How Alaska Reduces The Impact Of Seasonality On Its Business

by Trefis Team
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ALK
Alaska Air Group
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Alaska Airlines (NYSE:ALK), which operates mainly in the Pacific Northwest region and Alaska in the United States, remains highly susceptible to inclement weather conditions during the winter months. Such conditions result in increased costs associated with deicing of airplanes, cancelling of flights, re-accommodation of displaced passengers, and an overall decline in passenger traffic.

To counter this impact of seasonality on its business, the airline has increasingly focused on reallocating its capacity to vacation destinations in Hawaii from its hubs on the west coast during the winter months. This strategy has resulted in lower costs for the airline and improved passenger traffic for the carrier during the winter period.

We currently have a stock price estimate of $39.43 for the carrier, marginally lower than its current market price.

See our complete analysis of Alaska Air Group here

In 2011, nearly 23% of total passenger traffic for the carrier came from the Pacific Northwest region and the state of Alaska. [1] Severe weather conditions in these regions for three to four months a year take a significant toll on the passenger traffic for the carrier. As a result, beginning in November, the carrier shifts a certain portion of its capacity from these regions to vacation destinations in Hawaii. So far, this year, the carrier has announced flights from Portland to Kauai that started on November 5, from Bellingham to Maui that started on November 8, and from Anchorage to Kona that starts on November 10. [2]

Over the past three years, Alaska has nearly doubled its capacity on routes connecting Hawaii. As a percentage of its total capacity, capacity on Hawaii routes increased from 7% in 2009 to 16% in 2011 while on Alaska routes it declined from 20% to 18% over the same period. [1] This redeployment of aircraft in the network from Alaska and Pacific Northwest region to Hawaii routes during the winter months has reduced the impact of seasonality and added to growth in top-line and margins for the carrier.

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Notes:
  1. 2011 10-K, www.alaskaair.com [] []
  2. Alaska Airlines Begins Three New Routes Linking Hawaii and the West Coast, November 5 2012, www.alaskaair.com []
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