Good morning, my name is Martina and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group First Quarter 2012 Earnings Conference Call. Today's call is being recorded and will be accessible for future playback at www.alaskaair.com. [Operator Instructions] I would now like to turn the call over to Alaska Air Group's Managing Director of Investor Relations, Chris Berry.

Thanks, Martina. Good morning, everyone, and thank you for joining us for Alaska Air Group's First Quarter 2012 Earnings Call. Today, Alaska Air Group's CEO, Bill Ayer; Alaska Airlines' President and Air Group's CEO-elect, Brad Tilden; and Alaska Air Group's CFO, Brandon Pedersen, will share their thoughts on our first quarter financial results, our operations and our outlook for the remainder of the year. Other members of our senior management team are also here to help answer your questions. Our discussion today will include forward-looking statements regarding future expectations, which may differ significantly from actual results. Information on risk factors that could affect our business can be found in our SEC filings available on our website. We will refer often to certain non-GAAP financial measures, such as adjusted earnings or unit costs excluding fuel. And we have provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in our earnings release. This morning, Alaska Air Group reported a first quarter GAAP profit of $40.8 million, excluding the impact of mark-to-market adjustments related to our fuel hedge portfolio, Air Group reported an adjusted net income of $28.3 million or $0.39 per share. This compares to a First Call mean estimate of $0.35 per share and to last year's adjusted net income of $29.5 million or $0.40 per share. As a reminder, we effected a 2-for-1 split in March so that we now have about 71 million shares outstanding. All of our EPS figures and share-related information have been adjusted to reflect the split. Additional information about our unit cost expectations, capacity plans, future fuel hedge positions, capital expenditures and other items can be found in our investor update included in our Form 8-K issued this morning and available on our website at alaskaair.com. And now I'll turn the call over to Bill.

Thanks, Chris, and good morning, everybody. We are pleased to report our second-best first quarter profit. The first quarter, historically, is our weakest quarter and we've often posted losses due to low seasonal demand. The improvement can be attributed to the structural changes we've made in both Alaska and Horizon over the past decade, including an excellent operation, nonfuel unit cost reductions, a young fuel efficient fleet and redeployment of aircraft within our network and the start of new profitable markets. As most of you know, this is my last earnings call as CEO. It has been a pleasure working with each of you over the past 10 years in what has been the most interesting and challenging decade in the history of the industry. I want to thank you for asking excellent questions, which have helped us establish some guiding principles and sharpen our focus in building not just a great airline, but a great company. While I'm staying on as Chairman for the time being, Brad is fully functioning as CEO today, and he's off to a great start. He's been with me in the trenches every step of the way, first as CFO and then as President and deserves much of the credit for the position we're in today. I join the board and the entire employee group when I say how pleased and fortunate we are to have Brad moving into this role. I also want to thank the Alaska and Horizon employees for our excellent operational performance, for building strong customer loyalty and for being open to change. There's no doubt that the future will bring more challenges to the industry and our proven ability to work together to make difficult and required changes gives me great optimism about the path ahead. With that, I'll turn the call over to our CEO-elect, Brad Tilden.

Thank you, Bill, and good morning, everyone. It's an honor to be have been asked by Bill and the board to lead Alaska Air Group and it's a privilege to work with the nearly 13,000 employees of Alaska and Horizon to give their all every day serving our customers, running our operation and helping to reshape the company to compete in a constantly changing industry. I'm looking forward to this new role and could not feel more positive about our future together. While our company is much stronger today, we all know that this is an extremely competitive and cyclical industry. There will be many challenges in the years ahead for every airline, but I believe that working together, we'll tackle these challenges head on and keep this company in a strong position just as we have in the past. As Bill alluded, for years we accepted losing money in the first quarter. It was almost a given that we dig ourselves a hole in the first 3 months and then work our way out of it for the next 9 months. But over the past several years, we've challenged this thinking and we've seen very positive results. We've taken deliberate actions to tactically reduce flying, to move aircraft to markets where there's more demand and to increase productivity by aligning our staffing with our level of flying. It's encouraging to see these efforts paying off. We started the year with a profit for 3 years in a row now and in fact, we've made a profit for 12 consecutive quarters. For the first quarter, we had a 22% increase in economic fuel costs, which amounted to $62 million and a 3.3% increase in capacity. To cover both of these, and factoring in our nonfuel cost performance, we needed a…

Thanks, Brad, and hello, everybody. As Chris said, Air Group reported an adjusted net profit of $28.3 million compared to a $29.5 million profit last year. This result brings our trailing 12-month return on invested capital to 11.6% versus the 11.3% at the end of the first quarter last year. On an adjusted pretax basis, profit was down by $2 million from the 2011 first quarter, resulting in a slight decline in our pretax margin from 5.1% in 2011 to 4.5% this year. The decline in earnings was primarily driven by the $62 million or 22% increase in economic fuel cost and a $21 million increase in adjusted nonfuel operating expenses. We were able to recapture nearly all of these cost increases with growth in operating revenues. Non-operating costs also fell by $7 million. Consolidated operating revenues were up $74 million or nearly 8% with the bulk of the increase coming from passenger revenue growth. Yields and load factors were up for both mainline and regional operations, which resulted in consolidated PRASM increasing by 4.7%. With fuel on an economic basis, our all-in unit costs were up 5.8% from the 2011 first quarter, so our PRASM shortfall to maintain the same pretax margin was about 1 point. I know some of you have had some questions about our strong load factors, vis-à-vis our PRASM growth, which was not quite enough to cover the fuel and capacity-related cost increases. Brad provided some information from the 3 things that are driving load factor gains, culling flights with lower load factors, adding capacity in strong load factor markets and purposely managing load factors in January and February. However, there are a few other things that are negatively impacting PRASM trends right now. First, we are growing capacity in long-haul markets such as Hawaii.…

Thanks, Brandon. As many of you know, Alaska Airlines is turning 80 years old this year and Horizon turned 30 last year. One of the jobs we have as a leadership team is to retain the pride and spirit that come from our past, while ensuring the company is nimble and lean, aggressive, open to new ideas and quick to implement changes. We know that if we have the right culture, we'll attract the right folks, identify the right objectives and create an environment where people want to make Alaska and Horizon better year after year. I'm sharing this because all of us here believe that being open to and driving change and ensuring that both airlines continue to improve are very high priorities. And operating with these set of beliefs is how we will best serve the interest of customers, employees and shareholders. I want to once again thank our employees for a great start to the year. And at this time, we're ready for your questions.

[Operator Instructions] Your first question comes from the line of Bill Greene from Morgan Stanley.

So the -- as I look at kind of this quarter here, obviously you made a lot of comments here on, kind of, the load factors and the changes that are sort of structurally going on. But can you offer any further sort of color around what is exactly going on in the fare environment? You mentioned the bag fee is not keeping up because of changes, it doesn't feel like fares are keeping up with fuel either. So maybe any help on kind of thinking about how do we get the industry back to sort of fully recover this big cost here?

Bill, this is Andrew. Can't really speak for the industry per se, but I think what I can say from our position is there have been some fare increases as you may be aware, couple in the first quarter, some system-wide, to your point, not huge. One of the things we are focusing on the most is really our own opportunity inside the house here, revenue management. We measure what we call sold-too-soon, we reduce the number of flights we sold out too quickly by 30% in our first quarter, which is a weaker environment and we have our eyes firmly fixed on where we have opportunity going forward over the next couple of quarters. And I think for us on top of the fare increases that we have been able to pass, we feel very good with that.

I guess what I was getting at is do you feel we have either too much capacity or too weak demands?

Going forward, I feel right now that given the fuel environment and our business, our goal is to make sure that we coup -- recoup the cost of fuel and we're looking at this going forward and we feel fairly good about that in a very short term.

Yes. And, Bill, this is Brad, just jumping in. And as we look at the first quarter where the result came very close to last year, and we look at the advances and the schedule what we got set for the summer, we feel good about our ability to recoup the fuel prices and meet our objective of a 10% return on invested capital.

Yes. Andrew, you mentioned this comment about selling out too soon. Does that mean advanced load factors should come down as you hold seats back? Is that what you're trying to say?

I think what I'm saying is that, we -- technically. But I think when you look at our advances and what we've been doing on a sold-too-soon, I think you're seeing good solid advances. And I think what I'm sharing with you is that we're feeling very good about reducing our sold-too-soon. So I think both aspects are working very well for us right now. On the load factor, as you've seen historically, it tends to hold where our advances are give or take.

Okay. Okay. And then just one question for Brandon. You've got some great cost control in the guidance for this year. Correct me if I'm wrong, but I think we have the flight attendants becoming amendable later this year. So we probably don't -- I know it takes a while to negotiate a contract, but how do we think about labor inflation going forward? What's the right way to think about what gets priced or what should get marked into the cost structure?

The way I think about labor is from a big high level perspective, we want to pay our people good market-based wages. We don't want to be top of the industry, but we want to be toward the top of the industry maybe second, third, fourth, fifth in the industry in terms of base wage rate. But we want to fund that with really high productivity and then reward our employees with generous gain sharing when things go really well. So I guess -- I don't know exactly the answer to your question, but what I do think is that we'll be aiming to achieve a result that has us having, as I said, good solid wages but more of a variable component than a fixed component.

Our next question comes from the line of Hunter Keay from Wolfe Trahan.

A little more on the RM strategy. Again, if the leader shift is enough to materially drive your loads up, shouldn't it also -- shouldn't there also be some associated negative yield impact? And I guess the second part of this, what makes you feel the need to pursue that strategy in the first place? Are you seeing unfavorable competitive capacity trends in some of your core business markets?

Hunter, I think it's very important to differentiate our first quarter from our second and our third given our seasonality. I think what we've -- what I'm saying here is just that in the first quarter, specifically January and February, it's a very weak demand environment. And if you just look over the last 3 years, 85% of our PRASM increase in 2010 first quarter was volume, 62% was in '11 and 67% was in '12. Whereas in the second quarter, the volume is under 50% versus our yield. So as we move forward, what I can share is that we've had both load factor and in our region, and specifically our growth regions, yield improvements and in some cases double digits. So we're not doing this big trade-off between load factor and yield per se, we're bringing both of them up, which is encouraging.

Okay. And on the bag fee commentary, I think you said, what, bag fee revenue was down 8%, I think I might have missed that, is that correct?

Yes.

Okay. So I guess that begs a question, if you do have more leisure flying, why is bag fee revenue down so much? And secondly, at what point is it time to maybe address the fact that your bag fee structures, which are clear and the customers understand it, are out of whack with the industry. Because by my math, I'm looking at about maybe a $40 million annual revenue good guy, simply by raising the first-bag fee by about $5, which would bring you in line with some of your other competitors. Any thoughts on that guys?

This is Joe Sprague from Marketing. So a couple of thoughts on bag fees. Just so everyone knows our bag fees were about $35 million in the first quarter, which was down from $38 million a year ago. Couple reasons, they were noted in Brandon's commentary, we have seen a definite shift in passenger behavior. That's not recent, that began over a year ago, from folks not checking as many bags. And then our Club 49 of State of Alaska Loyalty Program for residents up there, which we did budget for and planned on causing some reduction in our bag fees and that plan is coming in just about like what we expected, that's having some impact as well. So that's the -- that's sort of the background on the bag fees. Any of our ancillary revenue streams, we do try to apply some guiding principles to, which is to keep them simple and to ensure that they offer good value to our customers. We're still the only airline in the industry that's offering a baggage service guarantee in exchange for our bag fees. And we feel good about that. And if you look across our other ancillary items, obviously smaller than bag fees, but virtually all of them, hotel, car, food and beverage, even pet fees were all up nicely on a year-over-year basis.

And Hunter this is Brad. With respect to the idea of raising the bag fee from $20 to $25, it's a really difficult question. We obviously get the math. We spend a lot of time talking about it. The benefit of doing it obviously is you get the quick impact to earnings, we know from just being out in the marketplace that customers really don't like these -- they don't like these ancillary fees. So what we're committed to doing here is to cover -- to achieve the 10% ROIC, to produce overall revenue that cover our cost of operating and produce the right profit and then to try to structure this in a way that feels equitable and fair to our customers. We came to $20 instead of $25 because we're up -- we're competing against Southwest a lot and our average stage length is shorter than some of our major competitors. So that's the logic we used today to get to where we are, not saying that we wouldn't change this down the road. But there is -- there's tension on both sides of the question is what I'd say.

You're next question comes from the line of Michael Linenberg from Deutsche Bank.

