Cost Increases and Margin Outlook
Q: Why are costs increasing significantly, and will margins be impacted?
A: Management explains that costs are rising due to higher labor expenses, with labor accounting for about one-third of the increase, mainly from the flight attendant contract . Other factors include shifts in airport costs and maintenance timing . Despite these increases, they expect full-year margins to be the same or better for 2024 than they were in 2023, highlighting the resilience of their business model .

Capacity Growth Plans and 2025 Outlook
Q: Will capacity growth remain below mid-single-digit targets next year?
A: Due to aircraft delivery delays, particularly the MAX 10, capacity growth will likely remain below mid-single-digit targets in 2025 . Management plans to be judicious with capacity and focus on expanding margins, expecting to take fewer deliveries and retire more aircraft next year ** **.

Unit Cost Expectations
Q: Will high unit costs persist into the first half of 2025?
A: Management does not expect high single-digit unit cost increases to be the new normal . While costs are elevated due to timing shifts and labor rate increases, they believe these will become part of the base next year, and they are focused on maintaining their cost advantage ** **.

Competitive Capacity and Demand Environment
Q: How is competitive capacity affecting revenue and yield?
A: Competitive capacity was elevated, with industry capacity up over 20% in areas like Alaska long haul, which represents 12% of their network . However, going into September and October, seats are expected to be flat to very low single-digit increases ** **. Management views the current revenue environment primarily as a capacity issue and is making adjustments accordingly .

Premium Product Expansion
Q: What's the impact of expanding premium class offerings?
A: The premium cabin generates a 40% premium over the main cabin, with about half of the passengers being paid rather than upgrades . Management is investing in expanding first-class seating, adding 16 seats to match the rest of the fleet, with a CapEx of about $1 million per airplane spread over a couple of years ** **. This expansion is expected to drive both revenue and unit cost benefits by adding seats to spread costs over .

Labor Cost Increases
Q: How are labor cost increases impacting expenses?
A: Labor accounts for about one-third of the cost increase, mainly due to the new flight attendant contract . There's also a modest increase with pilots in September . While these are material step-up costs, management believes this is the last increase of such size as negotiations conclude ** **.

Fleet Plans and MAX 10 Deliveries
Q: What are the plans regarding fleet and MAX 10 aircraft?
A: Certification of the MAX 10 is extending, with expected benefits in 2026 when they begin taking deliveries . This will allow for gauge growth, but until then, growth is likely to be similar to the number of units they take on . They are focused on executing their existing Boeing fleet order and are not considering other aircraft like the Embraer E2 .

Contribution from oneworld Partners
Q: How significant is revenue from oneworld partnerships?
A: Total revenues from partners, including oneworld members, account for about 7% of their revenue mix . This includes high-value travelers and is expected to grow .

Network Adjustments for Margin Improvement
Q: How are you adjusting the network to improve margins?
A: Management is being judicious with capacity, especially during weaker periods in the first and fourth quarters . They are reallocating aircraft to profitable markets and have announced new routes focusing on high-demand leisure destinations, such as expanding into Mexico for U.S. leisure travelers ** **.

Recovery in Business Travel
Q: How is the recovery in business travel, especially in San Francisco?
A: Business travel recovery in San Francisco is at 80%, specifically referring to business travel . Management has positioned their network post-COVID well in California and continues to focus on markets with strong demand .

Customer Experience and Brand Impact
Q: Are customer metrics back to normal after the January incident?
A: Management states there is no lingering impact from the January incident . They highlight that in 2023 DOT data, they had the lowest customer complaints of any airline in the industry, reflecting strong operational performance .

App and Distribution Enhancements
Q: Any updates to the app or sales channels with premium focus?
A: The company has updated its website to feature the full range of premium offerings, and the app will be updated soon to enhance product distribution, meeting increasing customer demand through digital channels .