Alaska Air Group, Inc. (ALK) Q2 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. And welcome to the Alaska Air Group 26 Second Quarter Earnings Call. At this time, participants have been placed on mute to prevent background noise. Today's call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers' remarks, we will conduct a question and answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning and Investor Relations, Ryan John.

Thank you, operator, and good morning. Thanks for joining us today to discuss our second quarter 26 earnings results. Yesterday, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you will hear updates from Benito, Andrew, and Shane. Several others of our management team are also on the line to answer your questions during Q&A portion of the call. Air Group reported a second quarter GAAP net loss of $76 million Excluding special items, Air Group reported an adjusted net loss of $102 million As a reminder, forward looking statements about future performance may differ materially from our actual results, Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non GAAP financial measures, such as adjusted earnings and unit costs excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non GAAP measures in today's earnings release. Over to you, Benito.

Thanks, Ryan, and good morning, everyone. Let me start by directly acknowledging our financial performance. While we beat our initial guidance for the second quarter, we still reported a loss. And we are not satisfied with that outcome, especially in what should be 1 of our strongest quarters of the year. At the same time, it is important to recognize what this quarter represented for our company. It was 1 of the most consequential and strategically important quarters in our history. We achieved the most complex technology milestone of our integration, successfully operated the largest summer schedule in our history, and launched our first ever service to Europe. An investment that has exceeded our expectations right out of the gate. While these accomplishments do not change our financial results, they do reinforce our confidence in the future. The work we are doing today is strengthening our foundation improving our competitiveness, and positioning us to deliver meaningful long term value. Most importantly, none of this would have been possible without our people. I want to thank our more than 30 thousand employees across Alaska, Hawaiian, and Horizon. They delivered these milestones while continuing to provide outstanding care for our guests their commitment has been the driving force behind everything we have accomplished this quarter. While there was no way around the overwhelming fuel headwind, we saw an extremely positive earnings trajectory throughout the quarter that only deepens our confidence in our long term strategy. The momentum we are seeing is clear. Unit revenue strengthened unit cost improved, and we returned to profitability in June with a double digit pretax margin despite fuel prices up nearly 70% year over year. Absent the fuel spike, this would have been a solidly profitable quarter which underscores that our underlying business is running well and that Alaska Accelerate is working. With significant commercial momentum, industry leading operational performance, and an integration that is paying off, combined with easing fuel prices disciplined cost execution, and demand holding firm, were set up for a strong earnings inflection into the back half of the year. Operationally, the second quarter was a strong continuation and expansion of the themes I highlighted last call. We led the industry in on time performance year to date up 5 points year over year in Q2, At the same time, our team successfully completed the most complex milestone of our integration, migrating to a single passenger service system and establishing the industry's first dual brand PSS platform. Delivering industry leading reliability while undertaking a transformation of this scale speaks to the strength of our operation and our people. Our net promoter scores continue to lead the industry, and our guest experience is only getting better. With the reservation cutover behind us, guest satisfaction is climbed 7 points since last quarter led by Hawaii, which jumped 10 points. Our investment in Starlink Wi Fi is driving that experience further with guest satisfaction on Starlink equipped flights 20% higher than nonequipped flights. The onboard portal is also allowing us to deepen loyalty with nearly 75% of nonmembers signing up for Atmos Rewards accounts to utilize this benefit. With 1 third of our fleet, now equipped and remainder expected by 2027, we are excited to be delivering a best in class onboard experience. On fleet, cabin retrofits across our 737s are now complete. Adding 1.3 million incremental first and premium class seats and demand is absorbing them well with premium revenues up 15% in the quarter. Yesterday, we announced our plan to retire the 717 fleet beginning in 2028 and transition Neighbor Island flying to more modern fuel efficient Boeing 737s. Bringing improved reliability, better economics, and more cargo capability as we continue investing in Hawaii. Cargo remains an important strategic growth opportunity for us. After restructuring our Amazon flying under a more profitable contract, we are now moving into the next phase of growth, adding 4 additional 38 hundred freighters deployed across Hawaii and Alaska. This further strengthens our position as the only US airline with a dedicated cargo fleet. And as we scale the international operation and capture the benefits of these investments, cargo will become an increasingly meaningful contributor to the profitability of our airline. Our international long haul launches from Seattle are off to a strong start. Atmos Rewards members told us they were excited to fly internationally with us and it is materializing. Our new Rome, London, and Reykjavik routes are each carrying 50% or more Atmos Rewards members, an early signal of the loyalty demand behind this expansion. With every new long haul route, our global relevance and perception grows, and we move closer to becoming Seattle's largest international carrier. And last but not least, our new premium SIM Card continues to perform well. Total account holders are nearly 50% above our expectation, with over 60% of new accounts this quarter coming from outside the Pacific Northwest. Taken together, this quarter is proof that our plan is working. Even against a volatile backdrop and an outsized fuel headwind, we made real progress on every front that matters. Building a business that can absorb short term pressures and keep moving forward. Heading into the second half, we are set up well. The man is holding firm, our integration milestones are increasingly behind us. We look forward to continuing to deliver on the commitments we have made to our people, our guests, and our owners as we build scale, relevance, and loyalty for the long term. Before I close, I wanna touch on a recent leadership change. Shane R. Tackett was promoted to president of Alaska Airlines, taking on responsibility for the commercial organization while continuing as CFO. Shane is a 25 year veteran of the company and was instrumental in guiding us through the Hawaiian acquisition and execution of Alaska Accelerate. And this expanded role reflects the breadth of his leadership as we move into the company's next chapter. More broadly, we have conviction in our business model and the initiatives we put in place. They are working. And the results we are seeing only strengthen our confidence that we are building a business model that is structurally capable of producing $10 of earnings per share that we originally envisioned and laid out under our Alaska Accelerate Plan. We will discuss this and more about what is ahead for Air Group at our upcoming Investor Day on September 29 here in Seattle. And with that, I will turn it over to Andrew.

