Alaska Air, Virgin America Deal Conference Call: Full Transcript

Operator: Good morning. My name is Heidi and I will be your conference Operator today. At this time, I would like to welcome everyone to the Alaska Airlines' Conference Call. All lines have been placed on mute to prevent any background noise, after the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Please limit yourself to one question and one follow-up. Thank you. Managing Director of Investor Relations, Lavanya Sareen, you may begin your conference. Lavanya Sareen: Alaska Air Group, Inc., Managing Director, IR: Thanks, Heidi and good morning everyone. Thank you for joining us this morning on a fairly short notice. This morning we issued a news release outlining the Merger Agreement for Alaska's acquisition of Virgin America. Presentation from this morning has been webcast and the slides are also available on our website at alaskaair.com. We will begin the call with opening comments from our CEO, Brad Tilden; and David Cush, CEO of Virgin America, following which you will hear directly from our Chief Commercial Officer, Andrew Harrison; our CFO, Bran Pedersen; Ben Minicucci, our Chief Operating Officer, and they will share the terms of the transaction, expected benefits, and our plans for the combined company. For the Q&A portion of the call, Peter Hunt, Virgin America's CFO and several members of our Senior Management teams are also on hand to help answer your questions. Before we get started, please note that today's presentation will contain forward-looking statements that represent our beliefs or expectations about future events. All forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Some of the factors that may cause such differences are described in Alaska and Virgin's SEC filings. With that out of the way, I will turn the call over to Brad. Brad Tilden: Chief Executive Officer and President: Thank you, Lavanya and good morning everybody. As Lavanya said, we did announce our planned acquisition of Virgin America earlier this morning. As you probably know by now, it's an all cash deal with an equity value of $2.6 billion and enterprise value of about $4 billion. Virgin is an incredible company. In just nine years, they have developed an excellent product, a really loyal following amongst their customers. They have got substantial presence in both San Francisco and Los Angeles and really valuable gates in the slots in the three New York City airports and in Reagan National Airport in Washington DC. For our they also complement our geography really well. Our goal is to be the premier airline for people who live on the West Coast and as you know, we've long been strong throughout the Pacific North West and Alaska, and in fact we fly to 112 destinations in 30 something states from those places. But while California is actually our second biggest state in terms of flying, we don't fly East from there really and that affects how much customers living in California can concentrate their travel with us. The California market, as you probably know, is three times the size of the markets of Alaska, Washington, and Oregon combined. This acquisition gives us a solid foothold in California. Andrew will share details in a moment but as one small example, today Alaska Air Group flies to one of the top-ten airports out of San Francisco. With this acquisition, we'll fly to all ten of the top-ten airports. So it's really valuable real estate and it gives us a shot at being your go-to airline if you live anywhere up and down the West Coast. And in fact with this acquisition, we will have the leading market share of airlines operating on the West Coast. I want to point out that we'll do a good job of serving what some called the 'Bleasure' segment of the market. It's that segment that's focused on business and higher-end leisure travelers. Alaska focuses on this segment today as does Virgin America. And we think it's both a very promising and an under-served segment of the market. Financially I'll just say that this was a hard thought competition and we were very happy to come away as the successful bidders. The synergy to realize our earnings will increase significantly from about $1.3 billion before taxes today to $1.6 billion. Both of these figures have based on 2015 and our shares outstanding will remain unchanged. So we believe the transaction will be very good for our owners out of the gate and it will get even better overtime. At this point, I want to turn the call over to David. He's got some opening remarks he wants to make and then our team has put together a deck that sort of details our thinking about this transaction, the strategic rationale, the financial case, and sort of some of the things that we believe we'll be doing with employees and customers. So over to David and then we'll comeback to go through the deck. David Cush: President & Chief Executive Officer; Virgin America: Thanks Brad. I'll be brief. You know I agree with everything Brad said before obviously and I'll say that while we didn't really set out to sell the company when we were approached by Alaska, We are happy with the outcome of this transaction, in the price paid, is a big win for our shareholders, our employees will join a vibrant, well-run company and being a part of a bigger airline offers greater job security in a highly consolidated industry. And then finally our customers and Alaska Airlines customers can now enjoy the benefits across a significantly broadened network. The other point I'd like to make is, as opposed to the last round of mergers, this one is really done from a position of strength. If you look at the last round, many of the carriers were in bankruptcy or were in distress. In this situation, each carrier has a strong balance sheet and is producing strong earnings. Alaska is acquiring network to put it in the most competitive markets in the United States, but enters those markets from a position of strength. Virgin America outperforms our competition in unit revenue and head-to-head markets and are industry leaders in a number of these markets. So what I think is important there is Alaska is buying some prime assets but these are assets that are already producing a strong earnings stream rather than assets that we need to be rehabilitated so they can step into play a position of strength immediately. We also like Alaska's plan going forward. It's built on leveraging the strength of this new network in order to grow the combined airlines and that creates more value for shareholders, better option for customers, and more opportunity for our teammates. So Brad and I will put teams together to work on the integration over the next few months. I expect that to be a smooth process and we look forward to working with the Alaska Airlines Team. Thank you, Brad. Brad Tilden: Thanks very much David. So we have put together a deck. We are going to try to get through it briskly. And then we think you can follow through, we know that you will follow along quickly so we are going to try to not take too much time with each slide. If we can bring the first slide. I hope everybody is tracking. The first slide that I am looking at is Slide 4. It's our forward-looking statement. The next slide is Slide 5. It's just a buildup of the two airlines by the numbers. You see that on a combined basis, we'll have over $7 billion of revenue. This is all based on 2015. I think both airlines are growing in 2016; 39 million annual customers, almost 300 aeroplanes 1,200 daily flights will fly to a 114 cities and this pre text profit is just adding together the two numbers with synergies and factoring and financing classes will be even higher than that is Brand is going to you through that in a moment. Move to the next slide. Just goes through this $2.6 billion all cash there'll be 18,000 employees when all of done the head office will be in Seattle but we expect to have a very strong presence in San Francisco and you can see the leadership team on the right. We advance to slide once again you see that basically both airlines do have a very well-earned reputation for both of both low fares and great customer service, lots of recognition here for Virgin from consumer reports, travel on leisure and another. In terms of brands; the Alaska brand stays you can see that it's our refresh brand we are very proud of that and in terms of Virgin brands, what I'll just say is we want to learn more about it we, believe its driving a big revenue premium for Virgin and we want to get involved as we worked to the integration of the two companies we just want to learn more about it. So there is a chance of we can use the Virgin America brand in some form down the road. Turning the slide again. This is just sort of a slide on the industry, our basically that the industry structure is much better than it has been from most of our carriers. We show here that from 1977 to 2009 and you all know this, the industry loss $52 billion, the last five years we