Alaska Blaming Rivals For Lowering Hawaii Fare Prices/Margins

Looks like the fight for Hawaii is starting to heat up (Pun fully intended) with Alaska lamenting that rivals are reducing their profit.

This is because Southwest recently made plans to reach the island destination.

Why is Alaska Air concerned?

Alaska operates eight routes to Hawaii, specifically from many of the same west coast cities as Southwest.

Southwest Hawaii Initial Departure Airports
Southwest Hawaii Initial Departure Airports, certain to grow over the coming months.

Hawaii accounts for around 13% of all Alaska Air seat capacity. It is their fourth largest business segment (According to transcontinental, 31 percent, intra-California, 18 percent, and mid-continental 14 percent).

“The only region in our system that is experiencing materially lower pricing today is Hawaii,” – Andrew Harrison, Alaska’s chief commercial officer

They also recently acquired out a major rival, Virgin America, who was also flying out to the route. They have been able to integrate most of their fleet and routes into their existing network.

Alaska Air
Alaska Air route map including Virgin America routes. Note the routes flying out to Hawaii.

Southwest, of course, is highly rated. For good reason to, featuring included cabin and checked baggage on all flights, and a fantastic reward structure. They even allow miniature horses on their flights! Understandably this has made Alaska Air worried.

“Hawaii really follows supply and demand of seats, and there’s been an escalation of industry seats over the last few quarters and that will continue, and we’ve seen what that has done to the revenue environment.” – CEO Brad Tilden

What action will Alaska Air take?

Alaska Air has not revealed all their plans for their Hawaiian route, but they have several advantages that they will be rolling out to be more competitive against southwest.

The first is the deployment of their new ticket price, Saver Fare. This ticket does not allow passengers to choose a seat (for free) or change the date of the ticket (for free), but it does include free carry on baggage.

This business model is two-fold. The lower price will capture the budget travelers who are looking for the cheapest possible ticket (And allow Alaska to out price their competition if needed), but it will also drive customers to buy a higher priced ticket for all the missed extras. This would generate around $25 to $30 per passenger, possibly very lucrative for Alaska.

The 2nd is that Alaska features first class and ‘leg room’ economy, as well as the basic coach class. As Hawaii is a good five hours or so away, premium sections actually sell very well. This might attract passengers over Southwest.

“With our onboard product now with satellite coming on board and with the premium class seating, first class seating, food and beverage programs both in the main cabin, we feel really good about our product, our network and the incremental revenues coming into 2019 that will help us deal with some of the softness as the industry finds its water level,” – CEO Brad Tilden

The last new implementation is increasing their checked baggage fee from $25 to $30 (Just like many other airlines in the industry). This will bring an additional $50 million in revenue.

alaska airlines interior
The first class cabin. Photo: Alaska Airlines

Whether or not Southwest will be competitive against Alaska remains to be seen, as customers increasing choosing an airline based on price it might just come down to the cost of the ticket.

Overall, bad for Alaska, but good for us.

See you in Hawaii!

Will you be flying Alaska to Hawaii? Let us know in the comments.