Good morning, ladies and gentlemen, and welcome to the Alaska Air Group, Inc. 2026 First Quarter Earnings Call. At this time, all participants have been placed on mute to prevent background noise. Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question and answer session for analysts. I would now like to turn the call over to Alaska Air Group, Inc.'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 first quarter 2026 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 Benito, Andrew, and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call. Alaska Air Group, Inc. reported a first quarter GAAP net loss of $193 million. Excluding special items, Alaska Air Group, Inc. reported an adjusted net loss of $192 million. As a reminder, forward-looking statements about future performance may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures, such as adjusted earnings and unit cost excluding fuel. As usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Benito.

Thanks, Ryan, and good morning, everyone. To start, I want to thank our more than 30,000 employees across Alaska, Hawaiian, and Horizon for their continued focus, professionalism, and commitment to taking care of our guests through another unpredictable start to the year. The operating backdrop shifted rapidly this quarter. Sharply higher fuel prices driven by geopolitical events created uncertainty across global markets and meaningful pressure on the airline industry. At the same time, our network faced more disruption than normal, from once-in-a-generation rainstorms in Hawaii to civil unrest in Puerto Vallarta. Through it all, our teams have demonstrated remarkable resilience. Their response day in and day out remains the foundation of our performance and long-term success. While these events created close-in challenges, we remain convicted and excited about our strategy and the future we are building at Alaska Air Group, Inc. as we continue to unlock the initiatives we laid out under Alaska Accelerate. Throughout our history, we have leaned into periods of disruption to strengthen the company. After the 2001 downturn, we built a transcontinental network. Coming out of the 2008 financial crisis, we established our Hawaii franchise. And most recently, following the COVID pandemic, we acquired Hawaiian Airlines, secured more than 50% market share in Hawaii, and launched long-haul international travel out of Seattle. Each of these moments shaped who we are today. The near-term pressure facing the industry today is real. Fuel costs were more than $100 million higher in the first quarter, and we expect incremental fuel costs of $600 million or more in the second quarter. That represents approximately a $0.70 impact to earnings per share in Q1 and over $3 in Q2. Offsetting some of that pressure is a strong demand backdrop with fare increases holding—Andrew will share more in his comments. Importantly, our…

Thanks, Benito, and good morning, everyone. Today, I will walk through our first quarter financial performance, our perspective on the near-term demand and revenue environment, and the significant progress we are realizing on the core initiatives that underpin Alaska Accelerate. Total Q1 revenues reached $3.3 billion, up 5% year over year on capacity growth of just 1.7%. Our unit revenues were up 3.5%, in line with our initial expectations for the quarter and building on a strong prior-year comparison. From a demand and revenue perspective, performance in the first quarter was resilient despite the volatile macro backdrop and material demand headwinds uniquely impacting our spring break revenue given our network. Specifically, we experienced significant headwinds in Hawaii and Puerto Vallarta, which together represent approximately 30% of our system capacity. In Hawaii, unprecedented storms—with rainfall reaching as much as 3 thousand percent of normal historical levels during March—disrupted travel plans and drove a spike in cancellations and near-term book-away. In Puerto Vallarta, where Alaska Air Group, Inc. is the largest U.S. carrier, civil unrest leading up to the spring break travel period had a meaningful impact on demand as well. Together, these impacts reduced first quarter unit revenues by nearly one point, with effects continuing into April and May. In response, we have reduced Puerto Vallarta flying by approximately 30% in the second quarter to better align capacity with demand. In Hawaii, we have maintained near-term capacity as the severe weather was transitory. We are busy taking great care of local travelers and welcoming visitors with the Hawaiian experience they know and love, and this past week saw bookings return to last year's level on strong fare increases. Setting aside these regions, we saw broad-based strength across our network. Premium demand continued to outperform the system and was up 8% year…

Thanks, Andrew, and good morning, everyone. While we entered 2026 with strong momentum, geopolitical events have quickly disrupted that trajectory, driving an acute run-up in fuel prices that has put pressure on the entire industry. In moments like this, it is important to separate what has changed from what has not. Fuel has moved sharply higher and remains volatile. Demand for air travel has remained both resilient and strong. And we have continued to execute on both our integration and the Alaska Accelerate plan, which is focused on building strength into the business for the long term. While we are once again navigating an unexpected and challenging backdrop, we know that successful airlines will be those with scale, relevance, and loyalty. The Alaska Accelerate plan delivers in each of those areas, and also broadens our commercial model as we expand internationally and in our premium offerings—two areas where demand continues to grow rapidly. As we navigate the near term, we will double down on our core business model: operational excellence, high productivity, and providing award-winning service to our guests, while also delivering on continued investment in the initiatives that will grow our earnings over time. Against that backdrop, our first quarter adjusted loss per share of $1.68 came in better than the midpoint of our revised guidance, reflecting both the resilience of demand and the discipline with which we are managing the business. Absent fuel—which alone accounted for approximately $0.70 of incremental EPS pressure versus our original plan—and the impactful, though transitory, events in Puerto Vallarta and Hawaii that Andrew mentioned, we would have been well above the midpoint of our original guide. Our financial position also remains strong. We have approximately $2.9 billion of total liquidity, including cash on hand and our undrawn line of credit, and $20 billion…

At this time, I would like to invite analysts who would like to ask a question to please press star, then the number 1 on your telephone keypad. Our first question today will come from Jamie Nathaniel Baker with JPMorgan.

Hey, good morning. Good morning, everybody. So when thinking about the RASM commentary that you just gave—so let's just stick with that 10% round number. Obviously, year on year, there are a lot of initiatives that are impacting that, plus some headwinds in Hawaii, which you laid out. I guess the question is, if we looked at same-store RASM in the second quarter, what do you think that number would look like relative to the 10% path that you've cited?

Sorry, Jamie, if I am quite understanding your question—when you say same store, is year over year, which is sort of what we gave you; capacity, I think, was marginally consistent year over year. I am just trying to understand specifically—are you asking about synergies and initiatives impact? Well—

Yeah. So basically, it is what that 10% RASM number would look like without the synergies and the initiatives, just to get down to sort of the core. So that is the question. What would the core RASM be without the synergies and initiatives that you have cited? It is a RASM question, not capacity.

Sure. It is probably, you know, a couple of points. But again, some of these things like loyalty are just embedded in the core of our revenue now. But I would say a couple of points, just to give you an answer on that.

Okay. And then second, it is a quick question. On the PSS cutover, I know you were drawing down reservations on the outgoing system. Is the number of PNRs that you have to port over, I guess by hand, consistent with what your expectations were?

Yeah. Actually, it was a very small number, I think 10,000—give or take on that. But essentially, we drained down the vast majority of the system. And at 6:30 a.m. Eastern Time this morning, our Incheon–Seattle, our Haneda–Honolulu, and now our JFK–Honolulu check-ins have already started, and passengers are already booking in, and things are going fantastically.

Excellent. Thank you for the color. Appreciate it.

Thanks, Jamie.

And our next question will come from Conor T. Cunningham with Melius Research. Hi, everyone. Thank you.

Shane, maybe I could jump to you. I was hoping you could unpack the puts and takes on the second-half cost trajectory. I realize you called out a fair bit of near-term headwinds. I am just trying to understand how those potentially roll off, and then maybe just directionally how you see each quarter. The only reason why I bring that up is that comps are all over the place. So any help there would be good. Thank you.

Yeah, hey, Conor. Thanks, appreciate the question. Happy to unpack this a little bit. I just want to reiterate—and we said much of this in the script—but just to frame: in the second quarter, we are a bit up from the first quarter. I think there are three to four points in the second quarter that are not really structural to the business. We cut one point of capacity close in. That is always tough to remove the costs when we do that, though it was totally the right thing to do. We have got a point of buildup of crew for our 787 Seattle international flying. That is going to normalize in the business as we begin this flying in earnest out of Seattle, which starts here in a couple of weeks into Rome and then throughout the summer. We do have some planned recognition for employees, given all they have been through over the past year and a half or so with integration. And we are lapping some asset sales from last year. So structurally, the core business is not at closer to the 8%, but probably more like 4% to 5% on a really low growth rate. In the second half, what you are going to start to see—I do think a lot of this is enabled by getting through this last PSS integration milestone—we really are at peak friction over the last couple of quarters with integration, and now we can go to peak focus on optimizing the airline. Unit wages will exit the year at a rate that is equivalent to or lower than our Q4 2025 results. So we are starting to see productivity really tick up; there is more to come. We have got a lot of fleets; we have got a lot…

