Alaska Airlines Sees Temporary Hit But Remains Bullish On Fleet

Alaska Airlines has become the latest carrier to indicate it is starting to see a hit to its bottom line over the recent surge in cases associated with the Delta variant. However, the airline is only expecting a relatively temporary hit. It remains bullish on its robust fleet strategy that will see the airline transition closer to an all-Boeing mainline carrier.

Alaska Airbus A321neo
Alaska Airlines is seeing a temporary hit from the virus but is still planning long-term growth. Photo: Getty Images

Alaska sees a hit from the variant

In July, Alaska Airlines gave a strong positive outlook on the third quarter. However, the rise of the Delta variant, a surge in cases, and renewed concerns about travel came. This is coupled with the back-to-school season that inevitably leads to a decline in leisure bookings as families wait for the Thanksgiving holidays to get back out. Leisure travel starts to decelerate in August, and by September, business travelers are more helpful in paying the bills.

With strong headwinds and an unclear return of business travel, Alaska Airlines has revised some of its expectations downward, coming from a slowing in forward bookings.

In the third quarter, Alaska Airlines expects its capacity to be down 17 to 18% compared to 2019, which has not changed much from its previous guidance of 17 to 20%.  This capacity is expected on a revenue passenger decline of roughly 21 to 23% compared to 2019, a steeper decline than the previously anticipated 15-18%. This should compute to a load factor of 79-81% for the airline, down from 82-85% previously.

Alaska A320
Despite the temporary hit, Alaska Airlines is bringing back the Airbus A320s to add temporary capacity as it waits for more MAX jets. Photo: Getty Images

Revenue will be down on the higher end, again, largely due to a decline in forward bookings. Alaska Airlines now expects its total revenue to be down 19 to 21%. Previously it expected a revenue decline of 17 to 20%.

Cash flow from operations is expected to be in the range of $0 million to $50 million, revised downward from the previously guided $0 million to $100 million.

Betting big on its fleet

By the summer of 2022, the airline plans to get back to 100% of 2019 capacity. After hitting that metric, the airline wants to get back to pre-pandemic growth rates. The confidence the airline has expressed has been reflected in its Boeing 737 MAX order book.

Below is a table of Alaska’s expected fleet developments:

 Actual Fleet As Of June 30th, 20212021 Additions2021 RemovalsAnticipated Fleet Dec 31st, 20212022 ChangesAnticipated Fleet December 31st, 20222023 ChangesAnticipated Fleet December 31st, 2023
Boeing 737 Freighters3--3-3-3
Boeing 737-70011--11-11-11
Boeing 737-80061--61-61-61
Boeing 737-90012--12-12-12
Boeing 737-900ER79--79-79-79
Boeing 737 MAX 957-1231433275
Airbus A320217(1)27(3)24(24)-
Airbus A321neo10--10-10-10
Total Mainline Fleet20214(1)215282438251
Q400 operated by Horizon32--32-32-32
E175 operated by Horizon30--30535439
Embraer E175 operated by third party32--32840-40
Total Regional Fleet94--94131074111
Total 29614(1)3094135012362

Alaska Airlines is planning to reactivate 12 A320s to support the recovery. Seven will come back by the end of 2021, and five will come in 2022. However, net, the airline will bring back six in 2021 and retire three in 2022. The airline still plans to end all Airbus A320 flying by the end of 2023.

Alaska Boeing 737 MAX
Alaska Airlines is still betting big on the Boeing 737 MAX. Photo: Vincenzo Pace | Simple Flying

Alaska Airlines still has a healthy number of options. In addition to the 93 MAX jets it has on firm order, it is sitting on 52 options, after backfilling with 25 more options to cover the airline’s exercising of options this year. Options can be highly transformative for the airline. The airline will also be bulking its regional fleet with the Embraer E175s.

Preparing to come out of the crisis

The crisis is not firmly in Alaska’s rearview mirror, but the time is starting to come when the airline can look beyond the pandemic and its impact on air travel. The hit from the Delta variant is far below what the airline experienced in 2020.

Alaska Embraer E175
Alaska Airlines is still planning on returning to its long-term growth strategy. Photo: Getty Images

In addition, vaccinations are ongoing, and more shots are going into arms every day. The airline industry has long looked to vaccinations as a way out of the crisis, and as vaccinations have accelerated, more destinations have opened up.

Alaska Airlines has a lot to look forward to post-crisis. In addition to its own organic growth, as the newest member of the oneworld alliance, the airline will have a newer, stronger West Coast presence that could set the airline on an incredible growth track, leveraging the strength of its partners.

What do you make of Alaska’s third-quarter outlook? Do you think the airline is on the right track with its fleet? Let us know in the comments!