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Sunday, March 5, 2006 - Page updated at 12:00 AM

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Full transcript of interview with Alaska chairman Bill Ayer

The following is a transcript of Seattle Times reporter David Bowermaster's interview with Alaska Airlines Chairman Bill Ayer. The interview was conducted at Alaska Airlines' Seattle headquarters on Feb. 27, 2006.

Q: What is your own assessment of how Alaska has done since you took over as CEO in 2002, particularly relative to your own expectations?

"Any assessment of that has to be done in the context of the industry and the environment. Most people who have been around this industry a while would tell you they have never seen a more difficult time than what we've gone through in the last couple of years. Really since 9/11. Even in the last year or two, with fuel prices going up.

"So we set about a course here to make changes. We looked at the landscape about three years ago now, and said the track we're on, the track the industry is on, is not a viable one, and what we need to do is figure out how we change our business plan to be successful.

"So on the one hand you've got this question of viability: What do we need to do with our cost structure, with our product to ensure — this vision we came up with, the 2010 Vision, talks about the three stakeholders that any business has — customers, employees and shareholders.

"We said that from an employee standpoint, there's nothing more important than job security, retirement, career advancement — all of the stuff that makes it a great place to work.

"From a customer standpoint, we've got to hit the mark in terms of customer value. And customers have indicated very, very clearly that they're interested in low fares. So how do we have competitive fares, but also a differentiated product, where it matters to customers?

"Those two things should lead to consistent returns to shareholders.

"So we set about executing a plan, and we've been pretty steady about executing it ever since. This was back, as I say, almost 3 years ago.

"But, really, you have to have a conviction that bankruptcy is not a business strategy. And that is what much of the rest of the industry seems to have embraced.

"We said we're not going to do that, we're not going to just see what happens. And, we looked around and said that seems to be what other people have done. They didn't want to step up to the difficult decisions.

"Where you get between a rock and a hard place on this, especially at a company like Alaska, is we know that our employees, our people, are the critical differentiator. They are the only long-term, sustainable, competitive advantage we're ever going to have.

"We started out saying we will only take actions that impacted people as a last resort.

"But we lost $200 million over four years. And we said, 'I guess we better step this up, we better look at every opportunity — what is controllable about our cost structure?'

"So we had to take some actions. We tried to minimize, to the greatest degree possible, but we had to take some actions that impacted people. The contracting out of some things, the pilot arbitration that reduced wages.

"Those were very unfortunate.

"So you say, well, we've got to do what we've got to do to be viable, but we need to make sure we have engaged employees at the end of this journey, to deliver on that differentiation, that's the only thing that sets us apart from anybody else.

"You think about the industry, everybody else can buy the same airplanes, they can go to the same airports, have the same gates and all that. The difference is people. The key difference for us has always been people, and it's been customer service.

"So that's been the difficult part of this, to figure out what do we need to do to make sure we have a viable business that can become profitable and then grow, and provide all the things for employees, customers and shareholders that we laid out. And do it in a way that doesn't disenfranchise our people.

"Because these other carriers that have waited and ended up in bankruptcy, you look at what has happened to the people — good people, great people in many cases, in the wrong place at the wrong time. And I think it reflects itself today in levels of customer service across the industry.

"So that's the challenge that we have here in the leadership side, is to make changes that will ensure our viability and long-term success, and do it in a way that keeps people engaged and maintains that difference in the marketplace."

Q: Given the changes that you've made — and their impact on Alaska employees — how do you feel your customer service has held up?

"Well, I think we're not perfect. Our intent obviously is to do this as well as we possibly can. As I said, to not shy away from the tough decisions we need to make to ensure our viability.

"You always look back at how did we do things, and how did we communicate internally with our employees. We try to do as much face-to-face as we can, we're trying to make sure that every level in management, people know that one of their prime jobs is communication. Communicating in a way that's meaningful.

"At the top of any organization you've got sort of MBA-business thinking. As you go down in the organization, the message is the same about the need for change, but it needs to be customized in a way that's meaningful for the person you're communicating with.

"We've been getting better and better about those types of things, and we're learning every day about how to do it better.

"As I look back at the decisions that we've made, I would say that they have largely been the right decisions. Certainly the direction has been right.

"The timing of a couple of things, we might have done differently.

"This change with Menzies happening in May, as we led into the summer with all of the traffic and all that, that could have been different. Earlier would have been better.

