ANALYSIS: Alaska’s Switzerland approach to alliances

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One of Alaska Airlines' many strengths is its strong and unique route and network spanning the US west coast, its namesake state and to Hawaii. It is also one of its weaknesses.

The Seattle-based carrier and its regional subsidiary Horizon Air have a minimal market presence east of the Rocky Mountains, despite being mainstays at airports to the west. They fly to only 15 midwestern and eastern cities, all of which have been added since 2001.

Alaska Airlines domestic routes, January 2013

Innovata FlightMaps Analytics

Alaska is the third largest airline by seat capacity at the continental western USA's 10 busiest airports (excluding Denver and Salt Lake City) this month, according to Innovata schedules. It has more than one million seats for a 12.4% market share, behind Southwest Airlines with about three million seats and United Airlines with about two million seats.

The airline has about two million seats with only a 3.7% share of the entire domestic market, according to Innovata.

Codeshares fill that gap.

Alaska has virtually unlimited codeshares with both Fort Worth-based American Airlines and Atlanta-based Delta Air Lines. These include everything from placing its code on flights throughout the USA to ground services at certain airports and reciprocal frequent flier benefits.

"With Delta and American you have pretty much everywhere in the USA covered and some of the larger international cities," says Jason Olawsky, director of revenue analysis and alliances at Alaska Air Group, Alaska's corporate parent. "Codeshares [allow us] to leverage that network and provide utility to our Alaska and Pacific Northwest based customers."

He says that more than one in 10 passengers, or about 12% of Alaska's traffic, connected to or from one of its 12 codeshare partners during the year ending in December, though the majority was with American and Delta. This equals about 2.2 million passengers out of 18.5 million.

Flightglobal Research

"Traffic and revenue [percentages] are pretty consistent," adds Olawsky, noting that codeshares generated around $400 million in gross ticket revenue in 2012 using these metrics.

Alaska also partners with Air France, Air Pacific, British Airways, Cathay Pacific Airways, Emirates, Icelandair, KLM, Korean Air, LAN and Qantas Airways, and it announced the addition of Aeromexico as a partner in December.

The carrier's relationship with Delta is especially tight. In addition to codeshare flights and reciprocal frequent flier benefits, the carrier uses Delta ground services at at least eight airports around the country and supported its November 2012 announcement of new international flights from Seattle to Shanghai Pudong and Tokyo Haneda.

"About 1,200 travellers connect on Alaska and Delta flights in Seattle every day," said Brad Tilden, chief executive of Alaska, in a joint statement with Delta at the time. "We're also looking forward to providing travellers with new flying options to Asia on Delta."

Delta Air Lines planned routes from Seattle, June 2013

Innovata FlightMaps Analytics

Merger replacement?

Alaska sat out of the spate of mergers and acquisitions in the US market during the past decade. It was briefly reported to be on American's shortlist as a possible merger partner in July 2012 - talk that quickly died down as US Airways became the bankrupt carrier's focus. The biggest change was the elimination of at risk flying by its subsidiary Horizon Air in favour of a full capacity purchase agreement model in January 2011.

The carrier instead opted for organic growth and codeshares. It had 26.5 billion available seat miles (ASM) in 2012 up from 17.3 billion in 2000 - a 53% increase - according to company data. Much of that growth came from the addition of flights east of the Rockies and to Hawaii, especially after Aloha Airlines ceased operations in 2008.

"Because we're so small, the ability to grow organically has really been there," says Olawsky. "To take on growth through a merger has not really been a necessity." He adds that codeshares enabled Alaska to broaden its network without the service disruptions of a merger.

"With its strategic and successful position, [Alaska] remains an attractive takeover target," said Ray Neidl, an airline analyst at Maxim Group, in an October 2012 report. "We believe an acquisition by a larger carrier would be ruinous to Alaska's service and even to the acquirer, which would benefit more from codesharing agreements with Alaska than from an actual acquisition."

Like a merger, membership in a global alliance is also not on the table. Olawsky says that they benefit from partnerships with both Oneworld and SkyTeam alliance members and adds that it would be a "pretty difficult decision" to choose one or the other.

"We've kind of built up a Switzerland approach, as it were, domestically," he says on Alaska's alliance strategy.

Nor does the airline have any new domestic codeshares planned, says Olawsky. It is focused on launching the Aeromexico partnership, which begins later this year, and developing the capabilities to place its code on the Mexican flag carrier's flights - a first time it would do so on a non-US carrier.

"Aeromexico gives us the ability to put our toe in the water of maybe, some day, putting the Alaska code on a foreign codeshare," he says.

Alaska only carries the code of its foreign partners on its flights and does not place its code on their outbound flights due to limitations with its reservations system, says Olawsky. The airline also has reciprocal frequent flier earning and redemption agreements with these airlines.

"There's really nothing on the horizon right now, [but] we always keep our options open for things that are out there," he concludes.