Future Looks Promising for Alaska Air

SEATTLE -- For Alaska Air(ALK Quote - Cramer on ALK - Stock Picks), the future seems bright. Now if only it can get through the present.

Currently, the airline faces a faltering share price, public expectations for a difficult year, the industry's lowest first-quarter gain in passenger revenue per available seat mile and an assault on its Seattle home by high-comfort, low-cost operators Virgin America and JetBlue(JBLU Quote - Cramer on JBLU - Stock Picks).

From Seattle-Tacoma International Airport, Virgin America began flying three daily San Francisco flights on March 18, and it plans Los Angeles service starting April 9, with daily frequencies reaching four in May. JetBlue will begin twice daily service to Long Beach on May 21.

Meanwhile, with airline stocks trading near historic lows, Alaska shares dipped this month to a five-year low of $17.44. Recently, they were at $19.67.

Longer-term trends, though, are more promising. Alaska's nonfuel costs have been falling, largely due to an ongoing conversion to an all-Boeing 737 fleet that concludes this year. Alaska has long been a technology leader, and among its recent innovations are futuristic terminals in Anchorage and Seattle. Now, it will test in-flight, satellite-based wireless communication, while other carriers test land-based systems.

Additionally, Alaska dominates an airport that is extremely well-positioned to serve Asia. Alaska and its sister carrier Horizon carry about 50% of the passengers at Sea-Tac.

In some respects, Alaska resembles JetBlue, another nonlegacy carrier that dominates domestic traffic at an important international airport and focuses on innovation to lure passengers.

JetBlue carries about half the domestic passengers at New York Kennedy, where it will open a spectacular, $740 million terminal this fall. Alaska lacks its own building in Seattle, but it unveiled a new terminal design in October. Entering passengers view kiosks and baggage-check stands rather than a counter.

"That helpless feeling of seeing a snaking line in front of the ticket counter is gone," says Steve Jarvis, Alaska's vice president of sales and customer experience. "Instead, you can see all the way through the airport, and you have multiple ways to retain control of your travel."

Jarvis said the new design creates less stress, requires less airport space and fewer employees, and cuts ticket area time in half, though he declined to provide specifics. When completed later this year, the terminal will offer 50 kiosks and 16 bag-check stations. Hopefully, airport security will not eat up the benefits.

In an effort to smother new competitors, Alaska has boosted its California schedules. Starting April 27, it will offer 15 daily Seattle-Los Angeles flights, up from 12, and at least seven daily flights to five other California markets. "Our new competition [has] very limited flight times," Jarvis said.

To take advantage of Sea-Tac's reach, Alaska has 11 code-share partnerships, including agreements enabling four international partners to sell Alaska tickets even though Alaska does not sell their tickets. "Quite a few airlines have recognized that there's value in aligning long-haul international routes with carriers that are pre-eminent in their markets," says Don Garvett, Alaska's vice president for strategy.

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