Alaska Air Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2022 Fourth 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's Vice President of Finance, Emily Halverson.

Thank you, Operator, and good morning. Thank you for joining us for our fourth quarter 2022 earnings call. This morning, we issued our earnings release, which is available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, 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. This morning, Air Group reported fourth quarter gap net income of $22 million. Excluding special items in mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $118 million. As a reminder, our comments today will include forward-looking statements about future performance, which may differ materially from our actual results. Information on risk factors that could affect our business can be found within our SEC filings. We will also refer to certain non-GAAP financial measures, such as adjusted earnings and unit costs excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Ben.

Thanks, Emily, and good morning, everyone. Despite another volatile year, we closed out 2022 with solid results. With our continued focus and the incredible dedication of our employees, we are well positioned to build on this success as we move into 2023 and beyond. This year, we generated full year revenue 10% above 2019 levels, doing so on 9% less capacity. Our 7.6% full year adjusted pre-tax margin led the industry, proving that our business model is resilient. Air Group's pre-tax margins have now ranked number one in the industry for 11 of the last 13 years. Additionally, our employees earned the largest performance bonus payout in our company's history, on average adding 10.5% on top of our employees' salaries or nearly six weeks' worth of pay. Our people did a fantastic job delivering care and want to thank all of them for the work they do to ensure Air Group outperforms even during turbulent times. Earlier this year, we identified three key priorities to strengthen our competitive advantage and prepare for future growth. Our teams delivered on each of these priorities, including one, completing our labor deals. We signed five labor contracts in 2022, all of which includes significant improvements for our people and create stability and clarity for our company and employees. With these in place, we are well positioned to fully focus on our future. Two, fortifying our operational reliability. Despite challenges throughout the year, we finished 2022 with one of the industry's best completion and on-time performance rates. Operational integrity is the foundation of a healthy airline, and we remain focused on balancing our growth aspirations with consistent delivery of the operational excellence Alaska is known for. And three, executing our single fleet transitions at both Alaska and Horizon. On January 8th, we flew our last A320 revenue service flight and today marks the final Q400 flight, leaving only 10 A321s in the fleet through year end. We have retired over 60 aircraft the last few months, paving the way to more cost efficient and productive operations in both our regional and mainline business. As we take off 2023, we're taking with us many lessons learned. We closed out a solid year, and we are committed to make 2023 even better. Our leadership team has a clear set of strategic initiatives that will support our growth aspirations, expand margins, and improve operational excellence. For the full year, we expect to achieve adjusted pre-tax margins of between 9 and 12%. This morning, we introduced an earnings guide of $5.50 to $7.50 per share, which implies restoration to 2019 EPS levels at the midpoint. Delivering on these targets will be challenging and will require us to leverage our competitive strengths. Undoubtedly, there have been structural shifts within the industry. but history has proven time and again that cost discipline and a strong balance sheet are required to win in the airline business. This is the heart of Air Group's DNA, and we continue to believe low costs and high productivity matter, and that pursuing both benefits all stakeholders. Productivity is not where it used to be in this post-pandemic era, and it can be debated what is structural and what is temporary. but our leadership team is dedicated to driving down unit costs in 2023 as we restore flying and begin to close the productivity gap. This strategy is largely enabled by our single fleet transition and the upgauge benefits that come with our new MAX fleet. Two critical factors to successful capacity growth in 2023 will continue to be staffing and aircraft availability. We had success in hiring nearly 8,000 people in 2022 and are confident in our plans to hire 3,500 more in 2023. And as it relates to aircraft, we remain in close communication with Boeing and have a high degree of confidence in our fleet planning assumptions as well. Having factored in the appropriate buffer in both these areas, we are confident in our 2023 plans to grow 8% to 10% versus prior year, so long as demand and the economic environment continue to support it. Lastly, the revenue roadmap we outlined at our March Investor Day will provide valuable contributions in 2023 and continue to build to our $400 million target. Through focus on cost discipline and growing revenue opportunities, we have a tangible path to expand margins and our team is excited to deliver on these in 2023. To wrap up, our goal throughout the pandemic has been to emerge a stronger, more competitive airline, and the steps we've taken to date ensure we're on that path. We have the people, the resources, the knowledge, and the discipline to drive performance. I am proud of the results we achieved in 2022, but even more so, I'm looking forward to the opportunities ahead of us as we deliver on our financial and strategic initiatives in 2023 and beyond. And with that, I'll turn it over to Andrew.