Alaska adds fuel-efficient Boeing 737-900ER aircraft

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Fleet upgauging

Alaska Airlines’ fleet plan for 2014 to 2017, as illustrated below, indicates an expected increase in capacity by 10% in 4Q14 and by 7% in FY14. According to the airline’s management, half of the increase in capacity will be accomplished through changes in flight length and upgauging.

Part13_3Q14_Fleet Pan

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Upgauging and seat capacity

In upgauging, using larger aircraft allows airlines to increase the number of available seats. Alaska (ALK) plans to replace its classic 737-400 equipment with larger Boeing 737-900ER aircraft. Alaska’s new 900ERs are expected to have 37 more seats than the 737-400, while burning the same amount of fuel and offering lower maintenance costs.

Alaska had 22 737-900ERs at the end of 3Q14 and according to the airline’s management, these aircraft helped increased capacity by 15% without adding frequency. Alaska has taken delivery of nine 900ERs in 2014 and plans to add 35 more by the end of 2017. These aircraft will replace the 27 737-400 aircraft remaining in the fleet.

Streamlined operations

In order to maintain their cost advantage, low-cost airlines such as Southwest (LUV) and JetBlue (JBLU) operate fewer aircraft types compared to legacy carriers such as Delta (DAL), United (UAL), and American (AAL). Refer to Low cost carrier strategies to maintain competitive advantage for a closer look at these carriers’ strategies, which Alaska emulates to reduce costs. Plus, refer to Alaska Airlines’ unique cost advantage for more details.

Investors can gain exposure to all of these airline stocks by investing in ETFs such as the iShares Transportation Average ETF (IYT) or the SPDR S&P Transportation ETF (XTN).

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