Tech Business Travel is Back

So says Alaska Airlines. And that's exciting news for an airline with hubs in Seattle and San Francisco.

Dear readers,

After last year's debacle of a first quarter result, Alaska CEO Ben Minicucci challenged his commercial team to, within the next three years, break even for the first three months of the year.¹ On Thursday, Minicucci said Alaska "far exceeded our initial expectation of a 30 percent profit improvement coming into this year."

It even broke even.

Well, sort of. Officially, Alaska reported a net loss of $132 million on revenues of $2.23 billion. But like United, Alaska lost the ability to fly its Boeing 737 Max 9s (it had 65 as of Dec. 31) after the FAA grounded the airplane for most of January following the door plug incident. The grounding cost Alaska about $162 million, a sum Boeing already has paid the airline in cash. So also like United, which made the same point earlier in the week, Alaska probably would have turned a slight profit without the grounding.

The Max 9 drama makes it tough to evaluate Alaska's earnings, but the carrier tried to tell us some details about how much money it would have made if Boeing had built flawless airplanes. Those results were encouraging. With its full fleet, chief commercial officer Andrew Harrison said Alaska’s unit revenue would have risen 5 percent year-over-year — about 1.2 points higher than the number Alaska actually reported. Either way, Alaska’s unit revenue was far above the 1-2 percent increase the airline had predicted in earlier guidance.

Harrison cited three factors for the unit revenue improvement. First, he said about 1.5 points of the increase can be attributed to a "reallocation of flying," or adding more flights to places Americans want to visit (think sun) between January and March. Second, roughly 1.5 points came from a "material step-up in business travel," as managed business revenue increased 22 percent year-over year. Third, the airline attributed half a point of the RASM gain to strong close-in leisure demand, beginning in February when the Max 9s started flying again.²

I continue to find the the Alaska management team impressive. Yes, a lot of its improvement — namely the return of business travel — was outside of its control. But unlike some competitors, who sometimes appear to take a hope-and-pray posture when things go bad, Alaska’s team moved aggressively to reorient the network and fly where its customers wanted to go. Even if the tech industry hadn’t returned to travel (more on that below), Alaska would have been OK.

If all goes well, the team will have a much bigger test ahead, when Alaska acquires Hawaiian Airlines. The U.S. Department of Justice is looking into Alaska’s proposal to decide whether it will move to block it. As is typical, Alaska executives did not answer questions about the merger. But they did touch on a few interesting topics, including: