In an age of easy access to information, savvy consumers, and social networks, earning a buck can be easy, but earning a profit may prove difficult. Nevertheless the definition of an organization has not changed. The purpose of an organization is to create profits and provide a return to its shareholders. There are many issues that may impact customer satisfaction or dissatisfaction regarding an industry and the best place to start changing consumer perspective is at the organizational level. Alaska Air Group looks to gain market share and increase long-term customer satisfaction by exhibiting a concept of change that starts internally – with its mission, vision, and strategy – and permeates its surroundings.
Alaska’s differentiation strategy drives the company’s structure. Management has found success with a functional structure with specialized teams. With a corporate strategy that emphasizes excellence in relationships, Alaska Air Group’s functional structure delivers maximum value for the company while specialized teams enable response to customer needs. With this type of structure, quality leadership is important must be sustainable.
Former CEO Bill Ayers shaped Alaska Air Group into an airline industry leader and his legacy continues with Bradley Tilden at the helm. A consistent and solid structure at all levels of the company aided the seamless transition of leadership. This is just a single example of how Alaska proves itself as a sustainable company. Alaska Air Group’s establishment of success in an environment that, overall, can be best described as nothing less than a minefield, is a testament to the success of its strategy, quality of its leadership, and strength of its culture. Their ability to continually display positive performance in testing circumstances illustrates the company’s drive toward innovation. This is a positive
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not only for shareholders who can expect Alaska to thrive in the future, but to all stakeholders who benefit from the existence of Alaska Air Group.
In our report, we will first examine the company’s culture and its components – the very heart of Alaska Air Group. A specific set of values supports their family-like culture – the key to their differentiation strategy. We will then analyze the company’s actions regarding employees and how these actions support their strong culture. This includes a discussion of company hiring practices and benefits provided to the employees. Following this, we will review Alaska’s performance and innovation – the key to their sustainability.
Components of performance and innovation include internal quality assurance metrics and
“green” technology. Next, we will delve into the structure Alaska uses to support its business as well as leadership within the company. Finally, we will close with an inspection of the environment surrounding and interacting with the company and how Alaska navigates these murky waters. We believe that all of these things together will paint a picture of
Alaska’s future success.
Alaska Air Group has a very strong organizational culture that cares for its employees and for the communities in which it operates. The mission and vision of Alaska Air Group embodies a people first approach. This can be seen in the mission statements of Alaska
Airlines and Horizon Air, respectively:
At Alaska Airlines, our employees share an uncommon blend of integrity, professionalism, caring, resourcefulness, and spirit. Every day we strive to bring these values to life through behaviors and deeds that go above and beyond the
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ordinary - what we call "North of Expected" and Alaska spirit in action. (Alaska Air,
2012)
To the people of Horizon Air, the Pacific Northwest is more than a place to do business -- it's our home. Because of this, we have an innate interest in the welfare of the region and its people, and in doing all we can to make it an even better place.
(Alaska Air, 2012)
Everyone in the company gets involved, illustrating the company’s focus on and commitment to teamwork. Alaska also believes that diversity is a key factor in strengthening the culture within the organization. Alaska Air Group’s culture is very demanding yet rewarding. It demands individuals who really get involved in the company and the community and are looking for a career with the airline – not just a job. For those who believe they can make the commitment, Alaska provides a generous benefit package.
Perks such as flexibility in work schedules, recognition programs, onsite auto detailing and massages, free air travel and great health benefits are par for the course (Alaska Air, 2012).
Alaska also states they empower talented individuals in their workforce who care about providing exceptional service (Alaska Air, 2012).
Alaska’s culture differentiates them from their competition through exceptional customer service and finding new innovative ways to meet their needs. Alaska’s competitive advantage comes from its status as a smaller airline and its strong involvement culture, allowing them to tailor their efforts for the west coast market in which they strongly operate. It is because of their people-first approach that they gain customer loyalty and are able to provide cheaper flights and charge lower fares (Kaminski, 2012).
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Another part of Alaska’s culture is its commitment to safety, customer service, innovation and industry leadership. These are seen through awards given to the airline such as the FAA Diamond Award for maintenance training excellence and highest in customer satisfaction among traditional network carriers (Alaska Air, 2012) (see Appendix A). The list goes on but these awards go to show that their culture not only involves the hard work of the company but also customers who make up the biggest part of the company’s profit.
The level of corporate culture that Alaska practices can be both visible and invisible to customers. The way employees carry themselves and represent the company in a positive way says a lot about how the organization is run. Invisibly, Alaska’s employees know what is expected of them and tend to take initiative when it comes to innovation, participation and so on. We believe Alaska encourages an involvement culture because it emphasizes participation of employees in adapting to changing needs of the environment. This can be anything from constant training to changing up how things are done normally. This type of culture is characterized by a caring, family-like atmosphere which Alaska prides itself on and leads to both internal and external success.
Alaska Air shows integrity through its constant involvement within the community with outreach programs for disabled citizens and others. They also donate towards medical research, education, arts/culture, and much more to show that they care about the communities and those in it. In living up to its values, Alaska is creating a strong brand name for itself, making it a hefty competitor in the market.
The company uses human resource practices that recruit the best talents for its job openings. One of Alaska’s innovative human resource management tactics is group
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interviewing (Flight Attendant Group Interview Process, 2007). In addition to one-on-one interviews, group interviewing puts the job candidate into a team-based setting where real world skills and personal characteristics become more exposed to determine the overall fit of each candidate to the company. One of its more recent decisions - hiring new Managing
Director of Recruiting and Diversity, Laura Fowler - demonstrates Alaska Air Group’s strong commitment to its mission that starts from the very beginning of the interview and hiring process. "Laura and her diversity and recruiting team members will help position Alaska and
Horizon for success for years to come as we grow our customer-service-driven workforce."(Alaska Air Group, 2013).
Alaska has set numerous internal standards to provide quality control including its overhaul of baggage handling operations. Chief Operations Officer, Benito Minicucci launched the overhaul to assure fliers of on-time departure, arrival, timely baggage claim, and decreasing the likelihood of loss luggage. As part of the new operations, there are more than 50 different check points put into effect on a timeline for each departure, with data collected on each one. Flight attendants have to be on board 45 minutes before scheduled departure; customer-service agents board the first passenger 40 minutes before departure, and 90% of passengers need to be boarded 10 minutes before departure. What time the fuel truck hooks up and what time it disconnects its hose are measured. When flights arrive, the time it takes for the belt-loader to pull up to the plane is tracked. The cargo door is supposed to be opened three minutes after arrival; the first bag needs to be dropped on the carousel within 15 minutes of arrival. As a result of these internal controls, Alaska was first among major airlines in on-time arrivals for 2012 (McCartney, 2005).
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At the core William Ayer and Alaska Air Group are about the people, and the best way to be about the people is to be about the environment in which the people live. Alaska Air
Group is actively improving their fleet and reducing their maintenance costs. To achieve this end, Alaska Air Group nurtured a relationship with Boeing to acquire an entire fleet of
Boeing 737s with a recent purchase of the 737 NextGEN model (Carey, 2013). The NextGEN airplane allows for quicker landing procedures by using satellite positioning technology instead of ground to air technology resulting in a reduced use of fuel. In addition to the cost savings that can be transferred to the air traveler, the surrounding communities will benefit from less fuels being consumed during the descent procedure. This further illustrates
Alaska’s care for the communities in which it operates.
Alaska Air Group exercises a corporate strategy that emphasizes excellence in three key areas: customer service, company culture, and marketing. Alaska’s intense focus on customer service has rewarded the group with a valuable loyal customer base. In its hubs in
Seattle, Portland, and Los Angeles, Alaska experiences a brand loyalty that is unusual in the airline industry. Company culture is another key focus for the airline. Employee and community relations are prized within the organization and both groups are included in the company’s vision. The third component of Alaska’s strategy is success in marketing. The company has attained success in niche markets by selling access to desirable vacation spots.
Successful marketing of leisure flights to Alaska, Mexico, and Hawaii is an example of solid marketing execution.
