Good morning, ladies and gentlemen and welcome to the Alaska Air Group 2023 Fourth Quarter Earnings Call. [Operator Instructions] Today’s call is being recorded and will be accessible for future playback at alaskaair.com. After our speakers’ remarks, we will conduct a question-and-answer session for analysts. I would now like to turn the call over to Alaska Air Group’s Vice President of Finance, Planning and Investor Relations, Ryan St. John.

Thank you, operator and good morning. Thank you for joining us for our fourth quarter 2023 earnings call. This morning, we issued our earnings release along with several accompanying slides detailing our results, which are available at investor.alaskaair.com. On today’s call, you will 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 our fourth quarter GAAP net loss of $2 million. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $38 million. As a reminder, our comments today 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 within 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, Ryan, and good morning, everyone. Alaska Airlines closed out another great year in 2023. Before we get to those results, I want to address the recent grounding of our 737 MAX 9 fleet. I am deeply sorry to everyone on board Flight 1282 for what they experienced on January 5 and to all of those who have seen their travel plans disrupted by cancellations. We are looking forward to returning to the reliable service you know and expect from us. Our number one value and our absolute priority is and will always be safety. As you may know, following the accident, we proactively grounded our 65 MAX 9 aircraft, which was followed by a directive by the FAA to do so for all US-based operators of the fleet. This had a material, operational and financial impact on our business, with approximately one-third of our January capacity impacted by the grounding. Additionally, we believe it is likely that several aircraft deliveries could be delayed, which would further affect our full year capacity plans, which we initially anticipated would be between 3% and 5% over 2023 levels. Our primary focus right now is the safety of our guests, our people and our fleet. We remain committed to working diligently alongside the NTSB, FAA and Boeing to return our aircraft safely to service and ensure this never happens again. As a longtime valued partner, we remain fully committed to our relationship with Boeing, but we also intend to hold them accountable. There is work to be done but we have the utmost confidence with FAA oversight as well as our own that Boeing will emerge with improved quality processes as a better and safer manufacturer. I also want to take a moment to thank our employees for the response to this event…

Thanks, Ben, and good morning, everyone. Today, my comments will focus on fourth quarter and full year results, along with Q1 revenue trends. Fourth quarter revenues reached $2.6 billion, up nearly 3% year-over-year, coming in slightly ahead of the midpoint of the revised guidance we put out in early December. Capacity finished the quarter up 13.6%. We saw a strong finish to the year in December with limited weather events and excellent operational performance to support holiday travel. This resulted in record traffic and coupon revenue up 7%. For the full year, we generated a record $10.4 billion in revenue this was up 8.1% versus 2022 on capacity of 12.8%, resulting in full year unit revenue, down approximately 4%. The improvement we saw in unit revenue through year-end showed a marked strengthening in our core revenue. Unit revenues improved from down 13% in August to down 9% in December. Notwithstanding, we grew December capacity two points more than August year-over-year. This is a four-point improvement, underscoring a strengthening pricing environment from continued normalization of international demand and industry adaptation to post-COVID demand realities. On managed business travel, consistent with what we've shared before, our belief is that we're seeing a slow and steady recovery. For example, in the fourth quarter, our portfolio saw a strong 15% year-over-year revenue growth on higher volumes and yields. Overall, business revenues are within 5% of 2019 levels with most industries now fully recovered. The notable exceptions are tech and professional services, which still lag other industries but did see 26% and 14% year-over-year revenue growth, respectively, in Q4. Premium cabin revenues also continued their solid performance in 2023. First, on premium class revenues finished up 15% and 10%, respectively, for the year, continuing to substantially outpace main cabin revenue. At nearly 32% of total…

Thanks, Andrew, and good morning, everyone. Before I discuss our fourth quarter and full year results and provide additional information on the impact of the MAX 9 grounding I will reiterate that safety is and will remain the number one priority for Alaska. Our results are secondary to that concern and we will always place safety considerations for our people and our guests above financial performance. For the fourth quarter, our adjusted EPS was $0.30 on an adjusted pre-tax margin of 2.2% which was above both our initial and our most recent guide for the quarter. Unit costs ended down 6.7% versus 2023, while economic fuel cost per gallon was $3.42. Our fuel costs remained disproportionately impacted by elevated refining margins on the West Coast relative to the rest of the country. As a reminder, in the third quarter our refining margin costs were $0.30 higher than US Gulf Coast margins. That spread held most of the fourth quarter, where West Coast refining margins were $0.34 higher. We did see improvement late in the fourth quarter and into the first and today, we are back within $0.10 of US Gulf Coast. This phenomenon, although we believe temporary has been material to our results. Our full year pretax profitability would have been 1.5 points better had refining margins behaved more normally. Our adjusted EPS for the full year was $4.53 and our adjusted pre-tax margin was 7.5%. Unit costs were down 2.6%, and while economic fuel cost per gallon for the full year was $3.21. As Ben mentioned in his opening remarks, the strength of our balance sheet remains intact. Our leverage level closed the year with a long-term target ranges at 46% debt to cap and 1.4 times net debt to EBITDAR. And during the quarter, we received an investment-grade…

