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

Okay. Hello, everyone. Welcome back to the Goldman Sachs Industrials Conference. I'm Catie O'Brien, the Head equity research analyst covering the U.S. airlines and the U.S. listed aircraft leasing companies. Today, I have the great pleasure of introducing Shane Tackett, Chief Financial Officer of Alaska Airlines. Thanks for being with us, Shane.

Yes. Thanks, Catie, for having us. We're excited to be out here. Yes.

A lot going on.

A lot going on and the first time we've been in front of the market and investors for quite a while, given the fact that we didn't have the earnings call.

Well, I'm happy you chose us. So thanks.

So Shane, you guys put out an 8-K earlier this morning calling out various transitory impacts, some Alaska specific, some industry-wide, LA crack spreads, IT outage, government shutdown impact. If you'll [ humor ] me, I just wanted to dig in on each of those, get the short-term ones out of the way. So this morning, I've been fielding quite a few investor questions on the language in your 8-K around the shape of this government impact, investors focus on the language that you said you're almost back with some of your peers saying, they are back. Can we just go through the replay of what you saw, how far off are we? Maybe not that far at all, that would be great.

Great. I appreciate the question. I'm going to do focus groups with investors before we do 8-K language in the future to make sure that it hits exactly how we intended it to hit. We actually wrote that meaning for it to come across as relatively bullish. And I think it's been read a little bit as bearish. And so I appreciate you letting me sort of set the record straight. So going into the cancellations that were part of the government shutdown, which didn't start, right, immediately upon the government shutdown, but ultimately were a feature of it. We actually had been experiencing or seeing bookings and revenue look as good on a year-over-year basis as it had all year. And we've been waiting for that trend to return, as you guys know, sort of mid-February, the big fall off, especially in domestic sort of industry revenues had been starting to creep their way back up through August and September and October and had continued on that positive trend back towards closer to the levels we had seen exiting last year and entering this year, and were as good as they had been on a year-over-year basis, right before we had to start executing the flight cancellations. And then like everybody else, bookings sort of hollowed out and went negative on a year-over-year basis for the duration of the cancellation portion of the shutdown. And then they came back relatively quickly and continue to improve every day that we look at revenues. They're just not quite back to that level the day before. We had to start canceling, but they are still better than 95% of the days that we have observed this year to date on a year-over-year basis. And so as we sit here, they may actually be back fully to what they were the day before the cancellation started. So it's really been a strong response and recovery of booking trends and revenue trends coming out of the shutdown. And in fact, we -- last week came in stronger than we had expected had you asked us a week ago. So I think everything looks to be on the right trend line to us, and it looks like we're going to exit the year with a good base of strong demand going into next year.

So maybe just to put a pin in. I just heard you say as we sit here, we might be back. I'm assuming that means when you say it's not quite back, it's real close.

Very close. Yes.

Okay. And then as we roll into the first quarter, are you as booked as you would expect it to be? Is the pricing level and those bookings similar? Like, I guess, a long way of asking, are 1Q bookings looking as you would have expected to be impact?

Yes. When we look at the first quarter today, we're roughly maybe 30% booked in January, a little bit less in the other 2 months and right where we would have expected it to be. So hard to, at this point, believe that there was going to be a knock-on impact in the first quarter based on the shutdown until you actually fully book out some of those periods, you won't know for certain. But right now, I don't think the impacts are likely to linger into next year.

Okay. Great. On the IT outage, this is another one that's come up in my investor conversations recently. Can you just give us a little more detail on what happened? I've been personally getting questions on, is this related to the merger? Is it just a fluke and some bad luck?

Yes, it's not related to the merger. There's nothing systemic about bringing the Hawaiian systems over to the Alaska data center and certainly the Hawaiian volumes over to the Alaska data center at all. So those things are separate. The only way you would maybe tie any of this together is we are pushing a lot of change right now through the company. We're both integrating our operation. We're integrating our systems and we're pushing what we would call innovation or initiatives at the same time. As an example, we just launched a brand-new loyalty platform, completely different value proposition and needed to make a lot of updates to our technology, our apps, our website in order to support that. So we're pushing lots of change. It's the same team who has to manage all of that now, spread maybe a tiny bit thin. But really, these were pretty isolated, I would call them, fluke incidents in that as we've brought third-party experts in to give us a sense of, are we missing something? There are certainly some things that we can go do that we would call hygiene, just like we can create a little more resiliency, a little more redundancy at a relatively low cost. We can increase the amount of observations we're doing on the daily production environment and technology, but we don't have a systemic architecture failure in our data or infrastructure which was good to hear. And we were open-minded to like, are we missing something on the architecture side of it? Have we just under-resourced ourselves? That's not what they found. And so a lot of the things that we're hearing that we should be doing are pretty quick win types of things and we fully expect to be stable and resilient in a way that people can have confidence that we're not going to have infrastructure data center-related interruptions in our operation at all. And just the last thing I'll say, Catie, is we had, I think, almost a 10-year run of never having -- like the last time we had an event was almost 10 years ago from a data infrastructure data center perspective. So we know what good looks like. We've run data centers for a long time with excellence, and we'll be back there very, very quickly.

All right. Great. Final one on the headwinds before we move to some tailwind discussion. On the refinery fire, are you back to paying pre-fire prices at the pump? And maybe just a little bit of a longer-term one. Are there any longer-term solutions to help solve for some of the volatility issues we're seeing on the West Coast just with all of the refining capacity that's come out?

Yes. So we are -- to answer the first question, we're back paying what we had been paying before the fire. In fact, we're paying less today in spot prices. So refining margins are in the low $0.70 range on the West Coast. They happen to be in the low $0.70 range or maybe in the high $0.60 range on the Gulf Coast. So the premium for the West Coast has gone back to near parity and we don't even have that refinery back online yet. So there's capacity still yet to come back online. So that part of the volatility seems to be behind us. We don't obviously plan on closures like this based on fires at refinery. So we're not going to assume that, that happens to us in the future. I think, yes, we do need to find a way to continue to bring consistent predictable supply with less volatile pricing into the West Coast. And we are working on that. We have some ideas. I think they're reasonably likely to be able to happen. The timing is the biggest variable. It requires local support politically, and it also requires working with large oil companies. And essentially, it is bringing in ships of oil or [indiscernible] supply from Asia, Singapore into somewhere on the West Coast, Portland, Seattle. And I think we can do that. It's done in L.A. today. It's where all of Hawaiian Airlines fuel largely comes from into Honolulu. It's not like a novel idea. We just have to go execute it up in Seattle. So we're going to work on that pretty aggressively over the next several quarters until we make it a reality.

Okay. Great. Let's talk positives now.

All right.

You launched the new premium co-brand card a couple of months ago that drove material acceleration in cash remuneration in September. You were estimating back at Investor Day roughly a year ago, that would drive $40 million in incremental profits by 2027. Can you speak to how that's tracking versus goal? Some pretty impressive numbers. I'm assuming it's doing better than you were initially expecting, a little bit more?

Yes. So we launched Atmos, the new loyalty platform, which brought both HawaiianMiles and Mileage Plan, which was Alaska's incumbent loyalty program together into a single program, and we've seen really, really great initial interest and great response throughout all of our core markets with the largest areas of growth in growth markets for us like San Diego. So I think the platform has been really well received. We think it's best in industry. We think it converts the most value back to our guests over time for the loyalty relative to other loyalty programs in the industry. And then we also, at the same time, launched the premium credit card, which other airlines have had out there for a while. We kind of understood the value of those and the economics of those. The number of cards that we have already authorized is multiples of what we expected to be at today. And so we're already ahead of where we thought we would end the year at by a wide margin in terms of number of cards in distribution. So it's a great base of initial card demand. Question you could ask that I cannot answer is, does that mean our line moves up for the next 3 years or did we just get all the cards earlier than we thought we were going to. Now as a CFO, obviously, I hope we're just moving the line up. And we will push the team to increase their targets, but it's a little too early to tell if we're going to end up running right over that end of '27 target. The way that the economics work is you get initial remuneration sort of on a bonus basis when you initially deliver the card. And so when you're above your original expectations, it leads to immediate outperformance. So probably not a continued tailwind of that to the same degree as we go forward from here. The real value, though, is the loyalty, the flying that the customers do with us. And then that card will become top of wallet and they'll spend on their everyday expenses on it, and then that really starts the engine with the co-brand partner and cash remuneration over time. And that's what we're going to be focused on now is getting it top of wallet, getting the spend and turnover on the card up. And hopefully, it's well in excess of the $40 million, but we're not ready to change that estimate yet.

Maybe next year.

Maybe. Yes.

Okay. Another thing that to me seems to be going better than planned is the performance on the Hawaiian assets. So if I think back to a year ago, I think the thought process was that entity would probably [ lose ] around $200 million this year. I check back, at least on a GAAP basis, 9 months ended, you're closer to breakeven. I know the fourth quarter isn't the best for North American carriers, although decently strong for someone who was a beach destination. So can you just speak to how the Hawaiian assets have gone this year versus your expectation? And what's been better?

Yes. It's been phenomenal. But it is a remarkable brand with loyalty that we believed was true, and now we're seeing in real time every month just how strong brand loyalty is both all along the West Coast, certainly in California, certainly in strength markets like Portland and Seattle and also in Hawaii amongst residents of Hawaii. And so the early sort of earlier-than-expected improvement in the core economics of those assets has been a really nice feature of this year. We had given ourselves a little more time, thought it would take a little bit more time to see those losses kind of lead the system and mature towards profitability. They'll still lose like Hawaii, Hawaiian will still lose money this year on that Q1, obviously, hadn't had the full benefit of the combined networks. It was still very fresh and very new coming out of the close of the transaction late last year. And so we should see a much improved Hawaiian asset performance, I believe, Q1 over last year's Q1. But yes, we were breakeven to Q2 and Q3, and Q4 is typically a little bit challenged, so likely to dip back into small losses. But we're also doing things like starting to look at the network and make changes where we need to. And those are hard changes for us to make for the employees, for the community, but really necessary changes. We exited a couple of markets from Honolulu into Asia that hadn't really been able to turn profits for a number of years, like 5 to 10 years, and we didn't see a way to do that. And we saw really good opportunities for those aircraft to be deployed elsewhere. And so in all cases where we've reduced capacity, somewhere we've increased it somewhere else. And those shifting the capacity around has been really net positive to the network for them. And we're going to get a full year of that next year, and there's less tweaking we expect next year on the core network from those aircraft, but maybe a little bit and then a full year of benefit from the connectivity that we've created through banking in Portland and Seattle, and then certainly, the West Coast connectivity we're starting to build in places like San Diego at a much more aggressive pace.

Okay. That's great. Maybe shifting to cost side of the ledger into next year. Based on your delivery schedule, we're forecasting that fleets up low single digits in my model, I've got ASMs up 3%. I realize we don't have '26 guidance yet, but on that level of growth, layering in the ramp in cost synergies, is low single-digit unit cost inflation on the table? What are some of the key puts and takes we should have in mind?

Yes. I'm only ever hesitant because like you guys take it as guidance, if I say. I think we're going to exit the year very, very close to what we had said we would exit the year at, which is a low single-digit rate. I think we have 1 point of headwind because of the capacity pullouts that we had to do with the shutdown and then some incremental costs from the outage that we had to ultimately absorb, take those away and we would have exited right in line with what we had told you guys a year ago. So we had a couple of fumbles maybe on the cost side in the summer, a tiny bit, but we're back to where we had expected to be, and we're exiting the year in a really good place. The way we've always thought about this is we got to grow 4-ish percent to have a flattish over time, CASMex result. I think your guess at capacity is reasonable. And so there's going to be some pressure on CASMex. But I think with synergies layering in and the fact that the growth should be relatively -- it's not expensive growth. It should be -- we're not investing in new things like new -- big new markets or having to go and front load a lot of cost to deploy the growth. It's relatively ratable. Every fleet is going to get more efficient next year on some level even as we build up the 787 flying out of Seattle. So I think there's a lot of things that should give us reasons to believe that we can be pretty aggressive on cost next year.

Maybe just one follow-up on the fleet mix part of your response. I know this year, there was some outsized regional flying just based on some of the cuts you had to make close in on the mainline side, which was the pressure on unit cost. Is that an issue that continues into next year? Or should we see -- we should see a better mainline versus regional mix [indiscernible]

Yes. No, I think there are a couple -- in general, no, we shouldn't see a mix issue next year. I think the regional fleet is largely fully utilized at this point. It was wonderful that they were able to pick up some of the lost ASMs on the mainline side. They're great operators, Horizon in particular. And we do have a few aircraft coming next year, E175, but it's really small on the fleet of 400 aircraft that we have. And then with the growth on the 787 side, and continuing to get more utilization out of our 737s, you're not going to have a mix issue. If anything, it will slightly go the other way. The one variable that everybody who has these aircraft has to deal with is the Pratt & Whitney engine. And by the way, they are -- that team is very committed to helping all of the operators be as efficient with the engine as possible and getting engines through their checks. But there's a chance that we have to go down a couple of lines of flying on the A321 side just because of the GTF issues, and we're still working through that. But absent that, I would say it's going to reverse and you'll have more mainline proportionality, which will be helpful to unit cost ultimately.

Okay. Great. Another on the tailwind side, I want to drill down for a moment on cost synergies tied to the merger. So I know there's a $200 million target that's net of labor cost of synergies, which I think in the original filing was $60 million. So if we just put labor -- new labor contracts aside for a moment, those are lumpy. What are the biggest buckets of the cost synergies? And what are like the gating factors to each of those buckets being able to kick in? I think we just might have hit one of them with a single operating certificate. Would love to hear how headcount optimization post single operating certificate plays a factor into next year?

Yes. The biggest buckets are -- they're all overhead related, and that does include headcount, which is really tough. And we've had a couple of gates that we've already passed where folks who had given their lives and careers to Hawaiian aren't still here with us and I don't want to sort of talk too publicly about it in a way that's seemingly positive because it's not a positive, but it is a reality. We knew going into it. And so that process of rightsizing back-office headcount has started and it continues. And yes, as you cross through things like single operating certificate and then single PSS, there's some more of that to come. That's the biggest sort of stand-alone bucket. There are certainly large cost synergies that come from supply chain, single contracting, throughout both of the businesses, technology savings where you have duplication today and you can go to a single instance approach. All of those kind of happen one by one as we get systems cut over and a lot of that stuff. Some of it is with us already, some of it is still to come. But it's just like lots of little amounts that add up to relatively large amounts. But it's -- and then the last thing is just sort of airport efficiency co-location. There's actually not a ton of that because they're very -- like Hawaiian's operation is huge and Hawaii ERs is reasonably sized, but not like nearly as big as theirs. So there's not a ton, but some synergy there. And then all along the West Coast, obviously, we have already large sort of footprints in these markets that we now jointly serve. So airport sort of space efficiencies, technology efficiencies, supply chain and then, yes, there's back-office headcount impacts as well, and we'll continue to unlock more of that through next year.

Okay. Got it. Maybe switching to fleet. You had just gotten back to single fleet type post Virgin America acquisition when you announced the Hawaiian transaction, a little bit of trouble over that. But obviously, with the international network, you need a wide-body fleet. Once you already have one sub-fleet, is it just a very different discussion than what you were thinking post Virgin acquisition? And then -- or are there opportunities on the domestic fleet to be rightsized? I know the 717s are a little bit long in the 2. So I guess how are we thinking about fleet over the next couple of years?

So I think it's different in a couple of ways. One, because you have to have 2 fleets you may as well ask yourself the question. Do you -- does 3 cost that much more? Is there that much more friction? So it's at least on the table, whereas on the Virgin side, and you guys know the story, we inherited aircraft that weren't really a good fit for mission relative to the 737 and were amongst sort of the highest cost -- ownership cost versions of those aircraft that you could find in the market relative to what we believe are incredibly great ownership costs on the 737 side of the business. So even if we love the airplane, and we do love like the A321, it's a great airplane, there was no way we were going to keep those aircraft, just given their ownership costs and they were almost all leased. And so there wasn't a way to like really fix for that other than doing a fleet transition. So that was sort of like going backwards. Your question is about forwards. The same basic criteria comes up, there isn't really a reason in our mind to have 2 pieces of equipment that do the same thing. If you can get one at much better economics than the other. And so we have an amazing partnership with Boeing, obviously, and we have a very, very good order book for MAX aircraft that takes us years into the future. And we have small non-Boeing 737 fleets on the Hawaiian side of the business in the narrow-body part of the business. And so there's no decisions made, but it's not -- like I'm not going to like fool you guys, but like the 717s need to be replaced, they'll likely be replaced with 737s of some sort, although we will look at, is there a different sort of purpose-built short-stage length, high-cycle aircraft that could live in Hawaii better than the 737 and then the number of A321s we have is too few. And so you need double that number or 0. And it's going to be binary one way or the other. If we saw line of sight to doubling the size of that fleet, we would pursue that opportunity. If we don't and today we don't, then we'd probably end up in a place over time that was a single narrow-body fleet. On the wide-body side, we're going to fly to wide-body aircraft for as far as we can see into the future. And there's no imminent plans to change any of that. We're actually extending leases and buying out of leases on the A330 side of the business today. And then we secured 5 additional options on the 787 side from Boeing recently. So we're going to have up to 17 787s in Seattle, funding the Seattle International complex we're building and some large number, perhaps 24, which is what they have today, A330 is operating out of Honolulu for the foreseeable future. And Airbus has a great team. The product is really good. It's perfect for that mission profile. And so we feel good about that. And the one thing I would say about the only difference is, in addition to like -- these are well-priced aircraft and they're operating like perfectly for their -- like they're perfectly built for their mission. Because of the geographic distance in the bases, it makes less sense necessarily to go in exchange aircraft like we weren't going to fly a narrow-body Airbus and narrow-body Boeing base in Seattle. It just made no sense to do that, whereas it's likely the geography of Hawaii and Honolulu versus the West Coast sort of make it easier to keep sort of crew where they're naturally wanting to be based in Hawaii or off the West Coast. So you have less of the training drag by training across fleets. So I think there's -- it's not going to be that costly for us to operate 2 wide-bodies is what I'm trying to say in a really long way.

I always love the details personally, but maybe we'll bring it up higher level for the next slide. It's been over a year since the Hawaiian merger closed. Would love to hear more on what surprised you? What's gone better? Maybe what didn't go as well? And are there some areas that are just larger opportunities than you would have been able to tell before the books closed?

Yes. I mean -- and we said a little bit of it at the outset, and it's not as if we didn't believe in the value of the brand we did. I mean that's why the first decision and Ben has talked about this that he made was like we are keeping the brand. Like there's like full stop, no question. And even today, when we get questions about it or people think maybe they're not, are they serious? Like yes, we are as serious as we could be about any strategic business decision. The brand is super valuable. And you see that when we fly both the Alaska brand, which has incredible value as well and the Hawaiian brand in the same market over to Hawaii, like the Hawaiian brand gets a premium. It commands a premium seat for seat. People want -- they enjoy starting their vacation as they walk onto the plane, if you will, that the environment that Hawaiian has built in their culture and their service model and the way that they invite you into basically already being in Hawaii before you even start your trip. It's just special and unique, and you can't replicate it, nobody could, right? And so that has been really fun to watch and to see. And we're learning now at a much more detailed level, where we think there's a lot of value to that brand. And that's why we've talked about anything that's like to, from or within Hawaii over time is likely to be in the Hawaiian brand because that's where it's like most valuable, and that's what people want to experience. So that's been great. I think the excitement and interest in places like California have been really fun to watch. We were in San Diego recently for a week-long leadership thing, and we did a number of community events. And I'm always amazed by anybody who will give up their night to come out and spend time with airline people. But it's amazing you can fill rooms up. I don't like -- I don't know if I would go to your [indiscernible] I would come here. But if you did come to dinner and have fun talking about Goldman Sachs, maybe I would. I don't know I shouldn't say that. But people love to come and talk to you. We had hundreds of people down there. They couldn't be more excited about the new loyalty platform, the new service we're bringing, our combining with Hawaiian. It's just like -- so those things are exciting that give you energy, give you reason to believe you can be successful over the long term and that you made the right decision. And I think that is all true. The other thing, it's not a surprise. I would just -- and we'll continue to remind that the traffic -- inbound traffic from Asia is still relatively depressed, and it's at some point, I think, going to be a tailwind. I just can't tell you when, but -- and I was just over in Japan recently, and people want to go to Hawaii. It's just -- it's expensive right now to do it given the exchange rate. So whenever that all sort of normalizes, I think we're going to see a lot of demand to come back to Hawaii from Japan and other points in Asia and they're going to be able to do it in a way that they hadn't before because of our Oneworld partnership and our partnership with JAL, which should just strengthen connectivity through Tokyo and down into Hawaii amongst other places. So I just think there's a lot of long-term upside to that. And that's fun to see. We're just kind of waiting for it to mature. On the other side of the business, there's I think, really understanding where we need to optimize the networks. We kind of knew we're going to have to make some tough choices. But when you have to make them, they are hard, they're sobering. They had impacts on the people down there who served those communities for a long time. But I'm glad -- I'm proud of the company for making the tough decisions and doing it relatively deliberately and being transparent with the community. But there are more optimizations to come. I think we're excited about the long term on the cargo side of the business. We don't talk a lot about that. We hope to talk about that more in '26 and '27. But there is optimization that has to happen as an example on the CMI part of the business with Amazon. It's a tough business. It's only 10 aircraft. It's a whole different operation than the passenger side of the business. And we've got to make that work long term as well. So there's -- there are parts of the business that are going to require focus to optimize. And I don't know that it's a surprise, but it's now clear where we have to go and sort of fix pieces that were a little bit broken when we closed the transaction.

Got it. And maybe just quickly, you named a few things you're excited about. Like if you had a top 3. I won't hold you to 3, so it would be 4 or 5. But if you had a top punch list for like what you think the biggest tailwinds of '26 are, as you say?

Yes. I mean there's so much. One, I'll just tell you, and this is too airline boring, but we have launched as much change at Alaska this year and at our people. And even to our guests, most of it is super positive, but as we have in any year I've been there, I just -- honestly, yesterday was my 25th anniversary with the company. And it's going to be really fun to now just focus on running a high-quality core airline, again, that is operationally excellent, best-in-class because that's kind of where everything starts for us. When that engine is running well, the rest of the business can run well. And there's no reason that we can't sort of be back to that next year. And then you get into the stuff that we're doing around loyalty, the Atmos platform, the international growth out of Seattle. I mean, these are like things that, I don't know, you never even really dream of when you worked at Alaska Airlines or Hawaiian 5 years ago or 10 years ago, like we're going to get to launch a brand-new loyalty platform, get to launch new products like premium cards into the market, have hundreds of people in San Diego come out to party with us and celebrate it. And then like fly internationally out of Seattle and welcome all of our loyal guests back who unfortunately haven't had the chance to be flying on us on their trips to Europe and Asia. And there are a lot of them. And just like the level of excitement in Seattle to get on flights to Rome has been, I think, even beyond our wildest expectations. So there's just folks in Seattle want to fly with us. We are their hometown airline. They love us as much as we love our company. We're just part of the fabric of the city. And it's just like -- you can imagine like we get into the day-to-day of it and it gets like you forget to be excited about we're going to launch London and Rome in the next 4 months. And like that's a once-in-a-lifetime opportunity to launch international service from this network. So I think we're going to have a lot of fun with it. There's learnings along the way. We're going to have to get better at doing it every day, but I think we can compete with anybody in our onboard service, the way our frontline employees treat our guests, the value that we bring to them through loyalty. We'll have a high-quality product. We'll be flying beautiful 787s. So that's probably the most exciting thing. And I'm not going to be on the inaugural flight, but I'll like wave to it as it goes. I think Ben will be -- I think Ryan plans to be somewhere on that flight as well, but it's going to be a lot of fun to see that launch for both our customers and our employees.

Maybe before my final question, I have to say, I'm really surprised that you're surprised you could fill a room with airline geek because don't you get cornered at every cocktail party you go to ever.

You do. And I never like -- it never seems it's so amazing that people want to talk about this industry so much. Yes.

It's aspirational.

I guess so.

Okay. Final question. we talked about what the setbacks have been [ nauseam ] earlier this year, Alaska specific industry. How has this changed your view, if at all, on the $10 2027 EPS target? Your view hasn't changed. What gives you the confidence?

Yes, it hasn't changed our view. And I'm glad that people ask us and I think it's appropriate to pressure test us and ask us, well, why not? If you look at that -- if you look at the $10 goal and commitment, we started with 2024 base, right, as profit base. And then all we did to 2024 as we added back the fleet grounding that we had experienced early in 2024 because we knew exactly how much revenue we had lost. We added that back into the profit base. And then we just said $1 billion, add $1 billion, and that's all stuff that's up to us. It's not really reliant on macro. The synergies are -- in this instance, they're clear, they're calculable. We'll continue to walk people through them in detail as they want to understand them. And then the initiatives are things that other successful airlines have already done, and that's the point we continued to try to make at Investor Day last year and then throughout this year, it's like unlocking an additional role of first-class seats or premium economy seats or putting a premium credit card into the market or things that are tried and true. And the math is relatively straightforward. And all of those things are on track. It's been clouded by everything else that has happened this year, but they're all on track and they're going to continue to track towards that $1 billion. So we got the $1 billion. What happened was macro took a bunch of that base away, $3 a share or so of our base. So we obviously didn't put $10 out thinking we could only achieve $10. We talked about at the time there's a buffer. You guys asked us what's your buffer? It's like really, I'm not going to tell you my buffer. So yes, the $3 has taken away the buffer and maybe a little more than the buffer because we didn't have a $3 buffer. But we're not as far away as you think. And then you ask like, Shane, do you guys have any other ideas that could unlock additional profits relative to what you said last year? Of course, we do. We're not ready to talk about them yet. But we're not going to stand still. We'll respond to the environment around us. And I think there are material incremental profit unlocks that we can achieve in the next 24 months for sure that helps us close that gap further. And that's before macro improves anymore from where it is today. And it's anybody's guess. You guys will have to write into your own model what you think about macro. But if it didn't improve at all from today just with static from where it is today forward, I think we have line of sight to get there. We got to go execute. It's not going to be easy, but we have line of sight to get there. And if macro actually does improve a little bit, I think then you get a little buffer back and confidence level goes up. So you guys will ask us this every, I predict, quarter and conference from here through '27. But no, we are -- and we talked a bunch about this at our last Board meeting, no reason to believe that we should pull off of that idea.

And I guess to be fair, the $10 didn't include any buybacks and you're already 50% through the program.

Correct. On both, yes.

All right. Well, on that upbeat and hopeful note for the future, we'll call it a day. Thanks so much, Shane.

Thank you. Thanks, Catie. Thanks, everyone