This month's grounding of Boeing's 737 Max 9 aircraft has reduced Alaska Airlines' first-quarter capacity by about seven basis points year over year and at least temporarily blunted "momentum" in business travel recovery that brought the sector's revenue to within 5 percent of pre-pandemic levels, carrier executives said on a Thursday earnings call.
In the fourth quarter, Alaska's business travel clientele increased booking revenue by 15 percent year over year, chief revenue officer and chief commercial officer Andrew Harrison said, representing "slow and steady recovery."
"Overall, business revenues are within 5 percent of 2019 levels with most industries now fully recovered," Harrison said. "The notable exceptions are tech and professional services, which still lag other industries but did see 26 percent and 14 percent year-over-year revenue growth, respectively, in Q4."
That recovery, though, was "severely impacted" by the grounding of Alaska's 737 Max 9 aircraft fleet after a Jan. 5 incident in which a door plug flew off during a carrier flight, Harrison said, and the subsequent cancellations damaged Alaska's short-term corporate bookings. However, "we have continued to see good momentum in average fares for business travel, and I don't see why that would not continue," he said.
737 Max 9 Plans
The U.S. Federal Aviation Administration on Thursday announced an inspection process that would allow Alaska and other carriers to begin to return 737 Max 9 aircraft to service. Alaska CEO Ben Minicucci said about one-third of the carrier's January capacity was affected by the grounding, and that the carrier likely would delay several aircraft deliveries. That would affect the carrier's 2024 capacity plans, which he said otherwise would have been for a 3 percent to 5 percent year-over-year increase.
"As a longtime valued partner, we remain fully committed to our relationship with Boeing, but we also intend to hold them accountable," Minicucci said. He cited "raising the quality standards at the factory as well as making us whole," as part of that process, but that it was secondary to safely restoring the 737 Max 9 aircraft to service.
Hawaiian Deal Update
Alaska last month announced it had agreed to acquire Hawaiian Airlines in a $1.9 billion deal. Since that announcement, a U.S. district court ruled against another would-be airline merger, that of JetBlue and Spirit Airlines, in a lawsuit brought by the U.S. Department of Justice.
Minicucci said Alaska has "held initial conversations" with DOJ about the Hawaiian acquisition and this month submitted filings under U.S. Hart-Scott-Rodino antitrust law. Still, Minicucci said he felt "we have a stronger and differentiated case from JetBlue and Spirit."
"Our view is that these deals are completely different," Minicucci said. "JetBlue-Spirit was blocked by the judge essentially because it would eliminate a low-cost competitor. In our case, between Hawaiian and Alaska, these are two very similar business models. The networks are very, very complementary. In fact, when you combine the networks, there's only 12 overlap routes through the combination."
Minicucci said Alaska would "work through the DOJ on that process."
NDC Update
Unlike some other U.S. carriers, Alaska has not taken significant steps to limit bookings through EDIFACT channels or increase bookings through channels enabled by the New Distribution Capability standard. That likely won't change in 2024, Harrison said, but afterward might be a different story.
Calling 2024 "a big year for us," Harrison said that "there's something like 12 APIs that we're building out to fully unlock NDC. We have a number of modules already up and running on folks like Hopper. It's actually [a] small percentages right now, but we're seeing the benefits of it, and it's going to be really good for us. '25 is going to be the year of NDC for us."
Q4 Performance
Alaska Airlines parent Alaska Air Group's fourth-quarter passenger revenue increased 3 percent year over year to more than $2.3 billion. Total operating revenue also increased 3 percent to nearly $2.6 billion. The company reported a fourth-quarter net loss of $2 million, compared with net income of $22 million in the fourth quarter of 2022.
Full-year 2023 passenger revenue increased 8 percent year over year to more than $9.5 billion. Total operating revenue also increased 8 percent to about $10.4 billion. The company reported net income of $235 million, compared with net income of $58 million in 2022.
Fourth-quarter capacity as measured in available seat miles increased 14 percent year over year, while full-year capacity increased 13 percent.
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