MIAMI —Seattle-based Alaska Airlines has applied with the DOT for the right to serve Seattle – Cancun daily each winter using Boeing 737-800 equipment. In an application for exemption filed with the DOT yesterday, Alaska stated:
Alaska Airlines, Inc. (“Alaska”) hereby requests an exemption pursuant to 49 U.S.C. 40109 authorizing it to provide seasonal scheduled air transportation of persons, property and mail between Seattle, Washington and Cancun, Mexico commencing November 6, 2014. Alaska proposes to operate daily nonstop service over this route using B737-800 model aircraft.
Alaska had previously operated Seattle – Cancun in the mid-2000s, but it dropped the route citing poor yields and premium demand.
“The decision to exit the Cancun market is part of an ongoing effort by the airline to redeploy capacity from under-performing markets to those with greater revenue potential. Although passenger loads on our Cancun flights have been good, we have been unable to generate enough revenue to make a profit due to low fares and comparative longer stage lengths.” said Mike McQueen, director of schedule planning.
Generally speaking, West Coast cities have lower demand for flights to Cancun (and the Caribbean) than those on the East Coast and in the Midwest. Tourists from this region have easy access to Cabo San Lucas or Puerto Vallarta, and so those that do travel to Cancun can select myriad connections over other US hubs which drives down average fares.
Still, there is a market in terms of volume. According to international O&D data sourced from MIDT in 2011, Seattle had origin and destination demand of 28,918 passengers per year in each direction, or 79.3 passengers per day each way (PDEW). In 2013, that figure was 103. Meanwhile nearby Portland, another Alaska hub, had annual demand of 16,814 passengers in 2011, or 48.1 PDEW.
In 2013, that PDEW figure was about 60. As a result, there is certainly a core base of demand on which Alaska can draw from (along with massive connectivity from secondary cities in the Pacific Northwest through its hub at Seattle). The fare environment is also superior to that of 2010, with average one way fares between Seattle and Cancun up more than 40% from 2010 to 2013. Yields at 9.83 cents are on the lower end but certainly not untenable.
However, Alaska Airlines’ major challenge on the route is going to be sustaining daily service. This is due to the variance in day of week demand for travel to leisure destinations. At normal US hubs, travel demand is relatively constant throughout the week, though it is somewhat lower on weekends. But for leisure cities, the strongest travel demand days are Fridays and Saturdays (which makes sense given that that’s when people have the time to travel for leisure).
So at airports like Orlando and Cancun, weekends can sometimes have 50-100% higher O&D demand than weekdays. In the case of Seattle – Cancun, that 103 PDEW figure is actually likely 150-175 PDEW on weekends, and 50-60 on weekdays.
This means that Alaska is going to have trouble filling the plane with O&D passengers on Tuesdays and Wednesdays, and will have to back-fill with low-yielding connecting traffic. Perhaps it would have been better to operate a weekend only service (perhaps 3x weekly on Friday/Saturday/Sunday) to start and see if the market can grow to support daily service.
While serving the demand on the route is certainly a core element of Alaska’s strategy, it also serves in part as a pre-emptive strike against the addition of Seattle-Cancun by Delta. Routes like Seattle-Cancun, which are long and low yielding without much premium demand at best will break even or eke out a small profit on a fully-allocated route-specific basis. But the real contribution of these routes is in maintaining frequent flyer loyalty.
The business traveler who flies Seattle – Los Angeles weekly is also the leisure traveler who takes his or her family to Cancun. And when you offer nonstop service to Cancun which he or she can redeem miles for or fly at a reasonable price with convenience, it drives significant customer loyalty in the single most important customer demographic for network airlines.
Alaska is currently in a fight with Delta for control of the Seattle market. Delta has grown rapidly in 2014, and by summer 2017 plans to have nearly 150 flights per day at its Seattle hub. Delta also is a major player in Cancun thanks to its strategy of operating Saturday only utilization flights to Cancun (see map below) with aircraft sitting on the ground in large Delta markets
. It was a given that Delta would add Seattle-Cancun to make itself more attractive to Seattle fliers at some point, and they still can given that up to three US carriers can serve leisure routes between the US and Mexico. But even if they do, it will not be as large of a competitive advantage now that Alaska has it too.