That was a very detailed answer, thanks. And then, Benito, conviction level on the $10 figure still sounds really high. It sounds more like it is floating now rather than a 2027 number, and you can correct me if I am wrong there. But in an unpredictable environment over the past 15 to 16 months, what is working that gives you so much conviction there? It seems like international is better, loyalty is a lot better, but there are obviously a lot more headwinds associated on the cost side that are out there in the world. What gives you more conviction on this $10 figure long term? Thank you.

No, Conor, it is a great question—thanks for asking it. Look, from where I sit, absent fuel, our company is firing on all cylinders. When I look at Alaska Accelerate—when I look at each and every initiative that we laid out there—this company is executing. You look at PSS; this is a major, major milestone. We are executing it. It is going to be a flawless execution, and I feel really good. One of the things—and I am surprised we have not got the question yet—even with 2027, a couple of things: one, this new Bank of America deal—again, I am not sure if you caught it in Andrew's script—it is $1 billion of incremental cash over the next five years, which in 2027 will add a point of margin. We reworked the Amazon deal from losses to not having losses, and we have a little more work to do there as well. And then overall, I think if you believe that fuel prices will moderate—I am not saying it is going to go back to what it was pre-crisis—but if they moderate and some of these fare increases are sticking, we are getting an average of, give or take, $25 on an average fare depending on the market. I believe we have a strong chance of coming out of 2027 and hitting that $10 EPS. Now I cannot tell you from where I sit today because the world is unstable. But as we get into the third and fourth quarter, we will have some pretty good line of sight to tell you where we will be. But I will tell you, if it is not 2027, it is coming. I have never been more convicted. Things are working. Our strategy is working. We are executing, and I feel really good about it.

Appreciate it. Thank you.

We will move next to Andrew George Didora with BofA Global Research.

Hi, good morning, everyone. Maybe moving to demand a little bit. One of the bigger questions we get from investors is around demand elasticity. Based on your prepared remarks, it does not seem like there is much evidence of that at all. But first, are there any particular markets where you might be seeing some pushback on this higher price—obviously outside of, say, Hawaii or Puerto Vallarta? And second, if not, how do you generally think about demand elasticity in this environment? Are you thinking about positioning your network differently than what is planned today in order to get ready for that?

Hey, thanks, Andrew. I will just say on a personal note that of course there is elasticity in demand in my personal view. In fact, we have seen it here personally. We have had all these fare increases that have been great, and then our RM folks had to go in and manage some of the buckets down, and we found a really good sweet spot. So there is absolutely elasticity. But I think in the current environment it is well able to absorb the double-digit increases in the fare environment. People want to fly. The airplanes are full. So I think that is all good stuff. As it relates to the network, we are only really growing two to three areas. We are growing San Diego at around 20%. We are growing Portland in the high teens. And we are growing an international gateway. Those are all areas of opportunity and strength—loyalty, revenue, seat share—so we feel really good. And as I shared in my prepared remarks, the reality is that the only real absolute growth domestically—because the Portland and San Diego was moving seats around—is really international. We are just very excited, and we are seeing loyalty, fares, front cabin strength. We have a long way to go to get really proficient here, so it is really good. As we sit here today, as long as demand holds up, we feel really good about our network shape. And, Andrew, it is Benito—the other thing I will add to what Andrew said: we have a fantastic fleet now. What is different between before Hawaiian and post-Hawaiian is we have a much more diverse fleet that we can be more creative in exploring new markets where we see higher revenue potential. We have got 30 widebodies now, and that is a lot of dry powder for us to do some pretty novel things. There is a lot that we can and are going to do to make sure that we get the most revenue coming into this company.

Thank you for all of that. And then just my second question: obviously, industry consolidation has been in the headlines recently. You have been one of the very few acquirers over the last decade or so in the space. Do you think further consolidation is something Alaska Air Group, Inc. would want to continue?

Look, I think consolidation can only happen—having had the experience doing it—it has got a big hurdle, Andrew. It has got to be pro-consumer and pro-competitive. Those are the two hurdles that you have to get over with the DOJ, with the DOT, and a lot of other stakeholders. We know how hard it is to get past those two big hurdles. We have the experience. We know how to do it. But I am super excited about our organic growth plan. I am focused on a $10 EPS, and that is where we think a lot of value is going to come with our plan. Now look, our plan is always to look at what is good for our company and the stakeholders—the people who care about Alaska Air Group, Inc. What do our employees, customers, and our communities, as well as our shareholders, look for from Alaska Air Group, Inc.? And we will always make the right choice given that.

Thank you, Benito.

Thanks, Andrew.

We will move next to Savanthi Syth with Raymond James.

Hey, good afternoon. Just curious—you mentioned long-haul operations and how Seattle is progressing. I was curious how the Hawaiian long-haul operation is progressing.

Hi, Savi. As you may recall, we made some adjustments to Hawaii. We discontinued Fukuoka. We discontinued Narita and moved that to Seattle. So on a year-over-year basis, it is improving. We are mostly left with Japan and Australia, and we continue to move unit revenue forward there. The other thing I should add is now the Hawaii long haul will welcome oneworld into the fold, which will give all these elite guests—whether it is Qantas or Japan Airlines—fantastic benefits.

Appreciate that update. And can I ask—you mentioned in the opening remarks improvements to the Amazon contract. Wondering if you could give an update on cargo in general.

Yeah, thanks, Savi. Maybe I will hit Amazon very quickly, and I do not know if Jason wants to say cargo in general, because I think it was a bright spot here for us in the first quarter. We have really enjoyed getting to work more closely with the folks at Amazon. We know them because they are neighbors of ours. We have folks who used to work at Alaska over there. So we have worked on deepening the partnership, and I think it is going well. The partnership is getting better. It is getting healthier. We are continuing to talk about how we can deepen it further in a way that is mutually beneficial. We had a nice update to the agreement that is in force today that helps us on the economic side, and we are hopeful that we can expand that through more partnership over time. Maybe just very quickly, Jason, because we are going to try to move to—

Hi, Savi. Just on the high level on the cargo piece, at the start of the year, we did get to our own single cargo system, which really allowed us to unlock that connectivity that we have been talking about, and we are really beginning to start to harvest from that.

Appreciate that. Thank you.

Thanks, Savi.

Our next question will come from Scott H. Group with Wolfe Research.

Hey, thanks. So historically, whenever we see fuel go up, RASM goes up a lot—we are seeing that right now. And then when fuel goes back down, usually RASM goes back down with it. Do you think it is different this time?

I will take a shot at answering that, Scott. We believe there are a lot of reasons that it could be different this time. Fifteen years ago, we had different reasons—but a similar spike in fuel, a tough economy, structural changes in the industry—and then fares that were modestly higher coming out of it and actually did great from an earnings profile perspective for several years. The rapidity with which some of the fares have gone up and the stability with which bookings have held over the last several weeks suggest—like Andrew said—people really want to travel. When they have discretionary income, one of the priorities that they have, it would appear, is to go out and experience the world. Some of these fare increases—$10, $15, $20—on the total cost of a vacation is pretty modest. That is on the consumer side. It is really important that people on our airplanes feel like they have a lot of value for the fare that they are paying, and we are focused on investing in all of the experiences that we have throughout the entire aircraft, on the ground, and also digitally. We are conscientious about the incremental price being paid, and we need to deliver good value for that. On the other side, the industry structurally has to get healthier. You have got multiple airlines near failure before $4–$4.50 fuel, and that just does not work structurally long term. So I think there are a lot of factors that suggest this could be stickier, but we do not know. It is really dependent on how the economy unfolds over the next several quarters.

