Wall Street is watching Chairman and CEO Doug Parker’s play for with great interest.
Fending off Parker, AMR Corp. CEO Thomas Horton says the carrier is looking at all options, including a tie-up with code-share partner—to which Alaska politely says thanks, but no thanks. “We have said for many years that our preference is to remain a strong, vibrant, independent company,” says CFO Brandon Pedersen. And in contrast to its usual stance on mergers, Wall Street largely agrees.
Indeed, Alaska’s financial results do not even look like those of an airline, with a return on invested capital of more than 10% and a projected 2012 operating margin of 12.5%. By comparison,, which is having a relatively good year, has a projected 2012 operating margin of 6.8%. While other mainline carriers are expanding capacity cautiously, Alaska expects to add more than 6% to its available seat miles this year. That translates into six new transcontinental markets from its U.S. Pacific Northwest stronghold this year. “We like that math,” Pedersen says.
So what is in Alaska’s secret sauce that allows it to make such a success of independence? “Alaska is a unique pearl among airlines,” says Maxim Group analyst Ray Neidl. Alaska’s intense focus on customer service has been rewarded with a brand loyalty unusual in the airline industry both at its base in Seattle and its Portland, Ore., hub. The customer devotion is replicated in California at its Los Angeles hub. “We like to grow out of places where we have strong loyalty and point-of-sale strength,” says Pedersen.
The second element is the company’s focus on culture. Employee relations, usually a sore point for airlines, are not as contentious as they are for competitors. The company spends a lot of time making sure its employees understand the vision, and they live it, notes Pedersen. “Alaska tends to its passengers and its workforce like a prized garden,” adds Neidl.
The third ingredient in Alaska’s recipe for success is marketing. Like, Alaska sells access to places many people consider paradise. But even there it commands a unique niche. The airline offers leisure travelers access to Alaska in the summer and Mexico and Hawaii in the winter. “These markets seasonally offset each other nicely,” veteran industry consultant Craig Jenks notes.
And therein lies a potential weakness. Although Alaska has a large share of business passengers in Seattle and Portland, its flights from California draw primarily price-sensitive leisure passengers, according to Jenks.
Alaska is not well known beyond the West Coast. Such regional brand loyalty works to its advantage, enabling it to tap into a ready-made customer base for eastward expansion. Transportation consultant George Hamlin says eventually this could limit growth, but believes that “given the measured pace of Alaska’s expansion, management is cognizant of this and is paying attention.”