Alaska Air Group Inc (NYSE: ALK) Q2 2021 earnings call dated Jul. 22, 2021.
Corporate Participants:
Emily Halverson — Managing Director, Investor Relations
Ben Minicucci — Chief Executive Officer
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Chris Berry — Vice President, Finance and Controller
Nathaniel (Nat) Pieper — Senior Vice President of Fleet, Finance and Alliances, and Treasurer
Analysts:
Catherine O’Brien — Goldman Sachs — Analyst
Helane Becker — Cowen — Analyst
Duane Pfennigwerth — Evercore ISI — Analyst
Savanthi Syth — Raymond James — Analyst
Hunter Keay — Wolfe Research — Analyst
Joseph DeNardi — Stifel — Analyst
James Baker — J.P Morgan — Analyst
Daniel McKenzie — Seaport Global — Analyst
Ravi Shanker — Morgan Stanley — Analyst
Conor Cunningham — MKM Partners — Analyst
Michael Linenberg — Deutsche Bank — Analyst
Myles Walton — UBS — Analyst
Presentation:
Operator
Good morning, my name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group 2021 Second Quarter Earnings Release Conference Call. Today’s call is being recorded and will be accessible for future playback at alaskaair.com. [Operator Instructions] After the speakers’ remarks, there will be a question-and-answer session for analysts. [Operator Instructions] Thank you.
I would now like to turn the call over to Alaska Air Group’s Managing Director of Investor Relations, Emily Halverson. Please go ahead.
Emily Halverson — Managing Director, Investor Relations
Thank you, Thea, and good morning. Thank you for joining us for our second quarter 2021 earnings call. With me 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. Our financial results published this morning reflect a clear step forward in the recovery of our business. In the second quarter, Air Group reported an adjusted pre-tax loss of 3%. For the first time since February 2020, monthly adjusted pre-tax margins turned positive in June at approximately 14%. These results exclude any CARES Act Payroll Support Program benefit. The pace of recovery during the quarter drove approximately $840 million in cash flow from operations, inclusive of the $489 million of CARES Act Payroll Support Program grants received.
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.
Ben Minicucci — Chief Executive Officer
Thanks, Emily, and good morning, everyone. The results we’ve published this quarter show that we are successfully rebuilding our Company and returning to profitability. As Emily shared, our second quarter pre-tax loss was 3%, landing us close to breakeven as we had initially forecast during our Q1 call. Margins improved significantly during the quarter as we exited March with a 41% loss and closed June with a pre-tax income of 14%. Our Q2 adjusted pre-tax margin is the best in the industry and carriers who have reported so far.
In this quarter, we had several milestones that validate our strategy is working. The first milestone was our return to profitability exiting the quarter with solid double-digit margins. The second is that our business returned to positive cash flow generation of higher and $351 million, excluding any PSP grant funding. Third, we used our strong liquidity position to begin to de-lever, bringing debt-to-cap down 6 points from the prior quarter to 56%. And lastly, with a strong return of passenger demand, our productivity levels rebounded to near 2019 levels.
Underlying these achievements is a dramatic return in leisure demand that began to gain momentum in March. To a lesser extent, business travel demand has been increasing more recently as well. Air Group’s passenger employments progressed from down 34% in April to down 18% in July. We are consistently flying about 110,000 passengers per day and forward bookings are approximately 85% of 2019 normalized levels. This progress and our second quarter results give us confidence that the worst of the downturn is behind us. But the impact of the Delta variant may pose some risk in the recovery trajectory. To date, we are seeing no signs of demand slowing. But we will continue to watch booking trends carefully so that we can appropriately match capacity with demand.
With that in mind, our plan is to return to 100% of 2019 flying levels by no later than the summer of 2022. However, given that the recent surge in demand has been consistently strong and has not shown signs of slowing, we may accelerate our return to pre-COVID levels accordingly. To create flexibility for that faster ramp up in capacity, we are planning to reactivate approximately 10 Airbus aircraft and begin flying them this fall and winter. This temporary return of several Airbus airplanes allows us to create capacity quickly, and protects against unforeseen events that could be outside of our control, such as supply chain disruptions.
Last quarter we spoke about de-leveraging our cost structure, fleet plans, and commercial tailwinds to back to a path of sustained profitability quickly. It’s clear from this quarter’s financial results that our approach to managing the business is working. For Q2, we expect our pre-tax margin, load factor, and unit revenues to be near the top of the industry as a result of our disciplined approach to capacity. With growing passenger counts, our productivity has increased 1.5 times between March and June, and is expected to be within a few points of 2019 levels in July and beyond. This sets us up well to further close the gap on 2019 CASMex levels.
As we look forward to the next 6 months, we expect to deliver double-digit margins throughout the third quarter and high single-digit margins in the fiurth quarter. It’s also worth noting that the gap between our 2021 and 2019 margins is closing each quarter. I’m proud of how quickly we return to profitability and how, as Shane will detail, we have begun reinforcing the fortress balance sheet that has been a hallmark of our business for many years. Our financial strength sets us up well for sustainable growth in the future.
Impressively, our operation performed near the top of the industry in on-time arrivals and completion rates even with the rapid return in traffic during the quarter. At our Seattle hub where our flying is essentially back to 2019 levels already, we have found that entry-level labor pools are limiting, making hiring a challenge, particularly for ramp workers. This staffing pressure along with record breaking heat waves during the quarter, have put stress on our operations. Yet through these challenges we delivered for our guests with caring service, creative solutions, and teamwork.
I want to recognize the incredible efforts of our employees across the operation, including airports, ground handling, contact centers, in-flight, flight operations, and maintenance teams. Many of whom have covered extra shifts to keep our operation and guests moving as peak summer travel got underway. Even our back office management employees at all levels have jumped in to help the operation the past couple of months. One of the things I truly love about this company is our culture, and how our employees support each other, and take care of our guests, no matter what it takes.
While it is inevitable that we will encounter new challenges and uncertainty as the recovery advances, our momentum continues to build. Our measured deployment of capacity allows us to maximize financial results while allowing our operation to scale up successfully. It’s exciting to see Air Group’s progress as we rebuild our network and operation, harvest savings from cost and productivity initiatives, and reinforce our strong balance sheet. I am confident that this is exactly the strong foundation we need to further grow our partnerships with oneworld and American, leverage our 737 fleet order, and launch our upcoming commercial initiatives.
