Experts: Alaska Airlines will survive

Posted: Friday, July 14, 2000

SEATTLE - Its stock price is down. Cancellations and late arrivals are up. Plans for growth have been scaled back. Customers and even employees are jittery about the safety of its airplanes. And it remains under investigation by the FBI, a federal grand jury and the National Transportation Safety Board.

Things could hardly be more turbulent. Yet its executives and most aviation-industry analysts agree: Alaska Airlines will survive.

The company is too profitable, too entrenched and too well-regarded to end up permanently grounded, most experts say.

While the problems facing Alaska since the tragic crash of Flight 261 in January are ``embarrassing and difficult, it's not going to be the kiss of death,'' said Barbara Beyer, president of Avmark, an airline consulting firm.

Even so, Alaska, the nation's 10th-largest carrier, faces a corporate crisis and the challenge to regain footing as a thriving business enterprise.

While the company dodged a potentially fatal bullet in late June when the Federal Aviation Administration allowed it to keep operating its major maintenance centers, Alaska remains under FAA scrutiny. It is bracing for civil suits by the families of victims who died in the Jan. 31 crash off Southern California.

What's more, all this comes as the airline industry is in the throes of merger fever. Six of the nation's 10 largest carriers have agreed to merge or are contemplating it, a trend that could yield three mega-carriers. A weakened Alaska, with its dominance of the north-south route on the West Coast, might make a tempting acquisition target.

Alaska's most pressing task, however, is to restore confidence in the company once considered the Nordstrom of the skies. The airline has struggled to mend a once-sterling image badly bruised by revelations about its maintenance procedures and safety lapses.

Last month Alaska sent an unprecedented letter to 75,000 frequent fliers and to travel agents to reassure them the airline is safe to fly.

John Kelly, Alaska's top executive, is undaunted by the challenges. Kelly, chairman and chief executive of the Alaska Air Group, the airline's parent company, vowed in a written response to questions that Alaska ultimately will emerge intact.

``It's not a matter of if,'' Kelly said. ``Alaska Airlines will survive this, just as we survived other challenges that we've faced over the past 68 years.''

Part of Kelly's confidence stems from Alaska's near-monopoly share of many of its markets. Alaska is a regional carrier, not a national one; Chicago is the only city it flies to east of Phoenix.

But in its West Coast home turf that stretches from Alaska to Mexico, the airline and its sister carrier, Horizon Air, operate more daily flights than their competitors in virtually every city. From the Pacific Northwest, nearly four out of every five passengers headed to Southern California flies Alaska. The airline so dominates air service in the state of Alaska that many residents regard it almost as a utility.

The market clout in turn has given Alaska a financial buffer to ride out storms. Alaska Air Group earned a record $134.2 million last year and has a $125.6 million cash cushion. Since 1973, the company has lost money only twice.

That is a notable feat, given that the period included the wrenching industry deregulation in 1978 and a recession in the early 1990s that sank many carriers, including Alaska, into red ink.

Alaska has a lower operating cost than all but two of the 10 largest U.S. carriers. That meant Alaska needed to fill just 59 percent of its seats last year to be profitable, compared with 66 percent for the industry average.

But 2000 likely won't be another record-setting year for Alaska. The company lost $7.5 million from January to March as higher fuel prices wiped out revenue gains. Analysts expect second-quarter earnings to be down about 28 percent from 1999.

Although industry experts say fatal crashes usually fade from the public memory within about six weeks, the lingering bad publicity in Alaska's case has prolonged that. Alaska acknowledged last month that an unspecified number of passengers have canceled their reservations because of uncertainty about the airline's future or concern about its safety.

Alaska's stock is trading at about $27.125 a share, close to its two-year low of $25.50. That's down 15 percent from $31.875 the day Flight 261 went down. Analysts view the stock slump as temporary and insist Alaska is simply too profitable to collapse.

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