Helane Becker: Thanks very much operator. Hi, everybody. Two questions. One, when you talk about – maybe this is for Andrew, when you talk about optimization of the network, can you just describe maybe more fully what you’re talking about? I know some of it is not flying as much in the first quarter in ‘24 as you did in ‘23 because of the shifts in the way people are flying and the fact that corporate probably back as far as it’s going to go, right? I can’t imagine that there are a lot of day trips between Seattle and Portland or Seattle and San Fran or L.A. anymore given the unreliability of exogenous pressures, right? So how do we think about what optimization exactly means?
Andrew Harrison: Yes, Helane, I think, what I would say, when I talk about optimization, look, we’re at a place now where we see where fuel is at elevated and has been for some time. The whole industry has a new set of structural unit costs. And we’re also seeing sort of a settling down of overall capacity across the country. So given those things, we’re looking much harder where we – and business as you raise as another point, we’re looking much harder about where we’re putting our airplanes in high-frequency routes, leisure versus business time of year. Just to be frank, we’ve probably been less concerned about being more surgical during summer. But the reality is this past summer, you can certainly see as we get back to normalized booking patterns, there is definitely between July and September, very significant changes in demand profile.
So we’re going to do a much better job going forward, and we’re already on it, is just realigning our supply of aircraft. So I think that’s what I’m basically saying, and I think there’s only good news from doing that.
Helane Becker: Okay. That’s sort of helpful. Until things kind of revert to more normalized behavior, and you have to fix it again. But that’s not a problem. My other follow-up question on the A321s that are being – I thought those were actually going to be leased in aircraft, but they’re being transferred over to American. So I didn’t see it in the press release, but that doesn’t mean anything. It just means I didn’t see it. Can you talk about the accounting for that? Can you comment on the cost of what they’re paying you or any information that would help us think about that for you guys.
Matt Grady: Hi, Helane, it’s Matt. Thanks for the question. I’d say this transaction is probably one of the more complicated ones that I’ve seen in my 25 years of doing this. But our thinking on it is really simple. We’ve been public in that there’s 6 to 8 years left on these above-market leases that Alaska acquired as part of the Virgin transaction. And our objective was just to find a transaction and build it that economically offset those remaining obligations. We’ve been working it for 12 to 18 months and just happy to get this process to a close because as you know, this is the last unlock to truly get us to single fleet. Just like we don’t comment on pricing on – in the airline. I’m not going to comment on pricing of what American is paying us, but we feel good about the economics.
And again, covering what our PV of lease obligations was through the extended period of those leases. And then I’m going to kick it to Emily on the accounting side, just where that is.
Emily Halverson: Thanks, Matt. Helane, we have taken the vast majority of which are depicted with these transitions to P&L already. You’ve seen those in special charges over the last 12 to 18 months, as Matt noted. Cash-wise, we’re about two-thirds of the way through the cash that we’re going to incur with is, of course, as we’ve purchased the lease or the planes from the lessors and then we sell the planes to America, and there will be cash inflows and outflows. So about two-thirds of the $300 million to $350 million total cash exposure that we’ve shared with you guys previously, we’ve already incurred that. And then the remaining one-third will happen over the next two quarters.
Helane Becker: Great. That’s very helpful. Thanks, Emily. Thanks, Matta and Andrew.
Matt Grady: Thanks, Helane.
Operator: And we will hear next from Conor Cunningham with Melius Research.
Conor Cunningham: Hi, everyone. Thank you. Helane, maybe you can submit those notes on the accounting. [Technical Difficulty] year, it seems like on cost side. Could you just talk about some of the moving parts as you think about headwinds, maybe in the content, so productivity offsets that you, that are clearly in the cost structure now. Thank you.
Shane Tackett: Hey, Conor, thanks. It’s Shane. Bringing up a tiny, but I think you were asking about 2024 sort of puts and takes on costs. I’ll be high level, I think we’re not quite ready to fully discuss ‘24 or cost guidance or anything like that. But the areas that we will have headwinds won’t be a surprise. I think there’s continued investment in airport infrastructure that we will see come into the P&L next year. really across all of our major hubs, and that’s just a generational reinvestment that is needed in these airports. There’ll still be some labor cost headwinds. We’ve got to annualize the market rate adjustment we did with the pilots. We’re really hopeful we get the TA with our mechanics fully ratified.
We will have that in the cost base next year. And then pretty much the entire industry needs to get contracts done with flight attendants, which we’re really anxious to do and actively in the process of negotiating. I think on the other side, we’ve now got truly a single fleet. We should have almost every Airbus pilot trained over to the Boeing by the end of the year. And really, we need to start looking at leaning out the operation and focusing again on productivity. That we started to do this quarter. I think we’ve got a good trend through the end of the year. We’ve been waiting for these trends. We’re happy to see them now, and we just need to leverage them into next year. So it’s really about making the more efficient, taking some of the buffer out that we’ve got in there today.
We will go slow on it. We’re not going to risk operational resilience at all. It took us a lot to get to where we are in the operation, we’re going to keep operating well, but lots of opportunity to get more productive over the next couple of years.
Conor Cunningham: Okay. That’s helpful. And then you guys are being pretty rational in ‘24, it seems versus an industry that’s really not at the current moment. Like when you think about potential share losses versus protecting margins. Does that matter to you in the near term if it’s potentially just a temporary thing? Just curious how you think about it given the fact that you’re pulling on so much growth relative to some of the others out there. Thank you.
Ben Minicucci: Conor, it’s Ben. Of course, market share matters to us, especially in our key hubs. So we will protect our key hubs fiercely and maintain the market share. Of course, we’re going to look at areas where there won’t be such an impact to us. But again, this industry is very capacity-dependent, and it has a huge leverage on profitability. So we’re going to take a hard look. The teams are out there looking at next year’s capacity. And like Andrew said, we’re going to look at Q1 really hard, fringing on days where we have to fringe and flying hardware, we can fly hard. So it’s a delicate balance, but we’re determined to get as close to right as we can on this.
