To understand the importance of Boeing’sadvances in 737 fuel efficiency to the airline industry, look no further than Alaska Airlines.
The Seattle-based airline, now head-to-head in a market fight against much-larger rival Delta Air Lines, is basing much of its strategy on Boeing’s 737 planes, and on that aircraft’s substantial fuel burn improvements.
The airline’s ability to compete, especially against a growing threat from Delta, is increasingly a result of “much more fuel-efficient aircraft that are coming on-line,” said Alaska Air Group CEO Brad Tilden, during the third-quarter conference call Thursday.
Tilden was speaking about two generations of 737 evolution – the 737-900ERs and the 737 Max – that Alaska is bringing into its fleets, as it sheds the remaining aircraft from the first generation of the 737.
Alaska reflects the evolution of the 737 so vividly because that’s the only model the airline flies.
“We love the simplicity a single aircraft fleet type brings us,” Tilden said.
In its third-quarter results Alaska pointed to multiple signs of strength: A record $200 million in net income after adjustments, up 27 percent from the same quarter last year; passenger revenues up 7 percent, and pre-tax margins of 21.8 percent.
Boeing builds the 737 in Renton. The single-aisle twin-engine model, Boeing’s smallest, is so popular that Boeing plans to raise the production rate to 52 monthly from the current 42, to work off seven years of backlog.
Alaska Airlines has created a culture of honing all the possible efficiency from the 737 model, including installing new “Recaro” seats that give more leg room and room for more passengers, and new “split scimitar” winglets that generate an additional 1.5 percent fuel efficiency.
But the biggest efficiency gains are from upgrades in the aircraft themselves.
Alaska’s current deliveries are new 737-900ERs, an “extended-range” range version of Boeing’s largest current 737 “Next Generation” model.
Alaska has so far received 10 of the new aircraft this year, and will get 36 more over the next three years.
“We’re very excited about the economies of these aircraft, and the improved experience they provide,” Tilden said.
The new aircraft will carry 25 percent more passengers than the first-generation 737-400s they are replacing, but burn essentially the same amount of fuel, yielding a 25 percent gain in per-seat fuel efficiency.
Only 27 of the first-generation models, the 737-400, are left in Alaska’s fleet, and they will be quickly phased out, said Brandon Pedersen, CFO for Alaska Air Group, during the conference call.
Fuel makes up about a third of Alaska’s operating costs, so aircraft efficiency is critical, executives said.
“The up-gauging of fleet with the 737-900ER has helped drive unit costs down, while growing total revenues,” said Andrew Harrison, Alaska Air Group’s vice president of planning.
“We ended up the quarter with 22 of these impressive airplanes,” he said. “They allowed us to generate up to 15 percent capacity on high load factor routes, with additional frequency.”
Next in line for deliveries is the 737 Max series, which includes another significant engine upgrade as well as other features to improve passenger experience and efficiency.
Alaska will gain another 14 percent fuel efficiencies from the Max model over the currentNext Generation series, according to Boeing projections.