Deltas Flight Plan

As if on cue, a Delta Air Lines commercial jetliner roared overhead as Deltas vice president of community affairs welcomed about 200 volunteers gathered to build a playground for a Seattle nonprofits new headquarters on Martin Luther King Jr. Way in Seattle one recent Saturday.

I arranged for that, joked Tad Hutcheson, who flew out from Deltas Atlanta headquarters to join his Seattle team for the daylong project in late August.

The playground for Amara, a Seattle adoption agency that helps find permanent homes for children in foster care, was the third such project Delta employees have helped design and build in the Seattle area and the eighth the airline has built nationwide in partnership with the national nonprofit, KaBoom.

The effort is one of the latest pieces to a broad campaign by the nations second-largest carrier to win the hearts, minds and wallets of Seattle travelers. With $40 billion in annual revenue, Delta is in the midst of a massive expansion that has more than quadrupled flights in and out of Seattle in the past year alone. Delta has made Seattle-Tacoma International Airport its newest hub and is calling itself Seattles Global Airline.

As Seattle Business reported in June 2014, some wonder if the effort is a cover for Deltas attempt to undercut Alaska Airlines. They worry that Delta is expanding into Alaskas traditional markets with the goal of weakening and then acquiring a locally based airline that has provided huge benefits to the region over the years.

Delta insists it has no interest in a hostile takeover of Alaska. And it argues somewhat convincingly that Deltas new flights, particularly to international destinations, are good for the community and a regional economy increasingly tied to global markets. Consider:

Three recent full-page newspaper ads proclaiming, Delta Means Business, Investing in Seattle for Seattle and Keeping It Local.
Buses, light-rail trains and Washington state ferries plastered with Deltas title of Seattles Global Airline. (The undersides of Deltas airplanes are now emblazoned with new belly logos for anyone wondering which airline is flying directly overhead.)
Corporate sponsorship arrangements with a growing list of Seattle arts and entertainment institutions, including the Seattle International Film Festival, the 5th Avenue Theatre, the Seattle Symphony, Seattle Sounders FC and the Seattle Seahawks. (While Seahawks quarterback Russell Wilson is Alaska Airlines chief football officer and has his own parking spot at corporate headquarters in SeaTac, he travels to and from road games on Delta, the teams official carrier.)

Not only has Delta declared Seattle its newest hub, but the companys market growth has gone hand in hand with its Force for Global Good effort to improve the quality of life in the communities it serves. The airline now provides in-kind donations it wont divulge the value and sponsorships to more than 65 local nonprofits and civic organizations, including Amara, the Alliance for Education, Habitat for Humanity and the Fred Hutchinson Cancer Research Center.

Weve come on strong in Seattle, Hutcheson says. Hes talking about Deltas market growth and its growing list of charitable projects. A month after the August playground project, dozens of Delta employees participated in the local End AIDS Walk. Delta employees are also building their third Seattle area home this one in Federal Way on behalf of Habitat for Humanity.

We invest a lot of time in the communities where we work, explains Mike Medeiros, Deltas vice president/Seattle. As weve grown, our footprint in the community has grown.

Despite the onslaught, Alaska Airlines is holding its own and reminding Seattle customers of its performance awards, its strong balance sheet and its deep charitable roots. A recently released video proclaims: Home is what matters to Alaska Airlines … Home is something weve built … Our home makes us fiercely independent and reminds us of what it takes to succeed in the Pacific Northwest.

In July, Alaska had a high-profile fundraiser of its own, generating thousands of dollars for cancer research in a celebrity event at the Museum of Flight. Wilson, the Seahawks quarterback, and Seattle-bred actor Joel McHale led their teams in a tug-of-war-style competition to pull a 60-ton Alaska Airlines Boeing 737. Fresh off a stellar earnings report, Alaska Airlines CEO Brad Tilden was in his element at the event: raising money for a good cause, high-fiving employees, mingling with customers and posing for pictures.

The Strong Against Cancer happening was a classic illustration of Alaska Airlines 83-year legacy in the Pacific Northwest. In September, it cemented its reputation as one of Seattles most revered corporate citizens with the announcement of a $41 million naming-rights deal for the University of Washingtons Husky Stadium. Alaska Air Group Inc., which operates Alaska Airlines and Horizon Air, hit an all-time high of $5.4 billion in revenue last year. The nations seventh-largest airline with 612 flights to 85 destinations systemwide remains the largest carrier at Sea-Tac Airport.

