Alaska Air Group High on Demand, But Low on Load Factor
US Airlines Increase Capacity in May 2015 to Meet Growing Demand
Overview
Alaska Air Group is the seventh-largest US airline and provides air carrier service to more than 100 cities across the United States, Canada, and Mexico. The company reported improved results in May 2015, with a strong 12% year-over-year (or YOY) growth in its capacity, measured by available seat miles. This outpaced the strong 10.4% YOY growth in its traffic numbers. This led to a 1.2% decline in the airline’s load factor, which stood at 84.5%.
The revenue passengers (the number of passengers who paid for their trip) also grew by 10.7% YOY. On the negative side, the on-time arrivals for both of its airline services, Alaska Airlines and Horizon Air, fell during the month.
Both demand and capacity growth for Alaska was highest among the six major airlines. Its peers in this group are Delta Air Lines (DAL), Southwest Airlines (LUV), United Continental (UAL), JetBlue Airways (JBLU), and American Airlines (AAL). ALK forms a 4.6% holding of the iShares Transportation Average ETF (IYT).
Alaska Airlines laps Horizon Air
Alaska Air Group is a holding company for Alaska Airlines and Horizon Air. For May 2015, Alaska Airlines’ growth outpaced that of Horizon Air’s.
Alaska Airlines reported a 10.3% year-over-year increase in traffic on a 12% year-over-year increase in capacity, which reduced its load factor to 84.8%. This was better than Horizon Air’s 9.6% YOY increase in traffic and 9% YOY increase in capacity, which helped improve its load factor to 80.5%.
Aggressive expansion improves capacity
Alaska Airlines has invested heavily in capacity expansion and is reaping the benefits of this expansion initiative. The airline saw a 12% YOY growth in its capacity for May 2015.
The airline further expects to improve its capacity in 2Q15 by 10.5% in order to meet its full year target of an 8% increase in capacity. However, these rapid expansions can create pricing pressures for the airline, which can in turn affect its top line.
Falling load factor
Alaska Airlines’ aggressive expansion in capacity also led to a decline in the airline’s load factor, which is a crucial measure of its operational efficiency. This is expected to affect the airline’s 2Q15 passenger yields and margins.
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