And with that, I’ll turn it over to Andrew.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Thanks, Ben, and it’s great to be with you all again. My comments this morning are going to center around three areas. First, we’re going to be talking about our second quarter revenue performance, but I’ll focus on sequential monthly improvements in revenue versus quarter-over-quarter, so that the trajectory of our revenue recovery is clear. Second, I will provide capacity and revenue guidance for the third quarter. And then lastly, I’ll be touching on revenue initiatives that are getting ready to take effect or will be rolled out in the future to further enhance our revenue performance.
Starting with revenue this quarter, our second quarter revenues were $1.5 billion, down 33% from 2019 but nearly double the revenue we generated in the first quarter. As Ben shared, this reflects material increases in passenger volumes as well as sequential improvement in yields. This quarter we flew 21% below 2019 capacity levels with load factors climbing from 70% in April, 75% in May, and 86% in June. This acceleration put us just above our load factor guidance range for the quarter, and we expect load factors in the mid-80s for the rest of the summer.
I’ll speak more about guidance in a few minutes. Our RASM was down 15.5% for the quarter, but the improvement from the beginning of the quarter versus the end was dramatic. Our RASM was down 25% in April, 18% in May, and only 5.5% in June. Much of this improvement was driven by passenger volumes, but yield also played an important role, which improved 8.5 points during the quarter from down 14% in April to down 5.5% in June. Mileage Plan revenues including commission revenues from our co-brand credit card program and award redemption revenue, showed particular strength during the quarter. Collectively Mileage Plan revenues represent nearly 20% of total revenues and were down just 9% versus the second quarter of 2019 with June down just nine-tenth of a point. Bank commission revenues were particularly strong for the quarter up 7% versus 2019. Additionally, we saw credit card acquisitions for the quarter exceed those of 2019. We are encouraged by loyalty program performance and it’s clear that our guests are excited to engage with our program as they return to travel.
So turning to our network, our strong sequential revenue performance was enabled by our network team’s rebuild strategy. Air Group has returned to approximately 80% of its pre-COVID networks side but we prioritize Seattle growth, given the strength of demand here. Our Seattle hub capacity in Q2 was approximately 2% higher than in the second quarter of 2019, and the team also restructured the Seattle hub to gain access to greater flow traffic, which has helped fuel this growth.
As of July, our Pacific Northwest flying is only down 4% from 2019. We expect to continue to grow Pacific Northwest capacity from here. And Hawaii capacity has also been returned more quickly than system average, and was only down 7% in the second quarter from 2019. We’ve reallocated some Hawaii flying across different markets, which includes adjustments to frequencies in both California and the Pacific Northwest, which has proven to be a positive move. Our California capacity was down 40% in the second quarter reflecting the reality, that demand in the state has been amongst the weakest in the nation. As we shared last quarter, we will add back capacity to California as demand returns, which we believe has now started.
During the first half of the year, there was an eight-point load factor gap that existed between our California and non-California flying, and with the state reopening mid-June, I can report that the gap has fully closed in the past several weeks. With California load factors improving, we’re experiencing relatively stronger pricing and yields on flights that touch California are now better than the rest of the system on a year over to basis.
As with our entire network, our priority is to continue to match supply with demand, and we fully expect to have returned 100% of pre-COVID capacity to California sometime in the first half of 2022. Even though system capacity remains below 2019 levels, we have been adding new markets to our network to maximize revenues as the recovery takes hold. We’ve seen a shift in demand during the pandemic to getaway destinations and cities with lower costs of living and our recent focus on growth in places like Boise, Austin, and Florida are due to this reality.
Since the beginning of the pandemic, we all have either commenced or announced over 50 net new markets which reflect the shifting demand landscape in our network. Booking momentum remains strong, stabilizing at about 80% of pre-COVID levels. This level of demand is consistent with our capacity plans, which are also approximately 85% of pre-COVID levels and supports our objective of returning to 80% plus load factors and pre-pandemic yields.
On the business travel front, we’ve been encouraged at what appears to be an acceleration of the return of business travel. In fact, over the past three weeks, our indirect corporate bookings have reflected 40% to 50% recovery of 2019 levels, and we’re optimistic this will continue to improve. Similarly, direct corporate bookings that utilize EasyBiz were over 50% recovered in the second quarter. EasyBiz users generally skew geographically towards the Pacific Northwest and state of Alaska customers, but provide a good indicator of recovery trends for small and medium businesses. We mentioned on our prior call that we expected business to recover to about 50% by the end of the year but with recent trends, we expect it will reach sustained 50% or better up ahead of that.
As I also mentioned last quarter, oneworld and our partnership with American have opened the door to greater access to corporate travel. Just to give you a sense of our progress against that opportunity, to date over 90% of Alaska’s top tier corporate accounts have either executed or are expected to execute a joint contract with Alaska and American which will offer their travelers greater access to flight options, more competitive fares, and seamless elite guest benefits. Additionally, we will soon be working with several TMCs in a much deeper way. We have spent a fair amount of time over the last few quarters getting ready to fully leverage this distribution channel, which will ensure we are well positioned to get at least our fair share of corporate traffic as business travel recovers. In short, we will be competing on a more level playing field, and I’ll have more to share on that soon.
With this backdrop, I’ll turn to our third quarter guidance. The capacity, we plan to fly 17% to 20% below 2019 levels. Given the strength we see in summer demand, passengers are expected to be down just 15% to 18% and load factors will improve to 82% to 85%. Revenue is expected to be in line with capacity and down 17% to 20% versus 2019, which means our unit revenues will be close to flat. Looking beyond this year, I’ve shared that our largest share of corporate travel, new revenue management system, along with unique benefits available to us as part of oneworld, will be critical to our return to sustained and profitable growth.
Our team is in the process of sizing these and new commercial opportunities with a directive to deliver at least $300 million of incremental annual revenue to our pre-COVID revenue baseline. We plan to provide a deeper look into these initiatives and our expected delivery timeline at a future investor event. As the next stages of this recovery play out, I look forward to bringing clarity to our investors who are eager to hear about our growth plans.
June was a turning point for us, in delivering an adjusted pre-tax margin of over 14%, gives me great confidence that our airlines revenue and cost model is configured to return us to industry leading margins as we climb out of this pandemic.
And with that I’ll pass it over to Shane.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Thank you, Andrew, and good morning, everyone. As our results this quarter indicate, the initial recovery of our business has been rapid and strong. After a deep loss in Q1, we saw margins improve substantially throughout the quarter, boasting the double-digit margin in June that Ben mentioned.
Non-fuel cost increased just 9% versus Q1, while capacity increased 29%, and our revenues increased 191%. Our results are solidly amongst the best in the industry, which is worth noting, particularly given that California was relatively later to reopen than the rest of the country. Our results underscore the strength of Alaska’s business model and our ability to execute, as a company. My comments will focus on our financial performance, cash flows and liquidity, cost performance, and our plans for the rest of the year.
Beginning with cash flows and liquidity, we generated $840 million of cash flow from operations this quarter, which is inclusive of $489 million in Payroll Support grants. Excluding PSP grants, we generated $351 million of cash flow from operations of the business. Most of the cash flow improvement was driven by ATL growth, which ended the quarter at $1.5 billion. $385 million of our ATL represents travel credits, which guests continue to utilize for purchasing tickets. In the quarter, $185 million of travel was booked using credits versus our normal $40 million a quarter pre-pandemic.
Our on-hand liquidity at June 30 was $4 billion, up from $3.5 billion in March. We shared last quarter that we had plans to begin retiring debt in the second half of the year but accelerated that plan given the pace of recovery of cash inflows. Debt retirements in the quarter totaled approximately $570 million, including the repayment of our $135 million balance under our CARES Act loan. We have now closed that facility and the underlying collateral that originally secured the facility is once again unencumbered, the largest of which is our Mileage Plan program. We expect to end 2021 with around $3.5 billion and on-hand liquidity, but we’ll continue to reduce this balance throughout 2022. We have not yet determined a new normal level of on-hand cash in the future, but I do expect it will be somewhat higher than what we held pre-pandemic.
The debt repayments this quarter, as Ben shared, improved our debt-to-cap by 6 points from 62% to 56%. It’s worth noting that our adjusted net debt levels dropped to approximately $725 million this quarter, given the excess cash we have on the books today. If we were — if we reduced cash by $1.5 billion to retire debt, our debt-to-cap would be at 47%, which is equivalent to when we entered the pandemic. I share this only to give a sense of how strong our balance sheet is as we move into the recovery. We do plan to use cash to pay down more debt this quarter, including our $425 million, 364-day term loan. Going forward, we will move from focusing on adjusted net debt, which was an important metric for us during the depths of the pandemic, back to focusing on debt-to-cap and net debt to EBITDAR.
Turning to costs, our cost execution was solid this quarter as productivity levels ramped. Total adjusted non-fuel operating expenses were $1.2 billion for the quarter up 9% from Q1, while capacity increased 29% sequentially, as I mentioned a moment ago. We saw productivity levels rise from 42% below 2019 levels in March, to 15% below 2019 levels in June. And we expect July to be within a few points of 2019 levels. Our Q2 unit costs were up to 10.4% versus 2019, which was better than our mid-June guidance and was helped by $15 million in one-time favorable adjustments to wage and benefit related expenses.
During the quarter, we also accrued $300 — excuse me, $34 million in expenses related to our performance based incentive plans. As many of you know, our approach to incentive is unique in the industry and we continue to see the value it has in driving clarity and alignment throughout our business on the goals we need to achieve to produce strong results of the Company over the long-term.
Also during the quarter, we were able to finalize three labor agreements, including a new wage agreement with our Horizon pilots, and one-year contract extensions with Alaska’s flight attendants and dispatchers. I’d like to thank our employees in our IBT, AFA, and TWU representatives for their diligent work to develop and ratify these agreements.
Looking ahead to the end of the year, I expect that our CASMex will continue to progress towards 2019 levels, even though we’re not fully back to 2019 capacity by year-end, with mainline approaching 2019 levels as we exit the year.
To recap our expectations for the third quarter, we plan on flying 17% to 20% below 2019 capacity. Revenues should be down in line with capacity resulting in unit revenues that are approximately flat to 2019. We expect unit costs to be up 10% to 12%, similar to our Q2 performance given the relatively modest capacity increase quarter-over-quarter. Given these ranges, we expect to achieve double-digit margins for the third quarter. Cash flow from operations is expected to be between zero and $100 million for the quarter. The sequential decline in cash flow from operations is primarily driven by no PSP grant inflows and normal seasonality that we expect to see in ATL, which tends to decline in the third quarter.
Before we move on to questions, we want to express our appreciation for all the employees who have tirelessly contributed to our success and recovery. As you’ve heard today, folks in our operation have been working incredibly hard. The improved financial results that we are excited to be sharing with you today would not be a reality without the hard work of the 22,000 employees who bring our airlines to life each day.
And with that let’s go to your questions.
Questions and Answers:
Operator
[Operator Instructions] And our first question will come from Catherine O’Brien with Goldman Sachs. Please go ahead.
Catherine O’Brien — Goldman Sachs — Analyst
Hey, everyone. Thanks so much for the time.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Hey, Kate.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Hey, Kate.
Catherine O’Brien — Goldman Sachs — Analyst
Hey, guys. So, your June Q cash flow came in quite a bit better than initial expectations in part driven by better forward bookings, but your capacity cut for the third quarter is only, I think, 2.5 points narrower than second quarter. Is that the max capacity you could produce, given the fleet changes you’ve made over the last year, or is the demand uptick, we’re going to see that more in higher loads and yields?
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Hey, Katie. Yeah. Our capacity is sort of where it’s going to be for the third quarter. And so the loads in the yields is what’s going to drive the revenue performance.
Catherine O’Brien — Goldman Sachs — Analyst
So, when you say the capacity’s where it’s going to be, is — does that mean that’s kind of the max in terms of head count and fleet availability?
