Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group Second Quarter 2014 Earnings Conference Call. Today's call is being recorded and will be accessible for future replay at www.alaskaair.com. [Operator Instructions] Thank you. I would now like to turn the call over to Alaska Air Group's Executive Vice President and Chief Financial Officer, Brandon Pedersen.

Good morning, everybody. Before we dig into the earnings call today, I want to quickly introduce Lavanya Sareen, our new Managing Director of Investor Relations. Lavanya brings a wealth of airline industry experience to Alaska Air Group and we're excited to welcome him into the Air Group family. Chris Berry is now our Controller, and is with us today. So you will continue to hear from him as well. Over to you, Lavanya.

Thanks, Brandon. Good morning, everyone. Thank you for joining us for Alaska Air Group's second quarter 2014 earnings call. I'm excited to be a part of the Alaska team, and I'm looking forward to working with all of you. Starting this quarter, we're making a slight change to our earnings call format. In addition to hearing from Bradley Tilden and Brandon Pedersen, you will also hear from Andrew Harrison, our Senior VP of Planning & Revenue Management. Several members of our senior management team are also on hand to help answer your questions. As usual, today's comments will include forward-looking statements regarding our 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. 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 second quarter GAAP profit of $165 million. Excluding the impact of mark-to-market adjustments related to our fuel hedge portfolio, Air Group reported an adjusted net income of $157 million, or $1.13 per share, an increase of 53% over last year's $0.74 per share. This compares to our first call mean estimate of $1.11. Additional information about cost expectations, capacity plans, fuel hedging, 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. With that, I'll turn the call over to Brad.

Thanks, Lavanya, and good morning, everyone. We are pleased to report a record second quarter adjusted profit, of $157 million, a 50% increase from the second quarter of last year. Our pretax margin expanded by almost 500 basis points to 18.3%, while our 12-month trailing ROIC grew by 300 basis points to 16.1%. We generated $285 million of free cash flow this year. And in May, we announced a new $650 million share repurchase program. To further increase returns for shareholders, we were proud to initiate a dividend 1 year ago and to have increased this dividend this past February. Our folks in the frontline continue to run an excellent operation. 88% of our mainline flights arrived on time in the second quarter, and we have the highest percentage of on-time flights among the 8 largest carriers for the first 5 months of this year. On-time performance is one of the biggest drivers of customer satisfaction, which in turn drives customer preference. Our 13,000 employees work hard every day to get a customer safely to their destinations on time and with their bags, and we strive to provide a more personal experience in the process. In May, these efforts were recognized when we won J.D. Power's award for highest in customer satisfaction among traditional network carriers for the seventh year in a row. We cannot be more proud of our people for this extraordinary accomplishment. Total revenue was up 9% for the quarter, while passenger revenue grew 8%. Revenues were favorably impacted by a strong yield environment and by the 3 ancillary revenue initiatives we announced last year. The revised agreement with Bank of America, our credit card partner, the revisions to our bag and change fee policies, and the seat retrofit program, which will add 6 seats to our…

Thanks, Brad, and good morning, everybody. Passenger revenue was up 8% for the quarter on 5.2% increase in capacity. PRASM was up 2.6% as result of the strong underlying demand environment and maturing of markets we launched over the last 12 months, and drove a 2.8% increase in yield. Total RASM increased by 4% and was helped by the new Affinity credit card contract and previously announced fees changes. Ancillary revenue is up $23 million so far this year, or more than 9% on a per passenger basis. So we are on our way to meeting our estimated $50 million benefit of the fee changes implemented late last year. We've produced solid unit revenue gains despite the 8% increase in competitive capacity and 5% increase in overall capacity in our markets. Competitive flying in Seattle increased 9%, with nearly all of that growth coming from Delta's additions, offset slightly by modest pull downs from other carriers. Delta will continue to grow in Seattle based on announced schedules. To put that growth in context, today, Delta's Seattle flying overlaps with 41% of our ASMs. We expect that to grow to 50% by next summer, with roughly 30 more daily departures in overlapping markets. Despite the increasing competition, we will still have 55% of the domestic seats in Seattle versus our closest competitor at 16% at the end of this year. Delta's growth in Seattle impacts us in 2 ways. The largest is the negative impact on unit revenues from the increased seats in the market that I just talked about. We've seen that for several quarters now, and we'll continue to see it for the foreseeable future. And as a result, we respect -- we expect our unit revenue performance will lag the industry. The second is the decline in local…

Thanks, Andrew, and hello, everyone. Air Group's adjusted net profit improved by nearly 50%, and earnings per share improved by 53%. Our trailing 12-month return on invested capital stands at 16.1%, up from 13% at the end of the second quarter last year. On an adjusted pretax basis, we earned $252 million in the quarter, an increase of $82 million. The increase was driven by a $119 million increase in revenue, offset by a $42 million increase in nonfuel expenses, flat economic fuel costs, and lower nonoperating expenses. Pretax margin improved by 480 basis points to 18.3%. There are some noteworthy items that contributed to the margin expansion. First, we saw a $15 million swing in airport costs in Seattle. In Q2 of last year, we recorded retroactive rates imposed during lease negotiations with the Port of Seattle, [indiscernible] credit this year. Second, we recorded about $10 million in gains associated with a refund of fuel taxes and the sale of American stock received in our bankruptcy claim. Even excluding these items, strong revenue growth, good cost control and lower hedging costs drove 250 basis points of margin expansion. Andrew already touched on revenues, so let me provide you with some color on our cost performance. Consolidated CASM x fuel was up 0.6% on the 5.2% increase in capacity. We did have a tailwind from the year-over-year swing in Seattle airport cost, I just mentioned, and lower maintenance cost. Those declines were offset by a $23 million, or 9% increase, in wages and benefits. About $8.5 million of the increase was due to the new pilot contract ratified last summer. Employee productivity as measured by passengers per FTE continues to be a great story for us. The 1.5% increase this quarter marks the 20th consecutive quarter of productivity improvement. We're…

[Operator Instructions] Your first question comes from the line of Helane Becker with Cowen and Company.

So I noticed that the Port of Seattle said they were raising salaries for some of their employees at the airport. January of, I think, '15 and January of 17. And then I also note that you guys are also raising your -- the salaries for your contract workers there. Can you just talk about the thought behind that, a? And b, is that included in the current guidance?

Hi Helane. It's Benito Minicucci. Yes, we raised our vendor employees at Seattle. We're talking baggage handlers, cleaners, fuelers, and -- to $12 an hour, as well as wheelchair pushers, with tips over $12 an hour. That added about $2 million to our cost bases, and we just thought that it was the right thing for us to do as a company. Joe, do you want to...

This is Joe Sprague. And as you've seen the Port of Seattle, just -- this week actually, passed new regulation that will set a new minimum wage for aeronautical workers as they're calling it at the airport. Based on the action taken again, this won't have any sort of near-term financial impact on us, and we're still assessing the full regulation. There is a couple of other details in there that we're not thrilled with, but as Ben said, we've already sort of taken the action that will affect the wages for our workers.

Okay. And then just on -- I don't know if it's Ben, or who answers this question, but just on the airport at Seattle altogether, I think there's some construction planned and some other stuff going on with the terminals. Can you just talk about where you stand with respect to that program?

There's a few big projects, Helane. This is Ben. One, the Port of Seattle is going to be starting a project to create a better international facility to deal with customs and immigration. That is a very large project slated to start sometime next year. And we are looking at expanding the North satellite where we operate to expanding the footprint at our gates as well. So those are 2 major projects. There's a host of other small projects, but those are the 2 basic ones that will give the airport more flexibility internationally and domestically as well.

And Helane, this is Brad. We're very excited about the North satellite expansion. That's a $400-plus million project. It won't come online until the 2018, 2019, something like that, but it will be a beautiful space for Alaska's customers.

