Delta Kicks Off Q3 Earnings Season

0:00Jay Shabat: Hello and welcome to the Airline Weekly Lounge. I'm your host Gordon Smith and I'm joined as usual by co-host Jay Shabat. In this week's show, we're previewing Q3 earnings season before taking a closer look at the latest from Alaska Airlines.

0:29Gordon Smith: hi jay how's it going all right gordon uh season's greetings season's greetings indeed

0:34Jay Shabat: q3 season so we are now into as we're recording here on the 6th of october q4 which means q3 earnings i.e the season that's just been are imminent the calendar gods not fantastic to us we've got delta coming later this week i think thursday after market close and then friday we'll get the full earnings call and all the usual detail and of course as you'd expect we'll be fully across that both on airline weekly and skift.com but we thought it'd be really useful in this show looking beyond delta actually looking right across the industry just to take a bit of a a US-focused preview on Q3 and what our listeners, readers, and viewers can expect, what they should be looking out for, because this is going to be a fascinating set of results, irrespective of what's come before them, Jay.

1:20Jay Shabat: Take them in isolation when you've got a fuel shock like you do at the moment, when you've got demand up and down, when you've got so many macro pressures. There's a lot going on. There's always a lot going on, but I would argue there is a particularly large amount of stuff in order to consider when we are looking at this quarter's numbers. So with no further ado, let's jump into it. We've got some notes here that our viewers won't be able to see. You said here, hero versus villain. I hope this is not going to be too cringe

1:51Gordon Smith: for our reader slide viewers. We're going to do our best to entertain.

1:56Jay Shabat: Tell our listeners, viewers, readers um why have you phrased it why are you framing it as hero versus villain so for for our

2:03Gordon Smith: q uh three preview here and as gordon mentioned um well we're i don't know if you mentioned this it's it's tuesday as we're talking today delta will be kicking off q3 earning season on let's call it friday i think as you mentioned they might release the numbers on thursday but friday's the big day by the way just as an aside gordon can you do me a favor call ed bastion and please tell tell him do not report earnings on Friday. It just ruins our weekend.

2:31Jay Shabat: Well, there have been a few calls coming in to Ed Best, you know, over the past few days. Some from a Mr. Elon Musk, I suspect, saying, why haven't you got Starlink? But that's a whole different story.

2:40Gordon Smith: I suspect he'll take your phone call first, though. I think he'll take it.

2:44Jay Shabat: So, all right.

2:45Gordon Smith: Well, it is what it is. We have to deal with it. We'll enjoy the weekend together, Gordon. But, yeah, so Delta is reporting on Friday. So just as a preview, I just wanted to kind of frame it as just wanted to give you everybody a background of how we're thinking about this. What big developments are in focus in the U.S. airline industry right now as we enter this new earnings season? So as you say, my kind of little metaphor here is kind of think about it as a battle between two superheroes. so i'm going to call one of my superheroes revenue man and it's i mean i don't know i mean i'm not sure how cool it is compared to like spider-man or superman i think it's kind of cool revenue man i don't know about you gordon but uh i'm not i would buy that action figure i don't know about you but i would uh totally think that's the be you know cool cool toy or whatever but revenue man is very strong right now so the reason why revenue man has a lot of power right now is just think of these following reasons.

3:57Gordon Smith: So one, we know that premium demand is really, really strong, right? No news to anybody that's listened to even a second of us over the past year or two years. International demand, still very strong. Even domestic demand is still strong. I just saw a note out from, I think it was Catherine O 'Brien, an analyst for Goldman Sachs. She put out a note about American, and I think Southwest maybe as well, if I have that right. And this was from just a couple of days ago. Demand still, they say, is still doing very, very, very, you know, still great, still strong. So you've got premium demand strong, international demand strong, domestic demand strong.

4:39Gordon Smith: I think the economy in general is still pretty strong. You know, you can go into a deeper discussion about that. Maybe certain industries are not doing well, certain segments of the population are not doing well. But in the aggregate, I think the economy is still, the U.S. economy is still holding up pretty well. We also have, of course, this gusher of revenue coming in from these loyalty plans. You know, these banks are just willing to just pay anything for these miles. So you have, there you go. It's another reason why revenue man is so strong. I think cargo demand for those to whom it applies is also pretty good revenue additive to revenue.

