Alaska Airlines is more and more reverting to the holy grail of low-cost carriers by accelerating its transition to a single fleet until late 2023. Out will go the ten remaining and leased Airbus A321neo’s in the mainline fleet and the 32 De Havilland Canada Dash 8-400s in the regional fleet. It will be Boeing 737NGs and MAX and the Embraer E175 that should drive “significant economic benefits”, Alaska Airlines said on its Investor’s Day on March 24. Fleet standardization holy grail to Alaska Airlines.
Fleet standardization doesn’t come as a surprise, as Alaska Airlines has been ordering more MAX since late 2020. The carrier originally planned to have a fleet of 93 MAX 9s on firm order plus 52 options but amended the order on March 2. It converted fifteen of them into the smaller MAX 8 and sixty into the bigger MAX 10. The MAX 8s are to arrive in the second half of 2023 at the same time when older 737-800s are phased out. All 27 remaining Airbus A320ceo-aircraft that it inherited from the take-over of Virgin Atlantic were already set to leave the fleet by late 2023.
The latest fleet plan announced today confirms these earlier plans but adds to that the ten A321neo’s that were on ten-year leases from AerCap and Jackson Square until 2025. In January, Executive Vice President Finance, Shane Tackett, said that “I wouldn’t be shocked if we held them for a while, and I wouldn’t be shocked if we were able to find a place for them to go.” It will be the latter. From 177 Boeings and 40 Airbus aircraft in 2021, Alaska’s mainline fleet will consist of 241 737NG and MAX 8s and -9s in 2023, with the first MAX 10s expected in 2024.
Upgauge should add $70 million in revenue opportunities
By amending the MAX order on March 2 to 15 MAX 8s, seventy MAX 9s, and sixty MAX 10s, Alaska also changes the composition of its aircraft by seat numbers. Right now, 52 percent of the aircraft has 175 seats or more, 43 are in the 150-165 seat segment, and five percent in the 110-140 seat category. This will become 70-75 percent with over 175 seats and only 25 percent in the 150-165 seat segment, while the 110-140 seat segment will remain unchanged at five percent. This upgauge should translate into $70 million in higher revenues and more premium revenue from more premium seats, while at the same time reducing seat costs. Annual fleet costs should be $75 million lower.
Comparing the 150-seater A320ceo with the MAX 9, the Boeing offer four extra First Class seats (sixteen in total) compared to the Airbus, the same number (24) of Premium Economy seats, and 24 extra Economy seats (to 138). Alaska says that its premium seat mix will improve from seven percent in 2016 to 25 percent in 2023, with a premium fare advantage 1.3 times higher and that of First Class even two times higher. The carrier says its First and Premium products offer quality that isn’t matched by its main competitors like American, Delta, or United Airlines.
Out will go the 32 Dash 8-400s
There will be also changes in the regional fleet of Horizon Air, which will transition to an all-Embraer E175 fleet. The number of Embraers will grow from 62 last year to 82 in 2023 while all 32 Dash 8-400s are phased out. In May 2021, Alaska ordered seventeen extra E175s. The Embraer-fleet will also offer more premium seats, so including the effect of the transition to Boeing, Alaska will have 62 percent more premium seats in 2026 compared to 2019. In 2023, the fleet will consist of 323 Boeings and Embraers, growing to 396 in 2026 if options are included. “As the fleet grows to 400 aircraft by mid-decade, these will manifest through operational simplicity, flexibility and scalability, better fuel efficiency and reduced maintenance costs”, Alaska says.
Alaska’s regional fleet with subsidiary Horizon Air will transition to an all-Embraer E175 fleet (Alaska Airlines)
Alaska Airlines will also invest in its cargo fleet. Two 737-800s will be converted into full freighters and should re-enter service in 2023, where they join the three existing 737-700BCFs in the Alaska Air Cargo fleet. The -800BCF has a forty percent capacity increase per departure over the -700, the airline says. They will serve on intra-Alaska flights only.
Four to eight percent annual growth
As part of its long-term growth strategy update, Alaska Airlines says it plans to grow by an average of four to eight percent per year through 2025. Ninety percent of this will come in its existing markets and ten percent in new markets. The carrier has planned investments in its infrastructure at various airports, including Seattle (thirty percent more gates), Portland, San Francisco, and Los Angeles.
The carrier has already seen a very strong recovery from January, with demand and yields above 2019 levels. Corporate bookings have recovered to sixty percent of pre-Covid levels. Q1 capacity has been revised from -10 to -13 percent to -11 to -12 percent on 2019 levels. For the full-year 2022, Alaska expects capacity to be 1-3 percent up compared to 2-6 percent in its previous guidance. Q1 revenues should be 11 to 12 percent down versus -14 to -17 percent in the previous guidance. However, costs per available seat mile (CASM) excluding fuel costs should be up by 18-19 percent compared to 15-18 percent. By hedging fifty percent of its expected fuel consumption, Alaska thinks to save $200 million in fuel costs.