Yet for every alaska charitable event or market expansion, it seems Delta pounces with a countermove of its own. Delta has become Sea-Tacs fastest-growing carrier, with 128 daily flights to 35 destinations, several of which will begin in November and December. Delta customers have nonstop access to 10 long-haul international destinations from Seattle four to Europe and six to Asia, including the recent addition of Hong Kong. That schedule is light years from early 2014, when Delta was offering 38 flights from Seattle to 15 destinations.

As Delta likes to say, its just getting started. Next year, Delta will have about 140 daily flights from Seattle and, by 2017, it will have 152. It plans to increase the number of departure gates it has at Sea-Tac from 13 to 30.

In Deltas estimation, creating a hub in Seattle was an obvious business strategy: seizing an underserved market. The Pacific Northwest is a thriving region with a thriving economy and Delta has been an engine to support that economy, says Medeiros, a 27-year Delta veteran who was brought in two years ago to head up Seattle operations. It really isnt us against Alaska. Its about whats good for Seattle. Seattle has been the most underserved market in the United States for years.

Alaska executives publicly welcome the competition and say Deltas presence has made Alaska a better airline. Privately, they cant help but view Delta as an ominous cloud threatening to rain on its hometown parade.

Anytime a competitor 10 times your size comes in and asserts themselves in our markets, its a threat, says Joe Sprague, Alaskas SVP of communications and external relations. But we are not afraid of competition and we believe it makes us better. Weve stepped up our game.

Despite the biggest competitive incursion onto its home turf that Alaska Air Group has seen in years, the company is thriving, adds Tilden. Our operation is firing on all cylinders, our leaders are focused on execution and we are generating returns that far exceed our cost of capital, he told reporters and analysts during a recent earnings conference call. In July, Alaska Air Group announced $230 million in quarterly earnings, its best quarter ever and the 25th consecutive quarter of profitability. With more than 145 aircraft fueling its growth, Alaska crossed the threshold of 1,000 total flights per day on July 2.

Both airlines are trying to woo passengers with local cuisine, upgraded entertainment, wi-fi service and improved seating. Alaska has launched what it calls Alaska Beyond service and has been training employees in a SoDo warehouse on the art of providing a new flight experience. The service includes more entertainment options, power-assisted seating and sophisticated dining options featuring Tom Douglas signature dishes, craft beers, Chateau Ste. Michelle wines, and Beechers Flagship and Tillamook cheeses. The airline is also experimenting with biometrics, using passengers fingerprints to grant them access to airport lounges. One day, a similar system might speed them through security and onto their flights.

Not to be outdone in the keeping it local category, Delta recently added Starbucks coffee to all of its flights more than 5,000 a day. And, while its home base is Atlanta, Delta christened one of its Boeing airplanes the Spirit of Seattle. It also equips all of its 12,000 pilots and 21,000 flight attendants with Microsoft devices on board. This past summer, Delta tried out a new early valet service in which airline agents stowed passengers carry-on bags before general boarding. And VIP customers facing tight connections can be whisked across the tarmac to another concourse gate in a Porsche SUV.

The competition is benefiting Sea-Tac Airport. Deltas $15-million investment has produced lobby renovations, a new Delta Sky Club, new gate power recharging stations and expanded ticket counters.

Delta has served the Seattle market almost as long as Alaska has, but it started beefing up its presence in earnest in 2010, when it launched service from Sea-Tac to Beijing. It has continued to intensify the effort during the past few years and now boasts about 3,000 employees in Seattle.

This aggressive move into the Seattle market has met with mixed reactions from business and community leaders. Some fear Delta is planning to take over Alaska, a change they predict will be devastating to the entire region. Beyond jobs, wed lose a home-grown leader and innovator that local upstart companies can learn from, says Pemco CEO Stan McNaughton, who has joined a group of business leaders in staunchly supporting Alaska Airlines.

Others, however, agree with Delta that its global expansion means thousands of new jobs, added revenue for the state and more options for business travelers. Meanwhile, Deltas growing charitable footprint, especially in the arts community, has been a boon to local nonprofits.

Tim Petrick, president and CEO of Seattle-based K2 Sports, welcomes Deltas expansion and says its been a big plus for his global business operations. K2, a worldwide ski company, has subsidiaries in Canada, Germany, Japan and Norway, and a manufacturing facility in China. Delta has made Seattle a much more accessible destination, Petrick says. Delta offers excellent service to Asia and Europe, as well as domestically.
The question remains: What is Deltas ultimate plan for Seattle?

Our end game is to provide competitive service and the very best value to the Pacific Northwest, says Medeiros. We dont believe in hostile takeovers. Seattle is big enough for two major players.

Still, Delta is no stranger to takeovers. It absorbed rival Northwest Airlines in 2008 in a $2.6 billion deal. The merger was a rebirth of sorts for the two airlines, both of which just minutes apart from each other plunged into bankruptcy in 2005. The new company retained the Delta brand and its Atlanta headquarters. The merger with Northwest helped Delta trim an additional $2 billion in costs and it married Northwests strong position in Asian markets with Deltas presence across Europe and Latin America.

Worries that the merger would prove devastating to Minneapolis, where Northwest had its corporate offices, have not been realized. In fact, Minneapolis-St. Paul International Airport has grown since the merger. The sky is not falling at MSP, concluded Daniel Fry in a 2013 Massachusetts Institute of Technology study of the Northwest/Delta merger. It is true that a major global airline is no longer headquartered at MSP, but Delta Air Lines has shown loyalty to its hub there and has many good reasons to continue doing so, he wrote.

While Delta officials maintain they are not planning to swallow up Alaska Airlines, they do acknowledge that they mean business in Seattle. In addition to adding domestic and international airline service, Delta has doubled both its advertising budget and its charitable-giving portfolio in Seattle.
Its encouraging when large national brands jump right into the local community to lend resources and visibility to organizations like Amara, says Amy Smith, associate director of leadership giving for Amara. This gift [from Delta] allows us to use resources helping more children and families, but even more impressive is the volunteer support of Delta employees.

During the recent Amara playground event, Delta volunteers spent a Saturday mixing cement, spreading mulch, painting artwork and assembling the new playground structure in only six hours. In my 27 years flying for Delta, Ive never met a more kind, giving group of individuals, says Seattle-based flight attendant Heidi Burmeister. Everyone here cares about our community.

Burmeister says Delta has always had a presence in Seattle but agrees the charitable activities have increased tremendously in recent years. Amaras new playground was designed from drawings by children in the community; many were present to see their designs become reality. Hutcheson later surprised attendees by presenting a check for $10,000, which will help Amara with long-term maintenance of the playground.

Nevertheless, several high-profile business members question Deltas motives.
I applaud any corporation who takes their community responsibility seriously, Pemcos McNaughton notes. But just writing checks is not enough. … Ive witnessed Alaskas commitment and contributions to our region many times and I know it is driven by their Northwest culture and heart. Will Delta, which is headquartered elsewhere but wants to make a big splash here, be as effective and committed to this region in the long run?

McNaughton doesnt think so, and adds: Some companies buy growth; others earn their growth.

In a guest column in the Puget Sound Business Journal, McNaughton and Joseph Schocken, founder of Broadmark Capital LLC, warned of the consequences of Deltas targeting Alaskas core business. With Alaska and Delta together controlling almost 70 percent of all flights out of Sea-Tac, imagine the ultimate pricing control that would exist if Alaska were to disappear as an independent airline.

They also question why Delta has added flights from Seattle to destinations such as Sitka, Juneau, Salt Lake City, Phoenix, San Francisco, San Diego, Los Angeles, etc. Is it because passenger demand has grown so much to those cities? Do all of Deltas growth opportunities just happen to coincide with the Alaska route map?

McNaughton and Schocken called on local citizens to fly Alaska exclusively for domestic travel.

Aaron Blank, president of the Fearey Group, a Seattle public relations firm, is one who has heeded the call, in instructing everyone in his office to fly only Alaska.

It boils down to service and supporting our local airline, Blank says. I know the Alaska team, or I feel like I know them personally. They live here, they work here and they are seriously invested in our community. Not many cities have an airline headquarters in their hometown this is critical to us. They are an essential [part of the] fabric in our community and we must support them.

But K2s Petrick says hell stick with Delta. Its definitely the primary airline carrier for K2s associates who travel often, he says. It is just so much easier and efficient to get where you need to go on Delta.

Petrick, who says he has nothing against Alaska, has been a loyal Delta customer since 2009. Before that, he was a hard core United Airlines customer, racking up nearly 2.5 million miles in the Friendly Skies. But he says the flight options from Sea-Tac became limited so he switched to Delta. Deltas nonstop flights to Asia and Europe are hard to beat and the flight crews seem genuinely happy to service their customers. No airline is perfect, but Delta is darn good the majority of the time.

Industry observers maintain that delta is taking advantage of a business opportunity in an underserved market and if it werent Delta, it would be another airline.

