Yields are beginning to come under pressure at Alaska Airlines as Delta Air Lines continues to ramp up its flying at Seattle Tacoma International airport.
“Generally speaking, unit revenues are under pressure in markets where we see increased competitive capacity and the resulting supply imbalance,” says Brandon Pedersen, chief financial officer of Seattle-based Alaska, during an earnings call today.
Delta added nonstop flights from Seattle to Jackson Hole, Las Vegas, London Heathrow, Los Angeles, San Francisco and Shanghai Pudong during the past year, Innovata schedules show. It plans to add new service to Anchorage, Palm Springs, Phoenix, Portland (Oregon), San Diego, San Jose and Tucson by the end of 2014.
Glen Hauenstein, executive vice-president of network planning and revenue management at Altanta-based Delta, said recently that all of the carrier’s domestic segments out of Seattle were profitable in March.
Other airlines, including Southwest Airlines, United Airlines and Virgin America, have removed extra capacity to the Pacific Northwest that was added in 2013, Alaska executives say.
“Are we concerned about it, yeah,” says Brad Tilden, chief executive of Alaska, on Delta’s growth during the call. “I think there’s going to be more capacity in these markets than these markets need.”
The airline is expanding the number of cities it flies to nonstop from Seattle as well as its schedule in other cities, like Salt Lake City, to offset the pressure, he says. However, it is defending key business routes like Seattle-Los Angeles at the same time, he adds.
Competitive capacity in Seattle is scheduled to increase 8% in the second quarter, and 7% in both the third and fourth quarters compared to the same periods in 2013, says Pedersen.
Alaska anticipates a roughly 4.5% increase in system capacity in the second quarter, according to an investor update today.
Despite the pressure, Pedersen says he is “pleased” with Alaska’s 1.7% increase in passenger revenue per available seat mile (PRASM) on a 12% capacity increase by Delta in its markets during the first quarter.
The airline reported an operating profit of $141 million on $1.22 billion in operating revenues during the quarter. Its pre-tax margin was 11.8%.
“This is how capitalism works,” says Tilden on the competitive landscape in Seattle. “I believe we’re going to get through this and [it’ll] make Air Group a stronger company.”