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Yeah, that’s correct. Our — the capacity guide, because what we’ve tried to do when we set this up, costs are always certain, revenues is not so much. So we’ve set this up so that we’ve got a very solid handle on our costs with a good level of capacity, because there is room for growth on the yield front and the load factors, and so that’s where we’re going to be for the third quarter, in that range that I shared.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Okay. I might just add, I think we talked about this before, we do want to get back to 80% plus load factors on a sustained basis. We’re not looking to see a lot of variation as we move from peak to shoulder and sort of this pent-up demand that we’re seeing in the summer, it was — we didn’t know how much of that would follow into the fall. So I think we’ve been pretty methodical about capacity and that’s how we’ve set up head count for the third quarter. But we are going to reactivate these 10 Airbus and if they come online and it looks like there’s opportunity to use them, the demand’s there, we will deploy them. But it’ll probably be more fourth quarter for that.
Catherine O’Brien — Goldman Sachs — Analyst
Okay, very clear. And then just for my follow-up. Most of the industry’s reported so far, you’re expecting capacity cuts to narrow a little bit in the third quarter versus 2Q but CASMex inflation to pick up a little bit sequentially. Is that all this ramp up cost tied to bringing on more capacity, or what’s driving that and how should we think about maybe some of those ramp up costs flowing or not flowing into the fourth quarter? Thanks so much for the time guys.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Yeah. No. Thanks, Katie. I’ll speak to that a little bit. I think there is a little bit of Q3 cost that is ramp up, getting ready for Q4 and next year. But a couple of notes, we outperformed our Q2 guide handily. We did have this benefit of $15 million in one-time items. And there are also other areas like, medical came in way under our original forecast. It’s a little bit hard to forecast right now when people are going to go and — to the doctors. So volumes were down. So some of that isn’t in our Q3 guide. We don’t expect one-time items. We’re sort of expecting medical to normalize. But the big — biggest driver for us sequentially is selling expenses are now coming back in a big way. ASMs were only up a few points quarter-over-quarter but passengers and revenue were up 25%, 30% quarter-over-quarter. So we’re starting to see commissions and credit card expenses rise. Also, in the third quarter, we’ll have our full catering complement on board. So more people getting more food and beverage, similar to where we were pre-COVID. So, we’ve got — those are all variable costs, they’re not structural. I’m not worried about them at all, but they’re coming back with demand, and they’re all coming back in the third quarter pretty strong.
Catherine O’Brien — Goldman Sachs — Analyst
Makes sense. Thanks so much.
Operator
The next question will come from Helane Becker with Cowen. Please go ahead.
Helane Becker — Cowen — Analyst
Thanks very much, operator. Hi, everybody, and thank you very much for the time. So my first question is related to something you said Shane. I think you said that you were seeing bookings at about — that about $185 million worth of bookings were using credits, versus $40 million pre-pandemic. So as you think about going into the third and fourth quarter, and that would — and working out those travel credits, are you going to get back to that $40 million level, or is there a new level that we should think about?
Chris Berry — Vice President, Finance and Controller
Hey, Helane. This is Chris. I — we won’t get to that-
Helane Becker — Cowen — Analyst
Hi, Chris.
Chris Berry — Vice President, Finance and Controller
$40 million level this year because obviously the remaining travel credits are much more elevated over where they were pre-pandemic. We’ve got about 25% of our total ATL, as Shane mentioned, in travel credits and still remain. Most of those do expire at the end of this year. So we expect those to be used at a pretty heavy pace the remainder of this year and then as we get into 2022, we would expect those to start to normalize then.
Helane Becker — Cowen — Analyst
Okay, and then it normalizes back to around $40 million?
Chris Berry — Vice President, Finance and Controller
Well, I mean, that’s hard to tell. I mean that’s just what it was. Yeah, we do have the element of no change fees anymore. And so it may be higher than it has historically been, but it will definitely level off from where it is now.
Helane Becker — Cowen — Analyst
Okay, and then just for my follow-up question. I think, Ben, you mentioned that you are having a hard time hiring ramp workers, and I guess, other non-union, or maybe they are part of the union, but other workers. So how should we think about attracting people to the profession, to the airline industry in general, if they are unionized and you can’t restarting pay, or can you restarting pay so that you can attract people? And does that lead to wage inflation for you?
Ben Minicucci — Chief Executive Officer
Yeah, good morning, Helane. It’s a great question. I think this is a national issue as you’re hearing a lot of companies talk about this labor shortage. I would say the only place we’re seeing it now, we’re not seeing with pilots or flight attendants, or a lot of labor groups. Where we’re seeing it is really at the entry-level position, particularly in Seattle. There’s response across the country, but particularly in Seattle. So what we’re doing is really looking at the market. I think we want to be prudent about this. We’re looking at the market, we’re looking at what it might be in September and October when the stimulus and the unemployment runs out and this thing needs to find its water level. So we’re going to approach slowly. What we’ve done now, and our operations team has done just a phenomenal job with some incentives to attract workers. And so, we’re doing fine now, but it’s just something that’s on our windshield, and I don’t think we know where that number is going to be for just a few more months.
Helane Becker — Cowen — Analyst
Okay, that’s helpful. Thanks, guys.
Chris Berry — Vice President, Finance and Controller
Thanks, Helane.
Operator
The next question will come from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Duane Pfennigwerth — Evercore ISI — Analyst
Hey, thanks, and congrats on this outlook. Only because you gave it, and I apologize for asking this because you gave good disclosure, but just on June, 14%. Can you put that in context? What is a June typically look like relative to kind of the rest of the second quarter?
Chris Berry — Vice President, Finance and Controller
Yeah so, Duane, I’ll give you some context. I mean, if you look back in 2019, the June 14% this time is about 10 points lower than, say, it was in 2019. So, June, July, August tend to be our highest margin months and they are typically in the 20s.
Duane Pfennigwerth — Evercore ISI — Analyst
Got it. I guess I was asking relative to the other months of the quarter, because it just — it sounds like you’re saying you saw much better kind of trajectory, much better kind of sequential build in margin than you normally do.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Yeah, Duane, it’s Andrew. Excuse me. I think the best way to describe that is, the capacity was fairly even in April, May and June, but what you saw was load factors going from 70% to 86%, and yield declines from down 25% to 5.5%. So, the revenue and volumes really made the difference there over the quarter.
