Network, Product, Loyalty And Cargo To Drive Profit Growth For Alaska

Alaska Air Group expects a commercial strategy and synergies from its merger with Hawaiian Airlines to drive $1 billion of incremental profit by 2027.

Operating over 1,400 daily flights to more than 140 cities, the combined company expects contributions from network, product, loyalty and cargo to drive the vast majority of expected profit growth over the next three years, boasting a broader reach than ever before—and seeing compelling opportunity in its newfound scale.  

“It doesn’t happen often, but we believe we got the timing right on this one,” CEO Ben Minicucci said during the carrier’s Dec. 10 Investor Day. “What started as a combination to unlock $235 million of synergies has now more than doubled to at least $500 million of synergies, and a platform for accelerating our vision for the future.”

Under a three-year plan dubbed “Alaska Accelerate,” the company will first leverage its expanded and upgauged fleet to build an international gateway in Seattle, with daily service to Tokyo Narita beginning in May 2025, and flights to Seoul Incheon beginning in October, on Airbus A330 aircraft. It plans to expand to at least 12 international widebody destinations by 2030, utilizing a dozen Boeing 787-9s gained through the acquisition; Hawaiian has so far taken delivery of two, with 10 remaining on order.

Noting Seattle’s proximity to Asia, the carrier described itself as better able to serve connecting guests from the middle part of the country more efficiently than other large West Coast gateways, seeing potential to become the top airline for cities without nonstop Asia service. Additionally, Alaska says it can now serve 90% of Hawaii demand, compared to 70% pre-merger. All flights to, from, and within Hawaii will operate under the Hawaiian Airlines brand.

“Acquiring Hawaiian was an opportunity we could not pass up,” said Minicucci. “On timing, what could have taken us decades to build is at our fingertips today, with a widebody fleet to launch international flying out of Seattle and a leading market share in a top 25 Honolulu hub, where we know scale drives outsized returns. Honolulu now becomes our second largest hub in our system, and our Hawaii franchise will generate over $4 billion of revenue for us.”

New passenger service to Japan and South Korea will also help unlock cargo potential in the Asia market. Alaska expects cargo to deliver $150 million of new annual profit, estimating that its expanded cargo organization will unlock margins that are 2-3 times the system average.

Under the newly unveiled three-year plan, premium offerings will expand both on and off the aircraft including through a new loyalty platform, new lounges, and a premium credit card set to launch in summer 2025. Premium revenue growth has far outpaced Alaska’s premium seat growth since 2019, and it is growing premium seat mix through narrowbody retrofits, with more to come.

“In this current state of the industry and for the foreseeable future, premium is the profit differentiator, where we will unlock further value,” Chief Commercial Officer Andrew Harrison said. “We are well on our way to achieving a 29% premium seat mix by 2027, this is near the average network carrier mix. However, we know there is more opportunity on our new widebody fleet ... so we expect that beyond 2027 you will see our premium mix continue to grow.”

During its investor day, the carrier also noted a technology modernization, one aiding integration efforts, especially as it relates to having dual brands across a single platform and improving its agility to introduce new products. A single operating certificate is expected by October 2025, with passenger services system integration slated for the second quarter of 2026.

“Two years ago, we started a careful and deliberate plan to migrate to cloud based systems and a modern architecture,” said Charu Jain, SVP-Merchandising & Innovation. “The last 15% of that effort will be complete next year.”

Alongside the release of its three-year plan, Alaska Air Group also revised its fourth quarter (Q4) guidance, now expecting adjusted earnings per share (EPS) of between $0.40-$0.50, improved from prior expectations of $0.20-$0.40, primarily due to stronger revenue performance and lower non-operating expense. December revenue is outperforming the company’s previous expectations on stronger-than-expected holiday demand, and for the full year 2024 it expects adjusted EPS of between $4.25-4.50. In 2025, it projects EPS of at least $5.75.

By 2027, the company is targeting EPS of at least $10 and pretax margins of 11-13%. Over the next three years it expects annual capacity growth of less than 4%.

“[Alaska’s] commercial strategy contributes $800 million of the $1 billion in incremental pretax profits by 2027,” observes Jefferies analyst Sheila Kahyaoglu, driven by $400 million from network, $100 million from product, $150 million from loyalty, and $150 million from cargo. “This compares to [Southwest’s] $4 billion in EBIT initiatives and [at least] 10% margins to 2027,” she notes. Southwest unveiled its own three-year plan in September, one designed to improve profitability and evolve its brand.

Alaska Air Group closed its acquisition of Hawaiian on Sept. 18, becoming the first merger of major U.S. carriers since 2016. It first agreed to acquire Hawaiian in December 2023, for $1.9 billion.

“Now feels different,” Minicucci said during the Investor Day. “We’re not repairing, we’re not fixing, we’re not restructuring, we’re not recovering. We’re building our future that’s a step change from our past.”