Alaska Air Group, Inc. (ALK) Q3 2021 Earnings Call Transcript

Alaska Air Group, Inc. (NYSE: ALK) Q3 2021 earnings call dated Oct. 21, 2021

Corporate Participants:

Emily Halverson — Managing Director of Investor Relations

Benito Minicucci — President, Chief Executive Officer and Director

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Nathaniel “Nat” Pieper — Senior Vice President, Fleet, Finance and Alliances, and Treasurer

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Constance von Muehlen — Employee Value Proposition and Chief Operating Officer

Chris Berry — Vice President, Finance and Controller

Analysts:

Savi Syth — Raymond James — Analyst

Andrew Didora — Bank of America — Analyst

Jamie Baker — J.P. Morgan — Analyst

Ravi Shanker — Morgan Stanley — Analyst

Dan McKenzie — Seaport Global Securities — Analyst

Duane Pfennigwerth — Evercore ISI — Analyst

Mike Linenberg — Deutsche Bank — Analyst

Helane Becker — Cowen — Analyst

Kyle Levine — Alaska Air — Analyst

Diana Rakow —

Conor Cunningham — MKM Partners — Analyst

Catherine O’Brien — Goldman Sachs — Analyst

Myles Walton — UBS — Analyst

Chris Sun — Susquehanna International Group, LLC. — Analyst

Presentation:

Operator

Good morning. My name is Seeya, and I will be the conference operator today. At this time, I would like to welcome everyone to the Alaska Air Group 2021 Third Quarter Earnings Release Conference Call. Today’s call is being recorded and will be accessible for future playback at alaskaair.com. [Operator Instructions]

I will now turn the call over to Alaska Air Group’s Managing Director of Investor Relations, Emily Halverson. Please go ahead.

Emily Halverson — Managing Director of Investor Relations

Thank you, Seeya, and good morning. Thanks for joining us for our third quarter 2021 earnings call. This morning, we issued our earnings release which is available at investor.alaskaair.com. On today’s call, you’ll hear updates from Ben, Andrew, and Shane. Several others of our management team are also on the line to answer your questions during the Q&A portion of our call.

This morning, Air Group reported third quarter GAAP net income of $194 million. Excluding special items and mark-to-market fuel hedge adjustments, Air Group reported adjusted net income of $187 million. Pre-tax margins were 12%, a 15 point improvement from the prior quarter. This marks our first profitable quarter on an adjusted basis since the pandemic began.

As a reminder, our comments today will include forward-looking statements about future performance, which may differ materially from our actual results. Information on risk factors that could affect our business can be found in our SEC filings. We will also refer to certain non-GAAP financial measures, such as adjusted earnings and unit cost excluding fuel. And as usual, we’ve provided a reconciliation between the most directly comparable GAAP and non-GAAP measures in today’s earnings release.

Ben, over to you.

Benito Minicucci — President, Chief Executive Officer and Director

Thanks, Emily, and good morning, everyone. Air Group’s $187 million adjusted net income marks an inflection point on our path to recovery. During our last earnings call, we forecasted a double-digit third quarter pretax margin. And despite the impact of the Delta COVID variant, we delivered. Our 12% pretax margin solidly led the industry and was just 6 points shy of our Q3 2019 margin. I’m proud of how our company is emerging strong from the pandemic, and I’m looking forward to when the recovery is stable and less likely to undergo demand shocks due to variants.

Our approach from the beginning has been deliberate, scaling our business back in a measured way, leveraging our strong balance sheet, and running our operation to produce consistent industry-leading financial performance, no matter what the external circumstances. Our third quarter results reflect the strength of the summer season with pent-up leisure demand, bringing passengers back to the skies. While 4th of July and Labor Day passenger employments approach 2019 levels, even with the dampening impact that the Delta variant had on demand in August and beyond, our third quarter load factor came in at 80% and total revenue was down just 18% on a year-over-two basis, a 15-point improvement sequentially from the second quarter.

Our unit costs were up 9% in the third quarter, beating the better end of our guidance range. The solid cost execution reflects incremental progress towards our productivity goals as passengers per FTE increased 6% sequentially, falling just 12 points below 2019 levels for the quarter. Shane will provide more detail about our cost performance and pressures we are seeing in a few cost categories.

Looking forward, our longer-term thinking about our approach to the recovery remains intact. Despite the transient choppiness we’re experiencing from the Delta variant, our plan is still to return to our pre-COVID size, no later than next summer and then to grow from there. We anticipate recovery will continue to be volatile at times as we learn to live with COVID and until demand ultimately normalizes. Our job is to deliver consistently strong financial and operational performance, no matter what course the recovery takes and Q3 has shown us that when demand does come back, our business model is tuned for success.

Looking ahead to the fourth quarter, we plan to increase our capacity to 13% to 16% below Q4 of 2019. And given the dampening effect of the Delta variant, we expect to deliver breakeven to slightly positive pretax margins. If the pace of the recovery accelerates from here, there will be upside to our expectations. This quarter’s results were only possible because of the hard work of our frontline employees and crews. Their dedication to delivering an efficient operation with our culture of kindness and caring is at the heart of our success.

I want to thank them for their efforts and for putting Air Group amongst the top performers in the industry in on-time arrivals and completion rates once again this quarter. Our guests have shown their appreciation for their great service too. Guest satisfaction scores have exceeded internal targets every month so far in 2021. Sustaining operational performance with high guest satisfaction is a remarkable achievement, given how complex reramping our operations has proven to be.

Several quarters of improving demand and financial performance have provided the stability necessary to invest in repairing our balance sheet. Year-to-date, we have made gross debt repayments of $1.2 billion, driving our debt-to-capitalization ratio down 10 points from year-end 2020 to 51% and moving within reach of our sweet spot for leverage between 40% to 50%. Having deleveraged so quickly from our pandemic borrowings makes clear to me that we made the right decision in not diluting shareholders during the depths of the crisis, even though that is not yet something the market is rewarding us for. We are making progress each quarter on our path to single fleet. This quarter, we took delivery of 2 more 737-9 aircraft and also exercised options for 12 incremental firm airplanes to be delivered in 2023 and 2024.

All told, we will have 93, 737-9 aircraft in our fleet by 2024 with options for 52 additional airplanes. This fleet order not only replaces our departing Airbus 319 and 320 fleet, but positions us for significant growth when demand comes back, which we expect will be in the back half of 2022. Importantly, we are in a financial position to take these deliveries, while also maintaining our strong balance sheet.

To close, I’m optimistic about the foundation we have laid to prepare for Air Group’s return to growth and profitability. We have a fantastic Boeing order book, creating flexibility for significant growth through 2025, a low cost structure that allows us to compete with low fares, supported by a strong balance sheet, a great onboard product match with industry-leading customer service and operational performance, a powerful domestic West Coast network supported with the One World Alliance, a brand with a fierce customer loyalty behind it and most importantly, a culture rooted in kindness and caring. I’d like to thank our people one more time on a great quarter.

And with that, I’ll turn it over to Andrew.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Ben, and good morning, everyone. My comments today will focus on third quarter performance, recent demand trends, progress with our alliances, and revenue guidance for the fourth quarter. Our third quarter revenues came in at $1.9 billion, down 18% versus 2019. This was on flown capacity that was also down approximately 18%, resulting in near flat unit revenues. We were very happy with this result, especially as the impact of the Delta variance started showing up in a meaningful way at the end of July.

Our revenue performance reflects a 15-point sequential improvement from last quarter, while capacity was just 3.5 points higher. Load factor sequentially increased 3 points to 80%, but the bigger revenue driver was strong sequential yields, which improved 13 points from last quarter to up 4% versus 2019. On a monthly basis, loads were strongest in July at approximately 88%, then deteriorated to 81% in August and bottomed at 72% in September. In the same timeframe, yield deteriorated about 5 points from up 3.6% in July to down 1.5% in September, both on a year-over-two basis.

These negative trends were all driven by the emergence of the Delta variant. Geographically, Hawaii represents 16% of our capacity and was our weakest performing region during the quarter given the travel advisories for the state, which damaged demand for Hawaii. In fact, the impact to our system results was to reduce RASM by 2.5 points. Considering the headwinds in Hawaii, along with the broader impact of the Delta variant, I would characterize our Q3 revenue performance as strong. Our commercial team did a fantastic job managing revenue in a volatile demand environment.

As I’ll expand on momentarily, the consequences from the Delta variant have not yet dissipated, and we’re still working to build back Q4 bookings that were lost from the fourth COVID wave, given it occurred during the important period of building Q4 traffic. But sticking with third quarter results for a moment longer, there are two bright spots that have steadily bucked trends for several quarters now, premium product performance and our loyalty program. On the premium product side, this quarter’s paid load factor in our first-class cabin was 3 points over 2019 and premium class cabin exceeded 2019 by 9 points. We continue to see strong demand for our premium products, and we believe this will only continue as business demand returns along with international demand associated with our entry into oneworld.

Regarding our loyalty program, this quarter we received the highest level of cash compensation in our airline’s history, which was up 7% from the same quarter in 2019. Our loyalty program is one of our most durable, competitive advantages and we are squarely focused on maintaining and improving this momentum over the coming quarters.

Now looking at our network, it’s only– it’s been our priority throughout the recovery to quickly rebuild Seattle and restore the Pacific Northwest capacity. This approach is producing results as is evident from our revenue performance this quarter. We’re also seizing opportunities to capitalize on demand shift as they arise. Reflecting on the year, we will have added 30 new markets and only discontinued 3. In short, choices for our guests when combined with our strong relationship with American have improved significantly.

Today we are flying approximately 85% of our pre-COVID network. Now Seattle hub capacity is fully restored with capacity above 2019, while overall Pacific Northwest flying is quickly approaching 2019 levels. California recovery remain slower as we flew 65% of 2019 capacity during the quarter. I still expect that by the summer of next year our California flying will be back to pre-pandemic levels. As part of the California rebuild, we have recently announced that we’re expanding our service from the Bay-Area to Mexico, positioning Alaska with more non-stop flights to Mexico from the West Coast than any other U.S. carrier.

Now turning to the future, the current revenue environment has certainly been challenging, but as I mentioned last call, my team is focused on building a strong commercial engine that will serve this company for a long time. One of the ways we’ll do this is by leveraging the unique benefits available to us as part of oneworld. I’d like to give a shout out to the alliances team who have been working tirelessly to establish robust commercial agreements that will unlock flexibility and benefits for our guests.

So far in 2021 we’ve added 195 incremental codeshare routes with 5 oneworld partners, increasing our codeshare portfolio by 43%. This figure includes our recently announced agreements with Iberia and with Qatar. In very short order we’ve seen Qatar become one of our top international partners as they efficiently connect our network with their nonstop services between Seattle, San Francisco, and Los Angeles with a global hub in Doha.

The Seattle-Doha non-stop, which was launched in January has been especially strong. This success is an indication Alaska gets value our global portfolio, and are eager to see their responses to American upcoming Seattle route launches to Shanghai and Bangalore in 2022. With American and our oneworld partners, our potential to capture international traffic out of Seattle and California is significant. Oneworld and our partnership with American have also open the door to greater access to corporate travel, and we believe Air Group is uniquely positioned to get more than our pre-COVID corporate market share with the tools we’re putting in place.

On September 1 we activated, for the first time, our preferred partner status with American Express GBT, enabling greater access to more corporate guests and quality traffic. I’m really looking forward to sharing more details with you about these new initiatives, as well as many others in the spring.

Now turning to the fourth quarter guidance, although the Delta variant surge looks to be behind us, its impact on bookings have left an unfavorable imprint on our Q4 expectations. Bookings deteriorated from down 20% in July to down 35% in August and flooded [Phonetic] was down 50% on a few booking days during the peak of the surge. While that rate of recovery since the peak has been slower than we experienced after the last surge this spring, over the last seven days we’ve seen bookings recover to down 10% year-over-two.

Ultimately, we believe the delta variant has reduced fourth quarter revenues by approximately $200 million. Although, the trajectory of bookings today is improved, it is not enough to fully make up for what was lost in Q4. With this as our backdrop, we expect Q4 revenues to be down 16% to 19% on a year-over-two-year basis. However, our assumptions reflect weaker performance in October with total revenue down approximately 25%.

So just looking at November and December, revenue is expected to be down between 13% and 16%, right in line with our capacity reduction. From a unit revenue perspective, October RASM is shaping up to be down about 10% versus 2019, while November and December could improve to nearly flat versus 2019.

Filling our planes is a top priority, but we’re using discounts cautiously with an eye on preserving yields, especially in a rising fuel environment. While we aren’t making any predictions about what awaits us around the corner, improving rates of vaccination, availability of booster shots, the expected near-term approval for vaccine for children, and opening of international borders could have a positive impact on the recovery and the economy.

However the recovery unfolds, I’m very optimistic that our commercial model will deliver relative outperformance as we saw in Q3, and that our work to-date has positioned us well. As Ben just shared, we expect our efforts to lead to a breakeven quarter with upside potential.

And with that, I’ll pass it to Shane. Thank you, Andrew, and good morning, everyone. As we highlighted today, another quarter of sequential improvement and strong margins underscore the durability of Alaska’s business model. Underlying our industry leading results were July and August performance that came within about 2 points of 2019 margin levels. I’m impressed by our team’s execution and the results they delivered in such an unpredictable environment. In my commentary today, I will provide insights on these results, our cash flows and liquidity, cost performance and our expectations going forward. I’ll begin with cash flows and liquidity. We ended the quarter with $3.6 billion in total liquidity inclusive of on-hand cash and undrawn lines of credit. This is down from $4.4 billion of total liquidity in June, as we paid down nearly $550 million in debt and made a $100 million voluntary pension contribution. Debt repayment included retiring our $425 million 364 day loan and our pension contribution brings our funded status to 94%, and also allowed us to capture a onetime permanent tax benefit of $14 million. Q3 cash flows from operations were essentially breakeven, excluding pension funding. The sequential decline from Q2 to Q3 was expected due to the absence of PSP grant inflows this quarter, and the normal seasonal drawdown of ATL. However, as Andrew described in his commentary, the Delta variant stalled the otherwise strong demand recovery in the quarter, and as a result the ATL drawdown was higher than originally forecast. Fourth quarter cash flows from operations are expected to be between negative $100 million and $0, exclusive of tax refunds and payments, which we expect to net to a positive $100 million in the quarter depending on when we receive our anticipated 2020 tax refund. This forecast factors in the reduced cash intakes due to the impact on bookings of the Delta variant. Plan debt service for the remainder of the year is approximately $120 million and we have no plans for further pre-payments through the end of the year. With this quarter’s debt retirements our debt-to-cap is dropped to 51%, placing us just shy of our intended range as Ben shared. Today, our outstanding debt bears a relatively low weighted average effective rate of 3.3% and our 2022 debt service is very manageable at about $375 million for the year, roughly a quarter of that of 2021. Moving beyond 2022 annual debt services in the range of $250 million to $400 million. For the sustained return to profitability, I expect our net debt to EBITDA levels to move to approximately 2 times or less in 2022. Our liquidity and balance sheet are in great shape and we plan to leverage both as we fund our fleet order and eventually look forward to reactivating shareholder distributions, which we can do towards the end of next year. As of now I expect our total liquidity to move to approximately $2.5 billion in 2022. Moving to costs, I will touch briefly on our Q3 performance and then focus on our cost trajectory over the next several months as we prepare for a return to growth. This quarter, non-fuel costs were $1.3 billion, with unit costs up 9.3% versus 2019, better than the guidance we issued in September. Our teams have continued to do a superb job meeting their internal cost plans and we also saw lower than expected medical costs in the quarter. Fuel costs rose again this quarter to $2.05 per gallon, up approximately 25% from where we started the year. With crude at $70 per barrel for the quarter, our fuel hedges provided a $21 million benefit or $0.11 per gallon. We currently have 50% of our planned fuel consumption hedge for the next six months, at an average strike price of $61 in Q4 and $69 in Q1. Given the current spot price of oil, we expect to continue to realize hedge benefits in Q4 and into 2022. Meaning we also expect to see fuel cost headwinds impact absolute margin performance in the near-term. Looking forward, we continue to make steady progress on getting costs back to pre-COVID levels. That remains an expectation and priority of the leadership team. Our progress into through 2021 has been solid with mainline CASMex compared to the same month in 2019, up 19% in June, up 7% in September, and likely to be up 4% to 5% in December. Capacity in December compared to 2019 levels is expected to still be down 13%. Capacity pressure is more acute for our Horizon operations as aggressive pilot hiring across the industry is expected to lead to abnormal attrition levels, creating lower capacity capability and consequently, also pressuring their unit costs in the near-term. We’re also seeing modest pressure in entry-level wages, which we believe is both an industry and general trend in the economy at large, and wage adjustments in this category are adding approximately $7 million for the fourth quarter. Additionally, as we ramp to 100% of pre-COVID capacity, we are onboarding more employees earlier than we normally would, given our training throughput capacity. Costs associated with additional training and carrying employees for the quarter are approximately $5 million. The costs associated with ramping capacity will normalize by next summer. In 2022, we will continue to reduce unit costs as capacity returns. Doing so is not without its challenges as we have two particular headwinds to offset, one is airport-related costs as our airport partners run to CARES grants and return to fully charging airlines for both operations and capital expenses. The other area is step-up in transition costs related to the returning our Airbus fleet to lessors. The cost of returning aircraft were fully contemplated in our decision to return to a single fleet, and the economics of doing so are strongly favorable long-term. As we step squarely into the return window, we will be recognizing these expenses through the P&L in earnest. I expect the largest impact in 2022 with a significant step down from there into 2023 and a final one down in 2024, which will provide a nice tailwind to our CASMex trajectory as we exit 2022 and move through 2023. Notwithstanding the headwinds, we will emerge as an airline with a cost structure equal to or better than 2019 in short order. Our cost restructuring targets are intact, and this quarter’s results reflect increased utilization –realization of productivity savings as well as the efficiencies of now 7, 737-9 aircraft flying for our mainline fleet. As a result of the headwinds and tailwinds I’ve described, our expectations for Q4 unit costs is that they will be up 7% to 9% versus 2019 on roughly 15% lower capacity. To close, I would just say again that our underlying business model is strong. While demand is choppy and we hate that we don’t get to have the fourth quarter that we think we were set up to have because of the Delta variant, we are confident that when reasonably strong demand returns we are poised to deliver strong financial performance. We’re looking forward to rescaling to our pre-COVID size and demand allowing growing from there. As we do this, we will be continuing to deliver on our cost restructuring and fleet transition and unlocking commercial levers to drive additional value to our bottom line. And with that, let’s go to your questions.

Questions and Answers:

Operator

[Operator Instructions] And the first question will come from Savi Syth with Raymond James.

Savi Syth — Raymond James — Analyst

Hey, good morning, everyone. As you talk about kind of rebuilding the network here, I was just kind of curious, the kind of big airport Seattle, Portland, San Francisco and L.A., as you build those back, this is kind of the mission, the way — the strategy behind those airports are how you operate them change kind of post-crisis versus before?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Hi, Savi. Good morning. It’s Andrew. I wouldn’t say it’s changed, but we have actually made some refinements and tweaks. Obviously, Seattle, we serve everywhere from there and Portland to a lesser extent. I think some of the pivots you’ve seen us make and given the come to is especially Los Angeles, you’re going to see a little more leisure flying for us out of there, we do very, very well. And I think in San Francisco, we build out a pretty good network, and I think what you’re going to see us stay a little more focused on is the largest O&Ds out of there, making sure we do have the top 20-25 business markets. And so that’s sort of where we’re landing on all of this.

Savi Syth — Raymond James — Analyst

Got it. And then just, Andrew, maybe if I could follow up on that a little bit more. On the other focus cities that you’ve tried to build in the past or kind of working. So think about kind of San Diego, Salt Lake City, Boise, how do those fit in within the network? And any kind of learnings on — in the past trying to build those out?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Yeah. We’ve — especially on the secondary cities, but we’ve done a lot of Pacific Northwest to California. We used to flow that traffic over our major hubs. And just given the demand and the loyalty strength and the evolution of those markets, we’re finding nonstop service to be very good there. I think, San Jose, as part of the Bay-Area and San Diego for us, it’s all about loyalty as well and making sure we’ve got utility for all of our guests. So while we focus mainly on the Seattle, Portland, San Francisco and Los Angeles, the Boises and the secondary cities will always be very, very important to us, and we’re going to continue to grow those over time.

Savi Syth — Raymond James — Analyst

Makes sense. And just one last clarification, where is business demand these days?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Business demand is coming back. In fact, we’ve had the best day — best week, I should say, recently versus the previous one in the pandemic, which was just before summer. So what we’re seeing is an increased steady forward momentum of business demand starting to return.

Savi Syth — Raymond James — Analyst

Okay, got it. Thank you.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Savi.

Operator

The next question will come from Andrew Didora with Bank of America. Please go ahead.

Andrew Didora — Bank of America — Analyst

Hi. Good morning, everyone. Thanks for the questions. I guess, a questions for Andrew, I know industry capacity plans are pretty fluid here, but you’ve benefited from sort of below average competitive capacity growth through much of the pandemic. And I know this has been helping on the yield performance that you talked about earlier, but we do see some of this capacity picking up, particularly into 1Q based on schedules. Can you maybe talk about what you’re seeing in the competitive environment and how you see it unfolding over the next quarter or two?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

We’ve — I don’t know. We look at the West Coast, Andrew, and we’ve looked at how the competitive environment goes. I think a little bit the West Coast has been honestly subjected to weaker demand than rest of the country. So even though you may see that competitive capacity is not as high vis-a-vis others, I do think when you think about California specifically, demand has been soft there. But at the end of the day, we feel really good about our network mix and how we’re structured. And we feel really good, as you can see by the third quarter that our network is configured for good performance.

Andrew Didora — Bank of America — Analyst

And Shane, maybe, Ben, I think, Shane, you mentioned in your prepared remarks, and I think you’re the first airline to say this is that you were looking forward to shareholder returns this time next year. Your balance sheet can certainly handle it. But I guess, Shane or Ben, I guess when you’re allowed, when you think about your capital return policy, do you think it will be as high up on your priority list as it was pre-pandemic? And the way you think about it now, do you think you’ll be a little bit more focused on sort of a buyback or a dividend once you’re allowed to? And thanks for the questions.

Benito Minicucci — President, Chief Executive Officer and Director

Thanks, Andrew. I think, yes, our sort of thinking here is that we want to put ourselves into a position to be able to do shareholder returns, we’re not committing to any particular time frame today to do that. We’ll obviously sort of get together with our board and make decisions about what the best avenue is and at what levels. But I don’t think a lot about our sort of capital deployment and capital allocation philosophy has changed. We do have to sort of understand what a go-forward environment with COVID looks like and how stable demand and returns are. But I think our philosophy that we had going into the pandemic is going to be very, very consistent with the one we have coming out in terms of shareholder distribution returns.

I will say that our first priority is making sure we have a stable business, enough liquidity on hand to manage the ups and downs and to grow the airline, but shareholder returns are also super important to us.

Andrew Didora — Bank of America — Analyst

Thank you.

Operator

The next question will come from Jamie Baker with JPMorgan. Please go ahead.

Jamie Baker — J.P. Morgan — Analyst

Hey, good morning, everybody. So you echoed what other airlines have said this season about premium demand. To the extent that this phenomenon is permanent and growing, do you need to do anything differently to continue capitalizing on it? Or are you optimized for this next demand leg up, however you want to describe it?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Hi, Jamie. You know I — our cabins I believe are well configured with first class and premium class, so I don’t see any product changes. But to your point, we are going to, definitely especially with business demand, and our ability to play a much larger place there, is our booking curves, and how many seats we hold out and when. I think historically we’ve probably denied business traffic, that cabin, historically, and I think we’re going to get more fine-tuned on that. So I think that would be the — sort of the largest change. And then the other part of that too is just making sure that our network, we’re going to be a little more disciplined about timing our flights for that business demand. So I see just increased demand coming for that premium cabin going forward.

Jamie Baker — J.P. Morgan — Analyst

Okay, that’s helpful. And second, and I apologize for pivoting to the model, did you say the Delta variant sapped fourth quarter revenue by $200 million? Was that right?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

That’s correct.