Duane Pfennigwerth — Evercore ISI — Analyst
That’s great. And then just with respect to 3Q, and this might just relate to what you just said, maybe you can speak a little bit to kind of a visibility coming in and kind of the advanced book yields, because it felt like the industry needed to overcome kind of the advanced book yields coming into 2Q, but they’re in a much better place coming into 3Q. And maybe you could just comment on your stage changes because this is — listen, this is not a massively long haul network that’s contorting to be short haul. Like flat RASM in 3Q feels like a great outcome.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Yeah, thanks, Duane. Off the top of my head I don’t know our stage, but that’s not really the story. I think to your point, what we’re seeing is, and honestly as I look out, that’s what we shared flat RASM. From what we’ve seen today, our yield position looks good and much better than it was in the second quarter. And then the bookings are coming in well. I think on the business fares side, the environment’s still weak. Just to be frank, the leisure is much better, but I suspect as business travel demand returns, I think we might see a strengthening here. But as I look forward right now I feel pretty good about how we’re positioned from both a load factor and a yield perspective. An incremental improvement from the second quarter.
Ben Minicucci — Chief Executive Officer
And what I’ll add is, I think we’re just being disciplined in how we deploy capacity. I think that’s the big story for us. We’ve been very thoughtful from a year-ago and how we’re going to deploy capacity, bring people back, scale up the operation. And I think we’re going to do that through the third quarter and the fourth quarter and into next year, as we ramp up to 100%. We’re going to watch what’s going, watch demand, and react appropriately.
Duane Pfennigwerth — Evercore ISI — Analyst
Makes a lot of sense. Thank you.
Operator
The next question will come from Savi Syth with Raymond James. Please go ahead.
Savanthi Syth — Raymond James — Analyst
Hey, good morning, everyone. Just to follow-up on Katie’s question as you bring those 10 Airbus back this year, and given your fleet order, just where do you think, not looking for guidance, but what’s the high level and the low level of where the capacity can go in 2022?
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Hi, Savi. It’s Andrew. Yes. So if you look out, these Airbus aircraft start to return by the end of the year. But if we flew them all at normal utilization, so summer of ’22, we could increase summer of ’22’s capacity up to 8%, versus where we are in ’19. So as it stands today, we’ve talked about getting to flat, but if we really needed to or wanted to, we could get up 8%.
Savanthi Syth — Raymond James — Analyst
That’s helpful. Thank you. And then, Andrew, I know you teased just a little bit on the $300 million incremental. I was just kind of wondering if that’s related to items that you have put in place today, or if there is things that you have to actually turn on to start achieving that at some part? I realize it’s not $300 million next year, but just from a execution standpoint, what’s involved related to that?
Ben Minicucci — Chief Executive Officer
Yes, Savi, I’ll start with that and then hand over to Andrew. So, when we put our 2025 strategic plan in place prior to pandemic, we built it up with a lot of strong commercial initiatives that had that $300 million in there. And then the pandemic hit, we kind of put everything on ice to address cash burn and and get back on the path of profitability. So, at our recent off site, all these initiatives are being refreshed and I can tell you, Andrew is stoked on getting going. So, maybe Andrew, maybe just — I just wanted to give you some background that these things are just not new, these are things that have been in the hopper for at least 18 to 24 months. But Andrew may spill a little color on that.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Thanks, Ben. Yes, Savi. I mean there’s sort of seven categories, and yes, some of them were there pre-pandemic that was ready, but there’s also been big changes in our business like corporate contracts, TMCs, American, oneworld, merchandising, and we’ve got some network restructuring and changes. So, I think as we roll this out, but I feel very confident that it’s almost like we were on the runway barreling down at full speed and then the pandemic hit. And we were so close to starting to roll some of these out. And now that demand is returning, and our businesses is re-establishing, we’re going to get to rolling these out.
Chris Berry — Vice President, Finance and Controller
So, Savi, I’m going to jump in too so you get all three of us on this. I just want to reiterate that the plan is sort of a 4 or 5-year plan. So, we’ll talk more about specific timing at an investor event which we’ll hold at some point in the next quarter or two. But the whole — the cost restructuring plan and the commercial plan, it’s really predicated on 2025 ultimately getting there. So, I just don’t want people to get too excited about next quarter on this stuff, but we are excited about the initiatives that we’re going to be undertaking.
Savanthi Syth — Raymond James — Analyst
Makes sense. It’s all very helpful. Thank you.
Ben Minicucci — Chief Executive Officer
Thanks, Savi.
Operator
The next question is from Hunter Keay with Wolfe Research. Please go ahead.
Hunter Keay — Wolfe Research — Analyst
Hey, hi.
Ben Minicucci — Chief Executive Officer
Hi, Hunter.
Hunter Keay — Wolfe Research — Analyst
Hey, Andrew. Andrew, have you ever contemplated — have you and your team ever contemplated like a fully transparent or predictable revenue management strategy? Basically non-dynamic pricing?
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Hey, Hunter. I think no. That’ll be my short answer to that. But if you want to expand on your question. Happy to give you more color.
Hunter Keay — Wolfe Research — Analyst
Well, that’s fine. If the answer’s no, then it’s no. We’ll speak about that some other time. But-
Chris Berry — Vice President, Finance and Controller
I think would say, I think we do try to be simpler than a lot of other folks. I mean, it is a comp — I mean you know this well, it’s a complicated sort of discipline, but we were, I think, the first domestic airline to go to one-way fares. We have had a pretty small number of buckets relative to others. We’ve had sort of caps at the high-end, historically, and we have tried to be fair and simple with a lot of this stuff. But sort of a one-price fits all, or something like that, I don’t — I think it’s probably revenue negative. So, we haven’t really looked at that. Yes.
Hunter Keay — Wolfe Research — Analyst
Okay.
Ben Minicucci — Chief Executive Officer
But it’s always good to hear it. I mean, we all stimulate our thinking. So, maybe following this, we can hear more.
