Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group 2021 Fourth Quarter Earnings Release Conference Call. Today's call is being recorded and will be accessible for future playback at alaskaair.com. [Operator Instructions] I would now like to turn the call over to Alaska Air Group's Managing Director of Investor Relations, Emily Halverson.

Thank you, operator, and good morning. Thank you for joining us for our fourth 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, Andrew and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of the call. This morning, Air Group reported fourth quarter GAAP net income of $18 million, excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $31 million, pretax margins were 2.4% for the quarter. As a reminder, 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. Over to you, Ben.

Thanks, Emily, and good morning, everyone. In 2021, Alaska has established a track record of leading the industry in the recovery from the pandemic. This has been enabled by the strength of our business model, our measured approach to capacity and our financial discipline. Our 2.4% pretax margin in the fourth quarter continues that trend, especially considering the disproportionate impact that severe weather had on our hubs, and the Omicron-related impacts we began to face at the end of the year. While I'll discuss the impact of weather on our fourth quarter and the impact of Omicron on our first quarter, let me start by saying both of these are temporary challenges that do not deter my confidence in our underlying business model and its ability to outperform the industry. Starting with recent events. The combination of severe snow, multiple consecutive days of sub-freezing temperatures in our Pacific Northwest hub and stacking disruptions caused by the Omicron variant, resulted in one of the challenging holiday travel periods we have ever experienced. Our completion factor was extremely challenged at the end of the year, which resulted in flying approximately one point less than our expected capacity in the quarter and 2.5 points less than we planned to operate in December alone. I want to apologize for letting our guests down during one of the most important travel periods of the year, and I also want to acknowledge the strain our teams were under as everyone worked to stabilize the operation. In terms of the financial impact of these events, they were material. Our fourth quarter result was worse by approximately $70 million, and our pretax margin was reduced by 3.5 points. Even with this outsized impact, Alaska was profitable in Q4 and strongly led the industry in pretax performance over the…

Thank you, Ben, and good morning, everyone. Fourth quarter revenues, totaled $1.9 billion and were only down 15% versus 2019, which was better than our guide and with flowing capacity also down 15%. Our fourth quarter unit revenues were flat in 2019. As Ben mentioned, end of quarter weather disruptions were significant, impacting revenue by approximately $45 million. Even with these setbacks, our revenue recovery improved by three points from what we viewed was a relatively strong third quarter. Load factors showed continued improvement throughout the quarter as well, progressing from 75% in October, to 80% in November and 83% in December, signaling demand for travel continues to move in the right direction. The strength of this demand clearly played out in our November revenue results. November revenues were down just 7% versus 2019 on 12% less capacity. My take from that result is that our fundamental revenue results were better this November than in 2019. Even though, we've not seen anywhere close to a full business demand recovery, the full impact of our One World and American partnerships or a complete West Coast recovery. Our network is well positioned for recovery. Another encouraging indicator of yields, which ended the quarter up 3% versus 2019, this was driven by the strength of holiday bookings and solid demand management by our RM team despite the delta and Omicron variants book ending the quarter. For the winter holiday period, we were on pace for flat to positive load factors and double-digit yield gains prior to the impact of the winter disruption. Given all the volatility this year, we achieved great results, and I want to thank my entire commercial organization. They came together as a fully integrated team and did a tremendous job stimulating demand and welcoming guests back to flying, managing…

Thanks, Andrew, and good morning, everyone. I’ll start, as I always do, with an update on cash flow, liquidity and our balance sheet. We ended the year with $3.5 billion in total liquidity, inclusive of on-hand cash and undrawn lines of credit, which is essentially unchanged from Q3 and reflects $112 million in debt repayments during the quarter. Our Q4 cash flow from operations was $129 million, above our previous guidance, largely driven by stronger demand recovery than anticipated given we were dealing with the now old news Delta variant as we came into the quarter. Our balance sheet remains a bright spot point of differentiation within the industry. This year, our debt-to-cap fell to 49%, 12 points below year-end 2020, placing us within our stated target range. And as Ben said, essentially back to our pre-COVID balance sheet strength. In fact, in a period marked by increasing debt across the industry, our adjusted net debt ended the year 40% lower than 2019. We’re pleased to have received credit upgrade in late December as well, moving us one step closer to an investment-grade rating. The weighted average effective rate of our outstanding debt is 3.3% and our debt service is entirely manageable going forward. Contractual debt repayments in 2022 are about $370 million with $170 million in Q1. Given the low-cost nature of our debt, we don’t plan to make any significant prepayments during 2022. Rounding out the strength of our balance sheet, our pension plans ended the year at 98% funded, the highest level we’ve achieved since 2013. Our strong balance sheet and ample liquidity put us in a terrific position to pay cash for the 32 737-9 aircraft deliveries we have in 2022. We feel very comfortable with our liquidity position especially given our belief that we are…

