Alaska Air CEO on premium economy, Investor Day, fuel prices

STARTS HERE. >> WELCOME BACK. ALASKA AIRLINES HOSTING ITS INVESTOR DAY THIS MORNING. OUR PHIL LEBEAU IS IN WASHINGTON STATE JOINS US WITH THE COMPANY'S CEO. PHIL. >> THANK YOU MIKE. BEN MINICUCCI. IT'S GREAT TO BE HERE OUT AT YOUR CUSTOMER CENTER. AND WE'LL TALK MORE ABOUT THE INVESTOR DAY IN JUST A LITTLE BIT. BUT WE'RE IN BASICALLY A PEEK OF WHAT THE FUTURE IS GOING TO BE IN TERMS OF UPGRADING YOUR PRODUCT. NEW SEATS, NEW PREMIUM SEATS, ESPECIALLY HEADING TOWARDS THE PREMIUM END OF THE MARKET. HOW QUICKLY WILL YOU BE ABLE TO RETROFIT AND DESIGN YOUR NEW INTERIORS? >> WELL GOOD MORNING PHIL. GREAT. GREAT TO HAVE YOU HERE. WHAT YOU SEE HERE, THIS IS OUR AURORA EXPERIENCE. OUR NEW EXPERIENCE. IT'S CALLED LA HOKU FOR HAWAIIAN. BUT ALL OF THIS IS GOING TO COME TO LIFE. AND BY THE FALL OF 28 AND SO ON, OUR SEVEN EIGHT SEVENS, ON OUR 737, TEN MAXS, ON OUR THREE 30S, ALL OF THIS EXPERIENCE IS GOING TO COME TO LIFE IN THE NEXT COUPLE OF YEARS. >> THESE SEATS WILL BE GOING ON YOUR 737 MAX DASH TEN. >> THAT'S RIGHT. >> BUT AS EVERYBODY KNOWS, THE MAX DASH TEN HASN'T BEEN CERTIFIED. THERE IS A SOFTWARE BUG THAT BOEING HAS TO WORK OUT. THE HEAD OF THE FAA YESTERDAY SAID, YEAH, THIS IS GOING TO DELAY IT UNTIL WE CAN PROVE THAT THIS IS DEFINITELY NOT GOING TO BE A FLIGHT OF SAFETY ISSUE OR A SAFETY OF FLIGHT ISSUE, I SHOULD SAY. AND SO THE QUESTION BECOMES, ARE YOU FRUSTRATED THAT YOU'RE OUTLINING YOUR PLANS FOR THE FUTURE WITH THIS AIRCRAFT? AND AGAIN, YOU'RE GOING TO HAVE TO WAIT. >> WELL, LOOK, THE WHOLE REASON FOR A CERTIFICATION PROCESS IS TO PICK UP BUGS LIKE THEY JUST DID. SO WE'RE HAPPY THAT THEY'RE FINDING THESE ISSUES RIGHT BEFORE CERTIFICATION. OUR GOAL IS TO GET THE SAFEST AND RELIABLE AIRPLANE COMING OUT OF THE CERTIFICATION PROCESS, ALL THE I'S AND T'S NEED TO BE THE T'S NEED TO BE CROSSED. AND WE'RE GOING TO WORK WITH BOEING AND FAA TO MAKE SURE THAT WHEN WE GET THE TEN MAX, IT'S READY TO GO. >> BUT AT THE SAME TIME, YOU'VE GOT A PLAN FOR BRINGING THESE INTO SERVICE. IF IT'S NOT CERTIFIED, LET'S SAY FOR SIX MONTHS OR NINE MONTHS, WILL YOU HAVE TO MODIFY YOUR PLANS? >> YOU KNOW, IT'S GOING TO DEFINITELY PUSH TO THE RIGHT IF IF IT MOVES THAT LONG. PHIL. RIGHT NOW, THE AIRPLANES ARE DESIGNED TO COME INTO SERVICE IN 27 AND 28 ON THE TEN MAX. THE LIE FLAT SEATS ON THE ON THE TEN MAX WILL BE THE FALL OF 28. SO I THINK WE STILL HAVE SOME TIME FOR THAT. SO WE'RE NOT OVERLY CONCERNED. BUT AGAIN, THE CERTIFICATION PROCESS HAS TO BE DONE. RIGHT. AND AND WE'RE GOING TO WORK WITH BOEING AND THE FAA ON THAT. >> YOU'RE NOT GIVING GUIDANCE TODAY FOR THE REMAINDER OF THIS YEAR. JET FUEL IS THE BIG QUESTION THAT EVERYBODY IS WONDERING ABOUT OUT THERE. HOW ARE YOU PLANNING INTERNALLY FOR JET FUEL PRICES? ARE YOU EXPECTING THEM TO STAY ROUGHLY AT THIS LEVEL FOR THE REMAINDER OF THIS YEAR? >> WELL, LOOK, I THINK THEY ARE HIGH NOW. NOBODY KNOWS WHERE THEY'RE GOING TO BE NEXT MONTH IN THE FOURTH QUARTER INTO NEXT YEAR, WHICH IS WHY WE'RE NOT GIVING GUIDANCE TODAY. BUT, YOU KNOW, THE WAY WE'RE LOOKING AT IT IS THAT WE'RE GOING TO WE'RE WE'RE ANNOUNCING AN INVESTOR DAY IS WHAT WE CAN CONTROL IN TERMS OF GOING FORWARD. SO WE'RE CONTROL IS OUR BUSINESS. WE'RE GOING TO INVEST IN PREMIUM. WE'RE INVESTING IN INTERNATIONAL ROUTES. WE'RE TRIPLING OUR CARGO CAPACITY, AND WE'RE INVESTING IN OUR LOYALTY PROGRAM. THOSE ARE THE THINGS WE CAN CONTROL. SO IF FUEL PRICES DROP, OF COURSE WE'LL HAVE MORE TAILWINDS. BUT WE'RE TRYING TO BUILD A BUSINESS THAT'S RESILIENT OVER THESE ECONOMIC CYCLES. AND ALSO. >> I HATE TO INTERRUPT YOU HERE, BUT YOU'RE ALSO HAVING TO RAISE FARES. AND THAT RAISES THE QUESTION OF WHETHER OR NOT THE CONSUMER, WHETHER IT'S A CORPORATE BUYER OR THE LEISURE TRAVELER, ARE THEY PULLING BACK AT ALL AS YOU'RE RAISING THOSE FARES? >> YOU KNOW, EVEN WITH THIS HIGH FUEL ENVIRONMENT, DEMAND IS STRONG, PHIL. AND, YOU KNOW, THE AMERICAN CONSUMER IS STRONG, WHICH IS, YOU KNOW, THE REALLY THE SILVER LINING BEHIND ALL THIS. SO AND LOOK, ALL THESE PRODUCTS ARE DESIGNED FOR THAT UPPER PART OF THE K SHAPED ECONOMY. BUT WE ARE VERY MINDFUL ABOUT THE LEVEL OF FARES. AND SO WE WANT TO BE ATTRACTIVE TO PEOPLE ON THE LOWER PART OF THE K, WHICH IS WHY WE HAVE A GREAT MAIN CABIN, A GREAT SAVER FARE. AND SO WE WANT TO BE ATTRACTIVE TO THE ENTIRE FLYING POPULATION, NOT JUST THE PEOPLE WHO WANT THE PREMIUM EXPERIENCE, WHICH IS GOING TO BE THERE FOR THEM. BUT WE'RE EXTREMELY MINDFUL OF FARES. >> FINALLY, WITH THIS PREMIUM EXPERIENCE, IT'S NOT JUST THE CABINS. YOU'RE ALSO SHOWING TODAY NEW LOUNGES THAT WILL BE COMING ONLINE IN SAN DIEGO, SEATTLE AND HONOLULU IN THE NEXT YEAR AND A HALF. DID YOU WAIT TOO LONG TO INVEST IN THE PREMIUM EXPERIENCE? BECAUSE YOUR COMPETITORS AT UNITED AND DELTA, THEY'VE BEEN DOING THIS FOR SOME TIME. DID YOU WAIT TOO LONG? >> WELL, IT'S IT'S BEEN AN EVOLUTION FOR US. YOU KNOW, IF YOU GO BACK TO 2015, 2016, ONLY 15% OF OUR REVENUES CAME OUTSIDE THE MAIN CABIN. TODAY WE'RE AT 53%. AND ALL OF THIS IS DESIGNED TO TAKE OUR OUR REVENUE BASE, OUR DIVERSIFIED REVENUE BASE TO 60% OUTSIDE THE MAIN CABIN. SO IN DECEMBER OF 24, WHEN WE ANNOUNCED ALASKA ACCELERATE, ALL THESE PLANS WERE GOING IN PLACE. AND THE WHOLE MESSAGE TODAY ON INVESTOR DAY IS THAT THE BUILDING PHASE