Alaska Airlines unit revenue will likely continue declining in the third quarter of 2013, due largely to competitive pressure on some of its prime routes.
The prediction, made by parent company Alaska Air Group in its second quarter filing with US securities regulators, comes one month after executives announced they will cut capacity this summer and winter in an effort to boost unit revenue.
"Many of the factors that caused second quarter unit revenues to be negative, such as increased competitive capacity between the lower 48 [states] and the state of Alaska, and along the West Coast, will still exist in the third quarter," says Seattle-based Alaska Air Group in its report. "As a result, we expect unit revenues to decline again in the third quarter on a yearoveryear basis."
The report does not say how much unit revenues may slide, adding only that advance bookings indicate load factors will decline 0.5% in August and 1% in September, compared to the same months in 2012.
Alaska Air Group earned an operating profit of $174 million during the second quarter, up 50%, and operating revenue of $1.26 billion, up 3.5%. Those results include the financial performance of both Alaska Airlines and Horizon Air, a regional subsidiary.
But the company's passenger revenue per available seat mile (PRASM) declined 3.8% year-over-year, to 14.73 cents.
Alaska Airlines' PRASM, excluding Horizon's, fell more precipitously, down 4.4% to 11.57 cents.
Alaska attributes the decline to a 3.9% drop year-over-year in mainline ticket yield and a 0.5% decrease in the mainline carrier's load factor during the period.
But market forces and capacity changes underlie the numbers.
Since the start of 2013, Alaska Airlines capacity has increased 9.1% as it has taken delivery of new four new Boeing 737s and launched a number of new routes, according to Alaska's filing.
The airline expects its full-year 2013 capacity will be up 7% year-over-year.
New routes include long-haul transcontinental flights and so-called "midcon" flights, such as Seattle to Salt Lake City in Utah, Portland in Oregon to Fairbanks in Alaska and San Diego to both Boston and Lihue in Hawaii.
Alaska Air's second quarter report also touches on the same competitive pressures that its executives have lamented during analyst calls in recent months: the airline faces increased competition on its west coast flights and routes to Alaska.
In July, Alaska's vice president of revenue management and planning Andrew Harrison told investors that other airlines will have an average of 7.4 more daily flights to Alaska in the third quarter of 2013 than in the third quarter of 2012.
Specifically, United Airlines added three daily roundtrips, Delta Air Lines added 2.4 daily roundtrips and both JetBlue and Virgin America added one daily roundtrip.
Executives on the call also noted that Alaska faces more competition to Hawaii.
Alaska's response has been capacity cuts.
This summer, it reduced capacity by 2% compared to last year, cutting flights to roughly one dozen markets, Harrison announced. It nixed flights to Hawaii, Fairbanks in Alaska, Reno in Nevada and Oakland and Long Beach in California, among others.
Harrison said this winter Alaska will trim transcontinental weekly frequencies by 16% and cut Hawaii flights by 6%.