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Alaska Air--Small Start, Big Success

December 06, 1987|ROBERT E. DALLOS | Times Staff Writer

SEATTLE — The influential Alaska Business Monthly pondered recently whether Alaska Airlines had outgrown its name.

More than a half century ago, it flew just one three-passenger plane out of Anchorage. And for many years, even as it grew, it flew exclusively within Alaska. Today it serves more cities outside Alaska--16--than inside--14--and is not even based in Alaska anymore. More than half of its revenue comes from the "Lower 48."

Nevertheless, the magazine said changing the airline's name would not be a good idea. "Did the Los Angeles Rams change their name to the Anaheim Rams? Did the New York Jets and Giants become the New Jersey Jets and Giants?" the publication asked.

Management is also unlikely to entertain any suggestions that the name be changed--and it has already rejected proposals that the distinctive face of a smiling Eskimo on the tails of its 46 planes be removed.

"The name is so powerful. The name is real dynamite," said Bruce R. Kennedy, the boyish 49-year-old chairman of the airline's parent firm, Seattle-based Alaska Airlines Group. "We have to convince people that Alaska Airlines doesn't just go only to Alaska anymore than AirCal flew only in California.

"But the name has emotional impact. When you say Alaska Airlines, people think of an igloo, they think of a whale, they think of a mountain, they think of fishing. We could name it West Coast Airlines but, like the names of many of the other airlines, that's plain vanilla."

Whatever it is called, Alaska Airlines is one of the nation's most successful carriers, ranking 16th in terms of revenue passenger miles (the number of paying passengers multiplied by the number of miles flown). It has not suffered an annual loss since 1972. Even this year, with its profit dramatically pulled down by losses at its recently acquired Jet America subsidiary, Alaska Airlines expects to show a substantial profit.

And, though its management intends to fend off any takeover attempts, its success has made it a prime target. It is one of the industry's few remaining attractive candidates for merger or takeover.

Jet America, which Alaska bought last year, has been Alaska's biggest problem. The Long Beach-based carrier--which put most of its marketing emphasis on its nonstops between Long Beach and Chicago--was too small to compete effectively with major carriers, such as American, United and Delta. In the first six months of 1987, Jet America was $10 million in the red, resulting in a big drain on Alaska Air's profit.

Eventually, Alaska's management hopes, the Jet America purchase should improve Alaska Airlines' West Coast niche. But for now, it continues to sap Alaska Airlines' financial condition.

"The bad news is that termination of Jet America's operations should add about $2 million to $3 million (a quarter) to expenses," estimated Edmund S. Greenslet, airline analyst for Merrill Lynch, a New York brokerage house, because Alaska Airlines, with its higher operating costs, has taken over the remaining Jet America routes.

The Jet America purchase, with its mainly east-west route system, was supposed to reduce the seasonality of Alaska Airlines' route system. But new competitors entered what had been monopoly markets for Jet America so, even with its low cost structure, it was unable to be profitable.

Faced with increasing competition in Jet America's routes between Eastern cities and Long Beach, Alaska Air Group in September halted Jet America's operations east of the Rockies, including routes to Minneapolis, Dallas, St. Louis, Chicago, Washington and Detroit.

Sold Landing Slots

Jet America was folded into Alaska Airlines on Oct. 1, and the Jet America name disappeared from scheduled flights. The combined operation has become the dominant carrier at Long Beach airport, but all of Jet America's points outside California were closed.

Alaska sold Jet America's four valuable landing slots in Washington and 14 at Chicago's O'Hare Airport for between $10 million and $11 million, about a third of what it paid for the carrier. The Jet America planes were redeployed from their east-west routes to open new markets for Alaska Airlines and to increase the number of flights on the airline's north-south route network on the Pacific Coast.

As a result, the airline is boosting its presence along the coast at a time when competitors shift their service elsewhere. A number of competitors have abandoned or pared back flight frequencies on the routes that Alaska Airlines is emphasizing.

Three airlines have announced reductions in Seattle-Anchorage flights and a few others have cut back schedules on Seattle-California routes. Alaska Airlines is taking this opportunity to introduce new jet service or increase the service it now offers. As a result, it is likely to pick up new passengers, benefiting load factors and yields and--it is hoped--significantly strengthening the bottom line.

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