Good morning. My name is Thea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group 2021 First Quarter Earnings Release Conference Call. Today's call is being recorded and will be accessible for future playback at alaskaair.com. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session for analyst. [Operator Instructions] Thank you. I would now like to turn the call over to Alaska Air Group's Managing Director of Investor Relations, Emily Halverson. Please go ahead, ma’am.

Thank you, Thea and good morning. Thanks for joining us for our first quarter 2021 earnings call. This morning, we issued our earnings release, which is available at investor.alaskaair.com. On today's call, you'll hear updates from Ben in his new role as CEO and he will be joined by Andrew and Shane for commercial and financial update. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call. Our business and outlook continue to be significantly impacted by the global health and economic crises that are underway. In the first quarter, Air Group reported an adjusted net loss, excluding special items and mark-to-market adjustments of $436 million. And we went from burning approximately $4 million a day last quarter to cash generation of approximately $1 million a day in March under the same definition. We believe we are among the first in the industry to have achieved this milestone. It marks a critical point in recovery that enables us to turn our attention to the future. Our comments today will include forward-looking statements about 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. We will also 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.

Thanks, Emily and good morning, everyone. I appreciate all of you joining us today for an update on our business. As this is my first call as CEO, I thought I'd share some of my thinking and where I will spend my time, energy and focus over the next several years. I've been with Alaska for 17 years, I've come to know and love what our company is all about. Our people and our culture, our focus on safety and operational excellence, our reputation for customer service and our financial discipline and track record. Over the years, we have truly embraced that balanced approach to delivering for all stakeholders. And I will continue to nurture this approach and build on that legacy. But we also need to grow and do better in other areas that I look forward to developing, how we managed to reduce our climate impact, ensuring that Alaska is a place where everyone feels they belong and unlocking the power of our brand. In the short-term, however, our primary focus is on rebuilding our business to pre-COVID levels and returning to profitable growth. While Q1 results are far below normal levels it has marked an inflection point during this pandemic, and it appears that we have turned the corner in several key areas that I'll touch on in a moment. Before I dive into results, I want to welcome Constance von Muehlen in her role as Chief Operating Officer for Alaska Airlines succeeding Gary Beck. Constance has been with the company for 10 years and is an incredible leader. I know that she will do a fantastic job in this typical role. Onto the quarter recap, as momentum with vaccines has picked up and travel restrictions have eased, there has been a strong return of leisure demand.…

Thanks, Ben, and good morning, everyone. And it is great to be back speaking with you about the commercial side of our business. Although, we've still got a long climb ahead the momentum that we've seen in the past few months is really exciting as we've started to see demand return. First quarter revenues came in at $797 million, down 57.5% from the year over two. We also saw a sequential improvement in each month of the quarter with January revenues down 63%, February down 59% and March down, 52%. Passenger enplanements followed a similar trend. Our first-class cabin performed particularly well with revenues down 42% for March, which was 10 points better than system average, low fares resulting in high [paid] [(ph) load factors with the main drivers. Our overall revenue results looked to be amongst the strongest in the industry, despite as been noted California demand remaining seriously impaired. To provide perspective on this, the 54% reduction in California bookings during the first quarter versus 2019 were down nearly two times that of the non-California system average. We expect California to experience a step change in performance by mid-June, which is when the governor has targeted to fully open California's economy. Capacity was 33% below 2019 levels, which was three points worse than we'd expected. This was primarily caused by cancellations from a severe winter storm across the Pacific Northwest over President's Day holiday. For the quarter, our load factor was 52%, which is up seven points from Q4 on 9 points more capacity aided by a move to unblock middle seats beginning in January. This has been really helpful as demand returns. In March, 41% of our mainline departures carried over and above what our load factor caps would have allowed if middle seat blocks have remained…