[Operator Instructions] And our first question today will come from Ravi Shanker with Morgan Stanley.

Thanks. Morning everyone. So, obviously, I know your start of the year than you expected, and I don't think anyone can really blame you for this. But can you share anything you've seen in terms of brand damage or NPS promoter scores that may be impacted by this? And also kind of what you're seeing in the forward booking curve in terms of any kind of max lingering issues there?

Ravi, good morning it's Ben. What I can say is, I've been overwhelmed with the support of our customers. And I think it's just a tribute to our employees who've been so well in gaining loyalty over the years. And they can't wait for us to get back to full service and our anticipation is when we will fill airplanes.

Great. Thank you. And just maybe as a quick follow-up. You said you're looking to hold Boeing accountable and don't have any info to share there. Any idea kind of when you might have something to share there?

Well, Ravi, as you know, my first priority is to get our MAX 9 fleet back into service and get our schedule back up to 100%. So, that's priority number one. We'll work on the accountability with Boeing. The accountability is essentially on raising the quality standards at the factory as well as making us whole. But that will be secondary. Right now, we're focused on safety and quality and getting our fleet back to a full schedule.

Very good. Good luck and good job everyone.

Thank you.

Your next question will come from Savi Syth with Raymond James Financial.

Hey, good morning everyone. Just to kind of follow up on Ravi's kind of questioning especially as you kind of think of your deliveries this year and maybe kind of next year as well. Just any thoughts on -- or maybe what is your kind of 2024 outlook kind of based on in terms of deliveries? Has that changed at all? And just any kind of views on CapEx here going forward? I know you gave a guide for 2024?

Hey Savi, it's Shane. Thanks for the question. I wish we had more detail. We don't. It's just so early in understanding the impact. As Ben mentioned, the real focus is getting the MAX 9 fleet that's grounded back flying the schedule safely. We have started to think about the fleet plan going forward, we were meant to take 23 aircraft this year, 16 MAX 9s, and 7 MAX 8s. And our suspicion is many of those will get delayed, but we don't know for how long. What I can tell you is we have enough aircraft to fly the schedule we're selling today, and we'll be very careful to make sure that we've got enough fleet to fly what we're out there selling. I think we -- in December, mentioned $1.4 billion to $1.5 billion of CapEx down from last year. I think it's not going to be more than that. My suspicion is it will be less. And as that becomes more clear, we'll provide updates either at the next call or by an 8-K mid-quarter?

Makes sense. And just on the cost front. Just curious if you could kind of talk about it as we think through the year, if there are any kind of comp views or some headwinds that are greater kind of in any part of the quarters as we go through the year. And also just curious if you have any kind of labor contracts that you might be negotiating currently kind of considered in that guide?

Thanks, Savi. We like -- we didn't put a cost guide out. I think it's hard to predict Q1. We obviously have lost a significant number of the ASMs we wanted to carry in Q1 and less material to the full year, but not knowing what the delivery stream is going to look like. I think we're going to have a much lower growth rate than we had initially thought. We haven't managed costs out of the system for that today. And we still need to decide sort of how to size the company given what we ultimately decide to grow. I think for 2024, what we're facing are similar cost pressures that you've heard from others, there's certainly annualization of pilot wage costs. And as I said in the script, we are very anxious to get ratified agreements with both our technicians which were close, I hope to getting the TA with them. We have an agreement in principle and with our flight attendants. We need to get both of those done and then airport costs and maintenance costs, which are very similar to competitors, there's pressure throughout the year on those. I think what I would also just mention is when it all washes out, our cost structure is going to be as competitive relative to legacy peers and I think more competitive relative to the rest of the industry, as we go through this year and close out this year. So even though the unit cost might be pressured because of the growth rate, I think our core cost structure is going to be in a better position relative to everybody else once we close 2024 out.

