Operating through primary subsidiary, Alaska Airlines, and regional carrier Horizon Air, Alaska Air Group flies more than 40 million passengers to more than 120 destinations with an average of 1,200 daily flights 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 about 155 Boeing 737 jets. Horizon Air operates more than 50 Bombardier Q400 turboprops.
Accounting for 85% of revenue, the passenger segment's Alaska line is divided into Alaska Mainline (78%), which makes flights with average stage lengths that are more than 1,200 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 25 million revenue passengers while regional operations, which includes Horizon, transport more than 9 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, around 15% 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.
Alaska Air Group serves more than 120 cities through an expansive network in Alaska, the contiguous 48 states, Hawaii, Canada, and Mexico. The company leases operations, training, and aircraft maintenance facilities in Portland and Spokane, as well as line maintenance stations in Boise, Bellingham, Eugene, San Jose, Medford, Redmond, Seattle, and Spokane. It also leases call center facilities in Phoenix and Boise.
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.
The company has increased its investment in advertising year-over-year; in 2016, the company spent $61 million on advertising, compared to $55 million in 2015.
Alaska Air has achieved unprecedented growth over the years, with revenues rising 6% to peak at a record-setting $5.9 billion in 2016. However, net income declined 4% from $848 million in 2015 to $814 million in 2016. In addition, its operating cash flow declined from $1.58 billion to 2015 to $1.39 billion in 2016.
The historic growth for 2016 was fueled by a 6% increase in mainline passenger capacity by new routes, the addition of seats to the existing fleet, and along with the delivery of 10 737-900ERs.
Alaska Air also experienced a 17% spike in sales from its Other segment. This was fueled by a 30% bump in Mileage Plan sales due to increased miles sold and improved compensation terms with its Mileage Plan affinity credit card partner.
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.
Alaska Air is primarily focused on the successful integration of Virgin America into its own operations. The company has stated that the merger with Virgin America should be completed in around two years and that it's likely 2019 is when the company would enjoy a full annual efficiency benefit.
Mergers and Acquisitions
In a noteworthy move within the US airline industry, Alaska Air Group in late 2016 acquired Virgin America for $2.6 billion. The company expects the deal to boost its annual revenue by 27% and to add to its earnings within the transaction's first year. The combination also created the fifth-largest US airline by traffic, replacing JetBlue, which formerly held that spot.