The strategies of Alaska’s major business units align with those of corporate. Alaska’s airline group is committed to high on-time performance, high overall customer satisfaction,
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and low mishandled baggage rates. For June 2013, Alaska Airlines led the major North
American airlines, boasting 86.80% on-time performance. This is 5% better than the next competitor (Ewalt, 2013). In a J.D. Power & Associates' 2013 North America Airline
Satisfaction Study, Alaska ranked highest in the traditional carrier segment for a sixth consecutive year with a score of 717 out of 1000 ( America’s Most , 2013). Alaska also excelled in mishandled baggage rate, placing in the top 5 for least mishandled baggage at
3.13 bags per 1000 passengers (Burrows, 2013). Delivering on these goals at the customer level ensures that the corporate goal of superior customer service is being met. Alaska’s marketing group emphasizes the company’s commitment to culture and the environment.
Alaska has won customers by being one of the well-respected corporate citizens in the state of Alaska. For example, in 2011, Alaska Airlines Corporate Giving Program gave $2.6 million to a number of community groups (White, 2012). Alaska Air also preaches green travel, with an increased use of biofuels in its fleet of Boeing 737’s (Warwick, 2013).
To deliver on its strategic goals, Alaska needs to adopt a structure to support its differentiation strategy. A functional organization structure with a heavy reliance on specialized teams enables Alaska Air Group to achieve a high level of excellence in each area (See Appendix B). Each department, whether it is finance, labor relations, customer service, etc., has a chain of command in which top positions hold authority. Finally, the ultimate authority is vested in William Ayers, Chairman of Alaska Air Group Inc. and Bradley
Tilden, Chief Executive Officer to oversee each and every aspect of the company, delegate responsibility, and make the final decisions.
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The leadership of Alaska shares an attitude and a vision that is widely accepted by each employee within the hierarchy of the company (Hetter, 2013). William Ayer demonstrates a positive attitude toward the challenges of the airline industry and the opportunity Alaska Air Group has to create a better experience for each traveler (Kaminski,
2012). The overall perception of the transportation industry is risky due to the reliance on fossil-fuels to power all modes of transportation. The airline industry recently went through turbulent times as fuel prices continued to rise month over month with no indication of returning to normal. As a result the additional prices were transferred to the customer through higher ticket prices (Saporito, 2013). William Ayer demonstrated his authentic leadership style by pursuing his purpose of being best in class coupled with his passion to keep employees first. Alaska Air Group’s belief is to “[Work] together to build a diverse and inclusive company where everyone feels valued, committed and connected (Alaska Air,
2013).”
Ultimately, this belief will lead to an improved customer experience as each employee aspires to invest their own commitment into a “North of expected” attitude. To ensure his number-one-people were taken care of William Ayer focused on creating a more sustainable strategy. This strategy was named the 2010 plan and was set in place to give
Alaska Air Group a long-term focus. The 2010 plan was a success and to ensure Alaska Air
Group had a purpose to sustain further success William Ayer openly stated this plan is here to stay (Alaska Air, 2013).
Furthermore the success of an organization is based on the importance of keeping a clear vision and consistent evaluation of the internal and external environment. The 2010 plan displayed the clear vision William Ayer sought to provide for all employees of Alaska Air
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Group whether it was Alaska Airline or Horizon Air (Alaska Air, 2013). Although William understood a great plan was necessary to get ALASKA AIR GROUP to the next level but it is each individual employee’s care for a better product that would lead them into the future.
Conversely the Chief Executive Officer position at its core is an employee position; thus it is bounded by a high-performance work attitude evaluation. Overall, William Ayer is very satisfied with his position within Alaska Air Group as his work is similar to his own personal needs and interests.
William Ayer’s success within Alaska Air Group can be explained by total immersion.
As an individual’s attitude set the stage for how each opportunity and challenge is perceived the behavior of the CEO will shape the condition in which employees address their own challenges and opportunities. Alaska Air Group had the opportunity to see the challenges of the industry and continue on their same path but raise the price of tickets only to address the increased fuel prices. William Ayer saw the industry challenges as an opportunity to reinvent the commercial airline model by establishing connected relationships similar to the way William maintains strong personal relationships (Shelley, 2011).
From politics and legal matters to environmental and societal issues, many external forces exist in the general environment that surrounds the profitable powerhouse that is Alaska Air
Group. Many of these forces work together in shaping all aspects of Alaska’s business strategy within domestic markets and regarding global expansion.
Two of Alaska Air Group’s major legal concerns are mentioned in their mission, vision, and strategy - passengers and employees. The potential for lawsuits from employee unions and passengers is very high in the airline industry because of high service standards, stringent
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security standards and thin profit margins. Alaska Air’s intense focus and care for their customers and employees has allowed them to avoid many of these potentially damaging
(Alaska Air, 2013).
Alaska Air Group caters to a wide variety of passengers including leisure and business travelers. Alaska Airlines and Horizon Air operate out of a combined 5 hubs and provide transportation to nearly 95 destinations, though they both are headquartered in Seattle, WA
(Alaska Air, 2013). With Seattle as its primary hub, generating over two-thirds of its over 26 million passengers, Alaska Air Group is highly dependent on the well-being of the Seattle community as well as the other communities in which it operates and aims to improve them however possible (Alaska Air, 2013). The company achieves this through its corporate philanthropic efforts and many volunteer opportunities in the community (Corporate
Sustainability Report, 2012). Without a thriving community and the positive perception afforded Alaska through these efforts, the company would undoubtedly suffer a major financial hit since approximately 96.5% of its total revenue is from its passenger division
(Alaska Air, 2013). This explains why community, along with employees and customers, is a large part of Alaska’s corporate strategy.
One of the major threats to Alaska Air Group is its dependence on jet fuel derived from standard oil. A small increase in the barrel price of oil could have major effects on Alaska’s bottom line (Alaska Air, 2013). Alaska has adapted by going “green” though purchasing more fuel-efficient aircraft and using biofuels, adding to its image of being socially responsible.
The effects of such technological advances could be even more advantageous should Alaska expand into the global arena.
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Right now, Alaska is poised to take advantage of some very attractive opportunities on the global stage. After the recession in 2008, triggered by the financial crisis in the U.S., world tourism levels fell. With the economy making a steady recovery, more and more people are able to afford air travel again. According to the World Tourism Organization (UNWTO),
“international tourist arrivals worldwide would increase by 3.3% a year from 2010 to 2030 to reach 1.8 billion by 2030” (Alaska Air 2013). The FAA postulates, “RPMs (revenue passenger miles) are forecast to increase [in the U.S.] from 822.3 billion in 2012 to 1.5 trillion in 2033, with an average annual rate of 2.8%” (Alaska Air 2013). This growth could bring with it large revenue increases and the ability to expand operations.
Unfortunately, the airline industry brings its own set of threats regarding global expansion.
Competition within the U.S. is intense to say the least even with its limited number of carriers, but within the global market there are hundreds of carriers and it would take time to establish Alaska’s reputation worldwide – the cornerstone on which Alaska builds its customer base. In addition, airline travel has become synonymous with stringent security measures in light of worldwide terrorist attacks. Doing business in other countries means paying costs for passenger screening in those countries. Those foreign costs combined with the domestic costs of passenger screening could have significant effects on the amount of revenues from abroad. Even though Alaska could gain a lot through a risky global rollout, they are secure in their domestic operations – for good reason.
Alaska’s website says “Whenever the history of commercial aviation is written, people
[will] ask how an obscure little airline in America's hinterland has continued to survive and thrive while once-proud giants disappeared. Grit and determination will be part of the
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answer (Alaska, n.d.).” Indeed it is because of these very traits that Alaska Air Group has survived in an extremely unfavorable and costly task environment.
One of the costliest inputs in the airline industry is aircraft. There are very few manufacturers of aircraft and, as a result, they come with large price tags. This presents a problem for companies looking to enter the airline industry for the first time. Five companies corner the market on aircraft manufacturing: Boeing, Airbus, Embraer, ATR, and
Bombadier (MarketLine, 2012). Alaska Air Group saves money by buying all of their planes from two manufacturers. Alaska Airlines’ fleet is comprised entirely of Boeing 737 jets and
Horizon Airways utilizes Bombadier Q400 turboprop planes. These planes also provide a barrier to exit in that second-hand planes are not very marketable in the U.S. However, a company could sell the plane to someone in another country who would be more willing to buy it (MarketLine, 2012). Planes, although very costly, are not the only inputs that Alaska
Air Group has to worry about.