Hunter Keay — Wolfe Research — Analyst
Yeah. Let’s talk about it some other time. Maybe we will — I have some ideas. But anyway, one other question for you to chain. When you talked about pulling the Airbuses out, do — you mentioned supply chain disruptions? Are you suggesting there is some risk to the MAX delivery schedule?
Ben Minicucci — Chief Executive Officer
Hunter, no. I mentioned that — we just meant the Boeing — I will tell you, I am 100% confident in Boeing’s ability to deliver. Our view is that there are things right now in the economy with supply chains that some of us can’t even see, out of our control, out of Alaska’s control, out of Boeing’s control. And these Airbus, what it does, it just gives us dry powder to either backfill any issues that we may experience because of it, or like Andrew said, we can grow up to 8% for the next summer of 2022. So, again, with a prudent approach to capacity discipline. So, it’s just more arrows in our quiver for us to manage going forward.
Hunter Keay — Wolfe Research — Analyst
Okay. Yes, thanks, Ben. Appreciate it, everybody.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Thanks for all of these, Hunter.
Operator
The next question is from Joseph DeNardi with Stifel. Please go ahead.
Joseph DeNardi — Stifel — Analyst
Oh, thanks, good morning. Shane, just following up on an earlier question, if capacity in summer 2022 is up 8%, what does CASMex look like in that environment?
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Well, I’m just going to be careful. If it were up by 8%, is the question, I don’t know that it will be. I think our view is, by the middle of next year with the full ramp of our cost structure — restructuring initiatives, we’re going to be in a really good place. We do expect to be at or below pre-COVID CASMex ultimately. We’ve said that from the very beginning. I don’t know if we would hit it by next summer. But we should be there or getting very close to there. But I don’t think I’ll be more specific than that. It’s — I think we’re going to have a really good cost structure. One thing we know we’re going to not do is lose sort of relative advantage to others in the industry. So, we’re super-focused on this cost discipline in execution. The productivity stuff that we’re seeing right now makes us very — makes us feel very good about how we’ve executed to-date.
Joseph DeNardi — Stifel — Analyst
Okay, that’s helpful. And then, Andrew, can you just talk about kind of customer behavior you’re seeing? Like, our folks flying more or are they spending more than they did in 2019? Or is it just kind of compressing normal behavior into a tighter window? I’m just curious kind of what changes in behavior, maybe beyond that, you’re seeing and the degree to which that speaks to kind of the sustainability of this leisure demand strength. Thank you.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Yeah. Thanks, Joe. I was just talking to my team yesterday about this. Looking out into the fourth quarter, I think what we’re actually seeing at least from our network’s perspective is actually, people are booking earlier and further out than they were in 2019. So, as we sit here today, we are seeing good intake volumes for the fourth quarter. And if you just take a look at our credit card spend and our royalty portfolio, in fact, we have had — we had the highest spend in this company’s history this quarter on our credit card portfolio. So we’re just seeing the same strength. And honestly, as I look further out, it’s still maintaining. So, that’s what I see today.
Joseph DeNardi — Stifel — Analyst
Thank you.
Operator
The next question is from Jamie Baker with J.P. Morgan. Please go ahead.
James Baker — J.P Morgan — Analyst
Hey, good morning, everybody. So, Ben, not so long ago you and I were talking about when you might reintroduce pre-tax, longer term pre-tax margin targets and whether it would simply be the pre-COVID 13% to 15% or possibly something even better. In your prepared remarks today, I kind of thought that’s where you were going, but you stopped short. What else do you need to see? Is it the macro environment, is it Alaska specific, maybe it’s related to future labor economics? I don’t know. Before you’re comfortable replanting your margin flag, so to speak.
Ben Minicucci — Chief Executive Officer
Jamie, it’s a great question. I think what we need to see is just a little more stability in the economy. For example, you got this Delta variant there that might create some choppiness in the recovery. So, I think we just want to be cautious. I mean, just from my perspective, I feel pretty confident that the worst is behind us. I think we’ve started with the strong pre-tax profit in June. I think we should easily sustain it going forward. But I think we want a little more certainty, closer to the windshield, see what’s going on out there with the labor markets, with the return of the strength of the economy. There’s inflation, there’s all these things. We just want to see this stuff simmer down a little bit, and I think come Investor Day, I think we’ll give you more information on that. We’ll give you more visibility. But it’s like you say, we’re slowly getting there and I think today this is as far as we want to go.
James Baker — J.P Morgan — Analyst
And then — and thank you for that. And as a follow-up, I think it was Joe’s ex-fuel CASM question. Can you just review for us what the headwinds and tailwinds are? Because on my list, I have more entries in the tailwind category. But of course, not every entry is equally weighted. I’m just having a hard time coming up with anything that would prevent you from having modest to materially better ex-fuel CASM by next summer. So, just looking for a little more of color on headwinds and tailwinds. Thanks.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
No. Thanks, Jamie. I do think it’s capacity at the end of the day, the fixed costs are kind of stable. We like where they’re at. A lot of the cuts that we did during the pandemic has helped. And we’ll be very disciplined on that. The variable costs are coming back as we would expect rateably. So, to us it’s capacity, is the biggest thing. Just getting the ASMs back out there to cover the fixed costs over. There’s not a major headwind. We will see about — there is going to be another sort of round of labor deals at some point, I don’t know when those will happen, but a lot of groups were open across the industry pre-pandemic. And it’s hard to say when all that stuff will get going again. But my guess is that, that’s going to be relatively equalized throughout the industry. So, to us it’s just — once we get back to our pre-pandemic level, we’re going to be in a really good position, I think, from unit costs.
James Baker — J.P Morgan — Analyst
Okay, thank you, gentlemen. Appreciate it. Take care.
Ben Minicucci — Chief Executive Officer
Thanks, Jamie.
Operator
The next question will come from Dan McKenzie with Seaport Global. Please go ahead.
