Alaska Airlines’ plan to juice revenues to the islands

A key sticking point in regulatory approval of Alaska Airlines‘ acquisition of Hawaiian Airlines was ensuring capacity did not drop in markets where the two carriers overlapped. This was driven by hopes that consumers would not suddenly face significantly higher fares as a competitor was eliminated. And while the companies agreed to that requirement, Alaska Airlines still has a plan to boost its revenue in the islands market.

CEO Ben Minicucci is, of course, keen to keep customers happy, while also showing off that the newly combined company can deliver the profit synergies it promised investors. To that end, he shared in the recent Investor Day that “Everything that goes to, from, and within the islands will be branded Hawaiian, because we think there’s so much rich history, so much power in the brand. There’s so much loyalty that’s going to be driven through neighbor island flying and where people want to go with the Pualani on the tail, that the dual brand was simply the right choice to make through this merger.”

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That sounds like great news for consumers. They will get a better experience on board more of the flights to and from the islands. But it comes at a cost.

In that same briefing Chief Commercial Officer Andrew Harrison shared the hard data driving the decision, “We know Hawaiian has historically commanded a 12% RASM premium to Alaska’s Hawaii network average. This is because of the way the aircraft are configured, but also because guests love the Hawaiian brand, an affinity that has been built over decades. And this is real value that we’ll be able to capture.”

As part of the schedule revamp the combined operation anticipates boosting Hawaiian-operated capacity between the mainland and islands by about 18% while keeping that 12% RASM premium*. Alaska Airlines’ 737s will be “reallocated” to ensure total capacity in those regulated markets remains steady between the islands and the mainland, satisfying the regulatory requirements.

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This transition will take some time. The Hawaiian fleet is not large enough to handle all the island flights. And some Alaska 737s are still being assigned to new routes as the carrier shuffles its Pacific schedules. The carrier even suggested some of the 737s could be repainted in the Hawaiian livery for islands service eventually, though that it a low priority. Shifting the service on board would likely come well before any hard product changes.

Also of note, the carrier has removed “wingtip” flights in 10 markets. Time-of-day diversity is a good thing for passengers, especially as it opens additional connecting options beyond the west coast hubs.

Ultimately, however, Alaska Airlines plans to squeeze more revenue out of the market without cutting capacity. That should not come as much of a surprise; mergers are almost always about eliminating a competitor to raise prices. But in this case we now have some specific details on how the carrier expects that to play out.

*Buried in the fine print, Alaska Airlines notes that the 12% premium only applies to departures between 6a-3p. Once redeyes roll around people are not willing to pay extra. This could adversely impact those goals, especially given the schedule shifting that makes redeyes from the islands a bigger part of the operation.

Read more:

• Premium cabins are the future: Alaska Airlines Edition
• Alaska Airlines launches long-haul hub at Seattle, pushes premium
• Alaska Airlines receives DOT approval for Hawaiian acquisition