How Alaska Airlines Became A Major American Airline

How Alaska Airlines Became A Major American Airline

Explore how a once-obscure small-town airline from the Alaskan wilderness managed to become one of the biggest airlines flying to over 115 destinations in the U.S, Canada, Costa Rica, and Mexico.

Alaska Airlines is the fifth-largest commercial airline in the United States. Together with its partners, Horizon Air and SkyWest Airlines, Alaska Airlines runs a vast domestic network flying to over 115 destinations in the U.S, Canada, Costa Rica, and Mexico.

Here are a few stats that showcase Alaska Airlines’ growing stature as a major U.S airline:

Let’s see how the once-obscure small-town airline from the Alaskan wilderness managed to become one of the biggest airlines serving the West Coast of the U.S.A…

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The Origins of Alaska Airlines

Alaska Airlines started its journey from the coastal city of Anchorage in the early 1930s. Several airline company mergers occurred throughout this period before the company we know as Alaska Airlines was born.

Throughout its history, the company faced a series of financial constraints right from its inception, which almost resulted in its end. However, it persevered through it all and established itself as the leading charter service in the U.S.

McGhee Meets Star: A Marriage Made in Heaven

It was a fateful day in 1932 when Linious "Mac" McGee decided to use a three-passenger Stinson prop plane and start charter flights from Anchorage.

He worked with a team of pilots to transport goods and passengers across Alaska. These flights were not the scheduled flights of today. Instead, the planes took off once they had managed to fill all available seats with passengers or goods.

At about the same time, in a coincidence that can only be described as serendipitous, two pilots arrived in Anchorage from Seattle and set themselves up as flight instructors of the Star Air Service. They started with a single Deluxe Fleet B-5 two-seater plane but expanded their fleet size to 7.

Two years later, McGhee and Star Air Service decided to join forces, laying the foundation for the largest airline in Alaska with a fleet of 22 aircraft. The following year, McGhee sold his assets in the business to Star but stayed on as manager.

However, the company was off to a bumpy start because of the high repair costs of its planes. Consequently, in 1937, it rebranded itself as Star Air Lines and started focusing on providing regular, scheduled flights instead of its traditional charter flights. The rationale behind this change was to make the company more financially stable, but more trouble was already brewing on the horizon.

The airline business had hitherto been an unregulated sector, but in 1938, the U.S government set up the Civil Aeronautics Authority to regulate the budding airline industry in the region. 

In anticipation of these new circumstances, Star Air Lines decided to start paying its pilots regular salaries instead of keeping them on a commission basis. The company also painted its entire fleet with its logo decorated on one side to ensure uniformity.

Alaska Airlines Becomes The Largest Charter Operator In The World

In 1940, the Civil Aeronautics Board started hearings to decide which airlines would receive permission to fly. Two years later, Star successfully obtained temporary licenses to fly on most routes from Anchorage to other destinations. However, the company could not secure the coveted Anchorage to Seattle route, which went to rival company Pan American.

alaska-airlines-1940-planeSource

In the same year, company vice-president Homer Robinson decided to expand Star by taking over three smaller airlines - Lavery Air Service, Mirow Air Service, and Pollack Flying Service. Following these acquisitions, the company was named Alaska Airlines - the name it uses today.

By now, the U.S was actively fighting in WWII, and there was an extreme shortage of pilots. The company still managed to power through and purchased its very own multi-engine plane called the Lockheed Lodestar. 1943 was also the year when the company’s stock first opened for investors on the stock exchange.

But the company was still not out of the woods yet. Its ownership had passed into the hands of a New York businessman, and most high-level meetings now took place in New York on the opposite side of the coast. The decision would not prove advantageous.

Following a string of unsuccessful tenures by outsider presidents, the company faced a shortage of funds and equipment throughout the WWII period. Things got so desperate that pilots were forced to buy fuel with their own money.

That would all change with the arrival of president James A. Wooten in 1947. Wooten capitalized on the post-war deregulation of the airline industry. He also took advantage of equipment left over from WWII, which the government was practically giving away. Using this newfound equipment, Wooten was able to expand the fleet size enormously.