Makes sense. Thank you.

And we'll move next to Scott Group with Wolfe Research.

Thanks. So I was -- the $150 million that you guys cited, is there any -- is that inclusive of any book away impact? Are you seeing that? And then I just want to be sure. So when you talk about capacity down mid single digits now in Q1, but you’ve sort of rebooked half of the loss stuff like. Does that imply that RASMs actually going to be better than the 1% to 2% than you were initially planning for. I just want to understand just the moving pieces for the model for Q1?

Yes, thanks, Scott. The $150 million is really tickets that we've had to cancel and essentially refund, we couldn't rebook there's some costs of buying tickets on other airlines to reaccommodate. Are there certainly some costs in that number over time and just the operational stress that we've had to go through. There's no like long-term core book away we think we're going to be still able to have a very strong spring break and mid-winter break season. As Ben mentioned, we've been hearing from our guests, I can't wait to have the fleet flying again and come back and fly with us. There's certainly some close-in revenue loss that's in the next few weeks from business and even leisure just because it's so close to travel that we probably won't get to pick back up. And so there's a small portion that you could call book away just over the next few weeks, but I don't think there's a brand related, we don't expect a brand-related long-term impact, if we see when, obviously, we'll talk about that. But right now, I think we expect our guests to come back to us. Capacity down mid-single digits. Yes, I think, look, unit revenues, the point Andrew was making is we were on a really good trajectory. We felt great about the network reshaping that his team had done. We felt great about advances into the first quarter. The fact that we're losing a bunch of revenue in the first quarter, we're also losing a lot of ASM. So I think revenues could still be positive as we close the quarter out once that all nets out.

Okay. Helpful. And then I'm just curious, how does the JetBlue Spirit ruling change your views on success of approval with Hawaiian? And just any thoughts or color on just when you go through the Hawaiian proxy, some of the cash burn there, if that's all sort of incorporated in everything you laid out for us when we did the…

Yes, Scott, thank you. It's Ben. Our view is that these deals are completely different. The JetBlue Spirit was blocked by the judge essentially because it would limit a low-cost competitor. In our case, between Hawaiian and Alaska, these are two very similar business models. The networks are very, very complementary. In fact, when you combine the networks, there's only 12 overlap routes through the combination. So it's very pro consumer, and it's also very pro-competitive customers in Hawaii will have an expansive network to fly to the United States and internationally, our customers on the West Coast will have more options to fly to Hawaii and international. So it's very different from the JetBlue Spirit. And look, after the deal would become a little bit larger airline to compete stronger against the network carriers and now we have a strong domestic network with a strong international network. So we feel our case is differentiated, and we'll work through the DOJ on that process

And Scott, I'll first mention very quick on Hawaiian cash burn since you also asked about that. It's -- in everything we've laid out, the cash burn is really principally tied to the delivery stream. And I just note that there's an asset behind that that has value that we want. And so we're not funding significant or material operating cash losses. The negative cash flow is really about the CapEx right now. And we think that, that business is going to recover over the next couple of years as Asia comes back and as they get Amazon up in the 787 up and Maui recovers.

Awesome. Thank you, guys. Appreciate it.

Thank you. Thanks, Scott.

Your next question comes from Duane Pfennigwerth with Evercore ISI.

Hey, thanks. I guess other than the lost ASMs from flight cancellations. Can you just talk a little bit more about maybe deliveries that you think could shift, or what other pieces there are that could influence where you ultimately end up for the year?

Yes, Duane, on capacity, I really think it's at this point, the deliveries. I think given the guidance we got yesterday, we have a good sense of when we can get the full MAX-9 fleet back operating and it really just comes down to the 23 deliveries. We did have some planned retirements. And we had some allocation for work to refurbish some interiors. So we've got some moving parts and pieces we can sort of, flex around to get to the right capacity number. But as we mentioned, as we look at it today, it's going to be below the range we had originally thought, which was 3% to 5%. And it could well very well be below 3% at the end of the day.

Thanks. And then just relatedly, have you made any changes with respect to hiring? Have you paused hiring? Have you paused training, resulting from this event?

Hey Duane, this is Ryan. We already came into the year, given the low growth profile with not much hiring required. I mean, some, of course, to backfill any attrition, but we've sort of left some optionality on the table. We've got a couple more months to make some decisions on that relative to our summer schedule. So we'll be talking about that the next few months, obviously, if there's any delivery delays or anything, maybe we don't need some of those last training classes in the spring. But we've still got them available if we need them if we can find the capacity.

