Making The Transition To Low-Cost Carrier

Lemonade stands at airline boarding gates. People dressed like old-time gas station attendants offering to clean your glasses. The smell of freshly baked cookies wafting through an airplane cabin.

It’s all part of Alaska Airlines’ new low-cost, better-service image.

And it’s a reflection of Alaska Air Group’s new CEO, John Kelly.

With the help of a $10 million old-fashioned, high-energy ad campaign, Kelly is sending a message that despite two years of losses and tough cost-cutting measures, Alaska Airlines has turned the corner toward prosperity.

Although the company’s earnings have gotten off to a slow start this year, Kelly says Alaska Air Group, parent of Alaska Airlines and Horizon Air, is in a good position to end 1995 profitably.

The combination of lower operating costs and rising air fares last year helped Alaska Airlines achieve a profit of $23 million after suffering losses in 1992 and 1993.

This year started out rocky, with a $16 million loss during the first three months. The second quarter showed improvement, with a profit of $7 million, but that figure was 28 percent below the previous year.

For nearly two decades Alaska Airlines was able to maintain higher air fares while offering gourmet meals, free top-quality wines and complimentary newspapers. But the carrier’s 19-year streak of profits was shattered by an influx of no-frills, low-cost carriers, namely Southwest, United’s Shuttle and Reno Air.

Airline customers, once loyal to Alaska, were lured away by rock-bottom air fares.

“We had to re-invent ourselves,” Kelly says. “We weren’t able to offer the low prices because our cost structure was too high.”

Under the direction of former Alaska Chairman Ray Vecci, the carrier went on a three-year price-cutting spree that slashed nearly $100 million in expenses.

Much of the savings came through eliminating high-cost, older Boeing 727 aircraft, negotiating new employee contracts and canceling high-ticket future capital expenditures.

Today, the fancy meals have been replaced by lighter fare served only at mealtimes. Top-quality wines are still served, but they are no longer free.

Careful not to scrimp on service or fun, Alaska is experimenting with lower-cost food options, such as offering freshly baked cookies on certain West Coast routes, serving specialty coffee drinks and old-fashioned amenities.

As a result, Kelly says Alaska Airlines has kept its high-service reputation but driven down ticket prices.

-Seattle Post-Intelligencer