Here are some excerpts from the comments made by the AS CEO at the JP Morgan investor presentation at the begginning of March.
The full transcript is here. http://bit.ly/10kYLMg
The audio/power points are available here. http://bit.ly/Z03rpC
Here are some exceprts of some interesting parts pertinent to pilots...
Fleet plan:
Brandon Peterson:
Our strategic plan for the next 5 years is to grow capacity by 4% to 8% on an ASM basis, profits permitting. And that's really an important addition to the phrase, profits permitting. Because we're not -- we're first committed to delivering appropriate shareholder returns, then we're committed to growing 4% to 8%. We've guided to about 8% capacity growth this year. About half of that comes from stage link increases and the gauge of the airplanes that we're flying and the other half comes from an increase in the number of departures. So if you size adjust our 4% to 8% growth to our airline, it's not actually a very big number. And it's a number that we're very comfortable with.
So let's pick 6% just as a placeholder, as an example. If we grow at 6%, then we will have continued up-gauging as we buy larger aircraft, the 900 ER, and so that will probably be one of the 6. Just simply, that comes from up-gauging. So maybe you talk about it as being 5% on a departure basis. Well, for us, a rule of thumb that we use internally is 1% growth is about one airplane, is about one transcon, or Hawaii flight. And so the question really is do we think -- are there -- do we think there are profitable opportunities for us to deploy 5 or 6 airplanes per year? Yes, we do. And that doesn't feel big -- like a big number to us. Although as I said, flexibility is the key, and we're first committed to delivering appropriate returns than we're committed to growing.
On this chart, it shows our fleet plan. As you can see, in 2007, we had an addition of 7 airplanes to the fleet. In 2008 -- or excuse me, 2012, 2013. In 2013, we expect to take 9 airplanes into the fleet, but we expect to have 6 go back on leased returns for a net increase of 3. So compare that growth of 3 units which is really the draw on investment capital to the disclosed ASM growth of 8%. And you can kind of get a sense of what I'm talking about. And in 2014, we're taking delivery of 10 airplanes. We plan to have 13 go back. Although I would say that's a bit fluid right now, because that includes 5 of our specialty airplanes, the 737-400 Combi, which we used up in the state of Alaska. So it's -- as I said, 2014 is a bit fluid at this time.
Pilot Negotiations:
Unknown Analyst:
Just getting back to labor and the pilots in particular. If you accept that Delta and United are the market right now, and I can certainly look at 12-year cap and hourly rates and that sort of stuff, but it's more challenging for analysts to drop work rule nuances and what have you into the model. But if Delta and United represent the market, what sort of an impact to the P&L annually does that imply for Alaska?
Brandon S. Pedersen - Chief Financial Officer, Vice President of Finance, Principal Accounting Officer, Member of Management Executive Committee and Vice President of Finance-Alaska Airlines Inc
Yes, it's hard to quantify that because you end up basing it based on hourly rates. As you say, there's a lot of nuance with productivity and work rules and benefit plans and how you look at profit sharing. I think it is fair to say that we acknowledge that the market for pilot wages has moved in the last 6 months to a year because of some of the deals that have been done by the other carriers. We fully acknowledge that, in fact. And I think it's fair to say that our pilots will get a raise when we finally get to a deal. I do think it's also appropriate to note that the percentage won't nearly be as much as you've seen at some of the other carriers, because our pilots were in better shape that are going into this. And so the delta -- no pun intended, the delta is bigger -- or was bigger with the other carriers than it is with our pilots. The other thing we're trying to do is we're trying to -- as I said, there's opportunities for productivity. That's probably more the case with the flight attendants. It's how you move out of legacy-style benefits like DB plans. We're not suggesting that we need to close the DB plan right now. But we would like a path to eventually closing the DB plan. It's looking at retirement or medical contributions. And then it's also how do you look at our Performance-Based Pay plan where a pilot has a target bonus equal to 5% of pay versus a more traditional profit-sharing plan, where it's just some percentage of dollar one of profit, so there's no target, specifically, whereas as I said, in our program, there's a target percentage of pay. So how do you think about that in the context of your hourly rate, is it in or is it out. So it's very multidimensional. But I do think it's fair to say that we would acknowledge that the scale has moved.
The full transcript is here. http://bit.ly/10kYLMg
The audio/power points are available here. http://bit.ly/Z03rpC
Here are some exceprts of some interesting parts pertinent to pilots...
Fleet plan:
Brandon Peterson:
Our strategic plan for the next 5 years is to grow capacity by 4% to 8% on an ASM basis, profits permitting. And that's really an important addition to the phrase, profits permitting. Because we're not -- we're first committed to delivering appropriate shareholder returns, then we're committed to growing 4% to 8%. We've guided to about 8% capacity growth this year. About half of that comes from stage link increases and the gauge of the airplanes that we're flying and the other half comes from an increase in the number of departures. So if you size adjust our 4% to 8% growth to our airline, it's not actually a very big number. And it's a number that we're very comfortable with.
So let's pick 6% just as a placeholder, as an example. If we grow at 6%, then we will have continued up-gauging as we buy larger aircraft, the 900 ER, and so that will probably be one of the 6. Just simply, that comes from up-gauging. So maybe you talk about it as being 5% on a departure basis. Well, for us, a rule of thumb that we use internally is 1% growth is about one airplane, is about one transcon, or Hawaii flight. And so the question really is do we think -- are there -- do we think there are profitable opportunities for us to deploy 5 or 6 airplanes per year? Yes, we do. And that doesn't feel big -- like a big number to us. Although as I said, flexibility is the key, and we're first committed to delivering appropriate returns than we're committed to growing.
On this chart, it shows our fleet plan. As you can see, in 2007, we had an addition of 7 airplanes to the fleet. In 2008 -- or excuse me, 2012, 2013. In 2013, we expect to take 9 airplanes into the fleet, but we expect to have 6 go back on leased returns for a net increase of 3. So compare that growth of 3 units which is really the draw on investment capital to the disclosed ASM growth of 8%. And you can kind of get a sense of what I'm talking about. And in 2014, we're taking delivery of 10 airplanes. We plan to have 13 go back. Although I would say that's a bit fluid right now, because that includes 5 of our specialty airplanes, the 737-400 Combi, which we used up in the state of Alaska. So it's -- as I said, 2014 is a bit fluid at this time.
Pilot Negotiations:
Unknown Analyst:
Just getting back to labor and the pilots in particular. If you accept that Delta and United are the market right now, and I can certainly look at 12-year cap and hourly rates and that sort of stuff, but it's more challenging for analysts to drop work rule nuances and what have you into the model. But if Delta and United represent the market, what sort of an impact to the P&L annually does that imply for Alaska?
Brandon S. Pedersen - Chief Financial Officer, Vice President of Finance, Principal Accounting Officer, Member of Management Executive Committee and Vice President of Finance-Alaska Airlines Inc
Yes, it's hard to quantify that because you end up basing it based on hourly rates. As you say, there's a lot of nuance with productivity and work rules and benefit plans and how you look at profit sharing. I think it is fair to say that we acknowledge that the market for pilot wages has moved in the last 6 months to a year because of some of the deals that have been done by the other carriers. We fully acknowledge that, in fact. And I think it's fair to say that our pilots will get a raise when we finally get to a deal. I do think it's also appropriate to note that the percentage won't nearly be as much as you've seen at some of the other carriers, because our pilots were in better shape that are going into this. And so the delta -- no pun intended, the delta is bigger -- or was bigger with the other carriers than it is with our pilots. The other thing we're trying to do is we're trying to -- as I said, there's opportunities for productivity. That's probably more the case with the flight attendants. It's how you move out of legacy-style benefits like DB plans. We're not suggesting that we need to close the DB plan right now. But we would like a path to eventually closing the DB plan. It's looking at retirement or medical contributions. And then it's also how do you look at our Performance-Based Pay plan where a pilot has a target bonus equal to 5% of pay versus a more traditional profit-sharing plan, where it's just some percentage of dollar one of profit, so there's no target, specifically, whereas as I said, in our program, there's a target percentage of pay. So how do you think about that in the context of your hourly rate, is it in or is it out. So it's very multidimensional. But I do think it's fair to say that we would acknowledge that the scale has moved.
