Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 Fourth Quarter Earnings Call. [Operator Instructions]. Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question-and-answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning and Investor Relations Ryan St. John.

Thank you, operator, and good morning. Thanks for joining us today to discuss our fourth quarter and full year 2025 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew and Shane. Several other of our management team are also on the line to answer your questions during the Q&A portion of the call. Air Group reported fourth quarter and full year GAAP net income of $21 million and $100 million, respectively. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted fourth quarter and full year net income of $50 million and $293 million, respectively. Our comments today will include discussion of Air Group reported results and forward-looking guidance compared to prior year pro forma results as if Alaska and Hawaiian were a combined company for the full periods referenced. Lastly, as a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures such as adjusted earnings and unit costs, excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Ben.

Thanks, Ryan, and good morning, everyone. Before we dive in, I want to start by thanking our 30,000 employees for their efforts throughout 2025. Last year was a year of transformation where we laid the groundwork for the next chapter of Alaska Air Group. It did not come without growing pains, but we delivered bold initiatives, strengthen our competitive position, improved our relevance and set the stage for long-term growth under our Alaska Accelerate vision. Our employees navigated a lot of change last year, and I can't thank them enough for their commitment to helping us realize our long-term potential and for taking care of our guests every step of the way. My belief in our future has never been more evident in the last few weeks as we secured the largest aircraft order in our history with Boeing. This solidifies our growth through 2035, resulting in an outstanding order book of 261 aircraft, if all options are exercised. This now includes firm orders that will take our 787 fleet to a total of 17 aircraft supporting our goal of building Seattle into a world-class global hub with at least 12 destinations. I want to thank Boeing and Transportation Secretary Duffy for their support and our commitment to being the country's fourth global airline. While 2025 did not result in the financial returns we had initially laid out at the start of the year, we strongly delivered against our Alaska Accelerate vision, ticking off many major milestones with several of them outperforming expectations. By many measures, 2025 was a major success for our company. We firmly control the areas within our control. Synergies finished ahead of plan for the year, notably on the network side as the power of the combination of Alaska and Hawaiian was evident all year long.…

Thanks, Ben, and good morning, everyone. Today, my comments will focus on fourth quarter and full year results, along with our outlook and trends for 2026. For the fourth quarter, we delivered total revenues of $3.6 billion. That's up 2.8% year-over-year on 2.2% capacity growth. This resulted in unit revenues up 0.6%. I'm proud of the team for delivering positive unit revenue performance considering we had one of the industry's most difficult year-over-year comparisons in addition to contending with a government shutdown. As we shared in our investor update back in early December, the government shutdown impacted fourth quarter earnings by approximately $30 million or $0.15 of earnings per share. Bookings were solidly positive going into the heart of the shutdown, then went negative on a year-over-year basis for a short period and rebounded in early December, back to positive territory to finish the year out strong. For the full year, we delivered total revenues of $14.2 billion, up 3.3% year-over-year on 1.9% capacity growth resulting in unit revenues up 1.4%. This performance reflects our continued leadership in unit revenue growth, which we believe will finish the year ahead of the industry average, illustrating the benefits of our Alaska Accelerate synergies and initiatives. As has been the case all year, we continue to see strong demand in our premium cabins. In the fourth quarter, First and Premium Class revenues were up 7.1% year-over-year, outperforming Main Cabin by 9.5 points. Premium revenues represented 36% of total revenue, up 1 point from Q3. Main Cabin revenues were down 2.4%, which is a modest improvement versus the third quarter. The fourth quarter has a much harder comparison than the third quarter, so the improvement in Main Cabin performance is encouraging as we look to 2026. For the full year, premium cabin revenues increased…

Thanks, Andrew, and good morning, everyone. As our fourth quarter earnings indicate and as Ben and Andrew both shared, we exited 2025 on a strong trajectory, which has continued to strengthen further in the first 3 weeks of the year. At this time last year, we were coming off of our Investor Day, and we're experiencing a similar historically strong demand backdrop, which felt like a very constructive start on our path to $10 of earnings per share by 2027. Ultimately, the macroeconomic backdrop in 2025 played out differently, reducing revenues by more than $500 million and underscoring that our industry remains a volatile one. Changes can occur quickly in either direction and that direction has been increasingly positive since September of last year, trends which were only briefly interrupted by the government shutdown. While slightly below our guide, which was snapped a couple of weeks after our full flight schedule was restored when the government reopened, our fourth quarter unit revenues finished closer to our original plan versus any other quarter in 2025. Demand rebounded quickly post shutdown, flattening modestly through the holiday and has since accelerated further with current bookings now improved on a year-over-year basis on difficult comps versus January and February 2025. Given our 2026 capacity growth is in line with forecasted overall economic growth, we expect this trend can continue, hopefully backfilling the entire macro-driven revenue reduction from last year. This strength, along with further synergy and initiative execution is expected to drive healthy earnings expansion this year. For the fourth quarter, we reported adjusted earnings per share of $0.43. $0.33 above the guidance we released in early December. Roughly half of the beat was attributable to better nonfuel cost performance with the other half coming from a combination of lower fuel in December as…

[Operator Instructions] And our first question comes from Duane Pfennigwerth from Evercore ISI.

Just on the increase in managed corporate travel, that 20% number, what's interesting about that is the comps aren't easy yet. I think that's more of a late Feb, March event. So how do you interpret that 20% growth? Do you think this is catch-up from travel that's deferred from the fourth quarter? Are there just differences kind of seasonally year-over-year? How do we think about that?

Duane, I think a couple of things. It's sort of in general, up in line with bookings. What we've really seen on the managed corporate side is driven by volumes. But the other thing I'll just tell you is that I think as it relates to technology and some of those industries, we've just seen a real significant bump. I also think that what we're starting to see is the fruits of our labor as it relates to our expanded network footprint global. We're getting more and more penetration into our corporate contracts. And so I think it all stems to what we've been working on is to become more relevant for the corporate traveler.

And then my follow-up is just on systems. You rattled off a lot of positives. And I just wanted to check with you, are those all in the bag? Or are there specific integration milestones from a systems perspective that you expect as we think about 2026?

Thanks, Duane. What's really exciting on the guest-facing systems, we cut over in October for all flights beyond April '22 on a single PSS. The last major milestone is actually in April where we people start flying on the new PSS. But other than that, all major guest-facing commercial systems, whether it's loyalty and all the rest of it are all single and in place now. So that's why we're very confident that our guest experiences in 2026 will be materially smoother and more seamless than they were in '25.

And our next question comes from Conor Cunningham from Melius Research.

Maybe we can start off just by the guide for '26 in general. So I think it's pretty clear at the high end on how you get there and if demand remains here and fuel normalizes, all that stuff, it's pretty easy to get to. But just trying to understand the downside a little bit better. You cited macro factors, but if you could just talk about how that could play out for you if the low end of the range was actually in play. Is it really more of an industry dynamic? Or is it macro? Just how do you think about the risks in general?

Conor, it's Shane. Yes, you actually just answered it at the very end. I think -- the two things that really could take us to the low end of the range in our mind is either a step back on the macro side, which we're hopeful doesn't happen and we're not expecting, but it did happen last year. And so we're a little bit informed by last year's experience in terms of putting a guide out for this year or we just saw fuel prices spike. And just for reference or context, $0.10 of fuel price increase for the year is $0.75 of earnings. So $0.20 fuel price increase could take us down there, all else equal. Again, we're not expecting that, but just given the volatility in the industry recently, we thought it was the right thing to do to widen the range a bit and share more details about why we would approach the low end. All of the things that are in our control, synergies initiatives, running a great operation, lapping some things that happened to us last year, we're going to execute really, really well, and we're confident about that.

