mikexner

In my personal opinion....Alaska has probably the best revenue management team there is. You pretty much never see a mainline that has a plane flying with under 95% of the seats full. I've had to fly WN and AA a couple times recently, and that isn't the case there.

Once the the integration is complete and the Virgin name retired, I full expect we'll see the same success. If I had cash to spend, I'd be buying AS stock right now!

sfozrhfco

Revenue management IS the problem. The load factors have been fine but they are filling planes with low fare tickets booked in advance. Very few people are paying for main cabin select and first on Virgin. The pricing for premium seats on transcons is crazy when the competition all have better products at lower price points. Now conditioning people to expect free upgrades and offering a product that is even worse than the current one makes the situation far worse. Sure you can fill the plane with $129 transcon fares with elites all flying in First with a free upgrade but they have not thought through how to make those routes profitable.

Mint is killing off any premium transcons commanded. DL is also stepping up Premium transcon offerings. AS has failed completely in revenue management. They can fill seats but not at a profit and the trajectory continues to be down not up—most especially in California.

fly18725

Alaska is still profitable so their revenue management team must not be selling seats at a loss.

tphuang

Have you even looked into the earnings call? I have and they seem to be completely clueless.

The problems are not AS as a whole, but the VX route maps. AS management is in over their head now that they finally got into the premier west coast markets that are a whole lot more competitive than PNW.

The VX routes are down 8% PRASM YOY, because BOS/FLL-LAX/SFO are complete financial disasters. That's before the additional capacity that will go into the market next year + increased labour cost of VX pilots and crews. Yet they think it's a temporary problem that can some how be solved by putting B739. Completely out of touch.

They seem to be completely unaware that the transcon market has been changed with the mass proliferation of mint which hurts AS/VX far more than the legacy carriers. The next 3 quarters will be when mint enters BOS-SAN, JFK-LAS, BOS/JFK-SEA. At the same time, AA will be adding capacity on JFK-SEA/SAN and same with DL. And both AA/DL will bring in additional lie flat capacity. So while legacy VX network is getting hammered this past Q, it will reach all transcon routes in AS by this point next year.

And this is before all the new routes they are adding later this year and early next and all the capacities added by WN, AS RASM has no where to go but down.

And remember, they don't have all the hurricane cancellations and North East to Florida basic economy fare matching that all other major airlines had to deal with.

No other airlines spent half of their conference call complaining about weakness in intra-cali and cali transcon markets. Why is it only AS that faces these problems?

BearX220

Remember that the main point of acquiring VX was to keep B6 from acquiring it. Knowing what to do with the asset, or how to compete in markets inherited with VX, was a secondary concern at dealmaking time and apparently still eludes AS to a disturbing degree.

An apt analogy is NBC News acquiring Megyn Kelly. She didn't / doesn't fit into the NBC culture or talent lineup, they didn't know how to deploy her, but the main point of the deal was to keep her off CNN or ABC News. Now that the deal is done NBC still doesn't know how to leverage the asset; her morning talk show is inane and disastrous, and viewers / customers have fled. You've got a veteran political anchor (Fox ideology aside) literally dancing like a loon in front of a live studio audience; it's desperate and pathetic. Neither NBC or Kelly know what to do. The critics are laughing. But, hey, at least she's not hurting us on CNN.

That's Alaska at this stage of the merger.

I've said since the deal was announced that AS is due for a big dose of welcome-to-the-NFL-kid, and here it comes. The airline has always had a sweetheart relationship with hometown boosters in Alaska and the PNW. It's never had to compete with the big guys, or in a market (SFO) that is somewhere between indifferent and hostile to AS.

My wife and I flew F ORD-SEA-YVR and back this week and, while I know it's only a midcon, the shabby old cabin, small portions of one-choice-only food, seats that barely recline, and defiantly poor service (on one segment out of four) are not going to make it in the bigs. AS is crazy to think they'll earn their slice of the transcon pie ex-SFO with a service standard out of the 1980s.

sfozrhfco

The most shocking part of the call was that they admitted that they have not even looked at the VX network and determined what is working and what is not. It has been 2 YEARS since they started negotiations for the purchase. Every conference call for several quarters before that since the introduction of Mint VX management was saying that their yields and profitability on transcons were going down. VX made nearly all its profits on transcons. AS management had access to far more financial detail available and yet they have not bothered to even come up with a strategy as to how they can compete in what should be the airline's most profitable routes.

