Tuesday, December 13, 2016

Can Alaska Airlines Become a National Airline When It Grows Up?

Alaska Airlines will be the fifth-largest U.S. airline with 6% of capacity after merging with Virgin Atlantic. To become truly national, it may have to merge with JetBlue.



The Justice Department's approval last week of the merger with Virgin America gave Alaska Airlines more heft at the San Francisco and Los Angeles airports, more presence in the trans-continental market and a boost to the No. 5 spot among U.S. airlines, with a 6% market share.

It's a nice spot for a super-regional airline, but not so hot if Alaska -- which serves 34 states and Reagan National Airport -- has aspirations to be a national force.

What does Alaska want to be when it grows up? CEO Brad Tilden has made it clear that the carrier wanted to strengthen its claim to be the premier West Coast airline. In a Securities and Exchange Commission filing last week, the carrier assured it will expand, at least into a half dozen key routes which the Justice Department said it can no longer rely on codeshares with American Airlines to provide airplanes.

For international routes, Alaska relies on partners; in fact, it has partnerships with 13 international carriers, which combined serve 44% of all the long-haul international seats flown from the U.S. across the Atlanta and Pacific.

"Deploying our capacity in domestic and working with our international partners is a really successful strategy," Tilden said in a September interview. "There's no reason to change it."

Beyond that, some experts said the path to a broad national presence flows through New York, the headquarters of JetBlue, now the sixth-largest U.S. airline.

"Alaska working out a deal for JetBlue (market cap $7B) would be hard right now, but might be possible in a year or two," said aviation consultant Sandy Rederer.

"I don't see any other way for Alaska to become a national airline, but maybe I lack imagination," Rederer said. "The challenge of developing another hub would be huge and without that growth would be in the West. "

JetBlue is not a stranger to the West Coast. From Long Beach Airport, it serves 12 markets including eight on the West Coast.

Aviation consultant Bob Mann said Alaska and JetBlue are similar in their ability to leverage off coastal hubs in Seattle and New York to create partnerships with vast arrays of international carriers, and in their focus on customer service.

Nevertheless, he said, "I wonder whether there is a good fit, given the differing cultures and the fleet incompatibility," with an Airbus/Embraer fleet at JetBlue and an all-Boeing fleet at Alaska, unless Virgin America Airbus fleet is retained.

Also, Mann noted that since JetBlue lost out to Alaska in the battle to merger with Virgin America, it "has been acting like a spurned suitor, " growing in competitive markets.

In any case, Alaska has work to do before it could consider a merger.

Mann said the carrier "has to figure out a way to be a little more ubiquitous, probably through new routes." Expansion in the Southeast is likely, he said.

Alaska serves Atlanta and Washington Dulles airports and recently added flights from Seattle to Charleston, S.C. and Raleigh, N.C., but it lacks service to Charlotte, American's second-largest hub, and to Miami, American's third-largest hub (by passengers). In fact, Alaska serves only three Florida markets: Fort Lauderdale, Orlando and Tampa.

In its filing, Alaska referred to eight codeshare flights, currently flown by American, including five with the potential for "high recapture" of the revenue that flight produces, and three with "moderate recapture."

By flying the eight routes, Alaska believes it can recapture $40 million to $45 million of the $60 million in revenue lost due to diminished codesharing. It didn't identify the routes. But the agreement with DOJ specifically requires that codeshares be halted on flights that serve American and Alaska hubs; this would include American flights from Charlotte and Miami to Seattle.

Additionally, Rederer noted that "Alaska is taking on a lot of debt in the Virgin deal and faces a lot of work to complete the integration." In the meantime, he said, JetBlue might get together with Hawaiian."

Another requirement for Alaska will be "to up their game in the front cabin in order to appeal to corporate travelers," Mann said. Alaska has first class, he said, "but it will have to appeal to a wider set of corporate customers. Maybe they can {apply} what they learn from Virgin America."

Read more here:    https://www.thestreet.com

No comments: