Delta, Alaska Competition Has an Interesting Twist for Boeing

While the merger of United Airlines and Continental left a gaping hole at the ticket counter at SeaTac International Airport, frequent fliers are noticing an expansion of Delta and Alaska check-in stations these days.

That expansion could mean a great boost to Boeing and Washington’s economy in the future – if state lawmakers hold the line on taxes and regulatory costs.

According to airport statistics, those two airlines now account for half the passengers flying through Seattle, and they are expanding. Alaska and Delta have an interesting relationship.

Both are using Seattle as hubs and have interconnected rewards program, but Alaska and Delta are fighting for market share at SeaTac. Delta has more than tripled the number of its domestic flights while adding international flights to Hong Kong, Seoul, Shanghai, Beijing, Tokyo, London, and Paris in addition to its Amsterdam flights.

Meanwhile, Alaska has added direct flights to Hawaii and several major U.S. cities where it competes head-to-head with Delta.

For Boeing, it is an interesting situation. Prior to Delta and Northwest airlines merging in 2008, Delta flew Boeing aircraft exclusively. With the acquisition, Delta added nearly 200 Airbus to its fleet of 780 plane fleet.

Alaska took delivery of nine Boeing 737-900ERs (extended range) aircraft in 2013 and Boeing has firm commitments from Alaska for another 64 aircraft and options for 58 more in 2014 and beyond. Its 140 planes average less than 10 years old.

On the other hand, Delta, whose 780 aircraft are twice as old as Alaska’s, has begun replacing its fleet.

In 2011, it ordered 100 Boeing 737-900s but recently, Delta began buying Airbus 321s, the Boeing counterpart that will be assembled in Mobile, AL.

So what’s the point?

The good news is the outlook for Boeing’s 737 is rosy. People like flying Boeing airplanes and one 737 takes off or lands every two seconds. The 737 accounts for 31 percent of all commercial flights.

To meet demand, Boeing announced it would increase production in its 737 program to 52 airplanes per month in 2018. Boeing currently produces 42 on the Renton assembly line.

The challenging news is the price tag of aircraft matters for airlines where profits often rise or sink with the cost of fuel.

For example, Delta is trying to decide whether to buy Boeing 777s or Airbus 330s.

The list price for a Boeing 777-300ER is $320.2 million and the comparable Airbus A330-300 costs $245.6 million. At those prices, if Delta decided to buy 50 of the 777-300ERs, the tab would be just over $16 billion.

Any scheduling disruptions will have a large impact because the competition is keen. Strikes and delays in 787 production were costly to Boeing, but the 787’s unique technology edge saved the program. There was nothing like it on the market.

However, that is not the case with other more established production lines, particularly the 737. Whether we like it or not, airlines, like passengers, have choices. Competitors to Seattle-based Boeing and Alaska Airlines continue to nip at their heels.

Operating costs and customer service matter more than ever. Fortunately, Boeing and Alaska have been prudent in both categories, but competitors are as well.

The future stakes are high for Washington.

Boeing expects its customers to buy 36,770 new airplanes over the next two decades – a market worth $5.2 trillion, which means lots of work for the local companies that supply parts.

With that much at stake, other states will come calling on Alaska and Boeing to entice them to move. Washington’s elected officials must be vigilant to prevent that.