have made $45 billion why is that happened? The industry structure has fundamentally changed, it was tortuous, it was painful but many companies have gone through bankruptcy, many companies have consolidated so, there is just I think a more rational approach to the business. One of the things I said earlier today in the old days airlines wanted to do to have one of every aeroplane, they wanted to fly everywhere. Today I think airlines have much more of a business orientation. Leadership teams; Alaska has been leader here but leadership teams of Airlines across the industry are focused on shareholders, and focused on producing returns. David talked a bit about this. Airport real estate is constrained and that constrained is actually got to be a little bit of a problem for us that's something we'll work on but I think it's a good thing for airline investors. And then finally this Leisure segment I talked about earlier, the industry is changing there is more of a focus on Leisure today than it was 10, 20 years ago and then finally ancillary revenues are another big driver of profit. So we advance to slide from there. Just basically make the point that Alaska is performing very well those of you they follow us know this but whether its safety on time performance customer service the way we work with our employees, our balance sheet, our profitability I think our tract record does speak for itself. We are anxious to get more real estate to work with and we believe overtime they were -- we believe we are going to create a lot value out of the gate but overtime even more value as we sort of solidify and strengthen our presence up and down the West Coast. We advance that slide. We just as a slide that you probably seen before basically says the industry is becoming more concentrated I think it's a good thing for investors but for someone like what this says is today just four airlines control have 84% of the revenues, this is a good thing for investors but to an airline like Alaska it says the scale is relevant, so we think it's a good thing for us to have a little bit larger scale to work from. We look at advance that slide. We see that it's time for Andrew to start talking. So with our team is going to go through their slides, we are looking forward to the Q&A. Andrew Harrison: Executive Vice President and Chief Commercial Officer: Good morning everybody excuse my voice little but firstly and most importantly this acquisition provides a platform of growth for us. We are going to talk about the powerful West Coast network, the role of the partnerships and the gateways, constrained airports as Brad as mentioned, a California customer base at Virgin America has loyalty programs and of course increased influence in today's industry. As you all know we've been very strong in Pacific Northwest and but really our opportunities is California and as Brad made in his earlier remarks three times the population base that planned today and 2.5 times the passengers and so this is going to be a really important opportunity for us. The other thing is just really looking at California as you folks know it has amazing characteristics. Its number one in many key economic drivers that have fantastic growth international passengers. So we believe this is a place we can grow with this new platform. We are already in California as you call know and you can see it on the right of chart and the second largest investments of seeks is in California, but that investment only yield just a 7% share. You can see in a Pacific Northwest we have a very strong shares and so this is where we need to invest to continue to get returns on our investment and of course the other thing in today's consolidating industry is infrastructure constraints. So we double the size of our gates of Los Angeles, meaningful present and San Francisco obviously, and then as we won't tried hard on the East Coast to get a position. We have one red IDJ of K today, and that's taken in my team at least five years to get. So that progress wasn't promising. But of course today now with the JFK and with Virgin 23 slots about 11 round trips and is getting to be very important as we continue to grow. But I think what we most excited about here, if you look at just seeks here of the West Coast we will be the number one player as share and I think for us personally this is again the turning point this is the foundation. We have something here that we can continue to grow and to make into something great and of course if you look down the coast now increase Seattle, Poland, San Francisco, Los Angeles metropolitan gateways, but I also want to highlight given all the airports in both the LA basin and the bay area we have significant flights and presence in those places which is going to serve as well going forward. So let's just talk about share for a moment. If you look at San Francisco on day one of this closing of this transaction will be the second largest carrier in San Francisco and we will actually be relevant in a very fragmented market in Los Angeles. Also what it does for us and you can see there on the left because they are little circles are representing passenger per day each way. That we are going to also have opportunity to grow other airports in California. So this positions us well and as Brad said if you just look our network today and our utility we only have access to 6% of total nonstop North America revenues. At San Francisco when we do this merger we go to 58% and we go from one to all top ten markets in San Francisco. [Audio Issues 01:48] we work together when you combined those and the global networks our reach is going to be impressive our members will have massive access to the world of the West Coast. Really more importantly as we've talked about, we're going to have a very strong West Coast Airline and you can see there the depth and the breath of the network. This is just on day one, it doesn't include any of the strategic growth going forward and then lastly I just want to land on a point that Brad shared earlier, which is, if you look at the North American revenue pie here 66% of all revenues carried on by the network carriers but that 12% slice. Low fares is still offering premium products; first class; and lounges and all the rest. We believe that this is an area that's understood and this is an area combined Alaska and a Virgin where we can make in roads and there is a great demand for that. So with that I am going to hand over to Brandon Pedersen. Brandon S. Pedersen: Vice President, Finance and Chief Financial Officer: Thanks Andrew and good morning everybody. Well Brad and Andrew shared the strategic rational and so I want to just talk about the financial rational which I think is equally as compelling. On the first slide you can see we thought it was appropriate to start with return on investment capital because we really we're a pioneer in the industry when we talk about return on invest to capital we are the first to do so. All of you on the call know that we're generating substantial returns right now and creating a significant of value for our owners. Of course returns on investment capital come from managing the capital base prudently but also and more importantly come from profits and we're generating a significant profit, last year we generated 24% pre-tax margin which places us higher than the LCC's group and well over the industrials and the legacy carriers. Those profits come because we are safe, we are operating well, we have got engage employees, we have customer preference, low-cost and efficiently and none of that changes with this deal. When you have strong profits it generates strong cash flows and as you know we views those cash flows in a very balanced way over the last five or six years. We've generated $6 billion of cash flow from operations, we paid down our pension, so that there is no real pension obligation to speak up, we have invested $3 billion in the fleet, we have returned tons of cash to our shareholders both through the dividend and the share repurchase program that we have been had since 2007 and we deleveraged our balance sheet bringing more than -- taking more than $1.2 billion of debt of the balance sheet. As a result you've seen these slides before, our debt to cap went from 81% down to 27% we have an investment create balance sheet and that investment create balance sheet positioned us to get this deal done. Next slides shows you a chart of our long-term growth, we actually introduced this slide to you back in at Investor Day and importantly it's been profitable growth. What this deal does is it gives us a platform to extend that growth well into the future with the massive market opportunity that Andrew talked about and as Brad said we will do this in a way that makes one plus one equal three, we have talked extensively with some investors about how our goal is to grow profits and not necessarily to grow margins and what this does is it allows us to grow profits but