Okay. Thank you.

Thanks Ryan.

And we'll move next to Conor Cunningham with Melius Research.

Hi everyone. Thank you. Sorry to go back to the $150 million headwind, but I'm not quite clear -- it's not quite clear on what actually has lost revenue versus cost impact. I don't know if you could provide any clarity there that would be helpful.

Yeah. Hey Conor, this is Ryan again. So the majority of that $150 million is revenue cost, I would say, are kind of a wash because obviously, all the canceled flights, we saved on fuel and landing fees. But as you can imagine, we've incurred significant overtime as our operational employees are working around the clock to keep the new schedule going. A lot of passenger remuneration and things like that. So it's mostly been revenue. I mean, as Shane sort of mentioned, small assumption for maybe some booking challenges in February, as we get the fleet back operating. But we're sort of assuming by March, we're back on the original trend there. So that's kind of what it breaks down, as it's pretty much mostly revenue. And the point being that it's at least $150 million because obviously, any changes to delivery streams or capacity might further impact that. But it's pretty much cancels to-date plus the small amount of booking impact in February.

I got you. Okay. That's helpful. And then, you mentioned the 30% profit improvement on network changes in 1Q. Can you just -- can you just provide some details on what that actually means? And what's driving the change? Because it seems like a pretty significant long-term impact for you guys. So any help there would be great. Thank you.

Conor, its Andrew. Yeah. Essentially, it's the reshaping of the network. I mean we have significant double-digit increases in certain regions of our network, which performed very poorly last year due to the lack of business and just a change in behavior. And then we have some very high double-digit growth in some of our sun destinations and other core routes. So it's really just -- 2022 is obviously an interesting year with all the huge demand surge and we're now in a normal place. So -- and as we've looked at it, it's really revenue driven. It's just reshaping and flying where the demand is getting better day of week seasonality, California versus the Pacific Northwest. So we're very, very happy with the results.

And Conor, I'm going to add that, remember, our goal is to reduce losses in Q1 and get to breakeven or better. So that is the long-term objective.

Appreciate. Thank you.

And our next question will come from Andrew Didora with BofA Global Research.

Hi, good morning, everyone. It's very early days since the instance, but comments today in the National Media this week. Just where does your relations along after this? And guess what needs to happen to make you rethink your single fleet type at this point?

Thanks for your question, Andrew. Well, look, where I stand is flight 1282 should never have happened. It should never have happened at all. So we have a long-standing deep relationship with Boeing. But like I said, it's not acceptable what happened. We're going to hold them accountable and we're going to raise the bar on quality on Boeing. So we have the relationship. We're having tough candidate conversations. And my goal to CEO of this airline is for every airplane that comes out of that factory it's going to come out with a higher degree of quality and reliability that has been in the past. So I think it's the virtue of our relationship that we can have these tough conversations, maintain the relationship and continue. We got 231 737s that we've been happy with. And until the sensing, we were happy with the MAX. We have 185 on order that are coming to us. We believe with the network configuration we had, this is, of course, ex-Hawaiian. The network configuration we have, the Boeing airplane is 737 is well-suited for our network. So that is the long-term plan, but we're going to hold Boeings feet to the fire to make sure that we get good airplanes out of that factory.

Thank you, Ben. And then my second question for Shane. You have to say like most of the calls last year, I think you were certainly a bit worried about industry domestic capacity growth over the course of 2023. As we sit here in January of 2020 for you, most outside of getting the MAX 9 back up and running? Thanks.

Yeah. Hey, Andrew, you cut up just a tiny bit at the end. But yes, I think -- and Andrew was alluding to it, it's been -- there's been a lot of predictions across management teams across analysts and observers about what the new normal of demand would be coming out of COVID. I think it was a little bit anybody's guess, and we were all trying to respond to the best information we had last year. We were all also trying to get our companies back to pre-COVID operational levels, which made sense. And so a lot of that seem to come at the tail end of the huge demand surge that started in 2022 and sort of carried through 2023 summer. The good news is, it seems like demand is holding very well into the first quarter this year. I think the airlines across the board are starting to understand that demand is looking a little different than it did pre-COVID, but probably not as different as we all thought it might have been. And so there's still seasonality in the business that looks a lot like pre-COVID. And I think Andrew and his team have done a great job responding to that this year as evidenced by the improvement of the Q1 profile ex the grounding. So we're feeling really good about our capacity outlook. We, obviously, want these planes. We felt like we had a good plan for them this year. If we don't get them, we've got some work to do to make sure we maximize the results we can get with the current fleet.

Thank you, everyone.

Thanks, Andrew.

And we'll move next to Jamie Baker with JPMorgan.

Hey, good morning everybody. Ben, I can only speak for myself, and I'm not under the illusion of my opinion really matter that much to you. But I actually think you and the team have been handling the MAX situation very, very well. My first question actually relates to Silicon Valley Bank implosion last year. We're coming up on the anniversary in March. Can you remind us how California in particular, California demand behaved in the aftermath both in terms of magnitude and duration?

Hey, Jamie, you're testing my memory here. But what I recall at the time -- in relation to our California network, it was not that significant. There was already a high-tech softness. I will tell you to take the opportunity that we've been very happy with California performance. We remain 18% down pre-COVID level, but we've seen unit revenue performance from California this year in 2023 outperform system average. We've seen whether it's profitable and in fact, it continues to close the margin gap from our system. So we feel really good about the continuing refinement and strengthening of our California franchise.

Okay. Thanks for that. And then just a quick question on guidance. Most of my earlier questions have been addressed. But assuming you do revise an ex-fuel CASM guide after this quarter, will you be accruing for the flight attendant contract? Thanks.

Thanks, Jamie. I think that we will guide when we're prepared to do so inclusive of all of the costs that we think are coming our way this year. I don't think we would start accruals. It hasn't been our practice in the past, and I don't foresee us changing that practice.

Okay. Helpful color. Thank you, everybody.

Thanks, Jamie.

Thanks, Jamie.

And our next question will come from Helane Becker with TD Cowen.

Thanks very much. Hi, everybody. So I just have kind of two questions here. One is as you think about the MAX coming back into -- MAX 9 coming back into service, do you think you'll have -- customers? And do you think you'll have to discount to encourage them to fly the plane, or do you think that a plane's a plane to a customer who may not be a sophisticated observer?

Helane. Good morning, it's Ben. Like we said before, we have customers who love our company. They trust us. They know we put safety and reliability first. There's no doubt that the MAX 9 has a lot of attention, and people are looking what they're flying. But our goal right now as we reenter the MAX 9 just to give our employees, particularly our crews, the confidence that Alaska has done everything it can to put our MAX 9 safely and an airworthy condition back in service and to communicate with our guests. And if they have any concerns to reach out directly to us, to our crews, to assure them that the aircraft are on are safe. And we won't put any, of course, an aircraft back in service unsafe. But I think at first, people will have some questions, some anxiety, just like they did two years ago or when the -- after all the deep certification process the aircraft went through, but I believe over time, the confidence will get back into this airplane.

And Helen, I just might add real quick that what we've been seeing in is just really schedule reliability. And that's been the concern. But sort of in eight days from now, we'll have an fully back deployed and we fully expect our completion rates to go right back 99%, our on time back to our goals so that our guest can be assured that when they book on Alaska, they are going to get to where they need to go safety and on time.

Okay. So, can I push back just a tiny bit and say from what I've read, and if I'm wrong, if the reports are wrong, that's fine, just tell me. There was an indicator like that went off a few times that caused you guys to move the aircraft in question out of the Hawaiian market where it was flying and overland in case something happened, and of course, something did happen. Is it that the indicator didn't tell you where the problem was, or is it that maintenance thought it was faulty. I mean, how should people think about that because when your check engine light goes on in your car, you check it out.

Well, Helane, I'm glad you asked the question because I want to set the record straight on this. And I'll probably take a little bit of time and you're making me put on my old operations and maintenance and engineering hat back on, which I'm glad I love putting it back on. So, I'm going to say it right from the start, the issues were completely unrelated. And I'll explain why here if you give me some leeway. What we had was a pressure controller issue. And the pressure controller has three modes of operation. It's got an automatic mode, it's got an alternate mode, and it's got a manual mode. What failed, but I liked that you're talking about that went on was the automatic mode switching to alternate mode. And that's perfectly in line with the pressure controller. It has one primary and two backups. So, the pressurization was never an issue on the airplane. The reason we restricted it from going over water, and this is stuff when I was back in maintenance is we've taken an abundance of caution. We're saying, look, we have other airplanes that we can send over water. This one, the light went on. It's still working perfectly well. It's legal to send over water. We'll be a little more cautious. We'll keep it over land, so we can watch it and keep it between maintenance bases. So, I just want to be totally clear. These two issues were totally unit. This was an issue with the door plug. We got a faulty door plug from Boeing, totally unrelated to the light or to the pressurization issues.

Okay. Well, I appreciate that explanation because, as I said, I didn't know, and now I do. So, thanks Ben.

Okay. Thanks. All right. my pleasure.

And we'll move next to Catherine O'Brien with Goldman Sachs.

Hey everyone. Thanks for the time. Shane, maybe one for you first. So you guys called out that you expect to lose about 7 points of capacity from the MAX grounding now to be down mid-single digits. Can you just help us think about what you were targeting Primax for CASMex, sounds like capacity is going to be up low single-digits between that math correctly. I'm guessing a lot of the fixed costs remain. Is it safe to say like there's about a seven-point headwind to CASMex versus what you were expecting on the old growth rate, or any color there would be super helpful. Thanks.

Sure. Yes. I mean I sort of gave a previous answer, Catie. We didn't -- we haven't managed any cost out of the system. Ryan -- I know it's a little bit of a puzzle. Ryan told you that the $150 million really is revenue because the costs wash. We've incurred some additional costs, certainly with passenger remuneration, re-accommodation costs, a lot of overtime premium, the costs saved are really landing fees, food and beverage and fuel. So, there's more net cost headwind in the quarter, and we didn't take any other cost out of the business because obviously, it happened January 5, and there was no time to react. So certainly, the -- it's almost a one-for-one impact to the quarter. But we haven't also guided to what we thought Q1 was going to go to. We just feel like we need to get certainty around what this looks like and then we can give a full year guide if we choose to do so in the future.

Okay. Fair enough. And then, Andrew, maybe one for you as well. Can you help us size some of the drags to your unit revenue from tech corporate lagging, Maui, anything else you want to highlight in the fourth quarter and then how those items are trending into the first quarter. One of your competitors called out recently a boost in corporate at the start of the year and part driven by tech. So I would just love to kind of hear how maybe some of the drags in 4Q trending into 1Q. Thanks so much.

Yes. Thanks, Catie. Just to touch on Maui real quick. We had already adjusted our capacity down, I think, like 14%, 15% in the fourth quarter, it's down even more in the first quarter. So we feel like we've got our capacity somewhat aligned with demand in Maui. One of the unfortunate challenges as I shared in the Q4, we were seeing good momentum in corporate travel, of course, anything from zero to 14 days was severely impacted by the MAX 9 in January. So it's a little bit hard for us to comment on the business side. But again, we have continued to see good momentum in average phase for business travel and I don't see why that would not continue.

Great. Thanks.

Thanks, Catie.

And our next question will come from Mike Linenberg with Deutsche Bank.

Hey, good morning, everyone. Andrew, I appreciate all the color you gave around loyalty, ancillary, some of the premium data. I think calling out that 46% for premium and ancillary and other. I'm not sure I've seen that number before, and that was actually a bit higher than what I thought it would be or thought it was. From an aspirational perspective, where do you think you can get that and how also does that apsirational goal change in the event that you decide to do lie flat maybe in some of your domestic markets?

Thanks, Mike. So a couple of things. We are continuing to see good demand for our premium product with the team, both on the revenue side and how we manage it. And also, we still have a lot of marketing opportunity and upsell to go. So I still expect good strength there. We added a role on our 175 additional premium class. We're also -- we'll be adding additional premium class in our 8s and 9s with our -- some of our reconfiguration. Of course, the challenge always is making sure that we don't completely squeeze out our top-tier leads from the front cabin, and we feel like we've received a full good balance there. But and overall, we continue to look at our cabins, and we continue to look at our network and we continue to look at what are the right seats and densification of our premium cabins given the environment and especially, if we continue to see this remain strong.

And Mike, I just want to shine a little more of a light on your question. Again, we had a 7.5% pre-tax margin close to United and Delta, again, without the international tailwinds with the fuel headwinds and yet our margin was as high as it was, simply because of your question, because of our premium offering. Our business model competes with the network carriers. We are differentiated domestically with our competitors. Our airplanes are 100% fully configured in premium, again, with our loyalty program, with the way the business miles stood up with lounges. So it is a reason why we see success even when there's shift between domestic and international. And again, we'll have more success with the Hawaiian acquisition. So I just wanted to shine a bit more of a light on that.

