Alaska Airlines Gets Ready to Grow in Its Hometown (Sort Of)
Faced with significant airport constraints in its hometown of Seattle, Alaska Air Group (NYSE: ALK) shifted much of its growth to California last year. However, Alaska now needs to digest that growth while completing the integration of Virgin America, which it acquired in late 2016.
As a result, Alaska Airlines plans to concentrate more of its growth in the Pacific Northwest this year. Last May, it announced plans to start serving Paine Field -- an airport 23 miles north of Seattle in Everett, Wash. -- beginning in late 2018. On Tuesday, the carrier confirmed and expanded those plans.
Seattle's main airport is stretched to the limit
Thanks to its vibrant tech sector, Seattle has one of the fastest-growing regional economies in the United States. That's helped Alaska Airlines become one of the most profitable airlines in the world, despite Delta Air Lines' (NYSE: DAL) rapid growth in Seattle since 2013.
However, the two carriers' simultaneous growth has created massive overcrowding at Seattle-Tacoma International Airport -- currently the only Seattle-area airport with commercial flights. Sea-Tac Airport is responding by gradually adding gates and terminal space to support more flights.
Still, Sea-Tac is likely to remain overcrowded for the foreseeable future. Passenger traffic rose from 33.2 million in 2012 to 45.7 million in 2016 and probably ended 2017 just shy of 47 million. As long as Seattle's supercharged growth continues, it won't take long for Alaska Airlines, Delta Air Lines, and their rivals to fully utilize the additional gates being built. This growth highlights the need for a secondary airport to take some pressure off Sea-Tac Airport.
A second airport will get a passenger terminal
The Seattle metro area has several secondary airports, but there has been significant resistance to the idea of opening them for commercial flights. Concerns range from noise to costs to traffic impacts.
Nevertheless, Propeller Airports, a private company, received approval last year to build and operate a small passenger terminal at Paine Field. It will have just two gates, meaning it could support no more than two dozen daily round trips, and possibly less. The terminal is on track to open this fall.
Alaska Airlines quickly expressed interest in operating at Paine Field. The carrier's preliminary plans called for nine daily flights to six destinations. (At the time, it did not reveal which cities were being considered for service.) Alaska claims that Everett residents could save up to 80 minutes in driving time during rush hour by flying from Paine Field instead of Sea-Tac.
A few months later, United Continental Holdings announced that it will operate six daily flights from Paine Field to its hubs in Denver and San Francisco. Thus far, no other airlines have said they will fly to Paine Field. Among the legacy carriers, Delta probably wants to focus on connecting traffic at its Sea-Tac hub, while American Airlines Group has a fairly small footprint in the Pacific Northwest due to the location of its hubs.
Growing the franchise
With relatively little demand from other airlines for gate space at the new terminal, Alaska Airlines has expanded its ambitions. The carrier now plans to fly up to 13 daily round trips from Paine Field starting this fall, serving eight destinations.
Alaska will probably operate several flights a day to Portland, Ore. -- its second largest hub -- to better serve business travelers. It also plans to fly to Las Vegas and Phoenix, popular warm-weather leisure destinations. The other five destinations are all in California: San Francisco, San Jose, Los Angeles, Orange County, and San Diego. This move will allow Alaska Air to continue growing in California while capitalizing on its existing Seattle-area customer base.
More broadly, Alaska's plans for Paine Field reflect its goal of being the preferred airline for people on the West Coast. From day one, it will fly nonstop to all of the top business and leisure markets in the western United States. Alaska Airlines' strategy of solidifying its position in its core markets is likely to pay off in the form of continued profit growth in the years ahead.
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Adam Levine-Weinberg owns shares of Alaska Air Group and Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.