Good morning. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group's Third Quarter Earnings Release Conference Call. Today's call is being recorded and will be accessible for future playback at www.alaskaair.com. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session for analysts. Thank you. I would now like to turn the call over to Alaska Air Group's Managing Director of Investor Relations and Financial Planning and Analysis, Lavanya Sareen.

Thanks, Devin, and good morning, everyone. Thank you for joining us for Alaska Air Group's third quarter 2017 earnings call. Before we jump on to the call today, I want to quickly introduce Matt Grady, our new Director of Investor Relations. Matt covered transports on the sell side and most recently, was part of the corporate strategy team at Starbucks. Matt brings a fresh perspective and deep financial acumen to the team. We're super excited to welcome him into the Air Group family, and I'm looking forward to working with him. With that, let's jump in. On the call today are CEO, Brad Tilden, who will provide an overview of the business and share progress on Virgin America integration; our Chief Commercial Officer, Andrew Harrison, who will share an update on our revenues; followed by Brandon Pedersen, our CFO, who will discuss our financial results and outlook. Several members of our senior management team are also on hand to help answer your questions. As a reminder, 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. We will refer to certain non-GAAP financial measures such as adjusted earnings and unit costs excluding fuel. We have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release. On to results. This morning, Alaska Air Group reported a third quarter GAAP net profit of $266 million. Excluding merger-related costs and mark-to-market fuel hedging adjustments, Air Group reported an adjusted net income of $278 million, which was $6 million higher than last year's net income of $272 million, and our earnings per share grew by 2% to $2.24. Said another way, Virgin acquisition has been accretive in the third quarter and was accretive in the first nine months since close of our merger. However, the net income didn't (02:50) decline on a combined comparative basis. We've included certain unaudited supplementary data labeled combined comparative statistics on page 7 of our earnings release, update to help investors make meaningful comparisons to the combined results of both airlines in last year's third quarter. Additional information about cost expectations, capacity plans, fuel hedging, capital expenditures, and other items can be found in our Investor Update included in our Form 8-K issued this morning and is available on our website at alaskaair.com. And with that, over to Brad.

Thanks, Lavanya, and good morning, everybody. With three quarters of 2017 now behind us, we continue to be very enthusiastic about our results and our future and about fulfilling our purpose of creating an airline that people love. Economic activity in our West Coast markets remained strong and our core business continues to perform very well. Our franchise is growing in California, and we're pleased by the response we've seen to our expanding network, to our focus on hospitality, and to our generous mileage plan. While our third quarter results were impacted by some operational challenges and by industry pricing pressure, we're addressing these issues as we'll discuss in a moment. For the quarter, our operating revenues grew to a record $2.12 billion. On that revenue, we earned a pre-tax margin of 21% and pre-tax income of $446 million, which is up 4.4% from the third quarter of last year. Though down on a combined comparative basis, our results were solid given the ongoing integration and given that fuel prices were up 14% year-over-year. From an ops standpoint, we've come a long way from the beginning of the year, but we still have work to do. We ranked second out of the six largest carriers in on-time performance for the quarter, up from nearly the bottom of the pack during the first quarter. While we're pleased to have closed the gap with our competitors, we remain committed to getting back to the number one position on this metric. And as many of you know, Horizon Air has encountered some challenges of late. Pilots have been leaving regional airlines for mainline opportunities at higher rates than in the past and at higher rates than we anticipated. The introduction of the E175s to our fleet has also increased our training needs. We…

Thanks, Brad, and good morning, everybody. As Brad mentioned, total third quarter revenues grew 5.4% to $2.1 billion. Demand in our core business remains robust, and healthy momentum in California continues. Our capacity team has been busy building an expansive network on Virgin America's strong foundation. In addition, we've made substantial progress on the integration with approximately one quarter of all Virgin bookings now flowing through as.com (09:37). Our revenue management system is fully integrated, a clear line of sight to implement new product and services on both the Airbus and Boeing fleets and the colocation of Virgin and Alaska operations at major airports such as L.A., San Francisco, Portland, Seattle, and New York for the convenience of our guests. Now, some color on the third quarter. Our same-store markets or markets that have been in operation longer than one year performed well. Same-store capacity, representing approximately 94% of our total capacity, grew 0.7 of a point, while RASM was slightly positive. Same-store load factor was strong at 86%, while certain yield suffered from close-in pricing, primarily in intra-California and California transcon, both driven by our need to be competitive with (10:29) actions. And I'll expand in more detail when I get to the fourth quarter outlook. The challenges at Horizon also impacted our same-store results. Flight cancellations led us to either refund or re-accommodate passengers, which led to displacement of higher yield bookings and lost revenues. We estimate this resulted in about $25 million to $30 million of revenue headwind or about 1.5 points of RASM. But as Brad mentioned, we've adjusted the flight schedule, and Horizon is now running well, and we expect these revenue headwinds to be substantially lower in the fourth quarter and behind us by year-end. Now, turning to new market growth, which I know…

