Why rising competition in Seattle affects Alaska Airlines
Must-know: Alaska Airlines’ 2Q14 earnings overview (Part 4 of 10)
Rise in competition
In Part 2 of this series, we mentioned that Alaska Airlines’ (ALK) revenue per available seat miles (or RASM) increased by 4% despite higher competition from Delta Air Lines (DAL) in Alaska’s key markets. In this article, we’ll see how Alaska’s operations are expected to be impacted by the rise in competition.
Competition from Delta
Alaska Airlines is facing increasing competitive pressure from Delta, as it has recently added new routes and expanded capacity in Seattle—Alaska’s major hub.
As on October 2013, Alaska’s market share by seat in the Seattle–Tacoma airport was 50%, followed by Delta’s 13.1%, United’s (UAL) 9.5%, Southwest’s (LUV) 8%, American’s (AAL) (combined with US Airways) 7.3%, and JetBlue’s (JBLU) and Virgin America’s 2.2% each. Plus, Alaska had the highest number of average daily departures from Seattle.
The company reports that competitive flying in Seattle has increased by 9%, and this is primarily because of Delta’s capacity additions. Also, Delta’s routes in Seattle overlap with 40% of Alaska’s current capacity. This overlap is expected to grow to 50%.
New route additions in new markets
Alaska continues to overcome this growing concern by adding new routes in new markets. It’s been able to achieve a 5% growth in traffic in 2Q14. During the second quarter, Alaska launched seven new nonstop routes from Salt Lake City, two from Seattle, and one from Portland. It has also announced three more from Seattle and two additional routes from Portland.
For more detail on Alaska’s market share and strategies to counter competition in Seattle, refer to Why increased competition in Seattle impacted Alaska Airlines.
Impact on Alaska
Alaska expects its unit revenue and codeshare revenue to be impacted by the competitive pressure. Delta is Alaska’s largest codeshare partner, contributing to 3.8% of Alaska’s total revenue, followed by American’s (AAL) 2.6% contribution.
It also has codeshare agreements with Delta Connection Carriers, including SkyWest (SKYW), ExpressJet (XJT), Pinnacle (PNCL), and Compass.
Alaska plans to make up the loss of revenue from Delta’s codeshare agreement by generating higher codeshare and interline revenue from other airlines, including American and United.
In the second quarter, Alaska’s total codeshare and interline revenue increased by 6%.
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