Good afternoon. My name is Sia, and I will be your conference operator today. At this time, would like to welcome everyone to the Alaska Air Group Fourth Quarter and Full-Year Earnings Release Conference Call. Today's call is being recorded and will be accessible for future playback at www.alaskaair.com. [Operator Instructions] Thank you. I would now like to turn the call over to Alaska Air Group's Director of Investor Relations, Matt Grady.

Thanks, Sia. Good afternoon everyone, and thank you for joining us for our fourth quarter and full-year 2018 earnings call and for connecting with us at this new call time. In today’s prepared remarks, our CEO, Brad Tilden, will provide an overview of the business; Andrew Harrison, our Chief Commercial Officer, will share an update on our revenue performance and outlook; and our CFO, Brandon Pedersen, will discuss our results and expectations for costs and cash flows. As usual, several other members of our management team are also on hand to help answer your questions during the Q&A portion of the call. This afternoon, Alaska Air Group reported fourth quarter GAAP net income of $23 million. Excluding merger-related costs and mark-to-market fuel hedging adjustments and special charges, Air Group reported adjusted net income of $93 million and adjusted earnings per share of $0.75, ahead of the First Call consensus. For the full-year 2018, Air Group reported record revenues of $8.3 billion, adjusted net income of $554 million and adjusted earnings per share of $4.46. As a reminder, our comments today will include forward-looking statements regarding our future performance, which may differ materially from our actual results. Information on risk factors that could affect our business can be found in our SEC filings. On today's call, we will refer to certain non-GAAP financial measures such as adjusted earnings and unit costs 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. And with that, I will turn the call over to Brad for his opening remarks.

Thanks, Matt, and good afternoon everybody. Last month marked the two-year anniversary of our merger with Virgin America, and as we look back over that time, we’re very happy with how far we’ve come. Just 24 months ago we were two airlines in complementary geographies with distinct products, operating processes and cultures not to mention separate FAA certificates, labor agreements and IT systems. Today, virtually all of that has changed. Our operating processes are fully aligned, substantially all of our systems have been merged, and all but one of our labor groups are under single collective bargaining agreements. To be sure, everyone in our organization has navigated a period of significant change in growth during this integration. We’ve also faced material external pressures from fuel prices and competition, but we believe that competition makes us better and time after time this team has responded to competition with new strength and new capabilities. We want to thank our terrific employees who’ve done so much to bring these two airlines together, while also continuing to deliver excellent service and reliability to our guests. We’re very proud that they’ve earned $120 million in performance-based bonuses, which will be paid tomorrow and we’re also proud that this is our 10th consecutive year with payouts that are above our target, which as a reminder is 5% for most employees, 5% of pay. We’re making great progress with the integration on a number of fronts. Culturally, our employees are coming together as a single team. Across the fleet, our guest experience is increasingly aligned and will reach full alignment early next year when we finish renovating the Airbus fleet. We’ve already begun to swap Boeing and Airbus aircraft on the most appropriate routes, our flight [attendants] begin flying as integrated crews next week, which as you…

Thanks Brad and good afternoon everyone. Total revenue for the fourth quarter rose 6% to $2.1 billion on capacity growth of 1.1%. RASM increased 5.2%, which was our largest increase in several years. Slower capacity growth in a more stable competitive environment provided a favorable backdrop, while the network, brand, and loyalty investments we’ve made to activate the Virgin America acquisition began to yield strong results. As we outlined for you at Investor Day, this positive momentum should continue into 2019 as we further enhance our revenue production through synergy capture and accretive initiatives. Before turning to our future plans, I would like to provide some additional color on our fourth-quarter results. First, same-store markets or markets in operation longer than one year, represented 97% of our capacity and contributed positive 5.7 points to RASM. Strong close-in demand and yields across most of our networks, due in part to the strong growth and business volumes, delivered roughly two-thirds of the increase, while accretive network adjustments made earlier in the year and strong mileage plan revenues contributed to the balance. We’re especially pleased with the strength in business traffic, considering historically we’ve had a much stronger orientation towards the leisure traveler. Next, developing markets, these are markets in operation between one and three years, contributed about a positive 70 basis points to RASM. These markets are a subgroup within our same stores and represented about 7% of capacity in the fourth quarter. They include the routes launched in 2017 that created a headwind for us over the last year. Today, these markets are comping positively with RASM, up 10% on improved yields and load factor. We continue to be pleased with the development of these routes. And then finally, new markets or markets in operation less than 12 months represented just…