Due to relaxed regulations and increased fleet size, Alaska Airlines could return to its original charter flight business. The company could send its planes to virtually any corner of the globe to transport goods and passengers. By 1948, Alaska Airlines had become one of the largest charter operators in the whole world.

Key Takeaway 1: Perseverance Is Key To Survival

In those initial days, getting an airline business off the ground was extremely difficult. From passengers and pilots to high plane repair costs, obstacles were aplenty.

Yet, the company managed to stay afloat by making strategic mergers and acquisitions with other airline companies. Had the company given in and not made any attempts to spread its wings in the industry, it would not have become the largest charter operator in the world.

This is also signaled to the rest of the airline industry what sort of company was entering the arena: a resilient one, indeed.

Alaska Enters The Age Of Marketing

In 1949, CAB mandated regulation was back in full force. It prematurely halted the boom in international business that the company had enjoyed under Wooten.

The airline could no longer continue its lucrative charter business, which led Wooten to resign as president. Consequently, Alaska Airlines began to firmly establish itself within Alaska by acquiring two smaller airlines to expand its fleet locally.

The CAB Steps In

The company’s troubles were far from over. In 1951, CAB removed the President of Alaska Airlines over allegations of financial impropriety and brought in their own candidate: Nelson David.

alaska-airlines-cabSource

Surprisingly, CAB’s heavy-handed move worked in the long run. The new president Nelson David was able to revive the company’s financial situation and strengthen operational stability. The following year, Alaska Airlines also finally obtained a temporary license for the long-awaited Anchorage-Seattle route.

Another significant breakthrough came when the company finally acquired a DC-6 which was the first pressurized plane. It allowed pilots to fly above bad weather and avoid turbulence altogether rather than fly through it.

By 1957, the airline's operations were finally running smoothly again, and David decided to step down and make way for the new owner Charles F. Willis.

Before taking over the reins as chairman and CEO, Willis had bought up a significant chunk of the company's shares.

Willis was no stranger to flying, having served as a commendable pilot in WWII. But besides his knowledge of aviation, he also had another talent: marketing. 

Some even described him as a born marketer, and Willis certainly had several strategies in mind to get passengers to sit up and take notice of the airline.

Charles Willis - The Marketing Mastermind Behind Alaska Airlines

The first thing Willis did was introduce in-flight movies for passengers. At that time in the late 50s, the concept of in-flight entertainment was virtually unheard of, so Willis’ novel move ensured that Alaska Airlines grabbed the attention of travelers.

He also kickstarted a Golden Nugget service, which allowed passengers to enjoy musical performances onboard Alaska Airlines. Not to mention the numerous fashion shows and bingo games that Willis introduced to reel in more customers.

alaska-airlines-golden-nugget-jetsSource

At this point, the company was facing stiff competition from major rivals like Pan American and Northwest. Willis came up with even more aggressive marketing strategies that almost bordered on cheap publicity stunts to offset his rivals. For instance, the new promotional plan was to convert safety instructions into fun rhymes.

However, the early 60s were not just about marketing ploys to get more customers. 1964 was an important year for Alaska Airlines for an entirely different reason. It was the year the company finally managed to win a permanent license for the lucrative Seattle-Anchorage route.

It was also when the company bought a massive cargo plane called the Lockheed Hercules to transport oil-drilling equipment to Alaska’s North Slope.

Marketing still remained the focal point of the airline’s strategy throughout this period. On the eve of the Alaska Centennial in 1967, the airline began a Gay 90s promotional scheme to mark Alaska's 100th-anniversary celebrations. Flight attendants would serve passengers dressed in vintage Edwardian-era clothing.

It was also when a new airport opened in Sitka in the southeast part of Alaska. The airline capitalized on this opportunity to extend its service to this part of Alaska by offering direct flights to Sitka airport. To do this, it successfully pitched itself to CAB and won exclusive rights to provide flights to southeast Alaska.

The following year, Alaska Airlines acquired two established Southeast airlines, Alaska Coastal-Ellis and Cordova. The merger was finalized because Alaska Airlines needed to increase its fleet size to better service Sitka airport.

