History will not repeat itself. There was one of these conferences, and this is quite some time ago, when I didn't show up to do the introduction for Alaska, and you guys just, like, started on your own.
Yeah.
In my defense, it was the year that we held this in The Westin, and some animal activists rushed the stage during Air France's presentation. It kind of knocked everything off, you know, off balance. I... Yeah, well, I was thinking it was a climate but it wasn't. It was something about carrying baboons on Air France aircraft or something. Because of that, I missed the introduction. I felt terrible.
You were doing crowd control or?
Yeah.
Okay, fair enough.
A lot of un-unfortunate-
Seems West Coast-ish.
Yeah, it was The Westin New York Grand Central. Shane Tackett, CFO of Alaska Airlines, thank you for being here.
Thanks for having me.
How was Mint? No.
Oh.
That's my JetBlue page. Gosh, where to start? I'm a little frazzled. It's been a long day. Several airlines today weighed in on how the quarter is developing. I wasn't expecting an 8-K from Alaska. Just timing-wise, that hasn't been sort of your style. It took years of prodding to get you to incorporate RASM into your, into your forecast. I think Hunter and I were the ones that probably gave you the greatest amount of grief. If you could just provide an update, without saying anything that you can't, on just how you feel this quarter is developing relative to what your thoughts were in early January.
Sure. It's like Moore's Law, Jamie. We're gonna get quicker, you know. It took years to get RASM and a few months to get an update mid-quarter before your conference. No, look, I think that had we felt like, you know, the fuel price situation was a little less volatile and we still had, you know, a really strong shot at getting into the original pre-tax range, we probably wouldn't have. Fuel price has been. Look, we talked about this on the earnings call. I think we were pretty clear that, you know, the refining margin volatility was very acute, and it was very hard to predict where we thought Q1 fuel would come in at. We felt like we had a relatively conservative range, and that proved to be wrong.
We just felt like a $0.15 change in fuel was gonna be consequential enough on the margin side that we should update. In terms of the other, you know, components, I think, on the operation side of the business, completion rate, on time performance capacity, we feel great about where we're gonna end up in Q1 relative to our guide, our plan. We've had strange weather patterns, as everybody has in the Pacific Northwest, way more days of, you know, threats of storm, threats of snow, threats of de-icing. That sort of hampered us in February. We had a week where we had to do, you know, 2% cancellation rate or something like that, maybe a couple days, a little bit over that.
We're still gonna come in strong on the capacity side. Costs are performing well right down the middle, I think, in terms of where we're seeing the company perform in the first quarter. Revenue is... We talked a little bit more about, I think, you know, seeing some seasonality come back in, and I think we always had an expectation there would be seasonality. It was never our view that every day was a peak day, you know, from here forward, and it's natural to see, you know, January and February soften relative to December and November. I think, you know, our revenue guide assumed that, and that's what has happened.
The only thing that has been interesting is, you know, the mix between yield and load factor is a little different maybe than what we would have thought. We've got, you know, good yields and slightly less load factor, which I don't see as a bad thing. I think that that's, you know, I'm sort of glad that the RM team is trying to figure out where the right price points are. Once they do, they'll, you know, they'll figure out how to go drive for load factor as well. You know, having historically high load factors in an operational environment that's still strained is tough anyway. As long as we can get the revenue in the door, I think we feel good about that trade-off for now.
Yeah, I think Q1 is largely sort of coming in where we thought it would be absent, you know, the volatility around fuel. As we sit here today, you know, fuel is lower than we forecasted, you know, for the quarter, but most of the quarter was higher.
Yeah. Just on that relationship between load factor and yield, and this isn't something that I've necessarily been thinking about, but I wanna talk about Oneworld in a moment, but the relationship that you now have with American, they get to essentially price your product in certain markets. I mean, a traveler can go to the American website and wind up flying on Alaska metal. In a sense, you have another revenue management department that's sort of experimenting, for lack of a better term, with your network, which hasn't been the case, you know, before. Do you learn anything from that? Process.