Thanks, Andrew. Hi, everyone. As you've seen, Air Group posted a fourth quarter adjusted net income of $93 million or $0.75 per share, bringing our full-year adjusted net income to $554 million or $4.46 per share. Return on invested capital was 9.4% or 140 basis points above our cost of capital. At $8.26 billion, this was Air Group's highest revenue year every, certainly something to be proud of, but overall our financial results are not where we want them to be. We finished 2018 on a very positive note. After several quarters of significant margin declines, our fourth quarter margin of 6.2% was roughly 100 basis points below prior year and our lower tax rates resulted in net income and earnings per share actually improving year-over-year. RASM strength nearly offset both higher fuel and nonfuel costs. This despite elevated Q4 CASM acts on the lowest capacity growth of the year, combined with a high level of maintenance activity and a jump in depreciation from the 11 new E175’s we took delivery during the final four months of the year. It’s worth noting that our Q4 cost performance was better than our initial guidance despite us having completed fewer ASMs than planned. As Brad said, the strong finish resulted in our people are earning $120 million of performance-based pay or PBP, which translates to more than 6.5% of pay for the vast majority of our employees. PBP pays based on achieving financial, safety, loyalty, and guest satisfaction goals. It’s also unique in our industry because it aligns every employee, regardless of roll or level around the same set of goals. When combined with our operational rewards program, which pays when we meet monthly goals, we shared more than $147 million with our people in 2018. And we’re proud of this payout…

[Operator Instructions] The first question will come from Savi Syth with Raymond James. Please go ahead.

Hi, good afternoon. First question on the Transatlantic, I’ve been trying to understand with the fleet changes, I realize that it’s still pretty early stage with kind of swapping the Boeing and the Airbus Aircraft, I’m wondering what the core underlying trend is in the Transatlantic and the markets where you have swapped if you can assume the improvement you would have expected?

Hi, Savi, it’s Andrew. Essentially as we said in our prepared remarks, we’ve pretty much affected the cross-fleeting that we wanted to do, especially in the New York area. I think what we see here, traditionally Q1 is our weakest quarter, and so actually what we’ve done is we’ve added capacity in a trough period on the transcon, so we really expect to see the real benefit from this really start to kick in March and going forward. So, we feel really good about these changes and they are a key part of course of our revenue synergies for 2019.

Thanks. And on the capacity front, I notice it’s still early on in the year, but I notice that 2020 was kind of updated from like 4% to 3% to 4%, just wondering how you are thinking about capacity and what the flexibility is, especially with kind of few pulling back that I know a lot of uncertainty here on the macro front. Just high-level thoughts on growth here.

Again, this is Andrew. I think one of the things that we feel about the capacity increase for this year as you know we give a range. I think one of the things that for 2020 is also looking at what happens to the environment, how is that going to continue on, where are we at with our revenue generation and of course we have also, with multiple fleets we have pilots that are going through training, and so pilots will be another key area that we need to look at, but it will have a margin effect on our growth getting people through the training house as we continue to grow.

Okay. Thank you.

Thanks, Savi.

The next question will come from Michael Linenberg with Deutsche Bank. Please go ahead.

Hi, good afternoon guys. I guess two questions here. Andrew, you called out the weakness in Hawaii, I think you said that was like 125 basis points of RASM headwind in the fourth quarter, how was that trending into the March quarter? Is it similarly under pressure or is it –are we seeing some improvement?

Yes. I think for modelling you might want to just carry that forward into the first quarter. Capacity is less elevated in the first quarter, but also given especially geography wise the first quarter, especially for California is a weaker time, so I would just carry forward the same weakness that you saw that we have advised in the fourth into the first and then will be interesting as we get into the stronger months and capacity growth has started to slow mostly where we go from there.