Jamie Baker — J.P. Morgan — Analyst

Okay. It’s on the tape that it was $400 million, so I just wanted to make sure I wasn’t wrong. So even if we allow for some variable costs associated with that, if we were to just tack that $200 million to today’s guide, it implies that you’d be back in the double-digit pre-tax margin territory in the fourth quarter. And I know that’s where the fourth quarter plan was in July because you said so. But that was on cheaper fuel. So, I guess, my question is whether or one, is there anything wrong with my math, hopefully not, but if not, it feels like your ex-Delta fourth quarter plan actually strengthened over the summer despite the rise in fuel. Is that a fair albeit mangled interpretation?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Hey, Jamie, it’s — the one thing you can never do is go backwards and redo things over again and know what it turns out if there wasn’t a variant. But I think what we had going for us, were very, very strong load factor builds. We were above — at this call in July, we were sitting on load factor builds that were above 2019 levels almost every forward month, and on yields that were above 2019 levels in every single month. And so, yeah, I mean I think we were feeling quite optimistic if that demand pattern sort of played out and wasn’t interrupted, that we could add a really strong fourth quarter. Hard to exactly know if strengthen over…

Jamie Baker — J.P. Morgan — Analyst

Sure.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Between that and now is the right way to think about it, but, yeah, it would have been a strong quarter for sure.

Benito Minicucci — President, Chief Executive Officer and Director

I think Jamie, it’s Ben…

Jamie Baker — J.P. Morgan — Analyst

But just — yeah, sorry, go ahead.

Benito Minicucci — President, Chief Executive Officer and Director

I think this is — and we said in our prepared statements, I think this is why we’re confident about our business model. I think it’s a business model that when recovery comes back we’re going to produce returns. And I think it just goes to underscore that. But go ahead. I think you have a follow-up.

Jamie Baker — J.P. Morgan — Analyst

Yes. So — and that’s certainly my modeling interpretation as well. Just a real quick labor clarification, do I recall correctly, that you were the only airline of size in the U.S. that still doesn’t have a preferential bidding system, is that right?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

We don’t with our pilot group, we do with our flight attendant group. That is true, Jamie.

Jamie Baker — J.P. Morgan — Analyst

Okay, just checking. Thank you.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Jamie.

Operator

The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker — Morgan Stanley — Analyst

Thanks. Morning, all. If I can just follow-up on the last two questions, are you guys surprised at all that, A, the mix is so strong coming out of the pandemic. Again, is that something that you have expected given and people’s preference of travel in front of the plane, kind of given everything that’s going on, or is that a surprise? And second, on the competitive side, and I’m just — given the concentration of travel, kind of, are you surprised at all that the industry has pulled back on traveling a certain lanes and it’s not a free for all out there?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Hi, Ravi. I can’t speak for the rest of the industry, but what I can speak to — for Alaska is knowing business demand was where it was we materially reduced fares in the front of the cabin. Our first class fares were coming down, but they were way made up plus much on the volume side. So, I feel the team did an outstanding job at lowering fares and driving net debt incremental value through volume. And so that’s part of what we’re going to have to measure going forward, but let’s be clear, who doesn’t want to travel in first or premium class. I mean, I don’t believe there’s anybody. So it’s all matter of our price and volume. So the demand, that’s the first place people want to sit and so we’ve been working well there.

I think on the industry capacity, again, I don’t know, you all look at the network and the system. We look at the West Coast. And as I look across the West Coast, you see a lot of adjustments by other carriers coming down closer in. And I think one of the things that I’m particularly proud of, especially with our operation folks and Ben’s leadership here is that we have not been volatile adding back, reducing, adding back, reducing capacity. We’ve been on a steady path that has allowed for really good cost control, really good selling an inventory and minimal guest disruption. So I feel like all of that has been working for us.

Ravi Shanker — Morgan Stanley — Analyst

Got it. If I can just…

Benito Minicucci — President, Chief Executive Officer and Director

And Ravi, I think for the leisure — go ahead, go ahead.

Ravi Shanker — Morgan Stanley — Analyst

No, sorry. Go ahead.

Benito Minicucci — President, Chief Executive Officer and Director

I was just saying, just for the leisure traveler, I think with this, the environment of COVID, I think they are all looking for more space and to have more comfort when they fly and we have competitive fares up on our premium class and first class. I do think we’re seeing the benefit of that. Sorry, go ahead. You had another question.

Ravi Shanker — Morgan Stanley — Analyst

Yes, so just a follow-up on that specific point. So how do we think about this going into ’22 and ’23? Are you be– are you going to be looking to keep this elevated mix of premium cabin with the fares at current levels, or are you going to be look the return fares to where they used to be, even if that kind of– if you see this mix shift back a little bit to the main cabin?

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

The only thing I’ll comment on that is, it’s not so much the fares that we’re focused on, but of course as business travel returns, as our road warriors return and loyalty returns, we are still committed to having robust opportunity for our guest to upgrade into the first class cabin. So we’re going to be balancing fares with first class upgrade occupancy rates. And that’s going to be our challenge going forward. But it’s a good problem to have.

Ravi Shanker — Morgan Stanley — Analyst

Perfect, thank you.

Operator

The next question is from Dan McKenzie with Seaport Global. Please go ahead.

Dan McKenzie — Seaport Global Securities — Analyst

Hey. Thanks, guys. Just a question here with respect to the American partnership. What is the aggregate wallet that Alaska can now tap into that it couldn’t previously? And I guess what I’m really fear– I’m really referring, pardon me, to just to a normalized backdrop. So corporate travel managers that for the first time can consider flying an Alaska and American as an alternative to their current program.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Yeah. Hi, Dan, I may — I’ll answer you second one first, I think. But essentially, really the unlock here is a couple of things to your point. We’ve had overwhelming response from our corporate clients wanting joint contracts with Alaska and American, providing much more competitive fares and much bigger options. We’ve also, just to be frank, been more generous now with our big corporate accounts, we’re opening up priority seating for them, handling on IROPs, and so the whole dynamic there has really improved.

On the first part of your question, could you repeat that?

Nathaniel “Nat” Pieper — Senior Vice President, Fleet, Finance and Alliances, and Treasurer

Dan, I’ll take it, actually. This is Nat. And speaking to the value of the American partnership, I think a couple of places. Initially, when we announced the WCAA, the focus was on American’s nonstop flights out of Seattle to London to Shanghai and to Bangalore. And obviously with international travel a bit suppressed those haven’t taken off as actively as we want, but we’re excited about the potential there. But what has really come to pass is linking our domestic networks via codeshare, and having the ability to out of Los Angeles, San Francisco, and over the Chicago hub for American offering unique destinations that we can get our passengers too. And s,o I think that the Moanes [Phonetic], the Grand Rapids codeshare behind Ohare, and behind the American hubs is really been valuable and lets us tap into demand streams that before we really couldn’t.