not damage the margins certainly. This is gives us a great platform to continue to grow profits well into future. Let's talk about synergies as you saw in our press release, we think synergies are about $225 million the year on a run rate basis we think this is consistent with where other airlines deals have done. Just if you look at the breakout between revenue synergies and cost synergies it is about 80:20 which we think as a very achievable mix. On the revenue side, the synergies come from three primary areas, one is just the network connectivity that we will be achieve, second is just fixing and matching airplanes and better deploying the assets that we now have and the third is from the affinity card opportunity that we believe we see particularly as we get to have the Alaska airline's affinity card -- it will extend penetration into the bay area in particular. On the cost synergy side it's the things that you might imagine I think there is $50 million there and we'll expect onetime in the integration cost to be upwards of $350 million. As I said our synergy estimates are in line with prior deals we came in right at 3.1% of combined revenues as shift in the neighborhood of our Southwest air trend and America US were, but substantially lower than some of the other deals in the industry suggesting to us that we have more upside if we work hard. I am incredible confidence in our ability to get this done I am incredible confidence in our ability to get this done timely which is really the next slide we believe the synergies we'll get 90% of the synergies by 2019 and importantly, we expect this deal to be accretive to earnings in year one. Let's talk about financing a little bit. As you know it was an equity value of $2.6 billion Virgin America has net debt at least as they will be assuming they're equivalent to $1.4 billion. So a total enterprise value of $4 billion. On the financing side we'll use $600 million of cash we actually ended Q1 with $1.6 billion of cash when we put our cash with Virgin America's cash we think it's completely appropriate to use of cash of about $600 million. We'll assumer there debt and leases of course and we planned to issue $2 billion worth of new debt. We believe we have tons of opportunity to get this debt at a very favorable cost we have lots of financing sources available to us including the 92 aircraft that we had unencumbered in the Alaska fleet as of the end of the third quarter. Looking forward debt and capital is something that we're proud of we've made incredible progress so as I highlighted before, but even with this deal our debt to cap stands at less than 58% which puts us in the middle of the industry right now. For those of you who have been watching the company for a long time you know that we don't just compare ourselves to the rest of the industry we compare ourselves to high quality industrials and as you can see on the chart even at the 50% level which we expect to be at, at the end of this year or so we'll be very consistent with were the high quality industrials are. We think that as I at close we're going to be at 58% debt to cap, but the goal would be to get down to 45% by mid-2020 and we are going to introduced a new term to the investment community which is redeleveraging, we're going to start a campaign of redeleverging the balance sheet so that we can do so. Turning to the fleet and I am sure you have some questions about the fleet we liked that fleet that Virgin America gives us there is a tough flexibility we can grow if we need to. You also know that Virgin America leases the vast majority of their plans so we can transition the fleet to a single fleet if we should use to do that starting in 2020 and then finally on the capital return side, you all know that we've been leaders in returning capital to shareholders one of the things that we're going to do is we're going to slowdown to share repurchase program in 2016 to help fund this deal. We believe we are also going to slower down in 2017, but by 2018 we planned to be active again in share repurchases at an amount equivalent to what we have been doing over the last couple of years. So all in all, just to recap; we have a track record of being best-in-class operator and Ben is going to tell you more about that in just a second. We have been generating returns far in excess of our industry peers and in the cost to capital, so this is the right time for us to do this. We seek a larger platform for our growth and this gives it to us and we don't destroy our balance sheet in fact this positions us to continue to have a very strong balance sheet and move forward. So with that I will turn it over to Ben. Ben Minicucci: Chief Operating Officer and Executive Vice President: Thanks Brandon and good morning everyone. Operationally we have worked very hard in the last ten years getting our operation running right. There is no better time for us to make this acquisition. We have a culture, committed to safety, our operation is been best in North America for the last six years; with 8 JD power works we have a track record for customer service and a cost structure and the mindset gear towards high productivity. I have total confidence in my team and our people to execute this acquisition well. Wall Street Journal shows that Virgin also runs a very strong operation and I am confident that when we merge together we will continue to lead the industry. Both our companies have young reliable fleets and which as you know we like a lot and they are also extremely fuel efficient. Brandon said we're going to continue to operate the Airbus fleet in the near future and we will decide in time whether we go single fleet or we'll operate the dual fleet. For customers; we are continue to get award winning service at low fares because of our cost structure, we get this huge expanded network utility as Andrew explained and through our partners really extend our international reach not only from Seattle but from San Francisco and Los Angeles. Virgin and Alaska shared the same commitment to our people. We know through experience in Alaska that our culture of carrying team work and empowerment is a competitive advantage. So we look forward to welcoming the terrific Virgin employees into our Alaska family and continue to build up on the success we enjoy with our people and unions at Alaska. So very high level here are the key days. Today of course as the deal announcement, we expect Virgin America shareholder approval hopefully by June, and then we are hopeful to get regulatory approval by the third and fourth quarter given that we have very little network overlap and that we intend to grow, and we have a goal to have a single operating certificate by early 2018 or sooner. And with that I am going to turn it over back to Brad. Brad Tilden: Thanks very much, Ben. It's a good chance for me to thanks these three Gentlemen as well as the rest of our officer team and many, many others that have been working on this deal, and at this point we are ready to address any questions that the analyst have. Question & Answer Operator: At this time, I'd like to remind everyone in order to ask a question please press star than the number one on your telephone keypad we ask that you limit yourself to one question and one follow-up. Your first question comes from the line of Savi Syth from Raymond James. Go ahead, your line is open. Savi Syth: Raymond James: Hey, good morning. Brad Tilden: Hey, Savi, good morning Savi Syth: Hey, exciting news. I was wondering on the synergy front if you could give a little bit more color on just us to walk us the 175 comes from just how much from maybe each you thinking, and just on the merger itself, I am just wondering if you could provide a little bit more color on why now as to why you kind of doing this now? Brandon S. Pedersen: Savi it's Brandon, maybe I will start with the first and then Brad can take the second. On the revenue synergies again, so $175 million it comes from three buckets, one is just the connectivity of the network and ability to mix the next to fleet and now we think we really do have a great affinity opportunity or excuse me an opportunity with our affinity card down in California. We've got an awesome partner of Bank of America, we've got what we believe to the best card out there and we think when we rolled this out consumers will love it and that's going to create revenue for us as well. We are not yet going to disclose the breakdown between those three pieces, but those are largely where it all comes from. On the cost side, it is what you would expected to be there synergies available to us by combining facilities, airport facilities, corporate office facilities, services that we procure as both companies and then of course we combined the back offices there will be synergy that we get from that as well. Brad Tilden: -- this is Brad. In terms of why now I just think that we are operating as David said from a position of strength we are confident