Great. Thanks. And just sort of a follow-up and maybe it just leads to this next question, which Andrew, are you making that comment about part of the industry really starting to acknowledge what you refer to as these post-COVID demand realities. And I'm curious, at least from the low end, in any of your markets, what you're seeing on competitive capacity, maybe any notable markets that you want to call out where you've seen some meaningful shift that should be to your benefit? Any color there would be great. Thanks.

Yes. I think the only color I'd probably add there, Mike, is -- and I also -- when we look at it, we look at weighted average capacity in our markets, and we just see a trend that's getting less and less. We've seen some carriers who play more on the East Coast, move into the West Coast and reduce their capacity. Again, as the industry looks to make sure that their revenues and their costs all work to make sure margins are strong and healthy. So we see the construct for the industry right now is one that's positive.

Very good. Thanks.

Thanks Mike.

Thanks Mike.

And our next question comes from Stephen Trent with Citigroup.

Good afternoon everybody, and thanks for taking the time. Most of my questions have been answered. Just one really quick one. This might be for you, Shane. When do you think about that that very good credit rating you guys have for Moody's. To what extent does one or two moves up or one or two moves down, make a meaningful difference as you guys go in negotiate with your co-branded card and fuel hedge counterparties and other similar entities? Thank you.

Stephen, great question. It's Nat. One of the many hats I wear as Treasurer and getting a ratings agency question is just made up from heaven. So thank you. Really excited that Moody's gave us the investment grade rating. We've got a really good story as Ben hit through his commentary, cost execution, terrific operation, balance sheet has been core for so long, and we look at that investment grade rating just as affirmation from an external source that our story is very strong. It certainly helps us when we go into the capital markets, we go negotiate whether it's for leases, fuel contracts, et cetera, as you say. And it also gives us confidence as with the Hawaiian acquisition and really moving forward, seeing recognition from external parties that the Alaska story is strategically sound.

Really appreciate. Thanks for the color.

Thank you.

And we'll move next to Dan McKenzie with Seaport Global.

Hey, good morning. Thanks for squeezing me in here. So I guess my first question is for Andrew. Going back to the script and the more to come [ph] comment, of course, that's going to be my question here. So optimizing upsells, NDC, better merchandising, I guess, first, has Alaska cut over to NDC at this point. And then related to that, how many bookings and how much revenue is on third-party GDSs today? And I guess what I'm really trying to get at is just the percent of tickets Alaska is upselling today? And I guess what I'm really trying to get at is just the percent of tickets Alaska is upselling today on third-party GDSs and what that upsell take rate might look like on alaskaair.com.

Thanks, Dan. Just in short, we are -- this '24 is a big year for us. There's something like 12 APIs that we're building out to fully unlock NDC. We have a number of modules already up and running on folks like hopper. So, it's actually small percentages right now, but we're seeing the benefits of it, and it's going to be really good for us, 25% is going to be the year of NDC for us.

We're building the piping this year. That's what you're saying?

Okay. Understood. And I guess another question on IT. Has Alaska begun the transition to the cloud? And if that's something you're looking at. Could you help us size that level of cost savings from that shift and also elaborate a little bit on timing?

Thanks, Dan. We have been transitioning to modern platforms for a while starting six, seven years ago through the Virgin transition. We are starting to move more of our core IT and more of our sort of commercial e-commerce technology stack into the cloud. We're big fans of our partners up here in the Pacific Northwest, Microsoft, but we also use other focus as well as [indiscernible]. I think the big thing is it's a cost increase. It's a CapEx increase initially and then you need to scale over many, many, many years. And I think it's going to bode well ultimately for cost efficiency in the years to come. The other thing is we are going to benefit from artificial intelligence, AI. We've stood up a full team to go focus on that. We're lucky to be in sort of one of the tech capitals of the world who are working on this stuff with a really great partner of Microsoft up the street. So not anymore today, because the time is over or I would have gone on for five minutes with you. But we're going to get an Investor Day together this year, and we want to talk about technology and AI and the benefits to the company when we get in front of all of you guys later this year. I appreciate everybody's question we'll have then wrap it up.

Thanks for joining us on our call. Thank you so much. We will keep you updated on our progress with the 9 MAX and thank you so much, and talk to you next time.

This concludes today's conference call. Thank you for attending.