Thanks, Andrew, and good morning, everyone. As you've now heard, Air Group posted a $278 million third quarter adjusted profit, a $6 million increase over last year's adjusted Q3 result. This equates to a pre-tax profit of $446 million and a trailing twelve pre-tax margin of 20%. On a combined comparative basis, that is with Virgin America's third quarter of 2016 in the base, our result was $68 million or 13% lower than last year. Andrew covered revenues, so I'll cover costs. Fuel costs were up substantially or $70 million, which equates to 23%, and non-fuel cost rose by $97 million. Unit costs ex fuel were up 1% on 7% ASM growth. Operational disruptions resulted in about $6 million of incremental cost during the quarter with airports and call centers most heavily impacted. Our call center team has worked extremely hard over the last few months, and our employees there deserve a huge shout-out. Not only did they handle the added volume from the disruptions, more guests are calling with questions about integration-related changes to our network and loyalty programs. The Q3 impact of those costs was partially offset by a shift in timing of some of the maintenance now planned for Q4. As we look to the fourth quarter, we expect unit costs to be up about 1.5% on the 11% increase in capacity. While that certainly doesn't make for a very impressive headline, there are several drivers. First, we're pleased to announce that we finally signed a new engine services deal with GE that covers all 130 of our Boeing 737-800 engines. We're very pleased with the economics of this deal. A power-by-the-hour structure will help take the lumpiness out of the engine overhaul expense over the next nine years compared to a time and materials approach, but…

Your first question comes from the line of Savi Syth with Raymond James. Please go ahead. Your line is open. Savanthi N. Syth - Raymond James & Associates, Inc.: Hey. Good morning.

Good morning. Savanthi N. Syth - Raymond James & Associates, Inc.: Hi. Hey. Can I ask on – I appreciate all the forward color provided today. On the 2018 growth, I wonder if you can provide some components on gauge and a little bit more color on where that growth is going to be.

Hey, Savi. This is Andrew. The growth next year, I think, a few points of that, it's actually more like stage length, longer stage length. Gauge is, I think, roughly flat, give or take. And really, it will break down to about 10 points of growth in the first half of the year. And then second points of growth in the second part of the year. And as I shared in my prepared remarks, fundamentally, all of this growth is just the annualization of what we've started in 2017, which, as we shared earlier, will be a lot of California and then some transcon, Pacific Northwest, and Mexico City flying. Savanthi N. Syth - Raymond James & Associates, Inc.: Got it. Thanks. And if I might ask on the cost side, Brandon, are you kind of indicating that even without the pilot deal, kind of unit costs will be up next year? Is that fair?

Yeah. Hi, Savi. As I mentioned, we're still in the budget process, so it's too early to say for sure. What I would say is that I gave you a bunch of the pieces. The pilots are going to be probably 3 points of CASM. We do have other cost pressures that are just – they are just these are the realities – the reality of the business are like the maintenance deal, really good economics but where the expense impact is different than what I'd call the cash impact. And then there's the mix issue. We do have this friction that I've been talking about and that's real. That will be in the first half of the year. As I said, it will start to come out in the second half of the year. So, it's probably a fair assessment to say flattish, perhaps up modestly ex pilot, but again, in terms of a specific quantification, really hard to do because I don't know the size of the pilot arbitration decision, and I don't know when it starts, so it's hard to give you a percentage year-over-year change. Savanthi N. Syth - Raymond James & Associates, Inc.: Helpful. All right. Thanks, guys.

Thank you.

Your next question comes from the line of Jamie Baker with JPMorgan. Please go ahead. Your line is open.

Hey. Good morning, everybody. A question on Horizon and the pilot issue. I'm just curious if you think you've taken a sufficiently proactive approach to reducing capacity further out than what you had been doing in the past. It felt initially like maybe you were running the airline just sort of in hopes that the problem might go away or find some solution rather than taking the approach that maybe this is just the new normal. I guess, I'm just surprised that after talking about this in the second quarter, we're still talking about it as it relates to the third quarter.

Hi, Jamie. Dave Campbell. Good morning.

Hi, Dave.

Hey. Just a little bit of background for you there. I think part of the challenge we have – just to go back a little further – I think part of the challenge is really the fact that we got behind hiring initially last year because we were simply not competitive from a pay standpoint. We've only got a deal in place that allowed us to start to hire. The biggest challenge moving forward right now is now catching up on the training piece of this. We're now hiring 30 pilots a month, so I feel really good about that, but it's going to take us another 90 days to really catch up on the backlog of training, and moving forward, I feel very comfortable that we have a solid plan in place. It's going to work. What we're seeing right now is that pulling the schedule down to the levels that allow us to operate daily has made a huge difference already. So far this month, we've had 24 days in, and of those 24 days, we've had 19 days where we had no pilot cancels compared to last month where we had on average about 500 (27:19) cancels for the month. So, we're getting a lot more control, a lot more flexibility, but it's really now about catching up on the training piece of this.

Hey, Jamie. It's Brad. I like to add on to that. This is on us. We should have seen this coming, and that's just all we'll say about it. But I think we're talking about this quarter because it affected third quarter results on September 8, so a month and a half ago, we brought the schedule down, and honestly, since those reductions, Horizon run quite well.