Thanks, Andrew, and good morning, everyone. Today, I will touch on our cash flows, liquidity and our balance sheet, as well as costs and expectations for the second quarter. This quarter felt very much like a turning point away from purely trying to survive and toward rebuilding our business, bringing people in flying back and beginning to chart a path back to profits and growth. While we reported an adjusted net loss this quarter of $436 million, we were able to generate positive GAAP operating cash flows for the quarter, and positive adjusted cash flows in March, even excluding CARES payroll support grant. Our air traffic liability increased by $224 million or 21%, reflecting the step-change improvement in demand the industry is currently seeing. Travel credits now represent 37% of our ATL, down from 53% at year end. We exited the quarter with an improved adjusted net debt result, which was down from $1.7 billion at the end of 2020 to just under $1.6 billion. And our debt to cap increased only 1 point to 62%, which we believe will be the high watermark for our debt to cap metrics, and that we will see it reduce from here. We also continue to hold $3.5 billion in on-hand liquidity. Given booking trends and our balance sheet health, I anticipate that we will begin reducing our cash balance by retiring debt during the second half of the year, also ultimately moving towards on-hand liquidity in the range of $2 billion to $2.5 billion. Having heard from Andrew about the commercial progress we saw in the quarter, let me turn to cost performance. We had several areas of good performance and some we need to drive more improvement in. Adjusted non-fuel operating expenses were $1.14 billion, an increase of $43 million or…

[Operator Instructions] And our first question will come from Andrew Didora with Bank of America. Please go ahead.

Hi, good morning everyone, and thanks for the questions. As first question for Andrew. Just wanted to touch on Hawaii. It is clearly market it's opening. It's all leisure. What percentage of your ASMs will be here in 2021? And do you think it will have better, worse, or the same margins relative to the system as compared to pre-pandemic?

Hey, Andrew, I'm not going to comment on margins, but Hawaii for the next little bit here gets about 15% of our capacity. And what we have seen is that and the same with Mexico a little bit is that the testing and all the requirements they have seem to be working fairly smoothly. So, demand in Hawaii is solid.

And how do you see the competitive response on those Hawaii routes?

I'm not, as far as competitive response specifically, what are you referring to?

Is competitive capacity?

I see. Well, what I can tell you is that from where we sit and our loyalty we've been very good. We think by this summer we'll be up to our pre-pandemic frequencies of about 32 a day, and given where we focus our flying we feel very good about the seats and it's performing well.

Hi, Andrew, this is Ben. I think we have the perfect product for Hawaii to compete. We got a strong first-class product. We have a premium product that people love, a generous main cabin with great service and we're starting to bring our product back. So we have the perfect product to compete on our Hawaii routes.

Okay. And just secondly for Shane. I know in the past, Alaska has hedged fuel a bit more from using as call options as insurance. Do you have any hedges on right now? And are there any internal discussions on maybe stepping that back up today given where fuel has gone? Thanks.

Andrew, good to talk to you. Yes, we actually never did anything different with our hedging program throughout the pandemic. So we were over hedged last year, obviously, as capacity came way down and we had already put a lot of positions on for last year. I think right now we're back to our normal cadence, about 18 months in advance of the quarter. We start layering on hedges up to about 50% of expected consumption, 20% out of the money. That's what we've done for the past several years. Strangely enough, we did ask ourselves should we change our program or do something differently. Just in the past several weeks and all of the data that we looked at suggests that we really like our program, how it is and we don't plan to change it from here forward.

That's great. Thank you.

Thanks, Andrew.

The next question will come from Myles Walton with UBS. Please go ahead.

Thanks, good morning. So hoping you could just touch on the California reopening? And I know it's only going to capture a little bit of the June quarter. But as you look to the bookings trends in July and August are you seeing the population moving in advance or are kind of sitting on their hands waiting for final confirmation? And moreover, what does it imply just early reads about what you're going to do with the network into 3Q?

