WILLIAM AYER: Well, thanks and good morning. I like the way you run the annual meeting. I'm taking notes. We have one of those coming up ourselves in a couple weeks. The short form is a good one.

Good morning. And I am cognizant of time. I know you want to be out of here about 8:00 o'clock, and so I will be fairly brief and give plenty of time for Q and A. And just want to start by thanking everybody. How many MVP golds do we have in the group here? My goodness, look at that. Well, thank all of you and those of you that aren't MVP golds, I think you fly us a lot. And thanks for your loyalty, for your patronage, for business. I know that we're only as good as the last flight you had on us. And we just have a great group of employees, 10,000 strong across the system, that do their best every day. We're not perfect but they do their best every day to make your travel as pleasant and convenient as possible. And very, very appreciative of your loyalty.

A couple of introductions I want to do. Mark Weyman (ph), one of our corporate board members, is here. I wanted to recognize Mark. (Applause)

And a couple of group introductions. As part of this trip north this week we're doing some of our community advisory boards. We have four boards throughout the state of Alaska, folks that know the airline business, travel us a lot, know their communities that they live in very well, and give us good advice about air service and good two-way communications. So, today we have with us the members of our board from Anchorage and from the Arctic. If we could have those people just stand and recognize those. (Applause)

And we also have a number of the management team here. We have a number of the officers from Alaska from Seattle and we have management from the regional offices as well. If those folks could just stand up. (Applause)

And I did want to recognize also Orin again. Orin, of course, heads up PenAir, one of our regional partners here and the other one is ERA. We've just got two very high quality partners. We'll talk a little more about how they fit into the state scheme for us.

The plan here this morning, I'm going to go very briefly as I said through kind of the industry prospective, what's happened to this crazy industry. It's fair to say that the time since 9/11 is absolutely the most difficult time in the history of the industry, and I'll share some of that broad industry prospective. And then I'll tell you kind of our take on that, what is Alaska Airline's view of what has gone on in the industry. And most importantly what are we doing, how's our performance compared to the industry, what is our long term vision, the changes that we need to make at Alaska to ensure, you know, a successful future. I'll give you a specific update on state of Alaska operations. There's a lot of things going on here with routes and airplanes and so forth and I'll spend a little bit of time on that. And then, as I said, plenty of time for your questions.

Going to do this on the screen over here. So starting with the industry prospective, you know, this has always been a tough business, and I think it always will be, but it's certainly gotten tougher lately. It's a business that is capital intensive, it is labor intensive, it's highly regulated, highly taxed, and generally has low margins considering the amount of capital investment that's required. And if that's not enough, this is all done under a microscope with a lot of scrutiny from the media and the government. Other than those little things it's a great little industry.

You know, the Wright brothers flew only 100 years ago and I think the general public lacks an appreciation for both the complexity and the economics of air travel. And I think that lack of understanding for some people leads them to have unrealistic expectations. And by the way, that's not true of our passengers in the state of Alaska. I talk to our flight attendants a lot and they just love flying on these trips within the state of Alaska because they say the Alaska passengers are just so understanding, they know air travel.

A lot of them are pilots themselves. They have airplanes, they know there are a lot of moving parts in this business, and very understanding when we do have a weather diversion or a mechanic, or whatever. I tell you that's not the case up and down the west coast and it's unfortunate, but I guess that's just an observation. Basically in a deregulated environment the customer is in charge. So whatever expectations they have we need to do our best to meet or exceed them and that's part of what we build into our planning process.

The reality is that the industry, especially since deregulation which happened in 1978, operates at unprecedented levels of safety, of reliability, of comfort and convenience, and the time since deregulation has been a very good time for consumers. It's been a very difficult time for airlines in terms of profit performance and longevity for some of them, but it's been a great boom for consumers in terms of schedule, and price, and so forth.

Well, the airline industry has a big effect on the economy. I'll take you through just a couple of numbers. The GDP in round numbers is $10 trillion. And the airline business, airline revenues, are about $80 billion directly. Now economists suggest a multiplier effect because of the, you know, the trickle down, the responding through the economy of money. So if you apply a 10 times multiple to that $80 billion airline revenue, you have an $800 billion effect on the economy, which is eight percent of GDP. So a decline in air travel as we witnessed after 9/11 can have a very negative effect on the overall economy.

Conversely, you know, as the airlines get back on their feet that can help the economy come up. And there's a symbiotic relationship, the economy effect airlines and airlines effect the economy. But I thought that was kind of an interesting number and I think that's not far off, eight, 10 percent type of thing for the whole industry. And you consider the whole travel industry as part of that and it's an even bigger number.

Well, here's the chart that's pretty interesting. This shows airline revenues as a percent of the GDP over time going back to 1981. And you can see that it bounced around within a pretty narrow range from eight tenths of a percent to one percent and then all of the sudden at 9/11 it just literally falls off the chart. And that's reflective of fewer passengers traveling, in particular, less business travel, which means the higher priced, the close in booking higher price traveling is really what's missing from the equation. And that has a very big effect on airline revenues and conversely as a percent of the economy.

So I think, you know, the traditionally high yield business travel in our modeling of the future is basically gone. I mean, some percent will return but I think lots of you folks and lots of folks across the country that travel for business have in many cases found alternatives, technology and so forth, alternatives to so much air travel and we don't expect much of that business to return. We need to build that into a realistic view of the future.

Now, the net losses are absolutely staggering. This goes back just to 2001. The industry lost $6.2 billion, peaked in '02 at 7.7, got a little bit better in '03. And, of course, losses like this take their toll on companies' balance sheets. So it's not surprising year after year after year you just can't keep doing this to a company. And we ended up with a bankruptcy of United Airlines and the very, very near bankruptcy of American. And U.S. Air came in and out of bankruptcy, and who knows what's next for them. But it's just been a horrible time for balance sheets and for corporate longevity.

The '04 forecast is now a $2.2 billion loss. If I was here six months ago I would have told you that the analysts are saying '04 was the year that the industry was finally going to turn around and we'd have at least a break even or maybe a little tiny profit for '04.

Fuel prices are the latest thing, and fuel prices have really taken their toll, and people look to the end of the year and they don't see much help there. And if they continue where they are then this number is not far off. Still better, but, obviously from where we've been, but still a huge loss for the industry as a whole.

And I think perhaps the most tragic part of it all is the impact on people. The airline business is very much a people business and to be successful you have to have your employees, and especially your front line employees, engaged. And they have to be doing the job for the customer, and that's really where the rubber meets the road. And what happened at a lot of these airlines, the big carriers that had so much of the difficulty, they didn't see it coming. Maybe they weren't smart enough to see it coming, I don't know, but it ended up being a big surprise to the employees.

And what you have today is, well, lots of people out of work, 136,000 people have been furloughed from this industry since 9/11. And for a while you couldn't pick up a newspaper without reading about another reduction, another downsizing, across the industry. Eight hundred airplanes parked. But I think today you have, at many carriers you have employees, those that didn't get furloughed, many of them are feeling like, you know, this job isn't much fun. And they don't really know what's going on with management. It's one surprise after another. And because there wasn't any warning there wasn't early enough action, and all the sudden one day people were out of work.

So one of the things that we tried to do, and frankly we have some of the same issues in terms of costs, and revenues, and profitability. But one of the things we tried to do is to keep our employees informed and keep them engaged with the customer, have them, what's the plan, what's their role in the plan, what are they accountable for, what's management doing, what's our view of all of this. And we share these same slides with employees on a frequent basis and keep them updated. And I think that's really important, especially given, you know, the people side of the business, which is just critical to success.

Now what has happened to others, this is general flow of degradation, if you will, and this is true for any business, that you start out with things like cash flow deteriorating. And then in an airline this is huge, passengers and employees lose confidence. That's really the beginning of the end. You end up with creditors and investors losing confidence. You can see all the other steps along the way here. The only positive in this whole scenario is management is replaced.

Now if that had happened further up line maybe some of these other things wouldn't have happened. And ultimate, you know, reorganization, liquidation, or take over. And I think there are people at some of these bigger airlines that have had, that are in bankruptcy, that could tell you, put a date on every one of these things.

And the key to me is you don't start down this slope in the first place. Our intent at Alaska is to go out the other side. And we have a chart that has all the positive things that we're going to be doing as we return to profitability and take advantage of market opportunities and begin to grow the airline. Okay. That's the industry. That's a sad story, especially recently.

