A a year and a half ago, Alaska Air (NYSE:ALK) was a minor customer for Boeingit’s (NYSE:BA) 737 MAX family, with only 32 firm orders. Since then, the West Coast-focused airline has significantly expanded its 737 MAX order book as it plans to modernize and simplify its fleet.
But until very recently, Alaska Airlines had only ordered one of the five Boeing 737 MAX models: the 737-9. However, last week the company announced that it would restructure its backlog to accommodate two more variants of the 737 MAX.
Defining big plans for the 737 MAX
Alaska Airlines has expanded its Boeing 737 MAX order book several times since late 2020. In November 2020, the airline reached an agreement to sell the unwanted 10 Airbus A320 he owned Air rental in exchange for leasing 13 new Boeing 737-9s. A month later, Alaska agreed to place a firm order for 23 more 737-9s and options for 15 more.
Those deals gave the No. 5 US airline 68 firm orders for the 737-9 by the end of 2020, including lease orders and options for a total of 52 more.
During 2021, Alaska Airlines exercised 25 of its options for deliveries in 2023 and 2024. This earned it firm orders for 93 737-9s to be delivered between 2021 and 2024. Alaska also replenished its options in August. It now has options for 52 more 737 MAX deliveries through 2026.
Alaska adjusts its orders
Over the past decade, the Boeing 737-900ER has accounted for the vast majority of Alaska Airlines’ main jet deliveries. As such, it was natural for the carrier to choose the 737-9 – the direct successor to the 737-900ER – for its first 737 MAX orders. However, the airline’s decision to exclusively ordering the 737-9 was more surprising: Alaska operates three different variants of the Boeing 737 NG.
On Wednesday, Alaska Airlines announced it would add the 737-8 and 737-10 to its fleet plan. While the airline configures its 737-9s with 178 seats, its 737-8s will be equipped with 162 seats and its 737-10s will contain 189. The first 737-8 is now expected to arrive in the second half of 2023, and 737 deliveries -10 will begin in early 2024.
Alaska Airlines projects a future fleet mix of approximately 15 737-8s, 70 737-9s and 60 737-10s (for a total of 145 737 MAX jets), assuming it exercises its 52 737 MAX options. The 737-10 will provide the airline with the lowest unit costs in its long-term fleet and will operate in high-demand markets.
The 737-9 will remain the airline’s primary aircraft for many major long-haul markets. Finally, Alaska Airlines will use the 737-8 on medium-demand routes and at airports whose runways are too short for the 737-9 or 737-10.
Big takeaway meals
Alaska’s 737-10s will contain 6% more seats than its 737-9s, but will only have slightly higher operating costs. Accordingly, this backlog update represents an important step towards reducing its unit costs below their pre-pandemic levels.
Additionally, the Alaska Airlines press release strongly implied that the airline planned to exercise its 52 options on the 737 MAX. This makes sense, as Alaska does not yet have firm orders beyond 2024. To grow its fleet at an annual rate of 4-5%, it would need about 25 deliveries over the 2025-2026 period. . The carrier also has nearly two dozen older 737s likely to retire in the mid-2020s and hopes to terminate its 10 Airbus A321neo leases early so it can return to an all-Boeing 737 core fleet. .
The recent spike in oil prices could give additional impetus to Alaska Airlines’ fleet renewal plans. The carrier’s new 737 MAX fleet – and in particular the 737-9s and 737-10s – will be significantly more fuel efficient than the older-generation planes they replace.
If Alaska exercises its 52 options as planned, the 737 MAX will make up about half of its mainline jets by the end of 2026. That would give it a leg up on its biggest rivals, which will need far more. time to upgrade their fleets to the latest and most fuel-efficient technology.
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Adam Levine-Weinberg is the owner of Alaska Air Group. The Motley Fool recommends Alaska Air Group. The Motley Fool has a disclosure policy.
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