Yes, thanks, Myles. I think you know California slowly coming back. We're obviously seeing an improvement in bookings. But we feel pretty good about the way we've structured our network. About a fifth of our ASMs in the second quarter will be in California. And we're still going to be down 50% in capacity. So we have plenty of room on the airplanes. And I think we're just seeing increasing trends, but come June will be the real telltale about how big that step change is.

And one quick –

Go ahead.

And maybe one quick one on loyalty. You mentioned that oneworld, you're going to lay out an economic framework or contribution framework at a future date, but given you planted a seed, I'll ask you to water a little. Can you comment on how much of that economic contribution framework will be indirectly or directly through the loyalty versus through the network? Thanks.

Yes, we're going to comment on that a little later date. Obviously, international travel is basically next to nothing but we both domestic and international and I think overall, certainly on the loyalty side, you're going to be – that's a very, very strong area for us. Corporate business another very strong area for us. And then of course the incremental network passengers from international, and of course just our joint domestic partnership with American as well. So good things there.

The next question will come from Savi Syth with Raymond James. Please go ahead.

Hey, good morning everyone.

Hey, Savi.

Prior to the crisis, you were working on getting pre-tax margins to 13% to 15%. I wonder if you could provide an update on your, kind of ability to get there eventually and especially business demand isn't going to fully recover to pre-crisis levels in 2022 or 2023?

Thanks, Savi. These are some questions to get to talk about future profit margins that reflect sort of pre-COVID level. We have it, Ben mentioned in the script of roadmap back to profitability. And as you know, a long time ago, we said 10% as a minimum threshold and we've talked a lot about 13% to 15% as a normal sort of level that we think is appropriate in the industry. To the degree that the economic backdrop sort of helps support those levels we certainly expect to be one of the top margin players in the industry, and we do want to get back into that range. I think it's a little early to talk about like when that could happen. And if it's clearly going to happen, I keep thinking we'd like to get through this sort of initial pent-up demand surge and into the back half of the year to see where business travel kind of shapes up to your point. And then I think we'll have a better picture of ultimately where margins may shake out, but we're not abandoning that goal at all. We think long-term it's a place the industry could, can and should be, and we should be amongst the leaders from a margin perspective.

That's helpful Shane. And maybe if I can follow up just a little bit on your comment about kind of getting back to that. But getting to like a $2 billion to $2.5 billion liquidity target. Just wondering where the logic behind kind of that level versus something else?

Yes, no, it's, look, it's a little bit judgment and instinct and if there was another unexpected big step back, we don't want to be scrambling. So we've been talking a lot about this. If cash flow generation continues to improve in Q3 and Q4 advanced bookings are good, some business travel comes back, we could see ourselves going on the lower end of that. I think what we've committed to internally right now is no lower than $2 billion coming out of this year. We have a big capital commitment next year and so we want to be mindful of that as well, Savi. But we're well above our normal sort of need for cash right now. I don't know if we’ll ultimately go back to 1.2 to 1.5, that's something that I think will be sort of thinking about and making decisions about in the next six months, or so.

Sounds, good. Thank you.

Thanks, Savi.

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

Hello, thanks, guys. Good morning. Andrew, how effective is Alaska at monetizing customers outside of the airplane? You all obviously are pretty effective with Bank of America. I'm curious what you think the opportunity is beyond the co-brand partnership?

Yes, you're talking about really merchandising and up-selling that type of thing …?

Sure, other partnerships, just finding other ways to use data to, yeah, kind of market your loyalty customers outside of the credit card?

Yes. We've been doing a lot of work on the digital side on as.com. We become experts in promotions over the last six months and the team is getting very sophisticated on how we go about doing that on the programs we do that. We also have other things like premium class is going to become a cabin just like first-class and we see opportunity there. Our first-class product now is what we call J Class which historically it was [F] (ph) so I think corporate customers are going to have greater access. And I think we're working on a number of things and as shared in this script, we'll lay more of this out as we move deeper into the year, but we have a lot of revenue upside benefits outside the core coupon ticket that we're working on.