And I guess, Bill, it's been a great run but you're leaving the airline in very capable hands. So -- I guess with respect to that, back to some of the commentary. And I guess, Brad, you mentioned you talked about the focus on yields and as we move into the peak season and it is somewhat remarkable how strong your booked load factor, not just for April and May but even June you're up 2.5 points. There was -- I know that there was a fare -- there was an attempt to raise fares over the last day or so and it's on going. Is that something that Alaska has participated in?

So, Michael, 2 things, on the advances I will -- as we get in the first quarter we have moved capacity from the below-average network load factor. California and mid continent in the first quarter, we shrank those, we moved them to Hawaii. You're seeing a similar thing in the second quarter. I will acknowledge we had too many seats in the State of Alaska in the second quarter last year and we cut capacity 10% in both April and May and we're seeing a very significant load factor pop there and we continue to increase Hawaii. So again, as Brad mentioned, you're continuing to see in these advances the shifting of our network to higher load factor markets. Secondly, on the fare increases, yes, we've seen some stuff -- I'm not -- we were looking at competitive changes yesterday, but we're still in the midst of looking at what's the right thing for Alaska. Do we manage our inventory? Or -- and how our market is looking. So right now we've not done anything too aggressive just in the last 24 hours.

Okay. And then just my second question on the ancillary piece. And I think, Brandon, you did -- you've mentioned that you're going to, sort of, follow the path of others and move it out of passenger and to other, where are we now on a per passenger basis? Do you have that -- sort of, what the ancillary piece is per passenger and what that was maybe a year ago?

Yes, Michael, this is Joe again. It was about $11, just shy of $11.60. For first quarter this year, it was $12.27 last year, same quarter.

Your next question comes from the line of Duane Pfennigwerth from Evercore Partners.

Just on your cost guide for the full year, can you talk about the progression of that if there's any quarter where it might, the magnitude of that cost decline might be greater than some other quarter?

It's Brandon. So as you know, we were base -- and I'm talking consolidated terms. In Q1, we were basically flat. In Q2, we've guided to flat but we've retained our guidance of down 1 point to 1.5 for the year. So just logically doing the math, you would assume that the second half of the year is down 2% to 3%. As I kind of see it, and this is very tentative right now, but I see Q3 basically being down 1% to 2% and Q4 being down 3% to 4%. Now I will share with you that I can't -- I'm just a tiny bit worried about that because anytime the goodness is all promised toward the latter half of the year I get a tiny bit nervous, but we are really focused on making sure that we understand what costs are landing where. And at this point we feel really good about our guidance but what I can tell you is that our -- there are a couple of divisions in particular internally that haven't really met their cost goals in the first quarter of the year and so we're really going to make sure that we understand what we need to do to get back on track with those costs. But that's kind of how I see it shaking out.

Okay. that's helpful. And then just wondering how you could -- how you characterize the competitive environment now versus when we had this conversation last quarter and if you could summarize, sort of, competing supply on your routes as you define it over the next couple of quarters versus what we saw here.

This is Andrew. I think there hasn't been really much of a huge change from, I suppose, our perspective just as we look at the world, sort of, somewhat flat in the second quarter, a little bit up in the third quarter. We've seen some specific markets, I mean, some carriers some carriers like Spirit continue to increase on the West Coast, Virgin continues increase into some of our markets on the West Coast, but overall we haven't seen a very material change in the supply aspect of seats at each of our regions at this stage.

Okay. And then just one last one. Just with respect to fuel efficiency, sort of, ASM production. It looks like your guidance actually implies that gets a little bit worse year-to-year but my guess is with larger aircraft and longer stage length that should actually get better, any thoughts?

It's Brandon again. Just short end from a fuel efficiency standpoint it's simply load factors that are pulling down fuel efficiency, but longer-term I think you hit the nail on the head. We're really excited about what we're going to be able to do with the larger airplanes. And then you're right longer stage lengths do help that, but then again as I said that's a little farther out.

Your next question comes from the line of Ray Neidl from Maxim Group.

Just to verify some of your competitors. Your big route is Seattle-Anchorage and that's hard for other airlines to duplicate what you have interstate Alaska. But are you seeing more and tougher competition on that particular route, which I think has been a big moneymaker for you in the past? And going forward, do you expect to see a bit more competition on that route?