And then just one quick follow-up. I think, Andrew, in an earlier question, you were sort of implying that of the 10 points of RASM, a couple of points is more company-specific or synergy—whatever you want to call it. Do you think that couple of points continues at that pace? Can it accelerate from here with the credit card deal? Does it naturally at some point start to slow? How do you think about that two points going forward?

Yeah, I think—I am just looking at my CFO and CEO here—that it is an imperative that it will continue. Jokes aside, we have dynamic pricing about to hit. We have got O&D coming. As I shared, the economics of the bank relationship—that $1 billion over the original term, which is going to happen—does not include actual incremental growth from our historic growth rates, which had started to flatten out. So overall, we absolutely still have the view that we can close the RASM gap to the industry and that we will continue our unique momentum on the revenue side.

And, Scott, I would just remind: a lot of the initiatives’ value are to come. We are just completing the 800 remodels. We have not begun selling the full fleet of those. We have other things that we need to do in the widebodies, which are beyond 2027, but will be further initiatives that we control that are not really subject to the rest of the industry. So there are a lot of initiatives still to come for us to keep driving something like two points into the P&L for a while yet.

Thank you, guys.

Thanks, Scott.

Next question comes from Thomas John Fitzgerald with TD Cowen.

Hi, thanks very much for the time. Maybe just sticking with the bank deal again—you talked about it being a step change in portfolio growth. Can you elaborate on that a little more? And then put a finer point on the cadence and any benefit this year, and then in between the point of margin in 2027 and as you get to that $1 billion by 2030?

Yes, thanks, Tom. Maybe Shane will get the second part of that. Just to be clear, because it is a really important thing that is going on here, what is happening is that with our partner, Bank of America, this refreshed agreement—with many different elements in it that have changed—is going to help us realize the benefits of: number one, the acquisition of Hawaiian; number two, the launch of Atmos Rewards; and number three, the expansion of a long-haul network out of Seattle. We are already starting to see that, and of course the marketing investment—there is a big step change there. At the end of the day, the changes in Alaska Air Group, Inc.'s business and fundamentals, and the changes in the agreement, are going to create for us a much longer-term, wider pathway for growth in loyalty and especially in credit card, which, as you know, are very important to our economics.

Quickly on the margin, it is roughly a half point of margin this year and a full point of margin next year. That is before what Andrew was just alluding to, which is portfolio growth that could be stronger than we are seeing today. That is our expectation, but we are not putting any of that into a forecast or guide at this point.

Okay, that is really helpful. Appreciate that, guys. And then thinking about some of the network initiatives—the growth in San Diego, the rebanking of Portland—would you mind maybe just running through your hubs, by RASM or profitability, and rank-ordering them? Where are you seeing the best performance and maybe room for improvement? Thanks again for the time.

Thanks, Tom. Those are questions we do not really answer, but obviously Seattle is our largest hub and Honolulu is our second largest. If you look at what we are doing, those are 40%, 50%, nearly 65%+ of our total capacity. We have got two large accelerants in both of those—Seattle with rebanking and global long haul, and in Honolulu and Hawaii in general with the integration and all the good things that come from that. We continue to feel really good about the improvement in the economics there. In places like Portland and San Diego, we believe our product, our customer service, and what we are offering will continue to be very valuable.

Thanks, Tom. Our next question will come from Atul Maheswari with UBS Securities.

Good morning. Thanks a lot for taking my question. I had a question on costs. Is the back-half low single-digit CASM ex-fuel a good run rate for us to use for 2027 as well now that the PSS integration is behind us? Or are there any puts and takes specifically as it relates to 2027 on the cost side that we need to be aware of?

Thanks, Atul. A couple of things. Our long-term view on growth is around 3% to 4%. We have not grown at those target rates for a couple of years. We think the core cost inflation in the business is 4% to 5%. So we need to ultimately get into the 3% to 4% range to have an opportunity to fully offset the core inflation. But there should be opportunities to go get at least a point of better unit cost performance through optimization of the business and through productivity. That is our thinking structurally about the business over the next year or two. We do have, as I mentioned before, joint CBA deals that are in front of us. It is hard to say if those will be in cycle or out of cycle with the rest of the industry as those other deals come up on other properties. But that would be the one outstanding area that we are going to have to ultimately get deals with our employees on and absorb those into the P&L. I do not think they are super material, but they are the one outstanding item that is nonstandard.

Got it, that is helpful. And then as my second question, I was reading some energy reports that global refining capacity is basically down 6% to 8% since the war started. How long can this disruption persist, in your view, before it causes real jet fuel availability problems in markets like Singapore where you source from? What are you seeing in that market right now, and how are you preparing the business should supply actually become an issue there?

Thanks, Atul. I am going to answer as much as I can. We obviously are not the absolute expert on global oil supplies or refineries. We do understand our markets really well and our supply chain really well. We do not foresee any disruption anytime in the foreseeable future across our network. We are not sole-sourced out of Asia or Singapore into any of our markets, and if we need to supply Hawaii—just as an example—from the domestic market, that is totally within our ability to do so. Our hope is long term it normalizes, Singapore refineries come back on strong, and those costs return to where they were pre-conflict, as it was a really nice lower-cost source of fuel for us into the network. We would like to enjoy that structurally over time. We have also talked about this a bit—we need to work on the West Coast Jet-A supply issue long term. There is increasing desire to fly and demand for Jet-A, and we do not have the pipeline infrastructure or refinery infrastructure that the Gulf Coast or the East Coast has. That will take time, but it is something that we are focused on, and I think other airlines are starting to focus on along with us.

Thank you, and good luck with the rest of the year.

Thank you, Atul.

We will move next to Catherine Maureen O'Brien with Goldman Sachs.

Hey, good morning, everyone. Thanks for the time. Maybe just on some of the route network changes—you noted that the Seattle-to-Tokyo route has already reached profitability, and load factors are really strong. Can you speak to the profit swing from moving those aircraft from more leisure-focused Japan point-of-sale flights to more mixed travel purpose U.S. point-of-sale? How big of a bottom-line impact was that in 1Q, or any way to think about what that swing could look like, and how that is ramping versus your expectations back when you announced the transaction? Thanks.

Yeah, thanks, Katie. High level, what I will tell you is—and we track this as part of our synergies—the movement from Honolulu–Narita to Seattle–Narita has driven a meaningful increase in the profitability of that route. Of course, it accrues significantly to our loyalty base and corporate base. We are already seeing numbers there. It has really helped us, from a network perspective, invest and continue to grow Seattle. So I think that has been a very good move.

Katie, I do not think we have priced the losses that were associated with the aircraft we were using for these markets, but they were in the tens of millions. So it is a meaningful change to the underlying economics of the company.

That is great. Maybe just a follow-up on the corporate angle here. On the 19% managed corporate revenue growth, is it possible for you to break out what the domestic growth was versus the total? I am just trying to get a sense of how meaningful layering in that international connectivity is. And do you have enough international flying to maybe try to go after additional share in an extra round of corporate negotiation?

Yeah, thanks, Katie. To put this in perspective, the vast majority of all of our managed corporate travelers is obviously still North American domestic, and we will probably give a little bit more visibility over time. What I can tell you—obviously London is going to be huge—but we are already seeing, as a percent of our managed corporates, that it is a very low percentage, but it is already moving up and revenue is multiple points ahead of the actual passenger share as well. More to come—we are in very early innings here. As we get these all launched, and single passenger service system and loyalty and all the rest of it, we will have a lot more exciting things to share, but it is headed in the right direction.

Great, thanks for the time.

Our next question will come from Brandon Oglenski with Barclays.

Hey, good morning, and thanks for taking my question. Benito, I appreciate the confidence in hitting $10 at some point here. But at the same time—it is different issues—but it is the second year that we are talking about fuel prices and specifically West Coast challenges. I think maybe Shane hit it there that longer term there could be an issue here. How are you positioning your business, from a commercial perspective, to potentially deal with a higher differential on the West Coast?

Brandon, it is a great question. If you would have asked me three years ago with the standalone Alaska, it would have been a lot more difficult. But now, we have flying to different geographies and we have the airplanes to access any part of the world today. What gives me confidence is: every year, there is something happening in the world where you have to pivot and move the business somewhere else, and I think we are becoming good at it. We are getting through this acquisition. This acquisition is making us a more resilient, bigger, stronger airline, and we will have—from what I believe are strong hubs that we operate from—relevance and loyalty to build on those networks. I am confident. I cannot predict the future, but I can predict the way we are executing. I know what we have: we have a phenomenal group of employees who are excited, we have great assets, we have a great balance sheet, and we have a track record of delivering and executing. That is what gives me confidence. I am not going to predict the future, but I am going to bet on Alaska Air Group, Inc.

Brandon, just on the second part of the question on fuel structure—and I alluded to some of it—I think long term, we do think Singapore is going to be a nice, stable source of much lower-cost fuel than Gulf Coast. We were doing 20% of our fuel from there, and we like the idea of moving that up materially, maybe even to 30% or 40% over time. The other thing we are doing is, with some partners, working on building infrastructure here in Seattle to be able to take tanker fuel into Seattle, which would be a game changer for us in terms of the supply chain. I think there is a lot of interest in ultimately getting that work done. These are long-tail investments, though, so it is nice to talk about them, but it is probably a ways away before we structurally resolve this. One last reminder: we have had a $0.10 to $0.15 fuel disadvantage structurally for our entire life out here on the West Coast. This is not new for us, and even with that, we have been able to outperform most of the industry on margins over time.

Appreciate those responses. And just maybe really quick for Andrew, is the new co-brand deal included in your RASM guide for the quarter, or should we expect those benefits to actually ramp later in the year? Thank you.

The agreement is reflected in the second quarter results as it ramps in and, as Shane mentioned, it is roughly a half point of margin this year ramping to a point of margin on the structural changes, and I think we can do even better than that.

Thanks.

Thanks, Brandon.

We will move next to Duane Thomas Pfennigwerth with Evercore ISI.

Hey, thanks. Just on pilot training, can you speak to changes across the two segments? You said you are back to growing Alaska, but overall growth is flattish. Maybe speak to what is growing versus what is shrinking. And what are the drivers of increased pilot training costs? Is this all aircraft that are coming over from Hawaiian? Is attrition a component? And when do you expect that to normalize?

Thanks, Duane. A few questions on pilot training. It is not attrition—attrition is effectively zero absent retirements. We have normal retirement patterns; we are not seeing our folks leave for other airlines. The majority of this in Q1 on a year-over-year basis is really building up the Seattle international flying. We have announced and have opened a pilot base here in Seattle on the 787. That flying takes more pilots per flight than Honolulu to the West Coast—even on a widebody—would have taken. So we have just got to get that ramped up into the base, get the flying started, and then it will normalize on an annualized basis as we take one or two 787s per year over the next few years. On the Alaska side, coming out of the last couple of years, we had room in our productivity within the current number of folks we had on the property for Alaska, and we are back to starting to look forward to taking incremental units throughout the back half of the year—you have got to train early to get ready for summer flying. So we have got some modest incremental costs year over year on the Alaska training side.

Thanks. And then just a quick follow-up on cargo. Can you frame how big of a headwind it was to your recent results? And is the goal to get this to breakeven or something better than that? If the goal is breakeven, then why do it? Thank you.

Thanks, Duane. I will not share the specific economics on the freighters. But no—we are not aiming for breakeven. If we are going to put time into flying aircraft around, we feel like we need to earn a reasonable margin, not a breakeven margin. That is not our philosophy in terms of investment. We will be focused on generating decent returns on this flying. Over the next year or two, we are excited—regardless of the freighter contract—about the opportunities with belly cargo on the widebodies, the opportunities to continue to grow our own freight market share up in the state of Alaska and along the West Coast, and we are anxious to talk more about that over the next year or two. Appreciate the question, Duane.

Alright, everybody. Thanks for joining us, and we will talk to you next quarter.

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