I mean, do you, does Americans, and again, everything is legal and all that, but you must see how they price in certain markets where you have your own pricing and maybe they're pricing higher, maybe they're pricing lower. I've never stopped to think that there might be sort of RM best practices that one picks up by observing a competitor in their market. American still is, just for the record, a competitor.
Yeah. yeah, I'll preface this by saying, just to make sure people know and understand, we don't coordinate anything on pricing...
Of course.
network decisions. We're precluded from doing so, and we wouldn't do that. I do think entry into Oneworld and the deeper relationship, you know, the WCIA, which is really foundational to our future for us, has made us more, like, cognizant of pricing connecting trips than maybe we had before. We still operate an RM system based on segment pricing, leg pricing. We, we do some of, you know, fares, generally. It gets more technical than that. Whereas American obviously has been doing trip-based pricing for a long time. We haven't needed to. We don't have a lot of, you know, alternatives to Seattle to flow you through if you come out of Anchorage or out of Spokane, so there's not been a use case for it.
Seeing our network become more connected, certainly into American's network, into markets that we didn't participate as robustly in Southern California, you know, through the West Coast and certainly down into their hubs, you definitely see that there are things that they are doing, that are more advanced than we are.
Mm-hmm.
I think there's natural learning and education that goes on just by observation.
Sure.
It's impossible for me to tell you if that's contributing, you know, to our revenue performance or not. RM teams are constantly, you know, learning how other people are trying to price their products and incorporating what they perceive to be a better practice than what we have today. That's the one thing about the industry, you guys know all of this pricing is very transparent. Anybody can go see what's going on.
I just never really stopped to think about that as being a component of the relationships and the alliance structure. you know.
Yeah.
It's been something on my mind, so I appreciate that. So I wanna ask you something as somewhat of a neutral party. I'm sure the audience is tiring of me making this point, but there has been an inversion in the U.S. in terms of the relative performance between the ultra-low-cost carriers and the full service global premiums, legacies, whatever term you wanna ascribe. We can debate the persistence of that inversion, but the numbers are there, right? Ultra-low-cost carriers are the weakest performing carriers. I wanna ask you your opinion on this, in part because it doesn't seem like you have a lot of skin in that game.
I do remember a period several years ago when there was sort of a run on Seattle, a run on the West Coast, and based on your competitive entrenchment, based on the high cost nature of some of those airports, those efforts seemed to fail. I don't think of Alaska as being highly vulnerable to Ultra-Low-Cost Carriers, which is why I'd really value your opinion on this industry dynamic and if it does impact how Alaska thinks about where you grow and how you grow, I'd be interested in that as well.
Yeah. No, no, I appreciate the question, Jamie. I think, you know, you spend enough time in the industry, you sort of just observe and, you know, you consider what others are likely going through at their companies and the evolution of the business model in the industry. I'll tell you, when I came into the industry in 2000, you know, there was acute focus, and I think it was one of the key sort of valuable instincts that Bill Ayer, our CEO at the time, and Brad Tilden, the CFO at the time, had, which was, "You're gonna have to be able to compete with the ULCC model." It was a disruptive model. It was a model that was, you know, sort of price first.
It was one that had, you know, started to take legs here and overseas and I think they were sort of ahead of their time recognizing that it could be a threat. We did a lot of work on making sure we could compete from a cost perspective, and that we always had a value proposition from the product and service perspective that we felt was superior and could drive, you know, loyalty back to us as long as we were able to be in the same ballpark on fare. It worked for a very long time, you know, for them. It worked through a period of, you know, disruption in the industry where the large carriers were largely consolidating and reorganizing. I think they were masters at taking advantage of that climate.
When you have to merge companies, you're sort of, you know, off the radar for two or three years with your own strategy. You're just working on that combination. I don't know, and I'm from the West Coast, it's a little different than the East Coast. I don't know that the basic belief that passengers don't care about experience was the right sort of durable belief. I think we're seeing that coming through the pandemic. You're seeing a surge in demand for premium experience. You're seeing, you know, over the last five or six years, the large legacy carriers really invest in the onboard product and the product at the airport. I think that's very attractive to travelers.
