Alaska Airlines is targeting significant growth, with a goal of increasing profits by $1 billion by 2027. The airline is banking on growing demand for premium travel and its recent acquisition of Hawaiian Airlines to achieve this ambitious goal.
The $1.9 billion purchase of Hawaiian Airlines, finalized in September, opened up new opportunities for Alaska Airlines, granting it access to cross-Pacific routes and wide-body aircraft such as the Boeing 787 Dreamliner and Airbus A330. Although both Alaska and Hawaiian Airlines continue to operate as separate brands, the acquisition positioned Alaska for a major expansion of its international network.
Starting in May 2025, Alaska Airlines will launch direct flights from its main hub at Seattle-Tacoma International Airport to Tokyo's Narita International Airport using Hawaiian's Airbus A330-200 aircraft. This will be followed by another new route in October, connecting Seattle to Seoul's Incheon International Airport. Tickets for the Tokyo route became available on Tuesday, while tickets for Seoul flights are expected to go on sale in early 2025.
Alaska's long-term vision is to serve at least 12 international destinations from Seattle by 2030, using wide-body aircraft to transform its route network and increase its global presence.
Strong financial outlook and shareholder confidence
As part of its growth strategy, Alaska Airlines announced plans to repurchase $1 billion worth of shares, signaling confidence in its future performance. The airline also expects pretax margins of 11% to 13% through 2027 and expects earnings per share to top $10.
In October, Alaska estimated its 2024 earnings would be between $3.50 and $4.50 per share, including results from Hawaiian Airlines. Additionally, the company raised its fourth-quarter earnings forecast to between 40 and 50 cents per share, up from a previous estimate of 20 to 40 cents.
These optimistic projections have strengthened investor sentiment. Shares of Alaska Airlines have risen nearly 40% this year, outpacing the S&P 500's 27% gain. After announcing its new plans, the airline's stock rose about 10% in the pre-market negotiations.
Expansion of premium offers and launch of new credit cards
To take advantage of the growing demand for high-end travel, Alaska Airlines is enhancing its premium offerings. The airline is working with Bank of America to launch a new premium credit card, designed to generate additional revenue from travelers even when they're not flying.
Alaska is also evaluating premium seating configurations across its fleet, particularly on Hawaiian's Airbus A330 aircraft. Chief Financial Officer Shane Tackett told CNBC that customers are increasingly willing to pay for greater comfort, with more passengers opting for premium economy and first class seats instead of relying on free upgrades.
“When you look at the last two or three years, most of the revenue growth has been in those demand areas, and I think that trend will probably continue,” Tackett said. “We have a great main cabin product, but more and more people want the opportunity to get into premium economy or first class, and we need to meet that demand.”
The change in consumer behavior has been evident, with an increasing number of first class and premium economy seats purchased outright rather than filled through complimentary upgrades.
Competing with Delta Airlines in Seattle
Alaska Airlines dominates the Seattle market with a 55% share of domestic passenger traffic, but faces stiff competition from Delta Airlines, which holds a 24% share. Delta also has a larger share of international passengers departing from Seattle, giving it an advantage in global operations.
To improve its competitive position, Alaska is investing in improving the customer experience. The airline plans to open a new lounge at San Diego International Airport to cater to its premium travelers. Meanwhile, Delta is also expanding its premium offerings, recently opening Delta One lounges in Boston, New York and Los Angeles for its higher-tier passengers.
Challenges with Boeing aircraft deliveries
While Alaska Airlines is focused on its growth plans, it has faced challenges related to aircraft deliveries from Boeing. The airline has faced delays caused by quality control problems at Boeing, including an incident in January when a door plug on one of Alaska's nearly new Boeing 737 Max 9 jets exploded after leaving the factory without proper latches.
These problems, along with the recent machinists' strike that halted production, have slowed Boeing's ability to deliver planes to customers such as Alaska, United Airlines and Southwest Airlines.
Tackett expressed cautious optimism about Boeing's progress, stressing that ensuring quality must remain the manufacturer's top priority. “It won't happen overnight,” Tackett said. “We are in a position where we have to emphasize that quality is much more important to us than speed of production.”
Boeing plane orders and deliveries for November, which are expected to reflect the impact of the strike, are expected to be released Tuesday morning.
A strategy for long-term growth
With the acquisition of Hawaiian Airlines, Alaska Airlines is well positioned to expand its international presence and capitalize on the growing demand for premium travel experiences. The airline's strategic investments in new routes, premium services and shareholder returns reflect its confidence in achieving its ambitious financial goals.
As Alaska Airlines works to compete with industry giants like Delta and address aircraft delivery challenges, its focus on innovation and customer satisfaction will be key to its success in the coming years. By 2030, the airline aims to establish itself as a major player in international travel, transforming its operations and reshaping its identity in the global aviation market.