And let me know talk about Alaska Airlines, which is, as I say, we have some of the same issues, but we have a much happier story to tell you and much better future I think than the average carrier out there. As I said, our approach is different, we're taking a long term approach to begin with and that long term approach is guided by our core values. And we look back over 70 plus years of history at this company and said, asked ourselves, what makes Alaska Airlines unique, why have we done relatively well when the industry hasn't. And it comes down to people and it comes down to people who have values, integrity, caring, resourcefulness, professionalism, and a big one, we call Alaska spirit, which really takes us back to our roots here in the state, the pride, the passion, the perseverance, the personality, and the team of people that makes Alaska Airlines unique.

Remind you about where we fly, here's the Alaska Airline's route system. We do have an Anchorage Denver line that will go on here starting June 6. But we're basically a point to point carrier unlike a big hub and spoke carrier that may operate through Dallas or Chicago or Houston. We generally fly passengers on single flights, they don't make connections. We don't have a hub airport.

Now, in the state of Alaska what you're all real familiar with is how we operate at SeaTac where we do have a hub of sorts. We have a lot of flights there and a lot of connecting opportunities. And SeaTac really provides access to the whole lower 48, especially so as we have added east coast destinations.

I might just mention the East Coast strategy for Alaska. We also call it our Seattle strategy. It's really our Seattle slash state of Alaska strategy because so much of the traffic on these east west flights from Seattle is flow traffic, as we call it, from the state of Alaska. And it's important, it's critical for the economics that we have all of you folks on board riding down to Seattle and then making those connections to Orlando, or Newark, or where ever it might be.

It really came about after 9/11. And the quick story is that, you know, after 9/11 we all got together, our officer team got together and we said, boy, this is unbelievable, what just happened. What a tragedy for America. But what are we going to do with our business? And while other airlines immediately parked airplanes and furloughed employees because they were so far down that road I just showed you they didn't have any choice. They didn't have an ability to sit back and look at the situation and make an assessment. We did.

We've always had a relatively good balance sheet. We've had a conservative financial management and we said, we don't have to panic. We can look at this situation and maybe there's even some opportunity here. But the thing that drives economics for an airline is you've got this huge fixed expense with airplanes and if you don't fly them you're still paying for them. So the leverage, the upgrading leverage is to figure out how you keep the whole fleet in the air. If you can fly it a little bit more that's even better because it's a fixed expense that gets spread over more passengers or more miles, or whatever.

So, we said, boy, demand is down on the west coast, there's no two ways about it, and it would not be smart for us to continue to fly our entire fleet of airplanes up and down the west coast when demand is off by 15 or 20 percent, whatever it was right after 9/11. So we said, what about going east? We know the people that live in Alaska and people that live in Seattle where they want to go. And we know that where we don't go they fly other airlines, and if we went there more often than not they'd probably be on us. So, that lead us to the strategy, and in fact we'd just started service to Regan, to DCA, prior to 9/11, so we had a little bit of a taste of this all ready. And then it was just a natural for us to look at Newark, and Boston, and Miami, and Orlando, and Denver at the time. And it's been a very good strategy for us. It's not perfect.

We have a lot of competition going across the country and that's driven, you know, as capacity goes up fare levels come down. And so the trans-con economics certainly aren't what we'd like them to be, but we're in there slugging it out and we've got a great market position in places that we've chosen to fly.

Now, if we add QX Horizon to the mix then you add the red dots on here. And Horizon, believe it or not, is actually mostly a point to point carrier like Alaska is. And we do have important connecting traffic with Horizon at Seattle and some at Portland, but most of Horizon's traffic is single segment Spokane to Seattle, Seattle to Portland, or whatever, kind of like we are.

But it's a great marriage. The two companies operate very well together and we're getting more and more in sync in terms of planning. You might know that we have some Horizon regional jets flying in some markets that were exclusively Alaska from Portland to the Bay area and the L.A. area and places like that. So the Horizon integration here is working very well for us.

And then I might just mention, Horizon recently has entered into an agreement with Frontier out of Denver. And this isn't really a marketing alliance with Frontier, it's really an opportunity for Horizon to fly some of their jet airplanes for Frontier in and out of Denver. And it's a known rate of return, it's called fixed fee flying. It's what most regional do with major carriers. And we thought it would be interesting for Horizon to give this a whirl and it's going very well so far.

And then just to show you how we connect in the yellow there to the lower 48 from Alaska. And as I said, the traffic flows here are very important and it's something that we continue to build frequency on and over time I think we'll continue to grow. I might also mention that one of our challenges with this network is seasonality. And we have always had a very strong summer season in Alaska because of state of Alaska business and tourism.

The challenge is what to do with airplanes in the off season and that led us to open up Mexico many years ago, and that's been a very good thing. And some of these other markets, Miami and Orlando, look like they might be, you know, provide some winter offset. But when you add it all up we're still a very seasonal airline and so when we report first quarter earnings of $42 million loss, or whatever, you know, it's kind of depressing given all the work we're doing. But we do realize that that's our worst quarter and we do have some better times ahead of us as the year unfolds. Still challenging.

Here are the numbers on, sort of the vital stats on the two airlines. Fifteen million passengers a year at Alaska with 109 airplanes, 500 daily departures. Horizon almost the same number of departures, of course with smaller airplanes, five million passengers a year, 62 airplanes deployed across the Horizon system.

So what's our take on the industry problems. I think that we believe the problems are more structural than spherical. In prior recessions and recoveries airlines have always said, well, just wait, the revenue will come back and that will save us. And that's generally been the case if you look back over economic cycles. What's different this time is what I showed you earlier on that falling off the chart one where business travel to a significant degree is not going to come back. The higher yield traffic is not going to come back. The passengers may come back, but they won't be paying the same fares.

And we'll talk about our fare restriction in a minute and that would obviously apply to you, too, because we now have some better fares rather than the last minute walk up fare being so high. We've reduced that quite a lot. So there is a long term decline in airfare.

Since deregulation on an inflation adjusted basis fares are 50 percent of what they were in 1978, which is when the industry got deregulated. The low cost carriers, the Jet Blues, the Southwest, the Airtrans, America West, those carriers are growing by leaps and bounds. They currently represent about 28 percent of the industry across the country, and analysts have them pegged at maybe 40 percent within just a few years.

The other things that's happening is carriers that go in and out of bankruptcy have the opportunity to come back with lower cost structures. So carriers like United and American, who almost went into bankruptcy but were able to restructure outside, have an opportunity at least to come back with a lower cost structure because of a court ordered reduction in aircraft leases or labor rates, or whatever. So there's two of those factors going on, low cost on the one hand and the reconstituted high cost carriers.

Pricing transparency really refers to the internet, which is, we think, a two-edged sword. We think the internet is great for consumers. We think it's great in terms of distribution costs as we call it because if you buy a ticket on Alaska Air.com it costs us just a fraction compared to if you buy a ticket through a traditional source. So that's the good part of it.

The tougher part of it is that passengers now are very, very selective, and they can look at all the fares, and they can spend hours if they want in trying to save an extra couple of bucks, and we know people that do that. So, it just drives, it puts downward pressure on fares. But again, it makes for a very good consumer environment.

Talked about the loss of high yield business travel, and basically the customers want value. And we'll talk more about value in a minute but that's an important concept going forward for us. So, what does that all tell us? You've got to have low costs if you're going to have low fares. And so we are working very hard on reducing our cost structure and doing it in such a way that doesn't impact the customer side of the equation which entails understanding really what it is customers value, what are they willing to pay for, and make sure we provide that product. So cost structuring is required and maintaining a long term focus is required.

And I talked about the people side of the business, making sure the employees are engaged all the way through this. Bottom line, industry's in chaos and there are big opportunities for the ultimate winners and we certainly intend to be one of those ultimate winners.

Why are we confident that that's the case, that we will be an ultimate winner? And it goes back to what I said earlier about employees. There are basically three constituents in a business. There's employee, there's customers, and there's shareholders. And we think one of the things that differentiates us is that we take them in that order. And my view is, and our officers' view is, that we're all employees, we're all in this thing together. And if we do the right thing, working together as employees, figure out the business, understand the guts of the business, work together to make the changes, change the processes. Do whatever we have to do, get the cost down, then that will naturally lead us to be taking very good care of customers. We'll have the right product at the right price for our customer. So that's kind of the second level of the pyramid.

Good foundation employees provide the foundation. And if you have enough happy customers over time you will have happy shareholders. So that's the simple notion. And I think a lot of people try to jump to the end result here and they focus on shareholders, and we have to, obviously, that's a fiduciary requirement. But, the way you get there, I think, is this build up with the employees providing the foundation.

How have we done versus the industry? Here's a chart of passenger revenue. The blue are the industry numbers. So that first left one, if you can't see it from the back, September of '01, industry passenger revenue was down 47 percent and it came back 39 percent in next months, and so forth. It came back slowly. So the industry was way down and you can see kind of what's happened on a year over year. Each one of these is a year over year comparison compared to the year. So as you get out to the right of that chart you've got some pretty low comparisons and it's relatively easy to have some gains.

What did Alaska do? Down a lot less to begin with. And, by the way, one of the reasons for that was the state of Alaska, was the fact that we understand we're the vital link. And you folks have to travel and you have cargo requirements throughout all the communities in Alaska. And we didn't see hardly any reduction in demand from the state of Alaska following 9/11 which helped our numbers tremendously. And you can see how we've done, how we basically outperformed the industry every month. And we've been growing the airline every month now in terms of revenue every month for a year plus.

So that feels good to us that we're doing that. But again, you know, what are we comparing to in the airline industry, which really isn't the best comparater (ph). So we have a bunch of other metrics which compare to things are maybe a little more reasonable.

So what's our vision to do all this? Well, we shared all this with employees about a year ago and we're making progress toward this. We call this our 2010 vision which refers to the year 2010 and it starts with an employee perspective. Let's have a company that provides excellent jobs and retirement security. Let's become known as one of the best places to work in the country. From a customer's standpoint become known as the airline with the best value. Let's continue to build our brand. Our brand.

The research that we've done on our brand tells us that what customers think is that we provide an engaging experience for them, that we're user friendly, the technology we've deployed works pretty well, that we work on a purposeful innovation with technology, and this Alaska spirit concept, the personality. And it's not just an airplane ride from A to B, but when you get off you've got something to remember it by and it's all people.

Weatherproofed to any economic downturn. The history of the industry that we've talked about is what the airlines have done. As a whole they've done okay in good economic times. They've done terrible in bad economic times. And the only way you can avoid that seesaw with the economic cycle is to have enough margin, enough profit margin into things, and when the economy goes south you can keep your head above water. And we think that requires a profit margin of about 10 percent. And if we can do that then you work through the numbers and the amount of debt you can take and what the balance sheet looks like. You could grow the airline replacing airplanes as they age.

We can grow the airline somewhere between eight and 10 percent a year. So those are kind of the bogeys, 10 percent free tax margin, annual growth of eight to 10 percent, which means by 2010 we could grow from 109 airplanes to 150 or 170, or something like that. So, that's the vision and we were very specific with employees about this.

You've got to have profitability. The only thing that ensures the future for all of us is profits. And the way we're going to get there is work on both revenues and costs but there's more opportunity on the cost side given all that's happened here.

Further clarification of that vision statement. Customers continue to be the principal driver of the strategy. Differentiation is still critical. This is not a commodity. It's moved a little bit that way but people still, you know, prefer carriers for good reasons, and we think we understand mostly what those reasons are, and it's the people side of it. With the right cost and the right service level we can produce sustainable profits, and once we have profitability we can talk about growing.

Executing the plan. You know in life there's plan executing. Executing the plan requires the right culture, a high performance culture.

The values. We think we hire people that have the right values. It requires clarity about the strategy, commitment, and being accountable. And we're making good progress on all of those things with our folks. And as I said, long term profitability is the only thing that ensures a secure future. And more than ever, working together.

Most companies have pretty good vertical organizations and we do, too. We have a very strong maintenance organization, very strong marketing and planning, and flight operations. And you need that, but you need more than that. You need to have people in those positions in those organizations who are good at cross work, cross divisional communication and coordination. And we're getting better and better at that every day, but it's real important to accomplish what we've set out here.

Real bottom line on our focus, two things. Provide optimum customer value, which means understanding what it is. What are people. How do they chose one airline over another? What are they willing to pay extra for? What don't they care about? And then provide it. And run an operationally excellent airline in terms of reliability, on time performance, baggage delivery, what we call service recovery, if there's a delay or a cancellation how do we handle the customer to get them on their next flight, make that as easy as possible.

So two big areas of focus that we're working on. And under these we have literally hundreds of initiatives who were very specific about what we were going to accomplish, who's going to do it, how are we going to measure it, what are the numbers, what are the dates, and we're holding ourselves accountable to do all of these things.

Continuous improvement really is the mind set at Alaska Airlines and I think that's the key to any successful business. As good as you may get in something there's always a better way and you've got to keep looking for it. It's a better mouse trap idea.

Well, back to customer value real quickly? What do customers value? As I said, price has moved up the list. And the other thing that's happened is kind of a morphing of demographics. In years past this industry, probably more than any other, made a very hard differentiation between business travelers and leisure travelers. And you were in one bucket or the other. And it got to be nothing wrong with segmentation, that's a valid marketing practice, but if you take it to an extreme it becomes a little bit ridiculous. And that's what happened in our industry.

The business traveler over time was viewed as somebody who would pay almost any price to go tomorrow. And the leisure passenger was viewed as somebody who would pay almost nothing but could plan a long way ahead. And pricing practices reflected that philosophy. And you've all been there, where you're sitting on an airplane, and maybe you booked yesterday and you paid a lot, and the person you're sitting next to paid maybe 10 percent of what you paid. There's no rationale. You can't explain that, you know. There's reasons.

There's risks we take by holding out inventory and going out with an empty seat and that explains some of it, but not that kind of a difference. That's way too much. And I think it's part of why some of the major carriers have lost so much business, because it gets to be a trust issue after a while. Especially when you're one of the best customers, and especially when you find yourself in a middle seat on that flight because it was all that was available. So, what we're trying to do is put trust back into the fare equation, and I'll tell you more about that in just a second.

The other things, obviously, safe, clean, reliable is really, really important, and that's always the top of the list. But then it's price, it's easy, make it easy, easy on, easy off, milage earning opportunities, and nonstop flights. And we've got a lot of research on this and we continue to do it because it's an evolving picture with customers.

Things are working. For the second, forth straight year we were rated as either the first or second best airline in this airline quality rating, which is this study by the University of Nebraska and Wichita State. You might have seen that in the press, it just happened in the last couple weeks. And for the second year in a row we got this Freddy Award. It's named after Sir Freddy Laker, Laker Airways. It's for frequent flyer programs. And we made some changes, as most of you know, too, the programs which are a little less advantageous to customers.

We needed to do it for cost and revenue reasons. But even with those changes we're still at the top. And just very heartwarming to get that recognition. I think last week we saw that. So things are moving in the right direction and measure a lot of other things. We get a lot of awards and recognition. We measure a lot of other things, too, to hopefully keep us on track.

Real quickly on the state of Alaska. These are all the places we fly and you can see our points along with Pen Air and Era, who just do a great job for us in serving these smaller communities and provide real valuable feed traffic for us in and out of Anchorage.

A couple of changes on this picture over the last year or so, we started service to Adak I think about a year ago twice a week and that's going fine. It's obviously a building situation out there. And then also we turned over the Dutch Harbor market to PenAir and that is also going very well. And the basic reason for that was reliability. The 737 200, because of the speed and size of that airplane, we had higher weather minimums, and you all know how the weather is in Dutch Harbor.

We literally had days on end we couldn't get in there and we felt that just wasn't doing the job for the community, for the fishing industry, we needed to do better. And PenAir has an airplane that's just better suited to that with their Saub 340. And so we made that change and it's going really well. And it's good coordination, and the reliability, I think Danny and Orin have just been excellent, so that's been a good change for us I think.

Here's an interesting one looking at enplanements (ph) across our system. In the website the blue shading at the bottom are the Alaska points and you can see what's big there. Seattle, and Anchorage, and Portland, and L.A., San Francisco are the big, this is passenger boarding in the month of March. And what we did is we overlaid population of these places so you get kind of a boarding per population metric.

Look at this. So we take how many people at this Yakutat board versus how many people live in Yakutat, in the month of March we almost moved the whole town. So it really just reinforces to us the critical role that we play in these communities, and, you know, we take that responsibility really, really seriously.

Now, I mentioned the fare restructure, an initiative under the customer value theme, this fare restructure that we did. We did it system wide and basically this was the point, it was to make the fare structure more understandable. Easier to book, easier to communicate, and hopefully builds more trusts with customers through our fare structure. So we lowered walk up and first class fares. We went to a maximum of six coach type fares. We have a more logical sell out progression. We eliminated Friday and Saturday night stays. And the typical gap, I mentioned that, 10 to 1, that was an extreme.

We never had a 10 to 1, I don't think, but other carriers did. We have our own internal discipline on this. We have a typical maximum gap of 3 to 1. I'll give you a very quick example. Here's the Fairbanks Anchorage market. And I don't know if you can all see that, but that's where we were on January 4. We did this on February 12. We did this fare restructure, got it all done across our system. And you can see how the fare range, the coach fares, from 264 down to 74. Couple different seven day advance fares, couple different 14 day, three different 14 day advance fares, 3.6 was the ratio, and eight different fares.

What we ended up with is this, starting from the top you can see the first class fares down to 239, so we might even sell some of those now. The coach fare is down 25 percent. The walk up fare is down 27 percent. And we streamlined, we did away with some of the fares that just seemed redundant. And we took off the Friday and Saturday night restrictions on the advance purchase fares. And you can see the range of things at the bottom.

We now have a high to low ratio of 2.4 and we just have five coach fares. This is typical of what we've done across the system and we've applied to the state of Alaska just like we did in the lower 48. So easier to understand, easier to buy.

There is some risk of revenue delusion, of lower yields. We're willing to take that risk. We think that over time people are going to view this very favorably and that should actually increase our market share in some of the lower 48 markets.

And speaking of fares, I think we showed this before in some of these groups. We keep track of our intro Alaska fares and we do a comparison to the lower 48 fares. And so we look at similar markets in the lower 48. In the lower 48 markets typically there's more than one carrier operating and they are drivable markets, unlike what often exists in the state of Alaska.

So here's one that shows Anchorage Fairbanks again, and you can see it's from left to right, 261 miles and you can see on the other markets similar distances. The dominant carrier in the market, in Atlanta Charlotte with Delta for example, the O & D passengers, this is market size, origin and destination, number of passengers per day. So you can see the markets we picked are pretty similar in size. And then we just did a comparison of the coach fare, the walk up fare, and so forth, advance purchase fares, and you can see that in every case we are lower than the average. And we didn't go especially pick these markets, we just kind of randomly looked at lower 48 markets.

So I know the perception is that we have, you know, high fares in the state of Alaska. We do keep track of what's going on competitively in the lower 48 if we were there or they were here where the fares would be, and we feel pretty good about all of that.

737 200 combies (ph), and I'll pick it up so we can get to some questions. We've got some changes going on with the combies. The airplanes have done a great job for us over the years. There is no one to one replacement for this airplane with a removable bulk head. We are committed to serving the cargo and passenger needs of all the communities in the state, which means if this airplane doesn't work we'll find one that does.

And the airplane, the maintenance costs are up, the fuel burn is high, the reliability is not what we want it to be. And I'll apologize right there for those of you that have been on 200's that have had mechanical issues. Just getting to be an old airplane. And we're doing as well as we can, we're investing a lot on the maintenance side. It's not a safety issue whatsoever. It gets to be an economic issue and a reliability issue and we think the time has come to make a change here.

We're doing an analysis, finishing our analysis on what alternatives might make sense and we're looking forward to having somebody doing an analysis in the next few months. It will be sometime before you see a different airplane on this because of the lead times required to acquire the airplanes, make modifications, or whatever.

Technology, you know, we've always had a lot of airport technology. We've always had a lot of airborne technology. We open the Anchorage terminal on June 30th and we're really deploying our full suite of technology with the kiosks. The check in system is a two step process where you check in at the kiosks, take your bag over to the next station, and be on your way. The point of all of this is to make it easy, move people from the car seat to the airplane seat as quickly as we can.

This business has gotten far too complicated and we're trying to make it a little bit easier for everybody, if we can put a little bit of fun back in the experience because it certainly hasn't been there for a lot of carriers. We've done the same thing at rural airports throughout the state and we've changed our whole L.A. operation to be similar and we've got just great results from that.

I want to thank everybody for their help on DCA. As you know we got awarded two slots, two of the six. There were I think nine carriers with 27 different applications and for us to end up with two of the six out of all of that was pretty remarkable. And I know a lot of you wrote letters and I want to thank you personally for doing that. We start the second Seattle flight which is a continuing flight from Fairbanks, we start that on the sixth of June and we start our L.A. service on the 7th of June.

And again, a great example of the importance of that Alaska flow traffic going through Seattle on to the east that makes that route work.

To sum up, we have..... (Tape change) .....say what it is, and then ask yourself these questions, what can you be best at, what drives the economics, what are you passionate about. That'll help you get to a vision. And the execution has to do with prioritization, measuring, you know, what gets measured gets managed, cross divisional coordination. We talked about right people right jobs is critical. Get the right people in the right jobs and tell people what their job is, what are you holding them accountable for. We've learned lots of good lessons about that. And have some fun, celebrate the wins.

So with that I think we're going to show just a quick t.v. commercial, we've got some new t.v. commercials we wanted to share with you, and then hopefully we'll have time for some of these questions. (TV commercials played)

Okay. Thanks. (Applause)