I mean, it's still a crazy bargain to be able to fly cross-country for few hundred dollars, you know, in the amount of time it takes. For a little bit more to get, you know, a significantly upgraded experience, I think, is starting to reshape, you know, travelers' mindsets around what they're willing to pay for versus what, you know, just getting from point A to point B at the cheapest price might have been motivating to them. I think to the degree that the consumer wants a reasonably better experience at a decent, you know, fare and gets benefit from giving loyalty to a company, I do think that, you know, the upper hand may have changed a bit for the time being. I wouldn't count, you know, the LCCs out. They're smart people.
They've done really well over the last 20 years. I just think they're up against a stronger competitor than they were in sort of the heyday, if you will. I will note that, I think, you know, we were able to be a margin leader in the industry, you know, outperforming legacies and ULCCs over this period of time. There are niche models that can work if you own the geography and you execute well.
Well, where should we think then about the growth opportunities for Alaska going forward? When I think about the history of the company, you know, I think about a one time, very seasonal business. You know, large losses in the first and fourth quarter. You had to make it all up in the second and third quarter. Somebody at the airline realized, you know, we could fly MD-80s down to Mexico and, you know, even out that seasonality. You got into the seven three, started experimenting with lower 48. Boeing ultimately built a seven three that had range capability to Hawaii. The point is, you now go in all four directions.
Right.
from Seattle.
Yeah.
There's no fifth or sixth direction You know, to choose. So are you nearing the end of your growth runway, for lack of a better term?
Yeah, no, totally appreciate, where you're coming from. I don't think anything, you know, eminent at all is at risk in terms of our ability to grow. I do think, you know, we cover much more of the map than we did, you know, 10 or 15 or 20 years ago. One of the things that, you know, that the airline or Alaska has benefited from was the cyclicality of the industry. We were able to take advantage of downturns when others had to sort of retreat and give way. It's one of the key reasons we fly as much as we do to Hawaii and even the East Coast now. I think it's fair to say that those opportunities, A, you can never predict them.
You just have to sort of be waiting for them to happen, they're probably less likely to happen today relative to the industry of 20 years ago. The thing that we have going for us is, we've got really, if not unexciting, we've got very efficient opportunities for growth. A lot of that is starting to happen this year with the upgauging and stage length growth. When you go from 150 seats on a flight to 175, it's about the same, you know, amount of money to operate that flight. You have 25 more seats to sell.
Yep.
It's still significant capacity growth, it's very capital efficient, it's very revenue positive, and it's actually very good for unit costs as you're spreading over the 25. You'll see us continue to do that as we transform our fleet and move most of our order book to MAX 9 and MAX 10 once they get certified and start delivering. We have a number of markets where we only operate once or twice a day still.
Mm.
Those are markets that we understand. We know the demand patterns, we understand the competitive backdrop, and they're very easy for us to go build out into two or three time a day markets. If there were only five of those opportunities, it would be a problem. There's dozens of those opportunities. I think one last thing, Jamie, I'd say is, with Oneworld and international opening up and sort of getting all of our technology mapped to our partners so we can more seamlessly sell and serve tickets, we'll see greater connectivity, you know, through the Seattle hub, which will support further upgauging away from regional into mainline aircraft in Seattle. Same number of operations, just much larger planes. Probably opens up an opportunity to move more connectivity over Portland, which is a great airport for us.
It's been going through its own CapEx expansion. It's beautiful down there. It's really good operationally. I think the next five years for certain, we've got a lot of opportunity to continue to grow at the target rates we have, in a way that's still strong margin potential.
Back to the point that you were making before on premium and the strength of that market. Knowing what you know now about premium, knowing what you know now or at least what you acknowledged in sort of the decommoditization of the airline industry, at least in North America, would you have done anything different with the Virgin integration and some of the product attribute? Because they were leaning, I guess, prematurely into premium before the market really exploded post-COVID.
Right.
With the benefit of hindsight...
Yes.
What would you have done differently?
I think, for reference, they operated a A320 and cabin with eight first class seats at 55 inch pitch. That's a cabin we would have put 12 first class seats at 40 inch pitch in. We actually were asked this question, perhaps by yourself on an earnings call, why we were sort of going in their direction. To us it's all revenue per square foot. You know, on the aircraft. In order to make that model work, we felt we needed 75% of the cabin to be sold at sort of the upper third of our, you know, fare structure at the time. We just didn't see that being a durable model.
Upgrades are still a key component of our loyalty program, even though they're lower in frequency than they were pre-pandemic, and certainly lower than they were 10 or 15 years ago. It was still important to us to have a good rate of upgrades, 40% or higher for elites. Because I think that's an area that we've continued to be willing to invest in that most others have moved away from. It allows us to differentiate. That's why we ended up moving away from the Virgin cabin. The thing that I would have changed, we were unwilling to price the product at a rate that people were willing to pay for it. We capped our prices in first class.
We probably didn't need to do that, and that probably affected some of our math in terms of, you know, making the business case for slightly more premium. I think if we had a do-over, we would have tried to get more of our version of first class into aircraft. You know, we'll have opportunities to do that with the MAX aircraft if the economics work out with the ten, and even potentially other fleet, there's a potential to get more premium seats into the aircraft. That's the one thing we probably would like to do over is just have a higher number of seats in the first class and premium economy cabin.
You mentioned upgrades and loyalty. On the topic of loyalty, I think everybody agrees that that's a business where size matters. I've always struggled to sort of figure out where that minimum size is before you can be profitably relevant from a loyalty perspective. My for, you know, not to beat up on Spirit, but, you know, if anybody here has a Spirit co-branded credit card, could you raise your hand? Okay, there's my point. Although I suppose in fairness, I should say, if anyone has a Delta Amex, could you raise your hand? Okay, there's my point.
What's up?
First question, one, have you ever broken out what the Mileage Plan's contribution is to your P&L? For United Airlines, as I recall, it was about 15% of top line, somewhere around 35% of EBITDA. Do you break those figures out? Second, where do you think is sort of that critical mass? Are you given the growth aspirations of American Airlines, Delta Air Lines, and United Airlines, and Southwest Airlines, are you at risk of your program being marginalized over time?
Yeah.
Two-part question.
Yeah.
Profit
Yeah.
Future marginalization.
I know you're asking if we've publicly broken it out, and the answer is no.
We can start today.
For sure, internally understand both of those metrics.
Yes.
Look, I think over time, disclosure around this area of the business will continue to increase. We just haven't had a reason or a chance to do it at this point. I think when we review some of the public information from other airlines as they've collateralized loyalty-
Yeah.
We're not surprised by, you know, what we're seeing in terms of some of those values. I think you're right, you know, big broad picture, the bigger, you know, the more likely you're gonna be attractive to more people 'cause you have the network, you know, breadth. I do think it matters in particular geographies as well. If you're big in a relevant geography like we are in the state of Alaska, we are in Seattle, we are in Washington Pacific Northwest, Portland, you can enjoy the same types of, you know, economics that maybe they get, you know, because of their breadth in, you know, their hub, fortress hub cities. That's what we've seen at, you know, in our core markets.
Our rate of spend growth, our rate of loyalty growth, our rate of credit card penetration is as good or better than those competing cards in those markets.
Okay.
I think it's a good question about California. California card penetration is obviously outpacing the rest of system 'cause it's coming off of a slightly lower base. We have, you know, a significant number of cardholders. I don't know the exact number today, but hundreds of thousands, if not 1 million now, outside of the Pacific Northwest core. The job we have to do is give them more reasons to continue to fly us and swipe the card more like the people in the Pacific Northwest do. I think it's competitive for sure. It's more competitive in California. It's a more fractured market down there. That's where we go back to the value that we confer. This is a hard one for us 'cause it's hard to educate people who aren't staring at award charts every single day.
You're quicker to elite status with us. You're quicker to free travel with us. Anybody who sort of watches the industry knows that a value of our mile, sort of implied, is the highest in the industry. We have lots of other key benefits on the card, some of which aren't, you know, copied by our competitors. I think our job is to ensure there's more awareness in the growing California population of the relative value of ours versus others. We just gotta get them into the ecosystem and then experience us and then sort of penetrate the card and then work on the spend.
I think it's a area of growth for us. We have a fabulous new bank deal that we literally put on stage at our investor day with Bank of America. It's got great underlying economics and a lot of incentives for growth over the next several years as we get into the core of that deal.
Question on labor. You were the first U.S. airline to fully lock down contractually your labor cost structure for the foreseeable future, for the duration of the contract, and then whatever additional amount of time it takes down the road to negotiate yet again. I realize that those deals were reached fairly recently, but have you seen any changes in attrition, any changes in the efficiency of the operation, anything that you could point to other than just higher expense that benefits shareholders?
Yeah. Yeah. Attrition certainly was an issue industry-wide for us, as you know, every work group, you know, sort of as we rebuilt or tried to rebuild. That clearly it's not gone, and I'll talk more about this, especially on the pilot side, but it is somewhat lower in the four, five months after we ratified the deal than it was in the 4 or 5 months going into the deal. I don't know that I would hang that entirely on the CBA. It could be more just there were huge hiring spurts last year that sort of abated a bit too. I don't wanna be like false on the reasons. I don't know the reasons.
I do think it's a reality for a little bit longer that to the degree every airline is hiring in every hub, you know, and pilot base that they have, you know, pilots are now earning a really good living, and their next most important thing is where do I live and what's my sort of work-life balance. They may choose, you know, the marginal pilot may choose, "Hey, I like Alaska or I don't. I wanna be somewhere else geographically," and so they're going to somewhere else geographically. We're getting people from other airlines into our classes. We're certainly losing a few folks to others. We talk to our internal labor leaders. We try to understand that.
We try to get a gauge on, is that a morale issue or is it just, you know, purely a lifestyle choice for the pilots? I think that's gonna continue to be in the industry with these hiring rates over the next year or two. It's interesting 'cause attrition was like zero, you know, before all of this started to happen. Even 10 pilots a month feels like a lot to us. It is. You know, 10 pilots a month to us is nearly a line of flying. These resources matter very, very quickly. I would say on the other side of things, the rest of our attrition rates across other work groups have normalized. In some cases, they're quite low. They're not cause for concern.
I think slowly but surely we're seeing, you know, it's not a normalization. There is a, you know, there's a change in trend relative to pre-COVID in terms of absenteeism, but it is better than it was a year ago, six months ago, three months ago. Again, I can't say it's CBA, you know, driven for sure, but we are starting to see a better rate of, you know, absenteeism normalizing, which is important because we gotta plan, you know, our operation, and we plan based on our understanding of what we think absenteeism is going to be. As you know, if a flight attendant or pilot doesn't show up, we don't operate.
Yeah.
Sometimes, you know, if a ramper isn't there, we can figure out how to get the plane out, but we can't go without a pilot on board. It's important for us to continue to watch this stuff and manage it best we can.
If your peer set, locks down pilot contracts by midyear, remind me, your adjustment is in October or in January?
September.
September.
Yeah.
Okay.
Yeah.
That was one of my 12 guesses.
Yeah.
Um, and-
You're close.
Yes. Will you quantify in advance what you think that CASM impact? I mean, it's not gonna be huge.
No, no.
You'll incorporate that into your guidance before the fact?
We will.
Okay.
Yeah. Look, if we went to somewhere around where Delta has gone, you know, it's $10 million to $15 million to the year.
Okay.
It's modest for the year. For sure, once we have cleaner line of sight, another TA or two...
Yeah.
We'll start talking about it and put it into guides.
Yeah. That's what I'm hearing.
