Alaska Airlines says that fleet rationalization is part of its “DNA” and is already considering whether it will keep both the Airbus A330 and Boeing 787 as part of its long-term fleet strategy after a merger with Hawaiian Airlines.
Alaska Airlines Emphasizes “Fleet Rationalization” As It Ponders Widebody Implications Of Hawaiian Airlines Merger
I combed through the investor call, which took place on Sunday night, for discussion on the widebody fleet strategy in an integrated airline. Below, I’ve pulled key quotes, which I will follow with my analysis.
Shane Tackett, the CFO and EVP of Finance at Alaska Airlines, focused on “rationalization and simplification” in his remarks:
“I’d like to touch on the fleet setup we will inherit upon close, including 37 narrowbodies and 24 widebodies for 61 aircraft in total. First and foremost, we are acquiring a fleet that is 66% owned and 43% unencumbered. Hawaiian’s leased aircraft portfolio is modest, with several leases maturing in the next few years. This is a stark contrast to the fleet we inherited in our prior acquisition, in which 86% were leased, most of which had long-term duration remaining.
“Hawaiian has a high-quality fleet with net equity value and a range of capabilities that will allow us to maximize future flying opportunities. We remain strong believers in fleet rationalization and simplification, but we’ll take appropriate time to determine what the best long-term fleet setup for us will be, given the diversity of flying we will be doing, from high-frequency short stage lengths to widebody trans-oceanic flying.”
Here already we have a hint that Alaska Airlines may look to simplify its fleet over the years ahead, as it did after the merger with Virgin America (eventually eliminating all Airbus jets). Currently, Alaska operates a fleet of Boeing 737 jets and that model has served the carrier well. Adding transoceanic reach is not feasible on a 737 jet, but what I hear in this statement is that both the Airbus A330 and the Boeing 787 might not be necessary in the long-term and go against the principles that guide Alaska’s fleet strategy.
Ben Minicucci, CEO of Alaska Airlines, added:
“The 737 is a phenomenal airplane for our network utility. Shane mentioned in his remarks, we’ll see how the fleet — how we rationalize it going forward. The airplanes that Hawaiian have are perfectly suited for their geographies, for the domestic market, for the international market. And we have the time to assess as we go forward.”
He later added:
“I think having an international fleet, you need the lie flat seats. I think that’s required. Now, does it create a little more complexity? Of course, it does. But I think the advantages far outweigh the complexities that we have to deal with. And I’m sure there’ll be some things that we can rationalize going forward. Our DNA, Savi, we’re ones that like to drive costs down. And if we see abilities to do that, we will. But what I would just say is the opportunities far outweigh some of the complexities that we have to deal with, with this combination.
Minicucci mentioned fleet rationalization twice. We’ve seen his focus on this at Alaska Airlines. It may be far too soon to say the A330s will be sold or the 787 orders deferred, but I picture the long-term goal as one widbody aircraft.
Nat Pieper, the SVP Fleet, Finance & Alliances at Alaska Airlines, was asked if there will be any changes to Hawaiian’s 787 order and explained:
“Hawaiian has 787s coming, the 330s that are there, and the airplanes that they’ve got are well-suited for the missions in which they fly. We’re excited to compare the economics of those airplanes and continue to deploy the right aircraft for the missions that are in place. So don’t need to make an immediate decision on that, and we’ll see how that plays through.”
“And the widebody fleet serves a specific purpose, but some of those widebodies fly to JFK and to Boston and Austin. It’s not just to international destinations. So we see a lot of advantage in how we deploy those widebodies. And over time, the 787s are both growth and replacement airplanes. Where we deploy them, whether it’s Honolulu or somewhere on the West Coast, is something that we’ll look into.”
I found this remark telling. On the side of every Alaska Airlines aircraft is a “Proudly All Boeing” label. The Seattle-based airline and the (formerly) Seattle-based aircraft manufacturer, which still maintains several production lines there and employs 60,000 in Washington state, are key partners.
Here, Minicucci suggests a future in which the 787 is the “replacement” widebody aircraft, suggesting the A330s may stick around for years but not be part of the long-term fleet rationalization plan.
As a fun aside, the fact that “West Coast” deployment is under consideration suggests that Alaska Airlines considers its own longhaul flights.
Tackett followed up by underscoring that this acquisition of widebody jets is the “best way in” for Alaska Airlines to operate longhaul flights of its own:
“I would just say, look, if there was a way into international flying and widebody flying, like, this is the best way in. It would be much more expensive and much more difficult if we ever had gotten to that idea organically to get into this type of flying. I think it’s unique flying that has worked really well, as Ben said, over a long period of time.”
Might we see Alaska Airlines one day serve destinations like Tokyo, London, and Paris from Seattle? At the very least, I think such service is under consideration as part of the longterm plan of the combined airline.
An investor presentation gives us some hints at how Alaska Airlines is thinking about fleet simplification in rationalization post-merger with Hawaiian Airlines. Even if the merger goes through wtih minimal regulatory pushback, there will be no immediate push to simplify the fleet. But the longterm strategy is a different matter. The admission that fleet simplification is part of Alasaka’s “DNA” is a tell-tale sign of what is to come in the years ahead.
image: Alaska Airlines