5:20Gordon Smith: Think about all the fancy semiconductors are getting shipped over from Asia, Taiwan, Korea. A lot of that stuff is coming over in the bellies of United Airlines planes, American Airlines, Delta planes. So there's that. And then just, you know, spend a little bit of extra time here on what you might call structural undercapacity. I know there's no, you know, exact definition of what's the appropriate level of capacity. But I think just in the past, we've talked so often in the U.S. airline business about overcapacity. Well, if anything, I think we have a little bit of the opposite today. We have undercapacity.

6:03Gordon Smith: And there's different reasons for that. You know, spirit is gone. We have these, you know, situation where there's this engine scarcity, aircraft delivery delays. We have, you know, airlines are also pretty aggressively trimming flights in reaction to the high fuel prices. We have consolidation too. Don't remember, you know, don't forget that Allegiant is now together with Sun Country that follows the Alaska-Hawaiian version two years ago. So we have like structural undercapacity, I think you might say, and that's contributing to pricing power, revenue strength as well. Just a quick statistic, Some of you may have seen it because I wrote it in Airline Weekly, the latest issue that's out.

6:47Gordon Smith: But U.S. airlines today are actually operating 2 % fewer flights than they were in 2019. So in that sense, the airline industry is actually contracted. Now, a little bit of an unfair comparison here. If you actually count by the number of seats, seat counts are up 10%. Remember that U.S. airlines are flying bigger planes on average. Some of the A321 NEOs, the MAXs, MAX 9s, they also retired a lot of some of their regional jets, replaced them with A220s, just as an example. So seat counts are up 10%. They're also flying longer distances on average. So if you do available seat miles, that takes into account both seats and distance.

7:34Gordon Smith: The increase is 13%. So 13 % over seven years, that's really not a lot. And then if you look at GDP expansion in the U.S. over that same period, it's about 15%. So 13%, 15%, that's all inflation adjusted. So you can see that airlines are growing less than GDP growth. I also looked at population growth too. Population has only increased 7 % since 2019, which is pretty crazy. The U.S. population is growing more slowly than it ever was in its history. And I, just as a last, you know, not to beat a dead horse here, but just as a last piece of information, I did look at this information comparing 2023, so after the COVID recovery was in full swing, to today, and still kind of the same story real gdp up about 10 total asms up about 7 so um structural under capacity if you want to call it that all right so revenue man he's looking really strong the problem is he he faces a very powerful enemy incredibly powerful yeah he's he's he's actually a two-headed dragon and uh yeah and his two-headed dragon i was trying to think of a you know funny name for The best I come up with is cost Vader, but maybe you can come up with something better.

8:57Gordon Smith: I don't know. My imagination is running wild today. So anyway, cost Vader, whatever you want to call him, the evil inflation monster, whatever. He's a two-headed monster. And in all seriousness, the two heads I'm referring to are, of course, the fuel increase, the big fuel shock, diesel fuel prices. Still another, this is another topic and point that we've just spoken about again and again. And you and I, Gordon, in this podcast and in our newsletter, the fuel shock is a very serious risk. It's very problematic for U.S. airlines, there's no doubt. And then kind of the other one that we've talked less about, which is just becoming more and more of a problem in recent weeks in particular, is just the interest rates are going up a lot.

9:47Gordon Smith: So you can call it borrowing cost inflation. So U.S. airlines, you know, obviously this is an industry, the airline industry, that does borrow a lot You know, just think about how much it costs to buy, you know, a big airplane So there's a lot of borrowing that could impact airline costs directly And then, of course, I think the bigger concern with both the fuel inflation and the borrowing cost inflation Is that could ultimately break the economy in some way that the economic strength I talked about starts to buckle because families can't afford to spend as much on air travel because the prices are going up so much or whatever, borrowers, the auto industry kind of runs into all sorts of trouble because people are not borrowing to buy auto-wobiliers, things like that.

