Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Ripples Across the Fleet
Alaska Airlines' fleet of Boeing 737 Max 8 and 9 aircraft has been grounded since March 2019 following two deadly crashes involving the planes. This has caused major disruptions for Alaska, which had ordered 37 Max jets and taken delivery of 13 of them before the grounding.
With over 10% of its fleet out of commission, Alaska has had to scramble to cover flights that were scheduled to be flown by the Max. The airline has postponed the retirement of some of its older 737-700s and 800s to help fill the gap left by the Max. It has also slowed down plans to remove some Airbus aircraft from its fleet.
In addition, Alaska has been forced to lease extra planes from other airlines like United and Southwest that aren't reliant on the Max. While these leased jets have prevented massive flight cancellations, it hasn't been a perfect solution. The non-uniform fleet now requires more maintenance, training for pilots on different aircraft, and complex scheduling. It also means higher costs for Alaska.
The Max grounding has forced Alaska to suspend its province-to-province flights in Canada along with delaying the launch of new Hawaii routes. The airline has also had to reduce its capacity growth plans for 2020. This is a big setback for Alaska which had been expanding rapidly after acquiring Virgin America in 2016.
The lack of Max planes has also impacted Alaska's bottom line. In its Q3 2019 earnings report, the airline estimated the total loss from the Max grounding to be $145 million in 2019 alone. These financial losses have continued to grow the longer the Max remains out of service.
For many passengers, the grounding has led to delayed and canceled flights as well as aircraft downgrades. Flights meant to have the fuel efficient Max with amenities like mood lighting were sometimes switched to older 737s. The airline has tried to minimize disruptions, but passengers have endured headaches from schedule changes and rebookings.
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- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Ripples Across the Fleet
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Finding Replacement Planes
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Cutting Back on Expansion
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Halting New Route Rollouts
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Increasing Costs, Lowering Profits
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Impacts on Passengers
- Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Long Term Uncertainty
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Finding Replacement Planes
When the FAA grounded the 737 Max, Alaska Airlines was left scrambling to find replacement aircraft to cover all of the flights that were scheduled to be flown by the Max. With nearly 14% of its fleet out of commission overnight, Alaska had to get creative fast.
The first option was to slow down the retirement of some of its older 737-700 and 737-800 models. By keeping these scheduled retirements temporarily on hold, Alaska was able to add some of its workhorse planes back into the active fleet. However, these aging jets are less fuel efficient than the MAX and keeping them flying longer means higher maintenance costs. It was a short term bandaid, not a long term solution.
The next step was to reach out to leasing companies and other airlines to find available aircraft to lease. Alaska secured short term leases for a dozen Boeing 737-800 aircraft from United Airlines and several Airbus A320 family jets from Southwest. Adding leased planes prevented massive flight cancellations, but it created new challenges. Each different model requires specialized pilot training and maintenance procedures. The non-uniform fleet leads to scheduling headaches and complicated logistics.
There was also the issue of passenger experience. Flights originally meant to have Alaska's signature blue mood lighting and spacious Boeing Sky Interior were sometimes switched to older 737s without these amenities. Angry customers took to social media to complain about the last minute aircraft downgrades.
Leasing aircraft was costly and leases could only be secured for 6-12 months at a time. It was not a sustainable long term fix. Alaska needed another avenue to fill the gap left by the 37 Max jets sitting idle. Their solution was to delay the retirement of some Airbus aircraft inherited in the Virgin America merger.
The original post-merger plan called for a rapid de-fleeting of Airbus jets to streamline the fleet around Alaska's all-Boeing roots. But desperation led to adapting the strategy. Alaska opted to keep select A319 and A320 aircraft in service rather than retiring them on schedule. This helped add much needed capacity without the complexity of bringing in outside leased planes.
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Cutting Back on Expansion
The grounding of the 737 Max threw a huge wrench into Alaska's rapid expansion plans following its acquisition of Virgin America in 2016. With new routes and destinations on the horizon, Alaska has been forced to halt expansion efforts as it copes with reduced capacity.
One major casualty was the suspension of all province-to-province flights within Canada. Alaska had been using its new Airbus jets inherited from Virgin America to launch intra-Canada routes like Vancouver to Edmonton. But with those same Airbus planes now needed to fill domestic capacity, Alaska had to ax the newly launched Canada routes.
The airline also announced it would be delaying the inauguration of new Hawaii flights from Everett and Portland. With the Max grounded, Alaska doesn't have enough fleet flexibility to take the risk of entering new leisure markets. Launching new Hawaii service would only further strain the schedule at a time when Alaska is over-extended.
Alaska has also throttled back significantly on its previously torrid growth pace. The airline increased capacity by 15% from 2017 to 2018 on the heels of the Virgin America merger. But with the Max grounding limiting fleet availability, Alaska has forecast capacity growth of just 2% for 2020.
The scaled back expansion means not only a loss of potential new revenue, but also has strategic consequences. Alaska had been encroaching on routes dominated by rivals like Delta and American while its merger integration was still underway. The Max crisis forced Alaska to retreat, leaving openings for competitors to go on the offensive.
On the profitable Seattle to Boston route, Alaska has struggled to maintain schedule integrity with no Max planes and few widebodies. Delta has pounced, adding flights on the route and stealing market share from Alaska in its most important hub.
Similar scenarios have played out in other parts of Alaska's network, allowing competitors to regain footing they had lost when Alaska was ascendant. With the Max fleet still grounded and expansion on hold, Alaska risks ceding more ground to its rivals.
The Max crisis also forced Alaska to miss out on opportunities that come along rarely for airlines. The collapse of WOW Air in March 2019 removed a competitor on U.S. to Iceland routes. But Alaska was in no position to take advantage and fill the void left by WOW's demise.
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Halting New Route Rollouts
The grounding of the 737 Max couldn't have come at a worse time for Alaska Airlines' route planning team. The airline had been on a roll, expanding rapidly on the heels of its 2016 acquisition of Virgin America. But overnight, 10% of its fleet was wiped out by the Max grounding, forcing Alaska to halt its ambitious new route launch plans.
Alaska had been using its freshly added Airbus jets to open innovative routes within Canada, like Edmonton to Vancouver. However, with the Airbus planes pulled back to fill domestic capacity gaps, Alaska had to suspend all of its province-to-province Canadian routes. Anchorage to Edmonton was nixed. So was Vancouver to Calgary. And routes the airline had been developing to other major Canadian cities also had to be scuttled, leaving Alaska with no footprint in the intra-Canada market.
The airline also had to postpone the eagerly anticipated launch of its first-ever Hawaii flights from Portland and Everett in Washington state. Nonstop Hawaii flights were in huge demand in the Pacific Northwest markets, but adding flights now would further strain Alaska's already overextended fleet and schedules.
The Max situation forced Alaska to shelve its Hawaii dreams for Portland and Everett indefinitely. No one knows when the market conditions and fleet availability will align to give those plans a second chance.
Similar new route opportunities have also evaporated for Alaska. With the collapse of WOW Air in early 2019, routes from the U.S. to Iceland were wide open for the taking. But Alaska was in no position to pursue that chance and fill the void left by WOW's demise.
The loss of new routes spells lost potential revenue for Alaska. But halting expansion plans also has strategic consequences that could impact the airline for years to come. Alaska had been aggressively staking out new territory in markets dominated by legacy rivals Delta and American.
With its post-merger integration still underway, Alaska was able to catch its competitors napping. But now Delta, American and United have been gifted time to fortify positions in places where Alaska was starting to make inroads.
A weakened Alaska could find regaining lost ground to be an uphill battle even after its Max fleet eventually returns. New route plans almost always have narrow windows of opportunity. When those close due to events outside Alaska's control, the airline may miss its shot.
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Increasing Costs, Lowering Profits
The prolonged grounding of the 737 Max has substantially increased costs for Alaska Airlines while lowering profits. With 10% of its fleet unexpectedly out of service, the airline has incurred major unexpected costs just to maintain daily operations.
Leasing replacement aircraft is an expensive Band-Aid fix, costing significantly more than operating Alaska's own planes. Complicating matters further, the non-uniform leased fleet leads to heightened maintenance and training costs. Pilots must be qualified on multiple aircraft types instead of relying primarily on the 737. Maintenance crews also require supplementary training to service foreign leased planes alongside Alaska's Boeing and Airbus jets.
The scheduling gymnastics required with a fractured fleet also drag down efficiency and drive up costs. Keeping track of which plane is where and assigning stand-in aircraft to cover Max-related cancellations eats up substantial man hours from planners. The lack of fleet commonality translates to reduced productivity.
Staffing costs have climbed as Alaska has been forced to delay the retirement of many 737-700s. More flight crews must be kept on payroll to fly the unplanned extra fleet. Alaska had anticipated needing fewer active pilots, flight attendants, mechanics and ground staff as the Max supplanted older models. Those personnel savings have vanished with the Max still in limbo.
The Airbus aircraft Alaska opted to retain post-merger also rack up greater expenses than the Max planes they replaced. From fuel to maintenance to flight crew training, the older A320 family jets are more expensive to operate than Alaska's fuel-efficient MAX fleet.
Adding further financial insult, Alaska has lost revenue from suspending service on intra-Canada routes and postponing new destinations like Hawaii. With reduced capacity, high-yield business travel has declined on core routes. Flight disruptions drive away loyal frequent flyers and credit cardholders. All these factors have profoundly cut into Alaska's bottom line.
The airline reported a 9% drop in Q3 2019 profit from the previous year. The Boeing fallout was a major contributing factor. Alaska estimated the total loss just from grounded Max aircraft would reach $145 million in 2019 alone. With each additional month the Max remains barred from service, costs continue to mount for the airline.
Analysts worry the flight disruptions could cause small business customers in Seattle and Portland to shift spending to Alaska's rivals. The airline had been gaining coveted corporate accounts at American's and Delta's expense. But reliability woes could reverse Alaska's momentum.
The rising costs and reduced revenues from the Max crisis couldn't come at a worse time. Alaska is still integrating Virgin America and repaying merger debts. Building a unified company culture and service reputation has been compromised by factors outside of Alaska's control.
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Impacts on Passengers
When Alaska Airlines’ Boeing 737 Max planes were grounded in March 2019 following two horrific crashes, it did not just create headaches for the airline’s management. Passengers were also significantly impacted by the cascading disruptions.
Frequent flyer forum FlyerTalk lit up with complaints from Alaska customers who had seen their flights delayed, canceled, or “aircraft downgraded” due to the missing Max jets. One passenger griped of a last minute swap from a 737-900 with modern interiors to an aging 737-700 with threadbare cloth seats. Others vented about crowded cabins resulting from consolidated flights. Some customers reported receiving middle seats on red eyes after booking aisle seats months in advance.
Not only were passengers inconvenienced, many felt Alaska lacked empathy and transparency. The airline provided virtually no advance notice about aircraft downgrades. Ground staff appeared overwhelmed and unable to assist during irregular operations. Alaska’s social media team did not actively communicate about the Max situation until deluged with angry tweets.
When the airline announced plans to suspend multiple routes within Canada along with deferring new Hawaii flights, fliers accused Alaska of bait-and-switch tactics. The routes had been heavily advertised and presold, only to have the plans reversed after customers had already booked expensive nonrefundable fares.
Operational challenges caused some Lifetime MVP Gold 75k elite flyers to defect to rival Delta. These ultra-loyal frequent flyers were lured away by bonus miles offers after too many flight cancellations caused them to miss important commitments. Their frustrations exemplified how Alaska’s reliability had been degraded by factors out of its control.
Families heading to Disneyland or Hawaii felt acute disappointment when aircraft downgrades left their kids without theVirgin America mood lighting and entertainment tablets they had excitedly anticipated. Honeymooners complained of lost luggage and tight connections caused by shuffled flight times. One bride narrowly made it down the aisle after her original nonstop from Seattle was canceled and she was rebooked via SFO.
While Alaska prides itself on outstanding service, the strains from the Max grounding made delivering on that brand promise difficult. Reservations agents struggled to reaccommodate all the displaced passengers. Inflight crews lacked resources to cope with overcrowded cabins of grumpy customers. Many felt Alaska’s renowned service culture noticeably deteriorating.
The deterioration of the passenger experience damaged Alaska’s reputation. While management scrambled to lease replacement aircraft, they overlooked how the logistical complexities impacted those sitting in 17F. The airline learned the hard way how fleet issues manifest into customer dissatisfaction.
Grounded and Losing Altitude: Alaska Airlines Facing $150 Million Hit from Boeing 737 Max Grounding - Long Term Uncertainty
Even as Alaska Airlines tries to manage the day-to-day disruptions from the Max grounding, a cloud of uncertainty hangs over the airline’s future. With no clear timeline for the return of the Max, Alaska can’t plan more than a few months out. This makes long-term decision making nearly impossible.
Route planning requires advance preparation spanning 6 months to over a year. But Alaska has no clue if or when its Max planes will be cleared to fly again. This prevents setting future schedules with any degree of accuracy. Will Alaska serve Prague next summer using the 737-9 Max? No one can say. Not knowing the fate of nearly one-seventh of its fleet paralyzes future network development.
Uncertainty also freezes growth plans. Alaska had anticipated taking delivery of new Max planes at a steady pace. But Boeing stopped deliveries in March 2019. Now new aircraft to fuel expansion don't exist. Alaska can't announce new routes when it doesn't know if it will have the planes to fly them. No airline can strategically grow their enterprise amidst such uncertainty.
Workforce planning is also a giant question mark. Alaska intended to use 737 MAX efficiency to moderate pilot and flight attendant hiring as older 737s retired. But with MAX timing unclear, Alaska faces a potential surplus...or shortage. They have no clarity on what crew staffing levels will be needed in 6-12 months.
Uncertainty bleeds into fincances as well. The MAX crisis forced Alaska to slam the brakes on a 15% capacity expansion from 2017-2018. Going forward, Alaska scaled back projected capacity growth to just 2% for 2020. But lockstepping capacity growth to match uncertain fleet availability leaves money on the table. It's a financial puzzle without clear answers.
Passengers also feel the uncertainty as frequent schedule changes cause frustration. Travelers who booked Seattle-Boston months ago only to see flight times constantly shifted have ditched Alaska for Delta. Even MVP elite flyers lament the unpredictability they endure while Alaska's MAX plans remain up in the air.
With 37 MAX aircraft representing Alaska's future, the airline hoped to control its own destiny after merging with Virgin America. But the extended MAX grounding suspended that outlook. Alaska now feels pressured into costly leases just to maintain status quo operations. Its destiny rests in the hands of regulators and Boeing.