"What we were trying to do there — this isn't an excuse — but we were trying to get a deal at the table with the union. We didn't intend to replace our ramp employees in Seattle. That was never the intent of going into the negotiations with the IAM. We wanted to get a fair deal, a deal that was based on competitive wages and benefits, and retain our people.

"And that's been true of everything. We're trying to get fair deals at the table, but they do have to reflect the competitive marketplace and those realities.

"So we ended up delaying that as we were trying to get a deal. And I said, 'no, let's go back one more time, and let's try this.'… And we ended up then on May 13 on the end of the line, and obviously no deal was going to happen, and we made that decision. So I look at that one in particular and say that the timing of that certainly wasn't ideal.

"But the things that we've done have been right. The fact that we are now, in 2005, one of two airlines that made a profit excluding unusual items, is something our people ought to be very proud of.

"There's certainly has been a lot of sacrifice by a lot of our people to get us here, so we're on the right path.

"You know there are only two airlines that are trying to restructure — two legacy airlines — that are trying to restructure out of bankruptcy. Us and American. Virtually every other legacy carrier, long-term carrier, that ended up with a higher cost structure, used bankruptcy.

"And I just think that's not right.

"Every industry can avail itself of bankruptcy. But it certainly seems like the airlines have certainly been a customer of the government on this thing — a frequent customer — and we just decided a long time ago we weren't going there. We were going to control what we could control, we weren't going to count on anybody else to fix things. We were going to do what we can and make it work."

Q: Do you feel Alaska has been put in an unfairly difficult position by not going through the bankruptcy process?

"If you consider that the impact on people is greater when you do bankruptcy — it's like they get hit on a head with a sledgehammer. The bankruptcy judge can just do these things, they can void union contracts. They can abandon pensions. Things that I just think are unconscionable from an employee standpoint.

"The pension thing in particular. We view our pensions as a commitment. We are funding them. We funded 60-some million dollars last year for our pensions, and we plan to do a similar number this year.

"If you want to change the pension, and go from a defined-benefit plan to a 401(k), that's something that should be the subject of negotiations, and we are pursuing that with our union groups. We think that's better for both the employees and for the company, to go to that structure.

"But until you do, you've got an obligation.

"Bankruptcy allows companies to move faster in getting their costs down. So what you're seeing now is carriers coming out of bankruptcy with dramatically lower cost structures. It's taking us longer to do it, because we're doing it more collaboratively with our people as we go."

Q: Do Alaska's unions and employees not appreciate that things could have been worse had the company gone through bankruptcy — since you are still talking with a few unions about new contracts, without a lot of progress?

"I think that's true, but it's not right — it's not right for this company to use that vehicle.

"I don't mean to say that other carriers haven't worked hard to get their costs down. I know the CEOs at the other airlines, and they have worked very hard recently to reduce their costs. But for most of them it wasn't enough, it wasn't soon enough, it wasn't enough in total to avoid bankruptcy.

"But every carrier has to have its own strategy that it believes works for its situation. And I don't believe the bankruptcy route is the right one. It's just a principle thing for me, I guess, and our management team.

"We're going to figure out — we're all going to work to fix the company. All 10,000 employees are going to work together, and have been, to make the necessary changes to ensure that we've got long-term success. And that's the track we're on."

Q: Was there any point at which you thought bankruptcy would be necessary for Alaska?

"No."

Q: How were you able to avoid bankruptcy, when so many other airlines had to go that route?

"We've always had a better-than-average balance sheet. Our finance folks have just been great in insisting on equity and liquidity, knowing how uncertain this business can be.

"Really, if you go back to 9/11, you're aware we did a lot of expanding right after 9/11? That's a perfect use of, example of, how we use our stronger balance sheet to help position ourselves.

"Virtually every other carrier after 9/11 looked around and said, well, demand is down — pick a number — 20, 25 percent. So they'll just ground 20 or 25 percent of their fleet, 20 or 25 percent of their employees. That was the typical reaction to that tragedy.

"We looked around and said you know what, we've got a little better balance sheet. We don't have to have a knee-jerk reaction. We could end up there — but let's try something first.

"We had just started flying to Washington Reagan (National Airport), prior to 9/11. And we were watching our bookings build, and we were feeling like, you know what, there may be a strategy here to do some eastbound flying — because up to that point we had always been a north-south carrier.

"Up to that point, we had always thought about going east, but we figured the giant carriers wouldn't like that, competitively, and they would react to it.