Okay. And then, Ben you mentioned one of the strategic priorities is maximizing the value of the brand. I think is what you said that piqued my interest shockingly. So, what did you mean by that? Thank you.

Yes, no, I appreciate it, Joe. Look I'm a big believer in Alaska. And if you look at the strength we have in the Pacific Northwest and the state of Alaska and the loyalty and love for our brand, I just think there is huge potential in unlocking this brand more than we have in California and across the countries. So this brand is powerful when people get to know it, when people fly us, they love us, they love our people who just done a wonderful job every day. And so I just think there is a lot of this brand can offer once people get to know it more.

Thank you.

Thanks, Joe.

The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Hey, thanks. Shane, you talked about some accruals, I think for hitting your operations target as well as maybe some profit share. What are the circumstances under which you would be paying for profit sharing early next year?

Hey, Duane. Good to hear from you. Yes, so our PPP plan always has multiple components profit is the typically largest component under that program and we don't expect honestly to pay out under that particular metric. We didn't change the threshold target or max. So we would have to hit a full year pre-tax margin of 5% to pay out for profits. But we also have operating cash flow goals in the program this year. We've got carbon reduction goals. We've got cost-related goals around productivity and safety goals. And the company is, folks are doing a really good job against each one of those right now. So those are the potential areas, I think that we see a potential payout.

That's great. I wanted to make sure I wasn't reading too far into it. And then may be just across the network is there anything you're seeing on a revenue basis that's up at this point relative to 2019? And I wondered if you talk about bookings into state of Alaska? Thanks for taking the questions.

Yes, Thanks, Duane. You know it's - the network obviously it's stronger in some areas and others - we're not at prior pre-pandemic load factors. We have a couple of regions now that are into the 80% but of course the fares and the yields are not where they were back in 2019. So, overall across our network revenues are building. State of Alaska, there is obviously incremental capacity coming in this summer, but we feel really good about our network for this summer, and we love our brand and we've been marketing it well. So we see Alaska being a good story this summer for us.

Thank you.

Thanks, Duane.

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

Thanks very much, operator. Hi, everybody. Thanks for the time. So two questions. So, I'm wondering if you could tell us how you're going to measure the carbon goals for your profit sharing? How should we track that, or how are you - actually more importantly, how are you tracking that?

So, and I'll let Diana jump in a second. So it's really important on the climate Helane that we have two short-term goals, only have two goals. One is the long-term goal 2040, where carbon emissions we target to be zero, Diana speak to that in a second. Then the short-term goal, which is being the most fuel-efficient airline in the next five years, which is what Shane was referring to we've tied our performance based pay program where we're going to measure carbon impact per ASM. So that's how we're going to measure that short-term goal, and every employee in the company is going to be measured on that. That will be 10% of the payout for our PPP. But, Diana could you share a little more on the 2014 how we're going to do that?

Sure. I think Helane was asking – just to clarify Helane, you were just asking about the PPP goal in our employee based pay plan, which is as Ben said pounds of CO2 per ASM.

Right. Exactly. Like I’m just trying to figure out how you're going to measure that. So that's the answer, right, pounds of CO2 per ASM, and the goal is to just lower it.

Got it. Yes. And it's based on fuel use. So we set a target based on our – looking at our budgeted ASMs and our budgeted fuel use and we are aiming to reduce carbon emissions from year-over-year from what we would predict would be flat.

Okay. That's very helpful. Thank you. And then my other question is, I'm wondering, if completely unrelated to environment, can you – Andrew, could you do like a bridge to how you're thinking about raising yields? I know it's, you know, in part, based on demand, but how are you given the lag between bookings and pricing, how should we think about fares trending this summer, and a bridge from maybe where you are to where you want to be, which would be say pre-pandemic levels.

