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With its competitors adding amenities, including improved food and designer silverware, to already-luxurious flatbed seats on some transcontinental routes, Alaska Airlines will try a different approach, installing new recliners as it prepares to give away many first class seats to its most loyal customers.
It’s a contrarian approach for 2017, but Alaska is calculating it makes no sense to mimic the special business class cabins United, American, JetBlue, and Delta use on flights from New York to San Francisco and Los Angeles. On the two routes, the four airlines all seek the same types of passengers — lucrative corporate customers and wealthy individuals who pay $1,200 or more roundtrip for beds, champagne, and celebrity-chef created menus. A couple of the airlines — JetBlue and Delta — are even expanding flat beds and upscale service to other markets, beyond New York to L.A. and San Francisco.
Alaska has avoided this arms race for years. But Virgin America, which Alaska acquired last year, has dabbled in the space with a less-than-competitive product. Its leather recliners have more recline and legroom than most domestic first class seats, but Virgin America’s product between New York and California is not as luxurious as the competition. Generally, however, Virgin America has tried to sell its seats for the same fares as United, Delta, American, and JetBlue. And even if seats go unfilled, Virgin America does not give them away to frequent flyers.
Soon, however, those leather recliners will disappear. Instead, Alaska will install a standard first class recliner on every plane, meaning it will have subpar product on some transcontinental routes. Alaska’s recliners will have 41 inches of pitch, far less than the 75-80 inches required for most flat-bed seats. Still, legroom will be slightly more generous than what American, Delta, and United have in their standard first class seats on planes that fly non-premium routes.
On its coast-to-coast routes, Alaska will try to sell its seats to value-conscious consumers who value a slightly better product —it calls this group “leisure enthusiasts” — but it also expects to upgrade frequent flyers for free. American, United, and Delta also offer free upgrades, but as their products have improved, fewer seats have gone to frequent flyers.
“Getting a chance to upgrade is part of loyalty,” Alaska CEO Brad Tilden said, “and loyalty is part of successful growth.”
Speaking Wednesday at Alaska’s annual investor day, executives said they considered adding flatbeds but decided they consume too much space for the revenue they produce. Tilden also questioned whether passengers need them, given Virgin America flies few long red-eyes. On most flights, he said, a recliner offers enough space and comfort.
Chief Commericial Officer Andrew Harrison noted that lie-flat business seats can command higher fares— sometimes more than $2,000, roundtrip — but added that there is not limitless demand for the seats. During off-periods for business travel, airlines can struggle to sell them, a concern considering how much aircraft real estate the seats require.
“When you have lie-flat you have to sell them,” he said. “You have to sell every single one of them, 365 days a year. We are not of the size that we think we can sell every seat 365 days a year. We are not big enough.”
Harrison also said Alaska’s first class seats could be easier to sell — and make money on — if the economy lags.
“When there is a recession or downturn we believe we are going to be in a much better place than those with a much heavier premium product,” he said.
Virgin America brand
Earlier this week, Richard Branson, Virgin Group’s founder, told reporters in Seattle that Alaska would pay royalty fees to his company through 2040, even though it doesn’t plan to use the Virgin America name past 2019. Branson said Alaska would pay for the name, “whether they use it or not,” according to CNN’s Jon Ostrower.
But on Wednesday, Alaska General Counsel Kyle Levine said the company disputes Branson’s comments. Levine acknowledged the contract runs through 2040, but said, “what he didn’t mention is that there are a lot of ways out of the contract.”
Levine said Alaska is confident it will not be paying for the Virgin America name for the next two and a half decades. “In our opinion we don’t have to pay for a brand we don’t intend to use,” he said. “But we believe Sir Richard has a different view of the contract.”
Fleet decision expected this year
Before acquiring Virgin America, Alaska marketed itself as “proudly” having an all-Boeing fleet. That changed when the deal closed last year, and now the combined entity flies Boeing 737s, as well as Airbus A319s and A320s. It will soon add at least 10 A321s.
The company has said it expects to retain Virgin America’s fleet for the foreseeable future. Still, all but 10 of the Airbuses are leased, and most leases expire between between 2019 and 2024, so it’s possible the airline may revert to an all-Boeing in the next decade.
On Wednesday, Alaska said it expects to decide later this year whether it will continue to split its fleet between Airbus and Boeing for the long term. “It’ll affect how we order airplanes going forward,” CFO Brandon Pedersen said.
Pedersen said having both Boeing and Airbus planes costs the airline $20 to $25 million annually because of the inefficiencies inherent in having aircraft from two manufacturers. But playing Boeing and Airbus off against each other can also lead to cost savings, he said.
“The decision we need to make is, ‘Does the added leverage that you get from having two different manufacturers outweigh that cost?”