Deltas strategy in Seattle started out as a need for a new Asian gateway. It then began building up its domestic service to feed its East Asia flights. This domestic buildup has instead turned into an aggressive chase for Seattle origin and destination customers, long the purview of partner-turned rival Alaska Airlines and its subsidiaries, says analyst Vinay Bhaskara in an Airways News analysis.

He says many of Deltas new routes offer little in the way of demand for travel to Asia and Europe but serve to increase Deltas relevance to Seattle-based domestic travelers, the kind that would normally fly Horizon Air.

Alaska Airlines, meanwhile, has launched 37 new markets since the second quarter of 2014, and 74 since 2010. It recently announced new nonstop service from Sea-Tac to Nashville, Raleigh/Durham and Charleston.

The airline also introduced new Embraer 175s to the fleet earlier this year. By late 2016, its network will have more than 15 E175s, all of which will be operated by SkyWest, a regional carrier that also flies routes for Delta. Alaska will take delivery of 11 737-900ERs this year, 19 next year, and 12 900ERs and its first Boeing 737MAX in 2017. The new, more fuel efficient airplanes are key to Alaskas cost-cutting efforts.

Alaska Airlines strategy has long been what it describes as Swiss neutrality that is, embracing a virtual network of airlines instead of being dependent on one big, global carrier.

This summer, Alaska announced a new Mileage Plan partnership with Hainan Airways, which flies nonstop from Seattle to Beijing and Shanghai. Its feed to the Dubai-based carrier, Emirates, has doubled in the past two years to 200 passengers a day, allowing Emirates to add a second daily flight from Seattle.

The future will tell who wins this battle. Analyst Bhaskara believes that Alaska is winning because its not losing. He adds, … While Delta has the flashy new destinations in Asia and Europe, Alaska has quietly expanded its reach in the eastern half of the United States.

In a recent earnings call, Delta CEO Richard Anderson said Seattle is the airlines best-positioned U.S. hub. He added Delta will continue to work with Seattle to ensure that we have adequate facilities to be able to create a world-class connecting opportunity in the city of Seattle.

Meanwhile, Alaska officials say they will continue to let Alaskas customer service, low fares, on-time performance and profitability speak for the airline. But Sprague couldnt help adding: Seattle is not a corporate strategy; its our home.

Getting Busy at Sea-Tac
Delta-Alaska competition adds to congestion; a relief plan is still on the drawing board.

Seattle-Tacoma International Airport one of the countrys fastest growing might be the big winner in the market-share battle between Delta Air Lines and Alaska Airlines.

The number of nonstop destinations available from Sea-Tac has risen to unprecedented levels, thanks mainly to Delta and Alaskas competition. A record 4.4 million passengers used Sea-Tac in July. Year-to-year traffic is up nearly 13.4 percent, more than three times the projected amount of growth.

Sea-Tac is on pace to serve more than 43 million passengers this year, compared with 37.5 million in 2014 and 34 million in 2013. Looking ahead, projections are 55 million passengers by 2024 and 66 million by 2034.

The only problem is that Sea-Tac doesnt have the capacity to handle much more. Delta, for example, has 13 gates at Sea-Tac this year; CEO Richard Anderson has said he wants 30. (Last year, it had 11.) Delta accounts for 16 percent of Sea-Tacs passenger traffic.

Alaska has 33 Sea-Tac gates and nearly 52 percent of the passenger traffic.

Sea-Tac spokesman Perry Cooper says the airport allocates gates using a formula of the number of passenger seats airlines have scheduled for the upcoming year in comparison with the other airlines. We dont have additional gates to just add to the mix, Cooper explains. When their traffic goes up, their allocation will go up, but if other airlines go up as well, their gates may not go up, as we only have so many gates.

The result is that there most likely will be a natural cap on Deltas and Alaskas growth at Sea-Tac unless a gate space solution is found.

Relief is in the pipeline, but not anytime soon. During the next five years, Sea-Tac is embarking on $1.9 billion in expansion projects encompassing a renovation of the north satellite terminal with more gates, replacement of the center runway, creation of a new international arrivals facility and installation of a high-speed baggage system.

In addition, the Port of Seattle, which operates the airport, is working on a Sustainable Airport Master Plan to look ahead five, 10 and 20 years to manage future growth. The plan has already determined Sea-Tac will need 35 additional domestic gates and 16 international gates to accommodate growing passenger numbers.

So the additional gates wont be coming until well in the future, Cooper cautions, noting that the master plan must be completed before funding and planning parameters can be determined.