管理層發言
Good morning, ladies and gentlemen. And welcome to the Alaska Air Group 26 Second Quarter Earnings Call. At this time, participants have been placed on mute to prevent background noise. Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question-and-answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning and Investor Relations, Ryan John.
Thank you, operator, and good morning. Thanks for joining us today to discuss our second quarter 26 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you will hear updates from Benito, Andrew, and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call. Air Group reported a second quarter GAAP net loss of $76 million. Excluding special items, Air Group reported an adjusted net loss of $102 million. As a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures, such as adjusted earnings and unit costs excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Benito.
Thanks, Ryan, and good morning, everyone. Let me start by directly acknowledging our financial performance. While we beat our initial guidance for the second quarter, we still reported a loss. And we are not satisfied with that outcome, especially in what should be one of our strongest quarters of the year. At the same time, it is important to recognize what this quarter represented for our company. It was one of the most consequential and strategically important quarters in our history. We achieved the most complex technology milestone of our integration, successfully operated the largest summer schedule in our history, and launched our first-ever service to Europe, an investment that has exceeded our expectations right out of the gate. While these accomplishments do not change our financial results, they do reinforce our confidence in the future. The work we are doing today is strengthening our foundation, improving our competitiveness, and positioning us to deliver meaningful long-term value. Most importantly, none of this would have been possible without our people. I want to thank our more than 30,000 employees across Alaska, Hawaiian, and Horizon. They delivered these milestones while continuing to provide outstanding care for our guests; their commitment has been the driving force behind everything we have accomplished this quarter. While there was no way around the overwhelming fuel headwind, we saw an extremely positive earnings trajectory throughout the quarter that only deepens our confidence in our long-term strategy. The momentum we are seeing is clear. Unit revenue strengthened, unit cost improved, and we returned to profitability in June with a double-digit pretax margin despite fuel prices up nearly 70% year over year. Absent the fuel spike, this would have been a solidly profitable quarter, which underscores that our underlying business is running well and that Alaska Accelerate is working. With significant commercial momentum, industry-leading operational performance, and an integration that is paying off, combined with easing fuel prices, disciplined cost execution, and demand holding firm, we're set up for a strong earnings inflection into the back half of the year. Operationally, the second quarter was a strong continuation and expansion of the themes I highlighted last call. We led the industry in on-time performance year to date, up five points year over year in Q2. At the same time, our team successfully completed the most complex milestone of our integration, migrating to a single passenger service system and establishing the industry's first dual-brand PSS platform. Delivering industry-leading reliability while undertaking a transformation of this scale speaks to the strength of our operation and our people. Our net promoter scores continue to lead the industry, and our guest experience is only getting better. With the reservation cutover behind us, guest satisfaction has climbed seven points since last quarter, led by Hawaii, which jumped ten points. Our investment in Starlink Wi-Fi is driving that experience further with guest satisfaction on Starlink-equipped flights 20% higher than non-equipped flights. The onboard portal is also allowing us to deepen loyalty, with nearly 75% of nonmembers signing up for Atmos Rewards accounts to utilize this benefit. With one third of our fleet now equipped and the remainder expected by 2027, we are excited to be delivering a best-in-class onboard experience. On fleet, cabin retrofits across our 737s are now complete, adding 1.3 million incremental first and premium-class seats, and demand is absorbing them well with premium revenues up 15% in the quarter. Yesterday, we announced our plan to retire the 717 fleet beginning in 2028 and transition Neighbor Island flying to more modern, fuel-efficient Boeing 737s, bringing improved reliability, better economics, and more cargo capability as we continue investing in Hawaii. Cargo remains an important strategic growth opportunity for us. After restructuring our Amazon flying under a more profitable contract, we are now moving into the next phase of growth, adding four additional 737-800 freighters deployed across Hawaii and Alaska. This further strengthens our position as the only U.S. airline with a dedicated cargo fleet. And as we scale the international operation and capture the benefits of these investments, cargo will become an increasingly meaningful contributor to the profitability of our airline. Our international long-haul launches from Seattle are off to a strong start. Atmos Rewards members told us they were excited to fly internationally with us, and it is materializing. Our new Rome, London, and Reykjavik routes are each carrying 50% or more Atmos Rewards members, an early signal of the loyalty demand behind this expansion. With every new long-haul route, our global relevance and perception grows, and we move closer to becoming Seattle's largest international carrier. And last but not least, our new premium SIM card continues to perform well. Total account holders are nearly 50% above our expectation, with over 60% of new accounts this quarter coming from outside the Pacific Northwest. Taken together, this quarter is proof that our plan is working. Even against a volatile backdrop and an outsized fuel headwind, we made real progress on every front that matters, building a business that can absorb short-term pressures and keep moving forward. Heading into the second half, we are set up well. Demand is holding firm, our integration milestones are increasingly behind us, and we look forward to continuing to deliver on the commitments we have made to our people, our guests, and our owners as we build scale, relevance, and loyalty for the long term. Before I close, I want to touch on a recent leadership change. Shane R. Tackett was promoted to President of Alaska Airlines, taking on responsibility for the commercial organization while continuing as CFO. Shane is a 25-year veteran of the company and was instrumental in guiding us through the Hawaiian acquisition and execution of Alaska Accelerate. This expanded role reflects the breadth of his leadership as we move into the company's next chapter. More broadly, we have conviction in our business model and the initiatives we put in place. They are working. And the results we are seeing only strengthen our confidence that we are building a business model that is structurally capable of producing $10 of earnings per share that we originally envisioned and laid out under our Alaska Accelerate plan. We will discuss this and more about what is ahead for Air Group at our upcoming Investor Day on September 29 here in Seattle. And with that, I will turn it over to Andrew.
