netrashetty
Netra Shetty
Alaska Air Group Inc., is an aviation holding firm / corporation based in SeaTac, Washington which owns two certificated airlines operating in the United States: Alaska Airlines[3] and Horizon Air.[4] In 1985, it was formed and a year later the holding company acquired Horizon Air and Jet America Airlines. Jet America Airlines, and their employees were merged into Alaska Airlines in 1987. Alaska Air Group has no relationship to JetAmerica, an airline proposed in 2009.
Alaska Air Group subsidiaries employed 9,866 staff as recently as 2007, but have cut that number back substantially by 2008. It remains undetermined how many employees actually work for Alaska Air Group itself. Alaska Airlines operates only U.S. built Boeing aircraft with up to 172 seats while Horizon operates only Canadian built Bombardier aircraft with up to 76 seats.[5]
The separation of the two companies is not due to "Scope Clauses," as is the case with other similar holding companies and their airlines such as Mesa Air Group and Freedom Airlines or Republic Airways Holdings and Shuttle America.[citation needed]
Alaska Air Group is the parent company and holding company of both independently "branded" Alaska Airlines and Horizon Air operations.[6]
Alaska Air Group (NASDAQ: ALK) is a US airline with service primarily in the western U.S -- 62% of the company's flights originate or terminate in Seattle.[1] As the tenth largest airline in the US, the group is a holding company for legacy carrier Alaska Airlines and regional airline Horizon Air, and had $3.1 billion in total revenues and carried approximately 17.6m passengers in 2007.[2] Only 8% of Horizon flights and 15% of Alaskan flights were international. [1]
The company turned a profit in 2007, after a year of losses in 2006.[3] Between June 2007 and May 2008, the company was the tenth US Airline in terms of domestic revenue passenger miles and commanded 2.7% of market share by that same metric.[2] Much of this profit was due to hedging crude (from which jet fuel is derived) at the right time -- the company has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at $78.03 and $76.64 per barrel respectively, while crude prices reached $147 in June 2008.[4]
After reporting a quarterly loss in the second quarter of 2008, Alaska Airlines entered into a series of cost cutting measures including layoffs. [5] As the industry continues to see more consolidation among different airlines, Alaska Airlines has not entered into one of the industry alliances (such as the Star Alliance) or closed revenue sharing agreements. Instead, the airline maintains partnerships with select airlines within different alliances.[1] Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding as of the ends of December 31, 2007 and 2006 respectively. This debt is almost exclusively used to finance flight equipment and property costs. [6][7]
Contents
1 Corporate Overview
1.1 Business segments
2 Key Trends and Forces
2.1 Fuel Costs
2.2 Financial Markets
2.3 Industry Consolidation
3 Competition
4 Market Share
5 References
Corporate Overview
Alaska Air Group is the parent company of both Alaska Airlines and a regional airline known as Horizon Air. Alaska Airlines carried 17.6m passengers on 115 jet aircraft in its mainline operations in 2007 primarily on its North/South service within the Western U.S., Canada, and Mexico. [8] Horizon Air carried 7.6m revenue passengers on 21 jets and 49 turboprop aircraft in 2007, of which 24% connected to Alaskan Airlines flights. [9]
Operating Revenues (in $millions) 2007 Change 2006 Change 2005
Passenger 3,236.5 5.0% 3,083.0 13.0% 2,728.7
Freight and mail 97.8 0.5% 97.3 3.4% 94.1
Other-net 171.7 11.4% 154.1 1.0% 152.5
Total mainline operating revenues 3,506.0 5.1% 3,334.4 12.1% 2,975.3
Total Operating Income 212.0 To Profit -87.3 To Loss 166.5
Total Net Income 125.0 To Profit -52.6 -791.5% -5.9
[10]
In the 2007 reporting year, the group added 4% to its available seat miles and 3.5% to its revenue passenger miles; however, because its load factor declined by 0.4 percentage points, some of its added capacity was not completely used. [11]
Mainline Operating Statistics 2007 2006 % Change
Revenue Passenger Miles (in MM) 18,451 17,822 3.5
Available Seat Miles (in MM) 24,208 23,278 4
Passenger Load Factor 76.20% 76.60% -0.4
Yield per passenger mile ($) 0.1152 0.115 0.3
Operating Revenue per ASM 0.1052 0.1054 0.2
Passenger Revenue per ASM 0.1054 0.1192 -11.6
[11]
Business segments
Although the company reports that Alaska Airlines carried 17.6m revenue passengers in 2007 and Horizon Airlines carried 7.6m revenue passengers in the same year, the company does not report financial data separately for the two airlines that it holds.[12] While the geographic destinations of Horizon Air are simply described at 92% US and 8% Canada, the geographical destinations of Alaska Air are more evenly spread among the West Coast, flights to Alaska, Hawaii, and transcontinental flights.[12]
Passenger Traffic by Market 2007 2006
West Coast 46% 45%
Within Alaska and between Alaska and the US 21% 20%
Mexico 11% 11%
Canada 4% 4%
Other, including transcontinental and Hawaii 18% 20%
[12]
Mainline Passenger Revenue (92.3% of 2007 revenue) covers all normal fares purchased on either Alaska Airlines flights or Horizon Air flights. [13] In the 2007 reporting year, there was a 4.0% increase in capacity in terms of available seat miles (ASM). Revenue increased more quickly than the capacity did; there was an approximate 5% increase in revenue although there was a decline of .4 percentage points in load factor, the term which describes the percentage of available seats that are filled with revenue passengers. The company claims that the load factor decrease is a result of the replacement of several of their older aircraft with larger B737 airplanes. [13]
Freight and Mail Revenue (4.9% of 2007 revenue) remained static (at an increase of .5%) between 2006 and 2007. The company states that the lack of growth in this segment is a result of delays in the conversion of four of their B737-400s into aircraft suitable for freight shipments as well as passengers. The company anticipates an increase in the revenue from this section for the upcoming year as it will be able to provide full capacity to shippers of mail and freight. [14]
Other (2.9% of 2007 revenue) comes from the sale of frequent flier miles.[14] These revenues increased by 11.4% largely as a result of a increase in commission on the sale of frequent flier miles to the company's bank partner. The company defers more than 50% of the revenues from these revenues until the actual award travel takes place, so this number represents the majority of revenue from award travel taken in the reporting year. [15]
Key Trends and Forces
Fuel Costs
In order to avoid having to pay the full cost of jet fuel in the case of price increases of crude oil, Alaska Airlines hedges its fuel, or purchases the right to purchase fuel at designated crude barrel prices (as jet fuel prices are highly correlated with crude oil prices and jet fuel is not sold on major commodity markets) at a later date for a specific price, regardless of what the actual price of the fuel might be at that later date. Alaska Airlines has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at prices for $78.03 and $76.64 per barrel respectively.[4] Until that point, the company had hedged 39% of its fuel at prices for $67.53 per barrel of crude oil in 2008 and realized gains of $44.9 million, $87.0 million, and $108.8 million in 2007, 2006, and 2005, respectively, on fuel hedge contracts that settled during the period. [16] This strategy of fuel hedging is also employed by competitor Southwest Airlines Company (LUV) and was, to a great extent, responsible for the rise in net income that Alaska and Southwest had in July 2008, when crude oil prices reached $147.00.[7]
Financial Markets
Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding at the ends fo December 31, 2007 and 2006 respectively. The company continues to use debt to finance the purchase of new aircraft as well as to update its current fleet. [17] Between 2007 and 2008, the company had a debt to equity ratio of 1.44, aproximately the same as that the company had between 2003 and 2008. [18] This debt is almost exclusively used to finance their flight equipment and property costs. The company has historically been able to secure financing for the debt; however, there has always been the risk of not being able to finance their debt. [19] If there is an increase in interest rates for the financing of the debt that the company has, the company estimates that costs will also increase. Furthermore, many businesses are having more trouble finding financing for their operations. If the credit crunch advances, they company states that there is alway a possibility that the company will not be able to refinance its debt.[20]
