Things in the Sky

Earlier this week, Alaska announced that in April it will launch new service from San Jose and Oakland to Honolulu. This piece of news after the carrier said this summer it would begin flights from San Diego to Honolulu later this month. These three new routes intrigued me.

Of course, Alaska adding flights to Hawaii isn’t anything new, and it appears to have been a very successful market for the Seattle-based carrier, but it seems Alaska has traditionally avoided going head-to-head with Hawaiian on routes to Honolulu. Sure, Alaska does compete with them on flights from Seattle and Portland, but that makes sense to me since I think it’s safe to say both cities are home markets for Alaska (plus, Portland-Honolulu was added as Delta was leaving the market).

From my viewpoint, it seems that Alaska has historically competed against Hawaiian a bit more indirectly. For example, according to DOT traffic data for July, Alaska had more flights to more destinations from Maui than it did from Honolulu. So in the Sacramento-Maui market, Alaska offers a nonstop flight while Hawaiian has connecting service. But now that Alaska has had a few years to grow in the market, it now seems more willing to compete head-to-head with Hawaiian.

All of these additions will continue to make the Hawaiian market interesting to watch. Other items to follow include Allegiant’s Hawaiian plans, and Hawaiian’s international growth. The carrier has diversified its network in recent times, adding service to destinations like Osaka and Seoul, and has also been forging partnerships with other airlines, including V Australia and ANA.

Alaska Airlines has slightly altered its Boeing 737 orderbook, and appears to have made some decisions about the configuration of its future 737-900ER aircraft….this according to its latest investor update filed with the SEC.

The Seattle-based carrier is still slated to receive 25 new 737 aircraft from 2012 through 2015, but Alaska has converted two 2012 deliveries from the 737-800 to the 737-900ER. The airline, which originally ordered the 737-900ER in January, will now receive 15 of the type through 2015.

Thanks to the order conversion, Alaska will now receive its first 737-900ER a bit earlier than planned. The airline was originally to begin receiving 737-900ERs in 2013. Alaska also noted in the filing that its 737-900ERs will seat 181 passengers. Alaska had previously said the type would seat 178 to 184 passengers.

Also worthy of note is the airline’s foretasted third quarter fuel price of $3.22. That’s higher than the number shared by Alaska a month ago, but considering that I wrote about it last month — I wanted to point out that Alaska’s fuel price estimate includes a 3 cent benefit from settled hedges, while the airline had previously estimated a 2 cent cost a month ago.

Alaska Air Group (parent of Alaska and Horizon) released its latest investor update on Tuesday, and there were a couple of items that I found interesting:

1. Fuel prices. Alaska currently expects its economic fuel cost* for mainline flights to be $2.74 for the first quarter, up 29% year-over-year. One would have to assume other airlines are seeing such dramatic increases. The run-up in fuel prices has just been incredible.
2. Unit revenues. The airline says that RASM for mainline flights in February was up 1.1% year-over-year, to 12.70 cents. PRASM increased 2.1%, to 10.70 cents. Alaska provided addition context to these gains, saying that they “are compared to RASM and PRASM gains of 16.7% and 13.1% in February 2010, respectively – among the highest RASM and PRASM gains in 2010.”
3. Capacity growth plans. According to this latest update, Alaska plans that full-year mainline and consolidated capacity will increase 8-9% and 6.5-7.5% compared to 2010. This plan is the same as was forecast in January. I only find this interesting as other airlines (like American and United) have been adjusting capacity plans downward in response to higher fuel prices. Of course, this forecast could eventually change.

*Alaska’s definition of economic fuel expense:

Economic fuel expense is defined as the raw or “into-plane” fuel cost less any cash we receive from hedge counterparties for hedges that settle during the period, offset by the recognition of premiums originally paid for those hedges that settle during the period. Economic fuel expense more closely approximates the net cash outflow associated with purchasing fuel for our operation.

Yesterday, Alaska Airlines announced an expansion of its order book with Boeing by ordering 13 737-900ERs, a new aircraft type, along with two 737-800s, which currently make up the largest part of Alaska’s fleet. Alaska hasn’t made a final decision on the configuration of the aircraft, saying they will seat between 178 and 184 passengers.  That’s 6-12 more seats than existing 737-900s, so I’d reckon that’s one or two more rows of economy. For comparison’s sake, Alaskas 737-800s seat 157.

