Alaska reported its biggest quarterly profit ever of $234 million though shares dropped on a unit revenue decline. Facing competition from Delta, the carrier is putting all cabin and gate staff through customer-service training.
Facing an intense competitive threat from Delta Air Lines, Seattle-based Alaska Airlines is putting its 8,000 employees that work directly with passengers through a series of customer-service workshops.
The airline’s chief operating officer, Ben Minicucci, speaking on a conference call with analysts Thursday, said the workshops would “review real-life examples on how to deliver exemplary service in various and sometimes challenging scenarios.”
The workshops also aim to empower employees by letting them know when it’s appropriate “to make exceptions to policies,” he said.
Alaska revealed the initiative as its parent, Alaska Air Group, reported a record quarterly profit, $234 million, or $1.79 a share. That compares with $165 million, or $1.19 a share, a year ago. Revenue rose 5 percent to $1.44 billion.
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Despite the strength of those bottom-line numbers, the stock market reacted negatively to a 5.6 decline in revenue per available seat mile, a key metric for airlines.
The drop came from a modest fall in average fares — a 3.8 percent decline in average fare paid per mile, per passenger — coupled with slightly higher seat-capacity growth compared with the increase in passenger traffic.
Alaska is increasing capacity as it faces off against Delta, and plans 18 new routes in the remainder of this year. On July 2, the carrier crossed the threshold of 1,000 flights per day across its route network.
Alaska’s shares fell sharply, closing down $2.04, or 2.69 percent, at $73.79.
Thriving bottom line
Most of the profit boost came from dramatically lower fuel prices, 28 percent down year-over-year.
In addition, the Seattle-based company increased total revenue and lowered non-fuel costs.
On the analyst call, Alaska Air CEO Brad Tilden said the airline “is firing on all cylinders.”
“As we pause to take a look at how we’re doing midyear, and two-and-a-half years into the biggest competitive environment we’ve seen in a while, I’m happy to share that we are thriving,” Tilden said.
The competitive threat — and the downward pressure on fares — comes mainly from Delta’s very rapid expansion at Alaska’s main Seattle hub.
As Delta expands its domestic routes out of Seattle-Tacoma International Airport, its international flights are feeding 40 percent fewer passengers to Alaska.
However, Alaska is expanding its links with other airlines.
After Emirates added a second daily flight to Dubai, in July it was connecting 275 Alaska passengers a day, with a peak day of 410 connecting passengers, up from 100 a day two years ago.
Hainan and Icelandair have also increased their international capacity in Seattle and closely partner with Alaska.
And Alaska is seeing double-digit growth in its sharing of connecting passengers with American Airlines, a relationship that will expand further when American moves its US Airways flights to a single reservation system later this year.
Improved cabin service
Tilden attributed much of the airline’s continued success to the enhancements Alaska has given passengers.
In December, it introduced a new in-flight entertainment system, power outlets at all seats and improved meals.
And Tilden said the airline is “doubling down on service” with the new one-and-a-half day customer-service workshops.
Like other airlines, Alaska is also experimenting with ways to eke out new revenue streams.
In May, Alaska followed the industry by introducing a differentiated class of “preferred seating,” which, at an additional cost, gives economy passengers more legroom, early boarding and a drink.
Chief commercial officer Andrew Harrison said management is “very encouraged” at the uptake of this new income stream.
“We will continue to make revenue-enhancing adjustments to this program over time as we learn more about customer behavior and preference,” said Harrison.