Sure. Yes, well, a couple of things on yield that affects Helane as you know. You can push yield up with more volumes of business travel and to-date that's really significantly down. And you can push yield up when flights gets pull up. And so you're exactly right. We've built our base with bookings that would during really low booking period and stimulation in getting a good base. So what we're seeing right now is that as we move forward into the second quarter and certainly into the third quarter we bringing in new traffic, and you've heard others comment and it's the same for us too that the yield and average fares coming in summer right now for our peak flights are actually higher than 2019. So I think you're going to see a sure but stable climb, but I will say that a lot of this is dependent on business traffic, and of course capacity. We all know what everyone's flying in May. We sort of see June. But beyond that, we haven't seen proper schedules load and that will also dictate on what happens with yields.

Great, thanks very much, Andrew. Thanks, team.

Thanks, Helane.

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

Hey, good afternoon, everybody. Can you be a little bit more specific as to the milestones you need to achieve before you begin returning capital to shareholders? Obviously, acknowledging the PSP restrictions that are in place. Just wondering what internal metrics or milestones you're looking for.

Hey, Jamie, it's Nat Pieper. As you know, taking care of our shareholders has always been a core priority for us as we run our business. And I have to take the opportunity to remind you that we're proud – we didn't issue equity or dilute our shareholders to raise funds through the pandemic. And we want to restart shareholder returns as soon as it makes sense. Like most things here, we have a checklist to complete before doing so, and these items won't be a surprise for you. Balance sheet strength to get in debt-to-cap back in its target levels, positive cash flow and sustained profitability. So really once Ben and our Board gives us an A on the checklist, I’d anticipate re-engagement in that area. You're right that we've got government restrictions as well on both buybacks and dividends until September of 2022, due to the PSP triumvirate. And we'll balance that too.

Okay. That's helpful. I appreciate it. And second, your comments earlier about first-class yield momentum, I found that interesting, the Transcon premium market continues to improve from a passenger perspective. You got Delta 764s now that are flying with, what I call sort of this pseudo suite product, mint is getting a refresh. Is there anything happening in the premium Transcon market that might make you revisit your decision to exit, or are you still happier than ever with that decision?

So I think, Jamie, you're referring to maybe lie-flat seats. Here's what I will tell you about, on the first class cabin, our product is made for the conditions that we have today. We have 12 and 16 seats, the largest pitch for non-lie-flat seats in the industry. And we've been really focusing on selling demand into those seats. And Ben mentioned before, Hawaii has been a very strong point for us. On the Transcon right now, even if you look into sort of May – our capacity is down 70% because the demand is not there right now. So we're seeing first-class perform on our Hawaii flights, on our north/south flights and that sort of thing. So it's just been the perfect product and people are willing to buy up right now with good low fare. So it's a good new story.

Jamie, this is Shane. I'll just – on the actual like, no, we're totally happy with our decision to not have moved into that market. It makes sense for certain carriers to do it. It didn't make sense for us. We'd have to sell three quarters of those $1,000 or better. It's just not the model we have. And we don't really like selling $1,000 fares anyway, we like to make a lot of money selling lower fares. So we're feeling very good about our decision.

All right, strong answers on both topics. Thanks, gentlemen. Take care.

Thanks Jamie.

Thanks Jamie.

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

Hey everyone. Thanks for the time. I think my first one is probably for Shane. On your CapEx outlook, I just wanted to confirm that $150 million to $200 million is gross CapEx, and that's not net of any financing on aircraft from Alaska's order book. And then based on the deposits Boeing already has from Alaska. And I'm guessing some negotiations around purchase price, given the MAX grounding and your new order, when do you work through those deposits and what will CapEx look like over the next couple of years?

Yes, thanks Katie. I'm going to have Nat help out on this, but I'll answer the really hard one first. Yes, it's gross CapEx, it's not net. I’ll give this one to Nat.

