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Alaska CEO says it’s looking to succeed as an independent entity, a goal that’s become more difficult with ongoing consolidation and perhaps even foolish given Hawaiian’s aggressive growth to the east.
Alaska Airlines has come a long way in five years.
Geography aside, the Seattle-based carrier has become fully entrenched in the islands since entering the market with Seattle-Honolulu service in October 2007.
Its 26 daily flights to Hawaii now represent 21 percent of its route schedule and make the state Alaska’s second-largest region behind California.
“The growth rate has been unlike anything the company’s ever seen in 80 years,” Alaska Airlines CEO Brad Tilden said Thursday in an interview at the Star-Advertiser office.
With a strategy that has two-thirds of its flights connecting mainland cities to the neighbor islands, Alaska has helped fill the void left in the spring of 2008 when both Aloha and ATA airlines ceased operations to Hawaii.
“What Alaska and others have been doing is coming in and replacing that service and kind of filling that void,” Tilden said. “The hole is filled at this point. So I think you’re going to see growth from Alaska, and you’ll likely see growth from others, but the opportunity we have today isn’t the same level it was four or five years ago.”
Still, Alaska sees opportunity in Hawaii from the mainland. On June 7 it will begin daily flights between San Diego and Lihue that will switch to four days a week after Aug. 24. Lihue will mark Alaska’s third Hawaii city out of San Diego in addition to Honolulu and Kahului.
“They have definitely assisted us in reconnecting with the West Coast, a void that was left by Aloha and ATA,” said David Uchiyama, vice president of brand management for the Hawaii Tourism Authority. “They’ve introduced new markets like Bellingham (Wash.) and some others that have helped complement those that had been established by Aloha, like Oakland and San Jose. They’ve brought a nice balance back, especially with their distribution to the neighbor islands, which has really helped us in spreading travelers through the Hawaiian Islands.”
Alaska, which has 9,600 employees, is using Boeing 737-800 aircraft that seat 157 passengers on its Hawaii routes. That’s considerably smaller than Hawaiian’s 294-seat Airbus A330-200s and 264-seat Boeing 767-300ERs, as well as Allegiant Air’s 223-seat Boeing 757-200s.
“It’s a little smaller than what some of the others are flying, so it gives us the opportunity to make it work and service the secondary cities on the West Coast — Bellingham, Seattle, Portland (Ore.), Sacramento (Calif.), San Jose (Calif.), Oakland (Calif.) and San Diego but not LAX or SFO,” Tilden said. “If you look at what Alaska Airlines has done over the last five years (in Hawaii), that’s a decent way to think about what you might see in the future.”
He said the competitive advantage of the aircraft size is suited to the markets that Alaska is serving and that Alaska has had the lowest fares off the West Coast to Hawaii for the last 15 quarters. Tilden said since Alaska is still relatively new to the Hawaii market, it will “fine-tune” its schedule to account for overcapacity and seasonality so its service can meet demand.
Tilden admitted the competition is heating up, especially in light of Hawaiian’s recent announcement that it will be acquiring up to 25 new Airbus A321neo long-range aircraft beginning in 2017 largely for nonstop flights between the neighbor islands and the 10 cities it currently serves in the U.S. West.
“This is a tough business, and Alaska put together a strategic plan 10 or 12 years ago that was based on a mindset what the environment was going to be like,” Tilden said. “And that mindset included a lot of tough competition. We said we’ve got to have a plan that helps us deal with low-cost carriers and also with the larger hub-and-spoke airlines that have merged. We wake up every day worried about the competition, but we’re also confident about the future of Alaska Airlines.”
Hawaii lost 1.5 million air seats within two years following the closure of Aloha and ATA airlines, and it wasn’t until last year that the state was able to recoup those lost seats.
“When Alaska Airlines came to the Hawaii market, they helped to balance some of the losses we experienced,” said Mike McCartney, president and CEO of HTA. “As they have expanded, they have offered more direct flights, connecting primary and secondary cities to the neighbor islands, in line with our efforts to increase distribution of visitors across the state.”
Even though Alaska has just eight employees stationed in Hawaii, it has created 350 jobs in the state through contract services with ticket agents, ramp agents, mechanics and fuelers. In addition, 156 Alaska pilots and flight attendants spend the night in Hawaii each day, amounting to more than $7.4 million in spending per year. In 2012, Alaska passengers to Hawaii contributed $1.1 billion in direct visitor spending and generated $112 million in state tax revenue.
Last year Alaska flew 1.2 million air seats to Hawaii compared with 189,656 in 2008, the carrier’s first full year servicing the islands.
Over the years, rumors have circulated that Alaska, which has a $3.4 billion market capitalization, might want to acquire Hawaiian Airlines, which has a market cap of $303 million and has become more attractive since aggressively expanding internationally to Japan, South Korea, Australia, New Zealand and Taiwan.
“Hawaiian is a great airline, and we’ve got a lot of respect and admiration for what they’re doing,” Tilden said. “But our strategy for many, many years has been to try to make it as an independent entity. That’s really the strategic objective that the company has, and we’re growing organically. We grew 6 percent last year. We’re going to grow 8 or 9 percent this year. That’s our strategy. That’s what we’re focusing on.
“We don’t comment about mergers and acquisition transactions at all, but I am very comfortable reiterating what our strategy is.”
Likewise, Hawaiian President and CEO Mark Dunkerley was mum earlier this week on the possibility of a merger with Alaska.
“We never comment on rumors of this sort, so there’s nothing I can say either to confirm or deny it,” Dunkerley said.
Joe Sprague, vice president of marketing for Alaska, said the airline hasn’t lost sight of how similar Hawaii is to the state of Alaska, which is where the airline was founded in 1932.
“They’re obviously noncontiguous, have a reliance on air transportation and have unique native cultures that are so important to each state,” Sprague said. “As we started serving Hawaii, after having served the state of Alaska, it really became apparent to a lot of us just how striking those similarities were. That has allowed us to be more thoughtful about how we entered the market here in Hawaii, and it allowed us to establish Hawaii as really an important part of our network in that same vein.
“Any time you have a part of your network that represents a full fifth of that network, it’s obviously critical. It’s been a great story in terms of the growth and how we’ve been received here in the community, and how our customers feel about our service to the islands is very, very good.”