Alaska warns of unit revenue pressure as competition mounts

Washington DC
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Alaska Air Group is warning of lower than expected passenger unit revenue growth, as it adds a significant amount of capacity at its Seattle/Tacoma International airport hub to defend against competitive incursions by Delta Air Lines.

While executives at the Seattle-based carrier did not put numbers to the impact – it does not provide quarterly passenger revenue per available seat mile (PRASM) guidance – they imply that the metric would increase in the low single digits as both Alaska and Delta increase capacity in the Pacific Northwest, during an earnings call today.

Both carriers have significant new capacity scheduled to come online at Seattle through 2015, with Alaska planning an 11% increase in departures to 280 daily flights in March 2015. This follows numerous route additions this year.

PRASM increases could be comparable to the 2.6% increase that Alaska saw in the second quarter, when competitive capacity in Seattle rose 9% compared to the same period in 2013.

“Competition is part of doing business in America,” says Brad Tilden, chief executive of Alaska, during the call. He adds that it makes Alaska a better and stronger company.

Alaska’s consolidated capacity will increase roughly 8% in the third quarter, 10% in the fourth quarter and about 7% for the full year, executives say.

Advanced booked load factors are flat in July, up 1.5 percentage points in August and up 2.5 percentage points in September, an investor update released today shows.

Costs per available seat mile (CASM) excluding fuel and special items are expected to increase about 1% in the third quarter, the update shows. The metric is expected to fall by about 0.5% for the year.

Alaska anticipates an average fuel cost of $3.16 per gallon in the third quarter.

The airline also disclosed plans that it will exercise two of its 58 options for Boeing 737 aircraft with deliveries in 2016. While it did not disclose the variants, its recent orders have shown a preference for the 737-900ER variant – excluding the 737 Max – and would likely take more of the model.

Alaska operated 134 737s and its regional subsidiary Horizon Air 51 Bombardier Dash 8 Q400s at the end of June, it says.