On Wednesday -- two years to the day after announcing that it would acquire Virgin America -- Alaska Air (NYSE:ALK) rolled out some more changes to the route network it inherited from Virgin.
As part of the Virgin America deal, Alaska Air acquired 23 slots at New York's JFK Airport. (Each slot allows one takeoff or one landing at a specified time between 6 a.m. and 10:59 p.m.) Virgin America used nearly all of these slots to operate flights to its main bases of San Francisco and Los Angeles. By contrast, Alaska Airlines plans to redeploy some of these slots to enable more flights to other West Coast cities where it has a strong presence -- and where it faces less competition.
A long struggle to grow in New York
Three years ago, Alaska Airlines didn't fly to JFK Airport at all. Its footprint in New York City was limited to two daily roundtrips between Seattle and Newark Airport. Slot constraints at all three major New York-area airports prevented it from expanding further in this incredibly important market.
However, Alaska Airlines managed to acquire one slot pair at JFK in 2015, allowing it to begin operating one daily roundtrip from Seattle in the fall of that year. In 2016, it took advantage of the end of slot restrictions at Newark Airport to add a third daily flight to Seattle, as well as new daily routes to Portland, San Diego, and San Jose.
However, the 2016 acquisition of Virgin America transformed Alaska Air's position in the New York City market. Virgin America owned slots at all three New York airports, which it used to fly about two dozen daily roundtrips to New York City. As a result, Alaska Air became a major player in the New York-Los Angeles and New York-San Francisco transcontinental markets overnight, competing with American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), JetBlue Airways (NASDAQ:JBLU), and United Continental.
Shifting slots around
On Wednesday, Alaska Airlines announced that it will begin two new flights from JFK Airport on July 6. First, it will introduce a route between JFK and San Jose, where it has been building up a focus city.
Second, the carrier will begin a third daily roundtrip between Seattle and JFK Airport. (It already had plans to add a second daily roundtrip on that route in mid-June.) This includes a morning departure from Seattle that arrives in New York in time to connect to international flights departing in the late afternoon and early evening.
To accommodate these new flights, Alaska will drop one of its five daily San Francisco-New York roundtrips and one of its six daily Los Angeles-New York roundtrips. (This continues a recent trend of retrenching in San Francisco and Los Angeles by trimming some flights.)
A sensible move -- but one that is telling
Given that Alaska Air has been facing unit revenue pressure in the California transcontinental market, redeploying scarce JFK slots to markets with less competition makes sense.
Alaska faces nonstop competition in the JFK-San Francisco and JFK-Los Angeles markets from American Airlines, Delta Air Lines, and JetBlue Airways. Those carriers all offer flat-bed business class seats on both routes, unlike Alaska, giving them a revenue advantage.
Furthermore, American, Delta, and JetBlue together operate about 18 daily roundtrips on the San Francisco route and more than 30 daily roundtrips on the Los Angeles route. This has created a brutal competitive environment. Alaska Air's management believes that cutting one flight on each route won't hurt the carrier's position with customers very much, while it will help to balance supply with demand.
By contrast, the JFK-Seattle and JFK-San Jose markets are far more attractive. Today, there is only one daily roundtrip between JFK and San Jose, which is operated by JetBlue. Delta will join that market in June, also with one daily roundtrip. However, Alaska Airlines will offer the only daytime flight on the eastbound leg, which could give it an advantage over Delta and JetBlue, particularly since none of the carriers will offer flat-bed seats on this route.
Competition is also fairly modest in the JFK-Seattle market. American, Delta, and JetBlue all fly that route, but together they will operate just 10 daily roundtrips this summer, far less than on the busy routes to San Francisco and Los Angeles. Adding flights on this route is also critical because Alaska Airlines is trying to defend its market-leading position in Seattle against a growing threat from Delta.
Nevertheless, Alaska Airlines has tacitly admitted with this reshuffling that it is struggling to keep up in the two largest transcontinental markets. That's good news for its rivals -- especially JetBlue, which gets a meaningful proportion of its revenue from transcontinental flights.