This is Joe. Not specifically Seattle-Anchorage. We are watching the -- some of the low-cost competitors coming into some of our markets and taking actions to address that. With respect to Alaska, the State of Alaska the one notable entry has been JetBlue in the Long Beach-Anchorage market, and of course, we have seasonal Los Angeles-Anchorage nonstop service that sort of addresses that as well. But Seattle-Anchorage has been fairly steady with respect to competition.

And, Brandon, I'll just add one thing to that. You're right, we do make money in Seattle-Anchorage. But one of the benefits of the network changes that we've made over the last few years is that there's really been good diversification of profit across the network. So we're not dependent on any particular market or state or region to make money. The other thing is that whether it's Seattle-Anchorage or any of our markets, we do expect more low-cost competition as we move forward. And that's what we're trying to do, how we position the company from a revenue -- on the revenue and pricing side, what we're trying to do with cost, it's all about how we make this thing successful and sustainable but long-term recognizing that there's going to be low-cost competition growing in all of our markets.

Okay. As usual you anticipated my follow-up question. but I'll ask you this -- I'll ask it anyway. I know there's lots of potential growth in the Hawaiian service market there, it's been very successful. But from the other end, more leisure markets going south, past Mexico central market, Carribean, North and South America, is that on your radar Horizon in the distance? Or do you just have your plate full right now?

Ray, this is Andrew. We are always looking for opportunity in Southern California. One of the things, just longer-term I suppose, is looking at the new coming macs [ph] that Boeing has got coming down the road that have longer stage lengths, can fly further, so we are looking at all of those opportunities, really up and down the West Coast from California, but nothing definitive to say right now.

Okay. Great. And just one final thing. congratulations getting your debt-to-capitalization ratio down to 60%. I mean is that going to keep going down? I mean your cash flow is so strong that it appears that, that thing could start moving towards the Southwest levels?

It's Brandon. Yes, I think it will continue to move down. We see, as I said, 2012 coming in as a pretty good year, so that drives equity up and we don't anticipate any more debt. In fact, we continue to see debt coming down. So just the math would suggest that it's going to continue to come down. We're not aiming to, "Be Southwest-like necessarily" But I think everyone would agree that lower leverage is better especially as an airline where you have lots of operating leverage as well.

Your next question comes from the line of Helane Becker from Dahlman Rose.

So here is my question. With respect to your new routes as you go into these new markets like Philadelphia and some of these others, are you noticing an increase in the number of the inquiries you're getting from frequent flyers? Can you just talk about trends you're seeing in members in your frequent flyer program?

Helane, this is Joe. Yes, we are definitely seeing an increase in the frequent flyer program membership, and we can get you the numbers after the call. We have put some special focus on that in the Portland market where we've had a particular focus over the last couple years, we've seen some really significant growth in Mileage Plan membership and have a focus on that in California right now as well. So very positive trend. And we're trying to do some things to highlight the popularity and the benefits of the Alaska Airlines Mileage Plan program, which was our alliances with a number of different global airlines really makes it a highly -- has great utility for members in the program vis-à-vis the relative size of our airline.

Okay. And then can I just ask a sort of a maintenance-related maintenance question, I noticed that your maintenance cost in the first quarter were down by about 6%. And I guess with the fleet getting younger, that trend should continue. Although I don't -- I think you are only taking one aircraft in May and then nothing until the fourth quarter. So can you just talk about what we should expect in that going forward?

Sure, Helane, it's Brandon. Let me ask George Newman, our controller, to address that question.

Okay. So through the first quarter we're -- essentially the Alaska maintenance is flat and why we're really getting a benefit is that we phased out the CRJs on Horizon and that's where most of the savings are coming in. So we're essentially down approximately $3 million. I think there's some timing differences, so we may have some of that and we'll lose to that benefit going forward. But I -- based on our fleet age, I don't see significant increases in maintenance down the road.

Okay. And just for my last question, Brandon, can you just comment on April unit revenues given the changes in -- that you and Andrew were talking about earlier in load factor and holdbacks and things like that? How should we think about that?

No.

Your next question comes from the line of Jamie Baker from JPMorgan.