By 1970, the Golden Samovar theme replaced the Gay 90s theme, replete with flight attendants dressed in Cossack costumes and serving drinks from a traditional Russian samovar. It was done to celebrate the start of the charter service to Siberia. It was a massive victory on the part of Alaska Airlines that it could get permission to provide flights to Russia even during the height of the Cold War.

Key Takeaway 2: Market Your Way Ahead Of The Competition

The airline industry was getting hotter with multiple competitors in the market while Alaska Airlines was struggling with its own internal share of problems. The way out came in the form of unique and aggressive marketing.

From leveraging flight attendant uniforms to introducing in-flight entertainment, the company undertook several measures which made it stand out from the rest of the airlines. Thus, even though customers had other options to travel on the same route, they opted for Alaska due to its captivating marketing effort.

Hence, the company fended off the competition and resumed its path of growth.

Deregulation and An Era Of Unprecedented Expansion

By 1972, the company owed almost $22 million in debt. To make matters worse, the company's cargo planes had been sitting idle because the oil drilling work in Alaska had come to a stand-still. This meant a plunge in profits.

If that wasn’t bad enough, the company had also acquired a reputation for poor customer service because flights would not run on time. To deal with this crisis, the board of directors replaced Willis with Ronald F. Cosgrave.

Coming Back On Track

Immediately after taking over, Cosgrave made some tough decisions to keep the company going. He cut down on staff and stopped flights for the less profitable routes. He also dropped the cargo transportation business altogether.

By 1973, the company was back on track and moving towards financial stability again. Under Cosgrave's lead, the airline also improved customer service by ensuring that flights ran on time. As a result, the airline was able to start making a decent profit again.

But Alaska Airlines was aiming at more than just financial stability. The company wanted to grow and provide service not just in Alaska but in other U.S cities. It also knew that none of this would be possible under strict CAB regulations.

So, the airline set out on an ambitious lobbying campaign and successfully convinced Congress to pass the Airline Deregulation Act of 1978, which radically transformed the airline industry.

Tripling The Fleet Size And Expanding Service

The same year deregulation took effect; Bruce R. Kennedy became the new CEO of Alaska Airlines. His goal was to make the most of the newly deregulated market of the 1980s to expand the airline’s service to other U.S cities.

The company was already catering to 10 cities in Alaska and Seattle, but following deregulation, it started providing flights to three major U.S cities: Portland, Oregon, and San Francisco.

Next came Palm Springs in California, and the company also added the cities of Nome and Kotzebue to the airline's route. By 1981, the airline also started flights to the cities of Burbank and Ontario in California.

This expansion of service continued steadily until 1985. The company had successfully increased its customer base from Alaska to other parts of the U.S, such as Southern California, Oakland, San Jose, Spokane, Boise, Phoenix, and Tucson.

It was a period of unprecedented growth for Alaska Airlines, and profits were at an all-time high. That same year, the Alaska Air Group was set up in anticipation of further expansion. It was essentially a holding company for Alaska Airlines.

In 1986, the Alaska Air Group also brought Horizon Air and Jet America Airlines under its management. It allowed Alaska Airlines to triple in size, seeing a five-fold increase in its fleet size.

But the Jet America Airlines merger was by no means an easy one. The Californian market was highly competitive, and Alaska had to compete against significantly more prominent and well-established local rivals. But the airline persevered and, in the end, managed to successfully acquire Jet America Airlines to expand service in Californian cities.

Another major problem for the airline at the time was the seasonal nature of travel in Alaska. Due to the harsh winters, most people preferred to fly during summer, and business would lag in the winter months.

To make up for this lack of business, the company needed to increase travel in the winter months. So, Alaska Airlines came up with a clever strategy to offset its losses in winter by expanding its service to Mexico.

Hence, 1988 saw the airline expanding its service to the Mexican cities of Mazatlan and Puerto Vallarta. These cities experienced milder winters than Alaska and were a popular destination for tourists in the winter.

Moreover, Alaska focused squarely on improved customer service to entrench itself in these new cities and outpace its rivals. It ensured that its passengers had a comfortable flight by providing more legroom than other airlines and better quality food.

By 1989, the airline had gone from catering 10 cities in Alaska to serving 30+ U.S cities and Mexico and Russia.

