Alaska Air Group—parent of Alaska Airlines and Horizon Air—plans to grow capacity 2% next year and accelerate its expansion rate soon after, but will carefully monitor the competitive environment before making firm commitments, the company’s top executive said.

“Next year is 2%, [and] current thinking about 2020 is 4%,” Alaska president and CEO Brad Tilden told analysts at the company’s Nov. 27 Investor Day. “We just need to a get few good quarters under our belt and we will see what late 2020, 2021 look like.” 

The Seattle-based carrier is projecting a 5.3% change in available seat miles (ASMs) in 2018, including a 1.1% increase in the fourth quarter (4Q). Its long-term target is a 4%-6% annual increase.

Alaska also reported encouraging RASM trends, raising its 4Q guidance to a 3%-5% increase, up 1.5 points from earlier guidance. The carrier has not issued full-year 2019 RASM guidance, but its plans suggest a bump of at least 3%-4%, with potential upside. 

“We don’t know what’s going on with the competitive environment. We don’t know how the fare environment will sustain. We’re already seeing interest rates rise. We are seeing housing sales slow down, especially on the Pacific Northwest,” CCO Andrew Harrison said. “I think if everything went the right way and all tells were headed north, you could maybe see [mid-single-digit] and higher. We don’t give guidance, but that’s sort of not our mindset right now.”

Alaska’s RASM through the first nine months of the year was down 2.3%.

The 4Q momentum combined with both new and Virgin America merger-related initiatives has Wall Street encouraged going forward.

“All-in, we have growing confidence in Alaska’s RASM performance into next year, which should deliver favorable results over peers given lower capacity growth, the easing environment, and the host of initiatives ahead,” Morgan Stanley analysts said.

Alaska executives are projecting $130 million in incremental “revenue synergies” in 2019 stemming from the merger. Higher bag fees and more fare segmentation will also boost its bottom line.

On the cost side, Alaska is projecting unit costs excluding fuel, or CASM-ex, to be up 2%-2.5% in 2019. That would be down as much as 1.2 points from its projected full-year 2018 CASM-ex increase of 3.2%. More than 1% of the 2019 increase stems from a higher projected mix of regional flying versus mainline flying, as regional CASM is roughly double mainline CASM, the carrier noted. Alaska has added 10 Embraer E175s to its fleet this year, compared with only two mainline aircraft. The airline also removed two Bombardier Q400s and plans to end the year with 328 aircraft, including 95 in its regional fleet.

Alaska’s 2019 fleet plans call for adding eight mainline aircraft as well as four E175s, and removing seven Q400s. That would leave it with 333 aircraft, including 92 in its regional fleet.

Sean Broderick,