Sunday, 1 May 2011

Alaska Airlines aims to keep flying higher


When Alaska Airlines Group CEO William Ayer told an audience of Portland business leaders in February that he aims to establish a direct flight between Portland and Washington, D.C., he got an enthusiastic ovation.

It was a telling moment, not only for those Portlanders who would prefer not to stop over in Chicago or other midpoints, but for the ambitions of the Seattle-based airline to continue to expand its presence in the domestic airline market.

Alaska Airlines, which effectively controls the operations of sister airline Horizon Air, is the ninth-largest U.S. airline in terms of passengers, almost the size of JetBlue. Alaska is not yet in the same league as the majors such as Delta or United Continental, but it has come a long way for the Pacific time zone-only airline it was 11 years ago.

The Alaska-Horizon combination is easily the largest carrier in and out of Portland International Airport, with a combined share of 37.3 percent of all passenger traffic last year. That far surpasses Southwest Airlines' 19.6 percent share.

As recently as 1999, the most distant airport to host an Alaska plane was Mazatlan, Mexico. Flights east to Chicago began in 2000, and over the years Alaska has steadily expanded its footprint to include destinations in Florida, the Northeast (including Newark, N.J., and Boston), Hawaii and Texas, with a handful of these flights originating in Portland. The balance depart from Seattle.

Alaska's fleet consists of generations of the popular Boeing 737 twin-engine jet, including two dozen of the venerable 400 series that seat around 140 passengers, and nearly 100 of the 700, 800 and 900 series 737s that can accommodate from 125 to 170 passengers.
Alaska made a big splash at the end of January, announcing a $1.3 billion purchase of 13 advanced Boeing 737-900ER planes. The 900ER offers up to 25 more seats than the prior versions of the jet, or can provide an extra 500 miles range, a tantalizing possibility given Alaska's recent route expansions.

In a conference call with analysts following release of Alaska's 2010 fourth-quarter results and in a subsequent interview, Ayer insisted that the sole intent behind the 900ER purchase was to add seats on existing routes. He specifically denied any southern expansion plans beyond Alaska's present Mexican destinations.

Along with its own expanded network and fleet, Alaska has tightened its alliance with Delta Airlines. In 2010, members of Alaska's frequent flier Mileage Plan program with elite MVP status were granted preferential seat selection privileges -- allowing them to reserve exit row seats and seats toward the front of Delta airplanes' economy cabin at the time of booking -- along with Delta's own elite frequent fliers. Alaska MVPs are also eligible for complimentary upgrades to first class, but only after all Delta elites are accommodated, a rarity according to chatter on the frequent flier forum.

Alaska also has a code-share relationship with American Airlines -- meaning American flights can be booked through Alaska and vice versa -- though reciprocal frequent flier benefits are not yet part of the equation. Alaska also code-shares and shares frequent flier award seat availability with several foreign carriers, including Air France, British Airways, Cathay Pacific, Korean Air, LAN and Qantas, but is not a member of any of the three major international airline alliances: SkyTeam, Oneworld or Star Alliance.

Northwest roots

Though it has expanded aggressively, Alaska still has an unrivaled presence in its namesake state, while Horizon Air is the primary workhorse on routes covering less populous destinations in and around Oregon, Washington, California, Idaho, Montana and Nevada.

Two major developments are apt to affect Horizon in the coming years. At the beginning of the year, Alaska ended the independence Horizon once enjoyed in terms of route selection and marketing the Horizon brand. Alaska also announced in January that the livery (or paint job) on all Horizon aircraft would gradually change to Alaska colors, with the changeover to begin in February.

Ayer and Horizon President Glenn Johnson, who has moved back and forth between Alaska and Horizon since first joining Alaska as an executive in 1982, emphasized that the touches that have endeared local fliers to Horizon -- in particular free Northwest microbrews and wine service -- will remain.

The other big change at Horizon is the move to a fleet exclusively made up of the Bombardier Q400 turboprop and the phasing-out of the Bombardier CRJ-700 jet. The reason, according to Ayer and Johnson: efficiency.

The Q400 is "the most efficient regional airplane in the air," Ayer said. The only problem is that it cannot fly certain longer routes that the CRJ-700 has been covering. As a result, Alaska plans to lease the last few of these planes to another airline, SkyWest, and contract with SkyWest to fly these limited routes that are primarily between Portland and Los Angeles-area regional airports.

The moves affecting Horizon are being made to improve its financial results, which have lagged behind the recent impressive performance of Alaska Airline Group as a whole.

williamayer.JPGBrent Wojahn / The OregonianWilliam Ayer, Alaska CEO

In January, Ayer summarized Alaska's 2010 year-end results as "the best fourth-quarter and the best full-year results in our history," translating to net earnings of $64.8 million and $251.1 million, respectively. He also noted Alaska's receipt of a third consecutive JD Power award for customer satisfaction, while enjoying a record load factor and top marks for on-time arrivals. Alaska ended 2010 with $1.21 billion in cash.

The early 2011 results appear to be at least as good as 2010, even with fuel prices heading higher. In late April, Alaska reported an adjusted first-quarter profit of nearly $29.5 million (or 80 cents a share), more than double the figure reported the prior first quarter. By contrast, Jet Blue barely eked out any first-quarter profit and industry behemoth United Continental lost $213 million.

Despite its impressive financial performance, Alaska will continue to push new and nascent initiatives. Wi-Fi has been installed on all Alaska planes except the 737-400s, and they are getting it, too. "Unbundled services," meaning checked bag fees and other sources of "ancillary revenue," are "here to stay," Ayer said.

He also looks ahead to "greener skies" extending beyond more fuel-efficient aircraft. A commercial-rated pilot himself, Ayer is looking at the "way we fly," which might include more precise satellite navigation, a "continuous descent" landing model and the use of biofuels.
Several airline industry analysts have jumped on the Alaska bandwagon. With the issuance of Alaska's first-quarter numbers, Charles Schwab gave it a top grade of "A," expecting Alaska to "strongly outperform" the market and recommending a "buy." Standard & Poor's likewise rates Alaska a "buy," though it noted risks directly and indirectly associated with rising oil prices. Other analyst rankings range from "neutral" or "hold" to "outperform."

--By MICHAEL ZUSMAN, special to The Oregonian

From Alaska Airlines aims to keep flying higher |

No comments: