October 31, 2024

Media contact:						Investor/analyst contact:
Media Relations						Ryan St. John
(206) 304-0008						VP Finance, Planning and Investor Relations
						ALKInvestorRelations@alaskaair.com

SEATTLE — Alaska Air Group (NYSE: ALK) today reported financial results for the third quarter ending September 30, 2024.

Air Group closed out a strong third quarter, generating GAAP pretax margins of 10.7% and earnings per share (EPS) of $1.84. On an adjusted basis, our pretax margin of 13.0% will lead the industry. Given Air Group's completed acquisition of Hawaiian Airlines on September 18, 2024, quarterly financial statements include approximately 13 days of Hawaiian Airlines results.

“There has been no better time to be part of Alaska Air Group. By bringing together Alaska and Hawaiian’s remarkable service, expansive networks, distinct cultures, and shared values, we are creating a resilient airline that can meet the challenge of competing in a rapidly shifting industry," said CEO Ben Minicucci. “We have the resources and flexibility to navigate challenges, embrace new opportunities, and write the next chapter for our company. Our industry leading margins and strong operational performance are proof points that we are making the right investments to differentiate ourselves from our domestic-focused peers.

Today’s results reinforce we are on the right path for the future.”

We are excited to host our Investor Day on December 10th, where we will share more detail about our vision as a combined company, including higher synergy estimates driven by the combination, discuss our strategy to expand margins and generate free cash flow, and provide 2025 guidance. Given the proximity of third quarter earnings to our Investor Day, we announced on October 21st that we would not hold an earnings conference call this quarter. While we expect to resume regular quarterly earnings calls again in January 2025, this quarter we are providing additional narrative on our third quarter performance, including discussion of Air Group trends excluding Hawaiian Airlines within our earnings release today.

Air Group’s consolidated results reported in the third quarter of 2024 include 13 days of Hawaiian Airlines results, while prior comparable periods exclude any Hawaiian results. Except where noted below, the following discussion of Air Group’s third quarter performance reflect legacy-Alaska performance, excluding Hawaiian for the 13 days it was part of the combined company.

Income and EPS:

Today we reported GAAP net income of $236 million, or $1.84 earnings per share for the third quarter of 2024. Excluding special items and mark-to-market fuel hedge accounting adjustments, we reported net income of $289 million, or $2.25 earnings per share, significantly exceeding our original guidance for the quarter of $1.40 to $1.60 and coming in at the high end of our revised guidance published on September 12th. Our adjusted pretax margin of 13.0% led industry peers for the 2nd consecutive quarter and continues to demonstrate the strength of our business model. We have built a solid foundation of robust earnings and operating cash flow generation that we’re excited to continue building on through the combination of both Alaska and Hawaiian Airlines, as we realize substantial synergies amidst a strong demand environment and constructive industry backdrop.

During the quarter, Alaska saw unit revenues inflect positive in August, with strength in booking trends continuing into the fourth quarter. We’ve seen improvement across the Alaska network, in particular in the Pacific Northwest and Latin America regions. Corporate demand showed renewed strength in September and into October, which drove meaningful yield improvements on close-in bookings. Managed corporate revenue grew 9% year-over-year in the third quarter with double digit growth from the technology and professional services industries. Premium revenue performance also remained strong this quarter, continuing to outperform main cabin, with first and premium class revenue up 10% and 8% year-over-year respectively on 5% year-over-year growth in premium seat capacity. Unit revenues are expected to continue their positive trajectory, from up low-single digits in the third quarter to up mid-single digits in the fourth quarter.

“The opportunities for this newly combined global airline are clear, and we are poised to be the airline that connects the West Coast to the world with an experience rooted in care and performance," said CCO Andrew Harrison. "We are investing in our commercial engine to compete more effectively with the larger carriers, increase loyalty among our guests and realize synergies from both our commercial and cargo businesses. These investments include re-imagined lounge and onboard offerings designed to meet the needs of our most loyal guests, optimized route networks that get people to more places in less time, a seamless booking to boarding experience, and more.”

Operationally, Alaska delivered a reliable performance for our guests during their peak summer travel plans, not only flying our largest ever summer schedule, but doing so with a 99.2% completion rate. Growth this year has been impacted by delayed aircraft deliveries, which we expect to continue due to the ongoing strike at Boeing. Further aircraft delivery delays are expected to limit capacity growth in the final quarter of 2024 relative to our prior resource planning expectations earlier in the year.

Costs:

Costs performed as expected and were in line with our prior guidance, although unit costs remain pressured from lower capacity due to delivery delays. We remain resourced for higher capacity and are experiencing the lowest attrition rates across the company since 2019. One-third of our second half 2024 unit cost increases on a year-over-year basis are directly related to relative overstaffing given originally higher planned flying volumes, as well as the natural pressure that lower capacity puts on our fixed cost base which is about half of total costs. We expect this pressure to be transitory and to return to optimized resource levels relative to our capacity throughout 2025. Despite this, productivity for the quarter improved 4.6% year-over-year.

Our expected profit sharing payouts increased materially in the quarter, primarily driven by lower fuel prices and improving revenue trends, offset by a reduction in expected wage expense from our tentative agreement with our flight attendants which did not ratify during the quarter.

Balance Sheet and Capex:

Turning to our balance sheet, we ended the quarter with total liquidity of $3.4 billion, inclusive of approximately $850 million in undrawn lines of credit which were upsized following the closing of the Hawaiian acquisition. Subsequent to quarter end, we raised $2.0 billion in Term Loan B and Bond debt collateralized by Alaska's Mileage Plan program. The bond offering garnered investor interest of greater than 7x our issued amount, and we achieved the tightest spreads seen on similar debt within the industry outside of the pandemic, a testament to the strength of our loyalty collateral and our balance sheet. Approximately $1.4 billion was used to repay higher-yielding debt assumed in the merger, which we expect to result in annual interest cost savings of approximately $30 million over the next twelve months. Following the loyalty financing and debt repayments in October, our debt to capitalization and net leverage sit today at 58% and 2.4x respectively, still among the strongest balance sheets in the industry.

For capital expenditures, we continue to plan to incur approximately $1.2 to $1.3 billion in 2024. This amount assumes we pay for 18 737 Max aircraft this year, subject to Boeing delivery ability.

Although we only recently completed the acquisition of Hawaiian Airlines, we are encouraged by the continued improvement in the Hawaiian network. Following significant losses incurred in the fourth quarter of 2023, Hawaiian's EBITDAR turned positive in the second quarter and pretax results are expected to approach break even in the fourth quarter. The improvement is expected to be driven by both revenues and costs. North America PRASM inflected positive during the third quarter and we expect will be up mid-single digits year-over-year in the fourth quarter, while International PRASM is gradually improving from down double digits toward flat year-over-year in the fourth quarter of 2024. Neighbor Island results are also showing material year-over-year improvements. Several temporary cost headwinds that have challenged Hawaiian’s performance have mostly passed, with the impact of the A321 GTF engine-driven groundings fully resolved and the majority of the A330 Amazon freighter and 787 new fleet startup related costs completed.

With a proven playbook from our integration of Virgin America, we are prepared and excited to begin in earnest to bring the operating platforms of Alaska and Hawaiian together, while we maintain the legacy and value of both brands, each of which have been built over 90 years respectively. We plan to achieve three significant integration milestones in the next 18 months – the launch of a single loyalty platform, receipt of a single operating certificate, and integration of our passenger service system. We will also soon begin working with our labor-represented workgroups to start the joint collective bargain process.

We are on track to finish the year strong and expect to be among the top 3 pretax margin producers in the industry for the full year, inclusive of Hawaiian’s results from the date of acquisition closing. There is much to be excited about for our airlines as we move ahead and begin unlocking the multiples of potential we can accomplish as a combined company.

For the fourth quarter, we expect the following results, inclusive of Hawaiian. Expectations for the fourth quarter are compared to pro forma historical results, as if the acquisition had occurred on January 1, 2023. Pro forma historical results were included with this Form 8-K. Full year 2024 EPS is expected finish above the midpoint of our previous guidance of $3.50 to $4.50 per share, inclusive of Hawaiian's results.

(a) Earnings per share guidance assumes non-operating expense of approximately $50 million and a tax rate of approximately 28%.

•Reported net income for the third quarter of 2024 under Generally Accepted Accounting Principles ("GAAP") of $236 million, or $1.84 per share, compared to net income of $139 million, or $1.08 per share, for the third quarter of 2023.

•Reported net income for the third quarter of 2024, excluding special items and mark-to-market fuel hedge accounting adjustments, of $289 million, or $2.25 per share, compared to net income of $237 million, or $1.83 per share, for the third quarter of 2023

•Subsequent to quarter end, Air Group completed $2 billion in financing, backed by the Company's Mileage Plan program. Approximately $1.4 billion was used in October to refinance certain debt acquired with Hawaiian Airlines, which is expected to result in interest cost savings of approximately $30 million over the next twelve months.

•Repurchased 367,705 shares of common stock for approximately $14 million in the third quarter, bringing total repurchases to $63 million for the nine months ended September 30, 2024.

•Generated $318 million in operating cash flow for the third quarter.

•Held $2.5 billion in unrestricted cash and marketable securities as of September 30, 2024.

•Consolidated and upsized the Company's existing revolving credit facilities to $850 million in support of our overall liquidity target.

•Alaska received two 737-9 aircraft and one 737-8 aircraft during the quarter, bringing the totals within the airline's fleet to 72 737-9s and five 737-8s. Hawaiian received its fourth A330-300 freighter from Amazon.

•Completed Starlink installation on Hawaiian's 24 A330 aircraft, offering high-speed Wi-Fi free of charge to guests onboard.

•Partnered with Portland International Airport for the opening of its renovated terminal, leveraging new technology to help guests travel through the lobby quickly.

•Launched Stays by Alaska Vacations with Expedia Group, a new platform offering exclusive deals on over 900,000 hotels and vacation rental properties, providing Mileage Plan members the ability to earn and redeem miles on reservations.

•Announced partnership with James Beard award-winning chef Brandon Jew to offer an exclusive First Class dining experience for guests on flights between San Francisco and New York JFK.

•Announced investment in JetZero, a company developing a blended-wing body aircraft designed to provide up to 50% less fuel burn, reflecting Alaska's commitment to its goal of net zero carbon emissions by 2040.

•In collaboration with UP.Labs, launched Odysee, an innovative startup that leverages AI and computing power to optimize Air Group's scheduling and management of operational logistics.

The following table reconciles the company's reported GAAP net income per share (EPS) for the three and nine months ended September 30, 2024 and 2023 to adjusted amounts.

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This news release may contain forward-looking statements subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. These statements relate to future events and involve known and unknown risks and uncertainties that may cause actual outcomes to be materially different from those indicated by our forward-looking statements, assumptions or beliefs. For a discussion of risks and uncertainties that may cause our forward-looking statements to differ materially, see Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Some of these risks include competition, labor costs, relations and availability, general economic conditions, increases in operating costs including fuel, uncertainties regarding the ability to successfully integrate the operations of the recently completed acquisition of Hawaiian Holdings, Inc. and the ability to realize anticipated cost savings, synergies, or growth from the acquisition, inability to meet cost reduction, ESG and other strategic goals, seasonal fluctuations in demand and financial results, supply chain risks, events that negatively impact aviation safety and security, and changes in laws and regulations that impact our business. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed in our most recent Form 10-K and in our subsequent SEC filings. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We expressly disclaim any obligation to publicly update or revise any forward-looking statements made today to conform them to actual results. Over time, our actual results, performance or achievements may differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, assumptions or beliefs and such differences might be significant and materially adverse.

Alaska Air Group, Inc. is based in Seattle and comprised of subsidiaries Alaska Airlines, Hawaiian Holdings, Inc., Horizon Air and McGee Air Services. With our recent acquisition of Hawaiian Airlines, we now serve more than 140 destinations throughout North America, Central America, Asia and across the Pacific. We are committed to safety, remarkable customer care, operational excellence, financial performance and sustainability. Alaska Airlines is a member of the oneworld Alliance. With oneworld and our additional global partners, our guests have more choices than ever to purchase, earn or redeem on alaskaair.com across 30 airlines and more than 1,000 worldwide destinations. Book travel throughout the Pacific on Hawaiian Airlines at hawaiianairlines.com. Learn more about Alaska Airlines at news.alaskaair.com and Hawaiian Airlines at newsroom.hawaiianairlines.com/blog. Alaska Air Group is traded on the New York Stock Exchange (NYSE) as “ALK.”

Amounts below reflect Hawaiian's results of operations for the period September 18, 2024 through September 30, 2024, and incorporate purchase accounting impacts for the same period. Prior period information does not reflect Hawaiian's historical results.

Amounts as of September 30, 2024 reflect the acquisition of Hawaiian and incorporate purchase accounting adjustments.

(a) As reported in Form 10-Q for the second quarter of 2024.

(b) Cash flows for the three months ended September 30, 2024 can be calculated by subtracting cash flows from the six months ended June 30, 2024 from the nine months ended September 30, 2024.

(c) Cash, cash equivalents, and restricted cash shown in the Summary Cash Flow consists of restricted cash presented within Restricted Cash as well as certain amounts presented within Other noncurrent assets in the condensed consolidated balance sheets.

Air Group has classified certain operating and non-operating expenses as special items due to their unusual or infrequently occurring nature. We believe disclosing information about these items separately improves comparable year-over-year analysis and allows stakeholders to better understand our results of operations. A description of the special items is provided below.

Fleet transition: Fleet transition costs (benefits) are associated with the retirement and disposition of Airbus acquired from Virgin America and Q400 aircraft.

Labor agreements: Labor agreement costs in 2024 are for retroactive pay for Alaska flight attendants pursuant to the tentative agreement reached in the second quarter of 2024; the agreement did not pass and negotiations are ongoing. Costs in 2023 are for contractual changes to Alaska pilots' sick leave benefits.

Integration costs: Integration costs are associated with the acquisition of Hawaiian Airlines and primarily consist of legal and professional fees, change in control payments, and other employee-related expenses.

Litigation: Litigation costs represent expenses associated with the Virgin trademark license agreement with the Virgin Group and recorded following a negative ruling in an appeal case in the second quarter of 2024.

Net non-operating: These costs are primarily for interest expense recognized in 2023 associated with certain Virgin America A321neo lease agreements which were modified as part of Alaska's fleet transition.

(a)Except for FTEs, data includes information related to third-party regional capacity purchase flying arrangements.

(b)See a reconciliation of this non-GAAP measure and Note A for a discussion of the importance of this measure to investors in the accompanying pages.

(c)Excludes operations under the Air Transportation Services Agreement (ATSA) with Amazon.

(d)Includes aircraft owned and leased by Alaska, Hawaiian, and Horizon as well as aircraft operated by third-party regional carriers under capacity purchase agreements. Excludes all aircraft removed from operating service.

(e)Data presented includes information related to flights operated by Horizon and third-party carriers.

(a)Includes consolidating entries, Air Group parent company, Horizon, McGee Air Services, and other immaterial business units.

(b)The Air Group Adjusted column represents the financial information that is reviewed by management to assess performance of operations and determine capital allocation and excludes certain charges.

(c)Includes special items and mark-to-market fuel hedge accounting adjustments.

We are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. Amounts in the tables below are rounded to the nearest million. As a result, a manual recalculation of certain figures using these rounded amounts may not agree directly to the actual figures presented in the tables below.

(a)As of September 30, 2024, $49 million of capitalized finance leases were recognized within the 'Long-term debt, net of current portion' line of the condensed consolidated balance sheets.

(a)Operating income can be reconciled using the trailing twelve month operating income as filed quarterly with the SEC.

Note A: Pursuant to Regulation G, we are providing reconciliations of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. We believe that consideration of these non-GAAP financial measures may be important to investors for the following reasons:

•By excluding certain costs from our unit metrics, we believe that we have better visibility into the results of operations. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can result in a significant improvement in operating results. We believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management and investors to understand the impact of company-specific cost drivers which are more controllable by management. We adjust for expenses related directly to our freighter aircraft operations to allow for better comparability to other domestic carriers that do not operate freighter aircraft. We also exclude certain special charges as they are unusual or nonrecurring in nature and adjusting for these expenses allows management and investors to better understand our cost performance.

•CASMex is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance. CASMex is also a measure commonly used by industry analysts, and we believe it is the basis by which they have historically compared our airline to others in the industry. The measure is also the subject of frequent questions from investors.

•Adjusted pretax income is an important metric for the employee incentive plan, which covers the majority of Air Group employees.

•Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of these items as noted above is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.

•Although we disclose our unit revenue, we do not, nor are we able to, evaluate unit revenue excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenue in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.

Adjusted net debt - long-term debt, including current portion, plus capitalized operating and finance leases, less cash, restricted cash, and marketable securities

Adjusted net debt to EBITDAR - represents net adjusted debt divided by EBITDAR (trailing twelve months earnings before interest, taxes, depreciation, amortization, special items and rent)

Aircraft Utilization - block hours per day; this represents the average number of hours per day our aircraft are in transit

Aircraft Stage Length - represents the average miles flown per aircraft departure

ASMs - available seat miles, or “capacity”; represents total seats available across the fleet multiplied by the number of miles flown

CASM - operating costs per ASM; represents all operating expenses including fuel, freighter costs, and special items

CASMex - operating costs excluding fuel, freighter costs, and special items per ASM, or "unit cost"

Debt-to-capitalization ratio - represents adjusted debt (long-term debt plus capitalized operating and finance lease liabilities) divided by total equity plus adjusted debt

Diluted Earnings per Share - represents earnings per share (EPS) using fully diluted shares outstanding

Diluted Shares - represents the total number of shares that would be outstanding if all possible sources of conversion, such as stock options, were exercised

Economic Fuel - best estimate of the cash cost of fuel, excluding operations under the Air Transportation Service Agreement (ATSA) with Amazon, net of the impact of our fuel-hedging program

Freighter Costs - operating expenses directly attributable to the operation of Alaska's B737 freighter aircraft and Hawaiian's A330-300 freighter aircraft exclusively performing cargo missions

Load Factor - RPMs as a percentage of ASMs; represents the number of available seats that were filled with paying passengers

PRASM - passenger revenue per ASM, or "passenger unit revenue"

RASM - operating revenue per ASMs, or "unit revenue"; operating revenue includes all passenger revenue, freight & mail, Mileage Plan and other ancillary revenue; represents the average total revenue for flying one seat one mile

RPMs - revenue passenger miles, or "traffic"; represents the number of seats that were filled with paying passengers; one passenger traveling one mile is one RPM

Yield - passenger revenue per RPM; represents the average revenue for flying one passenger one mile

A: We are optimistic about both the near and long-term future of Air Group. We are embarking on integration with the Hawaiian network from a solid financial foundation with a clear path to synergy capture. We plan to share more about our business strategy and revised synergy estimates, including expected synergy capture as well as EPS guidance for 2025 at our Investor Day on December 10th.

A: As reported, our combined third quarter unit revenues increased 1.3% y/y with both Alaska and Hawaiian network unit revenues inflecting positive in August. Legacy Air Group unit revenues improved ~2% y/y in line with previous guidance. On a pro forma basis, had Alaska and Hawaiian been a combined carrier for the entire third quarter of both 2023 and 2024, unit revenues would have increased 1.4% y/y.

Looking ahead, pro forma unit revenues are expected to be up mid-single digits in the fourth quarter, which, based on current public guidance, would be amongst the best in the industry on a quarter-to-quarter sequential improvement basis.

Legacy Air Group unit revenues are expected to improve from ~2% in the third quarter to up mid-single digits in the fourth quarter. Premium revenue performance continues to outperform main cabin, with first class and premium class revenue up 10% and 8% y/y respectively in the third quarter on only a 5% increase in premium seat capacity.

Positive booking trends have persisted into October and advanced bookings for the holidays are strong although on a monthly basis, December will outperform given the shift of Thanksgiving return travel into early December. Advance bookings in January and February are solid, with positive held load factors versus last year.

Hawaiian network revenue trends are also similarly encouraging, with North America PRASM inflecting positive during the quarter and trending toward up mid-single digits y/y as well in the fourth quarter, while International PRASM is gradually improving from down double digits toward flat y/y. Neighbor Island results are also showing y/y improvement.

A: We have a clear strategic focus for the development of our network and will first be working on optimally connecting the Alaska and Hawaiian systems. We believe our combination further supports Air Group growth in California given our enhanced relevance to Californian travelers (where Hawaiian is the most preferred carrier to Hawaii) and this month we announced five new nonstop routes, four of which touch California (Las Vegas to San Diego and Santa Rosa, Los Angeles to Pasco and Reno and Portland to Atlanta).

To support our network integration and synergy efforts, we have significantly recalibrated our Seattle and Portland hub flying by time of day to expand and optimize connection opportunities over both the legacy Air Group network and the combined network with Hawaiian. We will further discuss our future network at our Investor Day.

Q: How is corporate demand performing in Q3 2024 and Q4 2024?

A: Following the step change in corporate travel demand to start the year, corporate demand has been strong in September and into October, providing further close in booking strength. For the Alaska network, managed corporate revenue grew 9% y/y in Q3 with double digit growth in the technology and professional services industries and we expect similar trends in the fourth quarter. Hawaiian’s corporate portfolio is materially smaller than Alaska’s and is concentrated primarily across Neighbor Island flying with a small percentage between Hawaii and North America.

A: We have completed five 737-900ER retrofits so far with 18 expected by year end and the full fleet of 79 aircraft completed prior to next summer. Work begins in early 2025 on our fleet of 137 737-800s, Max 8s and Max 9s with the goal to fully complete these retrofits by summer of 2026.

A: We have a strong value proposition, with products and customer service that already cater to different segments of travelers, including those seeking a more premium experience. Whether it be our world class-lounges, generous premium seat pitch, quality onboard food and beverage, or our access to the globe through oneworld with our industry-leading loyalty program, the combination of these elements creates value for our guests. Importantly, we have the most relevance and loyalty in our core geographies and continue to make inroads in the rest of our network. We plan to share more about why this is an important segment of our business, why it will continue to help drive our outperformance as we invest in it even more at our investor day on December 10th.

A: As a reminder, beginning in 2023 we implemented a margin-modifier component in addition to our baseline profit-sharing program, incentivizing our teams to focus on achieving the industry’s first, second or third highest adjusted pretax margin. Given the strong performance compared to peers as the year has progressed, with industry-leading margins in the second and third quarters, and with lower fuel prices and revenue strength, our profit forecast has increased, leading to a higher accrual in the quarter. This accrual contributed ~1.5pts of additional CASMex pressure in the quarter compared to prior expectations. We expect a similar level of cost to be accrued in the fourth quarter based on our current expectations and understanding of industry guidance, which will similarly pressure fourth quarter unit costs.

We have a long history of achieving amongst the top 3 margins in the industry, and view continued focus on delivering these margins as critical to the long-term health of the company and believe rewarding all of our employees when we achieve this goal to be a strong motivator that drives sustained financial performance.

A: In Q3 2024, our tentative agreement with flight attendants did not ratify, and with no current tentative agreement in place, both our third quarter results and fourth quarter guidance do not include costs related to a new agreement. We are scheduled to return to negotiations next month with the mediator and look forward to reaching a deal. Once we reach a tentative agreement, we will begin accruing these costs again and incorporate into forward-looking guidance. As described above, our improving profitability expectations also drove higher profit sharing expense during the quarter and will remain elevated through year-end. Our core cost performance remains strong for costs within our control, helping partially offset the increased profit sharing.

