The Battle for Seattle: Alaska vs. Delta

When the Seattle Seahawks returned to Sea-Tac Airport after winning the Super Bowl, a Delta Airlines flight attendant waved a blue 12th Man flag from the cockpit window as the plane taxied to the terminal. For the Atlanta-based airline, it was much more than a victory flight after the biggest sporting event in America. It was yet another claim on the home turf of Alaska Airlines. It was also a reminder that in the ultimate sport of airline competition, theres a new team in town and it wants a championship trophy of its own: Seattle.

The new team has actually been a code-sharing partner of Alaska Airlines for 10 years. But during the past two years, that relationship has become a polite battle as Delta began increasing service in Seattle.

Deltas master plan to become the regions global carrier and turn Sea-Tac Airport into Deltas West Coast gateway to Asia is picking up steam. By 2017, Delta plans to offer 150-plus daily flights from Seattle, says Mike Medeiros, Deltas vice president for Seattle. That is a giant leap from the 38 flights it was offering from Seattle to 15 destinations at the beginning of this year. In June, Delta, which calls itself Seattles fastest-growing airline, ramps up to 79 daily flights to 25 destinations from Seattle. By summer 2015, the airline wants to have 110 daily flights, 125 by 2016 and 150-plus the following year.

Alaska has been undergoing its own ramp-up and, as of June, will operate 278 peak-day, nonstop departures to 72 destinations from Seattle more than 33,400 passenger seats per day. It also is investing $40 million in a major remodel at Sea-Tac to be completed in phases between now and 2019.
Over the long run, were going to win by focusing on what Alaska has always done well, says Alaska Air Group CEO Brad Tilden. That means flying safely and reliably, offering our customers and communities terrific service, having low costs and low fares, and providing our employees a great place to work.

The future of the code-sharing relationship is still up in the air but Tilden vows to protect Alaskas home base by staying financially fit and remaining staunchly independent amid a flurry of airline mergers and a bigger is better industry mindset.

For 82 years, the best answer for all of our constituents has been for us to be an independent airline and if we can continue to perform, I think we are going to have a very bright future, Tilden says from his office overlooking Angle Lake near Sea-Tac Airport. I just think what we bring to the community is different with us being an independent company based in Seattle.

Tilden admits, however, that the competitive onslaught from Delta and other airlines is the biggest challenge facing Alaska today. He predicts competition to increase 9 percent this year from its rival carriers, including Delta, United, Southwest, American and Hawaiian.

We do feel a lot of pressure to perform, Tilden notes. There are lots of new flights that our customers are seeing. Our customers are going to be tempted by this new service and its important that we be at our best right now. Theres more capacity in Seattle right now, which obviously is not what were looking for.

Delta, the worlds second-largest airline, started expanding in Seattle with service to Anchorage and other western markets traditionally served by Alaska, the worlds seventh-largest airline. By September of this year, Delta will overlap with Alaska in 13 of Alaskas top markets. It also will add daily nonstop service from Sea-Tac to Seoul and Hong Kong in June, bringing its total passenger seats on international flights to 2,500, up from 700 a year ago. (Delta already offers service to Shanghai, Beijing and Tokyo.) Combined with domestic flights, Deltas total seats per day out of Seattle will be 12,200.

If you look out over the next 10 years, the Pacific Northwest economy is one of the fastest-growing regions in the United States, Delta CEO Richard Anderson said in a conference call with analysts last year. So we now will have six nonstops a day to Asia and three nonstops a day to Europe. … In order to be able to support that service, we have to have sufficient connectivity to Seattle.

Delta actually looked at other possibilities Los Angeles and San Francisco, specifically before deciding on Seattle as its West Coast hub. Once that decision was made, it felt it needed more feeder flights in Seattle than Alaska and other carriers were prepared to provide.

Ultimately, the biggest winners in this competition will be Seattle travelers. This is a polite battle that is going to go on for a while, says local travel industry analyst Steve Danishek. The longer it lasts, the more flight and city choices there are for Seattles pocketbook fliers. Danishek doesnt foresee an outright fare war, but as the competition increases, prices are less likely to keep climbing at the rate they have been in recent years.

The entire Puget Sound region also gets a boost. These international connections promote trade and business development to generate good jobs throughout the Pacific Northwest and additional tourism connections, said Mark Reis, managing director of Sea-Tac Airport, during a ceremony kicking off Deltas new service to London. Sea-Tac, the 15th-busiest airport in the United States, generates $13.2 billion in business revenue, more than 138,000 jobs, $2.2 billion in direct earnings and $412.4 million in state and local taxes.

Sea-Tac Airport predicts an increase in passengers of about 2.2 percent through 2018, says spokesman Perry Cooper.

Delta is making its presence known throughout the region with a sophisticated, aggressive marketing campaign, including billboards, banners throughout the airport and advertising slogans like Seattles international airline. The airline won the coveted right to be the official partner airline of the Seahawks and Sounders FC. It was named 2014 airline of the year by Air Transport World magazine and the most admired airline for the third time in four years by Fortune magazine.

Delta raised its profile further by naming one of its Boeing 737s the Spirit of Seattle and naming Medeiros to the new post of vice president for Seattle. It also has put $14 million into its facilities
at Sea-Tac Airport, including lobby renovations, a new Sky Club, gate area recharging stations and expanded ticket counters.
Medeiros, the new face of Delta in Seattle, views Alaska and Delta as fierce competitors. Alaskas Tilden prefers to let Alaskas reputation speak for itself and to focus on playing Alaskas game. That game includes consistent profits. Alaska posted record 2013 earnings of $383 million, a 13 percent increase over its $339 million net income the previous year. It has reduced debt and maintains a 7 percent capacity growth rate. It has earned top billing in on-time performance for four years running (a dramatic improvement from last place in 2006). According to FlightStats, a data provider, Alaska led all carriers in North America in 2013 with 87.08 percent of its flights landing on time. (Delta was second, at 84.3 percent). For the past six years, J.D. Power has ranked Alaska highest in customer satisfaction among traditional network carriers.

Tilden, 53, who replaced Bill Ayer as Alaska Air Group CEO in 2012, credits the companys success to its 13,000 employees, a focus on lowering costs and a dedication to doing the right thing.

Alaska Air Group, which includes Alaska, Horizon and routes flown on Alaskas behalf by SkyWest and PenAir, flew nearly 27.5 million passengers in 2013. Alaska already has expanded service from Seattle to Los Angeles, Las Vegas and San Francisco and is rapidly adding service to more East Coast, Mexican, Canadian and Hawaiian island destinations.

This summer, Alaska will launch seven new flights into Salt Lake City a Delta hub and will add service to five more cities: Albuquerque, Baltimore, New Orleans, Tampa and Detroit. Thats in addition to the 15 new markets it entered last year and 20 during 2012. Recently, Alaska closed a number of less profitable routes, nixing city pairs such as Los Angeles-San Jose and Portland-Long Beach, but its mid- and transcontinental service has grown from one city (Chicago) in 2000 to 20 cities east of Denver.

Alaska also embarked on a promotional partnership with Seahawks quarterback Russell Wilson, giving him the honorary title of chief football officer. Other partnerships, including possibly expanding its code-sharing relationship with American Airlines are in the works. In April, the airline announced it will offer double frequent flier miles through the end of the year on eight of its most popular routes to and from Seattle.

Alaska and its regional sister airline, Horizon Air, control 51 percent of the traffic at Sea-Tac Airport. It has 184 airplanes (133 Boeing 737s and 51 Bombardier Q400 turboprops) and serves more than 100 cities in the United States, Mexico and Canada. Delta has become Sea-Tacs second-busiest airline, more than tripling its market share to nearly 12 percent. Delta carries 164 million customers to 322 destinations in 59 countries on six continents.

Alaska is as feisty today as the pioneering bush pilots who created the airline in Alaska in 1932. The airline had built up a Gold Coast reputation over the years for its premier service (hot meals served with silverware and china) and a 19-year streak of profits (1973 to 1991). But the unpredictability of the post-9/11 years, with soaring oil prices and the financial meltdown, put the airline and the entire industry to a most critical test. We restructured just like the airlines that went through bankruptcy, Tilden notes, but we just did it outside of bankruptcy.

It weathered the industry downturn through a companywide transformation that began in 2003. The company is cutting costs through fuel-hedging programs, adding newer, fuel-efficient 737s, entering new markets and ditching unpopular routes. The turnaround we did during the middle part of the last decade was difficult on our people and some felt bruised and beat up, Tilden acknowledges. In the last couple of years, weve taken a breath and invited all of our employees to our Flight Path seminar and let them vent and ask questions, and then we shared with them our plans for the future.

Among those goals is to become the worlds easiest airline to fly. While that doesnt necessarily mean going back to the good old days of, say, not charging customers $25 per bag to check their luggage, Tilden insists, We want our customers to enjoy a hassle-free experience. Sometimes an employee will ask where were headed … are we going to be the Nordstrom of airlines or the Walmart, or exactly who are we going to be? He says the problem with being the Nordstrom of airlines is that Alaska wants to serve a broader share of the market. We like to talk about Costco, he says. Really high-quality products that are delivered in an extraordinarily efficient way a great value for their customers.

In the past several years, the American aviation industry has seen several consolidations, including U.S. Airways with American Airlines last year, AirTran with Southwest in 2011, Continental with United in 2010 and Northwest with Delta in 2008. Alaska has remained unattached by adopting a strategy of Swiss neutrality, enabling it to have a multitude of partners around the world while keeping the Alaska brand at the forefront.

The airline currently partners with 14 other carriers with access to more than 700 destinations around the world. It enables us to remain independent and share traffic with lots of domestic and international airlines, Tilden says. And we think that is the right long-term strategy for us.

Industry trade groups predict continued improvement in the global airline industry, with U.S. carriers generating an estimated $8.6 billion profit this year. That prediction seems to be on course with Alaska, which has met or exceeded all of its operational and financial goals, resulting in record incentive pay for employees of $105 million in 2013, or nearly five weeks of pay for most employees. Also last year, Alaska declared a dividend for the first time in 21 years and increased it by 25 percent earlier this year.

Airline analysts have noticed. A recent Zacks Investment Research report characterized Alaska as a major outperformer with nearly limitless expansion opportunities. Motley Fool, an online investment guide, reported in April that Alaskas ability to pay down debt has given it strong cash flow, placing the company in a position to implement strategies other airlines simply cant. Among those is to increase its fleet of Boeing 737s and fully fund the companys pension plan.

Being smaller and maintaining its entrepreneurial culture is Alaska Airlines biggest advantage. The company has mastered being in a good place at the right time; it can adjust its schedules quickly to match capacity with demand. Being nimble is a key advantage, Tilden says. My thinking about the industry is … when opportunities come, you pounce.

For example, within weeks after Mexicana Airlines suspended operations in August 2010, Alaska announced it would double its capacity between Los Angeles and Mexico City and Guadalajara. And shortly after Aloha Airlines and ATA went out of business in 2008, Alaska took their place by launching service to Hawaii from the San Francisco Bay area. It has grown from three flights a day in 2007 to 25 a day presently.

When asked where he sees Alaska Airlines in the next five years, Tilden says: My hope would be that weve used all this new competition as an opportunity to refocus, realign and reground ourselves. He likes to quote Alaskas treasurer, Mark Eliasen, who once said, Our job isnt to predict the weather, but to build a strong house.

We are still building, Tilden says, but he adds the company has come a long way during construction. We dont know whats going to happen to the economy or fuel prices or competition, but we can build a company where, if business conditions are good, we can take more airplanes and we can grow and do great things for our customers … or, if business conditions are bad, we can compete and hang on and do OK. Thats our job: to build our company like that house.

Even as another carrier boasts that it is Seattles fastest-growing airline.

THE BATTLE FOR SEATTLE: Pundits Take Flight
The ramping up of Delta-Alaska competition creates ample fodder for online commenters.

In his Cranky Flier blog (crankyflier.com), Brett Snyder has created a soap opera parody titled As Seattle Turns. In March, he wrote: I really just cant get enough of this slow unraveling of the Delta/Alaska partnership. A Cranky Flier reader predicted 2014 as the year Alaska and Delta will fight over Sea-Tac passengers like spoiled divorced rich kids at Christmas. Gifts of high frequency and low fares will try to woo passengers to love one parent more than the other. It will be a great year to be a Sea-Tac flier.

Chicago-based travel blogger Rohan Anand (upgrd.com/aerospace) ruffled feathers with his April 1 post of a $15 billion merger between Delta and Alaska. He said the new airline would retain the Delta name but adopt the livery of Horizon Air.

Anands prank caught some readers off guard and generated a flood of comments: This is an April Fools joke to some degree, wrote one reader. However, Delta does in fact intend to merge with Alaska Airlines, and that is NO joke! Employees of Alaska do wonder about Deltas ultimate intentions. A person claiming to be an Alaska staffer replied to Anands post with: You scared the #@!! out of me!

THE BATTLE FOR SEATTLE: The Brad Tilden File
Name: Bradley D. Tilden

Title: Chairman and CEO, Alaska Air Group and its two subsidiaries, Alaska Airlines and Horizon Air.

Previous Experience: Before joining Alaska in 1991, Tilden spent eight years with the accounting firm Price Waterhouse Coopers, now PwC, in Seattle and Melbourne, Australia. He became Alaskas CFO in 2000 and president in 2008. A friend recruited him to Alaska and, as Tilden says, Things just sort of developed from there.

Education: He earned a bachelors degree in business administration from Pacific Lutheran University (PLU) in Tacoma and an executive M.B.A. from the University of Washington. He holds a private pilots license with an instrument rating.

Community Service: Tilden serves on the boards of PLU and the Chief Seattle Council of the Boy Scouts of America, and was a director at Flow International Corp. until its sale in January 2014.

Childhood: He grew up in Seattle, third of six siblings. He attended Highline High School, just west of Sea-Tac Airport. In the old days, I used to go to a park on the edge of the airport and watch Alaska jets take off and land, he says.

Family: He lives in Seattle with his wife, Danielle, whom he met at PLU. They have three daughters, ages 27, 25 and 22.

Hobbies: Tilden enjoys spending time with his family, cycling and flying his Cessna 182 four-seater.

Lifes Passion: His father wanted him to follow in his footsteps as an engineer at Boeing, but Tilden wanted to be a pilot and at age 18 he learned to fly a Cessna 150. However, he decided that getting hired as a pilot for an airline would be like winning the lottery and it would never happen to me, so I went and got an accounting degree.