August 12, 2011
Introduction and company overview
Alaska Airlines was founded in Anchorage in 1932 and expanded to 22 aircraft operating within the state by 1934. In the late 70s, the airline began expansion to the lower Western states and by 1987 had acquired Horizon Air and Jet America bolstering its North South route structure and complementing the seasonal nature of travel to Alaska
Today Alaska Air Group, Inc. (Alaska Air) is the holding company for Alaska Airlines, Inc. and Horizon Air Industries Inc. The company offers passenger air service to more than 23 million passengers to more than 90 destinations. It also provides freight and mail services in the state of Alaska and on the West Coast. During the year ended December 31, 2010, Alaska operated an all-jet fleet with an average passenger trip length 1,232 miles. While Horizon, regional airline, operates turboprop and jet aircraft, with average passenger trip length of 359 miles. The two carriers operate in an integrated fashion allowing for a broader range of service.
Alaska Air is based out of Seattle, Washington and services the west coast of the United States including Alaska, Hawaii, Mexico and Canada. During 2010 Alaska carried over 16.5 million passengers in its mainland operations and it carries more passengers between Alaska and the United States mainland than any other airline. Its non-stop routes include Seattle-Anchorage, Seattle-Los Angeles, and Seattle-Las Vegas. As of December 31, 2010 Alaska’s operating fleet consisted of 114 jet aircraft.
Alaska Airlines has a dominant market share serving Alaska. Unlike the rest of the economy Alaska has been seeing increasingly significant revenues from oil business and tourism. Air travel is the states largest form of transportation because of the geography of the state and its arctic climate. There are over 1,100 airports in Alaska and over 3,000 landing strips in the state. Thirteen percent of revenue generated by tourism goes to air travel. Alaskan travelers fly on average nine times per year compared to the main land US average of twice a year. Alaska Air maintains a 50% market share based on passenger enplanements at Seattle, Los Angeles, Portland and Anchorage airports.
The company competes with Southwest Airlines, United Airlines, Delta Airlines, American Airlines, US airways, JetBlue Airways, Virgin America and Allegiant.
Brief strategic history of the industry
The airline industry is complex. It involves major capital requirements for aircraft, strict government regulations, restrictions and state policy, competitive reaction from other tourist transport and requiring high level of expertise to operate and manage. More and more airlines are facing increasing globalization, rising fuel prices, heavy repair & maintenance cost, raising labor costs, increasing competition and requirements for higher service levels and greater flexibility.
After 9-11 there were significant changes in the market environment. Fundamental shifts in customer demands constantly require the airlines to re-focus competitive strategy, achieve low cost or differentiate it by enhancing product attributes to add value for the customer. Globalization, airline alliances, frequent flyer programs and integration in the tourism sector have all become a norm for airline operators to extend their capacity and market reach. There are a number of factors that influence profitability in the airline industry. Potential growth, the effects of driving forces, and/or the uncertainty or problems facing the industry in the future are just a few deciding factors. The profitability in the airline industry is mainly influenced by revenue and cost factors. The demand drivers are those factors that determine the revenue of airlines. The majority of the demand drivers are market based while a few might be partially influenced by government regulations. Analysis of the industry