Alaska Airlines, the smallest market risk liquidity horizon air the US major network carriers, is well positioned to make it through the current industry crisis because of its good fuel hedges and strong liquidity.
But is there a place for a niche airline like Alaska in the longer term? Analysts have come to that conclusion after carrying out detailed financial and liquidity analyses. Second, AAG has a conservative balance sheet, with strong liquidity. There are some unencumbered aircraft in the fleet, including —s.
There are assets that could be monetised, including the FFP and market risk liquidity horizon air carrier Horizon. Fourth, Alaska has a good track record on controlling non—fuel costs. Its ex—fuel CASM has declined steadily in the past six market risk liquidity horizon air, from 8. Fifth, Alaska benefits from a young, fuel efficient, single—type fleet. Horizon, in turn, has just embarked on a similar quest — one that has involved the very interesting decision to shed its 70—seat RJs in favour of focusing entirely on the Q turboprop.
Finally, the Seattle—based carrier has various network advantages that will help it weather the current industry crisis. Its core regions, the Pacific Northwest and the state of Alaska, are expected to fare better economically than other US regions.
There are promising new markets, such as Hawaii and transcon out of Portland Oregonwhere Alaska has been able to profitably redeploy capacity withdrawn from under—performing markets.
And Alaska has a strong network of code—share partners and is poised to benefit from transpacific growth. What makes Alaska uniquely interesting is that it would make a perfect "low—risk" partner for just about any of the large network carriers. Its route system will look increasingly attractive to the larger carriers if and when industry consolidation gets under way and as airlines grow internationally. Market risk liquidity horizon air the short term, however, the most interesting thing to watch for will be the battle with Virgin America.
The San Franciscobased start—up entered the Seattle to Los Angeles and San Francisco nonstop markets this spring, creating the first head—to head clashes with Alaska. Alaska has responded by increasing capacity and creating a shuttle—type hourly service on the Seattle—Los Angeles route. Market risk liquidity horizon air of its top executives explained the move as follows: Alaska emerged from the post- September 11 industry crisis in relatively good shape.
AAG returned to modest profitability intwo years ahead of the industry. In contrast with its peers, AAG has seen a steady positive revenue trend since market risk liquidity horizon air The airline never parked aircraft or furloughed workers; instead, it redeployed its fleet in new markets, including transcontinental routes.
Alaska has done some impressive cost cutting. Under a plan, the airline sought to reduce ex—fuel CASM from 8. Although CASM was still at the 8—cent mark inthe 7. The so—called "Alaska " plan included employee and customer elements and growth and financial targets. The employee aims included providing "excellent job security" and making Alaska "one of the best places to work for in America".
With service and brand, the aim was to provide "the best value" a combination of product and pricebuild on an already strong brand and "maintain differentiation". Alaska has made great strides towards many of those goals, except of course the financial targets. The market risk liquidity horizon air ROI achieved was 7. Market risk liquidity horizon air financial goals are now obviously totally out of reach in the current fuel environment.
Alaska saw an impressive 3. Like its peers, AAG is now taking action on multiple fronts to try to offset the sharply higher fuel costs. The reason Alaska is still growing ASMs is that there continue to be opportunities to redeploy capacity market risk liquidity horizon air profitable markets.
The main focus is on increasing fees on items such as booking through reservations or airport sales agents, overweight baggage and pets. The airline is determined to maintain its "simple, customer—friendly fare structure". Many of the changes went into effect in May or June, so there should be an immediate revenue boost. Alaska has been raising fares where it can, holding more seats open for its premium customers closer to flight departures and evaluating changes to its mileage plan.
The strategy of focusing more on premium customers has helped: But Alaska is much better positioned than its peers this year simply because of its fuel hedges, which are mainly crude oil call options. Like its peers, Alaska is implementing numerous fuel conservation measures. Recently announced initiatives include a new flight planning system to select more direct routings, single—engine taxi market risk liquidity horizon air and using more ground power for taxi procedures.
Ongoing measures include transitioning to more fuel—efficient aircraft, installing winglets on the NGs, eliminating unnecessary weight on board and working with the FAA to pursue more direct routings and fuel—saving approaches and departures. Alaska expects to maintain its mainline ex—fuel CASM flat at 7. The primary goal is to continue to improve market risk liquidity horizon air reliability. The company faces some labour cost pressures, especially because pilot contracts at both Market risk liquidity horizon air and Horizon have been open for more than a year.
Negotiations continue, with the management presenting its latest counter—offer on May Alaska is likely to escape the worst brunt of the recession because the Pacific Northwest and the state of Alaska are expected to fare better economically than other regions. For example, real personal income growth is forecast to be at least one percentage point higher in Washington state than in the US overall in —, while housing prices are stable in cities such as Seattle and Portland.
In addition, Washington state exports are booming thanks to the weak dollar. Consequently, AAG may see only minimal cash burn this year. But much will obviously depend on fuel price developments. In other words, Horizon will simplify its fleet from three types to one, while also reducing the size of the fleet from 70 to about 50 aircraft by December The latter is based on the Q firm order total of 48, but there are also 20 options that could be exercised.
The decision is interesting in that it confirms a new trend of turboprops gaining market risk liquidity horizon air at the expense of RJs in the new fuel environment, as turboprops are much more fuel—efficient than jets.
At a recent conference, a representative from ATR noted a surge of interest in turboprops from airlines. Could the prop—to—jet trend that began in the early s soon be reversed? Horizon is already a leading operator of the Q and has come to know it as an "extremely flexible and capable aircraft" and a great match for the majority of its current and planned markets.
The airline describes the type as "one of the most technologically advanced turboprop aircraft in the world" and one that offers "jet—like speed and cabin environment". Of course, RASM will be lower, but the revenue differential should be much less, so profits will improve. The 70—seat jets served a great purpose at AAG by improving the performance of markets previously served by larger Alaska jets.
However, the management noted that the markets continued to under—perform, with no end in sight to the yield pressures and cost increases, market risk liquidity horizon air fuel. One problem that Horizon will face is that the 74—76 seat Q will be too large for the smaller markets and could preclude the carrier from developing market risk liquidity horizon air markets.
This means that Horizon may well eventually contract some services out to a smaller third—party operator, not unlike what Alaska currently does on particularly thin routes market risk liquidity horizon air the state of Alaska.
At the same time, Horizon itself could do some third—party market risk liquidity horizon air as there is apparently potential demand from the legacy carriers for Q feed.
In addition to leveraging the favourable economics of the Q, the new fleet plan will allow Horizon to reduce its annual operating costs through the reduced fleet size and achieve the favourable economics and efficiency of a single fleet type. The beauty of the plan is that it should involve no additional capital spending. Horizon already had 15 Qs on firm order to bring the fleet to 48and as those come in, the Qs and CRJ—s will leave, bringing in sales proceeds or lease income.
The airline has already subleased out or is in the process of arranging such deals on the Qs, but it will need to find a market for the 20 CRJ—s, of which two are owned and 18 are leased. All the indications are that worldwide interest in 70—90 seat Market risk liquidity horizon air remains strong.
Alaska is nearing the completion of its transition to an all— fleet, with the return of its last MD—80 on September 30 — three months ahead of the original plan, which was announced in March The MD—80 fleet has been whittled down to 10 aircraft March 31 from 26 aircraft two years ago.
Last year the airline sold all 20 of its owned MD—80s and leased most of them back under short—term leases. Of the 10 still in the fleet at the end of March, six were under short—term operating leases that expire this year; the other four, on long—term operating leases, market risk liquidity horizon air simply be grounded and stored or subleased by October.
At the end ofAlaska will have an all— fleet of aircraft, consisting of 46 —s, 20 —s, 12 —s and 38 —s. The average fleet age will be 7. However, after this year capex will start to fall quite dramatically, as — deliveries moderate to six insix in and three thereafter. As of March 31, Alaska had another 41 options.
Currently, the expectation is that the mainline fleet will grow by one aircraft or not at all in Like its peers, Alaska is in the middle of a thorough route re—evaluation. The aircraft have been moved to three markets: So far, the airline has disclosed that it will terminate Portland—Orlando and San Francisco—Vancouver, will not return to three seasonal Mexico routes out of San Francisco and will launch a new Seattle- Minneapolis route in October.
Transcon and Hawaii have received additional service because they are performing well. Alaska is particularly pleased with the response it market risk liquidity horizon air seeing on its new Hawaii routes from Seattle to Honolulu and Lihue and from Anchorage to Honolulu, which were launched in October The services appear to be profitable, though Alaska says that the fares could be higher to facilitate satisfactory returns.
This summer will see Alaska adding service to its third Hawaiian island, Maui, to be followed by Kona in November. Those services represent only 4. In the event of industry consolidation, Alaska believes that it will have a significant role to play almost regardless of what happens. OK This site uses cookies for functionality.
Market risk liquidity horizon air see our cookie policy click here. If you continue to use this site we will assume that you are happy with this. It's better in the West — June Download PDF Text Charts Alaska Airlines, the smallest of the US major network carriers, is well positioned to make it through the current industry crisis because of its good fuel hedges and strong liquidity.
CASM success Alaska market risk liquidity horizon air done some impressive cost cutting. Alaska's fleet plan Alaska is nearing the completion of its transition market risk liquidity horizon air an all— fleet, with the return of its last MD—80 on September 30 — three months ahead of the original plan, which was announced in March Promising new markets Like its peers, Alaska is in the middle of a thorough route re—evaluation.
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