Awesome, delegation. I think in this year with that PDP balance and Katie, as we talked about in previous quarter, when we made that order, all of our 2021 obligations related to it are taken care of. So very little, if any cash out for 2021 airplanes. In 2022, we've been public with a CapEx number of 1.3 billion or 1.4 billion and that's 31 airplanes coming in 2022. We have as part of our negotiation with Boeing, restructured our PDP pool a bit. And so we'll be using that leverage appropriately as well. So we're comfortable with where that sits. And we're also comfortable even though that is a big requirement in 2022, we can achieve that and still get our balance sheet strength back to the levels that we want to retain.

Got it. And then maybe one for Andrew, it sounds like there's definitely more to come on this, but a question on American and oneworld partnerships, just like a higher level theoretical question. As international and corporate ultimately start to recover and you potentially see your corporate share improve, a couple of some of the new RM changes you also spoke about, should we expect Alaska to just be a higher yield carrier, ultimately post-COVID versus pre-COVID, kind of assuming maybe all else equal on the leisure side of the business, just for ease of this question?

Yes. Thanks Katie. My view is absolutely yes. Given the things that have been put in place that give us access on the corporate side, I do believe that our share will grow even as I said already, seeing it even on low numbers in that first part of this year that will attract high yielding traffic as business demand returns.

Great. Thanks.

Thanks, Katie.

Your next question will come from Hunter Keay with Wolfe Research. Please go ahead.

Hey, good morning, everybody. So Ben, last June, you made a prediction that 2021 revenue would be down 20% to 35%, which was actually an amazingly pretty good guess. I don't know how you did that, how you knew that man, but given your track record as you look at 2022, do you think it will be up relative to 2019?

What I'll say, it's all an ops background, Hunter that helps me with the financials. You know what, Hunter, the way we looked at stuff is we try and be realistic with what we see. So as we look into this fall, it's hard to see what's exactly going to happen, but we can make some solid predictions. We know leisure demand is coming back for us pretty much at 100%. We're at 25% of business right now, we probably will see a step change in business demand by the end of the year, as the vaccines roll out and businesses relaxed the restrictions. So that should double, it should be 50% is what we're predicting for business demand by the end of the year. And so we should see it much higher than the first and second quarter. So we should be getting close to where we are in 2022. I'm not going to give you a number but we feel good about 2022, and we're trying to set up ourselves in 2021, just to solidify that road back to profitability, get all this transition training done so that we can fire on all cylinders in 2022.

Okay. And then Shane, just to follow up on Jamie's question a little bit, you talked about balanced capital allocation. How do you think that term is going to change from pre-COVID to post-COVID? Is it rather than paying some nominal dividend? Is it maybe, hey, this makes more sense to think about like investing in the product a little bit more post-COVID or doubling down on the repo. I don't know, whatever it might be, or just paying down debt, like, how does the term balance capital allocation change in two years relative to what it was in 2018, 2019?

Yes. Thanks Hunter. These are – I really love your questions. You guys usually prompt us to go back and think about things a little bit more. This isn't something that this is a little bit off the cuff. So I want you to know that. I don't – I'm guessing it's going to be a tweak more than an overhaul. In our basic approach, historically has been get the balance sheet to our target range and then make sure we're growing at an appropriate rate, 4% to 8% annually. And then fund pensions robustly and then make sure we're returning to shareholders. And we sort of liked the set up where we had a dividend and then we topped off with share repos. And I think that's our default, as we go forward, I know it's not like sexy or something because it's not exotic or new. I do get the question though, that there are certain areas of the business that coming out of COVID we'll see if the market and expectations changed from a customer perspective. Certainly things around cleanliness and sort of feeling of safety, we're making investments in although. Now those are things that we've been doing this past year and they'll just stick with us. And I don't really view that necessarily as capital allocation, but I think it'll – our mindset is mostly returning to kind of where we were before. And we'll adjust as we learn things going forward. Anyhow, yes, that's kind of where my head is at on that right now.