Key Takeaway 3: Taking The Tough Decisions When It Matters The Most

Piling debts and plunging profits meant Alaska Airlines was in a shaky situation. This was when Cosgrave took over and immediately made some tough decisions, such as cutting down staff and shutting down loss-making routes.

These measures allowed the company to regain financial stability and sustain itself for the time being. Eventually, a few years later, the airline was able to expand its fleet size and enter new markets.

Thus, making the right calls and at the right time can prove to be monumental for a company in the long run.

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Becoming A Low-Cost Carrier To Get More Customers

As the 1990s arrived, the airline industry was undergoing some significant changes. In the face of increasing competition, it became essential for Alaska Airlines to streamline its cost structure to provide more affordable flights to customers. 

Plus, it was necessary to keep customers loyal to Alaska Airlines as cheaper commercial carriers like MarkAir Inc appeared on the scene.

Giving Customers Better Service At The Same Price

In 1990, the board of directors decided to sell $60 million worth of stock to International Lease Finance Corporation (ILFC), responsible for leasing airplanes. The rationale behind this move was quite creative, and in the long run, it benefitted Alaska Airlines enormously.

One of the conditions that Alaska put down when transferring the stock was that Alaska Airlines’ managerial staff would hold all conversion rights. The team was responsible for redeeming the stock back from the ILFC by 1997.

They solely put in this condition to motivate employees to ensure strong stock performance by boosting operations. It worked splendidly because the staff now had a personal stake in the performance of the stock. To achieve this end, the airline had started a large-scale employee stock purchase scheme.

The strategy worked so well; the airline reported profits at an all-time high, and it was praised for its excellent customer service.

At this point, CEO Kennedy stepped down, and Raymond J. Vecci took over. However, Vecci faced some significant problems right from the onset of his tenure.

In 1991, a deal to purchase local Alaskan carrier MarkAir Inc fell through. Consequently, MarkAir Inc began competing with Alaska Airlines by providing cheaper flights to customers in the company’s home base Alaska. It began to cut into Alaska Airlines profits, and for the first time in 20 years, the company reported a loss of $121 million.

To combat this issue, the airline decided to adopt the low-cost/low-fare model. Instead of purchasing new aircraft, the company improved the utility of its existing planes. The company also stopped flights along less profitable routes and started economizing on in-flight services. In the short term, this helped the airline to decrease its losses to just under $45 million in 1993. By 1994, the company had even started to generate a decent profit once more.

Operating Revenues

1996

1997

$1.59 billion

$1.74 billion

However, Alaska Airlines was aware that solid customer service alone would allow it to stay ahead of the competition in the long run. 

So, even as more rivals like low-cost Southwest Airlines appeared on the market, the airline was determined to provide low-cost flights without compromising on customer care.

Transitioning To An All-Boeing Fleet

To maintain its service provision standard, Alaska Airlines decided to explore more innovative solutions.

In 1996, the airline became the first commercial carrier to incorporate GPS navigation technology with Enhanced Ground Proximity Warning System. It also added a real-time display of the terrain to guide its pilots. It showcased the airline's commitment to passenger safety and security.

To further facilitate its customers, the company also decided to start selling tickets online. It installed Instant Travel Machines that helped customers print their own boarding passes so that they would not have to stand in line and wait at the ticket counter at the airport.

By the year 2000, the airline had also added automatic external defibrillators on all its plane to prevent in-flight emergencies escalating. It was a life-saving measure taken by the company.

As the 21st century rolled in, Alaska Airlines again entered a period of expansion extending service to Boston, Chicago, Dallas, Denver, Miami, Newark, Orlando, and Washington D.C. The company also started flights to Hawaii and began servicing more destinations in Mexico.

To adequately provide service to all these new destinations, the company expanded its fleet to an all-Boeing 737. These planes were more efficient and reduced fuel costs.

alaska-airlines-decal-planeSource

Key Takeaway 4: Restructuring To Suit Demand Of Customers

With MarkAir’s arrival, Alaska experienced its first loss-incurring years in over 2 decades. Realizing the low-cost model was attracting customers, Alaska Airlines decided to change its ways too.

Instead of following expansion policies to grow as it had in the past, the company opted to adapt to the new low-cost structure by improving the efficiency of its existing fleet and economizing its costs. Simultaneously, it did not compromise on customer service and added features such as online tickets.