Okay. Okay. And then, Shane, maybe sticking with you. Just -- so in the past, you've talked about like 4% to 5% capacity growth. And then in the context of that, it's like flat unit revenue. I know you're not giving unit revenue trajectory, but just hoping you could talk about the building blocks here because the way that I think about you're growing 2.5%, I assume you're back to hiring some you have some investments that are in place, but you also have cost synergies. So if you could just help with the trajectory of costs throughout the year, I think that, that would be helpful.

Yes, sure. So a couple of things. One, we did in the middle of the year, have a couple of large sort of step-ups. This is in '25 in certain categories we had -- and we mentioned this in the script, market-based labor deals. We're not fully lapped there. So we've got to get through the first and second quarter to fully lap those. And then we've talked about this thematically for a few years now, real estate costs continue to be sort of the highest cost CAGR in the P&L. And that's because of all the investments that were necessary but are being made in a lot of our core hubs. And we're excited about the spaces that our guests are going to get to experience as those come online, but there's a cost reality that comes with it. A lot of that comes in the middle of the year, so it hit us in Q3 and Q4, and we've got to lap those as well. So I think with low growth in the first quarter, which is the right thing for us to do with our seasonality and lapping those were the most challenged on a unit cost basis in Q1 and Q2. And then as we get to grow a little bit more into the summer and the latter part of the year and lap those, I think we're going to have a really nice cost trajectory out of the end of the year as well this year.

And our next question comes from Jamie Baker from JPMorgan.

So my first question, I guess it kind of builds on Duane's second question on integration, Slide 9. You note that the selling cutover is behind us. That represents the most significant phase. I completely understand all that. What's not clear to me is what remaining risk is there? I mean you mentioned being able to unify guest experiences after April. What exactly is that? Again, the goal is just trying to assess PSS risk from here.

Jamie, so of course, my technology team are much more wound up, but I have full confidence in where we are. But essentially, every ticket sold after October beyond April was on Alaska, single systems and all the rest of it. So all that really has to happen on April 22 is that when people actually start flying those flights, our systems need to point to the Hawaiian operational systems versus Alaska systems because they're not all integrated. But the team is all over it. We've done this before. I have full confidence, and we have good plans in place. So from a revenue and a commercial perspective, all things going well, we're in a very good place for 2026.

Okay. That's helpful. And then second on Atmos, when we think about I'm personally very disappointed with the overall level of industry disclosures. But when we think about rank ordering the industry's loyalty programs by profitability, where do you think Alaska ranks? And what gives you the confidence in your answer?

Thanks, Jamie. I think -- well, there's 2 sides to loyalty. Obviously, there's the guest perception of loyalty. And then, of course, there's the airlines' economic reality. Both of those are critically important. I can unequivocally say we're at the top. I believe based on what we've heard from industry experts, banks and others that we're in a really good place. I also know that we win year after year on guest generosity. And we are very purposeful about how we manage our loyalty program that the value of points that we provide to our guests. We don't depreciate and mess with materially. And the good news is that we're always growing. We're expanding our network. We've now got an international network and the platform and the Hawaii franchise and the network there. So personally, what we have that others do not have is a real step change in our underlying business that's only going to, I think, attract more loyalty and the new program is even more expansive and generous.

And our next question comes from Tom Fitzgerald from TD Cowen.

I was wondering if you could touch on some of the growth in San Diego, both from a transportation perspective and the loyalty program sign-up and how that's been absorbed?

Yes. Tom, actually, really good. I think -- and one of the key things that my team is very aware of as we move into '26 is with the increased utility, we fully expect and are seeing increased membership and most importantly, increased card sign-ups. We're working hard with the operations teams to make sure that this growth is seamless. But overall, all the leading indicators about what you would expect to see from growth, which is share, share of corporates, card sign-ups, loyalty sign-ups, we're seeing come to pass.

Okay. Great. That's really helpful. And then just one for Shane. I'm wondering if you could, I guess, a, just touch on maybe unpack some of the drivers of the nonfuel cost beat and the execution there in the fourth quarter. And then maybe just an update on some of the IT overhaul investments and the improvements in IT hygiene coming down the pipeline in '26.

Thanks, Tom. Yes. Yes, we -- and I obviously covered this in the prepared remarks, but really good performance by the team across the board in terms of cost management and focus in the fourth quarter as we exited the year. The good news, I think, from my perspective is it was in many, many categories. It wasn't one single area that we just sort of got an unexpected benefit out of. So as we crossed over getting our single operating certificate, it really is the moment that we're able to go and put more of our full focus on running really efficient, effective quality core airline operations. And I think the fourth quarter is just evidence of what we can do when we're able to really focus on running the airline well. So we had benefit versus our guide or forecast internally in wages and productivity on the maintenance side of the business and selling and distribution expenses. And anyhow, it's just a lot of like little things that added up to a nice beat. So well done by the leadership team and everybody else at the company in the fourth quarter on cost. On the IT side, yes, we're making headway on investing in resiliency and redundancy. We've got a lot of sort of detailed plans ready to execute in the first quarter here, and we've spent a good amount of time in the fourth quarter, understanding exactly what we need to do. And we're on our way of executing all of that. And all of the investments are already contemplated in our guide for next year, both the CapEx side and the EPS side.

And our next question comes from Andrew Didora from Bank of America.

Shane, maybe a follow-up there on -- just on costs. I guess you are making a change to CASM. Can you maybe talk about -- the way I understand it, there's still some profit share that's going to be in there. Could you maybe just talk to the change you're making, why you're doing this now? And I guess more importantly, does this change like influence the way we should think about kind of your CASM trajectory versus -- in conjunction with your capacity growth? Any thoughts around that would be helpful.

Yes. Yes, thanks. I think Andrew, you're sort of referring to the restatement of CASMex to remove profit sharing. Honestly, it's just become kind of an industry convention that we were a little bit of an outlier in. So we decided to adopt this year. We just had to choose a time to do it. It's not going to change our focus on driving cost performance in the business and margin performance in the business at all. There isn't really any other "profit sharing in the adjusted number." There are some incentive payments that we have for customer satisfaction and for operational performance that employees can earn that remains in our core CASM because it's not really a profit sharing metric. So it's really just like the rest of the industry has done, remove the volatility of year-over-year profit sharing from adjusted CASMex.

Got it. Okay. It was that portion that's remaining that I was referring to. Okay. That's helpful. And then just, Shane, you alluded to this at the end of your prepared remarks, but just the $10 in 2027 EPS, you obviously still express confidence in at least the building blocks to get there. I'm not asking about '27. I guess, can you maybe walk us through what we need to see happen in 2026 in order to make this goal seem much more achievable today?

Andrew, I'll jump in. It's Ben. Well, look, our thesis hasn't changed from our December 24 Investor Day. What we laid out under Alaska Accelerate was a plan to unlock $1 billion of pretax with the integration. And as Andrew mentioned, we're well on track, slightly ahead of plan on that. And that is all the network synergies, the loyalty, the premium leaning into international, the elements where the big airlines are getting a lot of the profit accretion from. So these are things that are coming, they're harvesting for us in the next couple of years. And -- but for the -- as Shane laid out, the macroeconomic volatility that we saw last year and a little bit of the pressure on fuel that we're seeing from West Coast refinery margins, we are on track. And I am as convicted and as committed as ever to $10 of EPS to that goal. And just that's how we see it. And if this trajectory continues, we're off to a good start in '26. If this trajectory continues, then we'll be solidly on the right-hand side of our guide.

And our next question comes from Brandon Oglenski from Barclays.

