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WSJ interview with AS president Tilden

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Well-known member
Apr 3, 2004
By Christopher Hinton

Alaska Airlines said Tuesday that a surprisingly strong influx of holiday travelers is lifting its November and December bookings, giving the regional carrier the leverage needed to bump up fares.

Advanced bookings for November are up 2.5 percentage points from a year ago, while December bookings are up 3.5 percentage points, Alaska Airlines President Bradley Tilden said in an interview. "Travel is a little more peaky than it used to be, so there is huge demand around Thanksgiving and Christmas--maybe more than it was years ago."

To accommodate extra passengers, Seattle-based Alaska Airlines is adding about 40 flights around the Christmas period, he added.

Alaska's biggest airports are in Seattle-Tacoma, Los Angeles, Anchorage, Alaska, and Portland, Ore.

The higher bookings are also translating into higher yields, or average ticket prices, though numbers were not available.

In the same interview Tuesday, William Ayer, chief executive of Alaska Airlines and its parent Alaska Air Group Inc. (ALK), touted the company's high cash-to-revenue ratio, saying the heavy debt taken on by the legacy carriers will burden their growth in the long run. "Having cash allows us to execute our own plan and not get pushed into a corner," he said. Alaska Air had more than $1.2 billion in cash at the end of the third quarter.

Shares of Alaska Air Group rose 1.2% Tuesday to close at $28.52. In the last 12 months, the stock is up about 16%. Limited exposure to the troubled business-travel sector has helped insulate Alaska Air from much of the revenue downturn seen elsewhere in the industry.

Markets in Arizona, California and Nevada, where the housing crisis hit hardest, have seen the greatest contraction in travel demand. Over the past 18 months, air traffic in the California market has dropped 20% to 30%, according to Ayer.

For the third quarter, unit revenue at Alaska Airlines fell 3% from a year ago compared with a decline of about 14% for the average airline, the company said.

Business Of Pleasure

Leisure travel has been a main driver of new business for Alaska Airlines. On Monday, the carrier said it would add service to Hawaii, scheduling new flights between San Jose, Calif., and Kahului, Maui. Hawaii now accounts for 10.5% of its system capacity, up from nothing just two years ago.

"Alaska is marching to its own drummer, doing things its own way, often contrary to industry norms," said Michael Derchin, an analyst with FTN Equity Capital Markets. "It is buying back shares instead of issuing equity. It is generating liquidity through operating and free cash flow, instead of through financings. Instead of growing through acquisitions, its network growth has largely been organic. Hawaii is the most recent example."

Looking ahead, Alaska Air is expected to outpace its peers in terms on mainline revenue performance, off 4% for the fourth quarter compared with an 8% decrease for the industry, Derchin said.

Alaska Airlines' Tilden credited the growth to the 2008 collapse of Aloha and ATA airlines, which left a big void in the market for Northwestern vacationers already familiar with his airline's brand.

Indeed, the troubled industry has been providing plenty of new market opportunities for the airline, from Hawaii to Atlanta, Boston and Washington, D.C. In the last 18 months, Alaska Airlines has tapped 18 new markets, according to Tilden.

"Over the last 10 years, we asked where our customers are flying that Alaska wasn't taking them," he said, and found that they were flying to Dallas, Denver, Houston and Salt Lake City, as well as the Hawaiian island of Maui and Newark, N.J.

Growth isn't likely to come quickly, though. For 2010, traffic is expected to be flat to up 1% year over year, Ayer said.

Going East

One area Alaska is not interested in expanding, for now, is Asia. Instead, the company is relying on closer ties with AMR Corp.'s (AMR) American Airlines and Delta Air Lines Inc. (DAL), both of which have a strong presence in the East. (Delta currently is building out its Seattle hub in preparation for new routes to Beijing.)

The parent company is set to receive new aircraft next year and has firm orders for 26 aircraft through 2011, requiring aggregate payments of $686 million. In 2008 Alaska Air had 110 aircraft, compared with 115 the year before, after it grounded some older jets.

Alaska Airlines flies the Boeing Co. (BA) 737 exclusively, which helps cut down on maintenance, spare parts and training costs, the company said.

Together, Alaska and its sister company Horizon Air represent about 3.2% of all U.S. domestic-passenger traffic. They compete with American (AMR), Continental Airlines Inc. (CAL), Delta (DAL), JetBlue Airlines Inc. (JBLU), Southwest Airlines Co. (LUV), UAL Corp.'s (UAUA) United Airlines, US Airways Group (LCC) and Virgin.

-Christopher Hinton; 415-439-6400; [email protected]
How are they going to staff the 40 additional daily flights and is SLC our next new destination?

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