Yeah.
Okay.
Yep.
You, you've described, I believe corporate demand on the West Coast as anemic. Has there been any change now that we're in a new fiscal or new calendar year, budgets have been reset, and particularly given your exposure to tech? I think it's a question that people are curious about.
Sure. Is this me or our chief commercial officer who expressed it as anemic?
I don't recall, but I get anemic is a word I understand the definition of it, but it's not necessarily part of my everyday vernacular.
Sure.
I immediately seem to remember it being on an Alaska earnings call. You know, I'm an old man. My memory is I almost missed your introduction today.
That's right. Yeah, yeah.
I know.
You paraphrased.
Yeah.
We said something different. You wrote it anemic. No. look, we're 70%-75% back by volume, 80%-85% back by revenue. I think we shared this at Q1. If not, I'll share it today. That essentially is what we're expecting. That's what we've planned for. That's implied in our guide. Any tick up from that, you know, assuming leisure stays where it's at is, you know, potential upside for us. What we've been saying is we believe I don't know if it's gonna structurally be a few points below or a few points above in terms of the overall volume of business travel over time. We're certainly trailing by a few points rest of country, which I think is principally, you know, the type of business that is headquartered in the West Coast.
Okay.
I just want to reiterate, these are some of the most profitable companies and most valuable companies on the face of planet Earth. I don't think travel budgets are going to be a constraint for them structurally long term. I think they are now, just like, you know, some of the headcount is for them. I wouldn't bet against that industry or those companies. You know, ultimately, once things normalize for them and they get, you know, their cost structures or their profits to where they want to be, I imagine they're going to come back and travel. The other thing we've been saying is the layoffs certainly are a big deal. They make headlines that are important. We feel for the folks in our community that, you know, are having to look for other work.
That hasn't changed the amount of travel going on 'cause largely these companies haven't been traveling since the beginning of the pandemic. It's not a step down for us.
Correct.
Which means everything should be a step up in the future when they do come back to travel. There could be a knock on leisure effect that you might think about. I can tell you right now, to their credit, you know, the tech companies are being extraordinarily generous with severance. I think anecdotally, I don't have data on this, but we know a lot of people in these industries, they're finding, you know, work pretty quickly if they want to, especially in a remote model, which a lot of these jobs can still do. I don't think it's, you know. I think it's transitory. It's a big deal for those folks whose lives are impacted. I think for us as a airline, we don't think we need to rethink the business model.
We just need to wait out the cycle a bit for them, and then we think they'll come back and it'll be upside for us.
What are the building blocks that get you to higher post-COVID margins than your admittedly very, very strong margin production going into COVID? It's a little easier for me to figure that out for American Delta and United because there's been so much international upheaval, that's just a huge driver, and those managements all spoke to that. You get a taste of that through Oneworld. It's not as significant for you. The goal is to have higher margins than you did pre-pandemic. What gets you there?
Sure. Let me take it for, like, two angles. On the cost side, our goal really is to maintain our historic relative advantage on a stage-length adjusted unit cost basis. We're not assuming, you know, that that is going to grow per se, but we don't, and we don't see evidence that it's going to shrink either. You might ask me how that can be the case, when we're bringing up sort of wages to market, and I'm happy to talk about that. We don't think that we're gonna give ground on that relative cost advantage. We all participate, I thought, in the same fuel environment, although it's a little weird these days with refining margins so different between, you know, geographies.
A lot of this, Jamie, is, and we laid this out at Investor Day, is really on the commercial side of the business. The thing that we were trying to land last March was that much of our commercial roadmap strategy is to do things that many of the Big Three have done already. They're known drivers of value. There's a blueprint you can essentially follow, and that started with the renegotiation of our deal with Bank of America. It then moves to selling more of our premium cabin. We're still gonna upgrade more than they do, I think, but we're gonna be willing to sell more premium economy seats, more first class seats. In fact, we're seeing many of our elites want to buy those seats just to be sure that they're sitting in them.
