With yesterday’s post being about JetBlue and American breaking up, I figured I’d keep the theme going today with a discussion at the other end of the country. Delta and Alaska have been heading toward a break-up for months now, and while it hasn’t happened, it really should. If I were Alaska, I’d be out the door. But until then, Delta will just keep pushing, trying to entice loyal Alaska fliers to make the switch while it continues to grow.
I last checked in on the deteriorating relationship between Delta and Alaska at the end of last year. At the time, Delta had built up its presence substantially in Seattle, saying (disingenuously) it needed more feed than Alaska could provide for its international network. Alaska had retaliated with some extra flying in Salt Lake City and a strengthening of international partnerships, but that was about it. Now what’s happening?
Well, there have been smaller skirmishes, like the War of 2014, Super Bowl Edition. (Delta became the official airlines of the Seahawks last September so what did Alaska do? It responded by naming star Quarterback Russell Wilson as the Chief Football Officer for the airline.) But the real news is that Delta is really digging in its heels and aggressively trying to switch flier loyalty.
We’ve seen more Delta service rolled out since that post, including Seattle to Palm Springs, Phoenix, Tucson, and Jackson Hole. Oh, and Delta has beefed up Seattle to both Honolulu and Anchorage with more frequency as well. Not enough? Well Delta has also pulled its code from Alaska flights on competing routes. That means you will no longer see Alaska flights sold under the Delta codeshare between Seattle and Anchorage, Houston, Las Vegas, Los Angeles, Phoenix, San Diego, San Francisco, San Jose, and Vancouver. Wait, Houston? I thought that was weird as well. Not sure what that’s all about, but maybe Houston-Seattle is the airline’s next route.
With all this happening, what is Alaska doing? It seems to be quietly making plans for the future. In its last earnings call, Alaska said it was planning for revenues from Delta to drop. Andrew Harrison, VP of Planning and Revenue Management for Alaska, said this:
[There is] about $230-or-so million that Delta puts on our metal. What I would tell you is that the nature of the contract is changing, and at the end of the day, we are operating way upside, where the strict contractual terms are. So I think as I shared in Investor Day, you’re going to see and continue to see a reduction in the amount of traffic that Delta is putting on our metal, and that’s not surprising to us.
Alaska gets about 3.5 percent of its revenue from Delta but it sees that number dropping, as it should. Meanwhile, American generates about 2.5 percent of revenue. I would bet we’ll see that number rise over time.
So what happens now? If I’m Delta, I clearly have a plan to build my own hub in Seattle regardless of who else is there. So I will keep building and building while maintaining the partnership with Alaska as long as I can. After all, if they can use the Alaska loyalty in the local area to help build up their hub, then they can entice people to come over when they’ve reached critical mass. (They’re already doing all kinds of double miles and other promotions to steal Alaska loyalists.)
If I’m Alaska, I’d want out as soon as possible. It seems to me that Delta underestimates the strength of Alaska’s loyalty in the region. If Alaska pulls away now, it will hurt Delta. But can Delta be replaced within the Alaska network? Sure.
Alaska already took the first step by giving elite qualifying miles to travelers on every partner. So you can fly Korean to Seoul or BA to London and you’ll get your elite miles. On the redemption side, it’s interesting to note that while Delta gets 4 percent of Alaska redemptions, American get a much larger 8.5 percent. So clearly American provides more utility in that area and a tighter relationship might help grow that, providing more options.
I know many of you think this is a plot by Delta to take over Alaska, but I don’t see how it works out well. As has been pointed out by many, the more Delta adds now, the more competition it would take away in a merger. That means the Department of Justice will throw a hissy fit. And with Alaska’s market cap at over 20 percent of Delta’s, Delta would have to pay quite a premium to even try to take them over. Alaska is an extremely healthy airline financially so even Delta shenanigans aren’t going to do more than dent the airlines revenue. I don’t see how a merger comes together..
If I’m Alaska, I’m planning for a future without Delta, and the same goes if I’m an Alaska Airlines flier. If I’m Delta, I’ve already planned for that future alone. It’s just a matter of executing.
[Original drug dealer photo via Shutterstock]