10:41Gordon Smith: It could have a very troublesome effect on the economy. And historically, that has been the case where when you have fuel shocks, when you have borrowing cost shocks, it does usually hurt the economy. However, I think it's important to note that this two headed dragon, he made his presence known in 2022 and ultimately he didn't win. The dragon was slayed, so to speak. The U.S. airlines actually came out okay, 2023, 2024, 2020, pretty good years for even the global airline industry. So as we're going into Delta's earnings, you know, just kind of a cartoonish way to think about something serious here, that we do have, you know, very favorable revenue trends, but very worrisome cost trends.

11:29Jay Shabat: Yeah, there was a line in last week's Airline Weekly, actually two weeks ago now as we're recording here, that says history tells us that fuel levers eventually break. The question is whether we get 2015 style supply bonanza, a 2008 style demand collapse or something in between, Jay. And the simple answer is we simply don't know. We've said in previous weeks that even between the Tuesdays when we normally record on the Wednesdays, Thursdays, Fridays, when people listen to this show, things can change. Things do change. Things have changed and things will change again. So a huge, huge question mark over what's going to happen two, three quarters time, nevermind what's going to be happening in two, three weeks time.

12:05Jay Shabat: So, so much uncertainty as we're going into this quarterly earnings season, Jay. I don't know if you agree as well. Sometimes when you're coming into earnings season, you kind of know what the quarter's held for a lot of airlines because you've kind of lived through it. You've reported on it in real time. And you're more interested in what's coming next in terms of outlooks, in terms of gauging what the executives and the C-suite teams are thinking about the months ahead. But actually, there is a little bit of unknown as to how this quarter has played out for some of the major U.S. carriers. So actually, I think it's going to be a doubly interesting set of numbers and also sort of qualitative and quantitative assessment as we take a look at Delta's numbers on Thursday, Friday, and then United, American, and the cadence continues from there.

12:52Jay Shabat: Not just what is coming, but also what has been, Jay. You mentioned premium as well. I want to give a quick plug to a story I wrote a little earlier today about British Airways. and anyone that's flown on a British Airways A380, that's the double-decker aircraft recently, will know that they are not the newest aircraft in the sky by any means and British Airways has got their legacy product, to put it politely on there, not their club suite, not their newest product. But we knew that there was going to be some changes there, but we do know as of this week some color around exactly what's going to go on there.

13:23Jay Shabat: They are going to be turning the entire upper deck of the A380 into a club world-only zone. So that's business class from what we used to know as the pointy end right to the very back. The total numbers of seats, if anyone's interested, going from 469 seats, 469, down to just 417 with premium cabins. And if you include premium economy, business class and first coming up at 48 % of seat capacity. It's an astoundingly high premium heavy configuration. and it kind of tells you really about where British Airways and the industry is going more broadly. Those full numbers, First Class is actually dropping just two, from 14 down to 12.

14:04Jay Shabat: Club World increasing up to 106 in total. The real movement is on premium economy, up 29 versus the current config and economy, losing 88 seats in total, Jay. British Airways are not alone by any means. Anyone that was at our Skiff Global Forum, the conversation with corneal costa the relatively new ceo of virgin atlantic he was speaking about his premium push as well their uh virgin atlantic this is their new a330 neos will have 104 seats across upper class and premium against just 128 in economy and they're also refurbishing those 787 dream liners lots of complaints about their old business class product and they're describing them sort of coffin seats uh very narrow um not exactly a cutting edge product by any means but they are being retrofitted and there on the 787s economy will fall from 192 seats down to just 127 again with those upscale options in premium economy and upper class filling the gap j so premium demand showing no signs of letting go on both sides of the atlantic and uh we won't go into full detail on this podcast but if anyone does want to read about brennan shareways and what they're doing not just in the uh on the a380 but more broadly at heathrow and elsewhere uh do jump on to

15:17Gordon Smith: gifts.com for uh my list is thinking that are there going to be any economy seats left on these planes i mean they're running out of real estate they can't keep throwing it the interesting that you uh you know one thing that i caught what you said there that that kind of um got my attention was the uh the fact that the premium economy must be doing really really well for so well yeah that's that seems to be the gold mine and uh yeah it's just premium premium premium that's the big big theme of the industry over the past three four years i mean even you know even when you know frontier is adding premium seats and southwest and i'm just waiting for o 'leary then then we know like everything is uh once roger starts like saying oh yeah we got to go we got to head some seats with extra leg room or first class seats then we know we're living in a different universe