Finally, 2024 has been significantly impacted by lower growth than the level we had planned and built the company for, and we remain resourced for higher capacity delivery. This relative overstaffing and historically low attrition, as well as the natural pressure that lower capacity puts on our fixed cost base, contributed to approximately one-third of our unit cost pressure in the back half of the year. We expect this pressure to be transitory and to return to more optimized resource levels relative to our capacity throughout 2025. Despite this, productivity still improved year over year in the third quarter.

With growth constrained across the industry, attrition has been low across most workgroups moving into the shoulder season. This, coupled with fewer Boeing deliveries from both production issues and the machinist strike, has resulted in carrying more costs than we anticipated for the level of flying we expect to realize, particularly in the fourth quarter. Near term, we are working to mitigate excess costs through staffing adjustment leaves and still expect modest y/y productivity improvements in the fourth quarter. We view these costs as temporary, and as we begin to take new deliveries, expect to grow into new levels of flying with very few additional resources.

A: Throughout 2024 we have experienced several headwinds impacting costs, including most significantly, the MAX grounding and ongoing Boeing strike that have reduced our growth relative to our planning expectations. Although productivity continued to improve, up ~5% y/y in Q3 2024, our full year productivity is only half of what we expected to achieve this year. Although aircraft delivery delays are expected to persist into 2025, we have adjusted our planning and hiring, and expect much of our work group inefficiencies to be tailwinds into 2025. Other cost items such as higher real estate costs will continue to be headwinds, and as we restart negotiations with our flight attendants next month, we expect y/y pressure from a new labor contract once achieved.

A: Following the MAX grounding earlier this year, we lowered our delivery and growth expectations for 2024. However, subsequent delivery delays, compounded by the ongoing strike at Boeing have further reduced our current and future forecasted capacity. As a result, legacy Air Group network growth expectations have been reduced by approximately 2pts in the fourth quarter. We now expect legacy Air Group capacity growth to be less than 2% for the year versus our previous expectation of less than 2.5% growth y/y.

On a combined basis, we expect capacity growth to be approximately 1.5% to 2.5% for the fourth quarter, with the legacy Air Group network roughly flat y/y and the Hawaiian network growing approximately 7-8% y/y.

It remains too early to predict our future fleet strategy now that we operate a mixed fleet again. We are familiar with the A321 and its capabilities and our future fleet design will be influenced by Boeing’s ability to restart MAX production and certify the MAX10 aircraft on schedule.

A: We are excited about both the opportunity to combine our two networks to unlock synergies, as well as about the standalone improvement already happening across the Hawaiian network.

Neighbor Island and North American advanced bookings are strong and International is improving, albeit more slowly. Additionally, significant one-time cost headwinds are rapidly abating.

Hawaiian’s revenue was uniquely impacted by the Maui wildfires and has been challenged by a slower return of Japan point of origin travel. On costs, Hawaiian was exposed to the industry-wide GTF Engine related groundings in addition to aircraft delivery delays and fleet startup costs for both the 787 and A330 freighter fleets. All of these provided significant headwinds to Hawaiian’s 2024 results.

Hawaiian’s results are significantly improved, with EBITDAR that’s been positive since Q2 2024 and Q4 2024 adjusted pretax results approaching break even. While the Hawaiian network is seasonal and will likely see normal first quarter challenges, we anticipate results will be markedly improved in 2025 versus 2024, well before beginning the process of materially synergizing the two companies.

A: We anticipate, based on current tax law and internal projections, that our tax rate will normalize back to ~25% in 2025. Our 2024 tax rate reflects on-time acquisition-related impacts related to the transaction.

A: After a required pause on share repurchases leading up to the closing of the acquisition, we anticipate resuming share repurchases in the near future.

A: Our current expectation is to pay for 18 MAX aircraft this year and no further 787 deliveries. Our capex estimate for 2024 remains $1.2-1.3 billion, however, is subject to change given ongoing delivery delays and active dialogue with Boeing to reset our future fleet plan.

A: At the end of 2023 we discontinued our hedging program. Our program consisted of very simple hedges on crude oil. However, as these hedges have become more expensive, and refining margins have grown in significance in terms of our overall fuel costs and volatility, we decided to end this program. Our teams are focused on investing in better fuel sourcing with the aim of reducing volatility and lowering our fuel costs. Hawaiian has had a different hedging program in place, which we are currently evaluating, and we will share more on that once a decision is made.

A: We are focused on achieving a ratified deal with our Flight Attendants as quickly as possible and resume mediation in November. We expect joint collective bargaining negotiations to commence with all our unions during 2025.

Q: When will Air Group provide pro-forma results (i.e., Legacy Air Group and Hawaiian combined co.) for prior-year quarters and how far back will financials be restated?

A: Today we provided Article 11 compliant pro-forma results for Q3 2023 and Q4 2023 for comparison purposes. FY 2024 results will only include Hawaiian’s financial results from September 18 through year end.

A: We are excited to share more details on our deleveraging path at our Investor Day. However, we are starting from a strong position even after the close of the acquisition. Following the successful funding of $2.0 billion in loyalty financing in October, our debt to capitalization level rose to 58%, up from 46% in Q2 2024 and our net leverage is now 2.4x vs. 1.0x. These metrics are better than the relative position we previously announced back in December 2023 where we expected debt to capitalization and net leverage to be <60% and <3x, respectively. At these levels, even before we begin to deleverage again, we still have one of the strongest balance sheets in the industry.

Subsequent to quarter close, we refinanced approximately $1.4B of higher-rate debt assumed in the merger, including $985M of HawaiianMiles 11.0% Senior Secured Notes and approximately $436M of other secured debt. These refinancings are expected to drive annualized interest cost savings of approximately $30M for the combined company in the first 12 months.

A: We look forward to sharing answers to questions like this at our upcoming investor day December 10th in New York City.

The following presents certain unaudited pro forma condensed combined statements of operations for the quarter-to-date and year-to-date periods ending September 30, 2023 and December 31, 2023, and for the quarter to date period ending September 30, 2024. The pro forma financial information is based upon the combined historical financial statements of Alaska Air Group, Inc., ("Air Group") and Hawaiian Holdings, Inc., (“Hawaiian”), after giving effect to Air Group’s purchase of all the issued and outstanding shares of Hawaiian by means of a merger (the “Merger”). The combined pro forma information includes adjustments in accordance with Article 11 of Regulation S-X to illustrate the effects of the merger as if it had occurred on January 1, 2023, the beginning of the earliest period presented.

Following Air Group's acquisition of Hawaiian on September 18, 2024, 13 days of Hawaiian's results were incorporated into the combined companies financial reporting. Management believes pro forma combined operating results for prior periods are useful for the purpose of comparing our actual or expected future operating results, as it provides a relevant baseline for identifying trends in the overall operating performance of our business. Management also believes the recalculation of certain operating statistics, unit metrics and certain non-GAAP measures on a pro forma basis to be useful in review of operating results.

"Other Adjustments" in the unaudited pro forma combined statements of operations reflect the preliminary allocation of the purchase price to the acquired assets and liabilities based upon estimates of fair values. These adjustments are provisional and subject to further adjustment up to September 18, 2025 as additional information becomes available, additional analyses are performed and as warranted by changes in current conditions and future expectations. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the unaudited pro forma condensed combined financial information and the Combined Company’s future results of operations.

The unaudited pro forma condensed combined financial information is presented for informational purposes only. Such information is not necessarily indicative of the operating results or financial position that actually would have been achieved if the Merger had been consummated on the dates indicated or that the Combined Company may achieve in future periods. Specifically, the unaudited pro forma condensed combined financial information does not include any projected synergies expected to be achieved as a result of the Merger or any associated costs that may be incurred to achieve any projected synergies. The unaudited pro forma condensed combined financial information also exclude the costs associated with any integration activities that may result from the Merger.