So Ben, I asked a similar question from your competitor this week. But effectively, we didn't see any industry revenue growth in 2025, even though GDP was pretty positive. And I think the prevailing thought here is that industry pricing has really been the culprit. It's not underlying demand that's the problem. Would you view that similarly? And just given the changes we're seeing on the low-cost side with capacity coming out, do you think that's going to be where the industry can get some traction again on yields and margins?

Yes. I'll take this one, Brandon. I think it was one of capacity outrunning economic growth in 2025. I think it was clearly documented in the third quarter. That was very significant. And as you fully aware the multiple shocks to demand throughout '25 were significant. I think as we look to 2026, I think as you look out and just read the commentary, I think there is a much closer alignment between economic growth and capacity growth. And as you referenced, there's a lot of carriers that are actually reducing. So I think overall, I think we're in a better position in going into '26 than we were in '25 as it relates to GDP aligning more closely with the capacity growth for the industry, which should then, therefore, be positive on both the unit revenue side and as we've been talking about some of that lost economic demand coming back in 2026.

I appreciate that, Andrew. And maybe as a follow-up, too, I know you guys were focused on maybe moving more domestic flow through Portland and restructuring Seattle for more international connectivity. How is that progressing?

Yes. Thanks, Brandon. We -- it's one of those exciting things you get to do when you look at your network and one of the wonderful things of having a Portland hub 130 miles down the street from Seattle is we're able to focus both hubs to collectively take our local and connecting traffic across our network. We continue to see significant increases in flow of volumes through both those hubs through this. And of course, Seattle is very constrained, and we're also able to make room for those local passengers that we need to serve out of Seattle when we can put connections over to Portland. So I think there's going to be a lot of work -- further work to be done this year, but it's a real gift to be able to have both these hubs to do what we need to do with.

And Brandon, maybe just to maybe to summarize all that. I think where you're seeing strength with the legacy carriers is in the premium space and in the international space. And if you look at our strategy under Alaska Accelerate, that's exactly where we're leaning into. We're adding more premium seats. Andrew mentioned 36% of our revenues are from the premium space. Our international, we have 2 flights today. We're going to 5 up to 12. We're really leaning into the space where we can capture some of that revenue that's really been strong over the last several years. So this is why Alaska Accelerate is beginning to work. It is working, and we're confident moving forward on that.

And our next question comes from Scott Group from Wolfe Research.

So I know you're guiding to solidly positive RASM in Q1. I'm just hoping to get a little color on like what that means. I think back like last January, you said it would be high singles in Q1, it ended up mid-single. So like the comp gets obviously a lot easier. Like if we just take like current trend and just assume it holds and then get the easy comp, like what could this mean for Q1 RASM?

Scott, so a couple of things. I think we achieved, I think it was 5% unit revenue increases in the first quarter of '25, which was industry-leading, notwithstanding the massive shocks that happened there. We still have about 1/3, about $1 billion of revenue to come. And of course, that's going to be influenced by the continued strength and growth in both demand, both leisure and domestic. So I think -- and again, Shane is not allowing me to give any guidance here, but the reality is that if continue -- conditions continue, this could get better and stronger. And I think the network dynamic, what we're seeing and I think the opportunity we have, especially in the premium cabin, I think we have more upside there could only get better.

Okay. And then, Shane, just sort of like big picture, like you're saying -- you're saying solidly positive RASM in Q1 and flat earnings, but then earnings for the year are at the midpoint kind of double. Like what changes from Q1 to the rest of the year to see such a massive sort of change? Is it just the comps? Just some thoughts on that thought.

