Premium – Alaska Airlines vs Delta Air Lines

Alaska Airlines is something of an airline enigma in the US market. It has been independent since its creation. Yet it has relationships with many airlines. Alaska has been in business for over 80 years. Alaska is the seventh-largest U.S. airline based on passenger traffic and is the dominant U.S. West Coast air carrier. Its location in Seattle and Alaska have made the airline something of a bright spot for larger airlines focused on the lower 48 states. But Alaska's footprint stretches far beyond its Seattle base. The airline has partnerships with many international airlines. Delta Air Lines is about 90 years old and is one of the world's mega carriers. The table shows a few key comparative data points. Of particular note is the partnerships Alaska has with Delta and American. Delta has been aggressively growing its own Seattle footprint. This growth is squarely aimed at Alaska. With Delta growing its Seattle operation into a hub for trans-Pacific service, it wants to also control its traffic feed. To support its ambitions in the region, Delta is offering that old marketing trick - double miles. In response Alaska increased its own services - on February 11 it announced service to New Orleans, Tampa and Detroit (a Delta hub). Though it is much smaller than the big three, Alaska has been a scrappy operation that has survived in the most competitive airline market anywhere. Using our AirInsight Operational Index model, we demonstrate how Alaska and Delta compete. A brief explanation of our model is helpful - airlines are in a business where revenues are fixed and costs are variable. If an airline runs late, its costs continue to mount while passenger and cargo revenue does not. An early flight arrival means lower than budgeted costs and therefore a higher than planned profit. An airline's business plan is essentially its schedule. Performing according to schedule should generate planned profits. Our AirInsight Index is a cocktail of the operational data that equalizes numbers and allow for an comparison between airlines and aircraft. Zero is equivalent to "performing as planned"; a negative number is "better than plan" and a positive number is "worse than plan". Of course airlines operate a business that is highly susceptible to exogenous factors such as weather, which can throw off a schedule. However, these events are generally short lived. Using a number of data sources our model shows that since 2012, Alaska has run a very tight operation. Its flight have arrived on average earlier than scheduled. This has translated into profits as shown in row titled "Est. OpImpact". this is despite a significant number of its flights experiencing delays. Delta experienced equivalent delay levels but saw more average delayed arrivals. As the data shows, Delta consequently saw bigger operational losses. Note that despite being over five times larger in fleet terms, its average operational cost per minute is only 22% higher than Alaska's. We believe that Alaska may have a fight on its hands with Delta expanding in its traditional markets. On an operational basis, Alaska actually does well enough that it should be able to hold its own as the next table illustrates. Delta, being a much bigger airline and focused on many more markets, plus competing with the other two mega carriers, is likely to suffer more operational hiccups. Performing better to plan, we think Alaska will continue to attract traffic (predictable schedules being a great attraction for passengers) and withstand the competitive blast from Delta.

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