16:08Jay Shabat: we sure are because i mean you you had even before oh it was last year yeah was there saying sort of flirting with having the middle seat blocked on the front row on certain routes and easy jet you know easy job see um pending new ownership they've been speaking about a meaningful loyalty program and some other perks they've already got easy jet plus so it's not completely unthinkable that a european low-cost carrier goes into or flirts with the premium space but yeah i completely agree jay if we get ever to the point where reiner says you know reiner deluxe and you have a sort of big king chair at the front yeah the o 'leary special that That will be a...

16:42Jay Shabat: Well, there is the last man's skin.

16:44Gordon Smith: Now, you know, sometimes I wonder. So, one, I think a little bit, obviously, the demand for these premium seats is just off the charts for a lot of different economic and demographic reasons, stuff we've talked about before. But the consumer preference reasons, all kinds. But I do, you know, one thing to note is that the average aircraft size on these wide bodies are getting bigger and even narrow bodies now. I mean, look at Alaska's putting live flatbed, live hot seats on their 737s. So, you know, some of these aircraft are getting bigger. although you know on the other side of that coin there is there has been some wide body downsizing too i mean obviously you know nobody's buying a3a's anymore you know even 787s are replacing triple sevens in many cases too so i there's a little bit of two sides of that story that's a good point you know there's there are there are there is some up gauging about so there's more real estate to deal with uh in some cases um the other thing i wonder about too like what would the airline industry look right now, premium wise, if we didn't have this aircraft shortage, you know, if there was a surplus of aircraft, you know, would the premium demand still be, you know, that, that good?

18:04Gordon Smith: I don't know. Like maybe they're just, airlines are just, you know, squeezing a limited portion demand into premium. So I don't know, but those are, you know, which is obviously just theoretical, hypothetical questions.

18:15Jay Shabat: Well, they're hypothetical questions, but questions that we may well put to some of the industry leaders that we've got joining us at the Skift Aviation Forum in New York City. We've got Luis Gallego, the CEO of International Airlines Group, obviously the parent company of British Airways, as well as Knight Piper, the chief commercial philosopher of American Airlines, formerly of Alaska and One World, a familiar name to many, I'm sure, on the podcast. Loads of others, but I'm just pulling out those two because we're speaking about premium heavy configurations and transatlantic and all the rest, Jay.

18:41Jay Shabat: if you're not already signed up to join me jay megan and the rest of the skiff gang the twa hotel is november 11th we're having the opening reception in new york city and then november 12th the full day event at the twa hotel jfk go to live.skiff.com for the full details the agenda it's coming together really really nicely jay i don't know about you we're barely a month now i am super excited and if you're an airline weekly subscriber look in your inbox look in the latest issue there is a promo code there for a exclusive discount and we are getting breakfast with Jay or start the day with Jay.

19:12Jay Shabat: I can't remember what the marketing team branded as, but that is coming back for 2026.

19:15Gordon Smith: Yeah. So I guess, can you sign up for, I guess you can sign up for that as well. So I'll be giving before the conference a, you know, latest and greatest on the U S airline industry. And we'll happy to talk about international, uh, trends as well. So, uh, you know, to the extent that time allows. So, uh, as I said, you know, a couple episodes, uh, Gordon, I, uh, you know, a lot of really, really interesting and bright people are going to be there. And, you know, we're going to be there too.

19:45Gordon Smith: So you got to be buying us, but.

19:49Jay Shabat: Absolutely. Can have it all. Yeah. Remind us, live.skift.com for solar tickets, group tickets, everything else in between. And yeah, it's shaping up to be one of our, one of our strongest lineups ever. And the venue as well speaks for itself. The TWA hotel, never actually been there in person.

20:04Gordon Smith: Seed in TV and films.

