What’s The Problem Between Alaska And Delta?

In 2014 there have been two main sources of drama in the airline industry:

Let me tell you, the three part Real Housewives of Atlanta season reunion didn’t have anything on the drama going on in the above two situations.

Real-Housewives-Reunion

There was a really interesting Forbes article published over the weekend, entitled “Note to Alaska Airlines: It’s Time to Make a Deal with Delta.” I think it does a great job summing up the current situation, and in a way, Alaska’s stubbornness and pride.

Briefly recapping what happened

To very briefly recap how we got to this point, in late 2012 Delta announced their intention to greatly expand internationally out of Seattle. Alaska and Delta had a very close partnership prior to that, so it was a joint announcement of sorts. Basically Alaska would operate many domestic flights to feed Delta’s expansion. They fly to roughly 100 destinations out of Seattle, so the partnership seemed like it could be extremely mutually beneficial… in the short term.

Alaska

International expansion out of Seattle is brilliant

What the Forbes article sums up well is how brilliant international expansion out of Seattle is. Via the article:

The fact is that Delta has no choice but to build a Seattle hub. Delta is one of three global U.S. carriers and it needs to offer Asia service – particularly China service — from a West Coast hub, where it can gather passengers from the states to the east, all 45 of them.

The best U.S. West Coast hub is San Francisco, where United is long established.  For years, that has left Delta and American, as well as United, fighting it out at LAX, a place where nobody can win.

The problems with LAX are that airport capacity is too limited for any U.S. carrier to build a real hub, while the many foreign carriers often set pricing below where U.S. airlines would like to set pricing. Not a favorable situation, yet you cannot abandon LAX.

And that’s why Seattle is a brilliant place for Delta to expand:

  • It’s the closest major mainland US city to Asia, meaning the costs to operate flights to Asia are the lowest
  • It’s not overcrowded, and doesn’t have a problem with weather and delays
  • It has a huge tech industry of its own, which can fill many seats on nonstop flights out of Seattle

So it’s a no brainer, and the expansion on the part of Delta is well thought out.

Delta

Was Alaska acting in good faith… or being naive?

This is where the situation gets “sticky.” Short term the expansion was a huge win-win for both carriers, as it fueled Delta’s international growth. Alaska won big time by getting a lot more traffic, while Delta won big time, by not having to fly half full planes domestically to feed their international Seattle hub.

But long term can we really blame Delta for what they’re doing? Now that they have roughly a dozen internationally destinations out of Seattle, they’d be doing their shareholders and passengers a disservice by exclusively allowing Alaska to provide that feed. Not only do their own elite members get fewer benefits on Alaska, but if those flights are turning profits in and of themselves, why should Delta outsource that flying?

I do believe Alaska was acting in good faith when this agreement started in thinking that they’d be a “partner” in this growth in Seattle… at the same time I think they were being a bit naive thinking it would continue forever.

Alaska can’t afford to be stubborn/proud

This is really where the drama originates. It’s not just Alaska, but Delta as well. Both airlines are doing things simply to piss one another off. For example, the week that Delta launched service from Seattle to London, Alaska started offering double miles for flying British Airways on that route — that’s right, they wanted to keep passengers off Delta, despite their supposed partnership.

Double Miles to London

Similarly, Delta tried to counter Alaska’s “Club 49” by offering Alaska residents perks, even though they can’t even begin to compete with Alaska in that state.

Delta-Alaska

The big problem here is that Delta’s expansion is smart — as much as it’s no doubt a slap in the face to Alaska, from a business perspective it’s the right move. I don’t think the same can be said for much of Alaska’s expansion, which is simply to spite Delta.

For example, late last year Alaska announced that they’d launch service from Salt Lake City to San Jose, which was quite clearly intended to “get back” at Delta.

The reason Alaska has been so successful and has kind of “weathered” the turmoil in the industry is because they’ve always been very focused and efficient, and I can’t help but feel like their ego is getting in their way with the Delta situation.

Delta could afford to fly planes to Seattle empty just to piss off Alaska if they wanted to (not that they’re doing that). The same can’t really be said for Alaska. They should be focused on expanding to destinations that will maximize their bottom line, and not one that will maximize how much they’re pissing off Delta.

Alaska can’t live with Delta… but also can’t live without them

This is really the crux of the issue. Delta will continue to expand in Seattle. It’s a fact of life, and there’s nothing Alaska can do to change it.

A merger between the two carriers isn’t happening, as I can’t imagine it would be approved by the government.

