Alaska Shows It Can Do Just Fine in Seattle Even With Delta’s Growth

Alaska Airlines, Delta, SEA - Seattle

As Delta has ramped up its operation in Seattle, there’s been plenty of talk about the battle between it and hometown carrier, Alaska Airlines. But while the various tactics used to compete with each other make for quite the soap opera, Alaska is busy just minting money. So far, this seems to be just a little speed bump for the airline.

Alaska Airlines Eskimo Hulk

In the second quarter of this year, Alaska made $157 million excluding special items. That’s a 50 percent increase over last year. The airline’s pre-tax margin was an incredible 18.3 percent. This is an airline that is clearly doing very, very well.

It’s no surprise since Alaska has been performing well for years now, but the extent of the success is somewhat surprising considering how much Delta has been ramping up capacity in Seattle to build an international gateway to Asia. A capacity increase like that has to hurt Alaska’s revenue potential, and it does, but Alaska is doing so well that it is still posting stellar results.

If this was just a story about an airline making money, it wouldn’t be worth me telling. After all, everyone is making money right now, especially in the domestic market where things are just so good. But what makes this story interesting is the commentary during the earnings call about how Alaska is competing with Delta.

Delta and Alaska have been partners for a long time, but when Delta started ramping up capacity in Seattle, the partnership was bound to fray. By simply having this extra capacity in markets where Delta used to rely on Alaska for feed, Delta would naturally be pushing less traffic on to the Alaska network. And that is what’s happening. Alaska saw $16 million less revenue coming from its Delta partnership this year.

Last year, Alaska said Delta brought $230 million in revenue to Alaska. Though we can’t really assume that it’s the same every quarter, I don’t have a better way to do this, so divide by four and you have $57.5 million per quarter. If that dropped by $16 million this quarter, that’s a pretty big chunk. Even if you assume Q2 had a bigger percentage of the total (as it would), it’s still not a tiny drop.

So how did Alaska deal with it? The airline was able to replace 90 percent of it. Though the wording of the call wasn’t entirely clear (and I haven’t gotten a response from Alaska clarifying yet), it seems that Alaska was able to boost revenues from other codeshare and interline partners by $11 million. Another few million came in from Alaska simply selling more directly to consumers. More specifically on the codeshare/interline side, Alaska increased its revenues from American by 20 percent. Those two have been getting cozier, and clearly that’s translating into more people going between the networks.

The increase in capacity by Delta is also pushing Alaska to do something that seems silly. It’s adding more capacity of its own. Some of this capacity appears to be performing well, but Andrew Harrison, SVP of Planning and Revenue Management had a interesting comment to add to that.

… we are making some tactical schedule adjustments to increase our flying in some of these markets to defend our franchise. This may have short-term impact, but we believe the water will find its level eventually and we’re confident these are the right actions for us to ensure the long-term sustainability of our business and preserve our ability to generate appropriate returns for our owners.

So Alaska is taking the long term view here. Short term pain might be worth it in the long term. With the kind of results Alaska is pushing, it can probably afford to make those investments. But with the airline doing this well on its own, why does it continue to partner with its biggest competitor, Delta, at all? I’ve long thought that continuing to partner with Delta was a mistake. It would make it easier for elites to transition to Delta if they so chose. But Brad Tilden, President and CEO, had this to say.

One reason to stay with [Delta] is the revenue that we get from feeding their flights and from the incentive we have for them to not fly against us in our markets. Another reason to stay there is it’s conceivable that, at some point, that relationship could get back on track and we could take advantage of natural end-to-end connection opportunities.

So there you have it. Can he really be all that optimistic that Delta will come back into Alaska’s loving arms some day? Well, it’s not clear how well Delta is doing there right now. The only real mention in Delta’s earnings call this quarter talked about unit revenue improvement. That says nothing about profitability, and you’d assume if it was profitable, Delta would have been happy to crow about it.

But if Delta wants Seattle to work, it can make it work. This isn’t an either-or thing with Delta and Alaska. It seems pretty clear so far that Alaska is going to be just fine on its own. And Delta will be fine with whatever it decides to do – it’s just a matter of strategic priority. Maybe someday, that’ll mean a reconciliation with Alaska.

