Alaska Air Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2023 third 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 speaker's remarks, we will conduct a question and answer session for analysts. I would now like to turn the call over to Alaska Air Group's Vice President of Finance, Planning, and Investor Relations, Ryan St. John.

Thank you, Operator, and good morning. Thank you for joining us for our third quarter 2023 earnings call. This morning, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today's call, you'll hear updates from Ben, Andrew, and Shane. Several 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 third quarter gap net income of $139 million. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $237 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 cost excluding fuel. And as usual, we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today's earnings release. Over to you, Ben.

Thanks, Ryan, and good morning, everyone. Before getting to our results, I'd like to start by acknowledging the human aspect of the work we do. This past quarter, close to home, we saw wildfires bring devastation to the West Maui community. More recently, we've been horrified by the terrorist attacks in Israel, and we mourn for the innocent lives lost. I want to acknowledge that people are hurting, and while we share in the privilege of connecting families and communities, we also share in the pain of seeing those around the world suffer. Now turning to our results. Our third quarter performance continues to demonstrate the underlying strength of our business model, and our commitment to drive consistent, measured progress against our goals. During the quarter, we ran the best operation in the country, delivering a 99.7% completion rate and on-time rate of over 80%. On September 30th, we retired our last Airbus aircraft from service, marking our official return to single fleet. We drove unit cost down nearly 5% year-over-year, a strong performance that stands alone versus our peers in achieving year-over-year unit cost reductions. And our 11.4% adjusted pre-tax margin nearly led the industry, despite our lower direct exposure to record international demand, as well as significant fuel cost headwinds given our geographic exposure to the West Coast. Now moving to where we are today. Having been in this industry a long time, I know as well as anyone how volatile it can be, and we are seeing this now. Crude oil has risen 12% from last quarter, while L.A. refining margins have increased 70% overall and 60% over Gulf Coast levels, disproportionately increasing our economic fuel costs compared to peers, given the majority of our purchasing happens on the West Coast. While we expect this divergence to be temporary, it is nonetheless a near-term headwind. Absent this $50 million cost in Q3, we would have led the industry in adjusted pre-tax margin. Demand remains strong in peak periods but shoulder periods are becoming more susceptible to lower demand without a full return of corporate travel. Despite these near-term headwinds that will likely make the next quarters more challenging, I continue to believe we have a strong, fundamental, long-term setup for several reasons. One, our teams continue to deliver reliability. We now have two solid quarters in a row of industry-leading performance, and I can confidently say we have our operational muscle back. I want to thank all our employees for their hard work and effort. They have done an amazing job prioritizing and delivering a safe and reliable operation for our guests. Our completion rate not only led the industry, but set 20-year company records in all three months of the quarter during peak summer flying, continuing to surpass our planning expectations. Two, our relative cost advantage comes from decades of discipline and became a highlight in the third quarter. With visibility to another quarter of unit cost improvement year over year, we expect full-year CASMAX to be down 1% to 2%, likely the only carrier to achieve unit cost reductions for the year. Having retired our last Airbus aircraft in September, we brought our dual fleet chapter to a close and are poised to fully recognize the power of single fleet efficiencies as we move into 2024. Three, we have the most diversified revenue of domestic focused airlines, generating 45% of our revenue outside the main cabin. Our investments in fleet and premium seating have given us a domestic product that rivals any in the industry, including first and premium class lounges and global partnerships that will continue to serve us well going forward. And four, our growth is rational and disciplined. Having closed out a strong summer operation, our teams are turning their focus to winter preparedness and continuing to deliver strong operational performance for our guests throughout the holidays. Capacity discipline is the most relevant lever our industry has and will be necessary to support off-peak periods going forward. We are focused on optimizing our flying and moderating growth as a prudent measure to deliver results. For 2024, we are actively discussing where within our long-term 4% to 8% target growth range is most optimal given the higher fuel environment. To close, we produce solid third quarter results. Without our refining margin headwind, we would have had the best result in the industry. Our product set competes with the best, and as the international versus domestic demand mix and business travel ultimately normalize over time, we have the right business model to deliver strong results and outperform well into the future. Now, more than ever, we are focused on extracting efficiencies from both sides of the profitability equation with all the elements in place to drive strong relative results within our evolving industry. And with that, I'll turn it over to Andrew.