in our ability to run the airline we do. We feel like we operating well and provide good customer service, we feel like we run the business in a way where all of the stakeholder groups do well, but we are getting increasingly confidence about the industry itself. I think the industry structure has changed and I don't focuses have different views on this but we're optimistic about the long term case for US airlines and so we feel that was that was also another factor. Savi Syth: Got it. Thanks and if I may just within one last question on Virgin has some gates on the East Coast that don't necessarily you said may be with the kind of the West -- East West it is like LaGuardia and maybe love fields I just wondering what your thoughts on those are? Andrew Harrison: Hi, Savi it's Andrew. Excuse me, we're going to be taking a look at all of these what we do know is these are very valuable assets and what we do with them we have a lot of opportunity and lot of choice and so overall we are very, very confidence with the portfolio that we are getting and the options that we have. Savi Syth: All right, great. Thanks, guys. Operator: Your next question comes from Rajeev Lalwani from Morgan Stanley. Go ahead your line is open. Rajeev Lalwani: Morgan Stanley: Hi gentlemen thanks for the time. I guess just when you are looking at this transaction and coming up with a price to pay how did you take in account where we are in this cycle and just making sure that which you even pay a high multiple on what maybe peak earnings that's the first question and then the second question, can you just talk a little bit about what this does for your balance sheet as far as being investment grade and then implications specifically for share purchases this year and next year could you Brandon you said you're point back but does that mean you're going to zero. David Cush: Yes maybe I will start and Brandon can help with the balance sheet stuff. In terms of the price $2.6 billion we feel like the deal was easily digestible for us as we've said already it's very accretive to our earnings and is cares real state we were in a position here where and this is something where we felt like it was perhaps a onetime opportunity to really get a much stronger foothold in California. It's something that we felt we are going to benefit us immediately, but also benefit the company the years of decades ahead so that was a big part of our thinking. Yes. I think that's our thinking on how we got the price as you know it was a hard thought battle, it was intensively competitive and that had role in the prices as well. One of our folks remaining I am big fan of one our folks reminded me that as you think about a deal this you should think about value not price and I think that's there is extraordinarily value here for our owners and this is going to do great things for us both now and into the future. Bradley D. Tilden: All right. Rajeev good morning it's Brandon. On the balance sheet, we have worked super hard to get a lot of drive power build on the balance sheet. So we can do this without putting the balance sheet at risk in terms of to the credit rating agencies Mark why don't you take that one. Mark Eliasen: Yes. Good morning, Rajeev this is Mark. I would say that we've already discussed to have preliminary discussions with the rating agencies they will go through a thorough review, we are confident that we will come out very well with that. Just as Brandon pointed out we already have a strong balance sheet and it will be a strong balance sheet after this transaction. So we are confident wherever it ends up it will be a good result. Rajeev Lalwani: I am sorry Brandon just more color on the buyback if you are in fact going zero this year and next year. Brandon S. Pedersen: Sure, we're still thinking through exactly the details of that, we're going to have an opportunity to modify or purchase grid after Q1 earnings we will make a firm decision at that point. I would expect that we slow down but it definitely will not be zero for the rest of this year, and not be zero next year. Rajeev Lalwani: Great. Thank you. Operator: Your next question comes from Mike Linenberg from Deutsche Bank. Go ahead your line is open. Keane Bryan: Deutsche Bank North America: Good morning, gentlemen this is actually Keane Bryan filling in for Mike. Hey, how are you? I know you are not speaking to details on the break out of the revenue synergies but could you give us some color on the timeline and the synergies tie to your affinity card, how quickly can you begin discussions with the banking partners do you think they will expect you to have reach any major merger target before opening this discussions anything will be helpful? Brandon Pedersen: Yes, Keane its Brandon, that's probably is the slowest just because there is contractual obligations on the part of Virgin America with their affinity partner. So we will have to work through that so that might take a little longer than just say network changes which can really start immediately after we take ownership. Again we have an awesome partner with Bank Of America and they are super excited to work with us on this. But they are contractual excuse me restrictions on how fast we can move on that. Keane Bryan: Hey guys and it's actually -- as well I wanted to ask a follow-up regarding key merger mile stone do you have any dates on how we can track how are the merges going and then if you could tell us along those lines there is a going to be reservations cut over that we need to consider.? Ben Minicucci: Good morning, no this is Ben. No we don't have those details right now we are going to be putting that plan together here shortly and we'll share it appropriately. Keane Bryan: Okay. Thanks. Operator: Your next question comes from Hunter Keay from Wolfe Research. Go ahead your line is open. Hunter K. Keay: Wolfe Research: Hi. Good morning. Hey Brad so David said that you guys approach them, so I am curious about that comment in the context sort of like where the motivations deal really came from, you touched down a little bit when you answer Rajeev's questions but how much of this had to do with playing descent or may be fear of either Virgin's growth itself or may be ULCCs potentially in the West Coast because it is a big premium to pay at this point of the business cycle and but it does feel little more defensive oriented that some of the other mergers that we've seen. So how did you think about that in the context of maybe how you approach them? Brandon S. Pedersen: Hunter what I would say is that I think we, we've been thinking about this for a long time, we additionally reached out to Virgin in perhaps October or November of last year, it was a lot of conversion with David and Don Carty and others over the time period. I don't think of it is defensive I mean I think it is just we -- the way we look at it is Alaska has done really, really well for all of our constituents with the real estate that we've historically have. But as I said earlier if you really to be honest with yourself we've really would likely to be your airline if you live in Washington Oregon or Alaska and there is 12 million people in those states and we were proud of the pretext margin, we're proud of the ROI, proud of the service we just wanted more canvas to work with and this gives us California and California is 39 million people the biggest market in the country. They've got fantastic presence in San Francisco --. I just think it gives the company a great, out of the gate it gives us really good economics, but the opportunity we the opportunity is sort of grow that West Coast presence and sort of generate that's sort of loyalty and so forth throughout the entire West Cost and we have built in the North West in Alaska is big. One more point I will going to make, but Alaska now, but anyways that is how we've been thinking about and with this thought is been on our head honestly for a couple of years of doing something like this and we are really happy to have done something today. Brandon S. Pedersen: And how the its Brandon and may be just one more thought on that we've talked for a long time actually about the opportunity to grow the business down in California, we've talked about the opportunity in San Diego and perhaps in the bay area but less focused on FFO but this with this guys as they gives us more options in California and it really is consistent with how we've been thinking for a long, long time. Hunter K. Keay: Yes. I appreciate that. That's interesting and -- going out in your heads for that long but you cannot really control the timing of these things I am wondering if you are kind of accelerated into this so it's the bankers come to you and say few are move now and we are not going to get this things may be if waiting for the next for downturn and the cycle of to do something like this did you feel like you've got rushed into this because again I mean Brandon S. Pedersen: No. Hunter K. Keay: Okay. Brandon S. Pedersen: No honest we had another idea that we are working on some time ago we called the bankers they didn't call us. You heard that it was a hard and thought deal, but other party got into and after we sort of had initiated no that's the way it happened on us. Hunter K. Keay: Okay. Thank you, Brad and I appreciate it. Operator: Your next question comes from Julie Yates from Credit Suisse. Go ahead your line is open. Julie Yates: Credit Suisse: Good morning and congrats everyone. Brandon S. Pedersen: Thank you. Julie Yates: Brad you talked about potentially using the Virgin brand down the road and learning more about it. What is that synergy number assume on what happens to the royalty payment to the Virgin group? Brandon S. Pedersen: Julie it's Brandon. It actually doesn't make an assumption on the royalty payment we didn't want to be too presumption with because we need to figure it out frankly and so we didn't count that synergy run way or another. I think the synergy payment right now is 0.7% of revenues if I am not mistaken maybe Peter you can jump in and confirm that and there is a minimum payment. Overall it's not huge in the grand scheme of things and it doesn't affect the economics of the deal one way or another, but we did not price in that benefit. Julie Yates: Okay and then what is the biggest challenge as you anticipate with the combination there is obviously some complications with the different fleet type and then how do we think about the timeline for and the milestones on the labor side? Ben Minicucci: Julie its Ben. I will say yes we have no experience with the Airbus fleets so that will be the challenge and although we loved having a single fleet we are going to learn more about this Airbus fleet here and in the future. What I must say on the labor front and all integrations that always the biggest challenge but we had a leadership meeting last night with our management and union leaders I am telling our union leaders are excited. They are excited about this new company and it coming into Alaska and I think they are going to work really hard to make this successful. Julie Yates: Okay. Great and then one last one. How does this changed kind of long term growth opportunity for Alaska in terms of are you going to continue to target that mid-single digit growth range does growth slow during the integration. How do we think about the growth trajectory of the combined entities? Andrew Harrison: Hi Julie it's Andrew. We 've shares for a long time, we have a range of between 4% and 8% and given the economic conditions, I don't see us changing that in anytime soon but again that's a large range to operating to. So I think we feel pretty good that still the sort of the range that we will continue to go forward with again adjustments will be made if need to be. ALK: And I totally agree with what Andrew is saying the only different is we now have a lot more choices of where to put that growth. Julie Yates: Okay understood. Thanks very much. Operator: Darryl Genovesi - UBS Analyst: Hello this is Dave Binny filling in for Darryl. I was wondering how did you arrive at the deal valuation between the New York and DCs and then the low filled access it looks like you are getting 40 daily departures from slight constrained in other ways tailing the industry airports. So maybe those are worth few $100 million using some of the American Airlines far divestitures as comps and if the capitalized operating leases are worth $1.5 billion give or take that would get you close to $2 billion. So what them bridges the gap from that $2 billion to the $4 billion that you're paying. Brandon S. Pedersen: Dave its Brand. I am not entirely sure I follow your question. So that, we're paying $2.6 billion for the equity and the enterprise value is $4 billion, so maybe I am just been a little slow and I have not quite following what should doing there. Analyst: There I was just wondering, yes, what was bridging that gap between the $2.6 and $4. Brandon S. Pedersen: The value of the debt and leases that Virgin America has currently. We use the seven X factor on the leases and that net of cash on their balance sheet. So it's essentially the net adjusted debt of Virgin America, which we assume. Analyst: Okay, thanks and then I have a follow-up. It looks like SFO industry capacity is growing 8% to 10% with that in mind why couldn't you just grow SFO organically without help a Virgin and also how do you comp with the synergy estimate there's 15 to 20 direct road outside of that? ALK: So I'll take the first part. I mean as we have shared, Los Angeles and San Francisco are very, very constrained on the asset front and so what this does for us it gives us meaningful footprint. The other thing which we haven't really talked a lot about, but we have a very significant as a percentage basis of our loyalty members are California based. When you combined that with the very significant loyalty base that Virgin America has, we have a very, very significant loyalty base that we create very quickly and a an infrastructure to serve that. So we are not putting numbers on it but conceptually that is something that this merger gives -- this acquisition gives us that we just couldn't do organically from many, many years. ALK: Yeah and then you asked the question also about how did we figure out or how did we assume there would be synergy when there wasn't a lot of overlap actually that's the beauty of this transaction is there isn't a lot of overlap either very complementary networks if you look at prior mergers it was about shrinking this is actually about rolling we have opportunity to mix and match aeroplanes in the different markets we have an opportunity to connect the networks better that's where the synergy comes from it's a synergy of opportunity not a synergy of reduction. ALK: And finally in terms of growing it ourselves versus acquiring it might share the way we think about this people network trying buying its call the S-curve but all around the new service just as a lot better when you have a strong base already. If you've got 45% of market share you probably have 50% of the revenues, if you've got 10% of the market you probably have 7% or 8% of the revenues and it's just hard to go from nothing to something building it yourself. This I guess we are total believers in this method of sort of gaining a foothold in the market and then this is something we will worked on over at a reasonable pace over the years ahead. Analyst: Okay, great. Thanks, Add. Andrew Harrison: I think acquisition gives you foothold that you would we very, very difficult to do organically. Analyst: Thank you very much. Appreciate it. Operator: Your next question comes from Helane Becker from Cowen and Company. Go ahead your line is open. Analyst: Hey guys its actually Cornor in for Helane. Can you just talk a little bit about the fleet in and how do you expect the A3 is coming to the kind of flow through or maybe you can breakdown like when the leases actually expire on those aircraft by year and then maybe your thoughts from the A321 order that's currently in the box of Virgin. Brandon S. Pedersen: Good morning it's Brandon. Maybe I'll started Ben can jump in. We are acquiring at great fleet of young, fuel efficient airplanes we have that on the Alaska side, Virgin America done a great job building their fleet and it just happen to be two different fleets. I said a somebody the other day I said we are big believers in single fleet in fact so much sale that we bought an another single fleet. I mean we are not worried about it as Ben said earlier we are going to get to know the Airbus, airplane and go Premier. In terms of the flexibility around the Virgin fleet you guys probably notice better than we do it just learning it there is leases the substantial all of the fleet is least and no fleet is generally start to rollout between 2020 to 2022 I think there is 25 or so airplanes that can go back in that time period. There is also an order for 30 A320s on the books 10 in 2020, 21 and 22 and that order has a pretty favorable cancellation provision not suggesting it all that we are going to do that. But it is something we could do if in fact we decided to move in a different direction. Analyst: Okay and then with that is would we'd like a single fleet yes I mean as an operations guys we have the single fleet it's so much easier across employees because it is particularly with Primer groups. But the Airbus is a proven airplane so we will see we are going to learn from it and see where we go from there. Okay, and then just in terms of the I believe you had a pending regional order out there is that now suspended as a result of transaction? Mark Eliasen: No, this is Mark. No we are going to go forward with our regional jet order. You will hear something in the next few weeks on that. Analyst: Okay, and then have you guys already approach the DRJ about this deal and what they might be look for or how you should think about that? Kyle Levine: Hi Corner this is Kyle Levine. No we haven't yet that we are of course preparing for regulatory review we know they're going to take close look at it and if we think we have a good story to tell about us increasing competition and better positioning us to compete against much bigger carriers, and as Brandon has mentioned very little overlap in our networks. Analyst: Alright. Okay, great. Thank you. Brandon S. Pedersen: Thank you. Operator: Your next question comes from Andrew Didora from Bank of America-Merrill Lynch. Go head your line is open. Andrew Didora: Bank of America/Merrill Lynch: Hi, good morning everyone, and congratulations on the transaction this morning. Brad I think you touched upon this certainly earlier, but you were included in some earlier inner views that you have been looking at acquisitions for a number of years right now. I guess what was the driving force of you taking a look at deals was it just more diversification out of Seattle as I mean some competition popped up or where you are you looking for ways to add leverage into the business? Brandon S. Pedersen: I think it's probably more than latter. As I have said the couple of times now, we do think the industry structure is a lot better than it's been for most of my career. So we are optimistic about the industry going forward. We are also optimistic about our own ability to create value for owners, for customers, for employees so we feel it, we have actually done really, really well with the footprint that we really have in Seattle, in Portland in the State of Alaska and we just wanted a little bit more canvas to work with. Andrew Didora: Okay. Thank you. Operator: Jamie Baker - JPMorgan. Jamie Baker: JPMorgan: Hey Good morning everybody. -- family just driving through billing game as we speak had I only known. The inclusion of labor has played a part in prior mergers you know in terms of achieving regulatory approval and facilitating integration and all that I didn't hear anything on the call so far on that topic I am curious if that was deliberate have you embraced your pilots union prior to today's announcement and what sort of labored dissynergy do you envision netted against your total number in terms of getting pilots to a common wave structure.? Ben Minicucci: Jamie it's Ben. Like I said before our unions are excited and yes our pilots leadership was they are on board, they have their own plus to go through for an integration but we are confident, we are confident we are going to do this and we are going this well. Brendon -- Brandon S. Pedersen: Yes Jamie it's Brandon. Just on the on the dissynergy first our work group I don't think it's appropriate to comment too mush although. What I will say we do recognizes sometimes there is a cost associated with that and that we consider that appropriately. ALK: Those numbers do have a dissynergy calculated in that. Jamie Baker: Right fair enough. Second question you know, Virgin seems to have a bit of a following for like the better term I mean nobody travels solely just to enjoying in flight mood lighting but I can expect the purchase decision obviously as that product is presumably harmonized with years. Have you modeled for revenue dissynergies as Virgin -- potentially spread their business elsewhere or is the assumption you keep a 100% of the natural -- demand. Andrew Harrison: Hi, this is Andrew I think as Brandon shared earlier. We believe we have been conservative with our estimates, three quarters of the synergies are revenue based it is not lost on maybe amount of work and importance that is ahead for us especially on the customer base. Rather than speak specifically we feel very good about what we have here in the synergies model. Jamie Baker: Okay and then just a quick follow up to another question on fleet. As you get to know the year about product presumably it's going to be an the manufacturers best interest to completely, to operating sold fleet type. I wonder that is also part of this synergy calculates as you potentially play -- in us other is that part of your assumptions or about where to have with that the incremental to what you're modeling? Brandon S. Pedersen: Jim it's Brandon. We have not modeled any incremental benefit associated with coat unquote playing the manufacturers of each other. What I will say is we've just got a fantastic partnership with the Boeing company we love the 737 as you know but as we said we are interested in getting to know the air bus product and we will see where we go. Jamie Baker: Okay that's it from me. Thanks so much everybody. Take care. Operator: David Simpson, Barclays David Simpson: Barclays: Hey good morning everyone. ALK: Good morning. David Simpson: Barclays: Just want to come back to the middle bucket on the revenue synergies the mix and match on the fleet. I am just trying to sort of think through the details of that might how that you predominantly two fleet is that a regional comment is there a regional angle to that or what you get since sort of a fairly narrow set of narrow bodies in mixing and matching to that would be those synergetic? Andrew Harrison: David its Andrew. I think what we've been looking at to is just sort of the spread of the fleet the 319 and the 320 are certainly a smaller aircraft, than the 900 EI which we have a lot of an increasing all. So we just see a lot of inter play between North South on the West Coast versus Trans Con and certainly in the slot constrained airports. So we see moving the fleet around based on the various gauges and to your point we have very solid regional fleet that will also complement what Virgin America has. So all around we have a lot of play with the aircraft. David Simpson: Okay, and then going back to and obviously the California ambition has been there for some time again I think all that. Is there something in terms of that more important your build versus buy decision was there something you've learned about building California over the last few years that shape that something or is it just an opportunity to accelerate what was already a long-term plan? ALK: I think just as we've look for more and more I mean California is a very large Dave with the lot of carriers in there and the lot of competitors they're not building anymore land we talked about Beachfront property. So when we look that at credit to Virgin America they have done an amazing job at building a network from well constrained airports from West to East and building amazing standardization they have taken a number of years to do that. So that's how opportunity here. David Simpson: Than I can speak one last one in terms of the culture relationship with America and this create this is the agreement and this helpful that agreement or does that you have there is more of a -- in the West Coast to a partner that changes that -- ALK: You know we believe that this will actually position us to be more opportunity to continue work with American airlines and the agreement and the basis that its built on today is exciting and we believe it's just create even opportunity. David Simpson: Okay. Appreciate. Congratulations and thank, thanks for the color. ALK: Thank you David Operator: Dan McKenzie - Buckingham Research. Daniel McKenzie: Buckingham Research: Hey good morning, thanks guys. Brandon how should we think about the cost to debt in interest rate of 4% to 5% or something higher I guess just going back to the 92 aircraft you have on encumbered and then also with respect to CapEx is the way to think about it is simply to add the CapEx of both airlines together or would it potentially be higher initially? Brandon S. Pedersen: Dan, I let Mark start with the cost of the debt. Mark G. Eliasen: Hey, good morning Dan this is Mark. I will tell you that we have not been in the market since 2009 and we've got a lot of partners that have been talking to us and will love to finance this transaction. As you mentioned with all the great 800s 737, 800s and 900 ERs we are expecting very attractive rates. I would say it will be south of 4% and a lot of it depends on how much we decide to float and stick but you'll see that they will be getting very good rates. Daniel McKenzie: And then with respect to the CapEx? Bradley D. Tilden: Yes. On the CapEx schedule I think that's a fair assumption right now what you suggested just to adding A plus B that subject to change as we get into a longer range planning on fleet and other projects, but that's probably a fair place to start for now. Daniel McKenzie: Okay, very good, and then following up of course one of the biggest risk is IT and just following up on an earlier question. Can you reminder us what the reservation and revenue management system, used systems probably used at each airline and then also is there a President for these systems being merged and other mergers that have occurred in the past in the industry here and the reason I am guessing you are not reinventing the will, but how are you thinking