Airlines are operating under extreme pressure as fuel price volatility and capacity utilization hold the keys to success. As carriers shift their focus towards optimizing non-fuel expenses, Alaska Airlines (NYSE:ALK) and Southwest Airlines (NYSE:LUV) have come up with innovative cost-cutting initiatives. These carriers have restructured the aircraft interiors to keep a check on the CASM (Cost per Available Seat Mile) excluding fuel. While Alaska is focusing on slicing fuel consumption through deployment of lighter seats, Southwest is adding more seats for its shorter routes to compensate for increasing operating expenditures.
Alaska’s Light Seat Deployment Program
Recently, Alaska announced that it will be using slimmer and lighter cabin seats in the 22 new Boeing 737-900ERs scheduled for delivery from 2012 – 2014. These seats, developed by German based aircraft seat manufacturer Recaro, provide an extra inch of legroom for the passengers, enhanced-comfort cushions, and standard three inches of recline. The airline is expected to cut down its annual fuel consumption by 8,000 gallons per aircraft.
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As these 22 aircraft become operational by end of 2014, the expected fuel consumption will reduce by 0.04% through this initiative itself. In absolute terms, the thinner seat installation program is expected to realize cost savings of $600,000 even if we consider the fuel cost per gallon at Q1 2012 levels ($3.41/gallon for Alaska). The Trefis price estimate for Alaska is highly sensitive to fuel costs which can be seen through the interface below:
Southwest’s Aircraft ASM Optimization
As most of the airlines are cautious about adding capacity, Southwest is enhancing ASMs (Available Seat Miles) on existing aircraft by adding six more seats to its 737-700 aircraft, which cover 60% of the total fleet size. The carrier is banking on the idea of offering a relatively congested space to passengers traveling on shorter routes. The seating upgrade exercise is expected to complete in 2013. These additional seats will increase the seating capacity in 737-700 to 143 which is expected to add 2.7% to the carrier’s current capacity. This additional capacity utilization will further boost the top-line and will also distribute the operational costs among wider base. This strategic move from the carrier will supplement its core competency of being a low cost airline.