Okay. And then two just really quick housekeeping items. You mentioned the color on yield pressure. You said about down 25% to 30%. We are having trouble hearing that. That was related to transcon close-in business. Is that correct?

Jamie, Andrew. Let me quickly correct that statement. Yeah, we were just saying in select California transcon and inter-California market, close-in booking is down significantly. It seemed to be base fares (28:30) that seem to be disconnected from demand. What we talked about was really September, looking into the fourth quarter, what we did say was that the fourth quarter will more likely resemble the September revenue performance although we expect to be better than that, but that's sort of where we're seeing things right now.

Got it. And just on that topic of premium transcon, can you remind us the timing of when the Virgin premium product starts to kind of harmonize with the Alaska product? I view that, that premium market is one that is increasingly less important over time to Alaska that's why I'm asking the question.

Yeah, Jamie. Hi. This is Shane. Just to be super clear, Virgin aircraft are going to be reconfigured to resemble the Boeing here (29:24) that we've got. So, we will densify the first-class cabin from 8 to 12 on most of the fleet. And the A321s will have 16 in the first-class cabin. That starts September of 2018. It's going to take us about 15 months after we get going (29:41).

Okay. That's right. All right. Thank you, everybody.

Sorry. (29:46) will be a part of that, too.

Got it.

Thanks, Jamie.

Thanks, Jamie.

Thanks.

Your next question comes from the line of Andrew Didora with Bank of America. Please go ahead. Your line is open.

Hi. Good morning, everyone. Brad, I mean, you're already taking a lot of aircraft now through year-end. I was just wondering if as the pace of the delivery schedule sort of limits your ability to cut capacity further in 2018, if you feel like demand or your operations warrant it.

Yeah. So, Andrew, we don't have, as you are sort of saying, we don't have a lot of close-in control over capacity, but what I would share is we feel super solid about this strategy. What we are seeing, the competitive pricing that we're seeing in California is a little different than we expected. And maybe to give analysts a little bit more context, if we look at our third quarter RASM, the Alaska RASM, sort of the legacy Alaska markets was flat. The RASM in the legacy Virgin markets was actually down 8%. We actually are thinking about this. Andrew gave you some sort of insights as we look forward to sort of the back part of 2018 and 2019. We did have some thoughts on 2019 that we're actually pulling in a little bit, but yeah, there's not a huge ability to control capacity near term, but we're always thinking 12, 18, 24 months out, and if anything, we're pulling in that thinking a little bit right now.

The other thing I would just quickly add there, Andrew, is we do have real flexibility certainly on the regional side. We are taking 25 Embraer 175s next year, and we have Q400s that we are basically putting on the ground starting today and bringing that fleet down. So, we do have flexibility in the retirement of the regional fleet, which is a decent part of our growth next year.

Yeah. Andrew, you're making a good point. We don't have huge flexibility with aircraft deliveries. I mean, what we've actually asked these guys to do is go look at ASMs by day of week, by number of frequencies per day and adjust those, and to come up with the best position for the company on our flight schedule.

Got it. That's helpful. And then, Andrew, maybe more a point of clarification in terms of your 4Q RASM commentary. I know September had some impact from the Horizon pilots. So, your comments for 4Q, are they referring to the reported September RASM? I think it was down around 5.5% or are you talking more towards the core trend ex the Horizon disruption? Thanks.

There will be a little bit of Horizon disruption in the fourth quarter. I think my comments were really to try and frame for everybody that our unit revenue performance is more likely this September, but less than that is what we're seeing right now. So, again, I don't want to get too prescriptive there, but on 11% growth – I'll also tell you that October is our peak growth of 12%, and going forward, that will be the highest capacity growth, and it's just going to come down from there.

Would you be able to give us a sneak peek into how October is trending right now?

I'm getting stares from the CFO so I'm going to defer. I'm sorry.

Okay. Fair enough. Thank you.

It's Brandon. This is the answer that again, demand is solid, but we're seeing some close-in pricing that is puzzling to us.

Yeah. That's right. Next question?

Your question comes from the line of Michael Linenberg with Deutsche Bank. Please go ahead. Your line is open.

Hi. Yes. Hey. Two questions here. Andrew, I want to get back to just how you qualified the growth in 2018. I mean, I think you said that a lot of it or the majority of it was really the annualization of 2017, but the 2018 number, it looks like it's going to come in higher than what 2017 was. And I'm not sure if that reflects the fact that you had to pull down a bunch of E175 services that should have been in the schedule, and maybe they're coming back in 2018. Can you really give us a little bit more color on that?

Yeah. I think a couple of things. I think, as you've heard, Alaska's mainline completion rate has been 0.5 point lower than historic standards. Virgin has been 1.5 points lower than, I think, historic standards, and Horizon has been, I think, sort of 4 points lower than historic standard. So, I think for 2017, our completion rate of ASMs was down, operational reasons and, of course, to your earlier point. And I think going forward, as we go into 2018, again, we've got decent stage length increases, and we continue to up-gauge our fleet. So, I think there is a little noise here and there. I think we're going to be at 7.2% this year. We'll get more clear for you, but it's roughly on about the same basis if we run a full schedule this year, Mike, because we started off at 8.5%, I think something like that. We ended at (35:04).

