Independent Alaska Air can't rule out merger

If right deal proposed, carrier combination would be considered

Posted: Friday, February 20, 2009

ATLANTA - Alaska Air Group Inc., operator of Alaska Airlines and Horizon Air and a partner of Delta Air Lines Inc., would consider a combination with another carrier if the right deal was proposed, but for now is committed to its independence and isn't thinking about a merger, executives said Wednesday.

In a series of wide-ranging interviews with The Associated Press, several senior executives would not say if the Seattle-based airline operator has had merger discussions with Delta or anyone else.

But, they all said a combination is not on their radar screen right now.

"Every year there's been a rumor about who is going to buy Alaska, and here we are doing well as an independent company," said Bill Ayer, chief executive of the parent company.

That media and investor buzz heated up after Atlanta-based Delta, the world's biggest airline operator, and Alaska Air Group announced in November an expanded marketing alliance. Delta and Alaska Air said they would offer customers connecting service to more than 50 destinations to-and-from Los Angeles, more than 70 destinations to-and-from Seattle, more than 30 destinations to-and-from Portland, Ore., and nearly 20 destinations to-and-from San Francisco.

When fully phased in, Delta and its international partners are expected to be the main provider to Alaska Air customers of international service to-and-from those four U.S. cities.

Delta's chief, Richard Anderson, said at the time that he had not talked to Ayer about a combination. Delta has not elaborated on the issue since then.

Ayer would not say Wednesday whether there has been interest from any airline in buying Alaska Air Group. He did say that the airline can't close the door on the idea of a merger if one was proposed that was the right fit for Alaska Air Group. Ayer said his company's key focus is on its employees, its customers and its investors.

"No company can rule that out," Ayer said. "You don't know where the world is headed."

Ayer said that Alaska Air Group enjoys being an independent carrier. "If there is a better alternative, we will look at that alternative," he said.

Brad Tilden, president of Alaska Airlines, said the airline industry is in a state of significant flux with demand for air travel eroding as the U.S. economic downturn has worsened. He said his airline needs to continue to change with the industry.

"I believe we will do that, and there is no reason at all we can't do wonderfully as an independent entity," Tilden said.

Ben Minicucci, who handles day-to-day operations at Alaska Airlines as its chief operating officer, said he couldn't predict what will happen to his carrier in the future.

But, he said, "If we run the company the way we're supposed to, we'll remain independent."

Credit Suisse analyst Daniel McKenzie said in a research note in October that his firm had not ruled out the possibility of further merger and acquisition activity for Delta in the future. Delta acquired Northwest Airlines in October. He said in October that Alaska Air Group or New York-based JetBlue Airways Corp. "remain appealing targets, both with attractive assets and strategic positioning that would enable DAL/NWA to better compete with what we consider is an inevitable CAL/UAUA (Continental/United) combination sometime down the road."

The buzz about Alaska Air Group is not surprising considering its strong stock performance relative to many other airlines. Alaska Air Group's stock is currently trading near its 52-week high. A spokeswoman said the company also has posted an annual profit on an adjusted basis for the last five fiscal years, while several bigger carriers posted big losses.

Executives said Wednesday that Alaska Air Group is focused on several customer service initiatives and is using technology to improve the customer experience. Like other airlines, it also has been cutting capacity to weather the economic downturn, though it has not cut as much capacity as some other carriers.

Tilden said that despite the economic downturn, Alaska Airlines will be increasing its advertising budget in 2009 to try to lure in customers.

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