Industry Consolidation
There have been a number of different signs of consolidation across the commercial airline industry over the past several months as evidenced by Delta and Northwest. [21] Furthermore, airlines such as British Airways, American Airlines and Iberia are finding new ways to work together through close revenue sharing agreements. [22] Many airlines have begun to consolidate in order to increase revenues by offering passengers additional destinations while reducing costs by coordinating marketing and flights. [23] Once these consolidations are made, additional revenues have been seen by airlines such as Air-France KLM, which has been able to both increase revenues and reduce costs through their merger. [24]
Airline 'alliances' which allow customers to earn and spend frequent flier miles on partner airlines such as the Star Alliance, Skyteam, and One Air Alliance are also offering increasingly more communal benefits to their customers. As of 2008, the Star Alliance carried 24% of revenue passengers, the Skyteam 21%, Oneworld 17%, and all other airlines 38% of all revenue passengers. [25] The Star Alliance has seen revenue increases in many of its segments since inception because passengers travel more frequently with member airlines in order to earn award travel with their member airline. [26]
Alaska Airlines does not belong to any of these alliances although it does have a number of partnerships for mileage, but these partnerships are not within one single commercially marketed alliance. Alaska Air does not clearly publish the breakdown of the benefits that the company's marketing partnerships with other airlines; however, the revenues are included within the Other section of revenue. [27]What is clear, however, is that members of these alliances command significant market share.[25] Although the airline's revenue from its mileage program increased in 2007 to $227.6m from $194.2m in 2006, the airline will lose the synergetic revenues that are often seen within the airline industry through consolidation. [26] [22][28] The company does not discuss the potential benefits or costs of joining an alliance.
Competition
Between June 2007 and May 2008, Alaska Airlines was the tenth largest domestic airline and commands 2.7% of the market share in the United States in terms of domestic revenue passenger miles. [2] Although this list shows its market share in the US domestic market, it should be noted that the company depends on several key markets for its sales. 62% of all of its flights originate or terminate in Seattle and other significant markets include Los Angeles, Portland, and Anchorage. [29]
There are several factors that are key in distinguishing this company from its competitors. One of the most widely publicized are the differences in fuel hedging that the company has undertaken. Having hedged 50% of its fuel consumption for the rest of 2008, the airline will remain more isolated than any airline that has not protected itself on the same scale against fluctuating oil prices. [4] Another key difference between this company and many other airlines is that the company's revenues are very concentrated (to 92.3%) in passenger revenues primarily within several key markets (62% of all flights originate or terminate in Seattle).[29] Alaska Airlines and Horizon Air together carry 48% of all passengers traveling to or from Seattle-Tacoma, whereas their closest competitors, Southwest and United, carry 8.71% and 8.60% of customers through this airport. [30]
June 2008 Competitive Metrics (MoM)[31]
Airline Revenue Passenger Miles (Billions) Traffic Pct Change Available Seat Miles (Billions) Capacity Pct Change Load Factor (%) Utilization Pct Change
American Airlines (AMR) 11.85 (3.1%) 13.86 (1.2%) 85.5% (1.7%)
Delta Air Lines Inc. (DAL) 11.69 0.2% 13.68 0.7% 85.4% (0.5%)
United Airlines (UAUA) 10.34 (3.6%) 11.97 (0.6%) 86.5% (2.6%)
Continental Airlines (CAL) 7.71 (0.9%) 9.16 1.4% 84.1% (2.0%)
Southest Airlines (LUV) 6.88 0.7% 8.80 5.7% 78.8% (3.9%)
Northwest Airlines (NWA) 6.56 1.4% 7.48 2.4% 87.7% (0.9%)
US Airways Group (LCC) 5.67 (0.5%) 6.67 0.4% 85.0% (0.8%)
JetBlue Airways (JBLU) 2.30 2.3% 2.77 3.2% 79.5% (0.7%)
AirTran Holdings (AAI) 1.89 15.5% 2.23 13.0% 84.7% 1.8%
Market Share
2010 Top 10 U.S. Airlines Market Share based on Revenue Passenger Miles[32]
Rank Carrier Market Share
1 American 13.8%
2 Southwest 13.8%
3 Delta 11.8%
4 United 10.4%
5 US Airways 8.0%
6 Continental 7.6%
7 Northwest 4.8%
8 JetBlue 4.3%
9 AirTran 3.4%
10 Alaska 3.1%
11 Other 19%
Alaska Air Group subsidiaries employed 9,866 staff as recently as 2007, but have cut that number back substantially by 2008. It remains undetermined how many employees actually work for Alaska Air Group itself. Alaska Airlines operates only U.S. built Boeing aircraft with up to 172 seats while Horizon operates only Canadian built Bombardier aircraft with up to 76 seats.[5]
The separation of the two companies is not due to "Scope Clauses," as is the case with other similar holding companies and their airlines such as Mesa Air Group and Freedom Airlines or Republic Airways Holdings and Shuttle America.[citation needed]
Alaska Air Group is the parent company and holding company of both independently "branded" Alaska Airlines and Horizon Air operations.[6]
Alaska Air Group (NASDAQ: ALK) is a US airline with service primarily in the western U.S -- 62% of the company's flights originate or terminate in Seattle.[1] As the tenth largest airline in the US, the group is a holding company for legacy carrier Alaska Airlines and regional airline Horizon Air, and had $3.1 billion in total revenues and carried approximately 17.6m passengers in 2007.[2] Only 8% of Horizon flights and 15% of Alaskan flights were international. [1]
The company turned a profit in 2007, after a year of losses in 2006.[3] Between June 2007 and May 2008, the company was the tenth US Airline in terms of domestic revenue passenger miles and commanded 2.7% of market share by that same metric.[2] Much of this profit was due to hedging crude (from which jet fuel is derived) at the right time -- the company has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at $78.03 and $76.64 per barrel respectively, while crude prices reached $147 in June 2008.[4]
After reporting a quarterly loss in the second quarter of 2008, Alaska Airlines entered into a series of cost cutting measures including layoffs. [5] As the industry continues to see more consolidation among different airlines, Alaska Airlines has not entered into one of the industry alliances (such as the Star Alliance) or closed revenue sharing agreements. Instead, the airline maintains partnerships with select airlines within different alliances.[1] Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding as of the ends of December 31, 2007 and 2006 respectively. This debt is almost exclusively used to finance flight equipment and property costs. [6][7]
Contents
1 Corporate Overview
1.1 Business segments
2 Key Trends and Forces
2.1 Fuel Costs
2.2 Financial Markets
2.3 Industry Consolidation
3 Competition
4 Market Share
5 References
Corporate Overview
Alaska Air Group is the parent company of both Alaska Airlines and a regional airline known as Horizon Air. Alaska Airlines carried 17.6m passengers on 115 jet aircraft in its mainline operations in 2007 primarily on its North/South service within the Western U.S., Canada, and Mexico. [8] Horizon Air carried 7.6m revenue passengers on 21 jets and 49 turboprop aircraft in 2007, of which 24% connected to Alaskan Airlines flights. [9]
Operating Revenues (in $millions) 2007 Change 2006 Change 2005
Passenger 3,236.5 5.0% 3,083.0 13.0% 2,728.7
Freight and mail 97.8 0.5% 97.3 3.4% 94.1
Other-net 171.7 11.4% 154.1 1.0% 152.5
Total mainline operating revenues 3,506.0 5.1% 3,334.4 12.1% 2,975.3
Total Operating Income 212.0 To Profit -87.3 To Loss 166.5
Total Net Income 125.0 To Profit -52.6 -791.5% -5.9
[10]
In the 2007 reporting year, the group added 4% to its available seat miles and 3.5% to its revenue passenger miles; however, because its load factor declined by 0.4 percentage points, some of its added capacity was not completely used. [11]
Mainline Operating Statistics 2007 2006 % Change
Revenue Passenger Miles (in MM) 18,451 17,822 3.5
Available Seat Miles (in MM) 24,208 23,278 4
Passenger Load Factor 76.20% 76.60% -0.4
Yield per passenger mile ($) 0.1152 0.115 0.3
Operating Revenue per ASM 0.1052 0.1054 0.2
Passenger Revenue per ASM 0.1054 0.1192 -11.6
[11]
Business segments
