Air Transport World

Alaska turnaround: low fares, old-style service and a new cost structure have returned the smallest U.S. major to the profit column.(Alaska Airlines Inc.)(includes related side bar on flight attendants)

Low fares, old-style service and a new cost structure have returned the smallest U.S. major to the profit column

SEATTLE--For Alaska Airlines, the first half of the 1990s has been ... interesting. In 1990, it received the ATW award for Financial Management, based on its exceptional stability during the 1980s, despite the overall industry's problems during that decade.

That turned out to be the airline's high-water mark. In 1989, it had a pretax profit of $67.2 million. That dropped to $24.5 million in 1990 and $10.3 million in 1991. In 1992, Alaska Airlines reported its first loss in 20 years, $121 million pretax. That was the year it began a program to revamp itself and reduce its operating costs sharply. The next year was slightly improved, as the pretax loss was more than halved, to $44.5 million.

However, the traumatic cost-cutting actions took hold in 1994, producing a net pretax profit of $39.3 million. Last year, despite severe fare wars that caused a loss for the first two quarters, the airline had a $43.9 million pretax profit.

The general worldwide recession was not the primary cause of the financial woes. Nor was the recovery just a result of an improving economy. The biggest problem was new competition on its major routes by low-cost, low-fare competitors, chiefly Southwest Airlines and, beginning in 1994, Shuttle by United.

The solution was basic: Cut costs and match their fares. Alaska Airlines made the task a bit more difficult, however, by adopting the philosophy of cutting costs and matching the fares while maintaining its own reputation for excellent service, which included amenities that ranged from fine wines to free newspapers, both local and national.

"Things [to cut] were obvious at the beginning but they were not easy," said President and CEO John Kelly. "The most obvious were in the products categories--food and beverages, seating and things of that nature that we knew we were purposely providing to attract customers.

"We decided that at a low price, maybe we didn't need to have as huge a product differentiation [from the other low-cost carriers], so we had to take on those things."

The free newspapers were cut. Others amenities, such as the wine, remained but no longer were free. …

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