“In this current state of the industry – and for the foreseeable future – premium is the profit differentiator where we will unlock further value.” That’s the view from Alaska Airlines‘ Chief Commercial Officer Andrew Harrison, as shared at the carrier’s Investor Day event this week. And, as with many other airlines, it is the guiding philosophy that will drive the carrier’s decisions on fleet configuration, ground services, and more.
Over the past five years Alaska Airlines focused on adding more first class seats to its 737 fleet, as well as better marketing its exit rows and premium seats. That has led to a scenario where “premium revenue growth has far outpaced our premium seat growth” over the past five years, Harrison shared. With the widebody fleet now also part of its operations the carrier will focus on those cabins, albeit not for a couple years yet, as it looks to boost the premium revenue further.
While the single-aisle fleet is comparable to other legacy carriers on premium mix (~26% today, headed to 29% by 2027), the A330s and 787s “are under indexed in business class and lack an international Premium Economy cabin.” That will change “beyond 2027” to allow further growth of premium the cabins, and the premium revenue they deliver.
Not the same as everyone else
With every US carrier talking about tapping into premium demand Alaska’s optimism is far from unique. But the company has reason to believe “premium works exceptionally well in our network,” according to Harrison. The Alaska Airlines route network trends towards longer stage lengths, the type of flights where passengers are more likely to buy up for comfort.
As Harrison explained, “Our stage length is nearly 50% longer than the big four. Importantly, 70% of our capacity is deployed on routes that are over four hours in length. So we are uniquely positioned to sell premium seats and experiences. These are flights where our guests are willing to pay 275% more than main cabin fares for first class and over 90% more for a premium cabin seat.”
Cost-effective transition
While other airlines often talk about an extended horizon for amortizing interior retrofits, Harrison offered that “most of these projects are paid back in less than two years, so the capital is not significant versus the revenue.” That could be tied to the fact that the changes thus far have been relatively minor, adjusting existing seats around to make more legroom in the preferred section. And in the case of the A330s he noted that the planes are “ready for a full makeover…so you’re going to see entirely new seats and products, which would have had to be done anyways.” Even with the 787s needing heavier investment to get to the new layout, the company is confident “the premium revenue comes with a very fast payback.”
Despite how quickly that investment will be paid back, the company is not keen to accelerate the retrofits. Presumably they’re more focused on other, more critical merger integration tasks in the interim.
But come 2027ish expect new premium economy cabin to be part of the long-haul fleet, just in time for significant expansion of the Seattle global gateway.
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