Alaska Air Group Expansion Lays Foundation For Recovery Airline’s Recipe For Better Profits: More Flights, Higher Fares, Lower Costs

The road to recovery for Alaska Air Group Inc. goes through Vancouver, British Columbia.

Chairman John F. Kelly identified better access to the Vancouver market as one of Alaska’s top goals in comments before and during the company’s annual shareholders meeting last week.

Vancouver can support as many Alaska Airlines flights as Portland, the West Coast regional carrier’s No. 2 base behind Seattle with 45 flights daily, Kelly said.

Having expanded its presence in U.S. cities on the West Coast, Canada is a logical next target for Alaska. But the airline may have to wait a couple years.

When an Open Skies treaty between the United States and Canada opened up some routes this year, Alaska Airlines’ bid was spurned.

But Kelly said the airline should land something in 1996, when six airlines are scheduled to get permission to fly two routes of their choosing.

The rejected Alaska Airline bids would have linked Vancouver with Oakland, Calif., continuing to Orange County, Calif., and to San Diego, continuing to Cabo San Lucas, Mexico.

“We were the only carrier in the United States that (applied and) didn’t get a route out of that Open Skies agreement,” Kelly groused to reporters before the meeting.

In 1997, when all restrictions are off, “watch out,” he said. “The biggest opportunities we have are in the Vancouver market.”

Combined with feeder and commuter service on Horizon Airlines, the company’s other subsidiary, Alaska Air has operations at 77 airports in six states, Canada, Mexico and Russia.

Horizon already provides extensive Canadian service, with 11 flights daily between Vancouver and Seattle and four daily between Vancouver and Portland as well as flights to Victoria, Calgary and other Canadian cities.

Horizon’s commuter routes have been one of the growth segments for Alaska Air Group.

And Spokane has been one of Horizon’s best markets. As traffic at Spokane International Airport has mushroomed in the past three years, Horizon has been in the middle of that growth.

Airport officials say Horizon currently operates 71 flights a day through Spokane International. The company will expand those operations slightly during the summer travel season. It represents about 40 percent of commercial operations at the airport.

So far, Alaska’s expansion push has produced mixed financial results.

In 1994, the company’s profits were $22.5 million, or $1.68 a share, compared with a loss of $30.9 million, or $2.51 a share, in 1993.

Even so, the company reported a larger than expected loss of $5.1 million, or 38 cents a share, in the fourth quarter and even bigger losses in the three months ending March 31 - $16.3 million, or $1.22 a share, compared with $6.3 million, or 47 cents a share, a year earlier.

The red ink flowed mainly from adding non-stop flights on routes that once required a stop or plane change, such as Seattle-San Diego, and that strategy is beginning to pay off, Kelly said.

Despite “starting out the first quarter building a big hole for ourselves,” Alaska Air is poised to capitalize on frequent service on bread-and-butter routes, a new advertising campaign, higher air fares, lower costs, labor stability and the departure of MarkAir Inc. from the lucrative Alaska state market, he said.

“We see ourselves as being in the best competitive position that we have ever been,” Kelly told reporters.

In two years, Alaska Airlines has gone from 21 flights a day to 55 daily between the San Francisco Bay area and Seattle and Portland and from 21 to 49 a day between the Pacific Northwest cities and Southern California.

Frequency and customer service, including advance seat reservations and meals at mealtime, are stressed in newly released advertisements with the theme “Alaska’s World” and heavy on 1950s clothing, automobiles, makeup and speech.

The message, Kelly said, is that “in Alaska’s world, you get more for the same price.”

Fares on the region’s principal north-south carriers - Southwest, United’s new shuttle service and Alaska Airlines - have risen by $2.50 to $5 a ticket in the contiguous states and $10 to $20 to Alaska.

“There’s a recognition, I think, by all the carriers that the margins are too thin,” Kelly told reporters.

MarkAir’s departure from Alaska is another plus for Alaska Airlines. MarkAir carried 272,000 passengers in that market last year.

“We’re going to have an opportunity to get those 272,000 passengers like no one else,” Kelly said.