Although the company reports that Alaska Airlines carried 17.6m revenue passengers in 2007 and Horizon Airlines carried 7.6m revenue passengers in the same year, the company does not report financial data separately for the two airlines that it holds.[12] While the geographic destinations of Horizon Air are simply described at 92% US and 8% Canada, the geographical destinations of Alaska Air are more evenly spread among the West Coast, flights to Alaska, Hawaii, and transcontinental flights.[12]
Passenger Traffic by Market 2007 2006
West Coast 46% 45%
Within Alaska and between Alaska and the US 21% 20%
Mexico 11% 11%
Canada 4% 4%
Other, including transcontinental and Hawaii 18% 20%
[12]
Mainline Passenger Revenue (92.3% of 2007 revenue) covers all normal fares purchased on either Alaska Airlines flights or Horizon Air flights. [13] In the 2007 reporting year, there was a 4.0% increase in capacity in terms of available seat miles (ASM). Revenue increased more quickly than the capacity did; there was an approximate 5% increase in revenue although there was a decline of .4 percentage points in load factor, the term which describes the percentage of available seats that are filled with revenue passengers. The company claims that the load factor decrease is a result of the replacement of several of their older aircraft with larger B737 airplanes. [13]
Freight and Mail Revenue (4.9% of 2007 revenue) remained static (at an increase of .5%) between 2006 and 2007. The company states that the lack of growth in this segment is a result of delays in the conversion of four of their B737-400s into aircraft suitable for freight shipments as well as passengers. The company anticipates an increase in the revenue from this section for the upcoming year as it will be able to provide full capacity to shippers of mail and freight. [14]
Other (2.9% of 2007 revenue) comes from the sale of frequent flier miles.[14] These revenues increased by 11.4% largely as a result of a increase in commission on the sale of frequent flier miles to the company's bank partner. The company defers more than 50% of the revenues from these revenues until the actual award travel takes place, so this number represents the majority of revenue from award travel taken in the reporting year. [15]
Key Trends and Forces
Fuel Costs
In order to avoid having to pay the full cost of jet fuel in the case of price increases of crude oil, Alaska Airlines hedges its fuel, or purchases the right to purchase fuel at designated crude barrel prices (as jet fuel prices are highly correlated with crude oil prices and jet fuel is not sold on major commodity markets) at a later date for a specific price, regardless of what the actual price of the fuel might be at that later date. Alaska Airlines has hedged 50% of its projected fuel consumption needs for the third and fourth quarters of 2008 at prices for $78.03 and $76.64 per barrel respectively.[4] Until that point, the company had hedged 39% of its fuel at prices for $67.53 per barrel of crude oil in 2008 and realized gains of $44.9 million, $87.0 million, and $108.8 million in 2007, 2006, and 2005, respectively, on fuel hedge contracts that settled during the period. [16] This strategy of fuel hedging is also employed by competitor Southwest Airlines Company (LUV) and was, to a great extent, responsible for the rise in net income that Alaska and Southwest had in July 2008, when crude oil prices reached $147.00.[7]
Financial Markets
Alaska Airlines had approximately $1.2 billion and $1.1 billion of long-term debt outstanding at the ends fo December 31, 2007 and 2006 respectively. The company continues to use debt to finance the purchase of new aircraft as well as to update its current fleet. [17] Between 2007 and 2008, the company had a debt to equity ratio of 1.44, aproximately the same as that the company had between 2003 and 2008. [18] This debt is almost exclusively used to finance their flight equipment and property costs. The company has historically been able to secure financing for the debt; however, there has always been the risk of not being able to finance their debt. [19] If there is an increase in interest rates for the financing of the debt that the company has, the company estimates that costs will also increase. Furthermore, many businesses are having more trouble finding financing for their operations. If the credit crunch advances, they company states that there is alway a possibility that the company will not be able to refinance its debt.[20]
Industry Consolidation
There have been a number of different signs of consolidation across the commercial airline industry over the past several months as evidenced by Delta and Northwest. [21] Furthermore, airlines such as British Airways, American Airlines and Iberia are finding new ways to work together through close revenue sharing agreements. [22] Many airlines have begun to consolidate in order to increase revenues by offering passengers additional destinations while reducing costs by coordinating marketing and flights. [23] Once these consolidations are made, additional revenues have been seen by airlines such as Air-France KLM, which has been able to both increase revenues and reduce costs through their merger. [24]
Airline 'alliances' which allow customers to earn and spend frequent flier miles on partner airlines such as the Star Alliance, Skyteam, and One Air Alliance are also offering increasingly more communal benefits to their customers. As of 2008, the Star Alliance carried 24% of revenue passengers, the Skyteam 21%, Oneworld 17%, and all other airlines 38% of all revenue passengers. [25] The Star Alliance has seen revenue increases in many of its segments since inception because passengers travel more frequently with member airlines in order to earn award travel with their member airline. [26]
Alaska Airlines does not belong to any of these alliances although it does have a number of partnerships for mileage, but these partnerships are not within one single commercially marketed alliance. Alaska Air does not clearly publish the breakdown of the benefits that the company's marketing partnerships with other airlines; however, the revenues are included within the Other section of revenue. [27]What is clear, however, is that members of these alliances command significant market share.[25] Although the airline's revenue from its mileage program increased in 2007 to $227.6m from $194.2m in 2006, the airline will lose the synergetic revenues that are often seen within the airline industry through consolidation. [26] [22][28] The company does not discuss the potential benefits or costs of joining an alliance.
Competition
Between June 2007 and May 2008, Alaska Airlines was the tenth largest domestic airline and commands 2.7% of the market share in the United States in terms of domestic revenue passenger miles. [2] Although this list shows its market share in the US domestic market, it should be noted that the company depends on several key markets for its sales. 62% of all of its flights originate or terminate in Seattle and other significant markets include Los Angeles, Portland, and Anchorage. [29]
There are several factors that are key in distinguishing this company from its competitors. One of the most widely publicized are the differences in fuel hedging that the company has undertaken. Having hedged 50% of its fuel consumption for the rest of 2008, the airline will remain more isolated than any airline that has not protected itself on the same scale against fluctuating oil prices. [4] Another key difference between this company and many other airlines is that the company's revenues are very concentrated (to 92.3%) in passenger revenues primarily within several key markets (62% of all flights originate or terminate in Seattle).[29] Alaska Airlines and Horizon Air together carry 48% of all passengers traveling to or from Seattle-Tacoma, whereas their closest competitors, Southwest and United, carry 8.71% and 8.60% of customers through this airport. [30]
June 2008 Competitive Metrics (MoM)[31]
Airline Revenue Passenger Miles (Billions) Traffic Pct Change Available Seat Miles (Billions) Capacity Pct Change Load Factor (%) Utilization Pct Change
American Airlines (AMR) 11.85 (3.1%) 13.86 (1.2%) 85.5% (1.7%)
Delta Air Lines Inc. (DAL) 11.69 0.2% 13.68 0.7% 85.4% (0.5%)
United Airlines (UAUA) 10.34 (3.6%) 11.97 (0.6%) 86.5% (2.6%)
Continental Airlines (CAL) 7.71 (0.9%) 9.16 1.4% 84.1% (2.0%)
Southest Airlines (LUV) 6.88 0.7% 8.80 5.7% 78.8% (3.9%)
Northwest Airlines (NWA) 6.56 1.4% 7.48 2.4% 87.7% (0.9%)
US Airways Group (LCC) 5.67 (0.5%) 6.67 0.4% 85.0% (0.8%)
JetBlue Airways (JBLU) 2.30 2.3% 2.77 3.2% 79.5% (0.7%)
AirTran Holdings (AAI) 1.89 15.5% 2.23 13.0% 84.7% 1.8%
Market Share
2010 Top 10 U.S. Airlines Market Share based on Revenue Passenger Miles[32]
Rank Carrier Market Share
1 American 13.8%
2 Southwest 13.8%
3 Delta 11.8%
4 United 10.4%
5 US Airways 8.0%
6 Continental 7.6%
7 Northwest 4.8%
8 JetBlue 4.3%
9 AirTran 3.4%
10 Alaska 3.1%
11 Other 19%
Last edited: