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Fare Cutters Chill Alaska : Airlines: The carrier earned a profit for 19 straight years by pampering customers with better meals and service. Suddenly it must cater to no-frills competition.

August 01, 1993|JESUS SANCHEZ | TIMES STAFF WRITER

SEATTLE — On trips to the Pacific Northwest, Paul McShane invariably flew Alaska Airlines. The planes were new and clean, the food good and the flight attendants helpful. Once, an Alaska jet delayed takeoff and lowered the back stairway so the late-running executive from Corona, Calif., could make it home.

But on a recent flight here from Ontario, McShane took Reno Air.

Why?

"The economics," he explained. His fare on the year-old airline was about half of Alaska's.

Alaska Airlines, which showed competitors how to profit by pampering passengers, is now struggling to survive in an era of low fares and increasingly price-conscious travelers. The challenge is much the same for American, United and other established airlines coping with the same fundamental changes in the industry.

The smile on the face of the Eskimo that adorns the tails of Alaska jets belies the painful transformation that the Seattle-based airline is undergoing. Shocked by an $85-million loss last year--after 19 straight years of profit--Alaska has eliminated costs and workers, and tested new ways of attracting passengers.

In many ways, the changes reflect a harsh truth that always has underlain the relationship between passengers and airlines, said Raymond J. Vecci, chairman of Alaska Air Group.

"The airline customer in general views buying an airline ticket as a waste of money," said Vecci. "So they are motivated to pay the least amount of money. That's always been true. That is something that I think we are acknowledging as a company."

Alaska's overhaul has resulted in experiments such as "Lite Flights," which offer low fares and fewer frills on flights from the Pacific Northwest to Reno and Las Vegas. Instead of the hot meal that has long been a standard of Alaska service, Lite Flight passengers get a bag of nuts and a beverage a la Southwest Airlines--the industry's low-fare leader.

Tampering with Alaska's service could backfire by offending many who have come to expect high standards. Alaska spends roughly $8 per passenger for meals, way beyond the industry average, and unusual touches abound. A little card with a landscape scene--and a quote from the Book of Psalms--comes with the food.

Nevertheless, the airline has little choice but to change, said Peter M. Musser, an analyst at Ragen MacKenzie, a Seattle-based brokerage.

"The customers are not willing to pay for all the better service that you get on Alaska Airlines," said Musser. "The alternative is for Alaska to continue to lose money."

Alaska is not the only airline to overhaul operations. Nearly every major carrier has launched major cost-cutting efforts in the wake of $10 billion in combined losses over the past three years. American Airlines is looking at its non-airline businesses--such as information services--for faster growth. United has contemplated forming a non-union subsidiary to cut costs.

Musser, in fact, said Alaska's management should have responded sooner to the fundamental changes that have swept the industry. "You could see this happening in 1990," he said.

Despite fragile signs of an airline-industry recovery, executives such as Vecci do not see a return to the rapid growth and fat profits of the late 1980s. Instead, they see continued pressure to keep fares and costs low as Southwest and its brethren expand and airlines operating under Chapter 11 bankruptcy protection launch round after round of price cuts.

In the face of corporate cost cutting, meanwhile, business travelers--the key source of airline profitability--have become more resistant to paying top dollar. The growing availability of information technologies, such as faxes and video conferences, could also reduce the need for trips and face-to-face meetings.

Moreover, there is a growing breed of independent business people who--unlike traditional expense-account travelers--are very sensitive to price, said Atlanta-based business travel consultant Dennis McGinnis.

"The small-business employee and entrepreneur . . . are the best customers for the new upstart airlines, like Reno Air and Kiwi," said McGinnis. "His loyalty goes to the airline who has the lowest price."

Leisure travelers, who now make up half of all air travelers, have become conditioned to wait for the next fare war to bring lower prices, said travel industry researcher and consultant Stanley C. Plog.

"Don't expect conditions to change dramatically when the economy improves," said Plog. "Low fares just dominate everything."

A low-fare world means big problems for high-cost airlines like Alaska.

Its distinctive style of service has stood out amid look-alike competitors. One frequent Alaska passenger said he never took advantage of offers to ride in first class because the service in coach was so good. The airline has frequently topped traveler surveys.

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