin leader in the industry. And if margins go above this, we would expect to continue to be a margin leader and sort of drive towards the top of the industry. But for current -- thinking about forecasting [indiscernible] a around 11% to 13% pretax margins, and well above our weighted average cost of capital, at least 200 bps. Leverage, 40% to 50% range. Historically, we've talked more 25% to 50%. This is a change. And I think it's a good change. Ultimately, I don't really feel like we get value for being below 40% leverage, and I don't know that it creates any more sort of safety net either. And so I think at in my thinking is more like in the 40% to 50% range. And if it went below that, then we'd have to think about how to move ourselves back into that target range. Liquidity, 15% to 25% of revenue. I know it's a large range. I think the biggest thing here is we don't want to carry a lot of extra cash over time. We've got too much of it in right now, and we'll use that to buy airplanes. We want to be efficient with our use of cash. What we did learn in the pandemic as we've got to be able to raise money very quickly just in case there's an event that's super acute and immediate. And so Matt and I are going to make sure we have enough cash in the bank for a while until we figure out if we had to go borrow money overnight, how would we do that? Because it was one thing that was a real challenge. We do most of our borrowing on a one airplane at a time basis. And when you need $1 billion overnight, it's hard to go transact that many transactions. And so anyhow, we'll be working more on how we ensure that there's a safety net behind our cash balance, but I think we'll ultimately bring it down to between this range and sort of with the bias towards the lower end. Pensions, we are going to fund our pensions. We've talked about this for a long time. We're well over 80% today. I think we're approaching. It depends the market goes up and down, interest rates are starting to go up. So my guess is we're actually at 95% or better on our pension funding right now. Free cash flow, we want to get back to converting 25% to 75% of our net income into free cash flow. And then importantly, giving half or all of that back to a shareholders overtime, and we can talk more during Q&A about that as well. All right. So we're going to wind this down. This is the slide that I don't understand. I sort of try to make, hopefully, a compelling case for ALK. I think we've got a lot of things in our favor. We've been doing well. We're positioned to outperform relative to competitors in the industry. And it just doesn't seem to be reflected yet in the valuation of the company. And so this is my question to you all, you can tell me what we're missing or doing wrong. But this is a chart that we want to see ultimately change. And I think part of it in Emily are going to work on this. I don't -- maybe we don't tell our story well enough. And so we'll get out more, especially now that we're able to go in person and get in front of investors and potential investors as much as we can to share as much of this sort of story as we possibly can. And so it's one of the reasons we were excited to get here today to start that process. And I know had a chance to get out to a couple of conferences lately, too, and it's -- we're going to be out as much as we can to tell the ALK story. Good. Okay. I'm going to pivot. I've only got 2 more -- I think this is 1 and a slide that I'm not even going to speak to after this. So -- and Ben mentioned this at the top. But -- it just -- it wouldn't be appropriate to close the presentation without coming back to this ESG issue. It has become -- gone from an important issue to the company to a top strategic issue to the company and the industry and all of society. It's -- I know on the minds of investors. I know a lot of our bank partners want to know what our plans for decarbonizing our an ESGR. And really the purpose of bringing the slide forward is to tell you that we have an absolute commitment to working these issues. We've put very aggressive goals out in front of us. We never put goals in front of ourselves without intending to go and hit them. And so that's what we're actively working on now. We are engaged on these topics all the way up through our Board. They're highly engaged in this area. And we're working increasingly closely with our partners in order to get line of sight to being able to accomplish some of the targets that we've set out in front of us. And I would imagine, as we go forward in a couple of years and get back together for that Investor Day that not only will talk about all the things we executed on and the success we had, but this topic will take on more of a larger share of sort of what we're talking about and thinking about. And so anyhow, we just -- we didn't want to close the presentation without readdressing this and conveying our commitment to it. So we're going to end there. I think 1 minute and 45 seconds. And then I got to wait because we're not one to end early. But no, we're good. I'm not going to go through this slide. We're going to take a quick break here, get back in here for about an hour of questions. You guys, I think, know us. I think you know our personality. We like any topics fair game. Any question you guys want to ask in the mostly Andrew, and Ben. But we like the tough questions, and we want to share as much as we can with you. We want to let you guys know more about our thinking. And so if there's areas that we've touched on that you want unpack just ask away, and you guys are never shy. So we're looking forward to that. So I just want to say thank you again for being here. Don't escape. We really want to see you back in here for the Q&A session. We'll keep it fun and lively and maybe we'll try to be back at like 1:40 if we can. And thanks, everybody, for coming. [Break]

All right, everybody. We are going to come back into the room and get started on our Q&A. So we're going to invite our speakers back up on the stage, and we'll have mic runners around the room. So please just raise your hand if you're interested in asking a question. As I mentioned earlier, not only our speakers, but others from our management team in Alaska may chime in an answer on some of these questions. So speakers, please come on back up to the stage, and we'll get started.

Ravi Shanker from Morgan Stanley. Two questions. Maybe first one for Shane. First on that list -- what about first to shareholder return as well? When are we potentially looking at that? And your second question to Andrew. I was really struck by how confident you guys sounded about the new revenue initiatives that are in the bag. We've got them like we have visibility here. Just given everything that's happened in the last 2 years, kind of what more can you tell us in terms of how in the bag is, deep down the bag or...

I don't think we said it in the bag. I hope he didn't -- you're going to get [indiscernible] again, if you say in the bag. Let's do that one and then come back to shareholder returns. Yes, go ahead.

So, I think the point -- and I do have a lot of confidence, as Shane said, maybe in the bag, a lot in the bag is essentially these decisions are real. They're real commercial decisions. And while we can't control the ultimate environment and the ultimate fairs, but these are very real new incremental time-proven levers that I believe, will increase revenue. Obviously, the bank deal, that's just a no-brainer. The fleet is another no-brainer. The alliances, I think you could argue there might be some question there, but I think that the infrastructure and what we've set up. So unlike others where you might have certain -- are we going to do some upsell, we're going to put in a new revenue management system and good luck proving that, that ever did what we said it was going to do. These ones are much clearer, cleaner and time proven for airlines.

And then the other question was on shareholder returns, right? You said first to get to shareholder returns. Is that the question, Ravi? We might actually ask Patty our incoming Board Chair to share some perspective on that because we do need to go and have a good discussion with our board about that. But I'll say before she jumps on, our entire mindset has been we want to position ourselves to be able to be first. We've never committed to being first, we'll do it when it makes sense to us. But I think we're, we're approaching that financial foundation that gives us the potential to get out there and do something relatively soon, but Patty.

All right. Well, first of all, good afternoon. It is great to be here with all of you, and I would just say I couldn't be as a Board member. And speaking for the rest of my Board member as well of how excited we are about this team and about this story. I think as many of you know, we are precluded from returning cash to shareholders until September, I think September 22, but who's counting. So Shane did a nice job of setting up the foundation that put us in the position to be able to deliver on that value proposition for returning cash to shareholders. And I'm not going to make an announcement about the win, but I can tell you, it is a lively topic of Board discussion, and we are very much looking forward to delivering on that part of the value proposition. So again, thank you all for being here today, and thanks for letting me answer your questions.

I think Dam was actually -- we'll get to all of these.

Dan McKenzie, Seaport Global. First question is for -- on revenue here for Andrew. One of the charts that stuck out to me was the premium fare you get on a First Class C relative to Coach. And in back of my mind, I'm always thinking that chart should say 3 to 4x, and I think here was 1.3 or something like that. So a couple of questions just tied to that. One, what is the revenue upside if you were just to benchmark yourself to the industry? And I know you guys have a history of capping pairs. I don't know what the cap is actually today, but if, let's say, you were to just revise that to something like, say, 25 -- take a Costco approach, right? 25% less than whatever the highest average fares out there, you could still sort of claim victory. What kind of revenue upside does that imply? And is that a lever you'd be willing to pull to help hit your margins?

Yes. Thanks, Dan. That's a complicated question, but I think a couple of things I will share on that. And it's actually -- we're public about it is, my RM team have limits, and they know in the main cabin, they have a cap and the First Class fares on a nonstop basis, they have a cap. They're not permitted to sell above that. And it's really a lot like loyalty, Dan. As I said, tomorrow we could -- we have the lowest elite tier threshold of any other carrier, and we could take that. We could up that tomorrow, give people less miles. We believe it's an investment. And much like Costco and our previous CEO was very much of that mindset is just because you can charge it doesn't mean you should charge it. And so there is upside, I will say, and we've actually upped these caps probably a good number of years ago now. But if you go to our website, you shouldn't really be -- you won't really see a fair on non stops prices above $1,000, $999, and you won't see a First Class ticket about $1,500 on a nonstop basis. And I think for us, as Shane has been talking, it would be easy to just let that go. We want to focus on the cost and how we run the business and have value for money. And every time a customer gets on an airplane, it says, good grief, what a rip off. That hits our brand, that hits our loyalty and that hits confidence. And so there could be upside. We may move them down the road, but where we are today, we feel really good about that brand proposition.

If I could just follow up. The loads that would accompany those fair caps, are you targeting a load factor in the premium in the First Class? Just given that low cap, number one, that's the follow-up. The second question really just ties to the next major shock. And I believe, Shane, you were saying, you want to pay cash for the planes that are coming. So one thing we know about shocks is, we've got a park 20%, 80% of the fleet overnight. If you could just sort of talk about how you're positioned to handle that mix shock?

Sure. Yes. The beauty of fares, obviously, as you have many, many stages of increases over a period of time, and so we really manage the loads up to and target loads are mid-80s and above is what we really like to do. And so when we get to that real end, if we spill, but we take a very measured approach and do that.

Nat's going to handle this other question. I just -- I don't know if you told the story, but just before the pandemic when I was coming into the role, I was like, "Hey, Nat, we have to adopt a treasure, why don't you do it?" He said, "Sure, no problem." And then he had to go raise billions of dollars 3 weeks later, and he'd never done it, by the way. Phenomenal job...

That would be edited part -- this conversation took place via e-mail, and it concluded about 3 days before the first Monday. I know, whatever. People know me well enough. [indiscernible], but no, it's working together on that. I think on the next crisis, 2 things to it. Number one, we are holding 2x the amount of cash we think we need to run our business today. So it gives us a nice pad with what I would say, 50-50 margin generation, we think we pay cash for everything through 2023. However, we are sitting on about $1.3 billion of unencumbered assets right now, independent of the loyalty program. Paying cash for airplanes and through '22, we'll have $2.7 billion of unencumbered airplanes by the end of the year. And one thing we did learn through the pandemic is that aircraft hold their value. It may be in sale leaseback, which I hope in our duration, we never have to do one because I hate the economics on it. But in terms of raising cash quickly to manage, you could do that. I think the second thing on it, take off treasure hat put on fleet hat. If we were in a situation because of fuel because of some factor that said we need to put down a bunch more capacity, you might then decide we need to try to get the single fleet even faster. Let's park more Airbus airplanes more quickly. And then just move on. Again, it's a short-term decision that pays off really well in the long term.

Can I just take a question on this side right here. Are we right here? Let's kind of spread the questions a little bit, so we don't forget one side.

David Vernon from Bernstein. The last investor event you guys posted, I think you were talking about a 4% to 6% sort of growth rate longer term as kind of where you wanted to be in the sweet spot. Today, you're telling us 4% to 8%. I was just wondering if you could talk a little bit at a high level, what makes the market opportunity more compelling now than it was 5 years ago, 4 years ago, whatever that was?

Andrew, why don't you start and then we can have Brett as well? Where's Brett? Brett, do you want to take that, Brett? Sure. Can we get a microphone to Brett? We're coming to you.

David, great question. Brett Catlin, nice to meet you all. Thanks very much for coming. I think a couple of things that we learned in the pandemic gives us the confidence to grow potentially at the top end of that range, closer to 8%. One is the depth of our loyalty in Seattle, which we've spent decades building. The key learning process, when we had seats available in the depths of the pandemic, we ran load factor gaps versus our next closest competitor that were 10, 15, 20 points behind. In essence, we were spilling in Seattle, and we need to put more seats in that market. The way we do that in the near term is with MAX 10s, 189-seat aircraft more gauge, that does drive the growth up above 4% to 6% in some years, primarily because of the gauge benefit. So I'd say, look, departure growth, as Andrew mentioned, is modest, and our sweet spot and a lot of it will come from gauge and investing in Seattle, where we think we have a lot of runway.

Thanks, Brett. How about question now back in the middle. [indiscernible] who's that?

Helane.

Helane. Of course, Helane.

I'm Helane Becker with Cowen. So when we walked in, there were these pilots outside picketing, and I don't want you to have to negotiate all out. But you're growing up to 8% a year, which means you have to hire, I think, for the MAX, it's what, 14 pilots per plane.

12.

12. Okay. So you have to hire a pilot, you have to replace in an environment where the rest of the industry is hiring each of 10,000 a year or 2. How should we think about your ability to attract, to retain and still maintain your competitive advantage without salary structures getting out of hand? And then separately, the A321, I would think, is a highly attractive aircraft to somebody. So I would think you should be able to get rid of those fairly easily. So completely unrelated but...

Yes, let me start with maybe -- I just want to say, we have just an amazing group of professional pilots at Alaska. These men and women are skilled. They keep us safe. They keep us on time. We have just a tremendous amount of respect for them, and we're working to get an agreement that respects their contributions in terms of pay and benefits and work rules as well as, like you said, balance the side of the business model because we have a low-cost, high-productivity business model. Low cost does not mean paying well. We want to pay well, but it's a high productivity business model. So we're working to get a contract remediation. I'm confident, and I'm committed to get a contract with our pilots. These are just great professionals. In terms of just the industry, in terms of pilots and attraction and retention, I'm excited about the announcement we made a few weeks ago with a school in Oregon. This is Hillsboro Academy. We're going to start -- I think here in April. It's going to produce 250 pilots a year. And then together, Joe Sprague is working hard on this. This is going to be 200 to 250 pilots a year to Horizon. So we're trying to create a pipeline of pilots to Horizon and then the pathways from Horizon to Alaska. And so that's the kind of virtuous wheel we're trying to create. So create the pipeline and the pathways and a diverse one. We're trying to get -- we're trying to provide scholarships and low interest loans to attract people from all walks of life, not just people who can afford it because we've got to bring the cost of pilot tuition down. It cost $80,000 to $100,000 to get certified as a pilot. So we're trying to bring that cost down and open it up to a wide range of people out there who are interested to have a great pilot career. Helane's follow-up.

Yes, I thought we were friends. You're kind of [indiscernible] cover your ears, but actually A321 is a great airplane. We like it. I think just driving the fleet simplicity. And you're right, people are trying to get new aircraft from Airbus. Airbus struggling with production. So I think there'll be a pretty good market for it.

Back on...

Paul Roman, U.S. Global. I have a question on M&A. Looking back at Virgin America since you have hindsight, how do you feel about that deal? Did you look at either Frontier or Spirit? And could you do something else going forward?

So you've got a few questions there. Let me hit them one. Absolutely, the acquisition of Virgin America was the right thing to do. Our view in 2015 was, we needed to expand a geographical footprint, and that's exactly what we did. We had a presence in California, we wanted to grow it. And this is what you saw from Andrew's geographical map. So that was exactly the right thing to do. In terms of your second question about M&A. So acquisition was the right thing for us to do in 2015, 2016. When we look at now, when you look at this fantastic Boeing order we have of 145 airplanes, it's a 4% to 8% growth rate. We can maximize it to 8 over the next 4 to 5 years. So organic growth is the right thing for us to do right now with the Boeing order we have, getting to a simple fleet. So we're not -- we don't really don't have an appetite for acquisition right now. And what was your third question?

Did we look at Frontier and Spirit. We did not look at Frontier and Spirit. We wish them the best. It's hard to do acquisitions. They've got -- they're good companies. They've got a good business model, I'm sure they'll work out for.

Chris, you're now in charge of choosing. I'm not going to choose.

Chris knows all the players in the room. That's why -- you might give him a tip, if you want.

Mike Linenberg, Deutsche Bank. I got two. I guess, one Andrew, and then an ESG question to you, Ben. And maybe this is also to you -- to Shane as well. Just the guidance, the pretax margin for 2022, 6% to 9%. Underlying, I think it's [ 280 ] per gallon jet gets a bit higher today, but we're still early in the year. Historically, what have you seen in your ability to recapture that higher fuel price? Some airlines will say, 2 to 3 months domestic, 3 to 6 months international. But then some would also sort of throw in the qualifier that certain conditions have to be met, right? We need to either have the consumer is doing well. GDP has to be fine. What is underlying? Are you assuming that you do capture 100%? Presumably, you're assuming a good GDP number for 2022, that's where the Street is right now. So sort of...

Yes. Maybe I'll take that. I think, historically, we've been more in the 3- to 6-month sort of general camp, but with those qualifiers that there's got to be sort of a backdrop in the environment that allows us to take a little bit more price offset fuel. I think as we sit here today, especially with our hedge portfolio and the strength of demand, I think we're probably offsetting most of the increase in costs, if not the entire increase in the cost of fuel. We didn't put necessarily a full asset into our forward model. And so if we were to see the type of strength and yields we're seeing today, carry through the back half of the year, we could be at the higher end of that range or better, if oil were at [ $280 ]. So I think we've tried to be reasonable with the assumption set. And as you know, like oil is one thing and then the refining spreads are also going all whacky now. So it could be -- it could go the other way, too, from finding spreads continue to run the way they are right now.

And second on just the ESG, it earlier your point about being the most environmentally, I guess, efficient airline by 2025. How are you measuring that? I mean there will be other carriers that will claim that they'll be there either before you or they're already there, but they have 239 seats in an A321neo and that's something that's not the path you're going to take since you care our employees and customers.

Diana leads our sustainability strategy, and she's worked really hard on this. I'm going to ask Diana. Diana, how do we measure it?

Thanks for the question.

You're just behind that pillar.

So we benchmarked ourselves like using the ICCT report, the International Counsel on Clean Transportation. We were #1 in that ranking for a number of years, for about 7 years, and then after the acquisition with the fleet mix went down. So we're using their data as well as our own assessment of CO2 per RTM and setting targets sort of progressively over the course of years. That's the data that goes into the performance-based pay target that Ben talked about. And so -- and we're developing an internal management system to help us understand sort of how far we're progressing and then the impact of different initiatives on that target.

I think we're going to Scott.

It's Scott Group from Wolfe. A few things. The 11% to 13% pre-tax margin, when do you think you can get there? Can you get there in '23? Within the capacity guidance, how does next year look? Is it higher than that 4 to 8? And then just lastly, when you talk about closing the yield gap, is that just the $400 million? Or is there sort of any underlying assumption on pricing relative to others?

Got it. Maybe we'll have Andrew do the yield question. I think 11 to 13, if all else equal. I think 2023 is in the potential set, but it's a uncertain environment. That's all I'd say just with oil in the economic backdrop. But if the economy holds and oil settles down and just sort of what we see in terms of forward guides on capacity, I think we've got a good setup to approach those numbers. You got -- I think, as Ben mentioned, second half of last year, absent the storm, would have been close to 10%. And so that was still with variance going on in some series of mitigations in the market. And so I think that's a fair sort of time line to be thinking about. You asked one other one. I want to make sure I hit it.

Capacity next year.

Yes. It could be. I'm not -- we're not guiding to next year, but just mathematically because we're reducing capacity this year, so it's a lower base. It could be at the high end of that or even a little above, but we'll be talking more to you guys about that probably in a couple of quarters.

Do you think about 4 to 8 as starting at the end of this year? Or is that from the end of last year? Like what's the base year for that 4 to 8?

Yes, really starting from the end of this year.

Okay. And then I just asked about closing the yield gap.

Yes.

Yes. Nice to meet you, by the way, and welcome. So while Shane showed something that's very important is, it doesn't help you very much if you have a 15% to 20% cost benefit against your competitors and your revenue is also down 20%. So we went through a very difficult period there, and that was -- we were expanding. We acquired Virgin America. Their planes were all configured wrong. Wrong seating, no premium compared to what we had. And so our goal -- and again, early to Dan's point, is to really get closer to industry average. And the $400 million that I shared with you, again, wasn't around coupon revenue. It was around bank revenues, corporate share increases, gauging revenues. And so to the extent that we can get back to 5%, 6% industry versus industry yields, I think that's more goodness and that's more upside.

So mostly the $400 million closing that gap, not underlying price. Where we going?

We're still a little bit in the back of the room, too.

Catie O'Brien.

Front and center.

Catie O'Brien from Goldman. So first one, maybe just coming back to the long-term margin target. I believe at a previous Investor Day or Conference, you've spoken to something a little bit higher than that. I think it was 13% to 15%. Obviously, a lot of puts and takes over the last couple of years. But when I think of the positive sense then, I would assume aircraft ownership caps, given when you were ordering airplanes probably a little bit better than you would have expected. You have this new Bank of America deal that we're talking a lot about today, there's obviously on the negative side, inflation, labor costs going up. So how do we just net those two. I guess, you kind of alluded to, Shane, that, that might be a bit of a conservative look, but we just love some commentary there. And then maybe to bail Andrew out a little bit on the airport investment. It sounds like we should see returns off that investment, more gates, faster throughput, better productivity in the lobby. Can you just talk a little bit about that?

I like these a lot.

Yes. Look, I -- it's coming out of $2.345 billion of losses in trying to predict like what a margin range is going to be over the next 5 years. I think we were -- we just want to be thoughtful about it, and we wanted to set a target that we think would be a really good achievement. And we'd be able to do all the things strategically that we want to with the balance sheet and fleet orders and ultimately, get to shareholder returns. I think that number would allow us to do that. If the environment better, as I said in the sort of prepared remarks, we would anticipate being able to get over that because our goal really is to be at the top of the industry over the cycle. So it's really as much about uncertainty and lack of stability in forming that as knowing that, that's going to be the right long-term target. And that's something we will continue to update as we feel better about the backdrop that we're operating in. And yes, efficiencies, yes, throughput.

Charu, maybe if you can come on up here, but I will just say, Catie, on the airport side as the reality is the U.S. airport infrastructure is dated, it's old, and airports need to spend money to get them back. And we've got to a really good place where the money that's being spent is directly benefiting us. So we're paying for things that actually benefit us, which is really good. But I think, Charu, why don't you talk a little bit about the unlock here as well with technology.

Yes. Good afternoon, everyone. Charu Jain, leader guest-facing technology, distribution, merchandising and innovation. So we stood up our innovation program, and we really looked at it through the pandemic and have really accountability towards innovation and the lobby. And the airport is a big environment and is a big part of that. So as we're investing in all of these lobbies, making sure that they're the most productive, the most efficient and the seamless guest experience is very, very important. So a number of our innovations that we've been working on the last few years, we're now testing at multiple airports, including San Jose. We just announced San Jose as our tech incubator, and all of those innovations then can be taken to all of the -- our hub lobbies that we're going to be renovating. So a lot of time spent on how do we increase throughput by preparing guests to do things before they get to the airport and a very fast self-service experience through the lobby so they can get to the gate. And within that, our agents can really spend time with guests that need the help versus with everybody. So you have a choice to do it yourself or you have a choice to have the guests -- have our agents help you which they do in a very caring way. So very focused on innovation in the lobby. And we published a couple of articles this week about it. So if you get a chance, please do read about it.

Thank you, Charu.

Next question, right there.

It's Conor Cunningham from MKM. So I think you said 30% of your capacity growth is going to be allocated outside of the Pacific Northwest, but it's also the largest opportunity from a loyalty perspective. So why wouldn't you actually be over-indexing more or maybe 50-50 growth towards that? Why is that a good number?

Good question for Brett to answer.

Thanks, Conor. It's a great question. I think there's a couple of things. One, staying within that 4% to 8% growth rate that we talked about. We see the Pacific Northwest is offering disproportionate upside in terms of opportunity to deploy that growth in a responsible way. A lot of it is coming from deeper frequency, which is lower risk. And so ultimately, growing within those bounds, the allocation for California at 30%, it allows us to take the network we've built over the past couple of years inclusive of Virgin America, and then really to deepen that network versus adding a bunch of new routes, which we think is more prudent going forward. Certainly, there's a longer-term opportunity in California, but over the next couple of years, we want to have strategic discipline to make sure we're focused on competing where we can win in the interim, and we're not doing things that are destructive to our margin performance.

And then just to pivot back to the long-term margin target. So just to be clear, do you -- are you expecting labor deals within that? And then I think your Horizon contract actually isn't up until like 2024 or something way out there, why shouldn't we -- I mean, this is probably not what you want to ask, but like why shouldn't we expect an off-cycle pay increase there to get the pilot situation in better situation?

Sure. Yes. No, our long-term targets include some assumptions for new labor deals and wage inflation in the business for sure. I don't know, Joe, maybe if you want to take the IBT question.

Thanks for the question. IBT is our pilot union at Horizon, and we actually -- it's a long-term contract, you're right. It doesn't end until 2024. It actually called for a midterm wage adjustment, which we did last year. So less than 12 months ago, we did an adjustment already. That's information that we've shared with market. I will tell you, it's probably never been a better time to be an airline pilot. If any of you are interested, I'm happy to take [indiscernible] and Ben described it, we've got some great programs to get folks flowing into Horizon and then on to Alaska. So it's a very challenging time to be a regional airline right now. I think every regional airline is feeling the pinch of this pilot attrition, pilot hiring situation, but we've got a good plan to deal with that and good connection with our pilots.

Duane with Evercore. Just a question on fleet for you and your partners. So as you think about your order book, how much of that is built when might production rates kind of come into the consideration set. And longer term, maybe into 2023 or beyond, like what approvals -- regulatory approvals, do we need to hit? What milestones should we be watching? Again, maybe a question for collectively you and your partnership.

We're not going to put you on the spot -- put Nat on the spot.

I think the first question, Duane, is you've heard us talk about key relationships, having Bank of America, GE, Boeing in the room speaks to that. We meet with Ed Clark, who runs the 737 program for Boeing once a month. Boeing was bent over backwards for as much information as we want as close as we want to go to understand what's going on with production, sharing the charts that they look at internally. When does the airframe come in? How long does it take them to build it? When does it go out? We're taking 1 out of every 9 airplanes in the MAX family that Boeing is going to produce this year. So we take advantage of that as much as we possibly can and plan it prudently accordingly. So it's number one, why we feel super confident in it because Boeing has us behind the curtain, and we feel it all the way through.

When I [indiscernible] the factory is literally 4 to 5 miles away from our headquarters. So we think, hey, you know what, I heard something. Nat jumps in the car, drives to the factory, talks to Ed Clark. I mean that's literally -- I'm not really joking.

They won't give me a badge yet, but it's amazing. So I think that's the first part. I think the second, Dash 9 has been great for us, and we're watching Dash 10 certification and the things that are involved in that, not going to put us on the spot there, but you can imagine how urgently we are pushing and eager to have Dash 10 become part of our fleet, but Boeing is not just making that airplane for Alaska. United very vested in it and others as well. So there's going to be a broader thing. Safety is obviously #1 across the board, never challenge it. But if you ended up in a position where, okay, the 10 slides a bit and we end up taking more 9s instead of 10s. Okay, we'll deal with that going forward as we see fit. There's so much goodness in getting A320s out and replacing them with any flavor of MAX. We're going to help the bottom line in these margin targets and other things going forward however that works out.

Do we have a question right here?

Because I got some feedback last night that the only one that asks good ESG questions is Helane.

So competitive. So I'm going to try and follow her lead a little bit.

Helane, I was surprised you didn't ask me. And so maybe for Diana, can you comment on where you think ESG scoring and ESG benchmarking is lacking today? Where are these opportunities for improvement? And secondarily, if you have any thoughts on recent news that the SEC is going to start to, I guess, have their own disclosure?

Sure. That's a very good question, Duane. So I appreciate you jumping in along with Mike asking ESG questions. So I think that where scoring is lacking sort of is in simplicity, honestly, and then practicability or sort of actionability for a company. And I'll give you a couple of examples. So Ross and I have talked about, there's like tons of raiders and rankers out there. And it's just a very complex set of systems that you all might be looking at or we might be looking at. And so what we did was actually try to look at all of those raiders and rankers and try to figure out what metrics actually matter the most for us managing our performance. An example of the second is SASB, the Sustainable Accounting Standards Board, asks for sort of a set of metrics by industry, and it's supposed to be able to show apples-to-apples comparison between different companies in a given industry. And not quite helpful, but a lot of those metrics don't actually help us manage our performance to get better. They're not ones where we have a target, and my favorite example is the metrics around human capital. One of them is how -- what percentage of labor organized is your employee base. And the other one is, the days of work stoppage or walkouts and that definitely should always be 0. So we're not necessarily managing to a new target. What we've done then is set our own voluntary targets for 2025, and we went through a quite extensive process for the -- with the Board to do that across all ES&G areas. So we're going to continue to disclose, and this relates to your SEC question. Per SASB or per TCFD, sort of these frameworks that a lot of different entities ask for, but then we'll continue to manage our performance and disclose our performance annually on our voluntary targets because those are the ones that in some cases, overlap with those other frameworks, but that help us manage our performance to get better. On the SEC question, probably you all saw, there was a proposed rule released on Monday that asks for Scope 1 and Scope 2 reporting by companies. Scope 3 in certain circumstances in later years, and then some other elements that largely correlate with the TCFD framework, the task force on climate-related financial disclosures. We currently and have since actually 2009 reported our greenhouse gas emissions. We currently report Scope 1 and Scope 2, and those received some third-party assurance. And then this year, next month, we're going to be doing our 2021 report, and you'll see some TCFD elements in there, too. So I know there'll be a lot of conversation about sort of where the SEC ultimately lands, but I feel like we're working with Shane's team and others, we're well positioned to meet the demands and make sure we're continuing to hold ourselves accountable and be transparent.

Andrew Didora, BofA. Shane, this morning, I know you guys updated your 2022 kind of CASM outlook. I know at points last year, you were talking about kind of your goal of getting CASM back down towards 2019 levels. I guess, one, is that still on the table? And then two, how do we think about your nonfuel unit costs in the construct of your 4% to 8% capacity growth?

Yes. No. Thanks, Andrew. Really good questions. Yes, the further away from 2019, we get the harder. It gets to -- it's just -- there's natural inflation in the business, but I think a couple of things. One, there's still a chance as we exit this year that we would be exiting at a rate that's at or slightly lower than 2019. And I would say that's without a labor deal. I hope that, that's not the case. We need to get a labor deal done. If we're at the sort of middle to upper part of the 4% to 8%, given all of the other things we've shared about the upgauging, fleet simplification, all the tailwinds, I don't know that we'll be at 2019, 4 or 5 years hence, but I think we're going to be on a very different cost trajectory than the rest of the industry. And I think we'll be able to manage it to be very steady over a period of time. We're sort of working through that now that we've adopted the accelerated fleet exit. These sort of growth targets really looking at our costs over the future. So we can be more clear about where we think that trajectory might be. But it's not out of the possibility that it's not off of our mind. We're not giving up on that metric at all. The one thing I was trying to do today with the conversation just to be transparent is really talk about the relative positioning that we've got because I think our relative positioning is getting better regardless of what the absolute number is, and a lot of those cost pressures I showed or cost pressures that are shared by the entire industry. And so I don't think there's a unique thing that's going to drive our costs worse than the industry, and I think we've got a lot of things that will help us drive better. And our track record over time has been able to drive it down when we grow at 4% to 8%, and so that's what we ultimately want to do. But look, there's inflation in the business. There's labor deals that need to be done, and we are now 3 or 4 years beyond the 2019 date. And so anyhow, we've just -- we've got a different reality we're dealing with right now.

Perfect. And second one for Andrew. When I listened to your presentation, you speak about oneworld, you speak about adding depth and breadth to the network. To me, that all speaks for corporate travel. Can you maybe talk 2 things. One, about what do you -- how do you think the corporate travel recovery will progress particularly in kind of more tech-heavy kind of Pacific Northwest area? And I guess, say, and more importantly, like those oneworld and depth and breadth opportunities, how do you think about corporate share going forward over the next few years?

Yes. I think one important -- especially with the tech companies, and they've now started to get people back in the office in April and beyond. So I think especially the Googles and the Amazons and all of these guys, really getting them back to office so that they're traveling back and forth between their various offices and collaborating in a different way will be important. But we have seen a step change in the business travel, as you've heard talked about. I don't have a crystal ball so I don't know where it's going, but what we have always maintained is that we have a very strong leisure component and whatever our business component was before, I think we will do better. And that's in part of the revenue. We're a part of Amex GBT now and TMCs and have already seen meaningful changes in our share gap there in partnership with them. and of course, the rest of the industry. So I think the other thing is on the oneworld really in Seattle. If you really honest with yourself, you said, you know what, a lot of our members, they love this and they traveled with us, but it was domestically. They had to do a long haul. They wanted that elite reciprocity. They wanted all that goodness and so they would travel on a competitor globally. Now today with what we've done, we can keep them in the family. And I just think that's only going to increase our ability to get corporate share for long-haul travel.

Andrew, that all kind of fits together in terms of international scope capability, keeping domestic loyalists from defecting to our competitor in Seattle, we can get you anywhere you want to go on our metal or a partner. Well, guess what, that does to the value of the mileage plan and what Sangita can go to market. And so that was kind of the essence of why we were pushing this so hard, and it hasn't come as fast given COVID and pandemic and restricting international travel, but we're really excited about it over the next 3 to 5 years.

And I just want to add the fares that we charge on business are very different than what a lot of others rely on. And so we don't even need the fares to come back to -- at the top end where they were in the industry. We're very, very comfortable at average fares that as Dan pointed out, are sort of a fraction of what others to really get a rich business mix into our yields. So I'm optimistic about the business setup that we've got.

Well, Okay. Next Ravi, Okay. And then Savi next.

Christopher Stathoulopoulos, Susquehanna. So the -- I just want to go back and maybe follow up on Catie's question here with the new long term pretax margin guidance, the 11% to 13%. So a slight walk back from what you gave us in 2013, not bad considering what the industry has been through. But I can't help but feel that there is perhaps a bit too much sort of conservatism here because you talk about the brand, the loyalty, the fleet harmonization and the dominant share in your hubs there. A big piece of this $400 million in the bag, so to speak. And some of your U.S. peers are dealing with a lot of sort of bigger problems to solve here. And also conceptually, so much has happened here on the coasts during this, where there's been this sort of jump ball approach to inventory, which I would think that would present some opportunities for you, if perhaps corporate as a whole in the U.S. comes back, but not as much, but with a different mix. So could you help just understand because I think we can all appreciate you and what the industry is facing with respect to costs, but I can't help but feel that there's a bit of perhaps too much hesitation around closing a yield gap quicker, if you will.

No, it's astute observation. Look, our -- we've modeled the future a number of different ways. We do a lot of sort of forward forecasting, and there's a case to be made that we can do better than that range. And we're -- that's what we're going to try to do. But again, it's just -- it's too uncertain right now. A wave -- one wave costs us about $200 million. And those are things that it's hard to -- you can't recover. Omicron was maybe a little south of that. Delta was clearly at least that much. And so until we've gone for a few quarters and there hasn't been another closure, another wave, and there's more stability in the geopolitical backdrop, I think we're going to be a little more conservative with those long-term targets. If all that stabilizes, then I think, yes, we'll probably be bullish about the future, sort of all else equal, based on what we're seeing today.

Okay. Savi?

Savi from Raymond James. And if I might ask Sangita a question on. As you think about the product and you talked about being able to meet different constituents needs, like how do you balance that with not being all things to all people because that's not a good way to kind of maximize returns either. So just how do you kind of approach that in making a decision on the product and how you market it?

Thank you for the question, very exciting. I mean I think it's just great segmentation, right? I mean we have a -- I mean we fly all different kinds of guests on our -- in our cabinet. So it's just making sure that we're tailoring or offering the right product at the right time to different guests, whether it's for merchandising on as.com or on board. But yes, I think we have full ability to appeal to a broad range of guests to their product offering. We'll continue to innovate flight pass, for example, can appeal to a broad range of customers as well. And so it's just making sure that we have that premium consumer in mind and also that main cabin consumer mind. And I think we continue to do well there.

And so we talked about this when we did the Virgin America acquisition. We felt under a lot of pressure that we do lie-flat seats or not. And we could just go back to our business model. And we just talked about we're very clear about what we're good at. And it's about having a great product, a great First Class, Business Class product, a Premium product, main cabin and a sabre fare. And we know the segment. We're not going to get the person and we did. We lost people that wanted the First Class, lie-flat seat from San Francisco to JFK, and we said fine. We know we won't get that customer, but if you want an affordable, nice product with great amenities, satellite WiFi and see power streaming movies, hot beverage, great service, great loyalty program, where you're in line. So I think that's how I think about it.

That makes sense. And just I might ask Andrew or maybe it's Brett, just the $135 million that you've identified, it seems like maybe you should be able to get that from co-share alone and nearly some of the other components of theirs. So...

[indiscernible] math on that.

Is there an assumption that there's like less international demand or yields a lower or some conservatism built in there? Or how are you thinking about in getting to that number.

And I'm going to use this as an opportunity that I'm not sure I said in the bag [indiscernible].

We turn it from 2 or 3 though.

We've been doing alliances for a long time, obviously. And what we've tried to do -- I mean, you know we're sort of conservative, but we try to look at this we look at displacement dilution. I mean we try to be thorough, and the $135 million, if -- again, is the question -- if we're overly conservative, where we sit today, what is international demand actually going to do? Is there any real change? We are seeing a point right now where there's pent-up demand and very significant demand, but we've got to get past that. We've got to get into normalcy again to see where this settles. So it could be higher. There's no question about it, but right now, with what we see, what we hope and expect, that's where we put it.

Savi, you've got 2 components to that, too, right? I mean domestic codeshare predated. Alaska used to code with both Delta and American in domestic. And so obviously, Delta another story, but -- so that's the runway, and we've been encouraged so far with the American cooperation. But the reason we set the whole thing up with American was the West Coast International Alliance, and given pandemic, some of the other struggles that Americans had as our partner, that hasn't come to fruition yet. And so bullish on it, eventually, again, getting to the 3- to 5-year longer-term domestic gains, frankly, are coming more quickly than we had anticipated.

Okay. We probably have time for one more question.

Brandon Oglenski from Barclays. I guess you brought up your low enterprise value, and we tend to agree, but I think that's the market saying there's not a lot of confidence that this growth can be accretive. And I guess what might be frustrating coming out at the Analyst Day, you didn't commit to that margin target in 2023. So I guess, 2 points on that. What is not giving you the confidence to commit to generating 11% to 13% pretax in 2023? And then more importantly, how much patience should you ask shareholders to say, Hey, look, it could take us a couple of years to get there. Here's the guidepost that we're going to use to get there? And what are going to be some mitigants if you just can't attain that level of probability.

And I'll start and then I'll have with Shane jump in. Look, the one thing I will say and what we said in the presentation, we have a proven track record. We have grown, and we have produced returns better than our competitors. So that's proof point one. I think number two, we're in a choppy environment. So the 11% to 30%, this is a choppy environment right now. And the things you heard that we're configuring the business with single fleet with the Bank of America deal, this configuring our business model, I think there's a lot of upside. But right now, this is where we feel is a good place to be. I think it's going to be better than the rest of the industry, and we just feel really confident about where the business is going. I think making -- overreaching on promises is where we stand today, I don't think that's a wise thing to do.

The only thing I'd add, Brandon, is we're not -- we're actually making no statement about 2023. We decided not to give guidance for 2023 today. We typically wouldn't do that. So we wanted to give this year guidance and long-term guidance. So I didn't want to infer that we were like not believing that we could ultimately get there next year. It's just not something we're talking about right now.

I guess if I can just follow up on that. I mean you are committed to growing though, so what would be some mitigants if the profitability doesn't show up?

Yes. No. And I -- look, we're anxious and excited to grow. I think we've got all of these factors that drive like a credible story that it's going to work well. I think the nature of the growth getting sort of back into a good mix between per new markets and a lot of growth and sort of depth of markets that are already strong, but our fleet plan doesn't us to grow. We've got a lot of flexibility with it. And we've always talked about being prudent managers of capacity. I think we've done that really well over time, too. So if the backdrop falls apart, the economy goes down, inflation runs. While I mean we'll delay some an aircraft or will accelerate the exit of the Airbus fleet, and we're not going to be...

70% of the growth is going to be in the Pacific Northwest markets and 30% in California. Again, we're growing in markets where we have strength in markets where we have loyalty and markets where we're reducing outsized margins. So if you're -- I think we're doing prudent growth, and I mean, I get your question, but I think we like where we are in terms of how we see growth. Look, we're going to modulate it given what's happening in the external environment, but I think we're pretty good where we are.

Thanks, everybody. I think we're going to wrap up now. So the webcast is coming to an end, and I appreciate everyone coming. Just as a reminder for those who are here in-person, we have a social event out here in the gallery for the next hour. So we're really looking forward to spending a little bit of time chatting with you all, hopefully, getting to some questions if you had any more that we didn't get up on the stage today. And we just really appreciate you coming today. So thanks, everybody.

Thank you.

Thanks, everybody.