Alaska to deploy 737-900ERs within existing network

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Alaska Airlines plans to deploy its new fleet of Boeing 737-900ERs on dense routes within the carrier's existing network.

The Seattle-based carrier earlier today placed orders for 13 737-900ERs and two 737-800s. The additional 737-800s will be delivered in late 2012 while the -900ERs will be delivered in 2013 and 2014.

In a conference call with analysts after the order was announced, Alaska president Brad Tilden called the new -900ERs "a perfect fit" for "trans-con" and "mid-con" markets. This means the aircraft will likely be used on routes from Alaska's Seattle hub to cities in the east coast and Midwest as well as some of the carrier's more historical routes along the west coast.

Tilden says the -900ERs have the range to reach "many more markets than our current -900s" and are 6% more fuel efficient than Alaska's fleet of 737-800s. Alaska's -900ERs will be configured with 21 to 27 more seats than its -800s, resulting in a lower unit cost.

Alaska VP planning Andrew Harrison told analysts the carrier is not looking at using its -900ERs to extend its network south of Mexico or open any new longer-haul markets. "We are very focused in incorporating [the 737-900ERs] into our current network" and in particular dense markets "which could use some extra seats," Harrison says.

Alaska sees the 737-900ER as a powerful tool to reduce its unit costs in some of its larger markets without having to add a second aircraft type. Alaska has been operating an all-737 mainline fleet since 2008.

Tilden points out the -900ER enjoys a common flight deck and maintenance procedures with Alaska's smaller 737NGs. Alaska COO Ben Minicucci says the carrier's current pilot contract also allows 737-900ERs to be added without any modifications.

"We are big fans of this -900ER. The more we looked at it the more we liked it," added Alaska CEO Bill Ayer.

He says Alaska will look at any potential new-generation narrowbody from Boeing but for now the carrier is satisfied with the 737 family and is not threatened by rival Virgin America's launch order for the Airbus A320neo. "We like the airplanes that Boeing produces and we are interested to see what they come up with next," Ayer says.

Ayer told analysts the 15 additional 737s ordered today will give Alaska the flexibility to continue growing capacity at annual clips of 3% to 6%. He points out Alaska has grown capacity by 18% since 2003 while the industry overall has been flat.

But Ayer was quick to add that "we won't grow at these rates if conditions don't permit". Tilden points out that Alaska has the flexibility to reduce capacity if necessary by selling aircraft, parking aircraft or reducing average aircraft utilisation.

Tilden says the carrier retains this flexibility because it owns "the vast majority of our airplanes, including some 737-400s". Alaska executives are also confident they can more quickly respond to changing marketing conditions than other US majors because it is a smaller and more nimble carrier.

Ayer also sees Alaska as better positioned than other US carriers to respond to increasing oil prices. He says even without the -900ER Alaska has the most fuel efficient fleet and the carrier has "arguably the best fuel hedging programme in the industry".

Alaska CFO Brandon Pedersen told analysts the carrier is now hedged at $86 per barrel for 50% of its oil consumption in 2011. As analysts predict oil prices to continue to rise Pederson says "we feel good about our level of protection".

Earlier today Alaska reported record annual and fourth quarter profits.