20:05Jay Shabat: I think it was in Catch Me If You Can with Leonardo DiCaprio. plenty of others um but let's try and pop up to the swimming pool as well i hear there's a roof top pool with sort of views going into jfk i must be the only aviation aficionado who hasn't been up there with a with a pina colada watching a triple seven take off well i was just talking about that

20:22Gordon Smith: with with our producer monica and uh the problem is that it's november and i i think it's an outdoor pool right so i don't know that we'll get a chance to swim but maybe we could just hang out there

20:31Jay Shabat: nothing will come between me and a uh a rooftop dip with a plane doing an ice ice

20:36Gordon Smith: ice swimmer. What do they call that? The ice dipping?

20:39Jay Shabat: Yeah.

20:41Gordon Smith: All right. If you do it, maybe I'll have to follow. I'll bring the bait in suit.

20:47Jay Shabat: All right. You mentioned Alaska. I mentioned Alaska as well with Nat Piper there. We're going to touch on Alaska in a bit more detail in part two. You might be wondering why. It's because they've had a big investor day event just in the past couple of weeks. So a little bit of information to bring you there. But before that, a quick reminder to send any questions or comments that you might have for us to podcasts at skiff.com that's podcast with an s at the end and please don't forget to follow or subscribe to the podcast wherever you're listening or watching and if you are enjoying the show please remember to rate us five stars or leave us a post or review so we need to spread the word about the airline weekly lounge bring it to you free of charge week in week out okay we'll be right back hello and welcome back to the airline weekly lounge i'm gordon smith joined as usual by co-host jay shabbat part one we were sort of offering a q3 us earnings preview with delta due to report in just a couple of days time, Jay.

21:36Jay Shabat: Another airline that we're watching very closely is Alaska. You mentioned a part one, obviously, now part of the, I was going to say they're part of the Hawaiian family, but Hawaiian is now part of the Alaska Air Group. So yeah, very important to remember who the pairing company is there. But we did have an Investor Day event. If anyone's really new to the industry or new to the podcast, just very, very briefly explain what an Investor Day event is and why they're important to us. Because you might be thinking, that's for the finance guys, not for the slightly more sort of industry as an in the round guys.

22:08Jay Shabat: Tell us why these are really important for everyone involved in the airline business, not just the bankers and the financiers.

22:14Gordon Smith: Yeah, well, first of all, they're pretty rare. You know, these investor days, they'll happen maybe once every couple of years. And I guess some airlines might do them every year. Delta was doing it every year for a while, but no more than once a year at max. and they're kind of deep dive sessions into how the airline is thinking. What's their grand strategy? What are their big revenue and cost initiatives? And so they're definitely action-packed in terms of full of information.

22:45Jay Shabat: When you see one appear in the investor calendar, you know you're going to get a decently sized update, if not something pretty significant in terms of strategy, in terms of how things are going to pan out for that airline or how they hope it's going to pan out for that airline over the next few years.

22:58Gordon Smith: For sure. Yep. Yeah, that's absolutely. Investor days are, yeah, just chock full of information. And in fact, our colleague, unfortunately, we scheduled, I guess, didn't allow today, but we couldn't get Meghna on today, but she was actually in Seattle for the event. and be sure to check out her. I think she's written a couple of stories about Alaska and more to come. So yeah, be sure to check that out. I was not there in person, but I'll do my best to kind of fill everybody in on what's going on and how the airline is thinking, what their predicament is. So I guess I should start by saying that, you know, Alaska had a uncharacteristically awful first half of 2026.

23:46Gordon Smith: I mean, it's this is an airline that's, you know, rock solid in terms of, you know, earning very strong profit margins going back decades. But very rough start to the year. $373 million worth of operating losses. that was a negative 5 % operating margin. And that's all, you know, ex-special items. But just to, you know, if that's, if you say, well, negative 5 % is not that bad. Okay, fine. But that's in the context of, you know, United made good money in the first half. Southwest had a really good first half. Delta had a really good first half. American a little bit less, but they made money. so you can see in that context Alaska they know they're struggling I mean I don't think they would try to hide that from anybody I mean it's plain to see uh why were they struggling the the most you know there's one clear answer you know if this was uh you know a test in school and you know your professor only give you one one you only choose there's multiple choice you only choose one answer um fuel prices was the big one I mean the fuel prices on the west coast of the U.S.