That's a very clear, like, area you can be confident, you know, in at this point. The growth, again, changing out 150 seat airplanes to 175 seat airplanes. I don't think those 25 seats on peak days are gonna come in at lower average fares. I think they're gonna come in at average fares or better 'cause they're peak days, and by definition, we're spilling traffic in those peak days. All of that is, you know, the upgauging story, the loyalty roadmap, the premium roadmap, then you add on the just starting to realize value out of Oneworld and the WCIA.
I think, well, we get a lot more confident that we can drive the type of contraction of our historic gap to industry on a unit revenue side. Going into the pandemic, we were probably $0.92 or $0.93 on the dollar, and I think we can close that gap, if not to parity, something very close to parity. That's our basic algebraic rationale. We've got to go execute it and deliver it, these things don't happen just because you say them.
Yeah.
We think, you know, we think we're going to be able to do that, obviously, and we're very focused on doing so.
Okay. Should we let Mark ask his balance sheet question?
Yeah. Oh, yeah. I can't wait. Is it a hard question, Mark? Or...
It's not a hard question. It's just for you because you're so damn boring from my world. It's really just about aircraft and deliveries and so forth and how backed up you are, and if there's any update there, and if you have any plans to finance aircraft or you're just gonna keep buying them with cash.
Gotcha. Yeah. You know, we're gonna take on the order of 35-36 737 aircraft this year. We're working super close with Boeing, obviously, on the skyline. They have delivered to our revised plan that we agreed with them last year-to-date, I think we have line of sight to continuing to meet that schedule through the first, the second quarter, first half of the year. Obviously a lot of rides on their ability to move up to 38 units a month on the narrow body line. Far, it looks like there's a lot of confidence that's gonna happen, we're feeling good about the second half of the year. There are a couple of, you know, We may make some decisions, you know, on the fleet side.
I could see us getting, you know, out of the A321s slightly earlier than end of year, which is sort of what we've said right now, and it's in the plan. There's a chance that we would find our way to, you know, stop flying those after the summer or more quickly after the summer. I think we'd like to contain most of the transition, sort of cost of transitioning the fleet in 2023 if we can. Then there's a couple of units at the back end of the year with Boeing that we might decide to move over, you know, into 2024, but nothing really material. In terms of, you know, how we're going to finance aircraft, I would expect mostly that we're going to continue to pay cash.
I think there's a chance that, you know, we look at some sort of boring financing, not ETC or bond or anything like that, maybe at the back end of the year. We're gonna be pretty focused on maintaining our leverage ratio within a range and not let it fall below. And we're also gonna be very cognizant of sort of overall cash balance and not let it fall below a threshold for us. There's a chance if there's a big sort of tranche of aircraft that we decide we need to take in the fourth quarter, and we don't slip a few out to next year, that we could do something this year, but it won't be that exciting.
I'll let you know, though, if anything changes and, you know, we need something exotic to go to market with.
You know, United talked a little bit about this morning some sale-leasebacks with purchase options and getting the right maintenance reserves and so forth. Is that something that's attractive to you as opposed to direct ownership?
Yeah. It honestly not for us. I'll tell you why. I mean, one, I think you really have to be an expert at end of lease life planning, to have confidence that you understand the economics going in. While we're learning a ton about end of life lease realities, we didn't plan this, we just took it on when we merged with Virgin and took on the 60 leased aircraft. It's a different skill set than what we normally had to manage, which is owned aircraft and you sort of at, you know, the 25th year start parting them out to maintain the rest that are, you know, 20 years old. It's a very efficient way to sort of maintenance plan and end of life plan a fleet, very different in the lease world.
We wouldn't do something like that until we felt like we could expertly, you know, sort of deliver on the full life cycle of a lease. Notwithstanding that, we also just think it's more cost of capital efficient for us to own than to get into sale-leaseback arrangements.
The A321s that are coming out this year, my last question, are those the ones that are going to Air Lease or did those already happen?
Nope. Nope. All of those are already out. I think Air Lease I don't know if there's a few units left that they need to take ownership of. I think they're all gone. No, these are all leased aircraft. I think we're down to four or five counterparties with them. and they're all, their lease lives go through 2030. we're working that issue still. we'll find a home for them. I don't know if we'll become a lessor to others who will sublease some for us, or we'll do some sort of buyout and then sell, which would be our preference.
To be clear, in your lease arrangements, do you have flexibility to sublease them as you choose if you remain on the hook, if you will, or?
Yeah, more or less, yes. There's probably some, you know. There are certain requirements we have to then ensure that the operator is maintaining, and that's a, you know, that's a, if we can avoid it, something we don't really want to be doing, is managing a counterparty. Generally speaking, we do have the ability to remarket those.
That was marginally not boring.
Marginally not boring. There you go.
All right. Any questions from the audience before we wrap?
I was thinking we were gonna have, like, three people here, and it was, like, a true fireside chat, but a lot of people came out, so I appreciate everybody coming. I feel like it's like, in the future, the last one of the day, we should have, like, I don't know, a glass of wine or something.
Well, we.
We have one more. Oh, you got one more. I thought we were the end of the day.
Yeah, we got Frontier.
All right. All right. Oh. Oh, Barry's coming. Okay. Good. Yeah.
Frontier is the last thing standing between-
Everybody
...this event and the bar, except we're too cheap to have a bar, so there's actually no bar.
This is it. All right.
Quickly?
Yeah. Let's see. Can you discuss your fuel costs now compared to other airlines and where you're sourcing your jet fuel from? I think the spreads on the West Coast are a little bit wider. Can you talk about the competitive dynamic in Seattle between yourselves and Delta?
Sure. We're two-thirds L.A., refining, like, L.A. crack and then a third Gulf Coast, essentially. They've largely inverted versus each other week-over-week. One day, it's $1 at L.A. and $1.50 in Gulf Coast, you know, the next week, it's the exact opposite. It seems like that's starting to, like, settle down a bit. Primarily we purchased Gulf Coast and L.A. Delta is, I think, largely back to their pre-COVID footprint in Seattle. We've grown above our pre-COVID footprint in Seattle. Pre-COVID, we were 52% market share. I think we're 60% market share, give or take. It may change a point or two schedule over schedule. We've grown our market share relative to Delta. Look, they're a good company.
They are a good brand. They're smart. I think over the last 10 years, I mean, it's amazing. I think it was the 10-year anniversary this month when they decided to make Seattle, kind of a focus city and then a mini hub. I think we've done really well, you know, in that experience. I think, you know, I think a lot of people may have predicted something different, but we've grown our loyalty, we've grown our network, we've grown our profits, and it made us a better company ultimately. You know, we had to go and make sure that we were executing as perfectly as we possibly could when, you know, a really good competitor shows up.
I think, you know, I think things are gonna just go along as they are, and they're gonna be a large, you know, competitor in SeaTac, probably our, you know, our only primary competitor in Seattle. We just have to win, you know, loyalty from guests every day, and I think we do a good job of that right now.
just a last question on, your exposure in the San Francisco area. Do you do anything with Silicon Valley Bank?
Oh.
Is there any exposure there at all?
No, we don't bank with them. I don't think. Honestly, We're limited partners in a couple venture sort of, you know. We have a venture capital arm, very small. We're LPs with a couple of folks that were impacted on a very small degree. You're talking like sub $5 million, but they've gotten all of their money. It hasn't really had an issue. There hasn't been a ripple through that we're feeling or seeing or worried about right now in terms of, you know, the immediate impact on the West Coast or investment.
certainly a scary time for those startups and the firms that were, you know, banking with them and had, you know, 25% or more of their cash, you know, with them. I don't know that much about it. That's your guys' industry, the banking industry, more than mine. I hope that this stops and there's not, you know, sort of a spread of contagion here, but it seems like it's pretty isolated right now.
Shane, thank you very much.
Yes, thank you, Jamie.
Thanks, everybody, for being here.