Skift Take

Alaska has been so well run that we expect its early transition hiccups to be ironed out before they cause United/Continental-level disasters.

Alaska Airlines, the fifth-largest carrier in the U.S., said Wednesday it will launch in 30 more markets in the next six months.

That expansion comes on the back of launching in 20 markets in the past nine months — plus inheriting other routes after completing its acquisition of Virgin America in December.

The Seattle-based company says its expansion is going well. Out of the 20 markets the Alaska Airlines brand launched in the last nine months, 15 are already profitable.

Chief executive Brad Tilden said on a quarterly earnings call with investors that he is “disappointed” in the “friction” that has come up in the integration with Virgin America.

But he says he does not expect the company’s projections on the pace and financial benefits of the deal to change from what it has forecast before.

The two brands have moved on to a unified revenue management system.

The next big project is to move both carriers’ passenger service systems (PSS), or software that stores nearly every ticket, onto a unified system, where every reservation will be in the same place and coded under Alaska’s single airline code.

The executives hope to make that switch by spring 2018.

The company has already stopped selling tickets for the Virgin American brand for reservation dates after June 2018 as a precaution.

The IT change is necessary but also risky. A botched merger of United’s and Continental’s PSSes in 2012 led to customer service snafus for months.

Yet industry-wide, airline tech teams say they have learned from past experiences. Last fall’s integration of American Airlines’ and US Airways’ system, managed by tech vendor Sabre, caused hardly a ripple.

On Wednesday during a call with investors, Alaska Airlines executives promised a seamless migration with the help of Sabre.

They say that, unlike as in the migrations that other airlines have done, they’re not trying to take ticket data out of one system and transform it to make it compatible and sync up nicely with the data from the other carrier’s system on a single “cutover” day.

They’re instead doing that work in advance so that there is little risk of data being mismatched or lost on the final day when Virgin America’s system is turned off.

Another merger issue that still causes friction is a spike in poor on-time performance by the combined operation. Tilden told investors, “It seems like overnight we’ve gone to having a lot of air traffic control and airport gate restraint issues… We need to learn how to handle that better, … especially in San Francisco and Los Angeles.”

Yet another merger issue: Alaska Air’s fees for checked bags are higher on average than Virgin America’s, according to data reported to the U.S. Department of Transportation. The company’s executives plan is to bring Virgin America’s fees up to be in line with Alaska’s until the Virgin brand is dropped by 2019.

One decision that Alaska hasn’t made yet is if it will operate an all-Boeing fleet in the future or stick with its current mix of Boeing and the Airbus aircraft that it inherited from Virgin America.

Executives say the question isn’t urgent because the leases on its Airbuses don’t start to expire until 2019. Some industry followers believe Alaska’s Seattle neighbor Boeing will win the day because of the possible operational efficiencies of having a single type of aircraft.

Positive Financial Growth

For the second quarter, Alaska reported net income of $296 million on revenues of $2.1 billion. Its passenger revenue per available seat mile (PRASM) — a closely watched metric that shows much much money an airline makes for each seat it flies on mile — increased 1.3 percent.

That was in line with promises that Alaska executives had made earlier this year that PRASM would rise.

Alaska Air declined to speculate on the degree to which their company has recently benefited from the introduction of basic economy seats by competitors Delta, United, and American.

Its executives say that the larger rivals have kept their existing lowest fares but added restrictions on them via the new “basic economy fares.” That means that Alaska’s full-featured-yet-similarly-priced economy tickets look more attractive in comparison.

Yet executives said they couldn’t put a number on how big the shift in market share may be.


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Tags: alaska airlines, earnings, virgin america

Photo credit: Alaska Airlines, the fifth-largest carrier in the U.S., said Wednesday it will launch in 30 more markets in the next six months. Alaska Airlines

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