Yes. No, I appreciate the question, Scott. A couple of things, and I will answer specifically to what's going on in Q1 this year for us. But I think it's important to remind folks, we are the most seasonal airline. I think the second most seasonal airline prior to our merger was Hawaiian. And so Q1 is going to be the toughest quarter for us. We're committed long term to still getting to breakeven in this quarter at a minimum. I think the core Alaska network was really close to that last year. And really, our cost profile sequentially coming out of Q4 into Q1, it's -- the costs are pretty flat sort of quarter-over-quarter. Like I had talked about, we have to lap these labor deals and the real estate step-up. And really, had we seen the demand environment we're seeing today for the entire Q1 booking window, we wouldn't be talking about a flat result. We'd be talking about a material improvement to year-over-year performance in the first quarter. And so it really is ultimately how quickly this macro backdrop can recover. And had it recovered a little bit sooner than it ultimately did, I think we'd be in a different place in terms of the year-over-year comp. But again, if you sort of just take what's happening today forward and then have to take it up from today forward, the rest of the year looks really, really good. And I'll just remind everybody, you guys know this, but the biggest sort of missing revenue quarters for us last year in the whole industry were Q2 and Q3. And so that's really where we expect to see the biggest expansion of earnings this year.

Our next question comes from Atul Maheswari from UBS.

I have a question on fuel first, which is like do you have a view on what's driving the volatility in the West Coast fuel, like what's driving the elevated prices? And what really needs to happen for some of the spreads to come down? And given all the volatility that we're seeing in the West Coast fuel, what can you do to reduce the reliance and how quickly can that be achieved?

Yes. Thanks, Atul. We do have a view on this, and it's pretty straightforward. We really need the West Coast refineries, particularly in California, to stabilize. They just are not up and operating consistently enough and not operating at the level that they did for the last 23 years that I was at the company before the last 2 where it's really become very volatile. And so that's what we need. That's the driver. It's all on the refining margin side of the business. Some just sort of, I think, good facts for folks to understand. We get about 50% of our fuel is exposed to West Coast and 25% is really in Hawaii, and that's coming out of Singapore, and that's the lowest fuel all-in cost, I think, that you can get in the industry. And then we get 25% from the rest of the country, call it, U.S. Gulf Coast types of pricing. So we're about half the fuel bill is exposed to the West Coast. We do need to see this volatility go away. And I think, by the way, it's not just Alaska, it's every airline that needs to see this over time and guests up and down the West Coast. So we're going to increasingly work with local communities and probably federal agencies to see what we can do to ultimately help smooth out the frequency with which the refineries come offline. And in addition to that, we need to bring more fuel supply into the West Coast that's not reliant on the refineries. And we're working to do that in our biggest hubs, but that is a longer-term initiative. It's probably a 2-year sort of initiative to get that in place. But ultimately, we're going to be able to, I believe, move back to parity, which we have to as an industry on the West Coast in terms of all-in fuel prices.

Got it. That's very helpful. And then as my follow-up, assuming you do the midpoint of the guidance for this year, which is, say, call it, $5 in EPS, then in that scenario, is $10 in EPS for 2027 still in play? And if so, can you please give us a bridge to go from that $5 to the $10. And I think that will be helpful for all of us to understand how reasonable that $10 estimate is?

Sure, Atul. I'll not fully verbat and repeat what Ben said. But yes, it's still in play. And I'll just step back and sort of remind people of the high-level math that got us to $10. We started with our 2024 result. We normalized that for the fleet grounding that had happened in the first quarter of that year. And then we added $1 billion of profit unlock from our Alaska Accelerate plan, which we're on track to outperform at this point over the 3-year period. And that really got us above $10. There was some buffer. We've never sort of shared the buffer. We're not going to share that today. And then the other underlying assumptions were that macro organic revenue growth in the industry that we were exposed to and everybody else was exposed to roughly offset the cost growth of the company. And that's how we got to above $10. Fuel was roughly what it was back in '24 as we exited '24. That's the underlying assumptions. All that's really gone negative on us is the macro backdrop, and it looks like it's coming back. And if it comes back fully, and we get all of the $500 million or $600 million that we were missing out of last year, plus a little bit of macro growth on top of that, which should have naturally been happening in '26, '27. By '27, we are back into $10-plus range. So we're in month 13 of a 3-year plan, way too early for us to be saying we can't achieve this. We wouldn't say that anyway. We're committed to this number. And I think owners and our employees should expect that we go and achieve $10 ultimately. That's the right way to be thinking about driving the business aggressively forward. So we're super committed to it. We've got a lot of year left before we know what happens in '26 and what the setup for '27 is. But we're optimistic and we're going to go drive the synergy and initiative and the controllable piece of this extraordinarily hard over the next 2 years.

Our next question comes from Catherine O'Brien from Goldman Sachs.

So not to be harping on the 2026 EPS range, but I just wanted to clarify on what drives the midpoint. It sounds like for the high end, you just need demand to stay on the current trajectory and I guess fuel will come down a little bit from where we are today. So at the midpoint, does that also entail a step down in the macro or maybe a flattening of the acceleration you're seeing? Or is that current macro plus higher fuel than where you'd be at the high end?

Thanks, Catie. You guys are good at your jobs. I don't -- we're trying to be as clear as we can, but also acknowledge it's a volatile industry, and we're in January. And so we're really, we really like the current setup and the demand feels very good right now. And we're -- we expect and hope that it maintains over the rest of the year. But I'll be super clear. The midpoint is essentially 2025 EPS, lapping transient issues that should not happen to us again that did impact earnings last year, delivery of incremental synergies and initiatives and a little bit of recovery in macro. That's how we get to the midpoint. And we're right now, the macro line is above that modest recovery scenario, but it needs to hold to get above the midpoint. But that's essentially how we got to the midpoint. And we feel really good about the setup as we sit here and talk to you today. And hopefully, in 90 days, we feel even better about it. But anyhow, that's the -- those are the elements that you can sort of use as you think about the way to bridge '25 to '26 midpoint.

That makes sense and feels prudent. Maybe just one more quick one on loyalty. I know you referenced that some of the initiatives are running ahead. It feels like that $150 million loyalty might be conservative just given the success of the joint program and new loyalty card or new credit card. I guess like is that what you're seeing? And relatedly, of the 60% of new premium card sign-ups outside of the Pacific Northwest, I understand a decent amount of that was in California, but where is the rest?

Catie, yes, I from where I sit today and what we're seeing, I do believe that there is a lot of opportunity here. I just -- this is just a throwaway anecdote, but just our 1 million miler base in the last 12 months has increased over 30%. You only get that from flying on our aircraft. We're just seeing across the Board a step change. And the other thing I'll add is the Bank of America have been an amazing partner. They understand that we need to grow. They have leaned in with us and leveraging the depth and the breadth of their brand and their network, along with our increased brand and network, it's just a fantastic result. So I look for good things this year.

And our next question comes from Savi Syth from Raymond James.

Shane, I might try to bring everything together on the cost discussion that's been done so far on the call. And just trying to understand very simplistically. Historically, you've talked about growing 5% to keep unit costs flat. This year, you have kind of some headwinds and tailwinds kind of in terms of just initiatives or kind of merger synergies coming online, but then also dissynergies coming online. How should we think about that relationship this year? And like when do you kind of -- do we get back to that historical relationship? Or is there something in the environment that's changed that doesn't get us there?

Yes, Savi, I make sure I fully understand it. But the relationship of needing to grow roughly 4% to 5% to fully offset sort of core inflation in the business, that's the essential question. Are we going to get back to that relationship?

That's correct.

Yes. Yes. No, I think we will. I think we will. And that is what our business model is built on. That's how we think about projecting what we need to do longer term in terms of cost performance or incremental revenue to offset the inflation in the business. Look, we're merging 2 airlines, we're making a lot of investments in the business. We're making a lot of investments in airports. And so it is a little more volatile around that relationship for the next -- for last year and this year than it will be going forward. Once we stabilize all of this, which I think we're well on our way to doing, we fully expect to get back to offsetting unit costs, having flattish or marginally up unit cost with 4%-ish growth. And it will be good to get back there. I think our teams are really capable of delivering on that. And I don't know that it's exactly going to happen in '27, but in the next 24 months-ish, I think that's what you'll start to see as we get through the last of the integration milestones and really get to focus on running a productive airline again.