So that leaves Alaska with two options:

  • Once their contract runs out, cut their ties with Delta and try to strengthen their relationship with another US airline (maybe American)
  • Continue their partnership with Delta and get out of it what they can, since there are some cities that Delta simply won’t expand to, where Alaska could continue to provide the feed (I don’t see Delta launching service to Pasco, Pullman, or Walla Walla anytime soon)

Bottom line

I’m not meaning to rag on Alaska, because I’m totally on their team here and love flying Alaska. Why? Because I think they went into this with the right intentions, and were expecting Delta to choose friendship over number crunching.

I think Delta is ultimately doing what’s best for their shareholders and passengers with this expansion, and can we really blame them for that?

But I do kinda feel bad for Alaska, because they’re really stuck between a rock and a hard place here.

What’s your take on the situation? Are either Alaska or Delta in the wrong here, or both just looking out for themselves? How do you see this ending?

Comments

  1. I think you have to keep in mind that Alaska’s relationship with Delta really was an inherited relationship from AS’s relationship with Northwest, which operated an international hub of sorts from Seattle, serving various destinations over the years, Tokyo, Hong Kong, Osaka, I believe, plus handled a lot of freight in the bellies of its 747s. The partnership ebbed and flowed, but has been in place for over a decade.

    Initially DL reduced combined capacity out of Seattle after the NW merger, discontinuing a lot of Hawaii flying and reducing capacity in many of the old NW hub markets. The reaffirmation of the relationship was probably sincere on DL’s part, but there was also obviously a realization that AS could not or would not provide the kind of feed DL needed for so many Asian nonstops.

    What I don’t quite understand is how DL can create a competitive product with AS, while operating mostly SkyWest, et al RJs out of SEA to the West. Does the service, comfort, and reliability compare?

  2. Delta has such rotten, customer-unfriendly reputation that I can’t possibly be on their side against a decent airline like Alaska.

  3. My guess is that over a long enough timeline Alaska will eventually falter as a mainline carrier while other much larger carriers take over their profitable routes and leave them with nothing but crumbs. Which will eventually mean fewer options and higher prices for customers along with fewer perks and steeper penalties. Delta doesn’t have to merge with anyone. They only need to bleed Alaska into submission.

  4. I would say cut ties with Delta and join OW at the earliest possible time. This keeps them independent (though not the free agent they are now) and able to continue with their business model that’s profitable. Yes, you might lose your AF, KLM and Korean as codeshares but you pick up BA, Air Berlin and JAL and more. Frankly the other current Skyteam AS codeshare partners will probably be upset with Delta for losing AS’s feed from those out of the way places as DL will never serve those cities, especially in Alaska. If AA doesn’t veto, not sure why OW wouldn’t welcome AS with open arms. In the event SEA becomes a OW hub, Delta will regret crossing AS.

  5. The young lady in pink clearly got the best of the red dress lady………..that was great entertainment and is what makes this blog…………

  6. It’s a good thing you ended by saying you love to fly Alaska, because it did seem like you were beating up on them. you are right: they are between a rock and a hard place.

    However, things are not nearly as grim as you make it seem. This is not like Frontier getting pummeled by Southwest in Denver. Alaska is too good, too popular and too profitable to be pushed off the cliff.

    The numbers are clear: airlines cannot run a hub, at least not in the US, just on connecting traffic. They have to get a lot of O&D traffic. Does anyone believe Delta can steal O&D traffic from Alaska? Not unless they want to perpetually sell tickets at a discount. Remember, that is exactly the strategy Delta employed at Cincinnati. It worked for years, but eventually the losses got to be too much. Trying that against an entrenched Alaska at Seatac is a fool’s errand.

    Alaska is at a crossroads. They have tough strategic decisions to make, but it is hardly gloomy. Worst case scenario: Alaska has to merge with a deep pocketed competitor. That would be the worst possible outcome… for Delta.

  7. @ Joseph N. — There’s no doubt that Seattleites are an especially loyal bunch, and they love their “hometown” airline. At the same time, if the partnership between the two airlines ceases to exist, in many ways Alaska can’t compete with Delta. Yes, those flying within the Pacific Northwest and Alaska will still be loyal to Alaska, but for those that travel internationally with any frequency, well, they don’t really have much of a choice. Right now Alaska benefits from that in the sense that business travelers can fly Delta internationally and credit those miles to Alaska, but if the partnership ceases to exist, I don’t think people will change their international travel plans in order to stay on “team Alaska.”

    And Alaska has “weathered the storm” quite well. But that’s largely because they’ve had so little competition. They’ve more or less had the entire Pacific Northwest to themselves… up until now.