No, that's great. Helpful. Thank you everybody.

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

Hey, good morning, everyone. I guess, just two here. One, Shane, where are we on – the secured loan with the CARES Act. The second one, I may have missed it, but I know you had drawn down a piece and there was like another $1.7 billion. What's the status on that…?

You got it right, Mike. I don’t know how you get to keep all this stuff straight. Because sometimes we have to – because we struggle too, but yes, we had to take a portion of that loan down by law initially about $135 million that remains outstanding. And then we have access to another $1.7 billion through May. I don't see really any scenario where we'll tap our access, that $1.7 billion. But we have until May, so we haven't formally made a decision on that quite yet.

Which then leads to me to ask that I think the plan was that loyalty would feature into something along those lines. And if you don't tap it, are you still considering loyalty or maybe I can answer the question. It sounds like you're done with everything on the financing side. Is that right?

You got it.

Great. Great. And then just my second question to Andrew. Andrew, you gave us a little sliver of information on your improvement in corporate share. And I realized, the March quarter of 2021 is probably not all that representative of a normal quarter because of COVID. But the fact is, the American agreement I believe has now been in place I think for almost a year, maybe it has been a year. Can you just give us maybe some other quick wins, like in the past you talk about whether number of passengers connecting on a daily basis, or in the past we've heard airlines say three to four or five load factor points are attributable to the code share agreement, et cetera. Anything else that maybe you saw in the earlier part of the agreement? Although again, I do realize it came into place in COVID.

Yes. I think more to come on that Mike, I think just the networks and the demand and everything, but here's what I will say is that from a joint contracting perspective, there's been overwhelming engagement of corporate contracts wanting to jointly contract with us in American, given the joint utility and opportunity we give them we've seen very positive and strong guest feedback from our guests around getting back American and their ability to accrual and redeem miles. We have full access back behind from the Pacific Northwest, through mid connecting hubs in the U.S. and even California through Chicago. So there's a lot of good things, but to your point until demand and the water starts flowing through the pipes, we won't to see the true benefit, but we're ready for it when it comes.

Fair enough. Great. Thanks everyone.

Thanks Mike.

The next question will come from Dan McKenzie with Seaport Global. Please go ahead.

Hi, thanks for squeezing me in here. I guess, just a question on the balance sheet targets, just following up on some of the prior questions. I'm wondering what the timeframe is, in the back of your mind to get to that target. And I guess I'm just trying to reconcile the step up in CapEx next year with where you want the balance sheet to be ultimately?

Dan, it's Nat. I think as we move over the next 12 to 15 months and obviously, there's revenue and positive cash flow coming in as part of that and assumptions we're making as we see it. But I see us by the latter stages of 2022 being in the region that we want to be from a debt to cap perspective and that's inclusive of the CapEx requirements we discussed for 2022.

Got it. Okay. And then as we move past 2022 as you've got the step up in CapEx, how should we think about what a normalized CapEx would look for you guys in the context of 4% to 8% growth?

Hey, Dan, that's a great question. Let us come back to you on that. I just want to, as we're in the middle of the fleet transition, I just want to make sure we've got really, really good data on how many planes are going out and coming in 2023 and 2024, as we shift the schedule around. But I think we basically need to replace 60 aircraft over the next couple of years. And then we need to add about 10 to 12 units a year relative to our pre-COVID mainline fleet size, which was 235 in order to kind of maintain that range. So I'm just – I sort of know all the math but I want to make sure we get you a tight answer on it. It's a good question.

Very good. Okay. Thanks. Thanks for the time, guys.

And at this time, there are no further questions. I would like to turn the conference over to Ben Minicucci for any closing comments.

Thank you, everyone for joining us. If you have any other questions, please reach out to our IR folks. Have a great day and we'll talk to you next quarter.

Thank you for participating in today's conference call. This call will be available for future playback at alaskaair.com. Ladies and gentlemen, you may now disconnect.