Alaska Air trims plan for fleet growth as traveler momentum slows

Alaska Air Group’s financial results released Thursday fell short of Wall Street projections for the third quarter largely due to higher fuel prices and lower air travel demand in early fall.

Executives said they will trim the planned growth of Alaska Airlines’ Boeing aircraft fleet over the next six months to match lowered expectations of air travel volume.

Alaska Air CEO Ben Minicucci said the airline will be “moderating growth as a prudent measure.”

The earnings results were lowered by a $50 million hit from higher jet fuel prices — higher on the West Coast than elsewhere — and another $20 million in revenue lost due to the reduction in air travel to Maui after the deadly August wildfires there.

In addition, the boom in leisure air travel moderated as summer ended with no balancing rise in post-pandemic corporate travel, resulting in lower-than-expected passenger volumes in September.

Alaska recorded a net third-quarter profit of $139 million on $2.8 billion of revenue, versus the consensus expectation among Wall Street analysts of a $240 million profit, according to S&P Global Market Intelligence. Earnings per share were $1.08 versus an expected $1.87.

The earnings figures were improvements on the same quarter a year ago but only because Alaska Air then had to write off $155 million in one-time charges for Alaska Airlines retiring its Airbus A320 jet fleet and subsidiary Horizon Air retiring its Q400 turboprop aircraft, plus another $90 million to cover last year’s pilot contract ratification bonus.

Fuel higher, traffic lower

On an earnings call with analysts Thursday, Minicucci cited fuel costs as the biggest headwind against earnings and said Alaska was hurt more than other airlines.

The cost of refining jet fuel on the West Coast, where Alaska Air gets most of its fuel, rose much higher than on the Gulf Coast. “We’re paying 30 cents a gallon more than everyone else across the country,” Minicucci said.

Earnings results at other airlines were also lowered by high fuel costs. On Thursday, American reported a net third-quarter loss of $545 million. Earlier this month, Delta and United had each reported profits of $1.1 billion.

On Thursday’s earnings call, Alaska’s Chief Commercial Officer Andrew Harrison outlined the other factors dragging down the financial results. After the big post-COVID surge in air travel, he said “demand for leisure looks to have normalized and without further return of business demand.”

“We planned our network for relatively strong demand from summer into September as we experienced last year,” he said. “However, that did not fully materialize.”

In August, the devastating fires in Maui hit the airline. Alaska deploys 12% of its fleet on routes to Hawaii, with a third of that to Maui. The airline provided support and flew in aid during the emergency. After the fires, Harrison said, “bookings turned negative with high rates of cancellation.”

He said he expects it will be several quarters before air travel to Maui recovers. In the meantime, Alaska has cut one Maui flight from Seattle and trimmed flight capacity to Maui from its other hubs.

Alaska had been on an aggressive growth plan. In September, it finally retired its last Airbus jets and in the third quarter, added another five 737 MAX 9s with more seats than the aircraft they replace.

The number of seats available on Alaska Air airplanes in the third quarter was 6% higher than the same quarter in 2019. For the rest of this year and early next, growth will be pulled back to 3% above the 2019 level.

Nat Pieper, Alaska Air’s senior vice president responsible for aircraft fleet planning, said the airline found common ground with Boeing in slowing down the planned delivery stream next year of further MAXs.

That’s because Federal Aviation Administration certification of Boeing’s 737 MAX 10, the final and largest MAX model that Alaska has ordered, is taking longer than anticipated. Alaska didn’t specify how much the MAX jet deliveries will be delayed.

Alaska Chief Financial Officer Shane Tackett said the fleet growth in 2024 will now be “more conservative.”

In addition to constraining fleet growth, Harrison said Alaska is responding to the lackluster demand for corporate travel by “reducing business-heavy routes and frequencies” for the first quarter of next year.

“We’ve trimmed our higher-frequency Pacific Northwest and California business seats 22% versus January and February of last year,” he said.

On Thursday, Alaska announced a deal to sell its remaining 10 Airbus aircraft, all A321neos, to American Airlines.

With Alaska Airlines once again flying an all-Boeing fleet, all its Airbus pilots, inherited along with the Airbus jets from the 2016 merger with Virgin America, will have been retrained and switched to Boeing jets by the end of the year.

Alaska’s shares had fallen almost $2 on Wednesday, and after the earnings results dropped another 50 cents in early trading Thursday to just over $32.