Right. That's right. Okay. That makes sense. And then just to Brandon, in the third quarter, you had a free cash deficit, and I see, obviously, you paid the dividend, you bought back stock, and I'm just curious about the fact that maybe you have a more seasonal operation with the transcons, if it was just a shift in the ATL (35:20) and that, that had a bigger impact now that you have Virgin in the fold. What kind of drove that, maybe it was that bad, or was it something else?

Mike, good morning. It's Brandon. Well, I hadn't really focused on the fact that we had a free cash deficit.

Looks like it was about $300 million, and we get that for – seasonally, we see that with a lot of carriers.

Just off the top of my head, it's probably a pullback in the ATL (35:48) just as we get through the summer of flying. It's probably the timing of pre-delivery payments on the deliveries, and that's probably it. There was nothing significant that jumped out (36:01) during the quarter that would result in a free cash deficit other than, like you say, just the normal seasonality combined just with the timing of capital expenses.

Okay. That makes sense. Okay. Great. Thank you.

For the year, our free cash flow will be very solid though, just to point out.

Okay. Great. Thank you.

Your next question comes from the line of Hunter Keay with Wolfe Research. Please go ahead. Your line is open.

Thank you. Good morning.

Good morning.

Hi, Hunter.

Hey. So, look, I know mergers are hard, but it does feel like what's been happening here is really not what people are used to with you guys, that the execution has been sloppy, there's been bad cost control. It feels like the old sort of like Alaskan narrative is increasingly irrelevant to the investor story right now, and a lot of that relates to costs. So, I appreciate you're still in the budgeting process, and you've given us a reasonable amount of color on 2018, and I appreciate that. And maybe you can answer this today, maybe you can answer it in a month or two, but can you guys give some thought to providing a multiyear CASMex fuel look? A lot of other airlines have done that, but I think you guys have really the track record and the credibility to do it where people can actually kind of buy into it and believe and hang on to it like something that sort of the old Alaska had before you sort of lost this mojo, which I think really kind of started around the Analyst Day. So, have you guys given any consideration to that either today or some point in the future?

Hunter, it's Brad. I'll start and then well, maybe Brandon or Ben want to jump on as well. Mergers are hard is the simple thing. We announced this thing April of 2016. We closed it December of 2016. We sort of have been focused on this thing for, what is that math, a year-and-a-half now or something like that, and honestly, we got another six or eight months to run hard. What we're trying to do organizationally is say, look, this thing is done middle of next year, and we're back to running an airline. I think your characterization is right. We are good airline operators. We're good at managing costs. We're good at managing operations. We're actually good at managing revenues, but we have been a little bit focused on the merger. And the sooner we get to the place where the merger is done and we're running the airline, which means whatever, getting close to our people, budgets, all of that stuff, the better. I think you're asking a great question. Honestly, a hallmark of us, if we go back, we do like to have three-year cost targets, whether we share them or not through each of our divisions in terms of what they're doing with productivity and volume and so forth. So, I think that's a great challenge for the leadership team to see if there's something that we want to come back to all of you and communicate with. But the big, big picture, it is what it is. This merger, it does change a culture. There are literally hundreds of systems that you have to get through. There is labor agreements, there is people, there are jobs moving, and it does take your eye off – you actually do have to shift from what I think this company does best. And I'll just say from my own perspective, the sooner we get this thing behind us and get back to doing what we do well, the better. And I personally think that will – middle of 2018 at the latest, and honestly, I'm shifting my attention to that right now. Ben, Brandon, is there anything you guys would add to that?

Hunter, it's Ben. Our entire operations team is focused on the same thing. As you know, we're trying to do both. We're trying to run an integration. We're trying to run two operations and keep an eye on costs. For me, for example, Bay Area half the time, and we're looking forward to mid-year when we start getting focused and getting back to what we do best, which is running great operations, keeping costs tight, and delivering on our goals.

It's Brandon. Maybe I'll disclose – I can assure you that we are more frustrated than you about this whole thing. And there's a lot of anxiety around here. There's been a lot of tough conversations in the last few weeks about this. We've already started talking about this notion of a glide slope to get from the place we are now to the place we want to be. And...

Yeah. No, I'm not frustrated. You're better than this. Your investors are frustrated. I mean, I'm just an analyst. I'm just trying to just sort of do the work and forecast things. But I get the frustration, but I think a multiyear guide on cost from you guys in particular might be powerful, something to think about just for the future.

(40:30) we'll give it honest thought.

Okay.

I'll add one more comment that is the fact that the whole Horizon, we weren't distracted by the merger. Our issue is that we just didn't see the amount of attrition that was coming forth, so not prepared for having a training capacity that actually could handle the operation. So, we have six new leaders inside of Horizon flight ops team, so I have a lot of confidence we're going to get back to running a great airline.