  8. Anything, anyone says here is pure speculation. I’ll give my best guess….which is that Delta wanted more from Alaska, and Alaska said no. There are legal moves that Alaska can do, and I’m guessing that Alaska is waiting for the right time. As far as Alaska “needing” Delta as life blood, nah. American is waiting with open arms. Delta cancelled so many of Northwest’s nonstop flights to Asian cities, it truly added to Delta’s reputation of offering most destinations as a double connection. Delta’s needs are far greater here. Delta needs feed to these new flights. Which really need to be full, to make money. If this relationship ends, I think Delta loses more.

  9. @Lucky: An entire AS post without referring to them as the ‘slut of the skies’? (AS’ move allowing members to earn PQM’s on all partner flights was also a smart way to reward their flyers, and make themselves more attractive vs. DL.)

    @Jason: An AS flyer already earns redeemable and premier qualifying miles on OW’s primary members American, British, Cathay, and Qantas.

    The benefits gained by joining OW (very little above what they have already in my opinion) would be outweighed by the potential loss of access to other current non-OW partners.

  10. @ Tom — And I totally agree. I love how Alaska runs their airline and have many issues with Delta’s management. At the same time, I’m afraid this is a case where the numbers may just speak for themselves, regardless of who we’re rooting for.

  11. @ Adam — I mean, Delta does have wifi and first class on their regional jets. Keep in mind Alaska doesn’t have built in entertainment or power ports on a vast majority of their fleet, so it’s not like they have much of a product advantage.

  12. I think you might be overlooking how good AS is as an airline compared with Delta. It’s fine to have a regional first class offering (that Alaska doesn’t have), but I’d much rather be treated like a human being all the times I don’t pay for (or get upgraded to) Alaska’s business class than deal with Delta. In my experience the customer service is subpar (not United ‘god awful’, but not great).

    I actually took advantage of the Alaska offer on BA recently to fly first class roundtrip to London. I specifically excluded Delta because it makes me angry how aggressive they are about expanding in Seattle.

    Delta is not our airline. They are an outsider that doesn’t understand Seattle, doesn’t offer a comparable service and I believe will ultimately waste a lot of money trying to capture Seattle.

    The only thing that still amazes me is that Alaska hasn’t offered more international routes.

  13. Lucky,

    Why does AS have to do anything? Your presumption is that the current situation requires some sort of action of AS part because there is a need for resolution but that may not be so. What if AS just plugs along adding routes that they can operate profitably?

    How does it all “end?” It doesn’t end but keep in mind that DL has a lot of other irons in the fire. To DL whether they fly a given route into SEA is just business. If it doesn’t make sense, they’ll kill it because they have so many other opportunities. AS is much more focused. They don’t have a big sprawling network with other opportunities. Generally in situations like this the focused competitor wins. Add to that the loyalty AS has justifiably earned with those who fly from if not to the NW and I think that NW will more than likely be the one to retreat. They’ll keep the routes that make sense and let AS carry the passengers to their international flights where it doesn’t.

    DL has neither the ability nor interest in creating a full fledged SEA hub for those originating there. AS does and there is enough population here to support the kind of operation AS has in mind.

    You hear about a lot of people, even million miler flyers leaving UA and going to AS but not too many folks who live in the NW bail on AS. Nobody who lives in SEA/PDX is going to move to DL so those customers are AS’s to keep unless they start screwing them over. The flight is only over those who don’t live in the area. Dedicated DL flyers are going to go with DL but for anyone else I see no good reason to choose DL over AS and a lot of reasons to do the reverse.

    Their model is safe so long as they keep being the kind of airline we wish the others were.

  14. Why does Alaska joining, say, OneWorld have to mean losing their non-OneWorld partners?

  15. he’s gone out of his way to say he really likes Alaska. why is everyone jumping his ass over this? numbers don’t lie. this is business.

  16. Similar to what others have said, I believe this would be a remarkable opportunity for Alaska to look at joining OneWorld. With the exception of AA’s “hub” in Los Angeles (which like you said is more or less a battle that can never be won), the west coast is an opportunistic area for AA and the rest of OneWorld. Utilizing Alaska’s strong domestic market could eventually help feed into a new international hub in Seattle for the group and would increase competition on the West Coast as a whole.

    My fear with Delta as always is that they become too big for their own good and are able to watch their customer service depreciate in exchange for financial growth. Nothing wrong with making money, but when the customer experience decreases so significantly you can’t help but to want to root for the smaller guys like Alaska.

  17. Always thought AA should buy AS and take on Delta at SEA. Stock price way up at AS though, not sure AA could afford them now.

