The record-setting federal government shutdown has entered its second month. However, while hundreds of thousands of government employees are going without paychecks, most companies have seen relatively little disruption to their businesses so far.
The airline industry has been a notable exception, due to the government's extensive involvement in everything from security screenings to approving new aircraft models. This week, Alaska Air Group (NYSE:ALK) became the latest victim of the shutdown, as the airline was forced to delay the long-anticipated start of service to Paine Field in Everett, Washington.
The shutdown creates complications for airlines
For many air travelers, the most notable impact of the shutdown has been on security checkpoint lines. A growing absence rate among TSA employees -- who are currently working without pay -- has started to impact wait times at certain airports.
Behind the scenes, furloughs at the Federal Aviation Administration (FAA) are starting to take a bigger toll on the highly regulated industry. For example, Southwest Airlines' plan to start flying to Hawaii is temporarily on hold because the carrier is waiting for FAA inspectors to participate in simulations and test flights to validate its procedures for dealing with in-flight emergencies far from land. Similarly, Delta Air Lines won't be able to start flying its first Airbus A220s later this month as it had planned.
Now, the FAA furloughs are preventing Alaska Airlines from following through with its plan to launch service at a secondary airport near its hometown of Seattle next month.
Paine Field flights are grounded for now
Alaska Airlines operates its main hub at Seattle-Tacoma International Airport (Sea-Tac). With about 300 daily departures, it is the leading airline in its hometown of Seattle. However, the airport has become overcrowded. Furthermore, heavy traffic often leads to long travel times between the airport and Seattle's northern suburbs.
As a result, Alaska Airlines has been eager to serve Paine Field -- an airport about 25 miles north of Seattle -- ever since a private company decided to build a two-gate terminal there. Back in November, Alaska announced that it had secured three-quarters of the available slots at Paine Field. This will allow it to operate 18 daily round trips to eight destinations.
Alaska Airlines planned to launch its Paine Field flights in stages in early 2019. The first flight was to operate on Feb. 11. By Feb. 15, there were to be seven daily roundtrips; by Feb. 20, there were to be 14 daily roundtrips; and the full schedule of 18 daily roundtrips was set to go into effect by March 12.
However, with the planned launch of service less than three weeks away, the FAA still hasn't completed the environmental assessment, which is required before it can approve the launch of commercial flights at Paine Field.
Initially, Alaska Airlines had held out hope that it could stick to its original schedule. However, on Tuesday, it pushed back the start of service at Paine Field to March 4, with the flight schedule set to spool up gradually between then and March 12. And as the carrier acknowledged, the new scheduled start date is not set in stone, either. Unless the government shutdown ends, Paine Field flights could be postponed indefinitely.
The pain is manageable -- for now
In the short term, Alaska Airlines is adding extra flights at Sea-Tac with the aircraft it had planned to use at Paine Field during February. It is also rebooking customers who bought tickets for its Paine Field service on flights from Sea-Tac with similar departure times. This will limit the financial hit to Alaska and the disruption to its customers. (People who hold tickets for canceled Paine Field flights will also have the option of getting a full refund.)
However, this strategy will only work for so long. During the busier spring and summer travel seasons, there may not be enough gate space at Sea-Tac to accommodate the extra flights that were supposed to operate at Paine Field. Furthermore, customers who book Paine Field flights may feel cheated if Alaska continues to push back the start of service and rebooks them on flights from Sea-Tac.
The opening of Paine Field to commercial service represents a potentially lucrative opportunity for Alaska Airlines to build on its strength in Seattle and take some strain off its operations at Sea-Tac. But in terms of exploiting that opportunity, Alaska is at the mercy of the federal government.
Check out the latest Alaska Air Group earnings call transcript.