Dan McKenzie — Seaport Global Securities — Analyst

Yeah. Helpful. Okay. And then one of the comments in your prepared remarks, you’re looking to get to a cost structure of 2019 sooner rather than later. Do you have to get to 100% of 2019 capacity to get to a CASMex that’s similar, or can you achieve a CASMex of 2019 with less than 2019 flying?

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Yeah, thanks, Dan. It’s Shane. No, we don’t — I don’t think that we would have to get back to full 100%. We’ve got a pretty large cost restructure program and commitment that we’re executing on. A big piece of that is movement to single fleet, and that takes a couple of years to get done. And so it’s likely that we will actually be above 100% of pre-COVID sort of coinciding with the forecast of those cost restructure items, but if we, for whatever reasons, at a 90% or 95% of our pre-COVID capacity for a long time, our commitment will be to get back to 2019 cost levels. It’s just — I think the trajectory is going to be a bit different with our order book and with what we think about the opportunities in front of us up and down the West Coast and with our business model, it’s likely we’ll be growing above the pre-COVID size and at about the same time getting to the pre-COVID cost structure.

Benito Minicucci — President, Chief Executive Officer and Director

And then what changed at all business is we’re focused on is productivity. And we’re getting back to our premerger productivity targets, and that goes hand in hand with a single fleet, and that’s what we’re squarely focused on. When we get back there, that’s going to be the sweet spot for us, and we’ll see a big benefit in CASM as well.

Dan McKenzie — Seaport Global Securities — Analyst

That’s perfect. Thanks for the time, guys.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Dan.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Thanks, Dan.

Operator

The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Pfennigwerth — Evercore ISI — Analyst

Hey, thanks. Good morning. You’re probably not the best airline to ask this because your plan has been appropriately conservative and your schedule hasn’t whipped around as much. But on labor availability, airport staffing, ground handling, are you seeing any early signs of clouds parting on that front? Are you seeing any relief?

Constance von Muehlen — Employee Value Proposition and Chief Operating Officer

Thanks for the question, Duane. This is Constance. I think as our performance has shown in the third quarter, we’ve really delivered among the top performers in the industry despite all the challenges we have. And that’s for two reasons. One, you mentioned, which is disciplined return to capacity. And secondly, really resilient proactive team in solving all the many challenges we have, some you listed in your conversation. Those are true across the industry. I think our leadership team has done a great job addressing those as we see them. I’m confident we’ll continue to do just that through the fourth quarter and beyond.

Duane Pfennigwerth — Evercore ISI — Analyst

Fair. All very fair comments, which we agree with. I guess the question is, I guess, the effort for higher or to the extent you’re trying to acquire airport staffing, is that getting any easier or is it just as difficult as it was?

Constance von Muehlen — Employee Value Proposition and Chief Operating Officer

I would say it’s consistently difficult. Perhaps the acquisition is one thing and then the kind of retention piece and consistently staffing on everyday continues to be a challenge. I think that’s true across the industry. So we do put inordinate amount of effort into that relative to what we may have done in 2019.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Duane, let me just quickly add because we want to tighten our answer real quick. But — it’s a — Duane, I think everybody’s dealing with it, certainly, the Seattle region, it’s been tough to get entry-level workers, just that pool of labor hasn’t been what it used to be, but I will say it’s improving. I think as we’ve gotten through the summer and into the fall, our need for staffing is a little bit less and I think the labor pool is starting to expand a bit. So, I think the things are going the right direction. But one thing I know, Constance, would also say is we still appreciate the employees who came to work every single day, put everything they had into the operation, work tons of overtime to keep our guests moving and really minimize operational disruption. They did a phenomenal job.

Duane Pfennigwerth — Evercore ISI — Analyst

That’s super helpful. And then just for my follow-up, and I apologize if you mentioned this, but how are you thinking about capex in ’22 and ’23? And thanks again.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Capex right now, Duane, we’re — for ’22, we’re looking at about $1.5 billion with airplanes, obviously, in the midst of our fleet growth. And then a little bit north of that in 2023 as well. Again, based on our liquidity forecast, based on our conservative pretax margin forecast, the plan is to pay cash for all of those airplanes and still be well above our minimum liquidity value at year-end ’23.

Duane Pfennigwerth — Evercore ISI — Analyst

Okay, thank you.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Thanks, Duane.

Operator

The next question is from Mike Linenberg with Deutsche Bank. Please go ahead.

Mike Linenberg — Deutsche Bank — Analyst

Yeah. Hey, good morning, everyone. Two questions here. Shane, you talked about the headwind with respect to redelivering the Airbus airplanes. I think you said 2022 and 2023, how many airplanes are we looking at here? And what is it like $1 million to $2 million an airplane? I’m just trying to size this cost headwind that will go away in a few years?

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Yeah. Thanks, Mike. It’s well north of that. These are full engine restorations and airplane restorations as a condition of the lease. It’s work we would have had to do had we extended the leases so really all of these aircraft are due for sort of heavy maintenance cycles. The number of aircraft specifically about your, I think, Chris might have.

Chris Berry — Vice President, Finance and Controller

Yeah. So we’ve got about 24 operating Airbus A320s that will all be gone by the end of 2023. So that’s what you’re — that’s really the number you’re looking at. And to Shane’s point, these are — we’ve had some history of returning these. These are anywhere between $6 million to $12 million of tail on the return costs. And so that’s kind of the bubble you’re looking at for the next couple of years. It’s different, Mike, we’ve got maintenance reverse for a lot of this. So that’s the P&L expense portion.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Everyone has to negotiate.

Mike Linenberg — Deutsche Bank — Analyst

No. That’s actually super helpful because it gives us a good sense of what’s going to kind of go away. And then just to my second question, I guess it’s to Andrew, there’s been some comments about some commentary, some very good qualitative commentary about your relationship with American and oneworld. Interestingly, American on their call, they said that the benefit that they were getting from you and Jet Blue was accretive to revenue thus far by — I think they threw out a 0.5% to 1%. They said something on the order of about 750,000 passengers. And obviously, we’d have to split and sort of figure out what’s your piece and what’s Jet Blue’s piece. But the fact is they’re five times bigger than you are. So I’m curious if anything that you can throw out as it relates to what you’ve seen on the revenue front, is it a couple of percentage points accretion to revenue since it’s been up and running? Anything quantitative would be helpful. Thank you.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Yeah, I think that’s a great question. And we’re not probably prepared to make a whole lot of comments here other than to say that we’re going to unpack this for you on Investor Day. And I mean, we’re going to give you a lot more transparency then and that’s probably the whole…

Benito Minicucci — President, Chief Executive Officer and Director

Yeah. We’re getting — Mike, it’s Ben. We’re seeing a lot from the value of this partnership with American and oneworld. Again, it’s not totally unlocked because of COVID, but we do see upside, and we’ll give you more details on Investor Day.

Mike Linenberg — Deutsche Bank — Analyst

When is Investor Day, by the way?

Emily Halverson — Managing Director of Investor Relations

It’s going to be in March. Press release will be sent out, Mid-March.

Benito Minicucci — President, Chief Executive Officer and Director

We promise it won’t be raining, although we’re going to do it in New York right.

Mike Linenberg — Deutsche Bank — Analyst

Very good. Thank you.

Operator

The next question is 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. Just a couple of questions, actually shifting gears completely to ESG. You’ve made a number of changes, I guess, to the Board over the last couple of years. So as you’re thinking about that, is the Board where you want it to be? Are there retirements coming up that gives you a chance or to change — to get more diverse? Or are you okay with that? And then the other part of my question is with respect to Alaska Star Ventures, what’s the focus for that? What are you hoping for it to do? Is that focused on SAF acquisition? Or maybe you can unpack some of that. Thank you.

Kyle Levine — Alaska Air — Analyst

Hey, Helane. Good morning. It’s Kyle. I’ll take the first question, and Diana will take the second. I think our Board is so fantastic, and we just added a new Board member, bringing us to 12 independent directors, Adrian Lofton, just joined last week, bringing really fantastic marketing and brand experience to our Board. I’ll also just note, I think currently we’re at 50% gender diversity and about 40% plus ethnic diversity, we’re super proud of that. And we’re very happy with the Board composition right now.

Benito Minicucci — President, Chief Executive Officer and Director

Helane, what I’ll say is our board is squarely focused on ESG and sustainability. It’s a big strategic driver for us. and they’re really excited about our path forward on this, which will dovetail into answering your second question here we’re excited about Alaska Star Ventures. Diana?

Diana Rakow —

Yeah. Thanks, Mike, for asking. So specifically, Alaska Star Ventures is right now focused on the five parts of our path to net zero, which we announced earlier this year. So just briefly, those are operational efficiency, obviously, the fleet evolution, which Star Ventures is not focused on, but sustainably use of fuel novel propulsion and credible carbon offsets to close the gap to our target. So we’re looking specifically for technologies or in the case of our first investment, a specifically sector-focused fund that can help us to accelerate those paths — that path and bring technologies to the system that can help us do that in the next three to five years.

Helane Becker — Cowen — Analyst

That’s very helpful. Thank you very much. I just have a question. Your — maybe Ben for you, I don’t want you to say anything you can’t say with respect to the pilot negotiations, but what’s up with them?

Benito Minicucci — President, Chief Executive Officer and Director

Helane, first, I want to say we have a fantastic group of pilots. They’re highly skilled professionals. They keep us safe and on time, and we value their contributions. They do a great job for us. We’re — we’ve got some sticky issues we’re working our way through and we’ve asked the national mediation work for some help and we’re comfortable we’re going to get to a deal. We have a history of getting deals with our unions and so we’re — we know we’re going to get there. What I’ll say is, we have an exciting future for our pilots. You heard our growth plans. We plan to grow the airline a lot over the next three, four years. So this will be a phenomenal place for our pilots to spend their career. So we’ll get there. I appreciate the question. Thanks, Helane.

Helane Becker — Cowen — Analyst

Thanks, Ben. Thanks, everybody. Thank you.

Operator

The next question will come from Connor Cunningham with MKM Partners. Please go ahead.

Conor Cunningham — MKM Partners — Analyst

Hey, everyone. Thank you for the time. I might be wrong, but I think your credit card agreement is up soon. The markets been reset a little with the recent agreement from another carrier. I was wondering if you could just provide some details around how many sign ups you’ve had since closing on the Virgin America acquisition, or maybe just how spend has evolved in the card over the past couple of years?

Andrew Didora — Bank of America — Analyst

Yeah, hi, Conor. We’ve been — we still got a little bit of time on our agreement. That said, we are very aware of other agreements down and we are working very closely with Bank of America, who we have a 30-year relationship with, and things are changing and they’re working to change with us. But I think as I said in my prepared remarks, I think since ’13 we’ve got a compounded annual growth rate of 9% on both our portfolio of members and spend. So, this program has done nothing but deliver and return. And as I also shared, we’ve had the highest cash receipts we’ve ever had. So more to come there, and as we get into ’22, we’ve got a lot of exciting things planned that I think is only going to fuel growth in our loyalty program.

Conor Cunningham — MKM Partners — Analyst

Okay, great. And then Ben, in the past you’ve talked about making Alaska a national brand. And I assume that would involve some further investment in markets that are off the West Coast. I saw that you put in for slots at Newark, and clearly, that would be big for the brand in Northeast. Just wondering how you may benchmark that success, or just brand awareness outside of the West Coast, outside of where you guys are already pretty dominant? And thank you for the time.

Benito Minicucci — President, Chief Executive Officer and Director

Yeah, no thanks, Conor. No, this is a big strategic initiative for us. It won’t be just a six-month or 12-month initiative. This will span the next three, four years, and it’s really linked to what Andrew is saying and how we build back our network from 80% to 100% and grow from there. So there will be a focus first on the West Coast and making sure people understand who Alaska is and the strength we bring with our network and with our brand and with our loyalty and our product. So we’re going to focus first on the West Coast, and then move East from there.

Conor Cunningham — MKM Partners — Analyst

Okay, thank you.

Operator

The next question will come from…

Benito Minicucci — President, Chief Executive Officer and Director

Thanks, Conor.

Operator

The next question will come from Catherine O’Brien with Goldman Sachs. Please go ahead.

Catherine O’Brien — Goldman Sachs — Analyst

Hey, everyone. Thanks for the time.

Benito Minicucci — President, Chief Executive Officer and Director

Hey, Catherine. Thank you.

Catherine O’Brien — Goldman Sachs — Analyst

Hey, guys. So it sounds like you laid out a path to have capacity flat to up for 2022. I mean, I guess, correct me if I’m wrong, but — and then from some earlier comments, it sounds like in that scenario, we should be expecting unit costs down versus 2019. I guess, is there anything wrong there? And if that’s right, are there any larger tailwinds, you want to flag? Thanks.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Catie. Hey, I just — I want to stop short of giving guidance for next year, because we don’t want to be doing that today. We do totally recognized that there is an appetite to understand what our view on 2022 capacity and cost is for the full year. I think when we have our earnings call in January, we will strongly consider giving full year guidance instead of just quarterly guidance. But yeah, the essence, I think, is get back to pre-COVID size by summer of next year. And we’ve got planes coming in, in the second half that could allow to grow if demand is there, and we’re configured to do it. And as we go along that capacity trajectory, we’d see our unit cost ultimately step back to hopefully flatten them down, but not — I don’t want to commit to a timing for that right now.

Catherine O’Brien — Goldman Sachs — Analyst

All right, that’s fair enough. And then it sounds like you’ve already locked in either some new contracts from corporate clients, or perhaps have made adjustments that give you greater wallet share with existing accounts, that have occurred since the onset of pandemic with your American and oneworld partners. Can you help us frame the upside you have on the books? Like, as of now, if you were to assume that all else equal, your pre-pandemic corporate volumes return 100%. I’m sure you can’t give, like, an exact number, but just, like, is that $110 million, Is it $150 million, like, it’s really will be helpful. Thanks, guys.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Catie. What I will say is that, you know how these things go. They have RFPs, they cycle through every few years. I think we are rapidly in the process of changing out our agreements for joint contracting agreements, RFPs, plan to full and we’ve just found an overwhelming engagement, and we are also being more and more competitive on business fares, and working with big, big TMCs like GBT, just going to only help us propel that more. So I think that’s what I’ll share, and again on Investor Day, we will share more about our strategy around that.

Catherine O’Brien — Goldman Sachs — Analyst

Thanks so much for the time.

Andrew Harrison — Chief Revenue Officer, Chief Commercial Officer and Employee Value Proposition

Thanks, Catie.

Operator

The next question is from Myles Walton with UBS. Please go ahead.

Myles Walton — UBS — Analyst

Thanks. Morning, or afternoon. I was wondering maybe a follow-up on Catie’s question, and it’s a little bit cart before the horse, but is it reasonable to think ’22 as a double-digit margin year and maybe some of the frustration you sensed, the market not recognizing the performance is simply that everybody is losing money. I mean everybody is losing money, losing less is necessarily a big deal, but maybe the market isn’t differentiating your uniquely higher gearing on the volume as it drops through from a pre-tax basis.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Yeah. That was appreciated. It’s really hard to say. Just — if you look at the revenue impact that we mentioned from this one wave, it’s a couple of hundred million for Q4 alone. It was more than that if you add in Q3 impact. So if there are no more waves and demand comes back and the economy is strong, then yeah, we’re configured to deliver really strong financial performance. But I think what we’ve been saying all along and been open with is, we expected choppy recovery. That’s what we’re sort of mentally prepared for. Oil prices are spiking right now. That’s going to be a headwind. So it’s hard to give you some exact confidence that we’re headed towards those types of margins. We would love it if everything stabilized and we could deliver that. But I think the environment is really too choppy to be able to predict that right now.

Myles Walton — UBS — Analyst

Okay. One detailed one. So your headcount is down about 16% roughly in line with capacity. As you get back to 2019 capacity, where will your headcount be relative to 2019? Thanks.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Yeah, great question there as well. It should be down-ish, as we really execute on the productivity targets that we’ve got. Probably not a huge amount but as we achieve the productivity targets, we will, on an average basis, do little bit better. So that’s our expectation going forward. And we have a thing that I would like to say is, we’ve got a really — we’ve done a really nice job of managing overhead of the company. And we’ll grow overhead back at a much slower rate overtime relative to capacity. Thanks, Myles.

Myles Walton — UBS — Analyst

Thank you.

Operator

The next question is from Chris S. with Susquehanna. Please go ahead.

Chris Sun — Susquehanna International Group, LLC. — Analyst

Good afternoon, and thanks for taking my question. So, appreciate the comments you just gave on your ASMs per FTE. But if you — you’ve spend a lot of time going through the productivity initiatives. I was wondering could you put a finer, sort of, point on that? And if there are two or three metrics that we should think about, is it ASMs per FTE, as we think about this next stage of the recovery here, 2019 was around 3.3% or is it perhaps something block hours per month per crew, just a finer point on some of the metrics here that we should consider as we look at this next leg of the recovery. Thanks.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Hey, Chris. Yeah. No. Appreciate it. The two that I think are most easily consumed externally are passengers per FTE, which obviously has a demand component to it. And then the other is departures per FTE. We do manage a lot of the business from that perspective, in terms of the labor inputs for our departure. Internally, we track more than that, sort of at the specific employee group level and certainly blog our production for our crews is something that we look at closely. That is probably something that can be derived externally, but not as easily as those other two numbers.

Chris Sun — Susquehanna International Group, LLC. — Analyst

Okay. And just a follow-up question here. So, in your prepared remarks on your signaling capital returns here, as we think about 2022, cash flow from operations, and a lot of moving pieces here, you have the partnership, we have concerns around inflation, higher fuel, but if there is any sort of detail, finer point you could put a — how we should be thinking about yields or more specifically CASMex in the back half of next year? I think you’ve said that you’re expecting to fly 2019 — your 2019 book for next summer and then what would that imply for CASMex as we think about the second half of 2022. Thank you.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Yeah. Thanks, Chris. I appreciate the question. I’m going to kind of stand by my earlier comment that I don’t want to give guidance for next year. I totally appreciate that there is a desire to hear more about our full year expectations. And I do think on our next call we’ll consider giving you guys the annual guidance for both CASM and ASMs for all of 2022. So you can get a better sense of the shape of what that looks like quarter-by-quarter.

Benito Minicucci — President, Chief Executive Officer and Director

Okay…

Chris Sun — Susquehanna International Group, LLC. — Analyst

Thank you.

Benito Minicucci — President, Chief Executive Officer and Director

Appreciate all the questions from everyone. Appreciate all the questions, we’re out of of time. Thank you, and we’ll talk to you on the next call. Thanks everybody.

Shane Tackett — Executive Vice President Finance and Chief Financial Officer

Thanks, everyone.

Operator

[Operator Closing Remarks]