I may also have to settle for a one-word answer to my question, but here it is. I think the best airline management in the business would be a management that could get revenue to rise and costs to fall. Obviously, managers in other industries can do that and I obviously understand the challenges that are unique to the airline industry. But now that I start reading about Delta possibly buying a refinery, and I'm kind of struck by the fact that hey at least they're trying to think outside the box and exercise some real control over fuel costs. I'm not suggesting at all that this is the best strategy for Alaska, your current profitability speaks for itself. But I am wondering if there's any management or board appetite for trying to do things differently going forward. You're obviously running a great airline, you've been mindful of shareholders, but I've got to wonder if there are opportunities to think outside the box maybe in ways that are un-airline and less traditional, any thoughts?

Yes, so, Jaime, yes. I think thinking outside the box is really good. We were all intrigued when we saw the news announcement regarding Delta's interest in this refinery. And I think if you're in the Airline business, you have to understand Delta's frustration. Crack spreads have gone for over the years from $0.13 to $0.80. So they're up 500% or something like that over the last several years. So I think doing something to try to address what happened to refining costs and so forth, what I would say is you can understand Delta's frustration, you can understand why they'd be interested in something like that. Would we be interested in thinking outside the box? Sure, I think you want to be open-minded about that, is there more we want to see about that right now? Probably not.

Your next question comes from the line of Dan McKenzie from Rodman & Renshaw Securities.

Anyways, couple of questions here. The first is a house-cleaning item. What are Alaska's total unencumbered assets at this point? And of that, how much would be aircraft related?

So total unencumbered aircraft is 30 airplanes on the Alaska side and 4 airplanes on the Horizon side. So the 4 are Q400s, the 30 airplanes I think I have to check this, but I think is 25 737-800s and 5 other airplanes. That's probably, plus or minus one off from actual.

Got it. And that would pretty much compromise or encompass all the total unencumbered assets then?

Well that's just airplanes. Total unencumbered assets, well, fortunately, the big table that we're sitting at is unencumbered. I don't know that we have a good answer to the question, I mean, if you look at our balance sheet there's lots and lots of assets that are unencumbered. One of the things that we've done over a long period of time is maintained a relative conservative -- relatively conservative balance sheet. If you look at our $200 million line of credit, it's 2 tranches of $100 million each, one of those $100 million tranches is secured by parts and receivables, although we haven't used that and we don't have any intent to use that -- don't have any intent to use that facility. But other stuff, I mean we obviously have lots and lots of assets and all of them are unencumbered except for the mortgage debt that we have on the airplanes absent the 34 that I talked about.

I think the big categories, Dan, would be buildings and spare engines and simulators and inventory receivables.

Per share.

Yes. Yes.

Okay. That's helpful. And then I did get distracted a little bit, so I'm not sure if you've already answered this question. But if you had implemented the bag fees -- the bag fee reclassification in the first quarter, how would have first quarter PRASM trends been impacted? And it sounds like they would have been slightly higher just given the drag from the bag fees?

Dan, can you -- I'm not sure I understood your understood exactly. Can you rephrase the question?

So Alaska includes the bag fees in the passenger PRASM and it sounds like you want to reclassify those starting in the second quarter, I think if I heard correctly.

Oh sure. Okay. Okay.

So I'm trying to get a sense of how that -- go ahead.

Yes. So what you're saying is basically how much it's going to move in the first quarter from passenger revenue down to other revenue?

Correct. Yes. Yes.

It is roughly $58 million, no excuse me, I'd call it about $55 million will shift from one to the other.

Dan, I think it's almost a point of PRASM.

Yes that's better way.

The PRASM would have been up another point had it been re-classed.

Got it. Okay. That's helpful. I appreciate that. And then just one final quick question here. You did mention interest in shifting to larger aircraft such as the 900. And given the increased trans flying, should we infer that there could be some, I guess further shift such as a shift to potentially a 757?

Dan, it's Brandon. No. We love operating one fleet type. I think there are just so many benefits that come from that. The company worked really, really hard to get from 3 fleet types down to one on the Alaska side and really do the same on the Horizon side as well. And so both companies now are enjoying all of the benefits that come from operating one single fleet type and we don't have any intention to move away from that at all.

Helane asked about this earlier, but I think if you look at the company's success, Dan, over the last 10 years, going to a single airplane, going to larger airplanes, newer airplanes where we don't have the maintenance expense. In this environment where fuel goes up, our fuel costs per passenger is much lower on a larger plane. This -- moving to an all 737 fleet at Alaska and all Q400s at Horizon, and kind of being an airplane that are kind of the higher, larger gauge in their class, I think it's been very, very helpful for the company. And I think what we want to do is for the next little bit keep things clean and simple.

Your next question comes from the line of Glenn Engel from Bank of America Merrill Lynch.

Two questions on PRASM. One is when you look to the first quarter, can you talk about the regions which markets had outperformed the system, which underperformed? And two, it seems like when I look through your quarter in peak months, your PRASM GAAP relative to the industry seems to narrow versus off-peak months? And does that bode well for the spring and summer quarters?

So, Glenn, on your first question, really -- and we don't normally talk about -- specifically about regions, when I look across the regions, we felt very good about every region with its PRASM increase, because many representing the network change and some even double digit. Where we didn't do so well is where we had a little too much capacity. And as I shared into the second quarter, we're making some adjustments there. So again, really on average it was across-the-board strength, no one particular region outshone the other. On the second one I think -- your question was that our unit revenue GAAP versus the industry.

Relative to the industry. Yes.

What's your statement again, Glenn?

Your PRASM GAAP -- your PRASM seem to underperform more at the beginning of the year than it did in March. And I thought I've seen really lately, it seems like in peak months, your PRASM relative to the industry looks relatively better than your PRASM gains in off-peak months.

Yes. That would be somewhat of a fair statement. Although I would say, we will start to significantly increase our stage length going up to the 4% range plus over the next couple of quarters. And the industry, as I see it, is probably flat to down. So that's going to offset some of that work that you're seeing there.

Your next question comes from the line of Steve O'Hara from Sidoti & Company.

I think Hawaii has been a pretty good growth market for you guys last several years here. Just wondering your thoughts on additional competition coming in, you started, I think, flying more head-to-head routes with Hawaiian. How should we think about that market as maybe the visitor or capacity kind of maybe nears or eclipses the peak? And maybe where are we now, and long term how you see that market?

Steve, as far as a couple of thoughts. Essentially our growth this year, the 6%, essentially Hawaii is over 100% of that. It's been -- it's mostly California, Hawaii growth. I mean if you just look at the mainline alone this winter, it would be about 25% of our capacity. But -- so it's growing significantly. But we've always said, and as we will continue to believe, is that our goal is to match the supply with the demand and also look very carefully at about our costs to serve Hawaii in the aircraft that we're serving to make sure that it continues to be strong and vibrant. So well today I couldn't particularly tell you where this is going to go over the next 12 months, we will continue to refine. We've learned a lot about Hawaii over the last 2, 3 years, the increases, the seasonality is very different between the Pacific Northwest and California. So I think at this time, what would be safe to say is that we will continue to, I believe, build and strengthen that franchise. But, at this point, I wouldn't be prepared to say about any, to the extent of that past the fourth quarter.

Steve, this is Brad, one of the things that has been really encouraging to us is the -- our ability to stimulate these markets. We've gone into a lot of these markets, I think folks know the low-fare position we've taken. We have had DOT data, the lowest fares off the West Coast to Hawaii for 6 quarters in a row now. And so we've gone in and we've been particularly surprised in California with our ability to go in with the low fares and grow the market. So that's good, And I think that bodes well for a bit more Hawaii. I think if you're to go up a couple feet and look at it from a larger -- a higher-level perspective, there was a big void in the market when ATA and Aloha pulled out in March of 2008 and that void is largely filled in now. So I'm not sure that there's a ton more opportunity there, but given the stimulation that we are seeing, we think there is some incremental opportunity.

Okay. And then just real quick on -- you've given the ancillary per passenger, I mean, is that just bag fees and hotels, seat assignments, what does that include?

Steve, it's Brandon. So I'll kind of give you a broad rundown. It includes first-class upgrades, it includes res fees, ticket change fees, bag fees, all of our buy-on-board revenue and then the commissions that we make from hotel and cars as well.

Okay. So it's pretty comprehensive number?

Yes. Yes. Yes.

Your next question comes from the line of Savanthi Syth from Raymond James.