about the IT hurdle here? Andrew Harrison: Dan, its Andrew. I believe Virgin America uses cyber for their reservation systems as do we which is very, very exciting for us. Also Virgin America is a newer company, so we are going to be looking hard at the technology especially across the commercial round. There are certain systems we have here that I can't wait to spend more time we have a Virgin America that we believe will move us forward. So all in all a lot of work to be done there, but we feel very confident that we are going to have a good process here and come up with the better product. Daniel McKenzie: Very good, and then maybe just one if I can squeeze one last one and Andrew with respect to the merger synergies, I wonder if you can provide a breakdown roughly of how we might think about it. So putting the right aircraft in the right market versus increased corporate travel spend versus the potential for redeployed flying is it a Virgin is it roughly a third and third and third or any kind of perspective or color you can provide on how we should that deal that band onion. Andrew Harrison: Hi, Dan. Thanks for your question, and I know you should continue to work on someone like me, but as Brandon shared we are not going to give any more detail -- more already been given. So I'll live with that and no present guidance -- what that's would. Daniel McKenzie: Well, thanks Andrew. Sorry to pick you this morning, but congratulations everybody. Andrew Harrison: Thank you. Operator: Your next question comes from Joseph DeNardi from Stifel. Go ahead your line is open. Joseph DeNardi: Stifel: Thanks, good morning. Andrew I think you guys have been pretty clearly focused your growth in Seattle over the past couple of years to maintain your relevance there. I am just wondering if this transaction changes that I mean there is the growth in Seattle start to slow and it refocus as more in a way so I am just I mean how are you guys thinking about growth going forward between some of your key markets here. Andrew Harrison: Joe it doesn't change anything we will continue to grow and do what we need to do in Seattle to continue to have that operating as it is today. So no changes there I think as Brad mentioned what we will be doing is looking at our overall growth right and just we've got more places to put it and so how much goes to the Pacific North West versus California. So that's very exciting for us and but there is no change to our approach and strategy to Seattle. Joseph DeNardi: Okay and then Brandon I think you may have answered this Jamie's question but I just wanted to get some more clarity on it. I mean is there pressure to re-price your current pilot contract to get this transaction completed or how should we think about that? Brandon S. Pedersen: No Joe, we are going work with on pilot union and I guess that they have a specific process they're going to follow through, we are going to work with them, and we are going to land in the right place that's good front our both of our companies. Joseph DeNardi: Okay. Thanks. Andrew Harrison: Thanks, James. Your next question comes from Sidoti and Company. Go ahead, your line is open. Bradley D. Tilden: Steve welcome back to the game. Steve you there? Hi we've got time for questions. We've got time for one more question from the analyst before we turn it over to media. And let's go to the media side to Brian. ALK: Yes, let's go ahead and turn it over I think we have Chris and Steve ready to ask a question. Operator: We do go ahead Mr. -- your line is open. Analyst: Yes good morning and thanks for taking questions here. I was curious are there any routes any cities that you are looking in the Virgin route map that doesn't make sense for Alaska to continue or main modify particularly you overlap in some cases in service and why you think are there markets where you looking that, that's the new Alaska may not want to operate in? Andrew Harrison: Chris this is Andrew. It's actually too early for us to comment of that again Virgin America has built a fantastic foundation with great results so we're going to take a long hard look at that and do what we need to do to make sure this synergies work and that's as far as we are right now. Analyst: And as far as the single fleet or not, how long do you think until you actually make that decision that years down the line.? Brandon S. Pedersen: Hey Chris its Brandon. Yes it's probably is, I think as I said we'll get to know the airbus fleet and how it works in to the network and then we'll evaluate and we'll make a decision of its probably a couple of year away. Analyst: Great. Thank you guys. Brandon S. Pedersen: Thank you. Operator: Your next question comes from Air Transport World. Go ahead your line is open. Analyst: Thank you. Good morning everyone and congratulations. ALK: Thank you. Analyst: Can I just ask you a bit more on the regulatory side here you sound confidence of getting the DHO approval. But I can talk in a wider context because even with the relatively little over on that where it's going to be given the service that these two airlines. As we know there is a lot of negative feelings in capital () about the are you concern first of all about that how long it could get take to get this the approval through the regulatory hurdle and whether there would be concessions that you have to make as part of the approval? ALK: Hi, Kiery and good morning its Kyle I think what I will say is that we know and expect the regulators will take a very careful look at this transaction. But to reiterate what I said before I think we have a great story to tell it may take a little longer to tell the story but at the end of the day very pro competition and pro-consumer story. Analyst: So you are not anticipating that this deal because of the previous mergers could take longer could get called in congressional hearings? ALK: Well we are staying flexible as far as timing goes we are planning for a slightly longer period but I won't specify how longer we are thinking up we are going to just follow the lead of the regulators and cooperate fully. Analyst: Thank you. ALK: Thanks,. Operator: Your next question comes from Marry () from Bloomberg News. Go ahead your line is open. Analyst: Hi. good morning. I wanted to ask if you can talk about a at what point JetBlue stepped into the process and how much the price was driven up by the competition that you've already refer to? Brandon S. Pedersen: Hi, Marry it's Brandon Pedersen I guess in terms of when JetBlue stepped in the process I suggesting contract JetBlue and ask them, in terms of the price as Brad said it was a very hard thought battle I think there was I mean option dynamic that occurred. At the end of the day our balance sheet let us to go further, but also at the end of day we feel like we've got a great deal for what we paid. Analyst: Can you say how much how much more you paid than you had originally hope to pay in the deal? Brandon S. Pedersen: No that's the I mean we were willing to pay a fair price for the value that we've got and I think we did that. Analyst: Okay. Thank you. Operator: Your next question comes from Jeffrey -- from Writers. Go ahead your line is open. Analyst: Hi thank you for taking the question. With the deal is there and international airline partner with which Alaska will work for the first time? Andrew Harrison: Jeffrey its Andrew. Excuse me, yes I mean Virgin America has some Chinese carriers, the Singapore airlines is one. But most of the portfolio we have on the Alaska side is the larger one. I think the bigger the bigger opportunities here is when you combined both of their partners by the way San Francisco, Los Angeles, and Seattle are all large international gateways and so as a combined entity we will provide great utility to all these partners in fact be more leverage for them than we have historically separately. Analyst: Right. Thank you and is there any particular partnership that you help to expand? Andrew Harrison: We are going to be looking at all of this, we are going to looking to their relationships and what make sense so at this stage it's too early about on future earnings calls we will make that. Analyst: Thank you. Andrew Harrison: Thank you, Jeffery. Operator: Your next question comes from Allen --. Go ahead your line is open. Analyst: Thank you. I had couple of questions, one was I assume that there will be no impact on Virgin America or Alaska service pending approval will fliers see any change over the next few months and really I guess that's about it everything else has been answered. Thanks. Brandon S. Pedersen: Allan its Brandon maybe I will take that question. No we don't anticipating any changes until merger is actually approving constipated both airlines continue to operate independently we are still both in separate public companies and we need to look out for doing the right thing for each of our individual companies. So no we wouldn't expect any kind change related to the