Delta’s growth in Seattle cause ansgt among Alaska Air fans, but ALK the likely winner

Delta Air Lines is boosting its domestic service to Seattle, causing a lot of angst among Alaska Airlines fans, the hometown airline here.

Alaska (stock symbol ALK), which has about 50% of the market at Sea-Tac Airport, is a Delta code-sharing partner. Delta is overlaying a number of AS routes to Seattle, causing a bevy of news articles and wonderment about just what AS (the OAG code) had done to piss off Delta, and more to the point, if AS’s very existence will be threatened by Delta’s aggressive moves.

Delta also canceled a ground services contract with Alaska, another sign, some think, of the growing “war” between the two airlines.

Delta’s growing domestic presence in Seattle has to be taken into context with its international ambitions here. Delta is making Seattle an international hub. Once with just a few flights, all inherited from its merger with Northwest Airlines, Delta is adding trips, including re-introducing Seattle-London Heathrow, a flight NWA flew for a short period then dropped in the face of long-established service by British Airways.

Source: Delta Air Lines, Great Circle Mapper

Delta Air Lines International Service from Seattle

Sources: Delta Air Lines, Great Circle Mapper

Seattle has historically been a difficult international market. Routes are often very seasonal. Air France offered its own flights here from Paris for a short time before agreeing with Delta to take it over. United Airlines had London service but couldn’t sustain it. American Airlines once had Tokyo service that connected to its Miami hub for onward flights to South America, but also dropped it.

Delta’s decision to make Seattle an international hub, principally focused on Asia, means it needs to beef up its domestic service here. Alaska, as the code sharing partner, seemed a natural way to support the international service, but AS probably can’t provide the large number of domestic seats needed to feed the international flights.

Yes, but you might say: international flights are only once a day to a destination and Delta is adding frequency it doesn’t need.

This may be true on the surface, but airlines know they need frequency to capture market presence. Pan Am tried the once-a-day feeder service to its New York hub and lost millions in the process. Delta, which purchased Pan Am’s trans-Atlantic routes and JFK facilities during Pan Am’s death throws, has since strengthened the JFK hub with new routes and more domestic service.

Delta Air Lines JFK International Service

Sources: Delta Air Lines, Great Circle Mapper

Our view is that Delta needs its own feed to generate the passenger traffic volume that its code sharing relationship with Alaska can’t provide, and DL needs market share presences to make the feed work.

What of the threat to Alaska?

Any time a legacy carrier sets its sights on you, you have to watch out–this is clear. But Alaska management is smart and has fended off challenges before, including greater threats from Southwest Airlines and a small but significant threat from Allegiant Air.

Southwest posed the greater threat to Alaska over the years than any legacy carrier. When Southwest bought Morris Air, which then had a hub in Salt Lake City but a presence in the Pacific Northwest, Alaska was a high cost carrier facing incursion by a well-run, well-financed low cost carrier (Morris Air was neither). AS had to begin a make-over to an LCC operation in the Lower 48. (Alaska’s cost structure is widely seen as higher cost because this is what its financials show. But the system financials are distorted by the very high cost operating environment in the State of Alaska. The Lower 48 system costs are quite competitive with LCCs.)

Alaska also knew well Southwest’s history of defeating legacy airlines. It basically ran US Airways and American Airlines out of the intra-state market in California, and legacy carriers out of many specific routes throughout the country. Alaska management then (which was different than the one now, but from the same lineage) determined it would protect its markets. And it did; Southwest didn’t run AS out of town. In fact, AS has run Southwest out of some markets from Seattle to places like Spokane and Boise, old Morris Air routes, and Alaska still dominates Seattle to California, Las Vegas and Phoenix.

When Southwest proposed many years ago to shift its Seattle service from Sea-Tac Airport to King County International Airport (more commonly known as Boeing Field), which is only five miles closer to downtown Seattle but much easier to get to, Alaska immediately said it would match Southwest’s plans. This would have meant split operations for Alaska at two airports just a few miles apart, a costly move, while Southwest planned to shift its 80+ flights entirely, a far more efficient plan. But Alaska wasn’t going to cede an inch to Southwest.

And Alaska totally out-maneuvered Southwest politically. Not only was it an election year here for Seattle Mayor and King County Executive, instantly creating a political football of Southwest’s plans, Alaska’s hometown loyalties and presence meant it had the support of nearly all community groups and businesses. Southwest dropped its plans when Sea-Tac Airport lowered its facilities rental fees, which some believed was Southwest’s true objective all along.

Yet the scenario played out again years later when Allegiant Air indicated it was interested in starting the first commercial service at Paine Field in Everett, better known for its home for all Boeing wide-body production. Paine Field, like Boeing Field, pre-dates World War II but unlike Boeing Field never had commercial service. Paine Field is surrounded by residential homes and noise is a particularly sensitive issue. Although Allegiant proposed only four weekly flights each to Las Vegas and Phoenix, these were with Boeing MD-80s, the noisiest jets currently flying in commercial service. Residents feared the camel’s nose under the tent scenario. And they were right. Alaska Air Group immediately proposed 80 daily flights by Alaska Airlines and its turbo-prop subsidiary, Horizon Air, to a variety of cities.

The proposal has stalled in a quagmire of political opposition.

It wasn’t Alaska’s first brush with Allegiant, the ultra-low cost carrier with a peculiar business model. When Allegiant announced plans to serve Bellingham (WA) to Las Vegas, Phoenix and Hawaii, Alaska immediately began service from this tiny town near the Canadian border before Allegiant could. All of the Alaska/Horizon service previously routed through the Seattle hub.

Alaska has previously fended off challenges from Wien Air Alaska and MarkAir, two airlines that once operated exclusively within the state of Alaska but which expanded into Seattle following deregulation. Alaska Airlines survived; the others went bankrupt and ceased operations.

Today’s challenge by Delta will be met aggressively by Alaska, relying on scheduling, frequent flier bonuses and the intense loyalty of its customer base. It’s more likely Delta will take market share from Southwest or United, the latter having already reduced its presence in Seattle, or from the fringe players like Virgin America than from Alaska.

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