Chris Berry - Managing Director of Investor Relations Bradley D. Tilden - Chief Executive Officer, President, Director, Member of Management Executive Committee, Chief Executive Officer of Horizon Air, Chief Executive Officer of Alaska Airlines and President of Alaska Airlines Brandon S. Pedersen - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance, Member of Management Executive Committee and Vice President of Finance-Alaska Airlines Inc Mark Eliasen - Vice President of Finance Andrew Harrison - Vice President of Planning & Revenue Management for Alaska Airlines, Inc. George Newman - Managing Director of Accounting and Controller Joseph A. Sprague - Vice President of Air Cargo Benito Minicucci - Member of Management Executive Committee, Chief Operating Officer of Alaska Airlines and Executive Vice President of Operations for Alaska Airlines

John D. Godyn - Morgan Stanley, Research Division Hunter K. Keay - Wolfe Trahan & Co. Helane R. Becker - Cowen Securities LLC, Research Division Savanthi Syth - Raymond James & Associates, Inc., Research Division David E. Fintzen - Barclays Capital, Research Division Michael Linenberg - Deutsche Bank AG, Research Division Duane Pfennigwerth - Evercore Partners Inc., Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Bob McAdoo - Imperial Capital, LLC, Research Division Stephen O'Hara - Sidoti & Company, LLC Tom Banse

Good morning. My name is LeRoux, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group First Quarter 2013 Earnings Conference Call. Today's call is being recorded and will be accessible for future playback at www.alaskaair.com. [Operator Instructions] I would now like to turn the call over to Alaska Air Group's Managing Director of Investor Relations, Chris Berry.

Thanks, LeRoux, and good morning, everyone. And thank you for joining us today for Alaska Air Group's First Quarter 2013 Earnings Call. Our CEO, Brad Tilden; and our CFO, Brandon Pedersen, will share their thoughts on our first quarter financial results, our operations and our outlook for the remainder of the year. Several members of our senior management team are also here to help answer your questions. As is our normal practice, our comments today will include forward-looking statements regarding our future expectations, which may differ significantly from actual results. Information on risk factors that could affect our business can be found in our SEC filings available on our website. We will refer often to certain non-GAAP financial measures, such as adjusted earnings or unit costs excluding fuel. We have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release. This morning, Alaska Air Group reported a first quarter GAAP profit of $37 million. Excluding the impact of mark-to-market adjustments related to our fuel hedge portfolio, we reported a record adjusted first quarter net profit of $44 million or $0.62 per share. This compares to a First Call mean estimate of $0.56 per share and to last year's adjusted net income of $28 million or $0.39 per diluted share. Additional information about our unit cost expectations, capacity plans, future fuel hedge positions, our capital expenditures and other items can be found in our investor update included in our Form 8-K issued this morning and available on our website at alaskaair.com. And now I'll turn the call over to Brad.

Thanks, Chris, and good morning, everyone. We're pleased to report our fourth consecutive first quarter profit, and we're also pleased that this was a record first quarter. In many of the 22 years that I've been here, we've posted sizable losses in the first quarter that have required us to dig out of the hole in the second and third quarters. This quarter's results demonstrate the positive impact of the changes we've made at both Alaska and Horizon over the last decade and the nimbleness we've gained in tailoring our capacity to meet demand. It's notable that we earned a profit in each month of the quarter, and this is the first time I've seen us post a profit in the month of January. In a moment, I'll talk about a couple of the uncertainties we're facing over the next few months, but I want to first highlight the strength of our results and the strength of our underlying business. We've been a solidly profitable company for several years now, and we expect the same thing this year. Although we're facing some headwinds with unit revenues, we're hitting our aggressive cost management objectives, and the decline in oil prices will help significantly. So overall, these excellent first quarter results put us in a good position for the rest of the year. For the quarter, our pretax margin was 6.3%. This represents a 1.9-point improvement from the first quarter of last year and translates to a rolling 12-month ROIC of 13.4%, which compares to 11.6% at the end of last year's first quarter. Revenues grew 9% on an 8.7% increase in capacity. The capacity growth was driven by new Midcon and Transcon routes out of the Pacific Northwest in San Diego and by the annualization of California to Hawaii flying added…

Thanks, Brad, and good morning, everyone. I'm finding it cold, so I apologize if I sound a little nasally today. Air Group reported an adjusted net profit of $44 million compared to $28 million last year. On a per share basis, adjusted earnings improved by 59% on a 57% increase in net income and a 2% reduction in diluted shares. And as Brad mentioned, this result brings our trailing 12-month after tax return on invested capital to 13.4%, a 1.9-point improvement over the 12 months ended Q1 of last year and well above our weighted average cost of capital. On an adjusted pretax basis, we reported a $71 million profit, which is $25 million or 54% better than last year. The $94 million improvement in revenues more than offset a $40 million increase in nonfuel operating costs and a $30 million increase in economic fuel costs. Brad spent a fair amount of time talking about the revenue environment, so I'll jump right into costs. Nonfuel operating costs increased 6% on the 8.7% increase in capacity. As a result, CASM x fuel declined by 2.3% to 8.62 cents, quite a bit lower than our initial guidance at the start of the quarter. We were very pleased with our cost performance, and our leaders across the company are doing a very good job managing the budgets. We did, however, also benefit from the deferral of certain projects, both IT and non-IT, to later this year. We saw a significant increase in maintenance expense with roughly half of the increase attributable to a high number of engine events at Horizon which we expect to subside in the second half of the year. Looking to the second quarter, we're expecting unit costs x fuel to be about flat on a 7.5% increase in ASMs.…

Thanks very much, Brandon. And operator, we are now ready for questions from the analysts.

[Operator Instructions] Your first question comes from the line of John Godyn with Morgan Stanley.

I wanted to ask sort of a question on CapEx longer-term and your thought process there. I couldn't help but notice in all the prepared remarks, the focus on sort of product enhancements and things of that nature. And of course, you've gone through a re-fleeting program, and you've always been sort of a very product-focused company. And where I'm going with this is, as you all know, sometimes investors like to try to parallel airlines to rails, and I've admittedly been a bit skeptical of that parallel but I'm open-minded. And if there's any airline that I feel like is closest to having those sort of economics or that trend, it's you guys. And one of the things that we've seen in rail land over time is that as the rails drove prices higher, actually, their CapEx as a percent of sales continued to sort of stay stable or go up because as they drive price higher, they need to kind of increasingly make customer-focused enhancements to their product or service to justify in part those higher prices. And when I take a step back, I sort of feel like I'm seeing a similar pattern with you guys, and it's working. This sort of virtuous cycle, it's very helpful to you. But I'm curious, do you think of it that way? If we envision a world where consolidation leads to higher fares over the next few years, do we need to even step up our game further in terms of product and service as fares go higher and the CapEx associated with that? How do you think about that?

Yes, John, great question. Here's a couple of thoughts about it. This upgrade that we're doing now is a $100 million upgrade, and that's not a fleet that's got a value of $4 billion or something like that. And this is the first time I can remember us making a cabin upgrade in 10, 15, maybe 20 years. So I don't think this is the first of many things to come. I think this is something that's due, and it's time for it. It's going to really benefit our customers. The NC power in particular is going to be great. And I think it's really important to keep in mind that this is going to enable us to increase seat density and get us closer to some of the low-cost competition. So on the 800s, we're at the 157 seats today, we go to 163. And that's maybe more than a couple of the airlines, but Southwest has 175 seats on an 800. So I think that's kind of how we're thinking of this. I don't think we're thinking of this as the first of many investments but is something we do need to do right now. To your broader question, I mean, an objective we've had for many, many years was to begin to produce significant free cash flow, and we're doing that. I think Brandon shared some numbers earlier. And so, I don't know, we're excited about doing that. I don't know if we're getting to your question exactly, but I don't -- I think our mindset is that, as we are able to invest and produce revenues and produce profits, to let some of that come through as free cash flow, to not be reinvesting at all. Is that getting to your question or are you asking something different?

Yes. I mean, what I'm getting at, I think a little bit more is, as fares -- as the fare environment goes up, if that's the case, if that's the future that we should be predicting, to what extent does that force the airlines to make sort of commensurate improvements in their products? Or do you think that product and service and -- improvements in product and service and price are just sort of disconnected enough that fares can go up for multiple years without that?

John, I may need to think about it more but my initial guess is the latter. I don't really see a connection. I think that as the industry does a better job with capacity, hopefully, we have more pricing power. But I think, these changes to our products are good, but I don't -- I'm not sort of sitting here seeing repeated improvements or upgrades to the product.