Thanks, Benito, and good morning, everyone. Today, I will walk through our second quarter financial performance, our perspective on the near term demand and revenue environment, and the step change in the results and performance of core levers that underpin Alaska Accelerate.

In the second quarter, revenue grew to $4.1 billion a 10% increase year over year on capacity that grew 1%.

Unit revenues was up 8.6%, which includes a 3-point drag from the historic Hawaii rainstorms. The second quarter marked the beginning of what I would describe as the full commercial activation of Alaska Accelerate and what I expect will be a strong ramping of revenue growth loyalty penetration, and the elimination of integration friction from our industry leading guest satisfaction. The foundation of this activation was the implementation of a single reservation system launch of Europe service along with our Asia service, strong adoption of Atmos Rewards, and a solid operation that has led the industry as the number 1 on time airline in the United States year to date. The full activation and achievement of these elements have resulted in an immediate step change in commercial results across Air Group. I want to spend some time unpacking the largest of these. Let's start with revenue. We had a material acceleration of unit revenues across April, May, and June at 5.5% 8.8% and 11%, respectively. With total June revenues up 13.2%. This resulted in a double digit pretax margin for June despite higher fuel prices. Managed corporate revenues We generated what we believe will be industry leading revenue increases this quarter. The combination of a single PSS, single loyalty program, and network growth has resulted in large share gains. Portland and San Diego managed corporate share growth of 5 points and 4 points respectively, with Portland reaching a historic milestone, exceeding 50% share of managed corporate revenues. Looking to Seattle, we have seen the percentage volume of managed corporate passenger exceeds system materially. At 9% growth. This is driven by the unlock of new revenues from managed corporate accounts as we begin serving the largest international markets to Europe and Asia out of Seattle, namely London, Tokyo, and Incheon. As well as our continued growth in scale, relevance and loyalty, in our Seattle hub. Moving to loyalty, cobrand remuneration reached $663 million in the quarter, that is up 19% year over year. The unlock of Atmos Rewards has been remarkable. Evidence of the loyalty flywheel and Atmos Rewards unlock can be seen across our ecosystem, including active Atmos Rewards members up 15% with attrition down over 30% year over year as members engaged more broadly with the program. Hawaii loyalty growth materially outpacing systems performance with a 73% uptick in new cardholders year over year and a 34% increase in members in our Huakai by Hawaiian community. We saw a double digit increase in top tier activity and spend as members strive for the unique benefits offered by our titanium status including access to same day upgrades to our suites product. And an 8-point increase in redemption activity on the Air Group network, as members shift their global travel activity to flights operated by Alaska. Our loyalty program performance is an undeniable marker. That Alaska Accelerate is not only working, but also just getting started given our foundational programs and technology are now in place. Premium products. There is unquestionable demand for our premium products and service. Premium revenues grew 15% this quarter. In addition to our domestic product, premium demand for our newly launched international long haul service from Seattle to Rome, London Heathrow, and Reykjavik, came out of the gate hard. We have already achieved our fair share in premium cabin in U.S. point of sale and across several corporate channels. And we see substantial opportunity to grow share internationally with our fair share in the premium cabin already improving after just recently turning on our ability to sell in the U.K. Premium revenue now represents 35% of total revenue up 1.5 points this quarter. We are far from done and have more room to optimize our premium product configuration. it is worth reiterating from a diversification perspective. Which premium has helped fuel more than half of every revenue dollar we generate now comes from outside the main cabin, a mix that looks nothing like the airline of even a few years ago. And finally, Alaska accelerate has launched us into meaningful cargo revenues, a source of durable, diversified revenue. Our second quarter revenues were up 21% year over year. Well above system revenue growth of approximately 10%. As Benito mentioned, we announced the addition of 4 Boeing 737-800 freighters to be flown in Hawaii and Alaska, nearly doubling our dedicated 737 freighter fleet to 9 aircraft. We expect service to begin in early 27, and these aircraft will not only strengthen our reliable service for the communities we serve, but also create new revenue opportunities. Now looking forward, we ended 2026 with 1 of the leanest growth plans in the industry, and we have continued to adjust as fuel prices remain elevated. Pulling roughly a point of capacity out of both the third and fourth quarters. We expect Q3 capacity to grow approximately 2% to 3%. The entirety of which is intercontinental. With slightly lower sequential growth in Q4 this puts full year growth right around 2% year over year. At the low end of our original guidance of 2% to 3%. Demand has proven durable even as fares moved higher. Bookings into the summer peak and early fall shoulder are pacing well. With unit revenues running solidly in the mid teens year over year. We are especially encouraged by the strength of higher yielding demand. Forward corporate bookings are up 37%, 7 points higher than the 30% achieved in Q2, reinforcing the improved domestic and international relevance of our expanded network. At the same time, our new long haul international flying continues to gain share as premium demand builds out of Seattle. Hawaii is also getting back to strength. Loads are recovering, and new bookings are coming in at system levels. The historic storms not only impacted spring break, but also peak summer bookings that occur in the second quarter. Summer revenue performance remains well under system, in part due to elevated industry capacity, which was up 7%. And we expect the third quarter to have a similar several point unit revenue headwind that we saw in the second quarter. But encouragingly, as we move into the fall, on hand bookings West Coast to Hawaii show demand returning to historical levels with September yields accelerating. Given these trends, we expect system unit revenues to improve sequentially from Q2 into the third quarter reaching low double digits year over year. With roughly 65% of Q3 revenue and 15% of Q4 revenue booked, the balance of the back half will be shaped by close in demand, but the trends we are seeing today give us confidence in healthy unit revenue trajectory through the rest of the year. To wrap up, while the first half of the year was volatile, our June exit rate tells the real story. An inflection back to profitability and strong unit revenue growth. Coupled with prudent capacity, the second half is shaping up well, and we have kept our focus on controlling what we can control while delivering results. Completing the single passenger service system cutover, an enhanced single loyalty program, and the launch of a European and Asian network from Seattle was the unlock we have been building towards. It lets us finally deliver the full range of our product and services consistently across our global network. As we move forward, we are focused on continuing to strengthen and diversify revenue across premium, loyalty, cargo, and international to build more durable, resilient earnings power that compounds over time. And with that, I will pass it over to Shane.

Thanks, Andrew, and good morning, everyone. As Ben already indicated, we are not satisfied with losses this quarter, but it is important to also look through the result to the underlying business. Absent the added fuel costs, this was a fundamentally healthy quarter. Non fuel cost performance and the trajectory of unit revenue through the quarter were both strong.

As fuel normalizes, the timing of which is difficult to predict, we see a clear path toward meaningful earnings expansion back towards our goal of $10 of earnings per share.

Also, with our customer facing integration milestones now behind us, we are moving forward with strategic momentum as we move to full optimization and harvesting of value from our Alaska Accelerate initiatives. Regarding the balance sheet, we finished the quarter $3.8 billion in total liquidity, after proactively raising $1 billion of financing during the quarter. A $500 million issue of senior unsecured notes our first ever unsecured bond, alongside a $500 million term loan. While this transaction was largely neutral from a net debt perspective, it was a deliberate choice to bolster liquidity toward the top end of our target range of 15% to 25% as we navigate an elevated and unpredictable fuel environment. With all the challenges of the last 2 years, our balance sheet remains strong and is backed by roughly $20 billion in unencumbered assets. However, given fuel cost impacted earnings, we closed the quarter with a debt to capitalization ratio of 65% and trailing 12 month adjusted net leverage of 4.8x. With normalized fuel prices and current demand trends, this could very quickly pivot back toward our long term leverage goals. Our balance sheet has long been a strategic asset that underpins our agility, and durability and restoring that strength will be a top priority. As the environment further stabilizes and our earnings profile improves, we intend to put excess liquidity to work paying down debt, reducing leverage, and ultimately bringing liquidity back toward our target 20% level. Second quarter unit cost excluding fuel, rose 6.5% year over year, a strong result compared against others who have reported. This result included some significant transitory costs. Including above normal crew training costs related to our 787 fleet ramp and employee recognition expense tied to completing our single passenger service system, and material aircraft sale gains booked in 2025 we are comparing against. Setting those aside, core cost growth was up low to mid single digits on only 1% capacity growth. Moving into the back half of the year, our cost plan remains on track and we expect nonfuel unit costs to step down to low to mid single digits. With closer in capacity cuts versus our original plan providing slight pressure. Economic fuel cost average $4.43 per gallon, slightly better than our $4.50 guide. While crude has remained volatile between $70 and $90 per barrel, refining margin volatility normalized throughout the quarter. We expect third quarter fuel price per gallon of $3.75 This reflects expected July fuel cost of $3.60 per gallon and $3.85 for August and September which is simply the recent average spot price we have seen. At this fuel price guidance range, we anticipate third quarter earnings between breakeven and $1 per share. We expect our second half RASM to CASM fuel spread to improve several points from our 2-point spread in the second quarter, evidence that Alaska Accelerate initiatives are working and the business is structurally strong. Given we have seen recent volatility in fuel prices and further fare movement, we plan to provide an update on full year earnings guidance at our Investor Day in late September. This is not the first half any of us drew up, but the demand backdrop and continued execution of our initiatives gives us confidence in where we are headed. With our big integration milestones behind us, our focus now is squarely on optimizing the airline. Building strategic momentum, and fortifying structural advantages. Our scale, our relevance in the markets we serve, and the strength of our loyalty franchise. As premium loyalty cargo, and ancillary revenue take an ever larger share of the mix over time our earnings will become more durable across cycles. Underpinning our path to steady state earnings power north of $10 a share and double digit margins. We will lay out the building blocks of this in more detail at our Investor Day on September 29 so we hope you can join us. With that, go to your questions.

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. And our first question will come from Atul Maheswari with UBS Securities.

Good morning or good afternoon. Thanks a lot for taking my question. I know you are not providing fourth quarter revenue RASM guidance, but it appears those who have reported thus far seem to point to fourth quarter revenue being higher than third. Given the potential for a greater portion of fourth quarter coming in at higher fares? Are you able to confirm if we should expect the same for Alaska? And related to that, if you can also provide some puts and takes on the fourth quarter RASM, as it relates to the sequential performance versus third quarter, that would be very helpful.

Atul. Thanks for the question. This is Shane. Yeah. I think we all steer clear of giving specific guidance on Q4. We were pretty deliberate in wanting to talk more about the full year at Investor Day once we had a chance to better understand both the revenue side of the equation given recent fare, changes in the domestic market, which have been positive. And obviously the fuel price part of the equation. So I think we do not see any change in demand into the fourth quarter. The advanced bookings, look, very strong. At the same or better yields that we are seeing in the third quarter. And that we saw at the end of the second quarter. So we do not have a difference in trend that we are seeing from those who have reported before us but I think we will stay away from, commenting on the fourth quarter in a way that would infer guidance.

Okay. that is fair. And then, you know, as my follow-up, Shane, you did mention about the improvement in Hawaii for September. So as it relates to that, are you able to parse out that improvement between demand getting better versus an easing in competitive capacity pressure? In this market in September? That would be helpful. And, also, related to that, it seems like capacity in Hawaii jumps again in the fourth quarter. So how do you feel about potential for continued improvement? In Hawaii beyond just September?

Thanks, Atul. Atul, it is worth taking a quick step back just to really talk about Hawaii because it will be a theme, I think. Number 1, you know, this was a $1 billion franchise for us. And we knew that we needed scale, relevance, and loyalty. For an $8 billion market, and we have achieved that now. Especially with the now with the single passenger service system, it is integrated now into OneWorld. We have talked about loyalty growth and all the rest of it. So we have seen really good strengthening and prospects for Hawaii. You know, specifically to your question, as it relates to September, we are seeing even in the last week, yields have been greater than system. And so we see, strength returning, for the reasons we talked about, on the Kona storms. To your question about capacity, you are right. This has been elevated. I think you know, domestic has been about flat in the second quarter going into the third, and it is up 8%, 7% to 8%. But we also know that the schedules are not finalized by the industry for the fourth quarter as well. We will be watching that. But we feel, good about the momentum we are seeing in Hawaii. And all the key levers post PSS that are coming into play to strengthen our position and the economics of that franchise. Thanks, Atul. Thank you.

And our next question will come from Duane Thomas Pfennigwerth with Evercore ISI.

Hey. Good morning. Thanks. Just a couple for me. On cargo, can you speak to the mission of these 4 800s that you are adding? Are these your aircraft? And is this similar to what you do up and down the state of Alaska? Or are these in support of outsourced Amazon flying?

Got it. Thanks, Shane, and good morning. Yeah. These are going to be our aircraft. We are taking them from another carrier. But they will be ours. We are going to go and mod them. So they are consistent with the rest of our freighter fleet, and they will be deployed for our own flying. They are not in a an arrangement that is a CMI or ACMI. They will be deployed under our brand. With our folks flying, cargoes that we go out and, and ultimately market to customers to carry for them. I think we said in the release, 2 of them will be in the state of Alaska. I think 2 of them will be in the state of Hartford. A lot of opportunity for us to continue to build share in both of those states. We do that sort of small community cargo flying, I think, better than anybody else, and we are we are excited about, cargo going forward also as part of the Alaska Accelerate, which we talked about in December 2024. Ultimately, contributing an additional point of margin to the business. And we are well on our way down that path. So, this was, this was 1 of the specific ways we were going to go and unlock that. We were excited to get to announce it yesterday.

Okay. Thanks. And apologies in advance for the minutiae on my follow-up, but it is something we actually got wrong. So can you just speak to the drivers of variable incentive pay? Is there any relationship between the employee recognition expense and this variable incentive pay? And just how should we think about that line maybe in the back half, flat, up, down? Thank you for any help there.

Yeah. If it is geography question, I am gonna have Emily make sure that we get this clear. I think there is a tax component that goes into 1 of the lines, and then there is the actual employee recognition cost that goes into another part of the, p and o.

Yeah. So, Dwayne, the variable incentive pay is a combination of performance based pay program, which is the majority of that line. And then our operational performance reward programs. Typically, we see this skew a little bit higher in the back half of the year as we get better certainty about the overall performance of the business. But I think you are gonna continue to see the trends that have manifested in the first half showing up in the back half.

Okay. Sorry. It was I think down year over year in 1Q, up year over year in 2Q. Just on a year over year basis, maybe flattish if we had to guess? Thank you.

Yeah. Probably flattish. Thank you.

Thanks.

Our next question will come from Conor Cunningham with Melius Research.

Everyone. Congrats, Shane, on the promotion. Just Andrew, maybe we can go back to Hawaii for a quick second. So I am just trying to understand, you know, when you have studied recovery time lines and when you have situations like this. You know, when I look back at, like, the Maui fires. I realize fires. I realize it is totally different. that recovery timeline took a while. Longer than I think anyone would have anticipated. So just how you compare this situation to that. And then is there anything structural within the Hawaii market that may limit the opportunity to push fares that you have seen at other system levels? It just so unique in the sense that, like, you are seeing the demand, you know, headwind timeframe you are seeing. You know, competitors push supply. Yeah, just any thoughts there. Thank you.

Yeah. Thanks, Conor. I think, you know, big picture for Hawaii, you know, over several years, Maui fires or other is somewhat, you know, static and if not sort of growing a little bit since you know, COVID. But, again, it is a very sort of stable market. We serve we have over 40 nonstop routes across the entirety of the West Coast. And I think what I would say here is that certainly there is ebbs and flows on the recovery, but I think what we have really focused on is all the tools that we have in our toolkit, that will help us outperform, the general market in Hawaii. And as we have shared earlier, things about loyalty, our loyalty growth, our connectivity, and our ability to serve the right market with the right aircraft Again, I think as we look to Hawaii, we are very focused on the you know, September and beyond. And what we are seeing right now is a recovery, and there is nothing that we see right now to give us the sense that this will not get back, to strength, the coming quarters.

And, Conor, it is Benito. I think a couple of things on that. Remember last year, Hawaii was 1 of our best geographies in our network. And to your point, it is different than the Maui fires. The Maui fires were catastrophic. For Hawaii, and, you know, these were torrential rains They were brutal, but the recovery is gonna be different. In our view than the Maui fires just to answer it directly. And just in terms of strength and structure, I think Andrew was trying to get to it on Hawaiian. There may be other questions. Look. This is an $8 billion premium market. Where, you know, we had a billion dollars of it, you know, before the acquisition. Now we have, you know, about 50% of that premium market in Hawaii, and that was the whole thesis going in. Do we grow it organically? Do we retreat, or do we double down on Hawaii? And the thesis was double down on Hawaii. It is a premium leisure market where the pie is essentially finite, and we think it is a great market off the West Coast, and it fit our network. And on top of it, it gave us access to international airplanes to build our Seattle hub where it was the 1 arrow on our quiver that was missing, and you could see all the gains we had from international and premium, and you see all the increases in those areas year over year. So I just wanted for you and for everyone else, the whole value of Hawaii. we are so committed, and these are blips. But over the long term, Hawaii is absolutely, gonna be a huge contributor for us.

Awesome. Appreciate that detail. And then maybe I could speak to next year. And I know that you do not wanna give a guide, but or anything like that. But just when we think about controllable margin spread, I like that we are talking about that a lot more this quarter. But you know, I think that it the carriers that have reported as well would also call out a similar cost trajectory opportunity next year. You know, in a reasonable growth environment. You know, there is obviously this debate around industry RASM, and that is obviously very difficult to pin down. But just there is a lot of opportunity. I you know, I just from the synergies, the tailwinds that you had just you know, from Hawaii there. So when we think about next year, is like, is the rational thought process that RASM will exceed CASM next year And could you just speak to just any of the, idiosyncratic levers that you have already identified that are already, like, in your playbook? Now from a revenue? Thank you.

Yeah. Thanks, Conor. Yeah. Broadly, like, if you are asking about the 2027 setup, yeah, we are really excited about it. We are confident in next year's opportunity to expand margins mostly through that the expansion of the RASM-to-CASM-ex--I think you just called it the controllable margin spread. We sort of cannot wait to get there. We would like fuel to calm down, and we would like the economy to remain really strong. But we will have a chance next year to obviously hopefully, participate in a full year of the current demand and pricing environment. So it is really only been with us for half of this year. We will get to lap the first year of international, which there is always an opportunity to do better in the second year of these sorts of things. And I think we had a phenomenal first, go around this summer, but it should be even better next year. And I am sure we will get questions on that, and Andrew can share more detail about that We will lap these headwinds in Hawaii that we are talking about and get back to what we believe will be the strength that we were seeing coming into this year from the Hawaii market set. We have got a full year of expanded premium cabins, the last retrofit of which I think we just got done sometime during this quarter. We will have 50% of the fleet StarLink going to 100%. People love that product when they fly on it. And we have got the last tranche of synergies and initiatives to go and unlock. And some of that is sort of basics around running, how we run RM. I think you guys know we talked about it. We are not on a network RM system. We will be on 1 next year. So others have done that recently and enjoyed, really significant RASM. Improvements from those. So I think our expectation is exactly what you said that we could achieve RASM growth ahead of CASM growth next year. And as fuel normalizes, back to what I said in the script, I think the underlying structure of this business is really strong. And that we should see and could see earnings expand quite rapidly.

Great. See you everyone in September. Thank you.

Thank you. Thanks, Conor.

Our next question will come from Savanthi Syth with Raymond James.

Hey, good morning. Was wondering if I could not necessarily looking for a kind of numbers and magnitude, but just any early thoughts on how you are thinking about domestic versus international capacity growth in Q4 and 2027? And just tied to that, like, have you gotten an indication from Boeing on kind of 10 deliveries next year?

Thanks, Savi. I think domestic in Q3 was roughly flat. I think similar in Q4. I think all of our growth, and we have been pretty deliberate and I think responsible with our growth is international into the fourth quarter. We do take a significant number of airplanes next year. We are really excited about those. We do think that the MAX 10 will get certified here relatively soon. The first use of those aircraft will be to continue to build out our core cities like Seattle and continue to up gauge where we can and also to retire, an aged 737 fleet. And the, the economics of a MAX 10 versus an older 737 are very, very compelling. And so we have got really good plans to use the fleet that we are bringing in next year. We have a couple of 787s will help us continue to further international growth. It will maybe be a little more balanced in terms of domestic versus international next year, but we do intend for it to be responsible growth rates, you know, more than this year, but pretty similar to our target long term target, which I think we have laid out around 4% or something like that.

Makes sense. Helpful. And if I could just quickly follow-up on Shane's question on the new cargo aircraft. Is it fair to assume that you know, the freighter cost will step up ratably, but the cargo revenue will take time to catch up? As you kind of win contracts and use it for reliability? Or that not a fair assumption given that you might be working on winning contracts with a new aircraft already?

Yeah. No. Thanks, Savi. A lot of the aircraft the incremental freighters will go into service early next year. So we have been contemplating, this announcement, obviously, for a while. So we have got you know, ideas and plans on how we are gonna go fill those freighters up. The there is an immediate need for incremental capacity in the state of Alaska and just better overall operational reliability. The 700NG freighter fleet that we have, is also getting aged. And so they will be put to good use right away. We are not gonna fly empty cargo holes around. And I think there is a lot of opportunity and desire for us to provide service within the islands in the state of Hawaii. So I think this is gonna be a, quick ramp. To, to accretive, results from these 4 new freighters.

