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Originally published June 17, 2011 at 10:00 AM | Page modified May 25, 2012 at 2:27 PM

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Alaska Air: Independent carrier flies high after bumpy ride

Price of fuel remains Seattle airline's biggest threat.

Special to The Seattle Times

Founded: 1932

Headquarters: Seattle

Major operations: Main subsidiaries Alaska Airlines and regional carrier Horizon Air. Alaska is the eighth-largest U.S. airline, with hubs in Seattle, Anchorage, Los Angeles and Portland.

CEO: Bill Ayer

Employees: 12,039

Major products/services: Provides service to 23 million passengers a year flying to more than 90 destinations in the United States, Canada and Mexico. It also has the most extensive air-cargo operation on the West Coast among passenger airlines.

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Stock performance: 2010 results, market cap, price-earnings ratios and dividends

Measuring returns: Return on equity and assets

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Over the past turbulent decade in one of the toughest industries, St. Louis, Houston, Minneapolis, Indianapolis and Washington, D.C., lost their hometown-headquartered airlines to mergers and bankruptcy, while even more cities lost hubs that generated tens of thousands of jobs. But not Seattle. Alaska Airlines flies on.

This is no small measure of the company's employees and its charismatic chief executive, Bill Ayer, who points out that Alaska Air Group, which includes Horizon Air, was one of the few major, struggling airlines to come through the industry bedlam set off by 9/11 without going through a Chapter 11 reorganization.

Alaska was making money in the late 1990s but entered the new decade with the crash of Flight 261 off the California coast, an accident traced to maintenance flaws. Like all airlines, Alaska struggled in the wake of the 9/11 terrorist attacks and subsequent falloff of business. It contracted with baggage handler Menzies Aviation but suffered through several incidents of damaged jets and poor performance before the trouble was fixed.

"We didn't contemplate Chapter 11," Ayer said in an interview at the company's squat, unassuming headquarters. "There's too much harm that gets done. ... We had the same issues as the legacy carriers. But the right thing was to work things out on our own."

Alaska turned a record profit last year. It came in among the top-10 profit gainers among the Best of the Northwest companies, as well as seeing a 64 percent gain in its stock price. It also made the top 10 for return on equity, at 25.4 percent. On-time performance has improved, and last year Alaska had one of the lowest rates of canceled flights, according to federal statistics.

The turnaround cost around 2,100 jobs. "This was the most difficult part," Ayer said. "We're dependent on our people, so we wanted to minimize the negative effect on them, using layoffs as a last resort." Those let go received "very generous severance packages."

Ayer and his team were adamant about not merely reacting to crisis. Structural changes made in operations were aimed at competing long-term against low-fare carriers.

Alaska doubled-down on keeping morale high and serving customers better. It made the transition to a single type of fleet, Boeing 737s, which helps with efficiency. Alaska also embarked on an eastward expansion from Seattle to destinations such as Reagan National Airport in Washington, D.C., as well as adding trips to Hawaii.

"The goal is a virtuous cycle, with good financial performance that improves employee security, which makes sure they're more engaged with customers, which increases customer loyalty," he said.

Aviation consultant Scott Hamilton, of Leeham Co., said Alaska has done "some interesting things to make themselves more efficient," including pioneering online bookings and check-in, and utilizing ticketing kiosks and the "flow-through airport design" used at Seattle-Tacoma International Airport.

Alaska's biggest challenge, Ayer and Hamilton agree, is fuel. When oil swings from $150 a barrel in 2008 to $50 a few months later and back above $100 this year, Hamilton said, "It's impossible for an airline to budget for that."

Ayer said the single fleet of 737s adds to fuel efficiency. In addition, Alaska is a partner in the Greener Skies pilot project with Boeing, the Port of Seattle and the Federal Aviation Administration. The program uses new technology to plot more fuel- efficient (and less noisy) flight paths.

Jon Talton: jtalton@seattletimes.com

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