24:58Gordon Smith: are, and I was just looking at some of these numbers this morning, there's a big disparity between what you're going to pay, for example, in Houston on the Gulf Coast versus Seattle up in the Pacific Northwest. I see if I, you know, while I'm talking, I'll see if I could pull up. I had some numbers here, but that's unusual. Like you always had somewhat of a disparity, but the margins or just the spread is just really wide now. This is from the U.S. Energy Information Administration that has a whole bunch of really great data on energy prices and whatnot. And just to give you, so the week of October 5th, this is not for jet fuel in particular, it's just retail gasoline, which is a different product, but I just want to give a sense because I have this data of the disparities.

25:46Gordon Smith: So in Texas, the weekly regular conventional retail gasoline costs an average$3.89 per gallon. In Seattle, Washington, it costs$5.66. So you can see just a very, very big spread. So why did Alaska perform so poorly in the first half?

26:08Jay Shabat: If you had to pin it down to one reason, it is that just they're paying really high fuel

26:15Gordon Smith: prices so was there other things going on well they did have some hawaii weather events there is some you know what's maybe more questionable is you know how well are some of those hawaiian markets doing japan to hawaii for example has been a problem really post pandemic that was an all-star market pre-pandemic is that still dragon earnings maybe they'll talk about that and their upcoming earnings call and then kind of one sort of big mystery is these new international flights we'll talk maybe a little bit more about them in a moment but you know these new flights to rome and london and tokyo and seoul i was passing through seoul

26:54Jay Shabat: in shawin airport yesterday and i you know you you see some quirky liveries over there you know air premier and uh t-way trinity airways obviously you were in the final days of asiana as well um I was in the Asiana lounge in Sean Airport, and it felt like the very, very final last days. Obviously, everything else was moving across to Korean Air. So I sort of had a little moment there to sort of pay my respects to the Asiana brand, which for everyone that doesn't know is going to be gone by the end of the year. But when I was looking out the window from the Asiana lounge, there was the Alaska Air 787.

27:32Jay Shabat: You saw the Alaska Air.

27:33Gordon Smith: Okay, okay. What's that doing there? Oh, yeah.

27:37Jay Shabat: And I'd seen it in Heathrow just a couple of weeks earlier. And I'm like, Alaska, what are you doing here? Initially, especially if you're a bit jet lagged or a few other things on your mind, you're thinking, is that a diversion? Is that maybe a delivery flight? Is there something going on? Is it a sports team that's got it on charter? And then you realize, oh, no, no, this is actually a mainline US carrier doing wide-body international stuff in a really significant way. We're not talking about, with respect to JetBlue here, smaller, narrow bodies into strategic markets in Europe. This is really, really meaningful wide-bodied metal that they are attempting to put into some very, very competitive markets.

28:15Jay Shabat: So I know, Jay, we discussed Korea and Japan and actually maybe the prospects of some other markets on the Asia-Pacific side for Alaska in the most recent issue of Airline Weekly. So I won't go into too much more detail. But yeah, it was pretty cool slash a little bit weird to see Alaska on the apron in Cheon.

28:32Gordon Smith: Now, just sanity check here. you did not see any Ryan airplanes in Seoul, did you?

28:38Jay Shabat: Not as far as I was aware. I would have, you know, the kimchi was pretty spicy, but I don't think it got to hallucination levels.

28:47Gordon Smith: We try to keep, you know, on the cutting edge here. We were up to date on our news. But, yeah, if you do see any Ryan airplanes that I might not have, you know, fell behind there on something on the S &P. Please, please let me know ASAP. So, okay, so we got that no Ryan airplanes, but we do have Alaska planes flying Seoul, Tokyo, Rome, London, Iceland. So it could be, I don't think there's any doubt that there are startup losses associated with those new routes, which is fine. You know, that's acceptable. Are those startup losses pretty heavy where they're making a meaningful impact? Are they partially responsible for Alaska's lousy first half?

29:27I don't know.

29:29Gordon Smith: I'm not sure that they're going to reveal anything in their next learning score call, but something to keep in the back of your mind. Remember that flying wide body overseas, intercontinental, very risky. It's not like flying a narrow body domestically. I mean, it just entails a lot of additional risks. there's a lot of extra costs involved you know a lot of complexity involved with foreign exchange don't forget that you have you're up against foreign competitors you're up against joint ventures your um you know your distribution gets a lot more complicated i mean especially in asia distribution is for you to succeed on a flight to like tokyo or so you really you can't just be selling through your u.s based channels you know you got to make sure you're selling to japanese passengers.

30:18Gordon Smith: And that can be challenging. It can be difficult. There's a lot of established relationships that you have to kind of work around. So keep that all in mind. Now, what Alaska is saying is that, and this is kind of one of the big messages from the investor day, and Meghna will tell you this as well, that the industry has changed. Used to be where airlines made money by cost cutting, by cost control, you know, the lowest cost wins kind of thing. Like the airlines with the best margins, you could think of Spirit and Allegiant and even Frontier for those were the airlines with the lowest costs. Now, what's very different in the post pandemic period is it's it's the winners are the ones who are revenue maxing, you know, the ones who are going out there with the, you know, the premium seats and all that kind of stuff, the overseas flights.

31:12Gordon Smith: So Alaska sees that, okay, we need to do a little bit more revenue maxing here. We already do. We do it to some extent. I mean, we're, you know, we're not, we're not Southwest. We're not, certainly not frontier. We do have, you know, first class product. We have great loyalty program into, to, to a degree already. Alaska is, you know, a good manifestation of that revenue man, superhero. I mean, they do a pretty good job, but their version of revenue man. They don't have the overseas flights, which are doing very well. And the other thing I think they're missing too is the live flat seat on the transcontinental routes.

31:50Gordon Smith: They addressed that last week as well. So that is kind of where they stand. They say, okay, we are lacking in those two very important revenue generating areas. And for us to be strong, ultimately long-term in Seattle, on the West Coast, we have to offer more than just, you know, domestic insured all. So they're, you know, they're going all in. They're going to, I think, rev that overseas network up to 10 destinations by 2030. I think I got that right. So, you know, it's, are we going to see Sydney? Are we going to see Frankfurt? Are we going to, you know, who knows what comes next? And they're going all out on the premium, you know, new live flat product, new premium economy product, as you were talking about earlier, British Airways, made it clear that that's a product that's doing very well financially.

32:47Gordon Smith: So Alaska wants in on that party as well. And the overseas flights, they also make your loyalty program more important. And that's another big theme of the post-pandemic period is, you know, loyalty, loyalty, loyalty is becoming more and more important to the point where it's starting to even influence how airlines plan their networks. I think we talked a couple of episodes ago about how American may be thinking about Chicago perhaps a little differently because of how their credit card partner city thinks about Chicago. So yeah, that's I think where Alaska is coming from.

33:23Jay Shabat: You mentioned American there, Jay. We did get a little bit more detail at the investor event and sort of the days and the announcements around it, that there seems to be some movement towards Alaska and American getting a little closer, not a merger or anything of the like, but certainly in terms of the partnership, how they work together, interlining arrangements and code shares and other bits and pieces, that's all fine. That's kind of expected. They're both part of the one world family. So no great surprises there. But there is some chatter, despite the fact that Alaska has only very recently acquired Hawaiian Airlines that Alaska itself may well be the target of a bit of M &A activity, I should say.

34:06Jay Shabat: What's your assessment?

34:07Gordon Smith: Yeah. And I should have said earlier, because that was kind of one of the big announcements from the investor day was that Alaska did apply to become a member of the joint venture between American, IAG, and Finnair across the transatlantic. as well as the joint venture between American and Japan Airlines across the Pacific, which can be very helpful. The question about mergers that you brought up, that's always a possibility. I mean, I think airlines are always thinking about that. We know, again, we've talked about this before as well, how United was thinking about maybe doing something with American.

