Alaska Air bets on premium travel to boost profit as fuel costs bite

By Rajesh Kumar Singh

CHICAGO, Sept 29 (Reuters) - Alaska Air Group ALK.N is making its biggest push yet into premium travel, adding lie-flat seats, premium-economy cabins and new airport lounges to earn more from travelers willing to pay for comfort while high jet fuel prices squeeze profits.

In an interview ahead of its investor day on Tuesday, President and Chief Financial Officer Shane Tackett told Reuters the investments could eventually add $3 to $4 to Alaska's earnings per share and lift its margins by 2 to 3 percentage points within a couple of years.

US airlines have been racing to move upmarket. The industry's domestic premium seat capacity in June was 27% above 2019 levels, nearly triple the growth rate in economy seats, according to Visual Approach Analytics.

That raises the risk of creating a glut of premium supply that could limit premium fares.

Tackett said Alaska's estimate assumes "a pretty steady rate of demand" for premium seats and the prices it expects to charge.

Tackett also said Alaska will seek to enter joint ventures with other airlines across the Atlantic and Pacific. Such partnerships allow carriers to coordinate schedules and fares and share revenue on international routes.

Alaska said on Tuesday it has submitted filings with the US Transportation Department for a Pacific joint venture. Reuters reported in April that American Airlines AAL.O and Alaska were in preliminary talks to deepen their existing partnership by bringing Alaska into American's transatlantic joint venture with British Airways, Iberia and Finnair and its Pacific partnership with Japan Airlines.

PREMIUM BET

The premium push is part of Alaska's transformation after its 2024 acquisition of Hawaiian Airlines, which added widebody aircraft and a larger Pacific network for international expansion.

Alaska expects the investments to push premium revenue to more than 40% of total revenue by 2030, from a projected 36% this year.

Beginning in 2028, Alaska plans 12 lie-flat Aurora Suites on each of at least 25 Boeing BA.N 737 MAX 10s used on select transcontinental routes. It will add Premium Reserve, a premium-economy cabin, to Boeing 787s, Hawaiian's Airbus AIR.PA A330s and some MAX 10s.

Alaska also plans new lounges in Seattle, Honolulu and San Diego.

FUEL CLOUDS OUTLOOK

Tackett did not reaffirm the 2027 timetable for Alaska's $10-a-share earnings target. Since the plan was set in late 2024, tariff-driven demand weakness and a US government shutdown forced flight cuts in 2025, while the Iran war sent jet fuel prices sharply higher this year.

"Whether that happens in 2027, or a bit later, it will be highly dependent" on fuel prices and the broader economy, Tackett said.

In January, Alaska forecast a profit per share in the range of $3.50 to $6.50, but it pulled the outlook in April after the fuel price surge.

Tackett said Alaska's business is configured to perform strongly at prices of about $3.25 a gallon or lower. The carrier estimates earnings of $5 to $6 a share in 2027 with fuel at $3.25 and more than $10 at $2.50.

A broad US benchmark stood at $4.40 a gallon on Monday, Airlines for America data showed.

Alaska is also targeting up to $4 billion in annual cash payments from banks and other partners for its loyalty program by 2030 and plans an Atmos debit card in early 2027.

The broader transformation includes plans to serve 15 long-haul international destinations from Seattle by 2030, up from an earlier goal of 12.

Tackett said Alaska needs to offer international flights and premium products from Seattle to retain and grow customer loyalty.

"This is a must-do for us," he said.