Okay, great. And then just one other question on, you know I think – not even I think, at your Investor Day, you kind of hinted at or maybe even said that it seems like at the end of the day joining one world would make a lot of sense for Alaska and yet, you know when I look at just the partnerships that you announced over the last quarter or two with Japan Airlines, Aer Lingus, Finnair, Fiji, many of those companies are either in one world or associated with one world, at some point would it be better off for you just to have lots of bilateral relationships with one-world carriers, and not go through all of the – maybe complications in pain of joining the alliance, maybe like what Aer Lingus is doing, where they are taking that approach where they are going into the JV, but for now they’re keeping one-world on the side? I mean, what’s better for you from kind of Alaska’s perspective?

Mike, I am going to put you on my alliance time because I’m very impressed with your detailed knowledge of Airlines, that was impressive. I think what we had mentioned was really talking about one-world connect, we’re not considering a full membership, so connect is a much lighter version and you still need your bilaterals, so, I mean, but your points are very fair one. I think if you look at our portfolio, the majority of our partners – our one-world partners where we have good bilateral agreements with them and we also have some independent. So, I think, as we look at this again, we’re very much just in the research phase, but we’re just looking to see if there is any benefit with all our partners, including American, but if there is not, we think we’ve got a good strategy as it stands today.

Okay great. Thank you.

Thanks Mike.

The next question will come from Andrew Didora with Bank of America. Please go ahead.

Hi, good afternoon everyone. First question maybe a little bit of a bigger picture question, maybe for Andrew, but how have you seen maybe your booking curve change since integrating Virgin America haven't you seen it move out further, if that gives you a little bit more visibility or are just more closer and given the corporate focus there and I guess as a follow-up to that, how have you had to just some of your revenue management practices because of that change in booking curve?

I might start it of, and I know Shane obviously saw that for a long time, but I will say that a lot of the changes we made to any of the booking curves we made earlier on Virgin America used to take a lot of bookings more closer in, our traditional comfort level was to take them further out and so we adjusted our booking practices there, but certainly we pull out a lot more Transcon markets now that are very, very competitive and so the JFK, LA is a classic example. So, we’ve had to adjust how we look at that and how we book that, but I don’t know Shane if you’ve got any other commentary to add.

Thanks, Andrew. I would just add, I mean Andrew nailed it spot on, the trade-off is if you hold out for yield or not, and then you sort of hope that it comes and when it doesn't you feel bad about your strategy and when it does you feel great and we traditionally like to manage that just further out the booking curve. So, we have seen the California booking curve get a little bit longer. The downside of all of these changes is whenever you change your approach you usually get it a little bit wrong out of the gate, which gives you an opportunity to optimize. So, I think part of what you're seeing now towards us is getting smarter and smarter about this market and managing it better.

Interesting, thank you. And then my second question for Brad, you mentioned Horizon in your prepared remarks and that’s clearly an entity that continues to drive your growth into 2019, but then kind of eases as you get later in the year. I think it’s about a year or so ago you made some of the management changes at Horizon, can you maybe talk to how those changes have performed versus your expectations and what initiatives you have for Horizon as you look into 2019? Thanks.

Thanks, Andrew. Thanks very much for asking that question. You know a little bit of history, despite the fact that horizon has been part of Air Group for 37 years now, there actually has not been nearly enough sort of management back and forth between the two companies over most of those years and so you end up with cultures that were more different than we were comfortable with, and we did get ourselves into a [mess operationally] a year and a half ago and Gary Beck is sitting in the room right now, came back after a super successful tenure as Alaska's Vice President of Flight Operations to become CEO of Horizon, and he took Constance von Muehlen with him, took John Hornibrook, [indiscernible]. A terrific team of leaders. And I think the turnaround of Horizon has been stunning. They are totally fine with – and it’s not that the industry doesn't have – somebody has to work on Alaska, pilot attraction is something we all need to think about, but I was actually down in the schoolhouse a week ago, I guess it was a week ago today, and we’re super impressed by what I saw and I just want to say this leadership team has done an incredible job. They’ve also, a lot’s going on with their fleet. Gary you’re up to 26 E175s. So, in a short period of time you’ve gone from being an all Q400 to pretty soon you will be 30/30. 30 E175 and 30 Q400s. So, thanks for the easy question Andrew and it’s a chance to heap a little praise on the group of people that have done just a fantastic job.