Okay. Thanks. Yeah. Okay. I appreciate it. And then, Brad, when you say you're asking your network team to review new markets, that felt like you're trying to tell us something there. I mean, you emphasized this. I think there's a headline in Bloomberg about it. Don't you do that anyway? I mean, I would assume that doesn't mean you guys always do. And then on the comments around sort of like the inflexibility around capacity, I mean, what can you really do there? And then like what's new? What were you trying to tell us in that statement that's actually new and what are the potential outcomes from it?

Right. Good question. So, in the last 12 months, we bought Virgin America. We got a lot of revenue, a lot of markets that we don't – these weren't our market decisions. It's not our history. Then on top of that, we've added 44 new markets on it. And I think what we're saying is I am not only pleased, but I'm like really impressed with this team's ability in legacy markets to go in and understand the natural demand to build a schedule day of week, time of day, number of frequencies that is exactly right for that amount of demand and our competitive position. I would say, yeah, it's a fair point is don't you do that anyway, but it's a good question, but I would just say we haven't done that with the Virgin Network. And I think what you'll see us do, go into that network and I'll – just to really say, a lot of this stuff is extremely important to us strategically. So, a lot of this stuff isn't going to change, but there are some things in there that you might see change. There are frequencies, markets that were three a day that two a day may be a better or more profitable outcome with this, and there may be things geographically that you see us change. So, that's what we're really trying to say is that we are getting our arms around the Virgin Network. We're starting to think about it. We're not making an announcement today, but I think you will see something down the road. You'll see some adjustments to the part of the schedule that we inherited from Virgin America.

Thank you all very much.

Your next question comes from the line of Susan Donofrio from Macquarie Capital. Please go ahead. Your line is open. Susan Donofrio - Macquarie Capital (USA), Inc.: Good morning, everyone.

Good morning.

Hey, Susan.

Hey, Susan. Susan Donofrio - Macquarie Capital (USA), Inc.: Hi. So, I just wanted to circle back to your new markets. You had made a comment on the last call that you thought that you were seeing kind of a quicker ramp-up than the normal two to three years. And obviously, I recognized that there are some competitive dynamics going on overall, but are you still comfortable in what you're seeing with that?

Yes. Susan, this is Andrew. I think we talk a lot about new markets, and there is really two major categories there, the ones that are being in the schedule and selling for one, two, three years now, and then like even in the third quarter, there is 20 where we basically have no real history on as well. I think what we are saying here is number one, that the ones we have started and invested in continue to ramp quickly and do well as a portfolio. And speaking with Shane and his team just the other day and we're seeing good, encouraging build-up on a lot of the new markets. So, I think there's just a real -just to get really clear so there's no confusion that there is – what we're trying to say is that just standard new markets and growing, we feel very good about our new markets, but we're also in the legacy Virgin America network seeing real pressure in a good chunk of their network, which a lot of it is close-in pricing and some other things going on. So, as a portfolio going forward, we still feel very good about our new markets and how they are building, and we will make adjustments down the road if we need to. Susan Donofrio - Macquarie Capital (USA), Inc.: Okay. And then just shifting just your operations, I know you had made some comments about ATC issues and you're kind of working on readjusting some of the schedules. Where are you with that?

Good morning, Susan. Ben Minicucci here. We're working hard. So, what we've done is we've put a huge initiative with our flight ops team to really understand all the ATC. We have new issues in Seattle, of course, with the capacity. We're really understanding San Francisco-LAX to a certain extent. So, we're working with the network team, trying to make sure our flight schedule, the volume we're putting in at times of day, day of week makes sense for us to achieve a certain operational reliability and customer satisfaction. So, we're working through that. We're learning – I would say is we're not where we want to be, but we're learning what the challenges are with ATC. We're going to try and develop the best operational performance with the best network and that we can get from that. So, it's still work in progress. Susan Donofrio - Macquarie Capital (USA), Inc.: Do you expect to maybe start rolling that out in 2018 in terms of adjustments to the schedules?

Did roll out in chunks. So, what we're doing is we're just rolling out in chunks. As you grow, we've got to figure out where the growth comes. So you've seen us growing out in increments over 2018 and even into 2019 as we make – because honestly, we're working with the FAA as well in Seattle to make sure we get as much throughput out of Sea-Tac as we can get. So, we want to do is get Sea-Tac to actually operate better than it is today. So, we've got to work with several agencies to make sure that happened. Susan Donofrio - Macquarie Capital (USA), Inc.: Okay. Thank you.

Thank you.

Your next question comes from the line of Kevin Crissey with Citigroup. Please go ahead. Your line is open.

Good morning. Thanks for the time. Maybe for Andrew, can you talk about the close-in pricing? You've been pretty clear about what it is, but maybe you could talk about why close-in as opposed to earlier in the booking curve? You would see pressure. You can't speak for others, I assume, but generally, why do you see that occur?

Hey, Kevin. This is Shane. I think it's a fair question and you're right. I think you'd have to sort of ask other folks about why they might be doing it. The point we want to just sort of get across is we haven't seen a fundamental change in demand. So, we came into the month where we thought we would be from an advanced load factor standpoint. The bookings materialized close-in just as we kind of thought they would. They just came in at lower price points, which were, by and large, brought by others, and I'd really – hard for me to speculate as to why other people would have done that.