Helpful. Thanks.

Thanks, Savi.

We will move next to Brandon Oglenski with Barclays Capital.

Hey, good morning. Thanks for taking the question. Andrew, I think you mentioned picking up corporate share across your hubs, and I think specifically called out Portland, but maybe I heard that wrong. Can you speak to the momentum you are seeing there? And how it is playing in with your premium mix as well?

Yeah. Thanks, Brandon. We have been very excited about the results, on the corporate side and the thesis. And, you know, I specifically called out, obviously, Portland and San Diego where we have had capacity growth and our share of the market on the corporate side has followed, even at a higher accelerated rate. And we have seen also in Seattle, the same thing. And I think we talked about, 30% increase in revenues. I will tell you right now, sitting in July, our revenues are up over 40% for managed corporate travel. So the flywheel of growth and scale in our core hubs of our loyalty system, and then long haul, especially out of Seattle, have really helped fuel the ability to win, share, and obtain greater exposure to corporate traffic.

Thanks for that. And then Shane, I guess I do not wanna push you too hard, but I guess longer term, you guys had been targeting, let's call it, low single digit CASM ex cost inflation with something like mid single digit capacity growth. I think that is right. Has anything changed there? And can you talk to the cost synergies on the Hawaiian side? I think have those been achieved yet or now that you have rolled over to single PSS, is there more to come?

Yeah. Thanks, Brandon. No update to philosophy. I think our mindset is, at you know, mid middle to low to middle mid single digit growth. We should have low single digit CASM ex over the long term. The business, as you know, it is tends to take in cost sometimes in a more lumpy way when we have to, like, build up, you know, a brand new fleet type with crew. We are gonna have, you know, costs that sort of come into the P&L, you know, stepwise, not linear. But that is our overall thinking. We I was trying to think of the second part of your question. The thing that I would also mention on it in terms of synergies, that was the question. We have largely gotten most of the synergies that we could go get immediately on the technology side of the business, certainly on the overhead side of the business. So there is not a huge tranche of incremental synergies to come. There is the opportunity to do a lot more optimization, as we move forward. Certainly as we bring work groups together, we are anxious to get joint CBAs done. Those CBAs will come with incremental costs, of course, so there will be, some additional costs that go into compensation for employees, which is great. But we will then have an opportunity to get more productive with all of those work groups as well, which will partially offset that. So I think, right now, we are sort of pivoting away from cost synergies and really focused on leaning out the overall business, both the back office and on the, frontline productivity front, and that is what you will hear us talk about going forward.

Shane you.

Thanks, Brandon.

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

Hey. Thanks for the time, everyone. And congrats, Shane. Hope you do not mind, but I thought I should dig in a little bit more on Hawaii. Can you just maybe I think it would be helpful to understand, like, some color around when was the RASM drag at its maximum impact And how do you expect the trajectory of the recovery to play out over 3Q Sounds like maybe no impact in September or maybe I am reading too much into your comments there. And is there any way to just help parse out further how much of the impact is tourists maybe booking away after the floods, and how much is the ramp and seat to Hawaii from industry maybe being a bit of a mismatch with the stable demand you talked about. I do not know if there is, like, information from the tourist tourism board you would compare to or anything. I will stop there. Bit of a long 1.

Yeah. Thanks, Catherine. that is a--that is an insightful question. I think the peak of it was sort of when the storms really hit. I think from the top of my head, we might even had a negative booking day here or there with just and all the things that were going on. So really sort of the March April time frame, sort of the spring break, was you know, the real deep of the challenge. I think then as you sort of moved into summer bookings, I think it caused some folks to consider, reconsider. But I do think to your point, the or the increase in industry capacity which has far outpaced anything else system wide domestically. But we have seen that in Latin America and look at the adjustments the industry has made to capacity today from last year. So I think, you know, as we move forward, I think as we find the right water level in the right level and, of course, we have a lot of things on this side, Catherine, when we look at our network now, we look at both sides, we look at our loyalty program. We have a lot of levers to pull the marketing machine, to continue to get back to strength. And I would say again, early days, but we are seeing as we move into full travel, a sort of change in the trajectory of bookings. July and August are going to, you know, be under system capacity, and we have shared there are gonna be a couple plus point drag, but I think that is going to change as we move to the fourth quarter.

Okay. Got it. And then maybe 1 for Shane on the balance sheet. You know, given the volatility and geopolitical uncertainty, makes sense. You raised some incremental cap there. Take liquidity at the high end of your range. With the reemergence of geopolitical tensions over the last month, how do you think about when to start paying down debt? what are--what is in the calculus there? And how do the coupons on the new debt compare to tranches you would ultimately look to pay down? Thanks.

Thanks, Catherine. And maybe Emily can help us with the with the sort of pricing. I just did wanna mention while we have the mic on balance sheet since you asked. It was pretty cool to go out to market and get our first unsecured bond. It had a lot of, interest in it. I think it is traded around par above parts. I think a really good issuance. The team did a phenomenal job. We are ready to start paying down debt, but we are gonna be pretty deliberate you know, a few weeks of stability is probably not long enough for us to call it. And we would like to see a quarter or 2 of you know, really stable input prices and, return to healthy cash flows and then we would pretty aggressively start to pay down the debt. And we have got plenty of debt prepayable or expiring in the next little bit, so we will not have a problem finding ways to reduce liquidity when we are comfortable in doing so. But maybe on the pricing Emily?

