Alaska Airlines Case Notes

MGPO 470-Alaska Airlines Case SWOT (2000-2007)

• Strengths

• In the face of adversity following the crashing of Flight 261 and 9/11, Alaska Airlines chose not to lay anyone off despite an industry wide trend of doing so. This showed the resilience of Alaska Airlines in the face of adversity and restored employee faith in the company

• It showed that the leadership of the company was betting on its employees to keep the airline aloft

• AA cut its flight schedule by 13% following the two tragedies. As a result, AA only lost 5.6% passenger traffic compared to the industry-wide downturn of 19%. This shows managements responsiveness to external pressures
• Has a dominant market position in the West Coast
• Historically strong customer loyalty
• Committed to its shareholders, would never accept the defeat of filing for bankruptcy
• The 2010 Plan had the right idea in restructuring labor relations and contracts to better suit the company going forward

• Understood that face to face customer service roles was a competitive advantage (always prided on their customer service)

• Strong cash reserves during times of profitability
• 2007 Planning session posed an outsider’s perspective to the company in order to become emotionally unattached to the company

• Focusing on fixing the Seattle hub was crucial to the success of Alaska as it is its main hub
• Ben Minicucci’s guiding principles were a strong start to fixing the inherent problems of AA

• Called for large scale systematic change

• Weaknesses

• Dysfunctional culture
• Because many airlines filed for bankruptcy post-9/11, they were able to renegotiate labour contracts and operate with a lower overhead than AA. This became a competitive disadvantage for them

• AA’s employees some of the highest paid in the industry

• 2010 Plan had many different drivers acting at the same time which created a number of downstream consequences

• The closing of the Oakland maintenance site left remaining employees feeling bitter
• Voluntary management severance created two consequences

• Talented senior managers with tribal knowledge left
• Many vacated management positions were replaced in the short-term instead of being cut entirely. Overall, by 2007 management labour costs rose once again

• Union contracts for flight attendants, ramp workers (IAM), and pilots (ALPA) all had to be renegotiated at the same time

• Management was trying to reduce wages for all three employee groups, all which failed and created an “us vs them” mentality

• After permanently outsourcing ramping operations and abruptly firing 470 Seattle baggage handlers, management-employee relations became drastically bad
• Following the 2004 arbitration, pilots became disengaged which resultantly showed in their work

• Ramp vendors were unable to handle the heavy traffic of the holiday season

• Understaffed and undertrained
• Operated with an autocratic culture
• Very high turnover
• Above wing staff became demoralized
• Ramp vendors mishandling bags upset customers

• Management was very disengaged and out of touch with the below wing operations
• Highly compartmentalized and siloed work units
• 2005 Mad Dog task force unable to fix any of these issues because

• Given no real authority and could not implement solutions
• Task force focused solely on outputs and outcomes

• Opportunities
• Threats

• Two successive airline tragedies greatly affected Alaska Airlines. The results of these two events shows that any airline is extremely sensitive to external events and resulting public image

• Crashing of Flight 261 carrying 88 passengers, with 44 of them being related to Alaska Airlines in some capacity. This event shook the collective morale of everyone working for Alaska
• 9/11 interrupted the airline industry at a macro scale. After this event, severe changes to security procedures were implemented while demand for travel fell sharply. Due to this, many airlines went bankrupt

• Heavy reliance on crude oil prices, which account for 15-35% of the cost of running an airline, means that commodity volatility can severely hurt AA (in 2002 they lost $118.6 million from 9/11 and crude oil prices)
• High labor costs and constant collective bargaining processes slows down efficiency and puts a severe drain on resources