Welcome back to the second half of my interview with Andrew Harrison, Alaska’s Executive Vice President and Chief Commercial Officer. Yesterday we talked about the genesis of the Virgin America merger, why Alaska was willing to pay so much for it to happen, and how it is going to think about a combined product going forward. Today we’ll finish up by looking deeper at the LA Basin and Bay Area markets as well as loyalty and domestic partners.
Cranky: I want to get a little more specific in geographies here. If we talk about the Bay Area, Virgin America is a one airport airline. They tried San Jose and it didn’t work. They’ve grown all around SFO. You are probably the only 4 airport airline if you consider Santa Rosa. So how important is the multi-airport strategy?
Andrew: I think one thing we bring to the table that I shared with you earlier in the loyalty program is we are in all the airports. There’s Silicon Valley as defined
by the chamber of commerce at about 3 million people and total Bay Area is about 7.6 million people. One of the things we’ve prided ourselves on in Seattle is we provide nonstop service to our customers to wherever they want to go.
At the end of the day, we’re gonna have to work out where we want to be. But what I can tell you is that clearly Virgin America provides a very good footprint at the San Francisco Airport. We already have a very decent presence at San Jose. And in Oakland, north and south. So we’re going to look at what we need to do from a utility and a network perspective to ensure we serve the Bay Area and the loyalty members better than anybody else.
Cranky: Does this merger allow you to consider expanding further at other airports? You talk about New York and how there are so many frequencies out of SFO. There are almost none out of San Jose. Is that something you look at and say “well now we have JFK slots so this might make sense”? I don’t expect a specific answer on a single route, but the idea in general.
Andrew: What you’re really saying too is that San Francisco is really, if you want full utility, there’s only one airport that provides that. You want international, there’s only one airport that provides that. So I think San Francisco is always going to serve the purpose that it serves. But you also see other international carriers like our partners British Airways and Hainan start service out of San Jose where we have a presence. So what we’re going to be doing is looking at 7.6 million people in the Bay Area and look at building an airline and a network that serves that community as best we can serve it.
Without getting into specifics about whether we’ll do all this in Oakland or San Jose or not, I will tell you obviously, San Francisco will be crucial for us. We want to continue to grow San Francisco. We have a very different fleet, we have an Embraer order in. We have [those] jets in our 3 class configuration. We have very fuel efficient short hop Q400s. We have big [737-900]ERs to 737-700s. We believe our fleet combined with Virgin America’s, we have a lot of tools in the tool chest to serve California that Virgin America did not have on its own.
Cranky: Let’s move down the coast here to LA. Obviously you don’t feel the need to serve every airport in LA, *cough* Long Beach *cough* [laughing]. But the point about LA, it’s a very different market. In San Francisco, excluding Virgin America, you have United. In LA, you have everybody. Even after you’re combined, you’re still gonna be, depending upon the metric, a fifth behind American, Delta, Southwest, and United. How do you view that market in the sense that you’re not going to replicate the network of one of the global carriers in LA? How do you view your way of serving that market best?
Andrew: We’ve been very successful in Los Angeles, obviously flying to the Pacific Northwest but also our Mexico franchise. As you know we started Costa Rica. What this also does for us in a consolidated industry with limited resources and constraints is we’ll have 12 gates. We’ll have critical mass there to be able to provide utility and our brand and our product and our service and our low fares to the Southern California marketplace. So we can be relevant.
I don’t believe anyone can really dominate Los Angeles because it’s so fragmented. It’s a massive global gateway for every flag carrier on the face of the earth. But I do believe that at 12 gates with a fantastic and competitive product, especially when you compare us to the network carriers where our costs are going to be 30+ percent lower, I think there’s a lot of opportunity for us.
Cranky: What does relevance look like? Is it “we want to serve all the big points” as Virgin America’s strategy has been? Or is it really more about strategic value, Q400s can serve some places, we can look at all these different markets? Even with 12 gates, you have to pick and choose, so what does it mean to be relevant?
Andrew: What that means to us is that we are going to play to our strengths, what we do well. We are going to serve the markets that we believe are relevant to Southern California but also we are able to provide the product and the fares and the loyalty program such that we will continue to provide the returns to shareholders that we’ve built up all over these years. And we will be profitable and continue to grow.
You know the world changes so much. We don’t know where the world will be in 20 years time. We’re pretty sure Los Angeles is going to be there and we’re pretty sure it’s going to be extremely important. We’re pretty sure that no-one is building any new airports anytime soon. And in a consolidated industry where attention is being turned to limited resources, limited infrastructure, and producing products, this gives us a platform to play in that game and be relevant and continue to grow and be healthy.
Cranky: You’ve talked about loyalty a lot on this call. The airline has made very strong statements before the merger about how the way the structure of the loyalty program is today is important and you support it despite the changing tides at the big 3 to go revenue-based. Virgin America is revenue-based. Has any thinking changed post-merger?
Andrew: From the Virgin America standpoint, it doesn’t change our thinking. What I mean by that is we are basically the only carrier left in the US that has a miles-based program. What we’ve shared with Wall Street and what we continue to believe, is we’ll continue to study and understand the benefits and even opportunities we have by staying in a miles-based program. But to the extent that we get to a point where we believe a revenue-based program is better for our customers then we would obviously make that change. But I think there’s a very real argument today especially in a declining yield environment that we have something really good here.
And we have a fantastic program that we, even with all the competitive capacity that’s coming to Seattle, our program has done noting but continue to grow at a very high rate. We also know that the vast majority of customers when you look at the average fare are well-rewarded on a miles-based program in our program. We have boosters for the very high end.
And yeah, we’ll never likely get the top 5 percent that the big global players do but at the end of the day we like to play where our strengths are which is the largest market. That’s leisure travel obviously but also providing something good for the business. That’s a long way to say that clearly changing to a revenue-based model, that’s a lot of time and a lot of research. So we are miles-based today, we are going to continue to be miles-based today. If we need to change we’ll do that at the right time.
Cranky: Ok last question. How important are your domestic partnerships in the face of this new combination. You will have a lot more overlap with American… and Delta, if they’re still considered a partner, in Los Angeles. In San Francisco it’s a very different dynamic. How do you view these?
Andrew: It’s interesting, especially what we saw in Seattle as we expanded our network. The vast majority of our customers are earning and redeeming miles on Alaska Airlines’ network. Vast majority. Really the domestic partners, the big primary help has been to be able to serve cities beyond their hubs. Whether it’s beyond Minny, beyond Chicago, beyond Atlanta, that we couldn’t serve on our own. That’s been one of the biggest benefits. But as we’ve grown ourselves. Just take Seattle for instance. We’ve started to serve a lot of these points so our customers don’t have to connect anymore.
So specifically to American, they’re a great partner. We do believe we have a lot of alignment and that together we can provide greater utility to customers on the West Coast. As you know with Delta, I don’t believe we have any codesharing at all with them anywhere in Los Angeles, nothing in Southern California. And what’s up in the Pacific Northwest is declining rapidly. But again as we move forward, we’re going to be looking at all of this and how can we work with our partners both domestic and international as we put these two airlines together to build a better, stronger airline of choice for our customers going forward.
Cranky: Thank you very much, Andrew. I appreciate the time.
If you missed the first part where we talked about the genesis of the Virgin America merger, why Alaska was willing to pay so much for it to happen, and how it is going to think about a combined product going forward, you can find it here.
39 comments on “Alaska’s Chief Commercial Officer Goes Across the Aisle on California, Loyalty Programs, and Domestic Partners (Part 2)”
Did Mr. Harrison make any comments related to their on-going presence the Dallas-Fort Worth market that V/A has worked on developing?
Sounds like they will focus on SFO in the bay area and maybe a little in San Jose. To do anything out of OAK, they will need to fly anywhere Southwest doesn’t. If they want to be a player in the transcon NYC market they should include OAK/SJC in that so they can market service for all three bay area airports something only JetBlue can do now even with their one flt out of SJC and OAK. But they would need to keep the Virgin planes/service to compete with anyone.
If they flew OAK/SJC-NYC, they are only competing with the standard all Y service from B6. There is no mint on these routes. Standard domestic F would be the best option.
It’s still really early to know what parts of VX will be kept intact and what will not be intact in terms of routes and product.
Any mention about PDX from Mr. Harrison?
It makes me hopeful that AS will create an airline out of the Bay Area that makes much more sense than VX. I think that VX only flying out of SFO to only other large cities that are well served by other airlines made them not too useful. The time they flew SJC – LAX, they were one of six airlines on that route. It was very poor strategy and it failed quickly.
For everyone who has asked if “Andrews said something about x,” no. The entire transcript is printed.
Is it just me, or in both series, does Andrews pretty much say absolutely nothing at all?
***********************************
Also, in the picture, I think that dude is hitting on the woman across the aisle from him, and I am not sure she is enjoying it.
If this blows up in the faces of the AS execs, as I expect, they will still be paid millions in separation pay for screwing up. If it succeeds, largely because interest rates remain low and it not hard to make money in this business now, they will reap millions in bonuses. At least this interview showed these people have no plan, like the underwear gnomes of South Park. Phase 1: Merge with fancy VX. Phase 2: XXX. Phase 3: Make money (at least if you are an exec or the investment bank advisor)
Couldn’t agree more. After reading both interviews I’m left scratching my head to know what I learned. I’ll tell you what, absolutely nothing, political speak at its best. Not that I expected they’d spill everything on the “strategy” but we could at least learn if the Airbus are going to stay or go.
I remain very skeptical of this purchase considering the $$$ they are spending for VX and not sure how this slows or stops Alaska from eventually getting gobbled up by one of the big 3-4 down the road. Given the history of merger issues I think we have a fairly decent chance this thing goes south and I’d love to know what the strategy is to prevent that and mitigate it should it happen.
“we could at least learn if the Airbus are going to stay or go.”
What if they haven’t decided yet? The merger isn’t even final yet, how do you expect them to have a combined fleet plan for 2020?
I agree. I think the only thing that has been decided for sure is that the risk of buying VX is worth the potential reward. The details are going to take a lot of time to sort though, and it will be quite a while until they know what they’re doing for sure, and then they’ll share it with the public. To think they have it ALL figured out is nuts.
By establishing a hub in San Francisco , Alaska has already gone south – at least in the technical sense. Now lets see if they can make this work – I have my doubts.
Isn’t it obvious? They are going to keep the Airbus fleet… until they don’t. They may or may not know the date yet, but even if they do plan to *over time* (anything else is impossible) to replace them with Boeing aircraft I doubt that they will tell us in this type of interview.
Re the picture – I don’t think that’s a cigarette at all. It looks to me like it’s one of those “knee defender” devices to prevent the guy in front reclining into you. I think most of the airlines quickly banned them after they caused a ruckus or three.
I’m really glad Alaska is keeping miles-based FF program, as I’ve stuck with only those that do after abandoning Delta, United and soon AA after 40 years with those. But I doubt AA will allow them to keep crediting full miles to Mileage Plan for AA flights even if Alaska wants to, just as Delta wouldn’t. I’m not sure how this works but I hope they make a fight of it to illustrate to customers who cares about all instead of just the top tier.
But now with the Virgin routes I can fly nearly all of my routes on AK metal getting full miles which just makes them heroes to me as a monthly flyer.
They’ll keep it until they don’t. That is how I read it.
Do you think if Alaska becomes the last major to go fare based for Mileage Plan that there might be a bidding war for miles per dollar? Already JetBlue offers an extra mile per dollar over the others if you book on their site. Perhaps when they need to use their FF plans to attract customers again, and when customers get wise to the insulting levels of miles they’re getting under revenue-based vs. Actual miles flown, there could in my fondest dreams be a bidding war – or an outright reversion to miles flown which many customers enjoyed and benefited by tremendously for decades.
Sent from Mail for Windows 10
I don’t think its possible for them to become more boring and vanilla than they are today. So at least we have that going for us. AS is the airline equivalent of a 59 year old menopausal aunt.
AS is the equivalent of your boring RICH aunt. VX, is your cool BROKE college student.
AS clearly viewed the VX business worth $4,000,000,000. Yeah, sounds like every broke college student I know too.
How can an airline with a regional name of “Alaska” get people to fly them out of East coast? Growth limited without re branding. What happened in the meeting with Richard Branson today about keeping the Virgin brand?
Mike – Maybe they can ask the people at Southwest how they figured out how to get people to fly them in the Northeast.
Seriously? Southwest is far a more broad brand than one named after a specific (and remote) state isolated by Canada.
Delta is a regional name, but that doesn’t stop people from flying them. DL is named for the Mississippi River Delta, back when they were based in Monroe, LA. But, they have a large international presence and are doing quite well.
It’s also the 4th letter in the Greek alphabet which is obviously recognized internationally.
From Delta: “1928: C. E. Woolman, the principal founder of Delta Air Lines, leads movement to buy Huff Daland Dusters. Renamed Delta Air Service for the Mississippi Delta region it served. D.Y. Smith, President; C.E. Woolman first Vice President.”
http://news.delta.com/timeline-airline
They have been based in Atlanta since 1941, but the name has always been for the Mississippi Delta. The logo that looks like the Greek letter wasn’t used until the jet age.
Nobody is debating the origin of the Delta name. The point is someone in Italy, Germany, or Salt Lake City isn’t going to think “oh Mississippi delta!” when they hear “Delta”. It’s going to be universally recognized as the Greek letter first and foremost when presented to the other 7.1 billion people that don’t reside in the southern United States.
True, however you have to admit the sky is the limit with the Virgin branding vs the Alaska branding. I would imagine even though Alaska is a bigger airline that Virgin America has better brand recognition nationwide not to mention world wide.
Despite Sir Richard’s crocodile tears he will not lend the Virgin brand for free and without strings. So keeping VX alive as a wholly owned sub or incorporated into the AS brand is a non-starter. Period.
I stand with the school of thought that views this as a preemptive measure to keep B6 weak on the left coast. The demographics of the eastern seaboard vs. West coast are apples and tennis shoes. Huge population and economic centers on the coast with small-medium centers inland (except LAS,PHX & SLC).
AS has mastered the art of competing with WN in the C.O.W. corridor and work around an agressive frienemy and sanguine partner. Adding a vigorous B6 to the mix could spell disaster for Chester. This is a 2.5 bill investment in their future; similar to WN & FL. Except this time it’s not about eliminating the competition….it’s about eliminating potential competition.
Guys who complain about “boring” or “vanilla” or “59 year old aunts” apparently feel that what most people want is a demonstration of the latest dance moves as they pass under the disco balls that lead to the fun filled next several hours. Bah. “Boring” and “vanilla” beats “sneering” and “incompetent” every time.
Completely agree. I will take “boring” anytime over the flash of VX, whose cabin and IFE are now ironically dated. I have never had good service on any VX flight. I am neither good-looking nor rich-looking and it seems the flight attendants were only interested in being nice to those people. So I will stick with the menopausal flight attendants who treat me like a grandson they haven’t seen in a long time.
I’ve had nothing but good experiences with both airlines. I always wondered how often VX would have to redo the IFE and cabin interiors to keep that cutting edge vibe. The only thing that gives me hope is both carriers have a pretty good service culture. I hope they can integrate it but from the disaster that is CO/UA I’m not holding my breath.
Sounds like you have other issues to contend with, Ken.
I kind of get where you’re coming from Ken. While VX generally provides good service, the IFE is rather dated (especially clunky pesky touch screens) and the service feels rather detached, sometimes distant. Alaska excels here with consistent, friendly, almost personalized service. I get to connect and engage with the FAs and feel taken care of. I don’t get that on VX…not yet at least.
“what most people want is a demonstration of the latest dance moves as they pass under the disco balls that lead to the fun filled next several hours”
Umm.. What?
This whole thing might, or might not be the best idea ever. Who knows, give it some time. All of you who think Alaska is dumb, can get a life. I’m pretty sure they know how to run an airline, they’ve been pretty successful lately, that’s hard to argue. Sometimes you have to make a risky decision, and sometime it works out and sometimes it doesn’t. Give it some time before you call it dumb. Alaska might be “boring”, and don’t have an onboard product as “flashy” as VX, but they do know what customer want, and what customers will pay for, and know how to make money and lots of it (something VX has never figured out).
For as great as VX’s product is, they suck as a business, that’s why they’re for sale. Alaska would be dumb to do what VX is doing. Hopefully they will take the assets and put them to good use and continue to rake in the cash.
“. Alaska might be “boring”, and don’t have an onboard product as “flashy” as VX, but they do know what customer want, and what customers will pay for, and know how to make money and lots of it (something VX has never figured out).”
Alaska Airlines is an 89 year old company. Virgin America is an 8 year old company. For someone who made a point to “give this time”, you sure don’t seem willing to extend that patience to a new entrant that launched/grew in the worst downturn since the great depression.
Proves to me MBAs know nothing about running airlines! SFO?? Really?? One of the most delayed airports in the country and stronghold of UA, do they really think they will make money there?
And LGB! 90% load factors from LGB, although I realize the yield was lower than other area aiports, but to pull the service! I know there was some capacity issues with SkyWest and Horizon, but they could have saved the service. I never fly AS anymore since they pulled out of LGB. These MBAs think oh, if we discontinue LGB, the customers will fly out of SNA or LAX…WRONG!!! I fly jetBlue now! AS has lost me as a customer. And the cool thing, there will be a new choice from LGB to the Northwest (via OAK) starting June 5!
It is touching the concern some people (who of course are in no way standing to make money from a vastly expensive rebranding of AS to “Real Swell Airlines” or something) have for those unsophisticated rubes in the northeast part of the country being dazed & confused by “Alaska”. One has only to note the almost total collapse of “Emirates” since few people know what an “emirate” is; and as for the typical international traveler-I can well imagine that person thinking something like “get me to Los Angeles-but no way do I want to fly on an unfamiliar airline name!”