34:52Gordon Smith: So I think in Alaska's case, United won't be involved in that. I think we could take them off the table. They already have their nice, you know, San Francisco hub and they're happy with their Asian presence in California. But, you know, it's kind of an interesting question to think about if Alaska continues to struggle. And let me, you know, take a step back and saying that we've had two quarters here struggling. So I don't want to make it seem like they're in any kind of distress. I mean, this airline with a great balance sheet, great, you know, management track record, all that kind of stuff.

35:19Gordon Smith: So kudos to Alaska for all that. but in theory if they continue to struggle or if they perhaps think of themselves as strategically vulnerable going forward because of any additional changes that transpire in the future or whatever you then start to think who might make an interesting partner for Alaska an American just being so close to them already as I mentioned the joint venture and they do code share as well in fact they're going to be doing more code sharing because there are some regulatory restrictions that were in place after the Virgin America merger between Alaska Virgin, those start to disappear as well.

36:02Gordon Smith: So American and Alaska are kind of already getting closer. So, you know, in theory, American would love to have that, you know, West Coast Asian hub and that would be real helpful to their network. So that's always up there, you know, Delta, they compete with Alaska. That's, you know, Delta has a hub in Seattle as well. So would they love to take one of their top competitors off the chessboard? Of course they would. I mean, they would love to do that. That may be a little bit of a bridge too far in terms of regulatory clearance, but something to think about. And then, you know, the other one that comes to mind, I guess, I guess maybe two others.

36:39So Southwest, if they really did want to

36:43Gordon Smith: push on the accelerator in terms of going after the premium, going after the, you know, more traditional sort of hub and spoke and, uh, overseas network, they could do that pretty quickly by, you know, getting in bed with Alaska. So that's, you know, that's something to think about too. Obviously they're right now they're, they're doing it organically. They're adding their own lounges and things like that. But if they really, you know, didn't want to wait in line for wide bodies or, you know, So just wanted to jump into that premium overseas segment quickly. They can do that. The other one that comes up sometimes is JetBlue.

37:17Gordon Smith: I don't know how much sense that makes. I mean, I think there's a theory out there that, well, you got Alaska on the West Coast and JetBlue on the East Coast. So East Coast, West Coast, that makes a nice marriage. But you kind of think about it. They don't really have anything in the middle. So there would be some benefits. I mean, obviously, it would further empower their loyalty program. It would do some other things. but you'd have no hub to really connect the two networks. It would actually help their transcon, you know, it would take a player off the chessboard, off the transcon chessboard for sure, which would be helpful.

37:52Gordon Smith: But the, I know I'm talking too much when I start to, you know, lose my voice, but I'll close up here by saying that, you know, JetBlue, Alaska, probably not likely. I don't think those two would really help each other that much.

38:07Jay Shabat: Got it. All right. We'll keep an eye across things and any clues, any little crumbs of interesting tidbits we will gather up during the next few weeks of earnings calls and associated discussions. Jay, anything to add on Alaska before we wrap up?

38:23Gordon Smith: No, no. I just, you know, we'll be watching Delta this coming Friday. Let's see what they have to say. and we then have to wait a week or two or three in some cases for the rest of the u.s airlines to go and then of course we'll also start getting you know players from around the rest of the world as well so we will be very busy as we always are during earnings season and i'll i guess i should just close by saying once again you know seasons greetings happy earnings season

38:52Jay Shabat: to you and your family and all your loved ones we're going to say to all who celebrate but if If you listen to this podcast, you do celebrate. Absolutely. Exactly. That's a prerequisite for listening. Okay, good stuff, Jay. Thank you for that. And great to get into a bit of detail around Q3, what to expect, and also Alaska Airlines. If you want to go into more detail on Alaska Airlines, go into the Airline Weekly Archives, because there's a really good feature story from Jay around Alaska. And it's global ambitions and everything else following that investor day. Loads more detail there. That's all a good time for, but thanks to Jay for joining me this week.

39:24Jay Shabat: Again, thanks as always to our producers, Sean, Marmike, Kelsey, and Will. And wherever you are in the world, thanks for listening, and we'll catch you next time. Bye for now.

39:30Gordon Smith: Whether you're listening to us on Spotify, Apple, or wherever you get your podcasts,

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