Great. Thank you, Brad. Appreciate it.

The next question will come from Duane Pfennigwerth with Evercore.

Hi, thanks. Just with respect to your commentary about more conservatism with respect to close-in, are the off-peak periods behaving differently into the first quarter than they did in the fourth quarter sort of ex-shutdown impact if there was a way to isolate that? Or is it just sort of conservatism given the fact that the March quarter is highly dependent upon March?

Yes. I think really the off-peak periods where there is really not a lot of demand and you see this across the industry, as the fares go down to the lowest level. And really January and February apart from after the first week of January and Martin Luther King Day and a few other, January and February are really quite weak. So, really – and this has just been history for us, but as a shared previously with the acquisition of Virgin America, our first quarter got heavier again, as far as our weakest period. So, we continue to work on that. As far as government shutdown goes per say, we have not seen any material impact at all to date as it relates to fares and travel although down the road and if Ben wants to comment that, if this continues there will be some real challenges operationally.

Andrew it’s exactly that. Everyone across the country is seeing some challenges along the TSA front and we're just hopeful this thing gets solved soon and things get back on track.

Just to clarify, you had some off-peak in the fourth quarter as well, where you not seeing that in the fourth quarter?

So, what happened and I think this is general, we have seen but there was good fare momentum in the fourth quarter and then be sort of got in coming up to Christmas where the fares all collapsed and came down, business came down as the industry tried to fill seats coming up to Christmas and the softer period. The business fares have sort of come back, the leisure fares took a little longer to come back. So, again, even as we look at fare filings and the industry is putting 4% more capacity in general in the first quarter, I think it’s still finding its way. So, I think what I'm really trying to say is, there was a little more confidence in the fourth quarter just with the stability. As we moved into the first quarter and saw what happened over the Christmas holiday season and the fare filing activity in the first couple of weeks of January, we’ve just been a little bit more cautious about where this is going to settle out.

Fair enough. And then just, can you give us an update on your thinking and analysis with respect to potentially moving to a single fleet type down the road? Thanks for taking the questions.

Hi Duane, this is Mark Eliasen. As you know, we’ve got 37 mainline claims on orders. So, we’re looking at the fleets. We’ve said for a long time that the question is whether we return to all Boeing or we continue with the mix of 321neo’s and a Boeing fleet, but we don't have to make that decision right away. We're growing at eight airplanes a year, you can see that we’re 37. We’ve got some time to do it. So, we're learning a lot about Airbus as we operate that Airplane. We're learning a lot about the 321neo, and the way Airbus supports its customers and its launch customers. So, as we evaluate the plane, we’ll be able to make a good decision and we're looking forward to that decision.

Thanks Mark.

The next question will come from Helane Becker with Cowen. Please go ahead.

Hi, everybody. Thank you, operator for the time. To Andrew, this time around you didn’t talk too much about your Frequent Flyer Program and your credit card acquisitions in the fourth quarter, and I was just wondering if there, you could just give us a little update on that or if it’s gotten to the point where acquisitions slowed?

No, thanks Helane. That’s a very fair question. I mean, the reality is that the trend that I have been sharing all year has continued. I think, maybe just feeling a little bit like continuing to be very, highly transparent about that program is probably doesn't serve us well in the long run and I think initially we did that just as a lot of the concerns over the brand and the Virgin America and the integration. We wanted to just make sure people felt really solid about our program and – but it has continued to perform, and as I made in my prepared remarks fourth quarter revenues for mileage plan which includes credit card and redemptions was about 13%. And so, it was very, very quite significant.

Okay, that’s great. Thank you very much. That’s really all my questions.

Thanks, Helane.

Sure guys.

The next question will come from Jamie Baker with JPMorgan. Please go ahead.

Thanks. Hi, everybody. You know I love competing with Michael Linenberg, so obviously submitting my resume to the Airlines team as well. Just turning to the Q1 RASM guide, you know it’s obviously helped by the high level of regional flying, you said at the Easter shift, which also bodes well for the second quarter, but you know, ordinarily is that regional contribution wanes in the second half? You'd expect RASM trends would moderate somewhat as well, I mean that’s just kind of the math, I'm not asking you to necessarily endorse that. I am trying to understand though whether you believe that your revenue initiatives could offset that phenomenon, which in turn would suggest that quarter-to-quarter RASM trends would be reasonably consistent with one another throughout the year. Any thoughts on that?

That you can go into the RM Department, but so couple of things. On the regional side, a lot of the new markets that we’ve been growing in these maturing markets where all in the regional side of the house. And also, with all these new regional aircraft, they are actually adding I think our first class ASMs are actually up 8%, excuse me, our revenues are up 8% for the first-class cabin, 6% growth. So, the regional fleet although it has – have higher unit revenues, but was also bringing a lot of premium class cabin as well, which we want to continue to sell. I think, so I still see upside as we continue to mature the markets that the regional network is flying and we bring more and more first-class product into the market and Premium Class. And then to your other point, though, you know, first quarter, if you look at our revenue initiatives, whether it was the first bag fee, which came out December 7, Saver Fare came out January 7, the cross-fleeting, which I referred to earlier. We're on a very steep ramp-up during the first quarter. So, we still have a lot of confidence in the revenue initiatives, but it's really the second quarter and beyond that they will really take full hold than you really start to see them come through a unit revenue guidance.

Okay, that's helpful. Thank you. And second, just on the choppiness in regard to close-in pricing and this follows somewhat on Duane's question, but did you afford, maybe I missed it, any geographic commentary around those comments? Is it broad-based, was it SoCal? Transcon? I mean, the comments did catch me a little bit by surprise. Maybe just a little bit additional geographic color, if any?

I think just depending on the markets, but in general, I think we saw that across the system as its related to – and to varying degrees depending on the market. But if you go take a look, the industry has been very active in fares. You just look back and even December through to January, there's been a lot of fare adjustments coming up and down and again, just given our network and where we compete, we've just been a little bit cautious with that because it'll fall where it falls. But nothing specific geographic that would drive any specific comment there.

Perfect. Thank you very much gentlemen. Take care.

The next question is from Rajeev Lalwani with Morgan Stanley. Please go ahead.

Hi, good afternoon. Andrew, actually just picking up on some of the last couple of questions as far as the volatility in close-in fares, what do you attribute it to? You've been doing it for a while. Does it maybe indicate that there's a problem with demand coming or there is competitive issues? Just some thoughts given your history.

Yes, Rajeev, you know I just think that really – again, I'm only speaking from our corner of the world and you've seen everyone's guidance as we go into the first quarter. I just think there was a pretty decent shift between, you know as we went up to the Christmas period and then people getting ready for the first quarter and especially January and February, and we just saw a lot of fare activity. Fuel is also been moving around a lot. It's just been very active. I'm not saying it's actually good or bad. It's just a little volatile. So, as we look ahead, we expect things to calm down, especially as we start to move into the backend of the first quarter and move into a more solid period in the second.

Okay. And then on lower fuel. I think the last time around we saw a big move down. Alaska had pushed capacity growth I think a decent amount. Why isn't that in the cards for this year? And then relating to that, this might be for Brandon. Should you keep a lot of the benefit around fuel, does that mean you could maybe start a buyback program before the end of the year?

So, Rajeev, you're asking with lower fuel why aren't we growing more? Just to make sure I understand your question.

Yes. And you've done that historically, right? That was a couple of years ago.

Yes. Maybe just to take a step back and get everybody up to speed with how we're thinking about things. We are a higher growth airline. That's been our history. We bought Virgin America, we added a huge amount of capacity following that to sort of activate those markets. And the language I would use is we've throttled back here to – enable the markets an opportunity to catch up a little bit. And also, there's a lot going on internally here as we get pilots moving around, training, getting the right pilots trained on the right aircraft. There's aircraft going through interior mods that sort of affect pilot supply by aircraft type as well. So, I just think the way to think of it now is 2% this year, we're just sort of settling in a little bit. I think this is the wrong call to ask us really about growth in 2020 and beyond. We're not locked in on 3% to 4%. What we're saying is, this is the right amount of growth for us right now as we look at our business. As we get into the summer months, if we think – you know this is how we think. If we believe we can create incremental value for the owners of this business by growing, we will grow as we've done over the years. Personally, I'm an optimist. We all believe in our competitive advantage. I believe in our route network, all of that. I think we're going to find those conditions. When we find them, whether it's summer – I don't think we really want to be put in that box right now. But that's how we're looking at the world. Brandon, I think there was a related question on if we didn't grow, would we buy back more stock and I'll let you answer that.

I think the question, Rajeev if I heard it correctly was if cash flows turn out to be stronger than maybe we're expecting because of the lower fuel prices, would we start doing more repurchase with that excess cash flow? And the answer is maybe. In the prepared remarks, we said, we were going to repurchase $50 million of stock this year, but we also said, this plan is flexible. And people should know, this plan is flexible. We're really focused on the fortress balance sheet that we had in getting back to it. We're damn close, but if we want to do more share buyback with excess cash flow, we certainly have the ability.

That was it. Thank you, guys.

Thanks, Rajeev.

The next question is from Catherine O'Brien with Goldman Sachs. Please go ahead.

Hi, everyone. So, I'm not sure I'm prepared to throw my hat in the ring with Mike and Jamie there, but I also have a question on global partners. At the Investor Day, and correct me if I'm wrong, but I believe you mentioned that you consider selling partner airline tickets without an Alaska connection in the future. Do you have any update here? I think you said, it could be as early as this year.

Hi, Katie. Nice to hear from you. Thanks for your question. So, we are continuing that route. In fact, we are actually testing that as we speak. In fact, if you were to maybe look up San Francisco to Sydney on Qantas on alaskaair.com, you would actually find a flight. We're not heavily marketing that right now. There're limitations to it. You can't buy first-class or premium-class yet and a few other things, but we are well into our trials with our partners in talking to many of our partners about starting to sell their metal on alaskaair.com.

Really interesting. And then, I would assume – would that be above the 330 million in initiatives you've got going for this year?

Well, that's an interesting question. Here's what I'll say is that, we have loyalty and we have initiatives around loyalty and of course selling internationally is going to be part of that portfolio. In fact, [our code share] in interline traffic actually increased 9% in the first quarter. So, our network and working with our partners has actually been a real asset for us.

The real strategy there, Katie, is to grow our loyalty program and sort of grow – be able to be a one-stop shop, a full-service provider. I don't think that selling Qantas is going to bring huge incremental revenue to Alaska, but being a one-stop shop for our customers does have big value to us as a business.

Understood. Thanks. And if I could just maybe ask one quick follow-up. What inning would you say we're in just in terms of network refinement, cross-fleeting, all of the initiative – like you kind of had to get under your belt after the reservation system cut over last spring?

Hey, Katie, it's Ben Minicucci. Great question. I think – as you heard from the tone of the call – we're feeling pretty darn optimistic coming out of Q4. We're two years into this integration. What's up this year is still not all complete, but we're going downhill is the way I would describe it. So, whether it's the seventh inning, eighth inning, we're going downhill. We've got some major systems still to integrate, like our dispatch system, pilot crew scheduling, maintenance systems are big ones. And from a customer standpoint, it's just converting all these Airbus to the Alaska interior and getting that complete. So, by the end of the year, we're done. But we're just – we feel like we've got the wind at our back and we're going downhill, we're feeling pretty good.

Thanks so much for that guys.

Thank you.

The next question is from Hunter Keay with Wolfe Research. Please go ahead.

Hi, everybody. This Love Field situation is becoming kind of a mess between Southwest and Delta. You guys are kind of caught in the middle of it. So, a couple of questions around this. Does the settlement from the Virgin merger contain any contingency language that allows you to leave that place if operating conditions change there – if this legal case takes a weird turn like some sort of MAC clause? And then how core is that airport to you guys in the long run in the event that happens?

Hi, Hunter, this is Kyle. I'll take the first one and then turn it back to Andrew. Our consent decree with the justice department does allow us to move on from those gates if it were ever our wish to do so. The circumstances around that just generally are, the court could order us to have that outcome or we could go propose a solution to justice and they would have a right of refusal over it. But as far as the Dallas Love Field litigation goes, that's not our wish at all. We view those as important property that we purchased from Virgin America. We want to take a good shot at it. Even though we're cooperating with the judges and the other parties, we're standing firm.

Okay. That's good enough. Thanks, Kyle. And then, Brandon or Matt; how many employees a year has listened to these earnings calls and how has that changed over the last 12 months? If you sort of adjust for growth and headcount.

Hunter, I would say most.

Hunter, I don’t know if we have numbers. Hunter, it is Ben, when I talk to our folks, I think there's just pockets of people who are really interested. They actually own a lot of shares of Alaska. We've got a great ESPP program that they participate in. I know our union leaders to be honest, and we talk to them. They're also listening on the call. And then, to be honest, right after we do this, we rush over to the airport here in about an hour and we do an entire webcast. We kind of summarize what we talked about with all our employees. And then we have 3,000 people listening in. So that's kind of how we think about it.

How about share ownership to while we are talking about this sort of thing, do we – I saw something recently do we – do you guys know that figure, it is pretty high. Percentage of our employees that own shares in the company. Hunter, I'm not positive how many listened to the Analyst Call. There are some that do, but when this webcast they'd be a lot more connected to.

The nature of the question was, I'm kind of wondering if during the struggles with the stock and the margins if you've found a lot more employees dialing in to these calls over the last 12 to 18 months or so? And whether that's an indicator of sort of morale or confidence or anything like that?

I'll tell you, we talk about it openly. We have these Flight Path workshops that Brad talked about. And when we talk about running a balanced business about taking care of employees and customers and shareholders and communities. When we get to the shareholders we say, look, we've been under pressure honestly in the last 12 months and our job is to get the stock price to a place where we can provide good returns for our owners. So, we are totally transparent with our employees about that. And they understand.

That’s great. I appreciate that. Thanks.

Thanks Hunter.

The next question will come from Dan McKenzie with Buckingham Research. Please go ahead.

Hi, good afternoon. Thanks, guys. Just one housecleaning question on the Saver Fares. Where are you guys at with respect to that average upsell differential today?

We've not really spoken about that. I think we're only like two-and-a-half weeks into it. But as we said on our prepared remarks, we're very pleased with how it's tracking. And the $100 million that we share with you, we're very, very confident that that will be met this year. On the next quarter call, we'll give more of a brief on that.

I see, Okay. And then, of course at the risk of kicking the dead horse here, just kind of going back to the choppy fares on off-peak demand kind of spread across the network. Should we be thinking that potentially is the link between lower fuel and lower revenue potentially leading to some of that choppiness or is it just over capacity? I guess I'm just trying to get a little bit more clarity. And I guess just related to this, how much of the benefit from lower fuel do you think Alaska can capture this year? Is it 100% of the benefit? 75%? Or something potentially a lot less than that as we kind of think about rolling through the year here?

Just on the first one – again, I want to make sure I don't overplay this choppiness. I think really what I've been saying is that just given the switch from the fourth quarter and then into the first quarter and capacity increases that we're seeing industry-wide. I think there's just been active fare management with the fuel moving around. But I think at the end of the day we're still seeing strong demand, our business demand is very, very strong as well. So that's sort of just where we are on that. I don't know – Brandon or Shane want to answer the fuel question?

I mean, just anybody's guess at this point. And it really probably comes down to what happens with fares as you move through the quarter into March and beyond.

I see. Okay. And then I just had one more follow-up here. And that's just really reverts to an earlier question I think maybe from Katie here. In the past, you guys have talked about connecting revenue from connecting widebodies coming into San Francisco from the partners, I guess. Passengers connecting at San Francisco from partners going onto your middle. I'm just wondering if you could elaborate a little bit more on that? What are you seeing? Is it material at this point? Is that something that can get turned on more fully as we kind of move through the year here?