Your next question comes from the line of Hunter Keay with Wolfe Research.

So as I look at your CASM x growth rate in the fourth quarter, and then the capacity growth rate, which is now 10% in the first quarter, you're going into 2015, both of those metrics growing a lot. So I guess, why should I not think that 2015, you're going to see big percentage moves on both of those metrics again next year? So I guess, I'm asking you to help me out to think about capacity and CASM x fuel for 2015 is what I'm asking.

Hunter, it's Brandon. We haven't given guidance yet on 2015 capacity. On the cost guidance, you're right, we are growing 10% in the fourth quarter and we did guide to capacity being down slightly for the year, so the implied Q4 is down about 3.5%.

Sure. But I guess, especially to Brandon, I mean, there is no reason why that growth in the capacity should, obviously, is not going to annualize. You told me spring departures are going to be up 11%, I mean, it seems to be like 2015 on a capacity basis should be more than 2014, unless you're planning on dramatic changes in the back half of next year? Is that fair?

Yes. I mean, it's the -- it's probably fair. We haven't given specific guidance, as I said. But what I would say is that if you look back over the last couple of years, we've grown in the high end of 4% to 8% strategic plan area. We're to going grow 7% this year. I think we grew 7% last year, and all the while, we're generating superior returns. And so, as I think -- as we think about the capacity growth for next year, we do have long-term investor interest in mind, but we want to do the right thing for the network and we think we have a lot of opportunities to grow.

Okay. And can you talk...

Can I just peek in. I think we will come -- we'll be more specific, probably next quarter before then, on our growth for 2015. But I think investors should be -- expect to see us leverage that growth in the form of lower unit costs. That's something we've done for 12 of the last 13 years, Brand, or something like that?

Yes.

And I would be very surprised if that didn't happen again in 2015.

All right. It is helpful, Brad. And then, I know that this -- the terms of this are tough to talk about, but can you help me think about the agreement with Delta? And can -- maybe I'll just be specific with some of my questions. Do you have the flexibility to take Delta's code off of your flights without warning? Or is there a limit to the number of flights that you have to have a codeshare on that will allow this agreement is in existence? And can you give us an idea of when the partnership expires? And any sort of flexibility you have to get out of it early?

Hunter, it's Andrew. Unfortunately or fortunately, I don't know. A lot of your questions there are all really privity of contract. So the expiration of the agreements is not public, minimum flights and all the rest of it. What I will tell you is that under the agreement, there is flexibility for both partners to do the things that they need to do as it relates to code to maximize the benefits to each carrier's network.

And Hunter, this is Brad. I might jump on that question as well. There are a ton of considerations in these decisions in terms of who we align with and so forth. It -- we get the interest from investors. It is probably not in our interest to go through the considerations publicly. What I would say is there are arguments for and against changing relationships with all of our partners. One reason we have had, people ask about Delta, one reason to stay with them is the revenue that we get from feeding their flights and from the incentive that we -- us connecting with them, the incentive we have for them to not fly against us in our markets. Another reason to sort of stay there, is that's conceivable that at some point, the relationship could get back on track and we could take advantage of natural end-to-end connection opportunities. So there's a lot of -- I get the questions, we'll probably get some of them on the call today. There's a lot of it that we can't talk about, but they are just trying to express that there are reasons for and against changing these relationships.

Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Just wondering, on the capacity growth, as you headed into the fourth quarter, its -- you've got pockets of seasonal trends, but it's seasonally weak. I was wondering if you could provide any color on kind of, is it kind of 10% across the board? Or just should we be expect kind of some pressure as you add a lot of capacity in kind of seasonally weaker periods?

Hi Savi, it's Andrew. Put that probably in perspective, firstly for the full year, which is about 7% growth, only 2 points of that is for the core. The new markets are about 2.5 points and gauge is another 2.5 points, which is very efficient growth. If you look across today and even in the fourth quarter, as you mentioned, the real -- the highest growth is in Mid-Continent, mountain and transcon regions. So a lot of that new flying, which -- and also some additional Hawaii as well, which is actually seasonally stronger for us in the winter. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Okay. That's helpful. So I was under the understanding that 2014, 2015 was going to be this -- is this mark -- time that you are consolidating some of the new markets that you had and I understand that the picture has changed since then. So as you look out, what's going to be the mix of new markets in your kind of as a percentage of overall?

What I can tell you, Savi, is that you've seen the previous releases where we've sort of been public about our growth next spring. So a lot of the new markets and the growth in the flying is already out there in the schedules. At this point, we see -- we will continue to look at new market opportunities, but I think as it stands today, you won't see a material increase in new markets by any stretch next year. I think the point we were trying to make earlier, which we probably haven't talked about is, much as I think I should have, which is even in the second quarter of this year, there are 46 new markets that we started since 2010, and they are delivering unit revenues that are 5x the growth than our systems. So our investment in new markets, which we will continue to do, are bearing strong fruit. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Got it. All right. And I think you mentioned that.

Your next question comes from the line of John Godyn with Morgan Stanley.

Andrew, I was hoping that you might offer or elaborate on what happened on specific routes without sort of saying what -- which routes specifically that Delta has entered in the past. So I was hoping that you could offer some backward-looking commentary, just so that we have an understanding of how this is playing out as Delta keeps adding more capacity in the months to come? It can be difficult to kind of understand that play-by-play by looking at the aggregate level results.

I think, John, maybe I'll just focus on maybe the second quarter. What I can tell you, the specific markets that we entered and have been entered in our system. We actually experienced positive unit revenue growth in those markets. However, it was obviously less than our system average. Going forward, we're in a, obviously, peak season here. Going forward, I think, it will be fair to say that as though -- more and more of those additional seats come online, that will put pressure on our unit revenues and likely have us lagging the industry.

Okay. Fair enough. And then maybe for Brandon, I was just hoping that you could talk about outside of the leverage from capacity. What levers are there to reduce costs going forward? Just as we think about your long history of beating on costs as an offset to any kind of PRASM pressures that you might see?

Hi, John, good morning. Related to costs, you're right. We have a long history of reducing cost, 12 of the last 13 years, as I said in my prepared remarks. As we think about going into 2015, leverage will be a big part of that, but it's not the only story. I think we have continued opportunity with productivity. One big thing that we don't talk a lot about is fuel costs. As we look at our fuel burn, our fuel efficiency, that will continued to improve. So I do think that there are additional opportunities out there, whether through technology, whether through process to improve productivity and continue to drive cost down in the future.

John, this is Benito Minicucci. John, it's Ben, from operations. Just to give some context on productivity. We have a really strong track record of creating a structure of delivering strong productivity increases in terms of really setting hard goals for every division, labor group in terms of hitting productivity goals. It's not something we set willy-nilly. It's something that we are very specific. It's tracked every day, every week, every month. So we have a mindset of delivering our productivity on through the operation, which is where -- well, all your costs really can slip away from you if you don't have a good focus.

And, John, it's Brandon. One more comment on top of that, the operational folks have done an absolutely fantastic job managing the cost. But it's not just limited to the operation. I think if you look at what we've done on what I would call kind of the overhead side of the business, we've also made changes to the pension plans, which we'll continue to see benefit from. And I think there is an opportunity to continue to drive medical cost down as we go forward in the future as well.

Your next question comes from the line of Joe DeNardi with Stifel. Joseph W. DeNardi - Stifel, Nicolaus & Company, Incorporated, Research Division: Maybe one for Andrew on the codeshare side. How should we think about the opportunities to further expand our relationship with American and United? And how much more room is there? And how big of a piece of the strategy for dealing with Delta is that?