Hence, the company entered a new phase of growth and efficiency.

Transformation Plan - Alaska 2010

This decade was marked by a focus on pioneering new technology and providing better service to customers. The company also launched an ambitious Alaska 2010 plan to safeguard the company from the boom and bust cycles of the airline industry.

Introducing Flights on the East Coast

During the early 2000s, the company focused on expanding service to cities located on the East Coast of the United States. In 2002, Alaska started direct flights to Newark in New Jersey. The following year, it extended service to Orlando and Boston.

In June 2006, the company purchased new aircraft to fulfill the needs of remote Alaskan towns better. The new 737-400C "combi" aircraft had 20% more capacity and easily transported goods and passengers to small Alaskan towns.

In the years that followed, Alaska Airlines remained committed to providing service to more U.S cities. In 2007, the airline launched non-stop service to Portland, Oregon, and Boston. The following year, direct flights were started from Seattle to Minneapolis.

In 2009, the company started direct flights from Seattle to Houston, Austin, and Atlanta. By 2010, Alaska Airlines had successfully achieved its goals as per the Alaska 2010 plan. This plan was developed after the economic fallout from 9/11. Rather than looking to the government to bail them out, the airline doubled down and worked out a plan to get back on its feet.

In the years leading up to 2010, the company focused on growing market share and improving productivity by cutting costs. They also focused on modifying their routes to make them more profitable by better utilizing capacity.

Compared to other commercial carriers, Alaska was ranked number 1 in productivity and price recovery during this period.

Pioneering New Technology

2010 onwards, the company also created multiple mobile applications to take advantage of social media to communicate with customers. This initiative is part of the customer-first policy of Alaska Airlines.

alaska-airlines-digital-transformationSource

In 2011, Alaska Airlines was the first to partner with Boeing and Fujitsu to use a new technology called Component Management Optimization. This technology allowed ground staff to quickly scan different aircraft parts with a handheld device to determine whether they needed to be replaced. The new initiative considerably sped up routine aircraft inspections.

The same year, the airline provided all its pilots with iPads in an attempt to replace extensive paper manuals. The company also experimented with replacing jet fuel with bio-fuel to project itself as an environmentally-friendly airline.

Key Takeaway 5: Rely On Innovation & Technology To Move Forward

For both ground and flight operations, the future relies on technology. Alaska Airlines quickly realized this and introduced a series of innovative technologies such as the CMO for ground staff and iPad manuals for aircrew.

These steps improved the efficiency of staff and reduced costs for the company. At the same time, Alaska leveraged innovation to opt for bio-fuel for its planes, further showing the company’s commitment to futuristic growth. 

The Pandemic Comes In The Way Of Alaska’s Flight

By launching mobile applications, the Component Management Optimization, and iPad manuals, along with the biofuel jet project, Alaska Airlines had set the tone for the years to come: innovation and sustainability.

Simultaneously, it did not let go of its ambitious plans to grow its operations and expand its fleet to become the region's largest airline.

Dominating The Skies & The Ground Services

Alaska Airlines made it clear that they were going to pursue a rigorous expansion and leave no stone unturned in order to achieve. The most notable move came in 2012 when the company announced its largest order of new aircraft consisting of:

  • Twenty 737 MAX 8s, 
  • Seventeen 737 MAX 9s
  • Thirteen 737-900ERs

This addition to the fleet was estimated to value around $5 billion, putting the company in competition with some of the biggest carriers in the country.

A few years later, in 2016, Alaska also launched its own airline services company, McGee Air Services. This subsidiary enabled the airline to take charge of its own ground handling, aircraft cleaning, etc.

However, this was in no way the biggest news of the year. Alaska announced one of its most strategic and monumental mergers ever. It took over Virgin America for a whopping $2.6 billion, and although they continued to operate as separate airlines, the combined operation consisted of over 275 airplanes and 1200+ flights to around 800 destinations.

The following year, the company announced the two airlines would now fly under one banner, with the Virgin America brand officially retiring in 2018. Now, Alaska Airlines is the premier airline of the West Coast!

Responding To The Pandemic

Soaring high above the sky, Alaska was on an unprecedented trajectory upwards. But everything changed when the first cases of the COVID-19 virus were detected. Not only was Alaska Airlines severely affected throughout the course of the pandemic, but the whole airline industry went through probably its most testing time ever.

This was when Alaska Airlines took up the challenge to ensure the safety and health of its passengers and, for the time being, take a hit in its profits.

From banning over 700 passengers that violated safety protocols to coming with unique marketing techniques and frequent flyer incentives, the airline covered all its bases during the pandemic. 

The airline also introduced contactless procedures for check-ins and food orders, which not only boosted the customer experience for the short term but also laid the platform for the future.

Thus, despite suffering billions in losses, the airline is all set to fly high again as air travel slowly resumes to normal.

Key Takeaway 6: Always Seek New Opportunities For Growth

At the start of the decade, Alaska Airlines was already a giant in the industry, but as a futuristic company, it planned ahead and still found new opportunities to grow. 

In fact, the takeover of Virgin America established it as the airline of the West Coast and ensured its place ahead of any competition in the region.

This move, along with a proactive approach, also allowed the company to navigate the turbulence of a global pandemic and get ready to make a comeback.

Summary & Key Strategic Takeaways

The rise of Alaska Airlines to become one of the USA’s top airlines is quite impressive. It faced numerous challenges along the way but its pro-active response and tailored strategies meant that it is still flying high.

Growth By Numbers

Year

2019

2016

Revenue

$8.8 Billion

$5.9 Billion

Workforce

24000

19112

Total Assets

$12.9 Billion

$9.9 Billion

Share Price

$68.2

$88.7

Key Strategic Takeaways

Here are some of the most vital strategies we learn from Alaska’s journey.

Never Give In 

From facing regulations of the airline industry to shortage of pilots and ever-increasing costs during WWII, the newly found charter airline was surrounded by challenges. 

Yet, every time the company faced a problem, it found a way around it; sometimes, in the form of mergers and acquisitions, and other times in the form of structural tweaks, such as offering salaries to pilots instead of commissions.

This helped the company survive its initial phase and enabled it to exponentially scale its operations and become of the largest charter airlines in the world only a few years after WWII.

Establish A Unique Brand Identity

Alaska Airlines’ competitors, such as Pan American, meant that customers had a variety of options to fly on the same routes as Alaska. Thus, the airline needed a way to stand out and entice customers to travel with them.

Here is where the company invested in marketing strategies, such as Golden Nugget in-flight entertainment and special event uniforms for flight attendants. 

Hence, passengers had something to look forward to Alaska Airlines’ flights which they couldn’t find elsewhere.

This unique brand contributed greatly to the brand’s progress and competitiveness.

Make Timely & Effective Changes

Every company faces challenges that threaten its survival. When Alaska Airlines was in such a phase, it responded actively and made key decisions of reducing the workforce and reorganizing its routes. 

Had the company not taken these steps timely, it would have been a steep journey downhill.

Instead, very soon, not only was the airline back to normal, but it was also looking to boost its operations and add to its existing fleet. 

Adapt To Situation When Needed

Mostly, in Alaska Airlines’ history, growth had been directed through adding routes and planes to the company’s portfolio. But when MarkAir’s entry into the market caused the company significant losses, it took a new approach.

Adopting the low-cost model, reducing operational costs, and boosting customer service, Alaska Airlines regained its share in the market without expensive expansions. Rather, it improved efficiency, allowing it to grow internally.

Stay On Top With Technology

To become and continue to be a premier airline in the future, Alaska Airlines knew the importance of technology and innovative solutions. Therefore, it enhanced its operations through tech upgrades that allowed better handling of its aircraft and facilitated its employees in complex tasks.

The airline also moved towards eco-friendly fuels to reduce its costs and show its stance as a responsible company, positioning the company for growth in the future.

Always Look Ahead

Despite achieving considerable success and already becoming a top airline, Alaska Airlines did not stop. It went ahead with even more ambitious plans, such as a huge fleet order and merger with Virgin America.

Hence, its big operations became bigger - biggest, in fact, on the West Coast, and resultantly, the airline was far ahead of any of its competitors in the region.

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