transaction prior to close. Analyst: Thank you. Operator: Again if you would like to ask a question that's press star, then the number one on your telephone keypad. Your next question comes from Ted Reed from the Street. Go ahead your line is open. Ted Reed: Hi. Thank you two quick things first of all historically none of our West Coasts airlines have ever survived they have all become merger partners for somebody else. You think you have made yourself you will made yourself so attractive is that possibly in your future that someone will be trying to acquiring you. Brandon S. Pedersen: Ted I would point out that we're still here and we have been operating 84 year and no I think this just makes our company much, much stronger and that's I don't think I have any more to say about it. Ted Reed: Okay and secondly you are going to be the very large airline I mean yet you are going to have no trends specific, no trends service did I hear is that something it might be in near future or did I hear you say earlier that you are looking for a stronger partnership with American or is it just going to be this collection of international carriers that you have your international service with going forward. ALK: One of the thing I think you need to do, you need to do figure out what you do well, and you need to do that well and we served domestic market really well this bleacher segment that we talked about earlier I think our Company is quite good at Virgin is very, very good at that. So we are going to focus on what we do well and keep doing it. As Andrew pointed out, well first of all the American relationship I think only gets better which chatted with them last night gave them a little bit of heads up what's going on. I think there will be big opportunities for us together going forward, and then I think we will be a very desirable partner for these international airlines. So I just think the way this industry is and the future as you build you figure out what you do, you figure out what others do and then build the partnerships and that's what we're going to do. Ted Reed: Right. Thank you. ALK: Yep. Operator: Your next question comes from Adam --- from Stern Agee. Go ahead your line is open. Analyst: Hey, guys thanks for taking me in here, and congrats on the deal again and it's done. ALK: Yes. Analyst: Just a quick one on sort of how the tech community can't plays a role in all this given where you guys are on obviously where Virgin is strong and whether if you could will actually looking more specifically and maybe more of the corporate side. What kind of relationships has Virgin have right now with some of the Silicon Valley guys and how can you guys leverage that to maybe build on that and where are Seattle and everything? ALK: You know let's get David push put him on this part he is kind of had Analyst: Yes, exactly. ALK: But I think he got a good answer. David Cush: Look hi this is David. Yes obviously being where we are based that's a big part of our corporate top ten corporate customers are tech companies most of them based here in, in the Silicon Valley but also these are big multinational companies that has traveled up and down the Coast as well as across the nation and across the world. I think that it is an interesting point that there is a much stronger symbiotic relationship between the three big cities on the West Coast and there over has been driven by tax, so Seattle and San Francisco particular average minimum amount of traffic whether its Microsoft, Yahoo others how have big -- in each place. So my expectation is that with the penetration we have to detect companies this should help Alaska out them on road and we are prepare to work with them on make sure that happens. Analyst: Great. Thank you guys. ALK: Thanks. Operator: Your next question comes from Jeffery from go ahead your line is open. Analyst: Thank you again for taking extra question. I just wanted to ask what is your biggest concern for the integration going forward.? Ben Minicucci: Well I think Jeffery this is Ben. You know integrations are complex and Alaska we just wanted to do just well I think we want integrate the employees well we want to get integrate our systems well and those are all the big hurdles. So one of the things we are going to do back here we disciplined the we got to figure out put a strong plan together, put a strong team together who work well with Virgin and just execute this better than hopefully better than any biggest merger this been number for that's going to be our goal. Analyst: Great. Thank you and then one last question do you have any sense of what regulators might wish to be divested at anything from the merger perhaps the -- share that from some of the trends continue with that American. David L. Campbell: Hi Jeffrey in short we don't as I said before we'll follow the lead of the regulators and we are not expecting too many problems but we will see through how the process plays out. Analyst: Thank you. Brandon S. Pedersen: Thank you. Operator: Again that's star, then the number one to ask a question. Your next question comes from Dominic Gates from Seattle Times. Go ahead your line is open. Dominic Gates: Seattle Times: Hi. Good morning a couple of questions. Going back to this you just talked about the to leverage the tech community connection between Seattle, San Francisco, those takeoffs there is not too much overlap between the two networks, but this where the overlap is Seattle, San Francisco, Portland, San Francisco I am wondering on that specific road what will people traveling that road actually see we have necessary of this combine mergers that you have now with the competing airlines. Andrew R. Harrison: Dominic excuse me Dominique its Andrew. One of the really exciting things about that is that it's actually not just San Francisco we see from where we try heavy services in the centers I course and there is Oakland. So really the whole bay area the suit airports down I think when you look at Virgin America where they focuses and then what our focus has been I think there is just a real nice complements for the bay area in general. So think from high tech perspective for the bay area residence I think there options and the choices and their loyalty programs going to get better. Dominic Gates: And out of Seattle to the bay area. Andrew R. Harrison: Absolutely. Dominic Gates: And one another question apart I think there is lot of these airlines have in common, but they also have a different culture and I am I think perhaps some Virgin -- someone mentioned the cult following from Virgin America for their customers maybe perhaps a little not too happy with being taken over by Alaska. How do you merge the customer cultures one small point like for example Virgin America touch the video service they have all these seatback touch screens where as you guys have been moving towards having people hand held devices. So where do you how do you pleased both sets of customers who have come across just a very different cultures. Brad Tilden: Hey, Dominic its Brad. I think it's a really good question, one of the things that does happen when you do something like this would you get a chance to look and get a chance to compare the two. We sort of no what we do really, really well but we will get a chance look under the covers of great company that has things a little bit differently, and we will get a chance to compare the two approaches and there is no private ownership we will do what is best for our company moving forward. In terms of customers, I think there is way more that we have an common than the we have different although there are probably are some differences. We both are excellent operators, and we both sort of have a different approach to customers service. They want all kinds of awards for customer service and as have we. So I think the people of Virgin, the people of Alaska will find a tremendous amount of common. In terms of differences, I just think we go a little slow we listen, we are going to work as hard as we can to secure the loyalty of those customers and sort of bring them all together. I will tell you that from my perspective I received a number of notes and emails already this morning from employees and customers who think this is great. So I just think we are going to like to do everything else we are going to do the very best that we can put the overtime and I am confident that with the team we have here this is it's going to be very good as we move forward overtime. ALK: Thank you folks. That's all the time we had for questions. I am going to turn it back to Brad for quick comments. Bradley D. Tilden: And that's actually yes thanks very much, we appreciate you're tuning in and this is April further coarse, so I think we'll be together with you not too longer, three, four weeks but thanks very much and will be available after the call should folks that question. Thanks. Operator: This concludes today's conference call. You may now disconnect.