Alaska Air (NYSE: ALK) has historically deployed the bulk of its capacity in its hometown of Seattle. It is the largest carrier there by a wide margin, operating roughly 290 daily departures to 90 destinations. However, for the past several years, it has faced rising competition from Delta Air Lines (NYSE: DAL), which now operates 166 peak-day departures from Seattle.
More recently, Alaska Air has focused on growing in California, following its acquisition of smaller rival Virgin America. In the second half of 2017, it has launched more than a dozen new routes from the Bay Area, as it challenges local market leader United Continental.
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For 2018, Alaska has indicated that it will slow its growth and focus most of its route expansion on the Pacific Northwest. With Seattle-Tacoma International Airport becoming increasingly crowded because of Delta's growth, this could mean that Portland, Oregon, will be getting some new routes next year.
Alaska Airlines faces short-term growth constraints
Seattle has one of the strongest regional economies in the U.S. As a result, Alaska Airlines sees plenty of growth opportunities there, despite Delta's ongoing expansion. Recently, Alaska has been focused on adding new cities to its route map. For example, it has already announced plans to launch a new Seattle-Pittsburgh route next fall, offering the only nonstop service linking those two cities.
Unfortunately, Seattle's airport can't accommodate much growth right now. The airport is currently working on a project to add gates to Alaska Airlines' North Satellite terminal, but the first phase of that project won't open until 2019. As a result, Alaska won't be able to add many flights at Seattle-Tacoma International Airport next year.
Alaska Airlines does hope to add Seattle-area service when Paine Field in Everett, Washington opens for commercial flights next fall. However, Alaska will operate a maximum of nine daily departures there, so this isn't a big growth opportunity.
Meanwhile, Alaska Airlines is facing unit revenue pressure on its California routes. It probably needs to pause its expansion there while it digests its recent growth in the Bay Area. Alaska is also considering reducing its capacity on some routes that it acquired from Virgin America.
Portland could be a good growth market
In this context, adding new routes in Portland could be an attractive option for Alaska Airlines next year. Alaska is by far the leading carrier in Portland, offering nonstop service to nearly 60 destinations. It can further solidify its dominance by adding even more nonstop routes.
Alaska Airlines' main tool for expansion next year will be the Embraer (NYSE: ERJ) E175 regional jet. Alaska has quickly become a huge fan of the E175, which has more range than the Bombardier regional jets and turboprops that Alaska has previously used. (The E175 is also significantly more comfortable for passengers.) This is allowing the carrier to explore longer-range routes with too little demand for a mainline jet.
Alaska has already used the Embraer E175 to launch routes from Portland to cites like Minneapolis, Kansas City, and Omaha. Looking ahead, Denver, Oklahoma City, San Antonio, and Tulsa could become viable with the E175. Even more distant cities like Houston, Indianapolis, and Memphis could come within range.
Alaska Air is set to add 35 more E175s to its regional fleet over the next two years, while retiring 15 turboprops. This will allow it to introduce numerous new regional routes in 2018 and 2019.
Portland is underappreciated
Thanks to its acquisition of Virgin America, Alaska Airlines now has a strong position in the three largest West Coast metro areas: Los Angeles, San Francisco, and Seattle. In the long run, those markets will offer plenty of growth opportunities.
However, the recent growth spree by Alaska Airlines and Delta Air Lines in Seattle will constrain Alaska's ability to expand there in 2018. Meanwhile, Alaska Airlines needs time to assess the results of its recent California growth initiatives, so it doesn't make sense to expand dramatically there in 2018.
Portland is also a major market, with a population of nearly 2.5 million in the metro area. Unlike the larger West Coast metro areas, Alaska Airlines essentially has Portland to itself. No other carrier wants to make it a hub or focus city. This makes expansion in Portland an attractive option as Alaska Airlines adds more Embraer E175s to its regional fleet.
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