It's a challenge for us, and maybe this is more of a statement than it is a question, but maybe a question will come out of it. But it's bad enough when this industry is kind of supply and demand and it's seen as a commodity. This is like worse than a commodity. The demand is strong, the supply is decent, and the prices is actually worse than you'd expect. So, it's hard for investors to take this industry and say it's a good industry and an improved industry when these are the type of results we get. So, maybe I'll move on to another question. The question would be relevance mattering, I can understand that having been at JetBlue. That was certainly a philosophy that they had there. Can you talk about the speed of getting to that relevance? It seems that the airlines did run into kind of pricing pressures. It's often when there is really rapid growth. So, what was the urgency to grow so quickly to create that relevance? Is it a first-mover advantage? Why does speed to market matter?

People might have different philosophies, but I'm a simple man and it's really simple. We came out there and just put it all on the table, set it out, our guests knew where we were going, our investors should know where we're going, our employees know where we're going, and the executive team knows where we're going, and that's what we've put out today. So, we have a clear mandate, we have a great foundation, we're going to go – we weren't going to do this over x years. We just want to get it done, behind, as Brad said, and get really good at what we do best.

Yeah. Kevin, it's hard to ask for somebody's loyalty if you can't take them where you need to get them. And as a reminder, San Francisco is an example. We've gone in the last two years from being able to serve 11% of the customers there to 70%. There's no question in my mind it was the right thing to do, but we've got some growing pains. To your first question of like why you've got strong demand, no growth in capacity and fare pressure, it's a great question. I personally think it's jostling around that sort of competitors compete for a position in the marketplace. What I've seen over my career is dust does settle down in time, and it settles down in the ones that do have competitive advantage, they operate well, they've got great employees, great service, great cost structure, great fare structure, they survive. And I think we're going to survive. That's what we're going through right now.

Thank you. Thanks for the time.

Thanks, Kevin.

Your next question comes from the line of Joseph DeNardi with Stifel. Please go ahead. Your line is open.

Hey, Joe.

Joseph DeNardi, please go ahead. Your line is open.

Let's go to the next analyst.

Your next question comes from the line of Dan McKenzie with Buckingham Research. Please go ahead. Your line is open.

Oh. Hey. Good morning. Thanks, guys. Andrew, if I can go back to the transcon and Intra-California pricing pressure, to just ask this a little differently, what percent of the revenue is being impacted by basic economy pricing in the third and the fourth quarters? Is it the 25% that you shared or is it something higher? I guess, that's the first question. And then second, of course, I don't expect you to tell me what you're going to do, but are there steps that you can take to put fences around some of the ULCC pricing?

I'm going to let Shane answer that one. (50:42).

He said wait a minute, and that's what he did.

Yeah. It's a good question on the percent. Basic economy is pretty much rolled out more or less throughout most of our system, certainly throughout California. I mean, there are a few markets here and there where it's filed but not selling a lot. But I think most markets now we at least see it in the sort of 21 AP (51:07) range. We have seen it come into from the close rim pricing (51:10). I don't have the exact percentage, but it's broader than it was before. That was the first question. The second question?

What can we do?

Oh. Fences, yeah. I think that's a good question. Look, I think a lot of these stereotypes have been practically gated out of like corporate sort of travel portals in terms of indirect distribution. I do think there is a question here for OTAs. I think they put these products on the shelf, which, in general, people don't like them a lot, right next to our product, and consumers may not know that there is an actual difference, and we've been sort of taking our OTA partners to task over that, and I think they actually need to help do a better job, inform customers. People at the same price would prefer our products generally so they have more stuff included.

Yeah. Thanks. And I actually may circle back after the call with maybe a couple of thoughts, but I guess, Andrew or Shane, I guess, another question here. I think the rule of thumb on RASM when it comes to new flying historically has been around sort of 80% of system RASM, and please correct me on that. But my question really is, what did you see in the third quarter? Was it coming in? And I'm not talking just inter-California, transcon, but just all kind of 44 new markets here. Is it coming in at 30%? And then what percent of the capacity is in the markets that are 12 months or less here in the fourth quarter?

So, for Q3, the new markets, it's 6% of our capacity. It's all of our growth basically for Q3. Your stats are almost exactly on. And generally, those are the numbers that we would look at. We would look at a year one ramp that gets to about 80% of the region's average. So, we break our network into 13 regions, and they were below that in Q3, which we would expect it because we started them in Q3, so you have all these outbound – or the returns of the initial outbounds have nobody on them, but they were in the 65-ish percent to 70% range, and they're moving up.

Thanks, guys.

Thank you.

Thanks, Dan.

Your next question comes from the line of Darryl Genovesi with UBS. Please go ahead. Your line is open.

Hi, guys. Thanks for the time. Just, Brad, you provided some commentary on having most of the merger integration stuff wrapped up by middle next year. You've got a big pilot contract to address next year. And looking beyond, I think you've also got some other labor cost pressure outside of the pilots. Just wondering, I mean, from where you guys sit today, do you feel like you will be able to resume EPS growth in 2019? Because it seems like 2018 – it seems like you're going to have a hard time growing EPS next year. But I mean, just looking after 2019, the way you guys sort of see your labor cost developing, assuming kind of status quo, macroeconomic environment, I mean, was there an opportunity to actually resume earnings growth in 2019?