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36 comments on “Alaska Shows It Can Do Just Fine in Seattle Even With Delta’s Growth

  1. An airline with executives that think of long-term value instead of short-term impact? Are they sure they’re in the right industry???

    1. Actually, IMO an executive in any industry that think of long-term. anyone, anyone, any takers? ok, how ’bout wall street analysts. ok, how ’bout investors.

        1. as ace ventura would say ‘alrighty then’. Seriously, good for you. except for indirect investor (i.e 401K and other similar mutual fund based investments) I don’t know there are many investors with a long-term view.

  2. Given the current gate constrains at SEA, DL cannot fully replicate even half the domestic network that AS has. If DL brings AS approx 1/3 of their profit (57.5/157) then that’s not something AS will want to give up so easily. Similarly, DL needs SEA to work as NRT dies, and needs every bit of feed from AS for those Asian routes. In addition, otherwise DL has nothing for it’s western customers to Asia through SLC.

    I think we’re almost done with DL adds in SEA for the time being. I can see maybe SEA-DFW/IAH/ABQ/DEN all on E175’s. That’s it. DL will rely on AS for everything else like BOS/PHL/WAS/MSY/STL/MCI

    1. You’re confusing revenue and profit. Alaska’s total revenue last year was ~$4.3 billion. So DL contributed around 1.5% of Alaska’s revenue.

      1. @Todd Haha yes I messed that up, thanks for the correction. But yes the point stands DL contributes a fair amount toward Alaska’s bottom line.

    2. I dont see Delta trying that I just dont see them having enough space at SeaTac as well as them trying to take on Both SWA and AS as well as others such as UA and AA on many of those routes you have mentioned

      1. Since the Port is moving toward more and more common use gates – and the Port wants the growth – they will work hard to get DL the gates they need for expansion of their flights. They just approved construction of a new larger Federal Inspection facility for incoming international flights which will be able to service arrivals at both the S gates and at the A gates. That will increase flexibility as well as capacity.

  3. DL may be trying to hurt AS, but no reason for them to stop working together, even in limited markets, if it is still generating benefits for AS’s bottom line. Egos aside, some money is better than no money (and a competitive fight which hurts everyone)

    1. Noah – I think there’s a reason. By working together now, Alaska is making it easier for its elites to move on over to Delta as that airline continues to grow. They can get the best of both worlds. Delta offers double miles and status matches? Great. Someone can do that and still get benefits flying on Alaska. But you take away those crossover benefits and it makes it a lot harder for someone to move to Delta since Delta just doesn’t have that same footprint as Alaska.

  4. I don’t see why the two can’t work out for each other even if DL increases operations at SEA. What’s the difference between that and DL/AA/UA contracting other carriers like Skywest to feed their operations, or alliance partners serving the same market with nonstop flights. It just gives DL fliers more options to feed from Alaska/Horizon from cities DL could never compete from on it’s own, which means more money for AS.

    1. David – This isn’t the same as contracting for a third party to fly for you because in those cases you as the mainline airline dictate the schedule and control the revenue. That’s far different than two branded airlines working together.

  5. I started booking away from Delta when they started charging AS elites for checked bags.

    AS takes care of me, I take care of AS.

    1. I had to book a Bay Area to Seattle trip this past weekend. Normally, I would have booked with Alaska, but because of the bag fees for DL elites, I booked with DL. If AS wants to play that game, they will lose business from DL elites like me.

  6. I’ve mentioned before, this is a story for people in SEA, and along the west coast to a lesser extent. For anyone east of the rockies AS is just not a viable option, unless all you do is travel to Seattle. Mind you I have good friends in SEA (and PDX) that love them for local regional travel but admit that coming east the DL’s, AA’s and UA’s offer more options and better frequency.

    Much of the AS success I chalk up to O/D traffic being loyal to the hometown airline and in a rising tide for airlines all boats (er planes) are lifted.

    1. Re “coming east” (all the way east): I’ve learned over and over again that for an economy class passenger, Alaska’s transcon’s between Seattle and the East Coast are heaven compared to those of Delta, American or United. And Jet Blue’s (between Portland or Seattle and the East Coast) are a close second.

