Colorado Springs News, Sports & Business

Gazette Premium Content Colorado Springs Airport's courtship of Alaska Airlines pays off

By Wayne Heilman Updated: October 6, 2013 at 3:19 pm

Within days of learning in January that Frontier Airlines would reduce its flights to Colorado Springs, executives from the city's airport turned their attention to Alaska Airlines, the nation's seventh-largest carrier and one that has been on a growth spurt since 2012.

In what would amount to a whirlwind courtship, they met several times with officials from Alaska Airlines. They undertook a number of projects and restructuring moves to make the airport more attractive to passengers and airlines - including Alaska. They exchanged phone calls with Alaska executives and kept working to woo them.

Next month, their intensive effort will bear fruit when Seattle-based Alaska begins daily nonstop flights between Colorado Springs and its hub at Seattle-Tacoma International Airport. It's the first new destination and carrier added to the Colorado Springs Airport since Frontier Airlines not only cut service but exited the market in April.

Alaska won't fill the hole left by Frontier, which accounted for 20 percent of the airport's passenger traffic, but its arrival is expected to generate more than $500,000 in annual revenue and boost traffic by more than 20,000 passengers a year.

Even though it lives in the shadow of Denver International Airport, the Colorado Springs Airport deserves consideration from airlines looking for an edge, said Dan Gallagher, who became interim director of the local airport in March.

"You can't really discount a county of more than 600,000 people that has grown 8.5 percent a year since 2007. You can try to catch those passengers at DIA, but why compete with every other airline there when you can serve them from their natural home (airport) with far fewer competitors," Gallagher said.

So far, he said, Alaska "has told us that advance bookings for this flight are close to what they are getting in Denver to the same destination this far in advance."

Alaska executives declined an interview, but said in a recent statement that it's been expanding in Colorado, including a seasonal flight to Steamboat Springs that starts Dec. 18, and the Springs is a natural fit. The city, it said, "offers a wealth of business and recreational opportunities, and thus is a solid market for air travel."

Deal was tenuous

There was a time when the Alaska deal seemed to be on thin ice. In March, the airport manager resigned in a dispute with Mayor Steve Bach, and Alaska wanted to know "what is going on" - and whether airport officials were continuing with their plans to reduce debt, cut other expenses and boost marketing.

Indeed, they were. In doing so, they hope to lower rental rates and landing fees by more than 25 percent, despite losing $3.5 million in annual revenue Frontier generated.

The changes were a key part of the effort to land Alaska, which wanted to make sure it could profitably serve a market that Frontier had abandoned.

But Alaska's strategy to serve the route is much different from the strategy used by Frontier between May and November. Frontier operated four flights a week on a seasonal basis with 138-seat Airbus A319 aircraft, while the Alaska flight will be operated daily by SkyWest Airlines with a 70-seat regional jet, about half the size of the aircraft Frontier was using on the same route.

Scott Hamilton, managing director of Leeham Co., a Seattle-area aviation consulting firm, said Alaska "recognized that Colorado Springs is a small market and probably couldn't support a (Boeing) 737," which is the only aircraft in the carrier's 128-plane fleet.

"They are coming in with a much smaller aircraft from a market where they are the dominant player," Hamilton said. "You have to wonder what strategy Frontier had in serving either market - Seattle or Colorado Springs. It probably was a market they should not have been in to begin with."

Gallagher said he thinks Frontier did prove there was demand for service to Seattle from Colorado Springs, and added that fares were better locally. But no one made flyers aware of the service, and Frontier's planes often departed with a lot of vacant seats.

"Their flights in Colorado Springs were less expensive than the flights from Denver to the same destination, but their loads were horrible because of the lack of awareness," Gallagher said. "There was very little marketing done for the Frontier flights."

The airport has boosted its marketing budget tenfold to $300,000 a year and is touting the Alaska flight and other service in public service announcements.

Airline started in 1932

Alaska Airlines traces its roots to 1932, when McGee Airways started flying a three-seat aircraft between Anchorage and Bristol Bay, Alaska. It merged two years later with Star Air Service to create the state's largest airline, which became Alaska Airlines.

The airline remained small and mostly confined to Alaska, but thrived by offering charter flights to cities in the continental U.S., Soviet Union and even Japan. When the airline industry was deregulated in the late 1970s, Alaska gradually expanded down the West Coast and eventually to Mexico.

Alaska acquired regional airline Horizon Air in 1986 and continues to operate it as a separate regional carrier. A now-retired Horizon CEO told a Tacoma, Wash., newspaper in 2002 that the carrier had planned at that time to expand to Colorado Springs and four other cities, but the expansion never happened.

This time around, Alaska's entry into Colorado Springs fits with its "opportunistic" strategy of expanding flights from its Seattle hub, where it controls more than half of the passenger traffic, said Ray Neidl, an aviation industry analyst and consultant with Nexa Capital Partners, a Washington, D.C.-based financial advisory and investment firm.

"They take advantage of other carriers' weaknesses to achieve steady growth in mid to high single-digit (percentages). They have top-notch management and don't expand too fast," Neidl said. "There is a good chance they will be successful in Colorado Springs. If the market is successful for them, you could see them use a mainline jet instead of a regional jet. They like to develop smaller markets as a way to feed their Seattle hub."

Alaska made a similar, but much larger move when it expanded into Hawaii in 2008 after the bankruptcy and shutdown of Aloha Airlines. Flights to Hawaii now make up 20 percent of Alaska's operations, helping to reduce its reliance on Alaskan and West Coast destinations from 86 percent in 2001 to less than 50 percent this year.

By the end of the year, the airline will have added 35 markets since the beginning of 2012, including Philadelphia, San Antonio and San Diego last year and Colorado Springs and Kansas City, Mo., this year.

Alaska also has been cutting costs aggressively in recent years. It reduced staff by 2,000 since 2001, and got a contract with pilots through arbitration that cut wages an average of 26 percent. It also contracted out services at its Seattle hub, including baggage handling, jet fueling and cabin cleaning.

The airline has sliced its long-term debt by more than half, amassed a cash cushion of $1.4 billion as of midyear, and has earned a profit every year since 2008 with profits for the past four years totaling $934 million, or $12.83 a share.

Even better for the people who fly Alaska: It went from having the worst on-time performance of any U.S. airline in 2001, to the best on-time performance from 2010 to 2012.

While Alaska calls itself a low-fare carrier, it is not listed as one by the U.S. Transportation Department.

The truth lies somewhere in between - Alaska's operating costs per mile traveled, excluding volatile fuel expenses, are between 16 percent and 28 percent less than the nation's three largest carriers, but 6.9 percent above jetBlue, 12.4 percent above low-fare giant Southwest and between 30 percent and 50 percent above ultralow cost carriers Allegiant and Spirit. Alaska's fleet also is the second-most fuel-efficient among the nation's airlines after Virgin America.

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ALASKA AIRLINES AT A GLANCE

- Headquarters: Seattle

Founded: 1932 in Anchorage, Alaska, as McGee Airways

- Ownership: Alaska Air Group, traded on the NYSE under symbol ALK

- CEO: Bradley Tilden

- Employees: 10,266

- Operations: 805 flights to 95 destinations in U.S., including Alaska and Hawaii, Canada and Mexico

- Passengers: 25.8 million in 2012

- Fleet: 128 Boeing 737 aircraft; orders for 71 additional aircraft and options for 69 others

Source: Alaska Airlines

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TIMELINE OF AIRPORT'S EFFORTS TO ATTRACT ALASKA AIRLINES

- May 2012: Frontier Airlines begins seasonal nonstop service to Seattle four days a week,as part of plans to make Colorado Springs a "focus city" with nonstop service to three other cities.

- January: Frontier tells airport officials it is reducing service to Colorado Springs. A month later, the Denver-based carrier announces plans to exit the market entirely.

- Mid-February: Colorado Springs Airport officials contact Alaska Airlines about expanding to the Springs and resuming service to Seattle.

- March 4-5: Dan Gallagher, then the airport's assistant director for planning and development,and Neil Ralston, another airport official, meet with Alaska scheduling and network officials at an industry conference in San Antonio.

- Mid-March: An Alaska Airlines real estate official meets with Springs airport officials to discuss the facilities.

- March 23: Airport director Mark Earle resigns amid a disagreement with Mayor Steve Bach about how to attract more passengers and airline service. Gallagher is named interim director.

- Late March: Alaska wants to know "what is going on" with Earle's departure and seeks affirmation of plans to reduce debt, cut other expenses and boost marketing.

- April-May: Officials launch a series of plans to make the airport more attractive to both passengers and airlines.

- June 3-6: Gallagher and Ralston again meet with Alaska Airlines officials at an industry conference in Atlanta.

- Next three weeks: Airport and Alaska officials exchange numerous phone calls as both sides build financial models to determine whether the proposed service would be profitable.

June 27: Alaska Airlines announces plans to begin a daily nonstop flight between Colorado Springs and Seattle; it will be operated by Utah-based SkyWest Airlines using 70-passenger regional jet aircraft.

Nov. 1: First Alaska Airlines flight to arrive at Colorado Springs Airport.

Source: Colorado Springs Airport

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