[Operator Instructions] Your first caller is Duane Pfennigwerth of Evercore ISI. Your line is open.

Thanks. Good morning. I wanted to ask you kind of an industry revenue management question and I think it’s a little tricky to answer here in January, but I’ll give it a shot, nevertheless. So, as we have these waves, these recurring waves, probably the first time we saw one of these waves the industry’s willingness to sort of hold back on the future and hold back on inventory management into the summer, et cetera, was probably pretty limited. I wondered if you could contrast maybe the second wave with this period of time? And to what extent have we already sold forward kind of summer yields at less-than-optimal levels.

Yes. Thanks, Duane. That’s actually a really, really interesting question. I think if you looked at our third quarter performance, it evidenced very, very strong demand. November and December, again, evidenced very, very strong demand. With each of these waves, it’s about four weeks from the peak of the negative bookings down to a recovery in the mid-teens. And specifically, to your question, from a revenue management perspective, we don’t think it’s much of a pricing issue as it is a volume. And so that’s why we’ve returned really good yields. We’ve been holding out that excess demand and that strong demand when it comes, even as of March and beyond, we’re sitting in a very good yield and unit revenue position. So, from our perspective, the demand is the problem with the waves, but when the waves go, the demand comes back. And when we see that, we manage the revenue accordingly.

Thanks for that. And then maybe just sticking with revenue. Is there anything you’d call out regionally as we think about the rest of this year and again into the summer, can you remind us what was better, what was worse? And any commentary you might have on Hawaii specifically. Thanks for taking the question.

Yes. We don’t really talk a lot about regions per se. The thing that our team has done a really good job like where is really managing the capacity in those regions. And you’ll see, as we’ve shared in our prepared remarks, California was in a weaker position, and we have most of the capacity coming out of there, where we’re stronger, we have more capacity coming back. I think Hawaii has been doing quite well. I think we’ve got past issues with vaccination and all the rest of it and guests up flying a little lower than pre-pandemic, but overall, the business is performing.

Okay. Thank you.

Your next caller is Hunter Keay of Wolfe Research. Your line is open.

Good morning. Thanks. Andrew, have you ever – or Ben, have you ever thought about using price to manage costs in the sense that we’ve got these – you just mentioned you’re always willing to push for yield a little bit, and we have these really peaky periods where the operation just gets so stressed with volume. Have you thought about pushing yields a little harder maybe to save yourself some IROP or recom cost risk or maybe you lose a point of load factor, but you save 1.5 points of CASM because you’re intentionally keeping volumes down at peak periods?

Maybe I’ll start, Hunter. It’s an interesting thought. I think, honestly, we’ve sort of built our brand on being value for money. And so, we have their capture to be frank. We will get to a point where we will not charge guests any more than certain amounts. And so, we’re very much focused that we now get to come to book that they feel like they’re getting good value for money. And so, to take that approach, we probably reach some of our concepts there. That’s just one point though. That’s an interesting question.

Thanks. Ben here’s another interesting question for you. Have you seen the weakness in tech stocks every day impact your bookings? I mean a lot of your passengers are Seattle based, they have tech stocks in their personal portfolios. And I’ve always thought that the day the market is down, people don’t book airfare, I would imagine that’s particularly key with you guys being in the Pacific Northwest. So, have you ever given any thought, Andrew, to tying your daily bookings with what you’re seeing in the market specifically as it relates to the weakness in tech of this year?

Yes. Hunter, you’ve hit on, obviously, a very key point. And I just – our business come back to 50% in December. I’m just going to say the largest tech companies. The air travel is anywhere down from 70% to 90% right now. They are not traveling. And that impacts the volumes in those high-tech markets. As far as general demand, as I said earlier, I don’t see a willingness to pay really means issue. It’s just volumes really the challenge for these flights.