Airlines also rely heavily on personnel. Alaska employs customer service representatives, ticketing agents, baggage handlers, ground crew, flight attendants, pilots, maintenance crew, and the list goes on (MarketLine, 2012). Employees are all part of unions and as such have collective bargaining power. Providing union-quality pay and benefits to so many people is very costly to say the least. Aviation fuel is also expensive. With few suppliers, substitutes, and high oil prices, this remains at the forefront of most companies’ cost-cutting measures. Alaska, however, has found a solution to this ever-increasing dilemma – the use of biofuels and NextGEN aircraft. These not only provide the company with cost-savings, but with tangible evidence of their environmental friendliness. Their success has been proven in the 2010 Fuel-Consumption Report, which ranked Alaska Airline
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the most fuel-efficient of the fifteen largest airline operators in the US (Bellamy III, 2013).
Through the marketing of their various “green” initiatives, Alaska has attracted more customers.
Customers are the lifeblood of the airline industry. Any decrease in customer revenue could prove deadly to Alaska since it has only been making a financial profit for 9 years consecutively. The threat from many other traditional airlines as well as the recent introduction and popularity of low-cost airlines – JetBlue and Southwest – intensifies the rivalry between them all, keeping ticket prices low and profit margins slim. Switching costs are non-existent so Alaska Air Group must strive to retain as many customers as possible.
With limited control of its surroundings, the main way for Alaska to survive is to create and retain brand-loyal passengers (MarketLine, 2012).
To implement this, Alaska Air Group boasts its “Customer Commitment” and maintains that commitment through incentives and collaborations with other businesses.
They collaborate with hotels and car services to give Alaska flyers exclusive deals, taking advantage of the effects of complement pricing on the overall market. They are also affiliated with banks to provide Mileage Plans that allow customers to accrue miles honored by Alaska Airlines and its partners. Not only does this benefit Alaska Airlines, but also its partners.
Throughout the years Delta and Alaska Air Group have shared hubs in order to generate more passengers; however, Delta has recently gained enough stability in the west coast market to directly compete with Alaska Airline’s services through its addition of six new daily, non-stop flights from Seattle to San Francisco. Alaska Air Group has rapidly responded with the addition of three daily departures of the same route, and doubling
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Mileage Plan points for its customers. Alaska’s quick and innovative thinking proves that the company can adapt to just about anything that is thrown their way.
Another way Alaska has been able to retain customers and adapt to their environment is through their expansion of operations. The company provides many jobs by conducting numerous operations through call centers in three different states, as well as employing airport staff throughout its 95+ destinations (See Appendix C). These jobs amount to over twelve thousand filled positions. This number is expected to grow due to recent competition with partner, Delta Airlines. This expansion of services will come into effect March 2014
(CAPA: Centre for Aviation, 2013). With the recent recession, people are more likely to frequent a business that is expanding and offering more jobs.
Alaska Air Group is aiming to secure profits for the shareholders. The organization is looking to increase future flight frequency, invest in new technology, and aggressively identify potential markets for expansion. Alaska has positioned itself to succeed in an unfavorable task environment, looking to gain customer value through its mission, vision, and strategy.
The organization has also established success in a typically hostile general environment.
Alaska’s leadership and culture are strengths for the company as is the functional structure the company adopted. Ultimately, Alaska’s commitment to its strategy and values has the company sitting “north of expected”. Alaska Air Group is a safe bet to exist 25 years from now given its track record and current position in the industry.
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Next Generation 737-900ER Aircraft
This appendix provides a picture of one of the five NextGEN aircrafts purchased by Alaska Air
Group from Boeing.
The image for the identified product (Figure 1) is based on a Press Release from Alaska
Airlines September 30, 2013. The Wall Street Journal news department was not involved in the creation of this content. Per the article, “The five new aircraft are worth $481 million at
Boeing's current list price. Two of the aircraft will arrive in 2015 followed by two more in
2016 and one in 2017.”
Figure 1. Next Generation 737-900ER Aircraft purchased by Alaska Air Group from Boeing.
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