    Strategically it makes sense for them to have a strong northwest partner which could provide more connecting traffic from a west coast hub.

  18. I just took the SJC-SLC flights on Alaska this past week. I was quite pleased to have that option (at something like $49 each way) to take out there from SJC, esp as an AA EXP, being able to credit the miles to AA rather than being “forced” to take Delta.

    I was quite surprised with how full the flights were, too.

    I for one would love Alaska to dump Delta and get under the covers more with AA but I dunno if that’ll happen…

  19. @mrredskin – +1.

    Frankly, if DL decides that it wants to crush AS at SEA, I think they’ll be able to do it. I hope they don’t do that, but if they really want to, I think their size and numbers will enable them to, even though it may take a long time.

  20. Just flew AS this past weekend (on a route that I could have flown DL) for the first time in a while. Customer service was top notch (we had to change a flight leg and it was easy as pie). Onboard service in economy was perfectly nice, and they actually had a delicious banh mi sandwich (!) for sale that was better than any airline sandwich I’ve had before. That said, we also felt like we were flying on a bus. At one point the venting unit in the row in front of me started to leak condensation, and the FA “fixed” it by taking a bunch of napkins to cover the leak, and attaching them to the overhead bin with masking tape.

    As much as I want to like AS, I can’t help but feel they’re a “quirky upstart” boutique airline, but without the consistency or the network to ever really grab my attention. They’re the Kimpton of domestic airlines. They mean well!

    Incidentally, @Lucky — if AS is the Kimpton of airlines, what does that make the others? I’m tempted to say Virgin America is the Ace, JetBlue is the Aloft, United the Hilton, AA the Marriott, and DL the Hyatt (I’m talking personality/feel, not loyalty programs here)…

  21. Good for Alaska. Delta not only treats its elites like crap, but also their alliance partners. Glad to see Alaska is still holding out.

  22. I don’t think merger would be out of the question for AS. The government’s approval or disapproval of mergers across industries has been somewhat mind-boggling.

    Some comments have talked about how Delta is not “our” airline. I guess AS is “local” as far as giant corporations go, and they provide a lot of great non-stops domestically. Still, there are some routes, even domestically, that you just cannot justify flying AS.

    Other commentors have wondered why AS would have to do something, or how Delta represents a threat. I think the implication is that Delta could seriously undercut a lot of AS flights, temporarily of course, but enough to really suck the profits out of AS.

    If I was a betting man, I would think take AS joining oneworld in less than 7 years.

  23. I would add to the chorus in saying I think Alaska is in a good position and if they do anything, they should work more closely with American. As far as I am concerned, Delta is the joke of the skies and I will go far, far, far out of my way NOT to fly them. The only airlines I will fly at this point as a revenue flier are Alaska and American in the US, and United as non-rev. I love flying Alaska and just bank my AA flights back to AS. I would argue that it is Delta that will have to make some serious choices in the years ahead. When even your most loyal fliers can’t stand you, you’re doing it wrong!

  24. @ Brian L

    If you look at the numbers at Seattle, Delta has a long way to go to even carry Alaska’s jock into the ring. From January to April, 2014 Alaska controlled just over 40% of the passenger traffic at SEA and moved over 4 million passengers through the airport. Delta moved just over 1 million and their market share is about 11%. They may be a big player in the United States and in the world overall, but in Seattle they are a flea. Don’t believe the hype. Data source: Port of Seattle.

  25. It’s been awhile since we’ve had any news on AS/DL. Perhaps both of them are too enthralled keeping up with Qatar’s airport launch & A380 fiasco 😛

  26. Good Forbes article but I’m not sure he’s looked at capacity loads on the SLC – SJC route. DL’s SLC – SFO is always full and always expensive, it’s nice to have another non-stop player in the market to the bay area. It’s done wonders having JetBlue and Southwest on the LA – SLC lines, sure is nice to fly to LA for ~$140 RT

  27. Written by bloviating, self-appointed experts who don’t have a clue.

    Alaska is doing just fine, and will continue to do so. I fly AS pretty frequently, DL rarely. Every AS flight I’m on is full. At my workplace (a large company with many business flyers) AS is the default choice, the popular choice, and a no-brainer. Same goes for virtually everyone I know who lives across the region – why would you choose anyone else over AS for personal travel?

    You say “Alaska can’t live without Delta” but provide no reason whatsoever to back that up (other than your self-important opinion). Alaska has been doing quite well without Delta for a long time.

    DL – and apparently this blogger – doesn’t understand AS or the region it serves. At. All.

  28. Why is everyone forgetting that Delta is changing the rules of frequent flyer miles? Crediting your miles to Alaska when having to fly Delta is a very strategic move. Who knows what happens next year, with miles being earned on the $ value of the ticket. All the things Delta is doing, could very well blow up in its face.

  29. @McMunch:

    You neglected to include Horizon and Skywest’s flying for AS.

    Actual totals YTD (through end of April, 2014):

    AS:~55%, 5.8M pax
    DL: ~12%, 1.06M (includes Skywest flying for DL)

    http://www.portseattle.org/About/Publications/Statistics/Airport-Statistics/Pages/default.aspx

    “Total Passengers by Airline”

    I don’t really understand the motivations behind this battle, but I am certain it is going to be expensive for both DL and AS. It seems to me that they both gain, or at least lose less, if they cooperate. Ego’s must be too large to find that common ground though.

  30. @Lark

    I’ve got no idea where you are getting your numbers, but I have a hard time believing AS is controlling 55% of the air traffic in SEA. That’s a pipe dream. Here is the cut and paste from the Port of Seattle for these two airlines from January to April, 2014. And I would argue that even adding the few numbers Delta Connection is putting on the board doesn’t mean anything. Skywest is a separate company from Delta. Horizon actually is OWNED by AS. I think you need to check your data, or at least give specific sources. I stand by what I originally presented.

    Alaska Airlines AS 4,188,253 39.65%
    Alaska/Skywest 104,806 0.99%

    Delta Air Lines DL 1,161,502 11.0%
    Delta Connection/Skywest 104,540 0.99%

  31. I live in Alaska and recently flew AS on one of the new routes into SLC-Delta’s big hub. I was shocked that the plane was full. The FA remarked on that there were many MPVGold passengers on board and we both wondered what they had been flying before the AS entry into this market. This might indicate that given a choice and despite a weaker hard product, most flyers would choose to fly AS for the attentiveness of the crews, on time performance and a excellent frequent flyer program. Looks like AS might have a winner in starting up a presence in Delta’s back yard.

  32. I think AS will be able to live with DL because in a way its still going to get DL pax from Asia/Europe as starting I want to say in Sep one can fly from LHR or NRT to SEA on DL then to ABQ and BWI on AS. I do not see DL trying to fly flights from SEA to places like ABQ or BWI because SWA already is on those.

  33. @McMunch

    Lark is correct. McMunch what you did not look at is the line 2/3rds of the way down the spreadsheet that says:

    Horizon Air QX ….. 1,523,407 14.42% (4/30/2014 YTD)

    Your are correct Horizon is OWNED by Alaska, but it is a wholly owned subsidiary and operates under it’s own operating certificate not AS’s. Therefore on traffic stats it is listed separately.

    AS/QX+ AS op by OO accounts for 5,816466pax or 55.06%

  34. *sigh* if 25 year old me had read this, then I would haven’t become collateral damage after being given so much so easily, then to have it all taken away. A targeted offer of one transcontinental businessElite flight from JFK-SEA that accelerated my status from the bottom to the upper echelon of society:

    Bonus Offer: If you meet the criteria to participate, you will receive Platinum Medallion status and Delta Sky Club access for 60 days. The 60-day period will start upon enrollment in the promotion. In order to extend your Medallion status and Delta Sky Club membership after the 60 days, you’ll need to purchase and fly one qualifying BusinessElite fare (fare classes J/C/D/I/Z) on a flight offering BusinessElite service within 60 days after enrolling. BusinessElite service is limited to the following long-haul international and transcontinental flights: (a) transpacific, (b) transatlantic, (c) transcontinental flights between New York/JFK and Los Angeles/LAX, San Francisco/SFO and Seattle/SEA, and (d) between the U.S. and Brasilia/BSB, Buenos Aires/EZE, Lima/LIM, Rio de Janeiro/GIG, Santiago, Chile/SCL, and São Paulo/GRU. Flights offering BusinessElite service may be modified by Delta at any time and without prior notice. Qualifying flight must be marketed and operated by Delta. Codeshare flights operated by carriers other than Delta are excluded from this offer. Only tickets purchased with a published fare that earns full mileage accrual will qualify. Upon taking a qualifying flight, your Medallion status will automatically be extended through February 2015, your Delta Sky Club membership will be extended an additional ten (10) months and you will earn 100,000 bonus miles. Bonus miles earned with this promotion do not count toward Medallion or Million Miler™ status.

    After 6 years of pharmacy school, I believed this to be a byproduct my hard work, and a perk that I thought I had been earned/entitled to. Yeah..now I’m licking my wounds, trying to recuperate, and hoping not to get caught wanting again.

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