Darryl, we sort of have a proud tradition. I'm not talking about time period that far out. But what I would say is that there is a lot of dislocation right now that we discussed. We are sort of consumed with getting the merger done. We're having a fair bit of cost pressure right now. As we enter some of these new markets, we're getting pushed back that's affecting some of the fares. I do think we're in a transition period now, and I sort of see some choppy water getting better as we look forward. We don't know fuel, the economy, (54:50), a lot of things we don't know about 2019. So, it's probably not smart for us to make a lot of estimates. That's something you guys are probably better positioned to do than us. But I think this firm, this company is going to be through our transition. We're going to be settled down and operating. We'll be in much, much better place by honestly the middle of next year.

Okay. I mean, if you had to kind of characterize the labor pressure that's still to come beyond what you said on the pilots, would you say overall it's kind of more significant than what you're going to see on the pilots in the aggregate or less significant than what you'll see from the pilots in the aggregate?

Darryl, it's Ben Minicucci. Well, for 2018, we have one contract that's amenable (55:31). There are three coming open. I guess, what we'll say is our philosophy has been – it's going to be consistent, just like it's been with pilots (55:40) where arbitration is. But we have a principle on being a low-fare, low-cost, high-growth airline. And that dictates having a certain cost structure and labor cost that needs to be consistent with that. That's going to be our strategy going in. The market will dictate where that lies, but that's going to be our strategy going in. So, it's hard for us to predict how much pressure is going to be around there, but I'm just telling you that's our mindset going in with every labor contract.

Okay. Thank you.

Thank you. Your next question comes from the line of Rajeev Lalwani with Morgan Stanley. Please go ahead. Your line is open. Rajeev Lalwani - Morgan Stanley & Co. LLC: Hi. Thanks for the time.

Hi, Rajeev.

Hi, Rajeev. Rajeev Lalwani - Morgan Stanley & Co. LLC: Just coming back to the comments around developing markets going into next year, can you maybe talk about or quantify what the opportunity is around it? Maybe just quantify what the headwinds were this year, just from having that much in the system.

Rajeev, I think I'll answer this more generally, and that is – I mean, you heard Brad's remarks around the integration, but our partners now have 46 wide-bodies a day departing San Francisco and Los Angeles globally. All of that traffic and all the rest of it will come on. We'll get our share of that as we work together. As we put in premium class and reconfigure aircraft, as we grow the loyalty program, as we mature the markets, as we get better with revenue management, and as we tweak the schedules going forward. I think the way I would answer that to say we see only – I'll say I only see upside in all the things coming together, single reservation systems, premium class, getting our first-class cabin configured, densifying our aircraft, building the loyalty. I just see exciting things for us going forward. And so, while I can't comment on specific markets, the portfolio, I believe is going to do well. Rajeev Lalwani - Morgan Stanley & Co. LLC: Great. That was it. Thank you.

Thanks, Rajeev.

Your next question comes from the line of Helane Becker with Cowen Securities. Please go ahead. Your line is open. Helane Becker - Cowen & Co. LLC: Oh. Thanks, operator. Hey. Thanks for getting me in towards the end of the call here. I just have a couple of questions. One, when you think about the Horizon training schedule were coming up on the holidays, are your classes filled through that period or will there be a pause while the holidays occur and then resume again in the New Year?

Hi, Helane. This is Dave Campbell. We are set for the balance of the year in terms of a steady flow of pilots that have come into the company that are in training right now. We've pulled the schedule down to match the level. So, I have no concerns at all about the holidays. We've actually got a lot of help from the unions on a process called unstacking, which allows us to actually better cover the holiday periods with reserves. So, I feel really good going into the holidays both for Thanksgiving and through January 1. Helane Becker - Cowen & Co. LLC: Okay. Great. Thanks. And then I don't know who should answer this question, but I noticed that you dropped your fees on carrying odd, oversized items to $25. And I'm just kind of wondering if the revenue impact is kind of just a rounding error, A. And, B, the other part of the question is really with regard to OTAs and if they don't understand your pricing and maybe can align with what you're doing, why don't you pull your capacity out of those providers and kind of push everybody to alaska.com.?

Hi, Helane. This is Shane. Yeah, the reduction in sort of sporting equipment is the way we sort of went out with it. Yeah, it was a very, very small overall amount of revenue, and I think it got incredibly good press and play on it. And I think it's a great thing for our customers on the West Coast people. These are near and dear to their hearts. They got a lot of outdoor activities, and we received a lot of sort of good support and response from customers on that. So, we're happy to do it. On the OTA thing, it's still a large enough distributor of tickets that it probably doesn't make sense for us to just walk away from it. And we're more interested in optimizing the channel and working with our partners. And Expedia is a very large one. They're right up the street from us. We have a good relationship with them. Google is another one. We have a really good relationship. So, we just need to get the way that they merchandise the products to be a little more clear, which is what we're working on. Helane Becker - Cowen & Co. LLC: Okay. Good. Thank you.