Hunter, just to clarify – Andrew is giving you the Just giving you the sort of business traffic. I think on the leisure side, people who work at tech companies are still travelling, if that’s your question. We haven’t seen a pullback in that based on just few weeks.

Yes. That’s not exactly the question, Shane, but regardless, I appreciate the color. Thank you.

Your next caller is Dan McKenzie of Seaport Global. Your line is open.

Hey good morning. Thanks. Just going back to that last comment, it seems that December yields were up double digits, if I heard that correct, and that’s really without a lot of your corporate travel. I’m just wondering if you could elaborate a little bit more on pent-up demand, the script was helpful. But does it feel different this time versus past down turns? And if so, what’s driving that?

Yes. I think one thing that’s a little different is first quarter doesn’t -- other than starting in March does not have sort of the peak bookings that sort of when you came off the Delta variant, you had November and December. So again, I think the yield environment from where I sit is very good, quite frankly. And I fully expect for the Omicron we get this behind us, we’re going to start to see the spring of the own booking come back to life.

Okay. And Andrew, you’ve digested a lot of growth over the years. You’ve done a great job with it. Does the growth later this year skewed towards long, medium or short off-line -- and if you’re exiting the second half of the year at double-digit growth, does 2023, should we think about that trending closer to the historical 4% to 6% or 4% to 8% growth rate? Or are there anomalies that we need to keep in mind as we kind of build out through next year?

Yes. I think as it relates to capacity, we – what we’re planning to grow in the second half of the year, we’ve grown a number of times at those rates, maybe 2015 and 2016, for sure. So, we feel really good about that. I think I can’t really comment on 2023. But again, our goal was to get California back pre-COVID levels. And then in the back half, continue to grow at filling the depth of our schedule in the Pacific Northwest, and that’s sort of what we plan to do.

Okay. Thanks for the time, guys.

Your next caller is Savi Syth of Raymond James. Your line is open.

Hey good morning, everyone. Just on the -- I was wondering if you could provide a view on CapEx for 2022 and 2023. And any other kind of notable demands on cash this year and next year other than kind of the debt color that you provided.

Savi, it’s Nat Pieper. Thanks for the question. CapEx for 2022, looking at about $1.6 billion, and we’ve been open, as Ben referenced in the script, really taking the decision to go single fleet and over-index with Boeing on deliveries over the next couple of years as we phase out A319s, 320s and get the most efficient airplanes in the sky that we can. From a debt obligation perspective, we don’t have, as Shane referenced, a lot of expensive obligations coming. We’ve got about $450 million principal plus interest over the year, which frankly, given our cash balance, given where our debt ratios said, we should be able to start that very, very easily.

Makes sense. So, a couple of years of kind of elevated CapEx here, at least, is fair.

Yes.

Yes. And as we’ve said, with 2023, again, number of airplanes coming.

Okay. That makes sense. And then I know the regional operation is not a big part of your kind of overall capacity. But just curious how that is impacting your 2020 outlook as Horizon and your partners kind of deal with pilot supply issues and now more recently, this kind of whole fee ban rollout issue?

Hey Savi, it’s Joe from Horizon. Yes. That situation is definitely a reality in the regional industry right now. Horizon has seen a fair bit from it over the past quarter. The attrition that we’re seeing, I would say, has so far been right in line with our projections, though. So, the adjustments that we made to our flying for this year so that we can sort of get folks hired up to replace those that are departing and account for the training cycle that’s baked into our plan and is proceeding as it has sort of been sketched out last fall. We have not dropped any cities and the amount of reduction in our flying has been pretty much in line with other regionals. 5G is definitely a little bit of an impact. We do operate the E175 and we’re working through that with the FA. I hope to get a resolution on that soon.

And Savi, I might just add that regional in totals around 10% of our capacity. And really, all of this growth is coming from gauge and sky age and Max and retirement of Airbus mainline growth. That’s really what’s driving what we see in 2022.

Makes sense. That’s helpful. Thank you.

Your next caller is Conor Cunningham of MKM Partners. Your line is open.

Hey thanks. Maybe a follow-up to Savi’s question. Just Again, when we think about the hiring issues, it’s always about the regionals, the one that people are most concerned about your MAX order right now is under the larger variant, but has there ever been any thought to actually replacing or maybe upgauging the regional effort to a smaller MAX just because it’s probably easier to hire at the mainline going forward than and it is that Horizon. I realize that there’s a big jump in capacity. But some of those markets seem like they may be able to support a larger plane now.

Thanks for the question. I think when we look at the fleet structure, I like where we are. I mean we serve small Pacific Northwest markets that are just suitable for us, I think 60 airplanes. So, we like the fleet mix. When you look at 737 MAX, where you're looking at Dash 7, Dash 8 or Dash 9. We skew towards the larger airplanes in terms of unit cost per seat. So, I pretty much like where we are, and I think we're going to continue on that path.

Okay. Great. You guys get unique questions because you're a unique airline that made money in the second half last year. So maybe just on the second half capacity ramp. So just trying to reconcile everything. You talked a little bit about it, but potentially going to be 10% larger, or double digits, I guess, is what you said. And I was a little surprised by that. I mean, I think your fleet is only 5% larger. So, I realize that there's some stage engage, maybe you can quantify what that is. But is your utilization potentially going to be higher in 2022 – in the second half of 2022 versus 2019? I'm just trying to again reconcile all the moving parts there. Thank you.

You've got all three of the factors. There's some stage length growth. There's certainly some seats growth given the large Dash 9 aircraft and then there's utilization that we can compressed a little bit harder than we are right now.

Do you care to share the moving parts? Or is that a later day…

Actually, stage is one of the larger drivers. Probably half of that difference. And then the other two are probably similar in terms of the driving.

Okay. Alright, thank you.

Thank you.

Your next caller is Ravi Shanker of Morgan Stanley. Your line is open.

Thank you. Good morning, everyone. If I can ask the first question, but from the cost side, on the revenue side, has everything that's happened in the last three to six months with Omicron and Delta and everything else fundamentally change the way you think of staffing and resourcing the airline going forward. Or do you feel like this is pretty much an idiosyncratic pandemic-driven issue. And once we get back to normal, it should be kind of going back to normal service resumes of just operational efficiency.

Ravi, it's Ben. I think being under this COVID umbrella, I think there is a different life set in terms of staffing, there is a little more sliding towards overstaffing, just to take care of people who get an infection that goes through people rather complete with Delta and Omicron. But if you look long term, our plans to get back to product levels, the fact that we had pre-pandemic. So, we're in a COVID phase right now, and we have to stop a policy for that, which will be a little higher than we that would normally be, but our goal is to get back to pre-pandemic levels.

Understood. And for my follow-up, not to steal the thunder from your Analyst Day, but on the last call, you guys hinted at the potential of returning to the cash return by the end of this year. And clearly, you guys are flexing our muscle on the balance sheet. Any updated thoughts on that at this point?

Ravi, it's same no. I think what we've said is, number one, our philosophy hasn't changed, so shareholder returns are part of our long-term capital allocation philosophy. And number two, we wanted to be in a position sort of for others to make a decision to go back into shareholder returns, but it's not an active discussion going to conclude, until the end of the year. So sometime over the first of the year, we'll start talking about it with our Board. And certainly, once we know that, we will share it with you.

Great. Thank you.

Your next caller is Andrew Didora of Bank of America. Your line is open.

Hey, good morning, everyone. First question for Shane, and there's a question I'm asking a lot of the airlines this earnings season. But can you maybe talk to sort of the wage inflation that you're considering for your labor groups when you when you kind of model out your 2022 cost plan?

Yes. Andrew, I'll take this in two parts. The first is we noted last call, some entry-level wage pressure, and we've had to move wages a few of our groups, just in order to attract folks in the tight labor market, we had priced that at about $7 million for the quarter. That remains in the business today, and it may end up being permanent. I'm not sure, and we'll see how labor market unfolds. Our cost guidance don't typically include new CBA costs. And so that's just been our standard for many years. I think it's worked well. And so right now, those don't include changes to CBAs. And we'll be in negotiations with several of our groups over the course of the year.

Got it. And is that $7 million pretty standard across each of the quarters, so talking about maybe a $30 million wage rate headwind.

Yes.

That's fair. Okay. And then, Shane, also you had a decent hedge gain in the quarter. What's your hedge position like today? And I guess, more importantly, how are you thinking about the program today given kind of the continued mismatch between the revenue recovery and where fuel is going? Thanks.

It’s not. I’ll take this one. So, our current hedge position, we’ve had an established program since 2015, where we hedge 50% of expected gallons with call options 20% out of the money. And for 2022, we’re currently 42% hedged at $72, so a decent position on that and projecting right now for 2022 similar sort of return as we saw in 2021 and obviously very volatile markets. I think that program works well for us. We had internal debate on it and we currently do. But it’s just consistent with what Alaska has done financially of being stable, conservative and just sticking to the program and not being overwhelmed with reactionary actions when fuel spikes or wind fuel drops.

That’s perfect. Thank you.

Thanks, Andrew.

Your next caller is Jamie Baker of JPMorgan. Your line is open.

Hey, good morning, everybody. I’ll start with the yield question, but I’ll try to make it interesting. I think it was the April call last year when I asked about the steepening booking curve for leisure and the potential for strong summer yields. I’m just wondering if we should be contemplating the opposite now. So as demand recovers, that’s a good thing, but as consumers increasingly have the confidence to book further out, is it inevitable that you see some yield erosion in that scenario? Or is there some optimism that you can hold on to some of the yield benefits that presumably accompany a steeper curve?

Yes. It’s – this is something that you look at every week to make sure you understand the changing dynamics. I think all I can share with you is where we are today at the reference point. As we look at the current booking and the reductions in bookings because of the Omicron variant, we’re seeing the highest level or the highest reduction closing. Obviously, business is a part of that but also leisure. As you move out to two months away, three months away, and in fact, four-plus months a day, four-plus months bookings, although smaller on an absolute scale are actually in the best position. So, what we’re seeing right now is good booking progression in the out years. And as we look at our network today, as we look at our demand, we don’t hit really big decision points on the question you’re asking for another few months to come up for sure. And we feel pretty good right now, and we’re just holding out for some of it is as good as 2019 or maybe even better.

Okay. That’s helpful. And then for Ben, sort of a high-level question, but when you think about your 2022 guide or outlook, rather, what you’re looking at, not necessarily what you’re sharing with us, what do you think are the two or three most idiosyncratic components that are unique to Alaska? I mean rising demand tide fuel, labor challenges that’s all-industry stuff. I want to hear what you think is most unique to you or rather Alaska, preferably in rank order.

Right. That’s a great question, Jamie. Let me see – let me give it a shot here in 30 seconds. One, like I have just tremendous confidence in our business model. And if you look how we’re positioned in the Pacific Northwest and on the West Coast. What really excites me is the West Coast coming back to life out of this pandemic and getting our network back to 100% of pre-COVID levels. So that is priority number one for me is getting back to 2019. And second is setting the stage for growth in the back half of the year. So those are two big things that I think about. And I think there’s a lot of potential on the West Coast, particularly in California, where it’s just – it’s ramped up a little slower than the rest of the country, but I think there’s a lot of potential there. Those are two big things. And third, I think as international travel comes back. The one thing I’m really excited about in here, we’ve sown the seeds with One World is seeing international traffic come back in our West Coast up particularly in Seattle, where we give global access to our guests, and I think you’ll see accretive revenue to Alaska with that.

Okay. That’s really helpful. Thank you very much. Take care.

Thanks, Jamie.

Your next caller is Helane Becker of Cowen and Company. Your line is open.

Thank you very much operator. Hi, everybody, and thanks for the time. I noticed that you pulled down capacity out of pain field. Could you just talk about what the plans are for that, I guess, for pain going forward?

Hi, Helane. Pain, we’ve obviously, 5G has been a massive issue for pain field, just to be frank. So that’s why that’s struggling right now. But if you look out into the schedule, we’re going to get back to our 18 pouches a day full slot complement sort of by the summer slash fall. So, it’s just a matter of ramping that up and digesting what Joe has talked about a little bit because it’s all regional up there. We are going to put some mainline in there, but just getting the regional fleet to a place where we can serve that a full capacity. So, you should...

We have sold to purchase a day now going to 18 departures by the summer.

Okay. That's helpful. And then my other follow-up question also has to do with the network. During the pandemic, you restructured the network to be more focused on the Pacific Northwest and North South especially California. As you think about ramping back, how should we think about getting back to some of the transcon flying you were doing pre-pandemic that might make sense to go back to going forward? And then just as a part of that, do you have an actual number for how many people you're intending to hire this year?

Maybe I'll start with the first one, Helane. Our network, obviously we have slots in New York. But if you look forward at our booking schedule in April and May and beyond, you're going to see what our network looks like. The reality is, I think we've announced two of them; really, you're going to see very, very, very few new markets from Alaska Airlines. It's just returning scheduled debt. And that's what's really going to happen. And so especially with California, you're going to see the return of scheduled debt.

And Helane, we're going to hire about 3,000 people in 2022.

Okay. That's very helpful. Thank you, gentlemen.

Your next caller is Catherine O'Brien of Goldman Sachs. Your line is open.

Hey everyone. Thanks for the time. I have a couple on the cost outlook. I know the full year outlook is negatively impacted by IRAP from 1Q you've previously said that on slightly less than '19 capacity to be below 19 CASMx. That was a while ago now; a lot of stuff has changed. But I guess should we still expect that to be true as the operation normalizes into 2023, just with less training, restart cost? Or has inflation just changed that? I know it's a little wonky to compare since you actually be growing versus. Just any color there would be great? Thank you.

Hey, Katie, I appreciate the question. And yes, a couple of things. Number one, we are in need to grow now. So, it's a little bit of a different dynamic. And when we were talking about that and we're still very committed to getting back to pre-COVID cost structure. I think our underlying assumption or sort of fear at the time was that this might be a very long recovery cycle and that demand may be depressed for a longer period of time. And I think what we believe is that there's a lot of demand. It's just not able to be fully actualized until these waves go away and we normalized society. And I think the economy remains healthy. I know there's inflation worries and stuff like that, but it didn't have the dampening effect on the economy of demand that we may have originally feared when this all immediately took root. So, I think what you should know about us, and I know you do is cost management and cost discipline is part of our DNA. We know it's the only sort of way we can create stability for our people or investors long-term. And we are going to ultimately head back towards pre-COVID efficiency and productivity and cost levels. But it is a different setup that we're dealing with today. And we're looking at a growth scenario, not sort of a shrink scenario.

Got it. So maybe just a follow-up to that. I don't want to put words in your mouth Shane, but maybe this year, more heavily impacted by some of these incremental training kind of like start-up or restart costs, I guess, you could call it than you might have thought, which hits chasm, but is ultimately a good thing if demand is going back faster. Is that – do I have that right?

Absolutely right. Plus, I think had we not decided to go single fleet, we would have had these lease return costs run out over a much longer period of time. So, there's an acute sort of impact from that this year as well. So, I think those are two of the biggest drivers. The degree inflation runs through the industry, I mean it's going to hit everybody. So, we're not assuming that that's going to be a major obstacle for us for a long period of time. It hasn't, I think been a major office on for us. It's more about ramping for growth in some of these transitory costs we've got to know to a single fleet.

Okay. Got it. And lease returns are happening on a bit of a faster pace than when you first said that, too, right?

Yes. We really didn't have a mindset around the fleet. We had spent I think, three years talking to you all about needing to make a fleet decision, the pandemic sort of gave us an opportunity to actually sit down and make one. And we were happy that we had to be forced to make one. It's hard to do a fleet transition pre-COVID when you're trying to grow in the whole economy and industry are growing, it's hard to think about taking some of that growth away. And so, this has given us a chance to move through that fleet transition pretty quickly. Even though two years feels long, it's actually a pretty quick time period to get 60 to 70 units out the door.

Got it. Alright, thanks for letting me do that multipart. I will leave it there. Thank you.

Thank you.

Your next caller is Brandon Oglenski of Barclays. Your line is open.

Hey, everyone. Thanks for taking my question. I guess, a real quick follow-up on that, and maybe I've just missed it in the last few months. But have you guys made an announcement as well on the A321s then?

No. Brendon, we haven't. Okay, that's fine. No, we have not. I think they're leased through 2030 essentially. We don't – in a perfect world we wouldn't hold them that long. If we have started working on dispositioning those. But I wouldn't be shocked if we held them for a while, and that wouldn't be shocked if we were able to find a place for them to go.

