ALASKA AIR GROUP, INC. ALK

Alaska Air Group successfully completed the most complex technology milestone of its integration by migrating to a single passenger service system (PSS) and establishing the industry's first dual-brand PSS platform. This was achieved while operating the largest summer schedule in company history and launching its first-ever service to Europe, which has exceeded expectations. These accomplishments are seen as strengthening the company's foundation and positioning it for long-term value.

The company led the industry in on-time performance year-to-date, with a 5-point year-over-year improvement in Q2. Net Promoter Scores continue to lead the industry, with guest satisfaction climbing 7 points since last quarter, and Hawaii satisfaction jumping 10 points. Starlink WiFi, now equipped on one-third of the fleet and expected to be on the remainder by 2027, is driving a 20% higher guest satisfaction on equipped flights and deepening loyalty with nearly 75% of non-members signing up for Atmos accounts.

Cabin retrofits across the 737 fleet are complete, adding 1.3 million incremental first and premium class seats, with premium revenues up 15% in the quarter. The company announced plans to retire the 717 fleet starting in 2028, transitioning Neighbor Island flying to more fuel-efficient Boeing 737s. Additionally, four 737-800 freighters will be added, nearly doubling the dedicated freighter fleet to nine aircraft, strengthening its position as the only U.S. airline with a dedicated cargo fleet and expanding into Hawaii and Alaska.

The second quarter marked the full commercial activation of Alaska Accelerate, leading to immediate improvements in commercial results. Unit revenues accelerated through the quarter, with June total revenues up 13.2% and a double-digit pretax margin. Co-brand remuneration grew 19% year-over-year to $663 million, and active Atmos members increased by 15%. Hawaii loyalty growth significantly outpaced system performance with a 73% uptick in new cardholders.

New long-haul international routes from Seattle to Rome, London, and Reykjavik are performing strongly, with 50% or more Atmos members on these routes, indicating strong loyalty demand. Premium revenues grew 15% this quarter and now represent 35% of total revenue, up 1.5 points. The company sees substantial opportunity to grow international share, with fair share in the premium cabin already improving.

Despite the challenges, the balance sheet remains strong with $3.8 billion in total liquidity after proactively raising $1 billion in financing. Nonfuel unit costs rose 6.5% year-over-year, but core cost growth was low to mid-single digits excluding transitory^📎 costs. The company expects nonfuel unit costs to step down to low to mid-single digits in the back half of the year and aims to aggressively pay down debt once the environment stabilizes and cash flows improve.