Alaska Airlines Says It's Not Like Other LCCs
Years ago, Alaska wanted you to think of it as a nimble low-cost airline. Now, it still wants to be efficient, but prefers that you group it with American, Delta and United.
Because I follow so many earnings calls, I am always struck by changes in tone or communications strategy. I sensed one last week on Alaska's third quarter earnings call. The airline, which for a long time has billed itself as a no-frills low-cost carrier, is now telling analysts it’s the most premium of all the U.S domestic-focused airlines.
This is a messaging shift that makes sense, considering how Wall Street has lost patience with some ultra-low-cost and low-cost airlines, especially those that have resorted to deep discounting to fill commodified economy class seats. Analyst Jamie Baker of JP Morgan went so far as to create an acronym for this group: LMA, or low-margin airline. “We are not in that group, based on our offerings,” Alaska CEO Ben Minicucci told analysts.
To be clear, Alaska didn’t actually shift commercial strategies recently — premium has been a priority at least since it absorbed Virgin America — but Alaska did alter how it communicates its approach. By my count, Alaska executives said the word “premium” 26 times in a 63-minute call, 20 times more than they said it on their second quarter earnings call.
Executives made clear that about 45 percent of Alaska's revenue comes from sources other than those economy class ticket seats that aren’t selling as well these days. And while some of that revenue comes from unusual stuff, like shipping fish from Alaska, the majority is coming from premium travel.
"We have a remarkable premium product," Minicucci said. "We may be low-cost, but we're a premium brand airline."
Yes, but is that premium strategy working?
Considering the earnings carnage we may see soon from other low-cost and ultra-low-cost airlines, some of which warned of third quarter losses, Alaska's more upscale positioning probably helped it outperform the competition this summer. Alaska reported a solid quarter, with net income of $139 million and a pre-tax margin of 6.8 percent.
The numbers look better when considering two issues Alaska faced in the third quarter: one a result of a natural disaster, and the other of its own making.