Whether you want to capture a "Kodiak" moment or down a daiquiri by the Sea of Cortez, an Alaska Air Group airplane can fly you there. Operating through primary subsidiary, Alaska Airlines, and regional carrier Horizon Air, the group flies more than 27 million passengers to 90-plus destinations in the US (mainly western states including Alaska and Hawaii), Canada, and Mexico. The group's primary hub is Seattle (accounting for almost two-thirds of passengers), but it also flies out of key markets such as Portland, Oregon; Los Angeles; and Anchorage, Alaska. Alaska Airlines has a fleet of more than 130 Boeing 737 jets. Horizon Air operates about 50 Bombardier Q400 turboprops.
Alaska Air Group serves more than 100 cities through an expansive network in Alaska, the contiguous 48 states, Hawaii, Canada, and Mexico.
Accounting for 80% of revenue, the passenger segment's Alaska line is divided into Alaska Mainline, which makes flights with average stage lengths that are more than 1,000 miles, and Alaska Regional (15%), for shorter distances. Regional airline Horizon sells all of its capacity to Alaska under a capacity purchase agreement. In a given year, Mainline operations carry about 20 million revenue passengers while regional operations, which includes Horizon, transport about eight million revenue passengers, mainly in Washington, Oregon, Idaho, and California.
As its name would imply, the airline transports more passengers between Alaska and the US mainland than any other airline. Besides its own flights, the segment provides passenger service through contracts with SkyWest Airlines and Peninsula Airways. Carrying about 4% of all US domestic passenger traffic, the segment also includes such non-ticket revenue as reservations fees, ticket change fees, and charges for baggage service.
Freight and mail account for 2% of revenue. The Other segment, nearly 10% of revenue, includes the Mileage Plan, on-board food and beverages, commissions from car and hotel vendors, and travel insurance. The Mileage Plan awards miles for flights on Alaska, Horizon, and partner airlines and sells miles to third parties.
Sales and Marketing
The airline tickets are distributed through the airline's website and through traditional and online travel agencies who use global distribution systems to obtain their fare and inventory data from airlines and reservation call centers located in Phoenix; Kent, Washington; and Boise, Idaho.
Alaska Air Group has achieved unprecedented growth over the last few years, with revenues increasing by nearly 11% from $4.7 billion in 2012 to $5.2 billion in 2013, a company milestone. Profits, too, soared 61% from $316 million in 2012 to peak at a record-setting $508 million in 2013. Its operating cash flow has also steadily increased over the last five years, climbing by $228 million from during the same time period.
The revenue growth for 2013 was attributed to a 6% spike in mainline passenger revenue, which was driven by a 8% increase in capacity and a nearly 2% increase in PRASM (the amount of passenger revenue earned per available seat mile). The capacity increase was attributed to new routes added in 2013 and larger aircraft. Regional passenger revenue increased 4%, driven by slight rise in capacity. Freight and mail revenue were up by 2%, primarily due to higher freight volumes.
Besides focusing on key markets such as Seattle and Los Angeles, another important component of Alaska Air's strategy includes marketing alliances with other airlines for reciprocal frequent flyer mileage credit and codesharing. Alaska has relationships with about a dozen major airlines, such as AMR's American Airlines, Air France, Delta Air Lines, and Qantas, as well as two other regional airlines besides SkyWest and Peninsula Air: Era Alaska and Kenmore Air.
Like the airline industry as a whole, Alaska Air has been challenged by fluctuating fuel costs, which have been known to head up even higher in Alaska's operating territory of the West Coast than in the Gulf and East coasts. Alaska cushions itself against such volatility with crude oil call options, jet fuel refining margin swap contracts, and the acquisition of more fuel-efficient aircraft, including the Boeing 737-800 and 737-900ER.