As Brad shared earlier, the real benefit to Alaska and our loyalty program is not so much the incremental passenger getting of a wide body. It's really more our loyalty members getting access to long haul flights. They stay in our program, they accrue miles on us, they pay tickets on their partners that help our partners. So, it's a really good, strong ecosystem that allows our global partners good feed into the United States, and it allows us good access for our members globally and to earn miles. That's how we look at the world.

Okay, thanks for the clarification. Appreciate that.

Thanks Dan.

The next question will come from Joseph DeNardi with Stifel. Please go ahead.

Thanks for the time. Andrew, I was going to say thank you for all of the additional detail you provided in our prepared remarks, but then you said you didn't want to be transparent anymore on the loyalty programs, so I'm not going to say thank you. Just on the guidance for 1Q, 4Q initially was 1.5 to 3.5, you ended up at 5, how much of that was close in coming in better than expected? Just trying to get a sense for whether the first quarter RASM guidance was constructed similarly to fourth quarter.

Well, I think a couple of high level and someone else can jump in. We actually haven't been forecasting unit revenues. We used to be lucky to give you load factors and booking trends and stuff like that. Really, I think it's just in 2018, we've really been forecasting unit revenues for the Street. And with the amount of change in our business – we went from a three range at one point to a two-point range. So, I think on the fourth quarter there was some strength that came in for sure. But additionally, with all the moving parts in our business, we probably undershot our forecast. But I think as we get more and more of this under our belt, we get more and more confident about how we're forecasting the quarters going forward.

Okay. And then, Brandon, in the investor day deck you had a capital deployment waterfall for 2019, which showed about 130 million left over for buybacks or more debt reduction. You mentioned the 50 million assumption on the buyback for 2019. Does that imply that there's 50 million left over after all the other uses, CapEx, debt, dividend? I mean, is that a comment on cash flow for the year? Can we plug the 50 million into what's leftover in your waterfall chart and back into your cash flow guidance for the year?

Yes. You could kind of back into the cash flow guidance of the year that way because as we were constructing that chart, we were thinking about our likely capital allocation. We tried to give you more clarity on the call today. I think if you just take consensus numbers, for example, and you say that produces roughly $1.5 billion to $1.55 billion of operating cash flow. You got CapEx [of] 750, debt repayments of roughly 300, dividend 175, repo 50 as we've stated. It probably – I know you've got some integration funding left to do. That probably leaves around $150 million of additional capital that we haven't yet decided what to do with specifically. We could use that for share buybacks or we could take debt to cap down probably another two points.

Okay. So, it's not to imply that your outlook for 2019 cash flow is less than consensus because you're going to have less leftover than what you had in that chart?

No. We weren't trying to apply anything like that.

Okay. Thank you.

The final question will come from Brandon Oglenski with Barclays. Please go ahead.

Hi, this is actually Matt on for Brandon. Thanks for taking my question. Just a quick one from me. You talked about in the commentary and a couple times through Q&A about corporate business surge being strong. Is there something from the initiatives at the Investor Day or is this just general strength in kind of business fares we should think about? Any of the initiatives that are coming through from Alaska in this regard?

Hi, Matt, thanks for the question. Specifically, to the initiatives in the 330, there's not really anything materially baked into that. I think you're going to hear just a tad more from me on a quarterly basis about business given our new expanded network. We have a Vice President of Corporate Sales and we're actually doing a lot of cool stuff with our new network. And just starting to build more muscle there. So, I think part of what you'll hear from us is actually we have better insight now into corporate travel and business, which is a good measure of the economy. So, I think you're just going to hear a little more talk from us about that. It doesn't necessarily mean we have some massive initiative that you should be counting on for the 330.

Okay, great. Thank you.

Thanks, Brandon. And I want to thank everybody for tuning in for this quarter's call. As we break, I want to also thank Mark Eliasen for a terrific career with Alaska Air Group. This is Mark's last analyst conference call. Mark, you retire next Thursday or something like that. I want to thank you for a fantastic 10 years with this company, 38 conference calls and lots of airplane deals and airplane financing deals. Thanks very much. Talk to you all next quarter, thanks.

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