Yeah, Catherine. We did see some modest increase in the coupon on this latest debt just with the interest rate environment. Overall, our weighted average debt interest rate is at about 5.3, so that is up 0.4% from prior quarter, so slight increase.

Our next question comes from Tom Fitzgerald with TD Cowen.

Hi, everyone. Thanks very much for the time. Duane just to stick with CASM ex for a minute. Just a couple finer points. Can you speak to how much stage length is maybe flattering CASM ex in the back half and if that is expected to continue into 2027? And then as well, just in terms of your longer term CASM ex framework, how should we think about some of the pressures on the maintenance especially with the way that if your fleet profile changes in the coming years, and then some of the real estate investments you guys are making?

Yeah. Thomas, I do not think stage length is pretty stable, so it is not helping or hurting right now. On the CASM ex side. And I even think, like, aircraft density is not really doing much right now, to CASM ex. Once these tens really start come in, we will get a little bit of a tailwind from just gauge over the next couple of years. Yeah. I--we--I will not go into a lot of detail. You just named the 2 of areas where we have gotta go work really hard to make sure that we are managing those 2 cost categories closely and also finding other areas of the company we can lean out and further optimize, in order to support costs that we know we have to bring into the P and L over the next couple of years related to maintaining the LEAP, engine fleet and that should start in earnest sometime next year. And then the airport story is a story I think that is very consistent with the entire industry, and we have been talking for a couple of years. Most of the big, programs are now finished. They are beautiful spaces, by the way. I think we have some of the best airport spaces in the country, for our guests, across all of our core hubs. And, it is nice to see all of those walls opened up. Now we get to start paying for it, and, that is gonna be with us through the end of end of the decade here. And we have got a good line of sight to it, and so I just go back and remind that we do have a job to go make sure we lean out other parts of the company to be able to bring these on in a way that keeps that CASM trajectory where we talked about it a couple questions ago.

And, Thomas, on the maintenance side, it is definitely gonna help between 700s and 717s what is that? About 30 airplanes? Yeah. These are 30 airplanes. You know, at least 25 years old. That will have a huge benefit. In the next couple of years. Offsetting the increase in the leads. it is a good point.

Yeah. Yeah. Okay. No. that is really helpful. And then just as a follow-up I was wondering if you would mind just providing like a teaser trailer for investor Day. Why now? Why is it the right time? And then what should investors be thinking about? I mean, is it are we or should we look for more of, a mark to market report card on the last Accelerate? Should we be thinking about new initiatives? And I think Benito used the phrasing, like, structural structurally capable of producing $10 in EPS, and I do not know if I am reading too much into it or if that is any change in the verbiage. But thanks again for the time. Look forward to investigating in September.

No, Thomas. No. Thank you. I it we thought it was just time to bring everyone in to give you an update. Exactly on where we are with Alaska Accelerate. You know, there is been a lot that is happened in the last 12 to 18 months. And I think it is time for us to show structurally where the company is, where we are going. There are gonna be new initiatives. And everything that we have done, to really position the company for stronger earnings in 2027 and beyond. So we are we are excited to show it, and I think you will see from the momentum we have seen on the second half of the year, I mean, just to remind everyone, you know, we have lost almost $500 million in the first half of the year, which we do not like. The second half of the year is gonna be a complete mirror image of what is happened in the first half, we are going to pretty much, you know, reverse that loss, and that momentum is gonna continue into 2027. And at Investor Day, we just want to bring all these things together to give you a view of what, the future is gonna look like because so many things have happened at Alaska in the last 2 years. So it is gonna be exciting. It will be at our new global training center, which we are gonna love to show off, but I think it is gonna be a great day for everybody.

Thanks.

We will move next to Michael Linenberg with BMO Capital Markets.

Good morning and thanks for the question. Can you walk us through how you think of the runway for Atmos Rewards and card penetration? Is there a natural share of passengers that you believe can become members versus today? And how do you think about card penetration among your passengers and active members over the longer term?

Yeah. Thanks, Michael. We see continued increased penetration in both loyalty members significantly, and I will talk about that in a moment. And then, obviously, the credit card. You heard Benito talk about the premium credit card. We have more to talk about things at Investor Day in next year. there is some exciting loyalty things we wanna share. But, you know, with the Starlink and the power of that, and the sign up process, bringing on new members through that just other carriers have done. We found that as an amazing, fuel, to help grow our loyalty program. But in general, I think as we talked about scale, relevance, and loyalty in our hubs and in our international, and especially Hawaii we are already seeing it. We continue to expect and believe that there will be increased penetration of loyalty members on our aircraft, and that is because of 2 things. Number 1, the richness and the change in the program, which have been awesome. And then secondly, just the growing scale and relevance of our network, to our customer base. Both domestically and globally. Thank you. And then can you touched on it a bit at the top of the call, but can you give us an update on how the international routes are performing? But more broadly, how you think of the margin contributions of these new routes as they ultimately start to mature and move past up the start up phase? Yeah. I mean, I am just saying this, but we have been very excited about the initial reception of our European launch. If there was any doubt that Alaska Airlines was gonna be a relevant and powerful player in this market. There is no question, from what we have seen from day 1. And I think even Rome, when you put that down to normal fuel and all the rest of it, would actually have been profitable. The other thing I would share is that we are sort of just in the first round. Some of these new markets, especially London and Rome, others have been selling them 3 hundred and 30, 40 days of the year, and we came in late in the piece there. And we are also seeing, just to be honest, on the Incheon and Narita markets, what I am seeing is year-over-year significantly higher book load factors. So the international machine is just getting going. Point of sale in the U.K. was turned on recently. So we are very excited about where we can take this and as we continue to grow quite frankly. Thank you. Thanks, Michael.

We will move next to Scott Group with Wolfe Research.

Hey, thanks. Good morning. So just curious where you think you are at in terms of revenue synergies this year and how you think that does that accelerate? Similar number next year? Ultimately, what I am trying to figure out, like, you know, we still have a few reports to go. We are towards--it feels like we will be towards the lower end of RASM growth. And with credit card and broader synergies, I think the hope was to be towards the better end. I just wanna understand, like, Hawaii's gotten a lot of airtime. is the entirety of, like, the Delta you think Hawaii, or is there anything sort of else going on?

Yeah, Scott, thanks. This is Shane. Well, 1 thing first of all, if we scorecarded all the synergies, they would be all green across the board just because the fair environment has gone up so much. And when you get the type of, you know, step change in the pricing backdrop that we have experienced and everybody else has experienced, you know, you gotta be careful to declare victory too early. So all of the categories that we had wanted to unlock in terms of synergies, that is what we have tried to speak to in the prepared remarks. that is what we have been trying to speak to in the Q and A. Those are all working really, really well and continue to be the areas of focus. And so it is network connectivity, some of the scheduling things we did around banking. We are seeing great catchment area pull over Seattle into Asia. We talked about that at our Investor Day a couple of years ago. I cannot remember the exact stat. 20 or 25% of our passengers are actually coming from the Midwest. And, you know, locations that are not, you know, core in our network on the West Coast because Seattle is such a great place to transit to go to places like Asia. Andrew just spoke to the success of international on a deal normalized basis. We had strong margins in a couple of the New Europe markets. We had reported in the first quarter profitability. In 1 of the Asian markets, the premium expansion that we have talked at length about, the launch of a brand new loyalty program, which is now just crossing over its first year with think, 3 times as many premium credit cards in circulation as we expected. So, like, all of the areas on loyalty and premium and the network sort of value of this we feel incredibly good about, more confident in the future than we even did when we did the transaction. So I think you are right. Michael, our goal is to ultimately close our gap, our RASM gap to the legacies, which means we need to beat them over time on a unit revenue basis, and we are focused on doing that. I think the areas we believe that they are outperforming us are premium international, which is they have got 10, 15, 20 years of head start on us, and we are gonna catch up And it is not gonna take us 10 years to do that, and we are already seeing that happen today. And so we are excited. About the rest of this year and certainly next year and the year after. As we get to mature all of these investments and really start to harvest the value from them.

Okay. Helpful. And then just 1 more just, like, really, like, quick short term thing. Just, you guys have more fuel volatility, I think, than just some of your peers. Michael, what are you, like, paying today on fuel just given the fuel spike? Just wanna get some sort of sense. Thanks.

Thanks, Scott. More than yesterday, a little bit. I am not exactly sure what it is today. I can tell you our last spot prices like, I think we said it in the prepared remarks, $3.85. I think that was end of last week pricing. We were at for reference, $3.08 when we walked into this month, so less than 20 days ago. that is how quickly it is moved, and I think that is how quickly it could move back down. So anyhow, that is that is what we paid last week, and, hopefully, it turns the corner here soon and goes back the way it was going before. And that would make all of us, you know, extraordinarily happy.

Very helpful. Thank you, guys. Appreciate the time.

Thanks, Scott.

We will move next to Andrew George Didora with Bank of America.

Hey, good morning, everyone. Andrew, I think you said that your June RASM was up 11%. So when we think about the third quarter RASM guide of up low double digits, when you factor in sort of the booking curve dynamics and have your September yield commentary. You know, why would not 3Q RASM be above June? You know, any headwinds we should think about there?

Yeah. What I can tell you, sitting here today, is that the sequential year over year improvement in July and August and September continues on from what we saw in June, and a little higher and continuing to grow. So we are in a good upward trajectory as we continue into the third quarter.

Which is to say Q3 should be above--yes, June.

Yeah. Yes. that is our expectation.

Okay. Thank you. Thank you for that. And then just curious, I know there were some questions with regards to the international route launches. I think we see international growth at, like, 30% to 40% the next several months. Just curious what that, you know, RASM kind of headwind would be because I know you know, I guess, RASM headwind and CASM tailwind would be just because I know they come with lower of both. Shane you.

Yeah. I think just on a pure RASM basis, maybe it is a couple of points. You know? So, but to your point, it affects both sides of the equation.

But as Shane has already shared, through the rest of the year, 100% of our growth is long haul ASMs, are gonna sit around about 8% of our total capacity equation. I think there is probably a mismatch in timing. Though. I think on a normalized basis, yeah, you run 5 thousand-mile stage lengths. You should get a help to CASM and sort of a small, you know, headwind to RASM. We are in the buildup stage of this on both sides. So RASM should get better over time and CASM should improve over time. So my guess is we are upside down on that. Long term equation, Andrew, as we sit here today, and it should improve as we move, forward from here and certainly as we build more scale out into the international market. So I think these just get better. From here is my point on both sides.

Thank you, Andrew. And thank you, everybody. We hope to see you, in September at Investor Day. Shane you for joining us.

And this concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.