"This also appeared to be an opportunity where the competition wasn't likely to do anything goofy. So we started adding one or two flights a day to some other points on the East Coast.

"It became part of what we call our 'Seattle Strategy,' which is to say, you know, in a business like this you've got to own some territory. You've got to have some turf. For us that is Seattle and the Pacific Northwest and the state of Alaska.

"And the more places we fly to from Seattle, that people who live here want to go to, the more people we're going to carry. It's pretty simple.

"If you look at statistically, the [Department of Transportation] traffic reports, you can see what the origin and destination traffic is between Seattle and various points. So we said, 'Let's go to Boston, and New York, and maybe do another Washington, and Miami and Orlando.' We subsequently have added Dallas and Chicago and Denver. And we now have a lot of east-west traffic flow.

"But we never would have done that if we didn't have a better balance sheet, where we felt like we could try something new and see how it went.

"To this day, we have the second-best balance sheet in the industry. And the second-best cash as a percent of revenue. And we just did an equity deal here in December that helped us bolster that, and helped us prepare for the growth that we have coming with the new 737-800s, which is a lot of capital requirement coming with that.

"So, that, on the financial side, we've said you know what, we're going to be as conservative as we can there, and be opportunistic. That's been a hallmark of ours for a long, long time.

"And by the way, it's still not a great balance sheet, compared to other industries. I mean, it's 75 percent debt or whatever. But relative to the industry, as I say, it's the second-best… 73 percent debt, including capitalized leases, as a percent of total capital structure. And that's second-best to Southwest."

Q: Are you planning to add additional cities on the East Coast, or elsewhere?

"This year, we have 5 to 6 percent growth [of capacity], and that's kind of loaded towards the back of the year as we get these new Boeing deliveries.

"Whenever you have airplanes for growth, what we do is look at the existing network. What is it in the existing network that we need to bolster? Is there more frequency opportunity? Should we go from 5 to 6 Bay Area or Oakland trips, or whatever?

"So you look at frequency, because that is the easiest place to add.

"And you really do want to make sure that you've got things shored up in terms of your pattern — number of flights, number of seats, time-of-day coverage and those types of things.

"Secondly, then you look at — is there an opportunity to connect the dots differently in our network, so airports and cities that we currently serve — could we fly between those that we don't currently fly between. We started L.A. to Spokane a few years ago, which is an example of that.

"Thirdly, you look at new cities, which is the most costly thing to do, and I guess the riskiest — are we going to be successful building traffic, and what's the competitive situation going to be, and so forth.

"We're going to do all three of those things over time. For this year we have more of the first opportunity — building some frequency. As we see traffic levels continue to grow, and our load factor continue to grow, we know there are some flights where people want to get seats but can't. So we're going to look at those opportunities and selectively add some additional seats and some additional flights.

"But over time I think you will see us do more growing, eastbound, more out of Seattle. The 'Seattle Strategy' I think is a viable thing.

"The other thing I should mention on fleet and growth is the relationship between Alaska and Horizon. As you know, Alaska Air Group is the parent company, and Alaska and Horizon are the two subsidiaries.

"The last couple of years we've done a lot with Horizon and what we call harmonization. That is, to look at the whole fleet, 170-some-airplane fleet across both companies, and say what is the right airplane in a given market, or what is the right mix of airplanes.

"For example, in the Portland-to-Bay Area markets — Oakland and San Francisco and San Jose. For a while it was only Alaska Airlines flying that. For a long, long time — up until a couple years ago, in fact.

"We found ourselves with too many seats, and losing money.

"We substituted some Horizon regional jets and 70-seat RJs to some of those flights, the less-popular flights, and it made a huge difference in the total economics of those markets.

"Horizon right now has all the service between Portland and Burbank, and Portland and Ontario (Calif.). They do all of the flying with RJs.

"So we're trying to use the Air Group assets as wisely as we can, deploying the right aircraft in the right market. We're having a lot of success with that."

Q: As you said, passenger counts have been rising. Are passengers continuing to value and have the same relationship with Alaska that they've had historically?

"You know, that's always a concern when you go through the kind of operational bumpy road that we've been down.

"What we try to do to find out is to spend a lot of time talking to customers. Being a smaller carrier, certainly relative to the giants in the industry, we can get to know our customers better.

"We have a thing here where officers will call our MVPs and Gold members when we get a letter about a problem. Just pick up the phone and call them, apologize, get more specifics about what happened.

"As I've done these calls over the months, I've found a lot of people that basically say, 'That was a bad experience, and you guys should have done this, that or whatever.' But they come back and say, 'But you know, I really want to see this work, because I like Alaska Airlines. You guys have done a great job with technology. I know how to book the flight on the Web, I know how to check in at the kiosk or on the Web, I know your people. And generally it's been a very good experience.'

"So I wouldn't say from a reputation standpoint we have lost a lot, at least from the people I talk to anecdotally. And also the numbers, statistics show growing traffic, growing load factors.

"But it doesn't mean that we don't need to get back to an on-time operation, a reliable operation with good baggage delivery. We need to get back to those standards, absolutely.

"We can't rest on our laurels. There's a lot of good will that's been built up over a lot of years — again, thanks to our people. Thanks to that customer service, that engaging experience that our customers have with our people.

"We don't want to wear out our welcome with that. We've got to get back to our standards."

Q: Along those lines, what have you learned from the reviews that you and Menzies have under way of your ramp operations in Seattle?

"I think the trendline is positive. I think their commitment is very strong to have Seattle be as good as any other city that they operate for any carrier. They've got 90 airport systems around the globe.

"I meet with their CEO — I met with him just a couple weeks ago, from Scotland. Their headquarters are over there…

"I believe they have a full understanding of what the issues have been. They have put in place corrective measures, and we're seeing a good positive trendline.

"It's not done. They're not to the level of performance they need to be. And they know that.

"We have good measures every day. We have meetings every single day about what happened yesterday, what are we going to today, kind of a team huddle type of thing. Looking at statistics. Looking at opportunities, and specific training opportunities.

"I just think they've done a good job in reacting to the problem. It was unfortunate that we ended up with such a bumpy situation early on. But I have a lot of confidence that they've got their arms around it. And we've been helping as well — we've brought in extra people. And I think it's going to work out just fine."

Q: Have the reviews turned up any areas of the ramp operations that need particular attention, or need to be altered?

"We had the one very concerning incident on December 26th, and that's the one thing out of the trendline you would say, we can't have a repeat of that.

"So we immediately went back and make sure everybody understood their obligation to report a safety issue like that. So that was one area that needed more emphasis in their training, and I think they've done that.

"The other area that they've had some difficulty in, quite frankly, is in staffing. They haven't been able to get fully staffed the whole time they've been operating for us. They've had some good periods, and some periods where they've had quite a number of openings. I think they are addressing that appropriately. It's something that we monitor along with them. But I think they are in good shape as of today.

Q: We had heard from many people around the airport about high turnover among Menzies employees, and Menzies themselves acknowledged they've had roughly a 50 percent turnover rate since taking over in May. Has anything been done to get that number down?

"A couple things. Their business model does require some turnover. Certainly not that much. They need to be able to have stability at their management and supervisor ranks, and they need a certain amount of stability in the rank and file, sort of teaching the new people how to do things.

"And then I think they do see more turnover than somebody else operating might see, which means they have to be good at hiring and training. And they know that.

"So the hiring part of it needs to be an honest assessment of what the job entails, and as they interview people, making informed decisions about people they think are going to be longer-term. And I think they are working it very hard.

"I think it's an area that's surprised them about Seattle. They thought it wouldn't have as much turnover, and it might be easier to hire people."

Q: Do they, or do you, have any theories about why Seattle is different when it comes to hiring ramp workers?

"I don't.

"You know, it's a big cutover — 400-and-some people all at once, and it's hard work. So it was a big undertaking from the start, and you're going to learn things as you go. I think they're coming down the learning curve and getting better and better at running the business here."

Q: A big issue in the news recently has been the spate of pressurization incidents in the past 10 days. (Five in 10 days, including multiple types of airplanes and different routes). Is it simply a coincidence, or are these incidents linked?

"My understanding from what we've seen so far is it is a coincidence.

"All airlines have these things happen at some level, including us. At some rate. We had, whatever it was, five in 10 days. That is a bit unusual, to have that many in such close succession. What we are doing is investigating each and every one. We have not found anything systemic, anything to link them.

"It's been different airplanes, different types of airplanes.

"The one thing I would say is safety is absolutely number one, and nothing will ever get in the way of that. We trust and count on the professionalization of our people, our pilots and flight attendants, to make sure of it. And they do a great job.

"When there's an incident, we investigate it. We learn from it, if there's something to be learned. And put in place whatever corrective measures….

"You know we're doing this fleet campaign [checking all the pressurization systems], looking at maintenance histories of airplanes and looking at pressurization systems and components. We just think that's prudent, to ask the question.

"So far nothing has turned up anything that is systemic or out of the ordinary."

Q: These incidents, as well as the series of Menzies-related accidents that followed the Dec. 26 accident, have received a large amount of local media attention — in part because passengers have been quick to call or e-mail The Seattle Times and other media as soon as anything happens. Do you feel Alaska is being put under more of a microscope than other airlines?

"I don't spend a lot of time worrying about that. I think it comes with the territory a little bit.

"We're making some changes. They're not sitting well with some people… And the world has changed. As you say, with technology and cellphones — it's instant. And it is what it is.

"It just really means that we have to operate at a really high standard, and that's what our intent is."

Q: You mentioned the impact of rising fuel prices. Southwest and JetBlue recently took steps to increase ticket prices to try to compensate for their higher fuel costs. A lot of airlines have tried to increase prices in recent years, without success. Is Alaska having any luck raising prices to try to recoup fuel costs?

"Yes, the industry has been taking some fare increases, fuel-related fare increases. And it's been nice to see that demand has continued to move up. There was some concern about how elastic is demand here, relative to price? So we've had three consecutive quarters of yield improvement, of ticket price improvement, at Alaska.

"For the industry it has not been offset. It is starting to make a dent in the fuel prices…

"Fuel expense for the industry has gone up $18 billion since 2002 — $18 billion per year since 2002.

"And industry losses have been running $5 or $6 billion a year. We lost $30 billion as an industry since 2000.

"So on the one hand, there is good news that some of these increases seem to be passing along some percentage of the fuel run-up for the industry.

"The other thing that's differential for us, I guess us and Southwest, is our [fuel] hedging position. We've been the second-best-hedged carrier. Again, sort of the strategic use of our balance sheet that we talked about.

"Last year we had 50 percent of our fuel hedged at $30 per barrel, which resulted in a $125 million savings.

"This year it's less at a higher price — I think it's 46 percent at $41 per barrel, on average. In subsequent years, the percentage goes down and the price goes up, so we get less and less benefit out of hedging. That's true for everybody that's hedging, because people haven't been putting hedges on at $50 or $55 per barrel, it just doesn't seem like a prudent thing to do.

"What that really means for us is we've got a year or two here of benefit relative to some other carriers, and we need to use the time to continue to work our plan. Continue to work our unit costs down, continue to work on the customer value side of things, and continue to execute what we laid out 3 years ago."

Q: What is your sense — do you think fuel prices will come down significantly in the next couple of years?

"You certainly hope so. We've all heard both sides of the street on that one.

"From a planning standpoint, what you've got to do is assume something to build your models around.

"So this $60 per barrel is something the industry has kinda grabbed onto, and said maybe this is what we're going to have here for a while. Who knows? You hear people say it's going to $100, and you hear people say it's going back to $40. I don't know.

"What we know is we can't control that, so we need to work on what we can control, so we need to continue to work our business model. Make the changes we need to make that ensure we've got a profitable company. And really secure our position as an industry leader for the long term."

Q: You guys have to pick a number, too. Are you basing your models on the $60 figure?

"I think that's kind of what we've been using, yeah."

Q: How much does the fuel question factor into your thinking about retiring the fleet of 26 MD-80s earlier than anticipated?

"We've said in a 10K filing that we're going to have a board discussion of this subject here coming up.

"With the balance sheet that we have, we at least have the option to look at a quicker retirement of the MD-80 fleet.

"Looking at the pros and cons of it, the pros are like you say, fuel burn on the MD-80s. The lack of commonality with the fleet we have today drives a lot of training when we grow, so pilots can move between airplanes and so forth. It becomes complicated and costly.

"The maintenance side of it is additional spares and training and so forth with the MD-80s.

"The other side of it is, we have some of the youngest MD-80s in the country. They're a good airplane, and it's going to be costly to replace them. The ones that we own, the market prices of those airplanes are depressed. And the ones that we have leases on, we would have to buy our way out of those leases, and that would be costly.

"So you have to look at this — what are the annual savings of a single fleet type of all 737s, including the fuel expense on the MD-80s, which is higher than on the other airplanes. And what is the cost to do that?

"So it's a board decision, and we haven't decided yet, but I think we will in the next couple of months.

