Alaska Airlines on Thursday revealed it will convert two Boeing 737-800 passenger jets into freighters to further tap the boom in air cargo shipping. The fleet expansion is part of a broader effort, including the introduction of more MAX passenger jets and software upgrades, to accelerate the airline’s successful cargo business.
Parent company Alaska Air Group (NYSE: ALK) announced the new dedicated freighters along with its decision to speed up fleet growth to 400 aircraft by mid-decade and the shift to an all-Boeing fleet for mainline operations.
Alaska already operates three dedicated cargo jets. The two new aircraft will nearly double freighter capacity because the 737-800s have more loading space than the existing -700 cargo jets, said Adam Drouhard, managing director for Alaska Air Cargo, in the announcement.
Alaska Airlines will send two 737-800s from its passenger fleet to a specialty airframe shop to remove the seats and galley, block out windows, add a wider cargo door, strengthen the flooring to support heavy containers, and make other modifications to accommodate cargo on the main deck. Converting a 737-800 costs between $4 million to $6 million, according to analysts and conversion centers. The company is soliciting proposals but has not selected a vendor yet, said Rick Bendix, director of cargo sales and marketing.
Alaska’s existing freighters also came from its passenger fleet. Air Canada is following a similar approach with its all-new freighter division by taking eight older Boeing 767s out of passenger service and transforming them into freighters rather than leasing all-cargo aircraft.
The new freighters are expected to reenter service in 2023. They will expand the airline’s ability to deliver vaccines, medicines, household goods and fresh food to communities in Alaska, some of which have limited road access, while also moving seafood and other commodities to cities across North America.
“Fleet expansion positions our growing cargo business to meet increased demand that we see from industry and consumers,” Drouhard said.
With a payload of almost 50,000 pounds, the 737-800s can carry 40% more weight per flight than the -700s. They also have a range of 2,800 miles.
Alaska Air Cargo annually transports more than 200 million pounds of cargo and mail. Alaska Air’s cargo revenue in 2021 increased 25%, year-over-year, to $216 million, on par with 2019 performance. In 2018, cargo revenue was $199 million. Cargo has been a sweet spot for airlines during the pandemic as travel business plummeted and supply chains snarled with more demand than they could handle, which pushed up freight rates. Alaska Airlines flew a handful of passenger aircraft as auxiliary freighters, sometimes with cargo in the seats.
About 60 narrowbody aircraft were reconfigured for cargo in 2021 and aviation analysts expect that number to jump to 110 units, including 80 737-800s.
Experts are raising caution flags about the proliferation of passenger-to-freighter conversions, especially smaller aircraft like the 737-800, because an economic slowdown could lead to oversupply and lower rates that will make it difficult for owners to recoup their investments in a reasonable period of time. Alaska appears insulated from some of those forces because it doesn’t have to acquire any aircraft and it serves a unique market in Alaska.
737 MAX helps cargo
Cargo will also get a boost as 31 new Boeing 737-9 MAX aircraft join the fleet this year. The MAX planes deliver even better fuel efficiency and additional long-range, nonstop route options, opening the door for more cargo business. Alaska Airlines added a dozen MAX jets last year. By the end of 2024, it plans to have 90 737-9 MAX aircraft in passenger service.
The new aircraft are about the same size as the 737-900 Extended Range aircraft they replace. But the more efficient engines can accommodate heavier cargo loads on long cross-country and Pacific routes to Hawaii, according to Alaska Air Cargo.
The MAX, for example, can carry more than 3,000 pounds of additional cargo than the -900ER between Boston and San Diego. In winter months, the MAX can accommodate more than 2,500 extra pounds of cargo between Seattle and New York’s John F. Kennedy International Airport. During the rest of the year, flights on the route must operate with weather-related weight restrictions, but the MAX can still take more than 1,000 pounds more cargo on average than older planes.
Between Seattle and Honolulu, the MAX can carry an average of 3,000 pounds more cargo. Even in months that experience significant headwinds, the new jets can carry at least 2,500 pounds more than the -900ER can.
“Many of the longer routes in our network can be impacted by headwinds, especially this time of the year, and the fuel efficiency of the new MAX will allow us to safely lift the weight restrictions we have in the older fleet,” Drouhard said in a recent company blog. “More of these new aircraft will end up on our transcon routes as they are deployed.”
The MAX also has 500 extra miles of range, making it possible to add long-range routes such as Seattle to Miami, which starts service on June 16.
Alaska Airlines officials also expect investment in a new cargo management system to pay dividends for customers and the bottom line.
The company recently said it signed IBS Software to upgrade the technology that routes and manages cargo through its network. The iCargo ecosystem, which will be rolled out in the first quarter of 2023, supports sales, terminal operations, air mail handling, revenue accounting, customer service and mobile applications. It will also enhance messaging capabilities, allow customers to easily manage their accounts through a new online portal and give Alaska an end-to-end view of its cargo activities across the network.
The goal is to provide more efficient digital channels, better tracking, greater efficiency in the warehouses and a strong back-end system.
Fleet formula
Alaska Air, which currently operates more than 300 aircraft, is accelerating transition to a single fleet type to reduce costs. The fleet strategy now calls for exclusive use of 737s for its mainline operations and Embraer E175 jets for regional routes by the end of 2023. Alaska Airlines still flies several Airbus A320s inherited from its 2016 acquisition of Virgin Atlantic, while sister airline Horizon Air has a mixed fleet that includes De Havilland Dash 8 turboprops. The MAX aircraft are 20% more fuel efficient and generate 20% less carbon emissions per seat than the A320s they will replace. They are also able to fly 600 miles farther than the older A320s.
A single fleet is more economical because it simplifies operations and pilot training and provides flexibility, scalability, better fuel efficiency and reduced maintenance costs, the company said. The carrier currently operates more than 300 aircraft.
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