Thanks, Helane.

Bye, Helane.

Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead. Your line is open.

Hey. Good morning, good afternoon, everyone, and thanks for getting us in the queue as well. Andrew or Brandon, I just want to get a point of clarification here because my inbox is lit up with all sorts of questions on your revenue outlook here. Did you say the 4Q range is going to be better than where you were in September? Can you just remind us?

From what we're seeing today, we are seeing it to be better than September, but we don't want to add more color to that.

Okay. Thanks for that clarification. So, if I were to dissect this call, I think I heard three things. I'm not quite sure where we can place the weakness. So, you guys talked about weaker walk-up fares as expected (01:01:13) even though demand is okay. You talked about new markets that I guess are maturing along the schedule that you would expect, but I guess, that did impact your relative revenue performance here. But I guess, what troubles me and I think Brad mentioned this earlier, you said your legacy Alaska network actually had flat PRASM, but Virgin, I believe, was down was it 7% or 8% you said, Brad?

Yeah.

I guess, when I hear that, I mean, I understand, Andrew, you're talking about city presence and relevance and everything else. But is there something working underneath the surface here where you guys have lost some customer loyalty at Virgin are you seeing book away? Because I hear the walk-up fares in California, but we're just not hearing that same pressure at some of your very closely overlapping peers.

Yeah.

So, is there something else going on at Virgin right now?

No. As I shared and I don't want to go into details, but our loyalty growth is very, very strong. And again, the whole premise here is that we bought this huge base, and we have nothing but improvements that we'll be making...

Yeah.

...to that across every major commercial lever. And I think what you're seeing, just to be putting it bluntly here is the industry is reacting to our new reality here in California, and that's what we have.

Okay. Thank you.

Your next question comes from the line of Joseph DeNardi with Stifel. Please go ahead. Your line is open. Joseph William DeNardi - Stifel, Nicolaus & Co., Inc.: Yeah. Thank you very much.

Hey, Joe. Joseph William DeNardi - Stifel, Nicolaus & Co., Inc.: So, I guess, at the Investor Day, you guys gave the revenue synergy target of $240 million. The problem with that number a little bit is that as fares come down that most revenue synergy buckets would also come down. The one that doesn't is the credit card program. So, can you just talk about the – I guess, this is for Brandon – the process of realizing the incremental earnings from the credit card? Is it just as simple as bringing Virgin customers over to the Alaska card or do you actually need to kind of go to BofA and renegotiate? Just talk about how that works and maybe what the incremental earnings are expected to be next year.

Good morning, Joe. I'm glad we got you in. Joseph William DeNardi - Stifel, Nicolaus & Co., Inc.: Thank you.

No, it's not a matter of renegotiation at all. We're actually satisfied with our contract with BofA right now. It's a long-term deal. So, we have no plans to go out right now and to renegotiate that deal. Although I will say BofA has been very helpful, and we expect them to continue to be helpful providing incentives for us to attract members to the Alaska Airlines credit card. We do have a process going right now to get people from the Virgin America card over to the Alaska card. But it's more than just conversion. It is growing that credit card presence in California. We gave you some information in Investor Day that even with small penetration, the economics are going to be powerful. I'm not going to give you any quote earnings or EPS number in terms of what that means, but what we will say is that the credit card, as you well know, is a strong driver of cash flow and an economic engine in this company, and we would continue to see that as being an opportunity as we grow the base. Joseph William DeNardi - Stifel, Nicolaus & Co., Inc.: Okay. Fair enough. And then, Brandon, just I guess, kind of on top of that, on page four, you guys provide your income statement, and you kindly break out freight and mail revenue. I don't really think anybody cares about freight and mail revenue. Would it make more sense to break out the commission revenue that you received from the card instead of that so investors have something to look at and quantify the benefit of the loyalty program?

Joseph, it's Ben. I think our cargo (01:04:59-01:05:06) for all our cargo employees out there.

That is really hard, Joe. It's a fair point just to evaluate what the classification is on the front of the P&L. What I will tell you is that we give plenty of detail in the footnotes, and so you'll have to wait two weeks to get that. Joseph William DeNardi - Stifel, Nicolaus & Co., Inc.: Fair enough. Thank you.

Thank you, Joe.

Thanks, Joe.

And your last question comes from the line of Jamie Baker with JPMorgan. Please go ahead. Your line is open.

Hey, guys. Just a quick follow-up and you sort of touched on this earlier, but how confident are you that the close-in weakness isn't related to the advent of basic economy at the competitive level and does this cause you to rethink your strategy at all in regards to that product?

Jamie, this is Shane. Yeah, confidence, look, right now, we're watching basic really closely. I don't think that's the principal driver, and we'll continue to monitor that...

Okay.

...if that changes.

Yeah.

That's fine. That answers the question. I appreciate being allowed back into the queue. Thanks.

Oh. No worries.

All right, everybody. Thanks very much. We look forward to seeing you guys out and about or talking to you on our fourth quarter call, which is coming up in three months. Thank you.

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