"It won't be overnight if we do that. It will still be a multiyear process, to move out of that airplane."

Q: Do you have a personal preference about what to do with those airplanes?

"We're still looking at all the numbers, and we've got to present it to the board."

Q: You mentioned that Alaska needs to continuing getting its cost structure down, particularly with higher fuel prices. Where do you expect to reap the most savings?

"I think from this point on there's a bunch of relatively smaller things, compared to what we've done … It really requires broader participation by all of the employees.

"We've had a lot of success with, you know, lean manufacturing, that Toyota pioneered many years ago. Boeing uses that in the way they build airplanes. In fact, Boeing has lent us some of their expertise in how this works. We have many, many projects going on, and we have plans for a lot more, the intent of which is to improve quality, reduce waste, reduce costs, increase efficiency.

"They can be little things, in a small work area in maintenance, for example, or they can be bigger projects. For example, how do we best board an airplane? That's an active project right now.

"The key part of it is you involve front-line people.

"It's management saying we all recognize there are some opportunities to do things better, and where we're going to go for the answers is the people who know the job best, the people who do the job.

"So let's go get them together, provide them the resources whatever we need to provide, and let them figure out … Let them do some trial-and-error, try some things to improve the work flow and the process.

"I am a big proponent of this, because it gets you the right answer and it involves people. … Too much in this country, management has decided they know best and they'll solve everybody else's problems for them, and they sort of throw stuff over the wall and it doesn't work, and everybody wonders why.

"Hopefully we're a little more enlightened than that, and we understand that the people that have the answers are the people on the front lines that are actually doing the job."

Q: Can you be a little more specific — is it reducing the amount of materials involved, hours spent, etc?

"All of the above. And it is a lot of it. We need to do a lot of these activities to result in significant savings.

"There are a lot of other things we're doing.

"The very fact of getting the airline back to an on-time schedule. Operating on time, operating reliably — that will reduce costs. Because an off-schedule airline is just more costly. You end up rerouting passengers, you end up with airplanes out of position, crews out of position. It's just very costly to operate off schedule.

"There are things we are looking at in distribution. We were the first airline to offer sales and bookings over the Internet back in 1995. We're now doing about 10,000 bookings a day over the Internet, about 37 percent of our total sales on our channel — Alaskaair.com — another 10 or 11 percent through online agencies. So about 50 percent of our total sales are on the Internet. We can push that number higher.

"We've recently revamped our Web site to make shopping easier. The pricing display is much simpler for customers. We're trying to get more people to use our Web site, and more people to use the Web or the airport kiosk to check-in.

"Those are things that as you grow, you can grow more efficiently.

"And you know, we never displaced a single employee because of a kiosk at an airport. There was a concern about that when we first started putting them out there, and we said no, that's not our intent. Our intent is to have a platform from which we could grow, so when we grow the airline we don't need to add more ticket counter space, we don't need to add more customer-service agents. Plus it allows the customer-service agents to spend more time with customers on problems. Somebody that got a delayed flight or a missed connection, they can help them get back on track, as opposed to just doing that routine check-in entry on the computer.

"So there's a lot more we can do with technology. We've been leaders with technology in the airplanes. We really pioneered the satellite-navigation instrument approaches up in Alaska, in conjunction with the FAA. We did the work at Washington Reagan in conjunction with the FAA for that approach in there, which is an interesting one because it has all those turns following the Potomac [River].

"So there's more we can do there — more direct routings of airplanes, which allows for less fuel burn.

"Technology, there's a lot more we can do both on the ground with customers and in the airplanes.

"From an airport standpoint, we're trying to make the airport experience for the customer as easy as possible. As stress-free as possible. The idea is to get from your car on the curb to the airplane seat without breaking stride.

"Now, TSA kind of puts a crimp in that with the line sometimes, but even that's getting better — TSA's getting smarter about that stuff.

"But it means in the airport the ticket counter is a thing of the past. If you've been to Anchorage, you've seen that what we've got there is really just a pass-through — the "airport of the future" is what we've dubbed that.

"You get your boarding pass; you go to the next station and you check your bag; your boarding pass is scanned, it cranks out a bag tag, and you're off and running.

"We'd like to consider the same thing at Sea-Tac — pretty major construction project for Sea-Tac, if we go that route. But it would certainly pay dividends and be a real benefit for our customers."

Q: I haven't seen the Anchorage facility. How long has that been in place?

"Going on about two years now [new Anchorage facilities officially opened June 29, 2004]. We had a mock-up of it in the old terminal [in Anchorage]. The opportunity we had was a new terminal being built, so we weighed in right at the front end of that design and said, 'We don't want a ticket counter. Believe it or not, airport, we do not want a ticket counter. We want it to look like this.' And they said, 'whatever you want.' So we designed that, and we've done something similar in L.A., but we're very space-constrained at LAX, and we need to keep working on that.

"There's just a lot of win-win things here that work for customers and work for us, and work for our employees. Technology allows us to do that. We've had quite a good run with innovation. And other carriers tend to follow, then everybody's doing the Web, and everybody's doing kiosks. So we've been pretty proud of our work there."

Q: Is there a timeline for deciding about the "airport of the future" introduction in Seattle?

"Probably months. For the decision, a matter of months. But the actual work is a much longer time."

Q: Going back to the hiring of Menzies, a lot of people have said that the problems Alaska has had is an outgrowth of when you outsource your work to another company, rather than having your own employees do the work. [Alaska outsourced the last of the heavy maintenance on its airplanes in September 2004]. Yet, outsourcing is happening more and more throughout the industry. Do you expect to see more outsourcing at Alaska? And, with the outsourcing to date, have the benefits outweighed the costs?

"I think you have to take each one on its own.

"In terms of maintenance, what we had in Oakland was a two-line heavy-check hangar. The majority of our heavy maintenance was done outside, and we made the decision to take the rest of it outside. We had experience and relationships with those providers.

The economics were clear — we could never get the unit costs down, in Oakland, anywhere near what they were with the outside providers.

"Then what becomes important is quality. As I said, safety is number one, so we need to make very, very sure that the operator that you're using, the contract company, whoever it is, provides equivalent quality.

"You can only do that by staying involved, and having oversight. Which is what we have done. We have a very elaborate oversight process — really for all of these contract situations, but it really started with maintenance.

"Very clear metrics of performance, and measurements, and report cards, and meetings, and follow-up, and on and on. It's still our maintenance program. The FAA still holds us accountable for doing high-quality maintenance even though it's being done by other people, and we take that responsibility very seriously.

"It's really the same thing with a Menzies, or any other provider. You've got to stay in the loop, and you've got to provide the metrics, and the accountability, measurement, and frequent discussions about what's going on. Is it meeting our standards for quality? And if it's not, there needs to be immediate corrective action. Just the same as if you did it yourself. It's the same level of oversight, and the same assurance of quality."

Q: So, from a big-picture view, do you view these outsourcing decisions as having been beneficial and worthwhile?

"I do.

"I do, as I said, with the exception of the timing of Menzies.

"As we look long term — you can't look at these things in the first week, month, six months even. You have to look at long-term, how's it going.

"I believe all of the decisions have been appropriate, and we'll look back a year from now and say, 'Yup, that's worked out.' "

Q: On a personal note, how have you enjoyed being in the top spot for the past 3 years?

(Laughs)

"You know what, we've got a great team. We are faced with a challenge, and I think everyone really has stepped up to the challenge.

"There isn't a dull moment. This is a dynamic industry — it always is, but especially now.

"Who would have thought that United, Northwest and Delta — 50 percent of the seats in our industry, would be flying under Chapter 11 protection?

"So we're obviously doing some things right to be one of two carriers to make a buck.

"And what we said about our plan was, we get the business model on the right track, we start making some profits and then we grow.

"So hopefully we're getting to the point now where people are going to start feeling there is some return on all this effort.

"We've got this order for up to 100 Boeing airplanes, which could be an awful lot of growth for us, and that's what we want. Our mind-set is about growth. It's got to be profitable — you can't add this kind of capital without a return, so we have to make sure we've got the bottom line working. But I've got all the confidence in the world. We've got the right people in the right jobs, with the right attitudes and mind-set, and understanding of how our business works, and we will be successful.

"And you can't say that about everybody out there."

Q: So is this keeping you working seven days a week, or do you have any down time?

"It's a lot of work. Everybody's working hard. And our front-line people are working hard. They've had to deal with an off-schedule airline. It is really difficult being out on the front lines dealing with passengers that are not that happy, people that have been waiting for flights, it's been hard on everybody. It's been a lot of work.

"We're all looking forward to things settling down here a bit, and I think that's coming."

Copyright © 2006 The Seattle Times Company

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