Earlier this month, in a bid to boost revenues, Alaska Airlines said it will cancel some Virgin America flights from Dallas Love Field over the next year, replacing them with smaller jets operated by SkyWest Airlines under Alaska’s brand.
It was a move Alaska, which finalized its acquisition of Virgin America in December, said it had to make. Virgin America’s flights to New York, Washington, D.C, Los Angeles, and San Francisco have been losing money, both because of stiff competition from Southwest Airlines, and because the carrier was using Airbus A320s with too many seats. Changing from 149-seat jets to 76-seat Embraer E175s on many New York and Washington-bound flights should help profitability, Alaska executives said.
Merging airlines swap aircraft often, and usually executives don’t worry whether passengers will mind flying on another airline owned by the same company. But Alaska wants to retain as much of Virgin America’s loyal customer base as possible, so it tried something unusual — it had reservations agents contact affected customers. Passengers booked in the first class even got their ticket costs refunded, but were permitted to stay in first class on the Alaska-branded flights.
“We actually called everyone personally,” said Shane Tackett, Alaska’s vice president for revenue management and e-commerce. He said most of the interactions were “super positive” and passengers did not mind switching airlines.
In an industry that has become increasingly impersonal — that’s what happens when just four U.S. airlines control the vast majority of the domestic market — Alaska, now the fifth-largest carrier, is trying to stand out by emphasizing customer experience and loyalty. Speaking Wednesday on the company’s first quarter earnings call, executives said they plan to continue to counter trends that have led many airlines to offer detached service and remove loyalty perks from all but their most profitable customers.
Again on Wednesday, Alaska’s Chief Commercial Officer Andrew Harrison defended the airline’s decision to not copy every other U.S. airline and change its policy for how customers acquire frequent flyer miles. Alaska still awards miles based on how far a customer flies, not how much money a passengers pays for the ticket. The most frugal consumers tend to do best under this system, which American, Delta and United all had as recently as two years ago.
Customers seem to be responding well, Harrison said. In March, he told analysts, the Alaska’s MileagePlan enrolled more new members than in any month in the history of the program. Many of the new members were California based, and they may have flown Virgin America in the past. (Virgin America’s loyalty program will disappear next year.)
“We have a huge percentage of our guests who are earning miles and using miles, and that’s equally as important as how much you actually paid for that ticket,” Harrison told analysts. “We all have different business models but at the end of the day, we believe that a generous loyalty program for our business …. will be a very very good thing for us longer term and for our investors.”
Alaska has a similar philosophy on first class upgrades. Alaska executives said Wednesday the carrier is still selling only 35 to 40 percent of all first class seats. At another carrier, such as Delta Air Lines, which in late 2015 said it wanted to increase its paid first class load factor to 70 percent by 2018, Alaska’s paltry first class sales would be a disappointment.
But Alaska executives insist that giving first class seats to road warriors — even ones who buy cheaper tickets — drives loyalty. “The philosophy for us is to have a generous upgrade policy,” Harrison said.
To be sure, not everything is rosy at Alaska. CEO Brad Tilden said Alaska and Virgin America struggled with on-time performance in the first quarter, with Alaska completing 78 percent of flights on time, and Virgin America completing just 65 percent of flights on time.
Tilden said Alaska’s hubs in Seattle and Portland had five times as much freezing rain and snow versus last year, but suggested the airline still could have handled it better. “Even accounting for this, our performance is still disappointing,” he said.
Executives said the company is evaluating its winter operations plan, and may make changes to how it de-ices aircraft.
“We are committed to doing a better job getting our guests to their destinations on-time regardless of the weather,” Tilden said.
On the call, Tilden credited the company’s social media team for its work during irregular operations, saying it responds to most customer queries in fewer than five minutes. Other airlines, he said, take more than an hour to respond.
He said the quick response should help Alaska’ retain key West Coast customers.
“When the operation is under pressure, guests often post on social media and they expect a quick response,” Tilden said. “Given the tech savvy nature of many of our West Coast guests, this is an important and growing part of the customer experience and it’s one we remain focused on.”
For the first quarter, Alaska reported net income of $99 million on revenues of $1.75 billion. Its passenger revenue per available seat mile — a closely watched metric that shows much much money an airline makes for each seat it flies on mile — decreased 4.9 percent, year-over year. Non-fuel costs decreased slightly, but Alaska paid 38 percent more for jet fuel than in the same period last year.
Alaska executives predicted a strong second quarter, and they said they expect PRASM will increase substantially, year-over-year. Harrison said the airline is seeing “solid demand,” and noted that other airlines are adding new fewer flights in Alaska markets.