Alaska Airlines Becomes One of the Last Carriers to Outsource Some Flights

Last Updated Jan 31, 2011 8:34 PM EST

For years, Alaska Airlines' (ALK) regional strategy has been different from most other airlines. It has always relied upon its wholly-owned and separately-branded subsidiary Horizon Air to do its regional work, but that's now changing. The plan to remake Horizon is apparently leaving a hole that's too big to fill. So Alaska is going to outsource some of its flying to outside pilots like everyone else in this industry.

Alaska's fleet strategy for large airplanes has been set in place for some time now. The airline only operates 737 aircraft ranging in capacity from 124 to 172 passengers. (This excludes the small fleet of cargo/passenger mix airplanes that flies within Alaska.) With that wide range of seating capacities, the airline can move airplanes around to match demand by market as it sees fit. But some markets don't support 124 seat airplanes and that's where it gets tougher for Alaska.

Beyond that Horizon
For flying on airplanes with less than 124 seats, Alaska has historically turned to Horizon Air, the regional airline it bought 25 years ago. Horizon used to do a lot of flying on small 19 seaters, but that flying went away years ago as the industry moved toward larger regional aircraft. Until recently, it flew 37 seat props, 70 seat jets, and 76 seat props. In the last couple of years, Horizon moved to eliminate everything but the 76 seat props, and that has created a hole in the Alaska fleet plan.

The impending elimination of the 70 seat jets meant that for flights over a couple hours, Alaska had no way to adequately serve a market with fewer than 124 seats. There are several routes that Alaska couldn't realistically serve without a smaller jet, but its quest to make Horizon a single-airplane airline created a problem.

Speculation centered around routes like Long Beach to Seattle. How would Alaska continue to serve that market and others? The speculation came to an end this week when Alaska announced that the last 5 of those jets would be sold to SkyWest (SKYW), another regional operator. SkyWest in turn would fly those 5 airplanes under the Alaska brand. Ah, now I see.

SkyWest, champion of outsourcers
It was decided that Horizon would go with one fleet type in order to keep costs as low as possible and so it chose the fuel efficient 76 seat prop. Alaska, however, realized it put itself into a pickle and had no way out other than to look elsewhere to do that flying. So now Horizon can specialize in what it does best, flying large props, while SkyWest can specialize in flying the jets. Both airlines can keep costs down.

For SkyWest, it's yet another growth opportunity in an industry with few left. SkyWest is good at making non-traditional arrangements pay off. But for Horizon, it shows how the airline is really stuck in a corner. There aren't going to be many new opportunities for Horizon to fly for Alaska, so will it look elsewhere? There's a lot of interest in large turboprop flying in the US and not many airlines that actually do it. That could be Horizon's growth strategy. Because for Alaska, it seems that growth may have to rely on outsourcing.

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Photo via Flickr user superde1uxe/CC 2.0