Good morning, Joe. I think, maybe many are familiar with our share and -- of codeshare revenues in an American, and Delta, obviously, being the largest. I think we've seen Americans revenue as it relates to codeshare and interline grow 20% in the second quarter. And with adjustments made by other carriers in the Pacific Northwest, interline revenues have continued to increase. One thing I will tell you is that especially for international carriers, international -- interline revenues are heavily used. And so, overall, I see continued opportunity to continue to grow as codeshare revenues drop on certain carriers. And in some part of our network, we have seen an ability to recapture that revenue back to other distribution channels.

And Joe, this is Brad. I think a part of the story that is sometimes missed, we shared some of this at Investor Day last year. But we got roughly a $5 billion revenue base. And I think our 2 big domestic interline partners are roughly $200 million apiece. So the vast majority of our revenue and the vast majority of the revenue that produced our second quarter result is not connecting revenue. It's good, local revenue or its revenue where Alaska's connecting to Alaska. So that's where the big piece of the pie is in terms of our revenues and our profits. Joseph W. DeNardi - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. That makes sense. Andrew, on the advanced book factors that you guys provide, I guess, why do you provide that? And how should I interpret that? Because, I mean you could read that a couple different ways. Demand is strong. Or are you guys are being a little less aggressive on inventory management. So maybe help me kind of how I should interpret that.

All right. Joe, it's Brandon. Maybe I'll take that one. We provided because the investment community asks for it, generally. But you're absolutely right. In terms of the overall equation, it's half of the equation. It is just an indicator of what's happening in the marketplace, but it doesn't represent the full picture. You are correct.

Your next question comes from the line of Jamie Baker with JPMorgan. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Just one nit here. And I got to call you guys out on this. I have never been asked by clients about forward book load factor, just for what that's worth. But -- well, I mean -- not to take you guys to task, you have a fantastic track record for putting a very emphasis -- heavy emphasis on shareholders, but that really also should provide or include providing a spotlight on the earnings trajectory. And the fact that you don't provide at a bare minimum of forward month RASM commentary, just kind of seems inconsistent with that overall shareholder focus. So my first question, are you willing to share with us a RASM or PRASM guide for the month of July?

Jamie, it's Brandon, I'll take that. No. What the other thing I can tell you that is that effective immediately, we are going to take advanced book load factors out of the investor [indiscernible] and think about you in the process. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Oh, boy. Here comes the hate mail.

And just back to the factor of forward-looking guidance. The reason that we don't do that is that it reinforces a short-term view of the business, and we try to hit it several times in the prepared remarks. We have a much longer-term view of the business, and so we're trying to stay focused on the long-term not the short term. And we find it giving month-to-month PRASM projections really does feed that short-term view, and we're trying not to see the world that way. Jamie N. Baker - JP Morgan Chase & Co, Research Division: Look, I'll take that is absolutely [Audio Gap] fair, and we've applauded American for shifting gears towards a pretax quarterly guide. So maybe that's something that you can at least consider, pretax margin, quarterly guide. So maybe that's something that you guys can consider down the road. So my core question, here we go. You've consistently had a more seasonal network than most airlines in the U.S., at least longer term. You've smoothen out the peaks and valleys in recent years. But your third quarter does remain one that consistently outearns the second quarter. My question is, whether with all of these competitive capacity adds, what you're doing in Salt Lake, and, of course, the 11% planned growth in Seattle, does this impact the earnings seasonality? I'm not trying to back in the guidance here, but it seems that from a network perspective, your results may begin to get a little bit more pronounced. And ignoring 2014, looking towards 2015, perhaps you shift to being more of a second quarter earnings peak than a third quarter? Can you help us think about the seasonality? And, I mean, I realize this is somewhat similar to what Savi was getting at before.

I'll take a shot of that. A lot of the markets that we're adding, our mixture of both summer and winter, certainly Salt Lake City has both summer and winter. I do believe for the near-term, our first and fourth quarter will continue to be sort of on the lower end versus our second and our third quarter. I don't see any material changes in our seasonality going forward. I think we've done a good job at doing big surgery on the first and the fourth quarter capacity, and we will continue, to Ben's point, we will not hire pilots and buy airplanes to slide in for 10 or 12 weeks or even 15 weeks if it's during the spring break. It's important for us to have a level-loaded schedule that produces good productivity. So I think that's where you're going to see our mind continue to be.

Thanks, Jamie. I might just recognize Andrew and his team. One of things that I think this company has done really well in the last several years is sort of take a different view of the fourth quarter and the first quarter, and they have been much, much more aggressive with capacity, ensuring we get right amount of capacity in a market given the demand, so I think they have done great. The third quarter thing, Jamie, I think it's just a tribute to our greater reliance on leisure traffic, and its been that way for a long, long time, and I think that's why we peaked in the third quarter. And good, good for us to think about in terms of a little -- into the way we guide you guys. So thank you for pushing us there.

Your next question comes from line of Michael Linenberg with Deutsche Bank.

Just a couple here. Just with respect to your Fitch Rating, and congrats on that, Brandon and the team. If you look at the high-grade market, it's -- I think it's probably 10x, maybe even greater than the high-yield market. Just wondering, given where your cap structure is right now, are there any opportunities to potentially tap into that market? And maybe borrow money at an attractive rate on an unsecured basis? Your thoughts on that, Brandon?

Mike, this is Mark Eliasen. Thanks for the question. And I will just say that Fitch took a very extensive look at our company when they came out with that rating, and we are pleased that they affirmed what our creditors have been telling us for a long time, and that is that we are an investment-grade. We definitely are considering non-secured financing going forward, and we're looking at it. We are trying to balance out the benefits of being unsecured, which is what most high-quality industrial companies do versus the cost, the low-cost benefit of being secured. So we're trying to factor all that in, but it is part of -- one of the things that we will consider when we do financing in the future.

Mike, it's just great to have options. And this just gives us one more option, and the treasury team did an outstanding job working with Fitch to get that done. My sense is that if you were to go to market, you'll probably find a much bigger appetite for your paper than maybe you realized, given maybe just sort of the lack of alternatives at your level. Just on a second question, when we hear about all the flights that are being added. I mean, obviously, you're adding some flights, Delta is adding flights. As I recall -- I -- for some, reason I thought that airport was somewhat gate-constrained. Where are all these flights being put? I mean are these -- are they hard stanes? I mean, are the jet ways available? I mean, how is the airport facilitating all of the expansion?

Mike, it's Ben. Like a lot of airports where you're constrained is at peak times of the day. So I would say there is a constraint in the 6:00 to 9:00 early morning hours, and then in the evening from about 8 to 11 at night when all the aircraft come back. So there is a problem there. I think there is capacity in the shorter periods in Seattle, and I think that's why you're seeing the Port of Seattle actually take on some of these big construction projects to actually add some gates to provide some relief in the short term. We're looking at ways to put regional aircraft in different places through this construction to get them off gates, so mainline jets can be on there. So you're right, but it is a peak issue like it is in a lot of airports.

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

You -- your tone on capacity growth and competitive response sounds a little different, and I just want to see if something's actually changing here. Are you stepping up capacity growth on routes where you have overlap? Or is your tone more related to just caution about seasonality, generally?

Duane, no. Basically, where most of where we're stepping up is actually on new markets, as well as you've heard adding an extra router, something like 62 800s and getting ERs in here that our 181 seats and retiring 144 seats. So a lot of this capacity growth is across our entire footprint, and so that's where you're seeing the tone. As far as core overlap competitive markets, these are very high frequency markets for us, and in some cases, we might add a flight here or there. But in the scheme of things, it's not material to the overall network.

Okay. So your additions are consistent with what they have been? They're not stepping up?

I wouldn't say -- I mean, if you look at March going forward, I would say that as we look forward, and the strong industry revenue environment right now, there are places in our network where we do need to add capacity, and that's what we're doing.

Okay, okay. And then just a little detail here on the non-op expense which has been, I guess, actually positive year-to-date, given some gains on equity investments. Is your guidance for 3Q reflective of a true run rate? Or is there still some gain in that number?

Duane, this is Chris. We will -- we do expect in Q3 to have a little bit more gain on the sale of some securities. So it's not exactly a run rate, but we're getting much closer, because I think it does flip to an expense in Q3 where it has been a credit in the past couple of quarters. But -- so we do expect a little bit more from the sale of securities in Q3.

Duane, it's Brandon. In my head, I always think of it as being about a net expense of around $5 million.

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

Questions for the great markets of Alaska and Hawaii. It would seem to me that Alaska competition seems to be easing, and that should be a relatively good guy, and it seems like Hawaii, which has been a good guy for a while, competition is starting to pick up and may start being a bad guy. Any comments on that?

Hi Glenn, it's Andrew. I think you've characterized it well. What I would say is that overall capacity in the State of Alaska, given all the puts and takes is about flat. And in Hawaii, you've seen some additions by Hawaii in certain California markets, that put a little bit of pressure on the Hawaii market. But overall, we see stability in both those regions.

And can you give us an update, Brad, on labor?

Mike, I might ask Ben Minicucci to do that.

So just on labor, we have long-term deals with all of our labor groups, which we're very, very pleased with and very good relationships. The one that's open is with our flight attendants, they recently rejected a tentative agreement that we had put together. We're back in talks. We got back together nearly July, very productive meetings. We know the issues that are out there, and we're confident that we're making good progress and we're hopeful we'll get a deal by the end of the year.

Your next question comes from the line of Daniel McKenzie with Buckingham Research.

A couple of questions here. Given the growth in the capacity at Seattle, I am wondering if you can provide some perspective on how the local demand drivers are evolving. Obviously, you've got some Fortune 500 companies that are growing nicely, Amazon, Starbucks [indiscernible]

Alaska.

There you go. Well, so, I guess, I'm just wondering if there's any observations you can share with respect to, say, perhaps the growth in the local workforce -- pardon me, local incomes. Anything you can call out for us with respect to the key demand drivers there?

Yes. I do think, Dan, we're seeing real strength in Seattle. You mentioned a couple of the big ones. Amazon is growing like crazy. They've -- I don't know how many tens of thousands of employees they have, but those are high income jobs and lots, lots of travel. The city is doing well. I think if you were to look at unemployment or real estate prices or what have you, the economy here is quite strong.

Okay, very good. And then also, separately, you guys have, obviously, done a great job pulling the ancillary revenue levers here. And so, I guess, kind of the question, is how you're thinking about the opportunities looking ahead? Is there a need to introduce more? Or are there any that might be in the works today that perhaps you are not ready to talk about? Or is the business about right from where you sit at this point?

Dan, it's Andrew. You're right, the 10% increase per passenger, again, is due to the bag and the change phase. We are -- as fast as we can getting through this year without cabin investment where we will add seats to our aircraft. We're going to continue to look at our cabin. And as the industry changes and evolves, about what other changes we can make. I will take this opportunity to mention, although, I don't know if it's really ancillary per se, but we've made some changes to our pricing in our first class cabin, and just in the second quarter, we introduced, what we call, P fares, which is basically discounted first-class. And so we are now able to better match demand and supply across day of week and season. And we've already seen just in June alone, actually in the second quarter, nearly $8 million of incremental revenue from our first-class cabin only on 52 nonstop markets, and we will roll more markets out. And we're seeing good, healthy increases in both our first-class cabin paid and good stable load factors. So we're very excited about that.

Your next question comes from the line of Hunter Keay with Wolfe Research.

Hey, real quick on the buyback. You guys, I think -- have -- what, the full $650 million remaining. Is that right, basically, or close to it?

Well, we started -- we basically started buying under the $650 million program right at the start of the quarter. So as I said, we bought about $27 million so far in July. So that would be $623 million, roughly.

All right. That's helpful. So my question then, Brandon, is I don't think you guys have put a timeline on that. Did you announced this program with the assumption of a timing being directly tied to the Delta incursion? Is this sort of what you're going to use to mitigate the effort -- the impact to your shareholders? As you expect, if you ultimately expect to win the Seattle battle overtime, which I know you do, when Delta starts to down gauge or reduce frequencies or sort of thin out their Seattle service, is that when we should actually expect the buyback to sort of decelerate? Is that why it's there? And is that why you have not put a timeframe around it?

No, we're not -- no, no, to answer your question directly. When we announced the buyback of $650 million in May, it was 10% of the market cap of the company at the time. We did that because we thought it was the right thing to do. We've also been really clear that we're going to distribute at least $350 million to $400 million to shareholders this year. And the reason that we didn't want to put a timeline on it is that we simply wanted to do a little Plan, Do, Check, Act here. We want to do what's right for our investors this year, we want to assess the market as we go into the fall and then winter and then spring, and continue on and whatever rate that makes sense for us. So I don't think that there is any direct tie between the buyback. And when we use it and what happens on the competitive front, I think it's more about -- when we look at our cash balance, what's the right amount to distribute to shareholders at that given time.

And Hunter, you know the math, I mean, we're making $800 million, $900 million of cash flow from operations a year and spending a little over $500 million on airplanes. I mean, we've got $300 million or $400 million that we have to do something with. And, I think, that's driving our actions as much as anything?

Yes, yes, and with our leverage, basically, where we want it and our balance sheet improvement program, that we have been at since 2009 fully complete. The opportunity for us to distribute cash is significant.

Yes. I mean, I just -- I guess, [indiscernible] the bulk case for Alaska right now is very difficult. It's very difficult. And you guys are being very transparent about the issue that you're facing. I think a lot of people would appreciate that. But the one thing that I think people complain to you is the fact that you're going to be supporting your stock with the buyback. I know it's going to happen. So for -- to that end, how much flexibility do you have in the buyback? How much is in the grid versus how much can you guys go in and just deploy if your stock is underperforming when you're not locked out?

We've a great deal of flexibility and we would if the -- we may very well go into the market. We have done that in the past and we may continue to do so in the future.

And your last question comes from the line of Savi Syth with Raymond James. Savanthi Syth - Raymond James & Associates, Inc., Research Division: I just wanted to ask a follow-up just on the -- I know there was this revenue contributions this quarter, and I was just wondering if you can give us some idea of maybe how the core revenue was performing outside of maybe the credit card contributions and maybe even some of the, I think, it's a little harder to take out the fee increases, that's generally where the core unit revenue performance has been.

Savi, I think the easiest and the cleanest way to look at that is the difference between PRASM and RASM. And you can see that our PRASM was, again, for the networks, solid 2.7% or something off the top of my head. But I think RASM was like 4%.

4%, yes.

So I think that's where you'll see the difference in the bag fees and the change fees and other ancillary revenues. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Got it. And could you -- sorry, go ahead.

Had just about a point or so additional from other revenues. Savanthi Syth - Raymond James & Associates, Inc., Research Division: Understood. Okay. And just, could you remind us, like when Hawaii -- when kind of the headwinds from Hawaii anniversary?

I think, big picture on Hawaii, for the last few quarters now, Savi, we're basically being flat, give or take capacity. And the industry has basically settled down other than a few changes that we've noted from California. So I think on a year-over-year basis, everything now is settled.

I am showing that we've no further questions at this time. I'll turn the call back over to Brad Tilden.

All right. Thanks very much, everybody, and we look forward to talking with you next quarter.

Thank you for participating in today's conference call. This call will be available for replay beginning at 11:30 a.m. Eastern time today through 11:59 p.m. Eastern time on August 24, 2014. The conference ID number for the replay is 70977410. The number to dial for the replay is 1 (855) 859-2056 or 1 (404) 537-3406. Also the call will be accessible for future playback at www.alaskaair.com. You may now disconnect.