That's helpful. And if I might, on the cargo side, I think all the aircraft that you -- the freighter aircraft that you're planning are in and you're not getting a lot of extra net aircraft growth this year, but you're also doing international flying. I'm curious how you're thinking about what cargo can do this year?

Savi, we're going to have Jason Berry, our Chief Operating Officer, answer that.

Savi, this is Jason. Good question. We're continuing to -- as we brought these 2 airlines together, we saw a lot of synergies and opportunities, and those are happening. And the top end revenue and the margin is really good coming in on the cargo side. We're seeing good momentum on all sides. We just actually got to a single selling platform earlier this month, and that's really actually helping us unlock and making it a lot simpler for our customers on the cargo side to book with us. So we expect to continue to see positive growth on that as we bring in the new wide-bodies and continue to just work the network.

And Savi, I think if you were asking about, yes, we have 10 Amazon airplanes, freighters. And right now, that's where we're at. That number is not going up.

So maybe cargo growing faster than you would normally expect in the kind of the Alaska Hawaii system?

Yes, I think that's totally true. And our goal is to have Jason talk to you a lot more about this as it does that and expands. He's got a big lift to go and fill these planes up and they're doing a nice job out of the gate, especially internationally to Asia, and we're excited about the future of cargo.

I think we got time for maybe one more question.

And our next question comes from Ravi Shanker from Morgan Stanley.

And I apologize for asking you another 2026 guidance EBIT walk question. But to the point of the high end of the guide points to current trends continuing, I think there's broad consensus that U.S. domestic continues to remain well short of normal strength. So is that guidance baking in the current level of U.S. domestic. So if U.S. domestic does normalize to the year, is that upside to the high end of your guidance?

Yes, Ravi, I think, yes, current trends are sort of how we -- and I think I did just mention this, like if they flatten out from here, we're still feeling very good about the midpoint or better. If they continue to improve, that and backfill the amount of missing revenue from last year fully, then you get to the high end of the range. And I do think domestic for us was -- I think we believe it was a better story in Q4 than the other airlines. If you just look at some of the main cabin results that have been released by others relative to ours, we actually, I think, had the best relative quarter in Q4 in the main cabin and also in our basic economy, what we call Saver Fare category in the fourth quarter. So that actually saw a nice bump as well. And Andrew mentioned this in a prior answer and also in the prepared remarks, we've really seen the improvement in the demand profile across every segment of the business. But certainly, premium and loyalty are the biggest drivers of that. But I think we actually like the trends we're seeing in Main Cabin right now.

Understood. And maybe on the IT side, I know you guys mentioned that you're pretty confident in '26 and there's no incremental cost. But can you actually share some of the key takeaways from the IT audit and kind of what some of the issues were and kind of what actions you guys are taking to ensure that this won't happen again?

Yes, Ravi, it's Ben. Look, the IT outages were very painful, as I said. And like what I will frame it as, it's not for a lack of investment. We were investing in IT. I think it was more of a configuration. We had hardware failures. We had backup systems and triple redundancies that didn't kick in. And so experts came in. They're still helping us really understand how to take this investment we're making, and we'll add to it to really address the configuration of our infrastructure so that we stay resilient to a really high degree. And that's really why we're not saying we're going to have this extremely onerous cost in IT because we already invest a lot in IT. It's just getting experts here, really helping us configure it. And long term, if there's migration to cloud and stuff, we'll get you guys up to speed on what we're doing. But in the short term, we're putting a lot of mitigation in place. And like Shane said, that spending is already in our budget. All right, everyone. Thanks for joining us, and I'm sure you'll have a lot of follow-up with Ryan and team. Thank you so much.

This concludes today's conference call. Thank you for attending. You may now disconnect.