Thanks, Benito, and good morning, everyone. Today, I will walk through our second quarter financial performance, our perspective on the near-term demand and revenue environment, and the step change in the results and performance of core levers that underpin Alaska Accelerate. In the second quarter, revenue grew to $4.1 billion, a 10% increase year over year on capacity that grew 1%. Unit revenues were up 8.6%, which includes a three-point drag from the historic Hawaii rainstorms. The second quarter marked the beginning of what I would describe as the full commercial activation of Alaska Accelerate and what I expect will be a strong ramping of revenue growth, loyalty penetration, and the elimination of integration friction from our industry-leading guest satisfaction. The foundation of this activation was the implementation of a single reservation system, launch of Europe service along with our Asia service, strong adoption of Atmos Rewards, and a solid operation that has led the industry as the number one on-time airline in the United States year to date. The full activation and achievement of these elements have resulted in an immediate step change in commercial results across Air Group. I want to spend some time unpacking the largest of these. Let's start with revenue. We had a material acceleration of unit revenues across April, May, and June at 5.5%, 8.8%, and 11%, respectively, with total June revenues up 13.2%. This resulted in a double-digit pretax margin for June despite higher fuel prices. Managed corporate revenues: we generated what we believe will be industry-leading revenue increases this quarter. The combination of a single PSS, single loyalty program, and network growth has resulted in large share gains. Portland and San Diego saw managed corporate share growth of five points and four points, respectively, with Portland reaching a historic milestone, exceeding 50% share of managed corporate revenues. Looking to Seattle, we have seen the percentage volume of managed corporate passenger exceeds system materially, at 9% growth. This is driven by the unlock of new revenues from managed corporate accounts as we begin serving the largest international markets to Europe and Asia out of Seattle, namely London, Tokyo, and Incheon, as well as our continued growth in scale, relevance, and loyalty in our Seattle hub. Moving to loyalty, cobrand remuneration reached $663 million in the quarter; that is up 19% year over year. The unlock of Atmos Rewards has been remarkable. Evidence of the loyalty flywheel and Atmos Rewards unlock can be seen across our ecosystem, including active Atmos Rewards members up 15% with attrition down over 30% year over year as members engaged more broadly with the program. Hawaii loyalty growth is materially outpacing system performance with a 73% uptick in new cardholders year over year and a 34% increase in members in our Huakai by Hawaiian community. We saw a double-digit increase in top-tier activity and spend as members strive for the unique benefits offered by our titanium status, including access to same-day upgrades to our suites product, and an eight-point increase in redemption activity on the Air Group network as members shift their global travel activity to flights operated by Alaska. Our loyalty program performance is an undeniable marker that Alaska Accelerate is not only working, but also just getting started given our foundational programs and technology are now in place. Premium products: there is unquestionable demand for our premium products and service. Premium revenues grew 15% this quarter. In addition to our domestic product, premium demand for our newly launched international long-haul service from Seattle to Rome, London Heathrow, and Reykjavik came out of the gate hard. We have already achieved our fair share in premium cabin in U.S. point of sale and across several corporate channels, and we see substantial opportunity to grow share internationally with our fair share in the premium cabin already improving after just recently turning on our ability to sell in the U.K. Premium revenue now represents 35% of total revenue, up 1.5 points this quarter. We are far from done and have more room to optimize our premium product configuration. It is worth reiterating from a diversification perspective, which premium has helped fuel: more than half of every revenue dollar we generate now comes from outside the main cabin, a mix that looks nothing like the airline of even a few years ago. And finally, Alaska Accelerate has launched us into meaningful cargo revenues, a source of durable, diversified revenue. Our second quarter cargo revenues were up 21% year over year, well above system revenue growth of approximately 10%. As Benito mentioned, we announced the addition of four Boeing 737-800 freighters to be flown in Hawaii and Alaska, nearly doubling our dedicated 737 freighter fleet to nine aircraft. We expect service to begin in early 27, and these aircraft will not only strengthen our reliable service for the communities we serve, but also create new revenue opportunities. Now looking forward, we ended 2026 with one of the leanest growth plans in the industry, and we have continued to adjust as fuel prices remain elevated, pulling roughly a point of capacity out of both the third and fourth quarters. We expect Q3 capacity to grow approximately 2% to 3%, the entirety of which is intercontinental, with slightly lower sequential growth in Q4. This puts full-year growth right around 2% year over year, at the low end of our original guidance of 2% to 3%. Demand has proven durable even as fares moved higher. Bookings into the summer peak and early fall shoulder are pacing well, with unit revenues running solidly in the mid-teens year over year. We are especially encouraged by the strength of higher-yielding demand. Forward corporate bookings are up 37%, seven points higher than the 30% achieved in Q2, reinforcing the improved domestic and international relevance of our expanded network. At the same time, our new long-haul international flying continues to gain share as premium demand builds out of Seattle. Hawaii is also getting back to strength. Loads are recovering, and new bookings are coming in at system levels. The historic storms not only impacted spring break, but also peak summer bookings that occur in the second quarter. Summer revenue performance remains well under system, in part due to elevated industry capacity, which was up 7%. And we expect the third quarter to have a similar several-point unit revenue headwind that we saw in the second quarter. But encouragingly, as we move into the fall, on-hand bookings West Coast to Hawaii show demand returning to historical levels with September yields accelerating. Given these trends, we expect system unit revenues to improve sequentially from Q2 into the third quarter, reaching low double digits year over year. With roughly 65% of Q3 revenue and 15% of Q4 revenue booked, the balance of the back half will be shaped by close-in demand, but the trends we are seeing today give us confidence in a healthy unit revenue trajectory through the rest of the year. To wrap up, while the first half of the year was volatile, our June exit rate tells the real story: an inflection back to profitability and strong unit revenue growth. Coupled with prudent capacity, the second half is shaping up well, and we have kept our focus on controlling what we can control while delivering results. Completing the single passenger service system cutover, an enhanced single loyalty program, and the launch of a European and Asian network from Seattle was the unlock we have been building towards. It lets us finally deliver the full range of our product and services consistently across our global network. As we move forward, we are focused on continuing to strengthen and diversify revenue across premium, loyalty, cargo, and international to build more durable, resilient earnings power that compounds over time. And with that, I will pass it over to Shane.
Thanks, Andrew, and good morning, everyone. As Ben already indicated, we are not satisfied with losses this quarter, but it is important to also look through the result to the underlying business. Absent the added fuel costs, this was a fundamentally healthy quarter. Non-fuel cost performance and the trajectory of unit revenue through the quarter were both strong. As fuel normalizes, the timing of which is difficult to predict, we see a clear path toward meaningful earnings expansion back toward our goal of $10 of earnings per share. Also, with our customer-facing integration milestones now behind us, we are moving forward with strategic momentum as we move to full optimization and harvesting of value from our Alaska Accelerate initiatives. Regarding the balance sheet, we finished the quarter with $3.8 billion in total liquidity after proactively raising $1 billion of financing during the quarter: a $500 million issue of senior unsecured notes, our first-ever unsecured bond, alongside a $500 million term loan. While this transaction was largely neutral from a net debt perspective, it was a deliberate choice to bolster liquidity toward the top end of our target range of 15% to 25% as we navigate an elevated and unpredictable fuel environment. With all the challenges of the last two years, our balance sheet remains strong and is backed by roughly $20 billion in unencumbered assets. However, given fuel costs impacted earnings, we closed the quarter with a debt-to-capitalization ratio of 65% and trailing 12-month adjusted net leverage of 4.8x. With normalized fuel prices and current demand trends, this could very quickly pivot back toward our long-term leverage goals. Our balance sheet has long been a strategic asset that underpins our agility and durability, and restoring that strength will be a top priority. As the environment further stabilizes and our earnings profile improves, we intend to put excess liquidity to work paying down debt, reducing leverage, and ultimately bringing liquidity back toward our target 20% level. Second quarter unit cost excluding fuel rose 6.5% year over year, a strong result compared against others who have reported. This result included some significant transitory costs, including above-normal crew training costs related to our 787 fleet ramp and employee recognition expense tied to completing our single passenger service system, and material aircraft sale gains booked in 2025 we are comparing against. Setting those aside, core cost growth was up low- to mid-single digits on only 1% capacity growth. Moving into the back half of the year, our cost plan remains on track and we expect non-fuel unit costs to step down to low- to mid-single digits, with closer-in capacity cuts versus our original plan providing slight pressure. Economic fuel cost