Alaska Air Group, Inc.

Good morning, ladies and gentlemen, and welcome to the Alaska Air Group 2025 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 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. Thanks for joining us today to discuss our fourth quarter and full year 2025 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 Ben, Andrew, and Shane. Several other of our management team are also on the line to answer your questions during the Q&A portion of the call. Air Group reported fourth quarter and full year gap net income of $21 and $100 million, respectively. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted fourth quarter and full year net income of $50 and $293 million, respectively. Our comments today will include discussion of Air Group reported results and forward-looking guidance compared to prior year pro forma results as if Alaska and Hawaiian were a combined company for the full periods referenced. Lastly, 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. 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 we dive in, I want to start by thanking our 30,000 employees for their efforts throughout 2025. Last year was a year of transformation where we laid the groundwork for the next chapter of Alaska Air Group. It did not come without growing pains, but we delivered bold initiatives, strengthened our competitive position, improved our relevance, and set the stage for long-term growth under our Alaska Accelerate vision. Our employees navigated a lot of change last year, and I can't thank them enough for their commitment to helping us realize our long-term potential and for taking care of our guests every step of the way. My belief in our future has never been more evident in the last few weeks as we secured the largest aircraft order in our history with Boeing. This solidifies our growth through 2035. resulting in an outstanding order book of 261 aircraft if all options are exercised. This now includes firm orders that will take our 787 fleet to a total of 17 aircraft, supporting our goal of building Seattle into a world-class global hub with at least 12 destinations. I want to thank Boeing and Transportation Secretary Duffy for their support in our commitment to being the country's fourth global airline. While 2025 did not result in the financial returns we had initially laid out at the start of the year, we strongly delivered against our Alaska Accelerate vision, ticking off many major milestones, with several of them outperforming expectations. By many measures, 2025 was a major success for our company. We firmly controlled the areas within our control. Synergies finished ahead of plan for the year. notably on the network side, as the power of the combination of Alaska and Hawaiian was evident all year long. Hawaii was by far our strongest region in the network on a year-over-year basis, demonstrating the benefits of the utility the merger has created. We embarked on our journey to build Seattle into a world-class global hub, launching flights to Tokyo and Seoul, and we're thrilled to begin service to London, Rome, and Reykjavik this spring three iconic European destinations that elevate Alaska's global relevance. Our unified loyalty program, Atmos Rewards, went live in August, creating a single platform for engagement and brand reach. We launched an industry-leading and premium credit card that saw 75,000 signups in just four months, exceeding our expectations by three times, demonstrating the power of the industry's best loyalty program. Importantly, we achieved a single operating certificate in October, just 13 months post-merger, an impressive accomplishment. And the hard work behind the scenes was completed for our combined passenger service system with operational cutover scheduled for April of this year. This will deliver a seamless, cohesive guest experience, eliminating friction from operating dual systems. These accomplishments demonstrate our ability to execute a complex integration while transforming ourselves into the country's fourth global airline. While many things went exceptionally well last year, as we rolled out a slew of new initiatives at a record pace, we know there is room for improvement. Our goal is to build world-class technology infrastructure. The two outages we experienced last year were painful for our guests, employees, and financial results. Corrective actions are underway and will continue throughout the year, supported by third-party experts as we invest in both near-term fixes and long-term sustainable solutions. Turning to 2025 results, for the fourth quarter, we delivered adjusted EPS of 43 cents, and for the full year, adjusted EPS of $2.44, both ahead of our revised guidance put out in early December. As we had shared at the time, results were impacted by the IT outage, elevated fuel costs, and the impact from the government shutdown. In the end, we delivered a better cost result and benefited from slightly lower fuel in December than anticipated. Given our conviction in Alaska Accelerate and our ability to generate $10 earnings per share by 2027, we executed $570 million of share repurchases when our stock price was below its long-term potential. This puts us more than halfway through the $1 billion buyback authorization we unveiled at the end of 2024. As we look ahead to 2026, our overarching focus is on harvesting the investments we made in 2025 and driving margin expansion as we progress toward our goal of $10 per share by 2027. We expect full year earnings per share to be in the range of $3.50 to $6.50. representing a meaningful improvement over 2025. This reflects continued delivery of incremental earnings from our $1 billion Alaska Accelerate plan, the benefit of lapping transitory challenges experienced in 2025, and the trajectory of the macroeconomic environment and industry capacity growth. At Air Group, we feel the momentum building and accelerating in 2026 as our bold strategy comes to life. Our team is inspired and motivated to win. We have a winning business model and are continuing to configure it to meet the market where it's headed. More premium experiences, more international and fierce loyalty.