Okay. So it sounds like it's more of a cost-centric decision, and maybe that can lead me to a second question, which is, when I think about your cost profile over the last few years, you guys have done an incredible job of outperforming inflation. And it sounds like from your go-forward cost commentary, that you'd like to continue to do that for the next few years. I know that up-gauging has played a big role here. But outside of up-gauging, how should we think about your normalized sort of CASM x fuel, and what levers do you have outside of up-gauging to keep that below inflation?

John, it's Brandon. Maybe I'll take that one. You're right, up-gauging has been important to us, but I think the story goes beyond that. Bigger picture, we know that getting our cost lower is an important part of our success going forward. We're really proud of the work that we've done over the last decade or so. We've been able to reduce cost 10 out of the last 11 years, and if we do it again this year, it will be 11 out of 12. Productivity enhancements continue to be an important part of the strategy going forward. We've shared with you over the last couple of calls some of the things we're doing with kiosks that -- or self-service kiosks, for example. We have web bag tags that are coming. There's lots of things going on that are both preferred by our customer -- not necessarily preferred, but that our customers like, and help productivity. And so the idea is to leverage growth in airplane size, leverage growth in stage length, but also couple that with really tight control over overhead and continued focus on productivity to continue to manage costs down.

Your next question comes from the line of Hunter Keay with Wolfe Trahan. Hunter K. Keay - Wolfe Trahan & Co.: I'm going to be candid here, Brandon. The cost per gallon that you're paying for fuel on a percentage basis above your unhedged competitors, going forward into the second quarter, is actually increasing. It's getting worse, and it's actually twice as much as it has been in the last 3 years, basing on what I've seen from your guidance so far. If you're hedging to reduce volatility, it's not working. Fuel cost is just as volatile as it's ever been. And if you're hedging against sort of temporary exogenous shocks, I don't see the point of why you need to hedge into 2016. So as you talked about the competitive capacity challenges that you're facing? It just feels like you're trying to run a race now with a weight around your neck. And it's becoming such a drag on your ability to drive margins. And I feel like you're really kind of handicapping your URM guys to drive yields high enough till they get to a point where they are expanding margins on a year-over-year basis. So I mean, what does it take, really, what does it take to reevaluate the strategy? The net cash position on the balance sheet, you've got billions of dollars of unencumbered assets. What does it take to really just liquidate the hedge book at this point?

Well, Hunter, I appreciate your candid comments. Maybe I'll let Mark Eliasen, our Treasurer, handle that one.

So I guess you know that the fundamental problem we have as an airline is customers buy tickets in advance and we buy fuel today. So while I respect your position, we look at hedging as insurance, and it has worked for us. I mean, if you look at the current quarter, you're right, we haven't used our hedging program. But if you look at the last 11 years, it's paid off 9 out of those 11 years. And it saved our shareholders and investors $367 million. So I think, looking at it 1 quarter at a time, while we do calculate that and we are just as focused on fuel as anyone, we do take more of a long-term view of our program. Hunter K. Keay - Wolfe Trahan & Co.: But comparing this industry to the prior -- 5 years ago, I think, is pointless to some extent. And I understand that your tickets -- your customers buy tickets in advance, but no one is buying air tickets for 2016 right now. So I mean at the very least, as your balance sheet, Brandon said it himself, your balance sheet has come in 40 percentage points on a debt-to-cap basis your net cash. There's no reason you should have the same risk profile from a cost management perspective now that you did 8 years ago. So I'm not telling you to stop hedging, let's drop that for a second. Why don't you just only hedge for like 4 months out, 6 months out, even 9 months out, because that's when your customers are buying your tickets. That's really what it's about. Hedging into 2016 just, conceptually, just doesn't jive with that.

Yes, I think there's merit to what you're saying in terms of the industry changes, the dynamics of fundamentals being different. That's something that we are certainly starting to think about. But as you know, we like to be a little bit thoughtful and deliberate on how we evaluate these kinds of changes, and -- but I think your point has merit. The one thing I will say is if you look at the breakdown of our fuel cost, you probably noted in our investor update that our cost of hedging is $0.18 in the guidance. Well, $0.12 of that is hedges coming through, which is at some cost because we bought those a couple of years ago, and $0.06 of it is because we just swapped into the crack spread. And to the extent that we have $0.06 because we've swapped into the crack spread, what we've done is moved on the downside. But to the extent cracks go back up, we'll also be leading the industry -- or excuse me, we'll have a better position in the industry as we go back up. So $0.06 of it is just the swapped piece. But it is notable that we've only spent $4 million in the quarter on go-forward positions, which is much, much, much less than we've ever spent before. And that's because we've changed our policy with the out of the money in the last 6 months. Hunter K. Keay - Wolfe Trahan & Co.: Yes, no, I appreciate that. I mean, you guys are doing a good job, there's no doubt about it. It's just -- your stock is so cheap, you have phenomenal cash flows, a great balance sheet, there's just so much low-hanging fruit lying around there. It feels like to me that if you really wanted to, you could really compete with the big boys. I'm talking the S&P 500 here in terms of the multiple that you've got. I'm just not -- I'm trying to figure out what's holding you guys back, that's all.

No, we appreciate your candor.

Hunter, this is Brad. Maybe just to make a long answer a little bit longer, I think you and some of the other analysts have been helpful pushing us on this fuel hedging, and that's where we've gone to 20% out of the many calls. But I think the point you're making now really is about with consolidation and better control of capacity, the industry's ability to pass on cost increases in the form of higher fares. And that's worth us thinking about. And do we need to be hedging as far out as we do? But we're not the type to announce the change on a conference call, but it's a good challenge for this leadership team. It's something we should think about.

Your next question comes from the line of Helane Becker with Cowen Securities.

Just a couple of questions. Given the comments that I think you made, Brad, about March and having maybe more competitive capacity in some of your markets, or too much capacity in California-Hawaii, would you consider at all slowing your capacity growth? I think you've talked about 6% to 8% annually going forward, but would you consider bringing that down further?

Helane, this is Andrew. Right now, we're taking a hard look, given the industry conditions, about the fall. There is real strength as there always is in the summer. And we believe we have very decent Hawaii capacity cuts in the summer to take care of some challenges there. In the near term, our profiles are dying, we're selling them, the planes are filling up. There does not appear to be any demand weakness in the next few months for sure. We have more of a yield challenge. So absolutely, we'll be looking at capacity. But at this point, it's the fall. That's where we're focused on right now.

And Helane, the 48% was always profit permitting. So absolutely, if we can't grow profitably, we shouldn't be growing. And so that's another answer to your question.

Your next question comes from the line of Savi Syth from Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just on the competitive issues that you're seeing, I was wondering if you could provide a little bit more detail, at least some color on how much of your capacity is exposed to this action?

Sorry, Savi, which action were you referring to? Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just the unusual fare discounting and pressure you mentioned that was causing unit revenue pressure.

Got it. So just in March alone, 1/3 of our network was subject to a 3% to 4% reduction in selling structured fares in the mid to lower buckets. And really, there's 2 drivers for that. Firstly is Hawaii. The industry right now, especially out of California, has fares $50 to $60 lower year-over-year. And at this point, that continues. So that's the first challenge. And Hawaii is probably about 20% of our network. And then the other area is California. And what we're seeing there is a number of low-cost carriers having fares that are anywhere from $10 to $20 lower year-over-year in bookings that occur anywhere from 7 to 13 days in advance of departure, which is a key booking period. So we're not seeing issues with demand but the industry has some low fares in the marketplace that is putting pressure on our yields. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Understood. Are you seeing that letting up as you look forward or is that continuing?

What we're doing right now is we're actively managing it from a revenue management perspective, calling on our strengths, we're using the strength of our regional network, our feed, our O&Ds, we're doing a lot of things to make sure that we come out in a solid place, so -- but there is some pricing pressures. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. And just one last question. Regarding the $100 million investment, is it possible to segregate how much of that is for adding seats versus just the other upgrades that you're doing in the cabin?

Savi, it's Brandon. We're not going to break out specifically, but it's fair to say that the majority of that is related to the seats.

Your next question comes from the line of David Fintzen with Barclays.

Just quick on the $100 million CapEx for the seats, with $20 million this year, I think that's what you said, Brandon, is that fairly proportional to sort of what's going in, in terms of ASM and how that might be flowing through CASM guidance, or is that sort of you catching like the last couple of days of the year with the seats where it doesn't really affect your guidance in terms of ASMs or costs?

Yes, I think it's more the latter. $20 million this year, as I said, $80 million next. But in terms of the new ASMs that will come in or the impact on costs, I think, very little of it actually gets into 2013. It's probably more rounding than anything else. We really start to see the benefit in 2014. And so you see some in '14, and then just as you lap into '15, we'll see some benefit there, too.

Then as we start to think about '14 and the pacing of that, I mean, is that something you're going to try to do in off-peaks and...

No, no, not necessarily. When we get this thing going later this year, we're going to work hard and just at a constant speed and get that fleet through as quickly as we absolutely can because this is an important investment both from a customer standpoint and from a cost standpoint.

Okay. So sort of straight-lining it through next year, the bulk of it through next year will make sense. Okay. And that's very helpful. And then just coming back to the new markets that are developing, particularly the non-Hawaii new markets. You kind of mentioned, obviously, how's that school upgoing versus your expectations, is that sort of tracking the sort of normal 1 to 2 year sort of industry experience? Or just a little color on how those markets are developing relative.

Yes, most of those, David, is the Transcon markets and where we are today. Many of those started over the past 6 months, some of them in the bad, down periods. But on the whole, when I was just looking at March results just the last couple of days, and I have an air of confidence about how they're starting to build and going into the summer. So they are maturing, that I can tell you. They're at lower yields than the rest of our network. But that's it, they're maturing and getting stronger and stronger each month. So we feel pretty good about them.

And when you mentioned some of the lower pricing you're seeing out of the low-cost carriers, do those -- is that a response to some of those new markets, or is that something you're seeing in your broader Southern California network?

Yes, most of those markets are Transcon, which both the pricing structure and capacity is fairly stable year-over-year. Where we're seeing this elevated pressure is on the California West Coast markets.

Your next question comes from the line of Michael Linenberg with Deutsche Bank.

Okay. Great. Just a couple of questions. I guess, Andrew, to you, how does the competitive capacity outlook look over the next few quarters? I know on one hand, you've had, it looks like maybe there's some seasonal reductions by Allegiant and maybe they're not necessarily head-to-head markets with you, but they'd probably did have some additional capacity on the West Coast Hawaii that goes away, so maybe that's a plus. But then, just watching Delta put some moves in some markets, I think the markets are being characterized as seasonal or utilization flying, but it is nonetheless seats going into your market. There's some stuff where you have JetBlue coming up the coast to Alaska, Virgin America, et cetera. Pluses and minuses, what do you see, and maybe some regions are different, second, third quarter?

Sure. I think net-net, it's somewhat of a high-level wash, but there's really 2 capacity stories. The first one is Hawaii. And going into the third quarter, obviously, which is really important, the industry off the West Coast where we fly is going to be down about 1 point. We're going to be down 6%. And the same for the fourth quarter. So on the Hawaii front, the actual number of seats or ASMs that are going there is actually going to be down. On the other hand, the State of Alaska is our big challenge. In the second quarter, other airlines have increased their capacity by 22%. That grows to 35% in the third quarter. So we're seeing a lot of carriers bring their metal into the State of Alaska this summer, which is going to be our challenge. Some of the others you mentioned, they're up and down the West Coast, which we deal with every day. But the main story really is the State of Alaska, as we head into the peak season.

Okay, great. And then just my second question, I think, Brad, you gave the number out when you started talking about your characterizing the revenue, what the situation was and what the outlook was. And you mentioned that March PRASM, I think you said, it was down 2.1%. Was that consolidated or mainline? And I know you mentioned that April would be worse, then I think in a sense that you hadn't provided any sort of look on May and June other than things tend to pick up as we move into the summer. Additional color on that?

Mike, I don't know if we can provide a lot of color that we haven't said already. We just say it was consolidated RASM for March was down. So sequentially, what we said was first quarter revenues were fine, March was not. March was down a little over 2%. April, we said we do expect it to be worse. May, June, we're not as booked out. Well, I think kind of our thinking here is we are in for kind of a tougher second quarter. But summertime, most of the years I've had here, there's almost always been more demand than supplies. So summer should be okay. And then fall, we're starting to turn our attention. We're starting to think carefully about the fall capacity. So we didn't give guidance for May or June, but maybe you're getting a sense for how we're thinking about it.

Your next question comes from the line of Duane Pfennigwerth with Evercore Partners.

So you've been buying back stock for a while, which is positive, as you see moderation in yields and perhaps some less capacity required in the near term, I'm wondering does it cause you to evaluate your longer-term capital plans? How do you think about taking the next aircraft from Boeing versus perhaps beginning to pay a dividend? It feels like with your debt reduction that you've already got in the bag and very positive free cash flow, a dividend would be really a layup for you.

Duane, it's Brandon. I'm not sure I get the question. It almost felt like there were 2 or 3 questions in there. Is it a question about would we do a dividend? Is it a question about would we slow CapEx in the face of softening demand?

Just use of capital.

Just use of capital, generally? I guess, maybe bigger picture is that we're trying to be good stewards of shareholders' money. We're trying to do the right thing from a capital allocation standpoint. I guess, well, divorce a little bit the weakness that we're seeing in the second quarter and stay at the full year level, as Brad said, I think we're going to have a really good year. And as we think about our current repurchase authorization, we've got a lot left on it, but we're still sticking with our commitment to exhaust that by the end of 2014, which would suggest about $120 million of repurchase activity this year. Of course, as we get to the point where we're exercising -- where we have the option to exercise -- or excuse me, as we have the decisions around exercising new options, we'll consider all the facts that are available at the time. Certainly, the seat project works into the equation. And then, the question about a dividend is, we'll see. We know that capital -- returning capital to shareholders is important. We know there are several tools at our disposal. To date, we've preferred the repurchase path, but that doesn't say that we wouldn't do something different in the future after consideration of the environment that we're in, the cash flow forecast that we have and what the board wants to do.

Appreciate that answer. You know there's a larger competitor that's been alluding to capital return, and we'll see what they announce next month, and if it's material and how soon it is, but I think you've quietly lead the industry from this perspective. Perhaps over time, the industry moves closer to it, but I think you have a real opportunity to maintain your leadership in that regard.

Well, we appreciate that. We are certainly mindful of what others are talking about, although we wouldn't view this as a race. We need to do what's best for our company, and I think we've demonstrated going back to 2007 that we do think that this is important.

Your next question comes from the line of Glenn Engel with Bank of America.

A couple of questions. One is, looking at your -- I think you might have answered it, but the cost of settled hedges was $0.11 in the first quarter and your update says $0.18 in the second quarter. Was that the $0.06 you mentioned about the refining, or is that something else?

No, that's basically it. It was $0.11 in the first quarter. The guidance that we provided today had a cost of settled hedges of $0.18. Roughly $0.12 of that was the cost of the crude options that settled and another $0.06 of that is just the swaps coming through. So that's the differential.

And will that come back down to $0.11 or $0.12 back again in the second half, probably?

Yes, I think so. The swaps that we do are really, really close-in. And so as those swaps burn off, we should get back to what would be "normal". And then longer term, as we minimize the cash outflow related to new options, you'll see that come down even further.

The interest expense was actually slightly higher than the second half, not much, but you've been paying down debt, so why is that?

It's Brandon, maybe I'll jump in on that. Part of it is the accounting around Terminal 6 in L.A. From an accounting perspective, that is get on our books, even though it's a typical lease arrangement. But since we funded the construction of the terminal, from an accounting perspective, it's a big asset on our books, and what looks like debt, and so we're required under the accounting rules to call some of the rent payments as interest expense, almost as if we're amortizing a capital lease. Think about it that way. It's not much but it does drive maybe, George, $1 million or so on the quarter?

$1 million, yes.

The overall -- this is Mark. The overall story is very good though. We're reducing debt, which is causing us about 5%, so that's a good story. The yield has gone down a little bit on our temporary cash portfolio, though.

And finally, can you give us an update on San Diego, how is it doing and what's the plans over the next few quarters?

Glenn, this is Andrew. As you know, we've had some niche growth there with Hawaii. I think we're running now about 12 cities, 24 departures a day. And so we're watching some of the new regional markets, as well as the San Diego-Orlandos and the Bostons, and we're going to be starting San Diego-Lihue for summer here in June. We've been very pleased. It's not easy-going, but we're seeing good promising signs, and we're just very pleased right now.

And Glenn, this is Joe from Marketing. If I might just add on the San Diego question. We have a lot of marketing and advertising focus there right now, both to grow awareness of our new service from that market but also to bring in new customers to our customer base there. We've seen some great success on that front. Our mileage plan membership in San Diego is up 10% year-over-year. And we're also, when we do a geographic focus from our alaskaair.com, both shoppers and bookers, we're seeing big increases in terms of our alaskaair.com bookings from San Diego.

Your next question comes from the line of Bob McAdoo with Imperial Capital.

Just a quick question. Early on in the discussion today, you've made some comments about Hawaii capacity changing, and you made some reference to in the next few days or something. What was that? Could you go back -- I didn't understand what you're doing in the next few days.

Well, Bob, the reference there was that on the 29th, which is in the next few days, we will reduce our California Hawaii capacity by the equivalent of 2 airplanes. So Kona and Lihue will be going instead of daily to basically 4x a week. And then that's permanent going forward. So the only point there is we've had too much capacity there, and it's coming out in a couple of days.

And Andrew, that service out of San Jose and Oakland, so Kona and Lihue goes from daily to half daily.

That's not something new. That's something that's been in the system for a while. It just happens to be -- actually, you're just starting up this way is what you're saying?

Exactly.

Your next question comes from the line of Steve O'Hara with Sidoti & Company. Stephen O'Hara - Sidoti & Company, LLC: Could you just talk about -- on one of your other conference calls, there was talk about, I guess, what I'd call the fruits of consolidation in the industry. Where do you see the industry now versus the benefits of consolidation or kind of how you see consolidation playing out? And I mean it seems like there are a couple of companies that are still kind of mired in the process. I mean, do you see that helping the industry and maybe Alaska longer-term more so than it already has?

Steve, we've talked about this on other calls. I think that net-net consolidation has been a really good thing for the industry, and it will be better. I mean, if you just go back to a different time when the industry was a lot more fragmented with different players and everybody kind of more in a market share battle than actually trying to make their businesses successful and produce returns for owners, we many, many times have way too much capacity in the given market. And now we've got 4 airlines that have in excess of an 80% share of the industry or something like that. And I think across-the-board, much more kind of responsible decisions that are being made by the airlines. So I think it's good for the industry. Hopefully, it's kind of us kind of getting through another cycle or 2 of deregulation and becoming a more mature industry. Candidly, I think it makes us, at Alaska, it makes us optimistic about the future for the industry and about our own future. Stephen O'Hara - Sidoti & Company, LLC: Okay. And then second, in terms of the seat additions and the power option that you're adding. I mean, do you see yourselves, I mean, I guess do you see yourselves moving away from maybe trying to emulate more of a low-cost carrier or maybe some of the bigger guys that don't focus as highly on cost, I guess. I mean, where do you see that, the trend going over the long term? I mean, do you want to try and get closer to the low-cost guys, or do you think they kind of maybe move up towards the industry average over time?

Steve, you know us. We're in an interesting spot out here on the West Coast, flying up and down the West Coast of the United States. The fares have always been really low, yet Alaska has always had a differentiated product, and we cater to business travel and just sort of that part of the market. So we have always straddled this a little bit. I don't -- if we wanted to be an LCC, we'd make a lot of changes and add a lot of seats. If we wanted to be just like the big trunk carriers, the network airlines, we go a different place. So I don't -- this is an incremental move that I think is going to give our customers terrific seats, in-seat power, great in-flight entertainment system, maybe some other changes to the cabin as we go forward. But it is also going to make the company -- it's going to put us in a position where we compete a little bit more effectively with the LCCs. So it's hard -- I reckon, it's hard to give you an absolute answer but that's how we think about it. And that's the space we've been in for 10, 15, 20 years now, out here on the West Coast.

Your next question comes from the line of Tom Banse with KUOW Public Radio.

I've got a quick question about this week's FAA controller furloughs, and I wondered if that has any operational effects so far, any adjustments you see the airline making in the short term? Can you can respond to that?

Tom, Ben Minicucci here. Yes, the FAA furloughs definitely had an impact on us across the country, but -- where we operate a lot of flights into Los Angeles, so we've seen a daily impact into Los Angeles, I would say, one cancel per day on a Horizon flight as well as 5 to 6 delays ranging anywhere up to 3 hours. We've done a lot to take care of our customers, we communicated a lot, we've diverted a couple of flights into Ontario when the delays have been excessive. We had buses waiting to take customers back to Los Angeles. So we're doing everything we can. We were on ATC calls constantly monitoring arrival rates, and we adjust on the fly. Really proud of our ops team in the way they are dealing with this, and we are going to do the best that we can to mitigate it for customers, but we hope there's a solution from D.C. that put some end to this and we can get to more normal operations.

And if you could just wrap that up. How much advance word or planning ability do you have based on what the FAA is communicating to you?

They probably, they give us -- they don't give us a lot of words since, Tom, just to be honest. You maybe have an 1 hour to 2 hours when they change the arrival rate. What we've done in our planning process is we worked the arrival rates to an operational plan. So if the arrival rate in Los Angeles drops by 30%, we know exactly which flights to move, to divert, to perhaps cancel, consolidate, do whatever we can so we can take excessive delays and bring them shorter. So we've actually developed a pretty quick playbook to manage this inconvenience.

And, Tom, this is Brad. I might just add that in a time when our country sort of desperately needs to get our economy moving again and we need to move more closer -- we need to move closer to a balanced budget, it's kind of difficult to imagine and it's a little bit unfathomable that we are kind of impairing this critical part of our infrastructure. So I don't know, there's encouraging things the last day or 2. I think there's cause to be optimistic that we're going to get this problem behind it -- behind us. But the sooner, the better, from our perspective. This is something we desperately need fixed.

And your last question comes from the line of Hunter Keay with Wolfe Trahan. Hunter K. Keay - Wolfe Trahan & Co.: The -- let's talk about change fees. You guys did about $26 million in change fees last year, and JetBlue did $135 million of change fees despite the fact that your revenues were about the same. I'm not asking if you're going to adjust those change fees, I know you can't comment on that stuff, but can you explain to me at least why it was so much lower? It's about $0.90 a share, that you're leaving, I think, off your P&L for that. Is this an enforcement issue? Are there -- the restrictions need to be tightened? I'm just wondering sort of why that discrepancy exists?

Hunter, it's Brandon. Maybe Joe can answer the question in terms of the policy, but what were the numbers you threw out again? Hunter K. Keay - Wolfe Trahan & Co.: So I had you guys, according to DOT data, and we had to estimate the fourth quarter, but we had you guys at $26 million of change fees and we had JetBlue at $135 million of change fees. If you assume that's pure margin, not to mention pure numerator in ROIC, but if you assume this as pure margin, it's like $0.90 a share in earnings roughly. But either way, those are the revenue numbers, $26 million versus $135 million.

$26 million for the quarter? Hunter K. Keay - Wolfe Trahan & Co.: No, for the full year. That's DOT data. Is that wrong?

Yes, that is wrong. Hunter K. Keay - Wolfe Trahan & Co.: DOT data, wrong? No. Okay, so what was your change fee revenue then? Maybe that's the better question.

I don't know that we really have broken that out. What we have talked about is just big picture, change fee revenue on a per passenger basis is more like $12, just to use round numbers .

Just total ancillaries.

$12 per passenger, total ancillaries. And Andrew, we've talked about the amount of revenue that's first bag fee revenue, which is about $125 million a year or so. But we haven't really given much color on the rest. Why don't we take it up a few thousand feet? Joe, do you want to talk about generally how we think about that?

Well, Hunter, as Brandon said, our overall ancillary revenue for the first quarter was up. Even on a per passenger basis, it was up slightly, about $11.68. Bag fees, which have been actually trending down the last 3 or 4 quarters, reversed and were actually up 8% in the first quarter. So those are okay trends. They're not great in terms of growth, but at least, it's keeping pace with the rest of our growth. I think beyond that, United announced a pretty interesting change to their change fees this week. At $75 per change for our change fees, we think that's, again, a good value proposition. We have, we're trying to look at each of those different fees that we charge, make sure that they make sense for the customer, that they're simple to understand and yet they reflect the cost of what it does to make a change. And in some of these change fees, where the actual change fee itself is much higher, I think it's pretty tough to make that argument to the customer that it actually reflects the cost to the airlines. So I think we're feeling okay about that area, but as Brad and Brandon have said, these are things that we do spend a lot of time looking at and looking at the trends and making sure we're where we need to be.

And as we have no further questions, I'll turn the call back over to Mr. Brad Tilden.

And at this point, we'll just wrap up. Thanks, everybody, for tuning in, and we look forward to chatting with you again next quarter.

Thank you for participating in today's conference call. This call will be available for replay beginning at 5:00 p.m. Eastern Standard Time today through 11:59 p.m. Eastern Standard Time on Monday -- sorry, on May 24, 2013. The conference ID number for the replay is 37717116. The number to dial for the replay is 1 (800) 585-8367 or 1 (404) 537-3406. Also the call will be accessible for future playback at www.alaskaair.com. You may now disconnect.