Daniel McKenzie — Seaport Global — Analyst
Oh, yes. Hey, thanks, guys, good morning. So I wanted to follow-up on that question as well. Returning to industry leading margins in the next cycle. That’s what caught my ear in the prepared remarks. It sounds like, from the last question, that you can get back to your historical margins. Big picture. What are the biggest drivers for getting there, what are the biggest pieces to the Alaska story for achieving that? And I’m just wondering, maybe you could rank the revenue and commercial initiatives versus the cost initiatives. I mean, there’s a lot of new things in play for you guys in this next cycle that didn’t exist in the last cycle.indeci
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Yeah. I appreciate it. One thing I’ll just — I just want to sort of go back to our performance this quarter, and I know it’s all sort of recovery driven, but I do think posting the industry’s best margin very close to breakeven in a quarter that started with very thin demand and very poor pricing, it just underscores the strength of the business and our ability to execute. And so, we’ve got a lot of confidence as we go forward. I think, Dan, we laid out $265 million of cost reduction initiatives that we’re well on our way to capturing, and then $300 million of revenue initiatives that we just talked about today. Some of that was contemplated because we thought maybe the demand environment, like the past downturns, would be a little dampened coming out of COVID as it was in the last two big sort of industry downturns. And we wanted to be able to get back to pre-COVID margins, irrespective of whether demand was down a bit. And if it proves not to be down a bit, that’s just more upside for the Company. And so, I think that those $565 [Phonetic] million or so of improvement to the business over the next few years, relative to our pre-COVID baseline. That’s what’s going to drive this ultimately. Got a great product. We have phenomenal employees, great customer service. We’re on a good part of the country and growing part of the country. So, we’re excited for things to stabilize like Ben said. Normalized business get back out there, and we’re ready for the recovery.
Daniel McKenzie — Seaport Global — Analyst
Understood. Okay, thanks. Second question here. One of the industry’s strongest balance sheets, how are you thinking about using that in the next cycle? Is capital returns on the table sooner rather than later? Or does it make sense, potentially, to accelerate, further accelerate, some of the fleet replacement retirement upgauge to a more efficient aircraft. How are you thinking about that balance sheet?
Nathaniel (Nat) Pieper — Senior Vice President of Fleet, Finance and Alliances, and Treasurer
Hey, Dan. It’s, Nat. Thanks for the question. I think from the balance sheet perspective, as Ben and Shane said, we’re in pretty good shape from our historical debt-to-cap measures. We’ve got a $425 million facility we’ll look to repay in the next 90 days or so. And then I think going forward, it becomes a dilemma against repaying other debt, which really, in our situation, is pretty cheap rates, further investment in our business. And then, as you know, we’ve got the restriction on shareholder repayment until the end of September next year due some of the government aid. So, we’ll balance all three of those things as we move forward.
Daniel McKenzie — Seaport Global — Analyst
Okay, thanks for the time you guys.
Ben Minicucci — Chief Executive Officer
Thanks, Dan.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Thanks, Dan.
Operator
The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker — Morgan Stanley — Analyst
Thanks. Morning, everyone. So, maybe kind of a follow-up to that question, and maybe it is also linked to the revenue initiatives. But just how far pieced are you willing — off pieced are you willing to go, kind of with some of the new revenue initiatives and kind of deploying that balance sheet? Are we looking at just sticking to the existing mousetrap and try to maximize opportunity, or are you looking at completely different things?
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
This is sort of on the revenue initiatives, Ravi. I think most of it is stuff that you would expect and Andrew mentioned, and he can jump in again, but a new RM system which — ours was 20 years old, we’re excited to have the new one in place. There’s a few things, I mean, they’re just not super exciting to talk about, but distributing our premium economy cabin in indirect channels, we only distributed prior in direct channels. The American, oneworld, WCIA stuff. Those are all sort of on the list of things that are going to contribute. I don’t think we want to talk a whole lot about things that are new that we might be looking at, or difference today, but if — as we get closer to an investor event, we’ll lay out sort of more clarity on all of these areas.
Ravi Shanker — Morgan Stanley — Analyst
Got it. I think you guys are doing a really good job of ramping up the the excitement here. So, looking forward to that. And maybe as a follow-up, kind of how would you describe the competitive environment out there right now? I mean purely, there is a lot of demand still concentrated in relatively narrow regions, and a lot of capacity kind of going into that regions. So, how would you characterize the pricing environment as yet?
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Ravi, I’ll start and then have maybe Andrew jump in. I think we always expect competition in our markets, the West Coast, there are very competitive markets. Our mindset again as you see from where we were last year, how we brought back capacity, it’s always been in a disciplined, prudent approach, and I think that’s the approach we’re going to take. We have dry powder. We can scale it up or scale it back. We have a strong regional airline, Horizon, that was just fantastic throughout this pandemic. Filled in a lot of holes. Our view is just, again, a disciplined measured approach over the next 12 and 18 months. Andrew, anything? Does that make sense.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Thanks, Ravi.
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Thanks, Ravi.
Ravi Shanker — Morgan Stanley — Analyst
Thank you.
Operator
The next question will come from a Conor Cunningham with MKM Partners. Please go ahead.
Conor Cunningham — MKM Partners — Analyst
Hey, everyone. Thanks for the time. The the revenue stuff’s great. I did have a question that I feel like you guys get basically every quarter. I mean, there has been a big push from a premium perspective, but from other carriers, and you had some recent changes in JFK. So it seems somewhat topical. Was your focus just on higher yielding passengers corporate in general? Has there been any re — consideration on revisiting the product in terms of dedicating more space to premium products, or maybe even moving towards the lie flat seats? I would just imagine that corporates are asking for them. And the reason why I bring it up is, you mentioned this A320 subset of aircraft and it seems like you could get something like that there. I know you have money. I know that will cost money, but it seems like you have the balance sheet to do it. Just curious on your thoughts.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Hi, Conor, it’s Andrew. A couple of quick things. Just to be clear on the LA movement, we just redistributed JFK slots across the rest of our network. We are still in Newark. So we still fly to New York City from LA, we’ve just reallocated those. I think on the product side, of course, we’re always looking at product. But, I think we’ve got 12 and 16 seats in the front cabin and if we did lie flat that would probably still be 12 and 16 seats. But we have bigger planes to fill. So, I think where we’re at right now is just to get back in the recovery stage. We still feel really good about our front cabin product that we continue to improve. We have the best pitch in the industry on traditional seats, bar none. And then our premium class cabin is also very generous. And I think a big thing for corporates too, is our network utility, and I did touch on network and I’ll say, we’ve done a lot of expansion on breadth over the years. We’re going to focus more on depth frequency.
