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Alaska Airlines: What Did the Airline Profits Sustainability Index Reveal?

Alaska Airlines: What Did the Airline Profits Sustainability Index Reveal?

 

In the previous 10th issue of Airline Profits, we shared our analysis of Allegiant Air. In this edition, we are presenting another airline review on the basis of the Airline Profits Sustainability Index (APSI): that of Alaska Airlines.

Our analysis covered a period of 10 years, starting 2006 through 2015. We have also considered pieces of information available on Alaska Airlines’ website and other reputable sources such as Flightglobal at the time our review was conducted.

Based on the data available as of August 2016, our analysis revealed that on a scale of 1 to 10, Alaska Airlines has an Airline Profits Sustainability Index of 8.9.

In the next few lines, we are going to offer a breakdown of this rating. However, let’s begin with a brief overview of the company by highlighting some key facts.

Creation and History

Alaska Airlines was formed initially as McGee Airways in 1932 by Linious “Mac” McGee and offered on-demand flights from Anchorage, Alaska. Following a series of mergers and acquisitions due mainly to tough competition within Alaska and difficult financial positions, the airline was absorbed by Star Air Service. The latter was acquired in 1941 by Raymond Marshall and changed its name to Alaska Star Airlines the following year. It was only in 1944 that the airline adopted its current name of Alaska Airlines.

Despite its long financial struggles and a tough competitive environment, Alaska Air succeeded in establishing itself as a multiple award-winning airline in terms of both customer and employee satisfaction.

As of 2015, Alaska Airlines is one of the world’s most profitable airlines, far outperforming the global airline industry in terms of operating and net profit margins.

Alaska Airlines bought Virgin America in 2016 for 2.6 billion US dollars and will become the largest carrier in the West Coast, when the United States government approves the merger early 2017. For the time being, the Virgin America brand will coexist alongside that of Alaska Airlines until the time a full merger plan is eventually rolled out.

Business Model, Network and Fleet

A mainline carrier, Alaska Airlines serves 116 destinations mostly in the USA, but also in Canada, Costa Rica and Mexico. Alaska Airlines operates a fleet of 205 aircraft in-service composed of 153 Boeing 737 and 52 Bombardier Q400. The current in-service fleet has an average age of 9.2 years.

Ownership and Subsidiaries

Alaska Air Group holds 100 percent of Alaska Airlines’ equity as well as that of its regional airline, Horizon Air.

Brad Tilden
CEO, Alaska Air Group

Leadership, People and Operations

Alaska Airlines is currently led by Brad Tilden in the role of Chairman and Chief Executive Officer. And as of 2015, the airline employed over 15,000 people.

Headquartered in Seattle, Washington, Alaska Airlines uses Ted Stevens Anchorage International Airport as its main operational base.

Airline Profits Sustainability Profile

As mentioned at the beginning of this review, our analysis covered a 10-year period ranging from 2006 to 2015.

People Index

The Airline Profits People Index is based on a scale of 1 to 10. Alaska Airlines has a very high People Index of 9.0. Five factors were considered in our calculation. The People Index has a 45% weight in the overall APSI.

Performance Index

The Airline Profits Performance Index is based on a scale of 1 to 10. Alaska Airlines has a very high Performance Index of 9.0. Five factors were considered in our calculation. The Performance Index has a 40% weight in the overall APSI.

Agility Index

The Airline Profits Agility Index is based on a scale of 1 to 10. Alaska Airlines has a high Agility Index of 8.6. Seventeen factors were considered in our calculation. The Agility Index has a 15% weight in the overall APSI.

Summary

Alaska Airlines’ Airline Profits Sustainability Index of 8.9 is essentially driven by the People and Performance Indices, which in this case happen to be very high. This is mainly due to the fact that over the past decade (2006-2015), Alaska Airlines was profitable eight years out of ten. In addition to that, the airline has posted above average operating and net profit margins.

With very high People and Performance indices, our primary recommendation is that Alaska Airlines would do well to focus on improving its Agility index.

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Copyright 2016 Airline Profits
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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is a speaker, an airline business thought-leader, and author an innovative book series intended for the 21st century airline, namely Airlines for Business and Airlines for Technology.