  7. It looks like Alaska isn’t going anywhere. It also looks like Delta is committed to its plans in Seattle, whatever they are in the long term. It seems to me that both can co-exist in Seattle, once each understands its limitations. Delta’s increased international presence may enhance Alaska’s business in the long run, and Alaska’s feed may very well enhance Delta’s newly expanded international operations. The fact that there are more places to go from Seattle may increase traffic there overall.

    It seems to me that both airlines have to try to figure out where their markets compete and where they compliment each other. The only way to do that is through trial and error.

    The executives at Delta and Alaska don’t appear to be stupid. They’ll eventually figure out what will work and what won’t. In the end, the marketplace will decide.

  8. Maybe Alaska’s continuing strength in SEA is a reflection of the importance of frequent flyer loyalty programs, together with the recognition that Alaska’s program is strong while Delta’s program is weak. Almost every SEA based frequent flyer is an elite member of the Alaska program, and the Alaska program is more generous and more flexible than Delta’s, so why switch. And if you fly internationally you can fly on DL and credit to AS. International upgrades are very difficult on DL even for their own elite members so you really aren’t giving up very much by concentrating your flying on AS. If you are Gold on Alaska you also have the benefit of no change fees, which can be a substantial benefit and a better Same-Day-Change program than DL.

    For infrequent flyers, AS’s fees are lower than DL’s.

    DL offering is more appealing for people who live outside of the West Coast and where DL will flow them over SEA – and maybe that is incremental traffic flowing over DL, therefor not stealing customers from AS.

    1. AS’s strength is travel up & down the west coast & the state of it’s namesake as B6’s strength is the east coast.

      one of DL ‘s weaknesses was west coast flying away from SLC once they pulled out of PDX. Now they are making another go at it by building up SEA & to a smaller extent LAX. This is a nessessary move if NRT is no longer viable as a asian hub. This should be insentive enough for DL & AS to kiss & make up, but we all know what happens when egos get in the way of smart business decisions.

  9. The Alaska Airlines drawing today. I couldn’t really care less about how you conduct your country, alas, you are the first ones in the world to criticize everybody else and try to be politically correct. So how can you put pidgin English into the mouth of an Eskimo, who should perhaps be called an Inuit anyway? Shame on you. Not funny, no matter how you look at it.

      1. maxe – I believe Nick and AbFabSkyLife covered this nearly completely. But I’ll add one thing. Alaska Airlines calls it the Eskimo, so of course that’s what I’d call it.

  10. Maxe – “Inuit” is accepted and preferred for Canada and Greenland, and it also applies to Alaska’s Inupiat, but not to the Yupik of Western Alaska. When referring to both Yupik and Inupiat (both of which reside in Alaska’s network), “Eskimo” is the more appropriate term.

  11. Cranky, do you really think that the effect of the competition has made it to earnings yet? These things are often slow to reach the bottom line — especially when you include frequent flyers (biz travelers) switching carriers. While AS’ results are great, I don’t think we’ll be able to see any financial changes directly related to SEA — at both AS and DL — for at least another quarter or two. Just my two cents.

    1. Dave – Of course it has. It might not be fully realized, but anytime you add a ton of capacity to a market, the impact is felt immediately. All the stuff about switching loyalties and things like that will put some additional pressure later, but the biggest impact on fares is going to be directly related to the amount of capacity in the market.

  12. There’s also the chance that the the entire market has been boosted by Delta’s expansion.

    I know this happened when Ryanair started nibbling at Aer Lingus in Dublin. Aer Lingus could have flattened the upstart if they had recognised the overall ‘cake’ was growing – perhaps Alaska are seeing this happening in SEA.

  13. im sure am happy Delta is moving as the Great White, its about time something better and BIGGER will be taking away Alaska the Walrus business whose been monopolizing in the NorthWest. Ill be shifting my 400k business to Delta. I do hope they expand to Bellingham Washington

  14. Eskimo is no longer a appropriate name, Only ignorant people uses that term. it should only be used to reference Eskimo kiss.

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