Just on the bag fee trend, is it deteriorating further or after, kind of, the initial reaction to the fees has, kind of, the trends evened out so we should be, kind of, lapping that pretty soon?

Yes. Savanthi, this is Joe. I think it is starting to even out, particularly the impact with the Club 49 bag fees. The period of the year which has a higher percentage of point-of-origin traffic coming out of the State of Alaska, in other words, residents leaving the state on vacation and so forth is a period we've been in for the last 6 months. As we shift more into the summer months, that shifts completely around with more visitors going to Alaska that won't be Club 49 members. And, certainly, I think we're probably starting to see that stabilize. But I would note that this trend in passenger behavior, overall, and I don't think it's unique to Alaska Airlines, folks just checking fewer bags, whether that trend continues I don't know, but we've certainly seen a fair bit of that as well.

Joe, Club 49 started in October so we get -- we've got 2 more quarters until we kind of lap that.

Okay. And then just on the comment on ancillary revenue, so where -- have you started to count [ph] the items that you've looked at? Have you started seeing the contribution from those revenues? And does bag fee there kind of offsetting them? Or what's the kind of growth that we could see from just doing more ancillary revenue?

Yes, I mean, Brandon just did a good rundown of what they are. I can tell you that food and beverage in particular, although it doesn't have the same contribution as bag fees. That is a number that has been up. In fact, we had a record month in March for buy-on-board food and beverage. We've got a great product there that we're trying to offer, it's a nice experience for our customers, but it is producing good revenue as well. And virtually, all those other areas that Brandon listed on a quarter over -- year-over-year basis in the first quarter, we have seen growth there. So I think as we look ahead to growing the airline and more passengers over time, we think we're going to be in good shape on ancillary.

Okay. Great. And just one last maintenance item, what's the current portion of debt?

It is probably right around $175 million.

Your next question comes from the line of Kevin Crissey from UBS.

Maybe this is for Andrew. Based on what's been booked today and then thinking forward for the remainder of April travel, your comparisons get easier or harder, kind of, as we go forward? If I knew the numbers as of today, would I expect the year-over-year change to get worse or better? Just on comp.

If I understand your question, I mean, we have our comps so in 2011 on the mainline side, we have a higher comp to deal with. We have about 8.5% growth in 2011. April was 4.7% last year and June was 6.8%. I suppose without getting into detail there is that I suppose I feel very good about how we're tracking and how we expect to track with our PRASM. And if you just look at history, I don't see anything earth shattering differently than that.

Okay. What I meant was -- that's useful as well. What I really meant was, just looking at April travel and so you're April RASM, did you, last year, do better with early bookings and weak in closer in or was it relatively stable or was close in bookings tougher?

There's been a little bit of change this year with Easter moving 2 weeks earlier in. But I suppose we've just -- the spring break here in the Pacific Northwest is very strong. It was very strong last year, it was very strong this year, and so for us, I suppose I keep going back to what I shared earlier, was about not selling out these load factors, our airplanes too early and making sure we work the yield. And so that's what we've been doing. But I'm not 100% sure I'm getting to your question.

Are you asking about like the real close in demand, next 11 days or something to help us finish off the month? Is that what you're asking?

Yes. Exactly. Say I knew what your RASM was for all flights booked up to this point, which I don't, but say I did, would I expect that year-over-year change to get easier or harder in the next 11 days?

I'll let Andrew speak for himself. But I don't know that -- I'm not sitting here with a strong sense of exactly where we were last year at this point in time, so I don't have a strong sense of how to shape that for you.

Okay. No problem. How about capacity by months in Q2? Your change in capacity by month.

Kevin, it's Brandon, I can give you that. So by month, we are going to be roughly -- April is the lowest it's probably 2.5, May is probably 7.5, and June is probably 7, on a consolidated basis, just rough numbers, there's some rounding there.

Martina, we're going to end it there. We'll all wrapped up here.

Thanks, everybody for joining us today. We're looking forward to talking with you again next quarter.

Thank you for participating in today's conference call. This call will be available for replay beginning at 3:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on May 25, 2012. The conference ID number for the replay is 37715652. The number to dial for the replay is 1 (800) 642-1687 or 1 (706) 645-9291. Also, the call will be accessible for future playback at www.alaskaair.com. You may now disconnect.