averaged $4.43 per gallon, slightly better than our $4.50 guide. While crude has remained volatile between $70 and $90 per barrel, refining margin volatility normalized throughout the quarter. We expect third quarter fuel price per gallon of $3.75. This reflects expected July fuel cost of $3.60 per gallon and $3.85 for August and September, which is simply the recent average spot price we have seen. At this fuel price guidance range, we anticipate third quarter earnings between breakeven and $1 per share. We expect our second-half RASM-to-CASM fuel spread to improve several points from our two-point spread in the second quarter, evidence that Alaska Accelerate initiatives are working and the business is structurally strong. Given we have seen recent volatility in fuel prices and further fare movement, we plan to provide an update on full-year earnings guidance at our Investor Day in late September. This is not the first half any of us drew up, but the demand backdrop and continued execution of our initiatives gives us confidence in where we are headed. With our big integration milestones behind us, our focus now is squarely on optimizing the airline, building strategic momentum, and fortifying structural advantages: our scale, our relevance in the markets we serve, and the strength of our loyalty franchise. As premium, loyalty, cargo, and ancillary revenue take an ever larger share of the mix over time, our earnings will become more durable across cycles, underpinning our path to steady-state earnings power north of $10 a share and double-digit margins. We will lay out the building blocks of this in more detail at our Investor Day on September 29, so we hope you can join us. With that, go to your questions.
分析師問答
At this time, I would like to invite analysts who would like to ask a question to please press star then the number one on your telephone keypad. And our first question will come from Atul Maheswari with UBS Securities.
Good morning or good afternoon. Thanks a lot for taking my question. I know you are not providing fourth quarter revenue RASM guidance, but it appears those who have reported thus far seem to point to fourth quarter revenue being higher than third, given the potential for a greater portion of fourth quarter coming in at higher fares. Are you able to confirm if we should expect the same for Alaska? And related to that, if you can also provide some puts and takes on the fourth quarter RASM as it relates to the sequential performance versus the third quarter, that would be very helpful.
Atul, thanks for the question. Yeah, I think we all steer clear of giving specific guidance on Q4. We were pretty deliberate in wanting to talk more about the full year at Investor Day once we had a chance to better understand both the revenue side of the equation given recent fare changes in the domestic market, which have been positive, and obviously the fuel price part of the equation. So I think we do not see any change in demand into the fourth quarter. Advanced bookings look very strong and at the same or better yields than we are seeing in the third quarter and that we saw at the end of the second quarter. So we do not have a different trend that we are seeing from those who have reported before us, but I think we will stay away from commenting on the fourth quarter in a way that would infer guidance.
Okay, that is fair. And then, you know, as my follow-up, Shane, you did mention an improvement in Hawaii for September. So as it relates to that, are you able to parse out that improvement between demand getting better versus an easing in competitive capacity pressure in this market in September? That would be helpful. And also related to that, it seems like capacity in Hawaii jumps again in the fourth quarter. So how do you feel about the potential for continued improvement in Hawaii beyond just September?
Thanks, Atul. It's worth taking a quick step back just to talk about Hawaii because it will be a theme, I think. Number one, this is a $1 billion franchise for us and we knew that we needed scale, relevance, and loyalty for an $8 billion market, and we have achieved that now. Especially with the single passenger service system integrated into OneWorld. We have talked about loyalty growth and all the rest of it. So we have seen really good strengthening and prospects for Hawaii. Specifically to your question, as it relates to September, we are seeing even in the last week yields greater than system, and so we see strength returning for the reasons we talked about regarding the Kona storms. To your question about capacity, you are right. This has been elevated. Domestic has been about flat in the second quarter going into the third, and it is up 7% to 8% in the market. But we also know that the schedules are not finalized by the industry for the fourth quarter as well. We will be watching that. But we feel good about the momentum we are seeing in Hawaii and all the key levers post-PSS that are coming into play to strengthen our position and the economics of that franchise. Thanks, Atul.
And our next question will come from Duane Thomas Pfennigwerth with Evercore ISI.
Hey. Good morning. Thanks. Just a couple for me. On cargo, can you speak to the mission of these four 737-800s that you are adding? Are these your aircraft? And is this similar to what you do up and down the state of Alaska? Or are these in support of outsourced Amazon flying?
Got it. Thanks, Duane, and good morning. Yeah, these are going to be our aircraft. We are taking them from another carrier, but they will be ours. We are going to go and mod them so they are consistent with the rest of our freighter fleet, and they will be deployed for our own flying. They are not in an arrangement that is a CMI or ACMI. They will be deployed under our brand with our folks flying cargo that we go out and ultimately market to customers to carry for them. I think we said in the release two of them will be in the state of Alaska and two of them will be in the state of Hawaii. There is a lot of opportunity for us to continue to build share in both of those states. We do that sort of small-community cargo flying better than anybody else, and we are excited about cargo going forward as part of Alaska Accelerate, which we talked about in December 2024, ultimately contributing an additional point of margin to the business. And we are well on our way down that path. So this was one of the specific ways we were going to go and unlock that. We were excited to get to announce it yesterday.
Okay. Thanks. And apologies in advance for the minutiae on my follow-up, but it is something we actually got wrong. So can you just speak to the drivers of variable incentive pay? Is there any relationship between the employee recognition expense and this variable incentive pay? And just how should we think about that line maybe in the back half, flat, up, down? Thank you for any help there.
Yeah. If it is a geography question, I am going to have Emily make sure that we get this clear. I think there is a tax component that goes into one of the lines, and then there is the actual employee recognition cost that goes into another part of the P&L.
Yeah. So, Duane, the variable incentive pay is a combination of a performance-based pay program, which is the majority of that line, and then our operational performance reward programs. Typically, we see this skew a little bit higher in the back half of the year as we get better certainty about the overall performance of the business. But I think you are going to continue to see the trends that have manifested in the first half showing up in the back half.
Okay. Sorry. It was I think down year over year in Q1, up year over year in Q2. Just on a year-over-year basis, maybe flattish if we had to guess? Thank you.
Yeah. Probably flattish. Thank you.
Thanks.
Our next question will come from Conor Cunningham with Melius Research.
Everyone, congrats, Shane, on the promotion. Just Andrew, maybe we can go back to Hawaii for a quick second. So I am just trying to understand, when you have studied recovery timelines and when you have situations like this, when I look back at the Maui fires — I realize fires and rainstorms are totally different — that recovery timeline took a while, longer than I think anyone would have anticipated. So just how you compare this situation to that. And then is there anything structural within the Hawaii market that may limit the opportunity to push fares that you have seen at other system levels? It is just so unique in the sense that you are seeing the demand headwind time frame you are seeing, competitors push supply. Any thoughts there? Thank you.
Thanks, Conor. Big picture for Hawaii, over several years, Maui fires or other events are somewhat static and if anything growing a little bit since COVID, but again it is a very stable market. We serve over 40 nonstop routes across the entirety of the West Coast. What I would say is that certainly there are ebbs and flows on the recovery, but I think what we have really focused on is all the tools that we have in our toolkit that will help us outperform the general market in Hawaii. As we have shared earlier, things about loyalty, our loyalty growth, our connectivity, and our ability to serve the right market with the right aircraft. Again, we are very focused on September and beyond. What we are seeing right now is a recovery, and there is nothing that we see right now to give us the sense that this will not get back to strength over the coming quarters.
Conor, I think a couple of things on that. Remember last year, Hawaii was one of our best geographies in our network. And to your point, it is different than the Maui fires. The Maui fires were catastrophic for Hawaii, and these were torrential rains — they were brutal — but the recovery is going to be different, in our view, than the Maui fires. Last year, Hawaii performed very well for us. In terms of strength and structure, Andrew was trying to get to it: Hawaii is a premium leisure market where the pie is essentially finite, and we think it is a great market off the West Coast and it fit our network. The whole value of Hawaii was the thesis going in: do we grow it organically, do we retreat, or do we double down on Hawaii? The thesis was to double down on Hawaii. It is a premium market and over the long term Hawaii is absolutely going to be a huge contributor for us.
Awesome. Appreciate that detail. And then maybe I could speak to next year. I know that you do not want to give a guide, but when we think about controllable margin spread, I like that we are talking about that a lot more this quarter. The carriers that have reported would also call out a similar cost trajectory opportunity next year in a reasonable growth environment. There is obviously debate around industry RASM. But just there is a lot of opportunity from synergies and tailwinds that you had from Hawaii. So when we think about next year, is the rational thought process that RASM will exceed CASM next year? And could you just speak to any of the idiosyncratic levers that you have identified that are already in your playbook from a revenue perspective? Thank you.
Thanks, Conor. Broadly, if you are asking about the 2027 setup, we are really excited about it. We are confident in next year's opportunity to expand margins mostly through that expansion of the RASM-to-CASM controllable margin spread. We would like fuel to calm down, and we would like the economy to remain really strong. But we will have a chance next year to hopefully participate in a full year of the current demand and pricing environment, which has only been with us for half of this year. We will get to lap the first year of international, and there is always an opportunity to do better in the second year of these sorts of things — we had a phenomenal first go around this summer, but it should be even better next year. We had a great first year on many initiatives and there is upside in the second year. We will lap the headwinds in Hawaii and get back to strength. We have a full year of expanded premium cabins coming online; the last retrofit just finished this quarter. We will get Starlink from one-third of fleet to 100% and people love that product. We have the last tranche of synergies and initiatives to unlock. Some of that is basics around running revenue management — we will be on a network revenue management system next year. Others have done that recently and enjoyed significant RASM improvements from those changes. So our expectation is exactly what you said: we could achieve RASM growth ahead of CASM growth next year, and as fuel normalizes the underlying structure of the business is really strong and earnings should expand rapidly.
Great. See you everyone in September. Thank you.
Thank you. Thanks, Conor.
Our next question will come from Savanthi Syth with Raymond James.
Hey, good morning. Was wondering if I could — not necessarily looking for numbers and magnitude, but just any early thoughts on how you are thinking about domestic versus international capacity growth in Q4 and 2027? And tied to that, have you gotten an indication from Boeing on MAX 10 deliveries next year?
Thanks, Savi. I think domestic in Q3 was roughly flat and similar in Q4. All of our growth, and we have been deliberate and responsible with our growth, is international into the fourth quarter. We do take a significant number of airplanes next year and we are really excited about those. We do think the MAX 10 will get certified relatively soon. The first use of those aircraft will be to continue to build out our core cities like Seattle, continue to upgauge where we can, and also to retire an aged 737 fleet. The economics of a MAX 10 versus an older 737 are very compelling, and we have good plans to use the fleet we are bringing in next year. We have a couple of 787s that will help us continue to further international growth. It will maybe be a little more balanced in terms of domestic versus international next year, but we do intend for it to be responsible growth rates, more than this year but pretty similar to our long-term target which we have laid out around 4% or so.
Makes sense. Helpful. And if I could just quickly follow up on Shane's question on the new cargo aircraft. Is it fair to assume that the freighter cost will step up ratably, but the cargo revenue will take time to catch up as you win contracts and use it for reliability? Or is that not a fair assumption given that you might be working on winning contracts with a new aircraft already?
No, thanks, Savi. A lot of the incremental freighters will go into service early next year. We have been contemplating this announcement for a while, so we have ideas and plans on how we will fill those freighters. There is an immediate need for incremental capacity in the state of Alaska and better overall operational reliability. The 737-700NG freighter fleet that we have is also getting aged, so they will be put to good use right away. We are not going to fly empty cargo holes around, and I think there is a lot of opportunity and desire for us to provide service within the islands in the state of Hawaii. I think this is going to be a quick ramp to accretive results from these four new freighters.
Helpful. Thanks.
Thanks, Savi.
We will move next to Brandon Oglenski with Barclays Capital.
Hey, good morning. Thanks for taking the question. Andrew, I think you mentioned picking up corporate share across your hubs, and I think specifically called out Portland, but maybe I heard that wrong. Can you speak to the momentum you are seeing there and how it is playing in with your premium mix as well?
Thanks, Brandon. We have been very excited about the results on the corporate side and the thesis. I specifically called out Portland and San Diego where we have had capacity growth and our share of the market on the corporate side has followed at an even higher accelerated rate. We have seen the same in Seattle. I will tell you right now, sitting in July, our managed corporate revenues are up over 40%. So the flywheel of growth and scale in our core hubs, our loyalty system, and then long haul especially out of Seattle have really helped fuel the ability to win share and obtain greater exposure to corporate traffic.
Thanks for that. And then Shane, I guess I do not want to push you too hard, but longer term you had been targeting low single-digit CASM ex cost inflation with something like mid-single-digit capacity growth. Has anything changed there? And can you talk to the cost synergies on the Hawaiian side? I think have those been achieved yet or now that you have rolled over to a single PSS, is there more to come?
Thanks, Brandon. No update to that philosophy. Our mindset is mid to low single-digit growth and low single-digit CASM ex over the long term. The business tends to take in cost sometimes in a lumpy way when we have to build up a brand new fleet type with crew — we'll have costs that come into the P&L stepwise, not linear. On synergies, we have largely gotten most of the synergies we could get immediately on the technology side and certainly on the overhead side. So there is not a huge tranche of incremental synergies to come. There is opportunity to do a lot more optimization as we move forward. As we bring work groups together, we are anxious to get joint CBAs done; those CBAs will come with incremental costs to compensation for employees, which is great, but then we'll have an opportunity to get more productive with those work groups, which will partially offset that. Right now, we are pivoting away from cost synergies and really focused on leaning out the overall business, both the back office and frontline productivity, and that is what you will hear us talk about going forward.
Thanks, Shane.
Thanks, Brandon.
Our next question comes from Catherine O'Brien with Goldman Sachs.
Hey. Thanks for the time, everyone. And congrats, Shane. I thought I should dig in a little bit more on Hawaii. Can you maybe provide some color around when the RASM drag was at its maximum impact and how you expect the trajectory of the recovery to play out over Q3? Sounds like maybe no impact in September or maybe I am reading too much into your comments there. And is there any way to parse out further how much of the impact is tourists booking away after the floods versus the ramp in seats to Hawaii from industry being a mismatch with the stable demand you talked about? Do you compare to tourism board information or anything? I will stop there.
Thanks, Catherine. That is an insightful question. The peak of the impact was when the storms really hit — roughly the March-April timeframe — which really hit spring break and was the deep of the challenge. As we moved into summer bookings, it caused some folks to reconsider travel, but we also saw elevated industry capacity which has outpaced system growth domestically. As we move forward, we are finding the right level and we have many levers on our side — loyalty, marketing, connectivity, and our ability to match aircraft to markets — to continue to get back to strength. Early days, but we are seeing a change in the trajectory of bookings. July and August are going to be under system capacity and we have shared there will be a couple-plus point drag, but we expect that to change as we move into the fourth quarter.
Okay, got it. And then maybe one for Shane on the balance sheet. Given the volatility and geopolitical uncertainty, makes sense you raised incremental capacity. With the reemergence of geopolitical tensions over the last month, how do you think about when to start paying down debt? What is in the calculus there, and how do the coupons on the new debt compare to tranches you would ultimately look to pay down? Thanks.
Thanks, Catherine. Maybe Emily can help with pricing. I just want to mention it was a positive to go out to market and get our first unsecured bond. There was a lot of interest and it traded around par. The team did a phenomenal job. We are ready to start paying down debt, but we will be deliberate. A few weeks of stability is not long enough for us to call it. We would like to see a quarter or two of really stable input prices and a return to healthy cash flows, and then we would aggressively start to pay down debt. We have plenty of debt prepayable or expiring soon, so we will have ways to reduce liquidity when we are comfortable doing so. Emily?
Yeah, Catherine. We did see some modest increase in the coupon on this latest debt given the interest rate environment. Overall, our weighted average debt interest rate is about 5.3%, which is up 0.4% from the prior quarter — so a slight increase.
Our next question comes from Tom Fitzgerald with TD Cowen.
Hi, everyone. Thanks very much for the time. Duane just to stick with CASM ex for a minute. Can you speak to how much stage length is maybe flattering CASM ex in the back half and if that is expected to continue into 2027? And then in terms of longer-term CASM ex framework, how should we think about pressures on maintenance especially with a changing fleet profile and any real estate investments you are making?
Tom, I do not think stage length is moving much; it is pretty stable, so it is not helping or hurting CASM ex right now. Aircraft density is also not doing much to CASM ex at the moment. Once the MAX 10s really start coming in, we will get a little tailwind from gauge over the next couple of years. You named two areas where we need to work hard — maintenance and airport-related costs — and we will make sure to manage those closely and find other areas to lean out to offset them. The LEAP engine fleet maintenance will start to ramp in earnest sometime next year. On the airport side, most of our big projects are now finished and they are beautiful spaces, but we will have to start paying for them and that cost will be with us through the end of the decade. We have line of sight to it, and we will continue to lean out other parts of the company to keep CASM on the trajectory we discussed earlier.
And Tom, on the maintenance side, retiring the 717s and older 737s, which are about 25 years old and roughly 30 airplanes, will have a huge benefit in the next couple of years, offsetting some of the increases from LEAP engine maintenance.
Yeah. That is really helpful. And then just a follow-up, any teaser trailer for Investor Day? Why now, and what should investors be thinking about? Should we look for a mark-to-market report card on the last Accelerate, new initiatives, or anything else? Benito used the phrasing 'structurally capable of producing $10 in EPS' — is that a change? Thanks.
Thomas, we thought it was time to bring everyone in to give an update exactly on where we are with Alaska Accelerate. A lot has happened in the last 12 to 18 months, and we want to show structurally where the company is and where we are going. There will be new initiatives. Everything we have done positions the company for stronger earnings in 2027 and beyond. We are excited to show it. We will detail how the second half momentum will continue into 2027. To remind everyone, we lost almost $500 million in the first half of the year, which we do not like, but the second half is set up to largely reverse that loss, and that momentum will continue into 2027. At Investor Day, we will bring all these things together to give you a view of the future. It will be at our new global training center, and it will be a great day for everyone.
We will move next to Michael Linenberg with BMO Capital Markets.
Good morning and thanks for the question. Can you walk us through how you think of the runway for Atmos Rewards and card penetration? Is there a natural share of passengers that you believe can become members versus today? And how do you think about card penetration among your passengers and active members over the longer term? Also, can you give an update on how the international routes are performing and, more broadly, how you think of the margin contributions of these new routes as they mature and move past the startup phase?
Thanks, Michael. We see continued increased penetration in both loyalty members and cardholders. With Starlink and the onboard sign-up feature, we have another powerful tool to grow the loyalty program; carriers that have used onboard connectivity for sign-ups have seen strong results. We expect increased penetration of loyalty members on our aircraft because of the enhancements to the program and the growing scale and relevance of our network both domestically and globally. On the international routes, we have been very excited about the initial reception of our European launch. If there was any doubt that Alaska Airlines could be relevant and powerful in this market, there is no question from what we have seen from day one. I think even Rome, when normalized for fuel and all the rest, would have been profitable. We are just in the first round: some of these new markets, especially London and Rome, have been selling out much of their inventory year-round and we came in later. We are also seeing significantly higher year-over-year book load factors on some Asia markets like Incheon and Narita. Point of sale in the U.K. was turned on recently, so we are very excited about where we can take this as we continue to grow.
We will move next to Scott Group with Wolfe Research.
Hey, thanks. Good morning. Just curious where you think you are at in terms of revenue synergies this year and how you think that accelerates next year. Ultimately, what I am trying to figure out is that it feels like you will be toward the lower end of RASM growth this year. With credit card and broader synergies, the hope was to be toward the better end. I just want to understand, is Hawaii the entirety of the delta, or is there anything else going on?
Scott, if we scorecarded all the synergies they would all be green across the board because the fare environment has gone up so much. When you get a step change in pricing, you have to be careful declaring victory early. All the categories we wanted to unlock are working really well: network connectivity, scheduling, banking improvements. We are seeing great catchment area pull into Seattle for Asia. Andrew spoke to international success. We had strong margins in some European markets and reported profitability in the first quarter in one of the Asian markets. Premium expansion, the loyalty program, and the new cobrand cards — we have three times as many premium credit cards in circulation as we expected. So all areas on loyalty, premium, and network value we feel incredibly good about, and we are more confident in the future than when we did the transaction. Our goal is to close our RASM gap to larger legacy carriers by beating them over time on a unit revenue basis. We believe the areas where they outperform us are premium international, where they have a decade-plus head start. We will catch up much faster than that and we are already seeing progress.
Okay. Helpful. And then one more quick thing — fuel volatility: what are you paying today on fuel given the spike? Just want a sense.
Thanks, Scott. Our last spot pricing we referenced in the prepared remarks was $3.85 per gallon at the end of last week. We were at $3.08 when we walked into this month less than 20 days ago, so you can see how quickly it moved. That's what we paid last week, and hopefully it turns the corner and goes back down.
Very helpful. Thank you, guys. Appreciate the time.
Thanks, Scott.
We will move next to Andrew George Didora with Bank of America.
Hey, good morning, everyone. Andrew, I think you said that your June RASM was up 11%. So when we think about the third quarter RASM guide of up low double digits, when you factor in booking curve dynamics and your September yield commentary, why would Q3 RASM not be above June? Any headwinds we should think about there?
What I can tell you, sitting here today, is that the sequential year-over-year improvement in July, August, and September continues on from what we saw in June and is a little higher and continuing to grow. So we are in a good upward trajectory as we continue into the third quarter.
Which is to say Q3 should be above June?
Yes, that is our expectation.
Okay. Thank you for that. And then curious on the international route launches — you see international growth at 30% to 40% the next several months. What is that RASM headwind given the lower RASM and CASM profile of intercontinental flying? I realize it helps CASM but may pressure RASM near term.
On a pure RASM basis, you could think of it as maybe a couple of points of headwind, but it affects both sides of the equation. Over time, as we scale these routes, both RASM and CASM dynamics should improve.
But as we have said, 100% of our growth for the rest of the year is long-haul ASMs and are going to sit around about 8% of our total capacity. On a normalized basis, long-stage-length flying should give a CASM tailwind and maybe a small RASM headwind initially. We are in the build phase and these dynamics should improve as we scale.
Thanks.
Thank you, Andrew. And thank you, everybody. We hope to see you in September at Investor Day.
This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.