They completely ignored the problems at Horizon which are now biting them in the behind. They completely ignored the years of warning by VX management that profitability was going to be a challenge. Then they choose to completely alienate VX customers and just switch to the AS product thinking that an even weaker product will somehow magically attract high flyers in California. They thought people would flock to the AS credit card with their "World Famous" companion fare. Well Southwest is offering a companion pass for everybody in California for all of next year that signs up for their card.

They have been focused so much on the mechanics of merging systems that they have completely forgotten about running the airline and having a strategy to attract the very customers you need to keep the airline profitable. They have no idea what they just purchased in VX and now have rising wages and maintenance costs to deal with very soon.

AS bought VX at the very peak of the cycle. They haven't even faced a poor economy yet.

Hopefully this is a wake up call to management to figure out how they are going to move forward but their current belief that everybody loves AS and will fly them no matter what the competition is doing or what the other available products are will need to change. Otherwise, they will be in serious trouble as the VX network drags the rest of the airline down.

dmodemd

They did not foresee the ever increasing competition into California and it seems like they are willing to back off on some of those fights, esp. transcon to/fr CA.

Also, I am not sure if they were factoring in the impending salary increases when thinking they were well positioned to compete. As they evolve beyond a regional (NW) airline, they will need to be paying Big 3 salaries as labor is now demanding.

BearX220

This blind (and parochial) belief in their own goodness is as ridiculous in its way as the Continental managers who took over United believing they could force captive hub constituents to fly United, no matter what they charged or how they debased the product.

That strategy worked out horribly for UAL and the everybody-loves-us strategy for AAG, a product of provincial Seattle booster culture, is going to hurt them too. The product, network, and fares are not objectively lovable.

BearX220

Half the problem with Horizon is difficulties with flight crew recruitment, and that is because of a stubbornly low pay offer. If you're a young qualified FO, SkyWest and Endeavor are outbidding Horizon for your services every day and twice on Sunday. Welcome to the NFL, AAG.

Adelphos

Virgin is/was a California airline. If you were going to cut back on California, there was really no point to the acquisition. A better (though more costly) option was to make the product more competitive. They probably should have kept the Virgin branding and added lie flats to the transcons.

sfozrhfco

Now they are facing the same issue faced by every other airline that has bought an airline based in California. The ALK stock price reflects the value of VX as -0-. The stock price is now the same as pre-merger. AirCal was completely dismantled by AA and there are many other examples before that.

channa

Spot on. Many of us have been saying the same since the merger was announced.

The AS brand is not an asset in SFO, and when you factor in they destroyed VX, the AS brand may actually be a liability in the SFO mindset. It's a much different mindset than they're accustomed to dealing with in SEA, where much of the clientele is happy to support a local business rather than sending the money to Atlanta, Dallas, or Chicago.

PV_Premier

I agree that RM for AS is a huge issue, anecdotally based on the routes I fly. It's either super cheap, or super expensive, never in between. In F, it's always super expensive and I'd guess rarely sells.

Settling to a place where the fare cost distributions end up more normalized across both cabins would likely improve PRASM, but I guess if that were true, they would've done it already...right?

3Cforme

You're misinterpreting the stock price: that's the market saying that Virgin America is (or will be, long run) worth what ALK paid for it. The road to realizing that value may be bumpy.

There certainly are people in the industry knowledgeable about managing multiple regional carriers, and with post-merger integration. If they didn't know concretely what they were going to do with VX by the time the due diligence period closed (let alone the financial transaction), they blew it.

sfozrhfco

They already blew it as they admitted that they still hadn't even looked at the VX network. ALK just got themselves a boat load of debt and a new network for which they have not even begun to come up with a plan to make competitive. The stock value has gone to pre-acquisition levels and 100% of the profits accrued in the quarter came from the AS network which subsidized the losses as QX/VX in the peak summer travel season.

Costs are rising at QX and will go up substantially as early as next week at VX when the pilot mediation is concluded. Maintenance costs are going up this quarter. Competition for the whole of next year will get more and more intense. The weight on AS just gets heavier and heavier.