Here’s a chart of the previous and new delivery schedule through 2014:

A little bit of background on the 737-900 – Alaska was actually the launch customer for the type, taking deliveries of twelve aircraft from 2001 to 2004. Overall, the -900 wasn’t all that popular with customers, with only 52 were delivered.

In 2005, Boeing launched the new 737-900ER, which offered multiple improvements over the original type, such as more passenger capacity thanks to more exits and a flat rear pressure bulkhead, increased maximum growth takeoff weight,  and additional range (which varies based on options for auxiliary fuel tanks). The aircraft entered service in 2007 with Lion Air, and so far nearly 300 of the type have been ordered. One can view the aircraft as Boeing’s closed replacement to the 757-200, and the  closest competitor to Airbus’ A321.

So why does this airplane make sense for Alaska? Well, let’s look at an example in Boeing’s press release – Seattle to Orlando. Right now, it appears that the largest aircraft Alaska can toss on the route is a 737-800, and the airline operates two flights per days with that aircraft type. Let’s say Alaska wants to increase supply because demand is strong. Well, that means a third flight needs to be operated with a 737-700 or 737-800, and that comes along additional costs like additional flight crew. Those costs could make an increase in capacity uneconomical. But, if an 737-800 is an upgraded to a 737-900ER, then maybe the additional capacity makes sense, especially as the 737-900ER should have lower unit costs than the 737-800 (partially driven by less fuel consumption per seat).

The 737-900ER should also offer more attractive costs than Alaska’s existing 737-900 fleet. One way I like to look at it is weight.  The 737-900ER’s operating empty weight reported by Boeing (based on a base two-class configuration) is very slightly (less than 100 pounds) lower than that of the original version, and plus it can seat more passengers. So one way to look at is that there is less empty weight per passenger on the -900ER. Fuel burn per seat is also lower on the -900ER than it is on the base version.

Meanwhile, other fixed costs are better spread out thanks to the 737-900ER when compared with a 737-900 or 737-800. For example, two pilots are still required, and the seating configurations of the 737-800, 737-900, and 737-900ER all require four flight attendants as per FAA regulations. Assuming that Alaksa staffs all of the aircraft types with the same number of FAs, that means labor cost is more effectively distributed among passengers.

Anyway, it’ll be interesting to see how Alaska distributes these. I wouldn’t be shocked if some of them ended up at the high-yield, slot-controlled DCA. Alaska uses slots exempt from the airport’s perimeter rule to serve Los Angeles and Seattle. I was also wondering if Alaska would have the 737-900ERs equipped for ETOPS operations so they could fly to Hawaii. An airline spokeswoman that the -900ER “could be used in certain Hawaii markets, but we have not yet made a decision to order the aircraft ETOPS equipped.”

I’m about to hit 600 words here…how do I tie a bow on this one? I guess I’ll just say I like this move.

I first heard Alaska was boosting it’s LA – Mexico City service last week from the always-informative Airline Route blog, and I wanted to share a couple of thoughts. The airline will be adding a second daily flight beginning this October.

I decided to ask Alaska about this move. They said when they launched this route back in 2005, they had two flights, but dropped the second in 2007.

So what’s changed? I was told that demand has been improving due to a stronger economy and that the whole swine flu crisis has now blown over.

I decided to look at the T100 data for the route – the latest month available was February so I compared that to 2009. And as you can see, a boost in traffic really helped loads, with flat capacity. (The only reason I can think of for the 30 seat capacity difference is that Alaska has two 737-800 configurations.)

I was also wondering if Mexicana’s financial troubles had anything to do with the move. Alaska tells me that it does help create an opportunity, but it wasn’t one of the primary reasons since that situation is very much in flux right now.

Right now, Mexicana is scheduled to operate 30 weekly flights from Los Angeles to Mexico City, which is eight less than in July.

So this seems like a good move – expanding as a route that is seeing better performance while taking advantage of a competitor’s weakness.

Plus, this looks great from a utilization perspective – the outbound operates as a redeye and returns to LAX the next morning, and I suspect the aircraft wouldn’t just been sitting otherwise.