Alaska Airlines’ Success Could Make It Ripe for Picking
The dogfight between United Airlines and Southwest Airlines for West Coast passengers gets a lot of attention, but there’s another carrier in the region that is also thriving: Alaska Airlines.
After carefully paring its operating costs the last two years, while keeping many of the service amenities that have long made it popular, Seattle-based Alaska Airlines is enjoying strong profit growth, swelling passenger traffic and a rising stock price for its parent company, Alaska Air Group Inc.
Southern California has been a key element of that growth, even though Alaska has been careful to keep its distance from the United-Southwest fray. Alaska Airlines--the 10th-largest carrier nationwide and the only major airline based on the West Coast--now has 64 combined daily departures from Los Angeles, Burbank, Orange County and Ontario. Overall, its route system stretches from cities in the Russian Far East south to Puerto Vallarta in Mexico.
But there is speculation in some corners that the prosperity Alaska has earned under the guidance of Chairman John F. Kelly carries a risk that the airline could become a takeover target.
Why? Just as United Airlines (a unit of UAL Corp.) has used its Shuttle by United in the West to feed more customers to its lucrative international routes--especially its Pacific Rim service--so other big U.S. airlines are looking for ways to mimic that strategy, some analysts and money managers contend.
Carriers such as Northwest Airlines, which doesn’t have a big presence in the Western states, are probably eyeing Alaska and other successful carriers as a way to bolster their West Coast feed for overseas flights, said Vince Carrino, president of Brookhaven Capital Management in Menlo Park.
Carrino, who has been buying Alaska’s stock for more than a year, said he has no knowledge that any airline is actually preparing a bid. Northwest said it never comments on “baseless and uninformed speculation” about acquisitions.
Regardless, Carrino said that “the airline industry is going to consolidate fairly rapidly next year,” and that Alaska is a strong candidate to be bought because it has a solid franchise in the West, low operating costs and a stock that--despite soaring 50% this year to a recent $31.75 a share--still sells for a modest 10 times its estimated 1998 earnings per share.
Alaska spokesman Louis Cancelmi said the airline doesn’t comment on speculation such as Carrino’s, which first appeared in Business Week magazine.
For now, 65-year-old Alaska Airlines--known for the sketch of an Eskimo face painted on the tails of its aircraft--is getting steady passenger growth by offering fares to the Pacific Northwest that compete with United’s Shuttle and Southwest, while also providing service (such as meals) that the others lack.
The result: Alaska Air Group, which also owns the Pacific Northwest regional carrier Horizon Air, posted a 40% gain in profit for the first half of 1997, to $15.1 million, on a 6% increase in revenue to $815.4 million.
Times staff writer James F. Peltz can be reached at james.peltz@latimes.com