Okay. I appreciate that. I just want to make sure I wasn't missing it. And then I guess maybe this question is for Ben, but I'm not sure. As you look out, you said you could even be growing maybe 10% by the end of the year, I think, if I heard you correctly, to what level of profitability do you hold those thresholds? Because obviously, you're baking in a lot of costs right now to restore the network just as a lot of your competitors are, too is this a game where – not a game, but do investors just have to wait for everyone to get back to full restoration of capacity before we can start talking about restoration of profitability.

Brandon, it's a great question. I think if you look at our track record, if you look at our second half of 2021 with everything that's been thrown at us, we generated a 7% pretax margin and we were the most profitable airline in the industry. So, our mindset is always to grow profitably. We don't grow without believing that we can grow properly. So that's our mindset. That's the plan going forward, and that's how we plan to execute.

Thanks, Ben.

Thank you, Brandon.

Your next caller is Mike Linenberg of Deutsche Bank. Your line is open.

Hey, yes. Just sort of two quick ones here. Andrew, we've obviously seen some correlation between case counts and bookings. And I'm curious, case counts have just collapsed on the East Coast. And yet I think out west, like State of Washington, State of Alaska, as I last checked, they're still asymtotic, are you seeing point-of-sale differences for your – as particularly in your transcon flights where you're getting stronger bookings, maybe east of the Mississippi versus West? Any color there? Thanks.

Mike, it's a little hard to answer that question. I think the vast majority of our network is really anchored on the West Coast. And given – everything, we're probably bringing back capacity a little bit quicker than we'd like on the transcon. You nailed it on the case counts and I celebrate New York City every day with, had new counts coming in we normally lag a few weeks behind that. And I think we've sort of peaked and we're going to start to come down. And I think you're going to see the same behavior you do there on the East Coast as you do here as it relates to bookings and...

Okay. That's great. And then just second, just a quick one here. You gave us kind of the increase in your loyalty program remuneration in the fourth quarter. Can you give us a rough number of what that is on an annual basis? I know some of your competitors will provide that number. Anything rough, what you're bringing in on that Bank of America card deal? Thank you.

Yes. I think I don't know the exact number, but I think this was our first year where we generated over $1 billion, just I think, $1.1 billion from our card program this year, which is higher than it's ever been before in the pandemic. So, we feel very, very good about it…

This is Chris. And it is the highest ever been. It was – year-over-year, year over two year it was definitely about 5% or 6% higher than it had been in 2019. So, it was a remarkable year from that respect.

That’s fantastic. Thanks everyone.

Next question.

Your next caller is Myles Walton of UBS. Your line is open.

Thanks, and afternoon. I think, Ben, from your comments, you were implying the first half was going to be about flat with 2019, obviously implies a pretty big step in the second quarter. I think the largest sequential growth in ASMs you've had since the pandemic and restoration. Can you just talk about the risks in achieving that objective? I know you're putting costs in and you're putting the training in now, but – is that sort of the trajectory you're looking for?

Yes. Myles, we getting back to peak cover capacity; it was always on our radar from 18 months ago, just to be honest. And so, we've been planning towards that, the hiring, the infrastructure, the training. So, we're on a good path. The pipeline for hiring is full, but it is a competitive market. It's a tight labor market, and we've got to fight for good employees. And that's always a risk, but it's a risk everybody has. In the second half at the same thing. We have set up our whole leadership team and is really poised on executing growth. That's been our plan for the last 12 months. And of course, there are risk factors that everyone is facing, but we feel good about where we are right now.

Okay. And your first quarter implies only a 300 to 400 basis point difference in the capacity versus 2019 and revenue versus 2019. Is that a fair way to think about the remainder of the year? Or do you think there'll be a little bit more unit revenue pressure as the capacity comes back with speed.

Sorry, could you, you – think that I didn't quite track your question, I apologize.

Sure. Yes, the capacity restoration versus the revenue restoration versus 2019 is only about a 400-basis point difference. Do you think that closes or expands as you move through the rest of the year?

I'm probably not going to sit here today to answer that question, but I will say that Ben shared, we plan to grow profitably. And so, we don't grow if there's no demand and we're not able to turn that growth into something that's profitable. So that's where we take.

Okay, alright. Thanks everyone for joining us for our fourth quarter call, and we look forward to talking to you guys soon at Investor Day. Thank you so much.

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