Conor Cunningham — MKM Partners — Analyst
Okay, great. And then on the American partnership. So, I’ve been thinking a little bit about this a little bit more, but are you expecting your customers to build points and loyalty on your network and then burn them on American’s, or maybe it’s vice versa. And — or does that even matter? I’m just curious, how that dynamic may play out when that starts to really ramp.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
I think we have a lot of experience with this actually. We’ve had big relationships for decades. And I think at the end of the day, the customers will choose where they redeem and accrue miles on their individual programs. And again, we just feel really confident and good about our West Coast network and footprint. And then American has this big national and global footprint. And I think that will work very well together. And I think both customers of Advantage and Mileage Plan are going to be at a lot of opportunity and choice.
Conor Cunningham — MKM Partners — Analyst
Okay, great. Thank you.
Operator
The next question will come from Mike Linenberg with Deutsche Bank. Please go ahead.
Michael Linenberg — Deutsche Bank — Analyst
Oh, yes. Hey, good morning, everyone. Hey, Shane. Just a quick one right here. As best as I can tell it seems like you’re in the best position to get back Investment Grade next. Is it a stated objective of the Company to get to an IG rating? Where are you on that?
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
It’s a stated annoyance that we’re not an IG rated company. But yeah, I know Mike. It’s — Nat and I are going to be talking about this. We need to go back in that direction. And it’s — we’ve got to figure out how to engage the agency differently, but it’s probably a ways away. As they ultimately make all those decisions. But yes, we haven’t publicly put it out there, but we certainly want to get there over time.
Michael Linenberg — Deutsche Bank — Analyst
Yeah. The reason why I bring it out is there is a lot of carriers that — they will tell you that they want to get back to Investment Grade like metrics, and then they’ll go out and lever up an airplane and borrow at a Single A Credit but never actually really do the work that they need to work — do on their balance sheet. And so it doesn’t still a level of discipline that I think many of us, our hats off, to a carrier like Delta, who wants to get to the IG rating. So, I’m throwing out of there. And then just second question here to Andrew. Andrew, you guys have done a fantastic job. I mean I don’t want to be the dead horse on this revenue. But when I think about the fact that your entire carrier relies disproportionately on coastal hubs which have underperformed a lot of the Mid-Con hubs. So you’re already with — from a difficult position, revenue wise, and yet you’re right up there among the best in the industry. Now, I know you throughout — you made the comment that there has been recalibration to the network. You talked about 50 net new city pairs. I’m curious, how much of the revenue improvement is just a function of withdrawing from those markets that were underperforming. So, I know you gave us a net number, but is there anything that you can give us to give us a sense of what markets that maybe you backed away from that just what — they weren’t working. And I know you mentioned depth over breadth and doubling down on Seattle. So, maybe I’m answering your question, it’s a combination of all of that. But any additional color on that front would be great. Thank you.
Andrew Harrison — Executive Vice President and Chief Commercial Officer
Every CEO, Ben and before, have held this strong belief, and I’m just going to be very transparent with you on this one. Is, it’s loyalty. I will tell you that never in my career — when you look at your network and specifically your areas of strength and there is unlimited seats given demand, and when you look at the T-100 data and you see your load factors compared to your competitor’s load factors, when there is unlimited seats to choose from. And your loads are multiples. You know loyalty is powerful. And I’m just going to be transparent, moving networks around is good. It’s needed. But the strength of our loyalty and our guests, and their commitment to us and what we hope to continue and invest in them on, service, loyalty program, and meeting their needs, has just proven to be very, very strong for us.
Michael Linenberg — Deutsche Bank — Analyst
Great. Great, thank you. Thank you for that.
Operator
The final question is from Myles Walton with UBS. Please go ahead.
Myles Walton — UBS — Analyst
Thanks, good afternoon. I was hoping you could just clarify, I think you said 4Q you hope the mainline CASMex would be in line with 2019. Can you give us color on regional? And then on the fleet side, that 8% higher 2022, potentially the exercise. Is that similar to the number in the fleet as well? 8% higher than where you were, or are you getting there through — still down relative to the prior fleet levels?
Shane Tackett — Executive Vice President Finance and Chief Financial Officer
Yeah. So, Nat, you can maybe close the fleet levels. The 8%, that was really enabled primarily by the reactivation of these Airbus for a short additional period of time. And I just don’t have the fleet count in my head for next year. And then on Q4, I just want to make sure we got it right, Myles. We’re talking about December exit rate really focused on mainline getting to a very close within a few points of pre-COVID unit costs, and I think we don’t expect to have pre-COVID mainline capacity back yet. Regional side is a little bumpy. The sort of very rapid regrowth in hiring of pilots around the industry puts a little bit more pressure on both the ability to deploy capacity on the regional side, and also needing to get out and start the hiring for the funnel for regional sooner. So, we’re still working through that. Those numbers, in terms of how many pilots airlines are going to hire have been changing a bunch. But that’s going to be a headwind for the regional side business for a little bit here.
Nathaniel (Nat) Pieper — Senior Vice President of Fleet, Finance and Alliances, and Treasurer
Myles, on the aircraft side. We’ve got — 2022 is a big delivery year for us with 31 737-9s coming in, 13 regional jets as well. And so, as we look forward with that and then start to phase out the A320s, we think those are all gone by the end of 2023. And with more 737-9s coming in there too. So, you’ve got some replacement naturally that’s going to happen, and then some growth as well.
Myles Walton — UBS — Analyst
Okay, thanks guys.
Operator
And at this time there are no further questions. I’d like to turn the conference over to Ben Minicucci for any closing comments.
Ben Minicucci — Chief Executive Officer
Well, thank you so much to everyone joining us this morning, and we’ll talk to all of you soon. Thank you so much.
Operator
[Operator Closing Remarks] The call will be available for future playback at alaskaair.com. [Operator Closing Remarks]