Alaska Airlines is evolving its business as it tries to think more globally. But unlike Canada's WestJet, which went out and acquired Boeing 787s, Alaska is thinking much more prudently. That's probably the right move.
Alaska Airlines is considering joining the Oneworld marketing alliance dominated by American Airlines, British Airways, and Qantas, though likely not as a full-fledged member, its chief commercial officer told investment analysts on Tuesday.
Alaska is among the only larger North American airlines not tied to one of the three major global alliances. In the past, that has served it well, allowing it to enter marketing agreements with any airline. But after severing its ties with four major SkyTeam airlines in the past two years, including Delta Air Lines, and with eight of its 17 current agreements with Oneworld carriers, now could be the right time.
If it joins, Alaska would become the alliance’s second “Oneworld Connect” member, along with Fiji Airways, which joined in June. Oneworld created this second-tier opportunity earlier this year, hoping it could help make membership more palatable to smaller regional airlines like Alaska, which generally don’t like to incur the major costs of alliance membership. On a “Connect” airline, passengers with Oneworld elite status may not receive all the perks they’re accustomed to, but they may receive some special treatment.
The disclosure comes as Alaska seeks to bolster its global offerings without buying wide-body aircraft or flying farther abroad than Costa Rica. It knows its core customers in Seattle, San Francisco and Los Angeles often fly long-haul routes, and it would prefer those customers fly Alaska’s partners to do so, rather than United Airlines or Delta Air Lines.
“There’s a Oneworld Connect membership that we’re looking it,” chief commercial officer Andrew Harrison told analysts. “The whole goal here is to ensure that when people in the cities we serve travel internationally they are on our partners so they stay in our program.”
Oneworld has scheduled a press conference Dec. 5 in New York to announce its “first full member airline recruit for six years,” but as Harrison did not mention a full membership, Alaska may not be the subject of the event.
In addition to possibly joining the alliance as a ‘Connect’ member, Alaska soon plans to sell tickets for some of its global partner airline on its website, so a customer in Los Angeles might buy a Qantas fare on alaskaair.com. This should help customers better understand the two airlines have a close relationship, Harrison said.
“You would be stunned how many people who don’t know if they flew Qantas that they’ll get Alaska miles,” he said.
Essentially, he said, Alaska wants it flyers to understand they can fly long-haul without leaving the airline’s loyalty points-driven ecosystem. It also wants them to know they can redeem Alaska miles for valuable free tickets on partner airlines..
“The benefit to Alaska Airlines with these global partners is when people start to think Alaska, they are starting to think global,” Harrison said. “They are starting to make their plans around flying on our global partners. We are looking at ways to get more seamless.”
There is, perhaps, another benefit. While Alaska often competes against the big three U.S. global airlines, within California it has another pesky competitor — Southwest Airlines.
Southwest has a robust intra-California schedule, but it doesn’t have any global partners. Alaska is hopeful that a customer who flies from Los Angeles to London on British Airways — and earns Alaska miles — also will chose Alaska to fly from Los Angeles to San Jose, California even if Southwest has a more favorable schedule.
“Competitively in California, we have something one of our major competitors does not have,” Harrison said.
Here are some other takeaways from the investor event:
Wait and See on Fuel
Remember the big fuel panic of 2018?
On Oct. 3, the price of a barrel of crude reached $75, and investors were concerned airline profits would drop. They implored carriers to raise fares and fees, which is how the cost of one checked bag went from $25 to $30 on every major airline except Southwest.
Two months later, oil is sharply down. On Tuesday afternoon, crude was trading at less than $52 in New York, and some investors are salivating. If it stays this low, airlines could rack up unexpectedly big profits during the usually-weak fourth quarter.
But Alaska isn’t sure what to make of this development, CFO Brandon Pedersen said.
“It was a mere 70 days ago that we were complaining about our inability to pass on the ridiculously high fuel prices and our inability to generate sufficient returns with fuel prices where they were,” he said. “We have had a gigantic decline in fuel prices. The reality is, I don’t know necessarily know what to think of that. Could it be 70 days and back up to $70 a barrel?”
If Alaska makes higher returns than expected, Pedersen said the airline will then decide how to allocate the profits. “We can decide whether to deploy it out to shareholders, to reinvest it in the business, to hold it on the balance sheet, to pay down debt,” he said.
Frequent Flyer Program
Delta CEO Ed Bastian is fond of saying that any business that gives away more than half of its best product for free is not setting itself up for success. But Alaska executives continue to think differently, saying they want to keep setting aside at least 50 percent of their first class seats for elite-level frequent flyers.
In addition, Harrison said, Alaska plans to keep allotting more frequent flyer miles than its competitors to customers who buy its cheapest tickets. Alaska is the only U.S. airline that still gives frequent flyer miles based on how far a customer flies, rather than how much the passengers pays for the ticket.
Alaska is betting its frequent flyer program helps differentiate it from the competition, just like Southwest’s ‘Bags Fly Free’ provides it an advantage.
“Southwest could also immediately make a lot more money if they charged bag fees,” Harrison said. “Every airline needs to play its own game and its own business model. The minute you start mimicking or being a me-too, you lose who you are. The generous loyalty program at the heart of our DNA is rewarding to a lot of people that we need to fill our airplanes.”
No Changes to Hawaii Plan
On its last earnings call, Alaska reported some softness in its Hawaii markets, but while the routes have not markedly improved, Harrison said he is not worried about their long-term viability.
One analyst wondered whether Alaska might drive greater profits by adding short-haul flights within the Hawaiian islands, such as between Maui and Oahu. For now, those are basically monopoly routes for Hawaiian Airlines, though Southwest has said it will probably challenge Hawaiian on some routes within in a couple of years.
Harrison said there’s no chance, pointing to three airlines — Aloha Airlines, Island Air and Go! — that have gone out of business in the past decade trying to compete with Hawaiian.
“History has shown that one airline does well, and with two, someone ends up in bankruptcy or out of business,” he said. “At the end of the day, we are focused on our core business.”
A previous version of this story said Alaska Airlines was the only one of the six largest North American airlines that does not belong to an alliance. That is incorrect. While American, Delta, United and Air Canada all belong to an alliance, Southwest does not.
Photo credit: Alaska Airlines is trying to develop more of a global footprint without actually flying long-haul routes. Pictured is one of the airline's Boeing 737s. Alaska Airlines