Alaska-named, Seattle-based, and California-exposed is an interesting combination. This describes no other than Alaska Airlines, which also happens to be the only carrier based on the West Coast of the United States. The airline has focused its route network along the coast, with heavy capacity and revenue devoted to California. On the carrier’s first-quarter earnings call, executives highlighted the need for state to reopen to give the carrier a real shot at profitability.
California from a revenue perspective
In terms of revenue, California is one of the most important markets for the airline. Newly-minted CEO Ben Minicucci stated the following about the airline’s California exposure:
“We anticipate turning to profitability in Q3, and it’s worth reminding that nearly 50% of our traffic and revenues touched California on a pre-COVID basis. And as you know, California remains largely closed today. Seeing the state reopen will be a powerful near-term enabler for our path back.”
In terms of how California is doing now, Executive Vice President and Chief Commercial Officer Andrew Harrison said the following:
“Our overall revenue results look to be among the strongest in the industry despite, as Ben noted, California demand remaining seriously impaired. To provide perspective on this, the 54% reduction in California bookings during the first quarter versus 2019 were down nearly two times that of the non-California system average. We expect California to experience a step change in performance by mid-June, which is when the governor has targeted to fully open California’s economy.”
In the second quarter, California is still a major part of the airline’s network. Mr. Harrison later stated on the earnings call that around 20% of Alaska’s capacity would be in California, but that California will be down, still, around 50% in capacity.
Governor Gavin Newsom has stated that he wants to see California reopened by June 15th, though with continued risk reduction measures. The state will delay the reopening if vaccine availabilities sharply decline, limiting the state’s ability to offer inoculations to its residents aged 16 or over or if case counts and hospitalizations remain volatile and high.
California continues to strongly discourage leisure travel, especially for those who are unvaccinated. The CDC has stated that it is safe for fully vaccinated people to travel with proper measures in place. Guidelines within the state can change depending on the public health situation.
Different parts of California may be under different restrictions. For example, in San Francisco, indoor ticketed and seated events and performances can reopen to up to 35% capacity with face masks mandated except while eating or drinking in designated concession stands. Outdoor dining is still available, and indoor dining is limited to 50% of normal maximum capacity, up to 200 customers.
Meanwhile, in San Luis Obispo County, indoor dining and movie theaters are restricted at 25% of maximum capacity, or 100 people (whichever is fewer). Museums, zoos, and aquariums can open with a 25% capacity for indoor options. Family entertainment centers, wineries, and seated performances must be operating only outdoors.
California has made progress on both of its metrics for reopening. Case counts continue to remain low in much of the state, and vaccinations continue to roll out. As of April 24th, over 45% of the state’s population had received one dose. Note that children under the age of 16 are not currently eligible for a vaccine, though drugmakers are working on that.
Focused on the long-term in California
Earlier this month, Simple Flying spoke with Brett Catlin, Vice President of Network and Alliances at Alaska, about the airline’s California position. Here is what he said:
“We see California as a longer term opportunity, and our commitment has to be over five or ten years. And if we’re impatient, because the market takes longer to mature, then it will be hard for us to ever be successful in California. So we’re eyes wide open about that and we’re very deliberate in saying look, the hurdle rate for California in the near term is going to be different than it is for Portland or Seattle. We’re not going to allow ourselves to sub-optimize California to chase, maybe a little bit easier money in the Pacific Northwest.”
Alaska believes demand for California will come back once the state enters a full reopening this June. It is already preparing for that and has even announced a new route for the summer to fight back against a startup carrier as it anticipates a broader reopening. While all metrics continue to point toward the state being on the right track for reopening, anything can happen to change that calculus, but Alaska is prepared to handle it.
With Alaska now a member of the oneworld alliance, its California position will remain important for its current customers and the new customers the airline gained access to from its new partnerships.
Are you a California-based Alaska flier? Do you think Alaska Airlines should continue to invest in California? Let us know in the comments!