Could American Help Alaska Face the Delta Threat?

SEATTLE (TheStreet) -- Something is potentially going on between Alaska (ALK) and American Airlines (AAL) but Alaska executives won't say exactly what it is.

During Alaska's earnings call on Thursday, Andrew Harrison, vice president of planning and revenue management, said the two airlines are talking, which isn't surprising given that Delta (DAL) is engaged in an effort to bulk up its flying into Alaska's Seattle hub and plans to compete with Alaska on a variety of key domestic routes.

Conceivably, American could act as a white knight. Both American and Delta have code-share agreements with Alaska.

"We're getting to know the new American management team," Harrison said during the call. "I have met with their alliances folks, and we have started discussions about how we might work with the new American. It's very exciting and we look forward to future things."

Asked later whether Alaska wants to expand its relationship with American, Harrison responded: "American's and US Airways' No. 1 priority is integrating with themselves, code-sharing on each other's metal. This year we will be finalizing how much we will work together. I'll have more to say in future quarters on that."

In a recent report, Wolfe Research analyst Hunter Keay questioned whether the hostilities between Delta and Alaska might set up closer cooperation between Alaska and American.

"It is our opinion that Delta needs Alaska more than Alaska needs Delta in the context of their code-share relationship given Delta's Seattle-Asia plans and Alaska's dominance in the Pacific Northwest," Keay wrote. "If Delta pushes too hard we wouldn't be surprised if Alaska finds solace in the arms of its other partner, American, at Delta's expense."

A wide range of possibilities exist for cooperation between American and Alaska, said aviation consultant Bob Mann. The possibilities include, at a minimum, code-shares, some already in place, between Alaska flights in Seattle and Portland and American hub flights serving Charlotte, Chicago, Dallas, Philadelphia and New York. A code-share on Charlotte flights, for example, would provide Alaska passengers with an alternative to Atlanta for flights to Southeast destinations.


More code-sharing could also be put into place at LAX, which could benefit American in a pursuit that has so far been largely impossible for the big three U.S. carriers -- building a hub big enough to enable a profitable Los Angeles operation.

Internationally, Oneworld partner British Airways serves Seattle but none of Oneworld's Asian partners does, which is not to say they could not. Star Alliance member ANA flies Seattle-Tokyo, but Oneworld member Japan Airlines does not, although it served the route in the 1990s.

By mid-2014, Delta will offer 79 daily Seattle departures, nearly twice the number it offered last summer. Delta has said it is building domestic service in order to feed traffic to nine international destinations including Amsterdam, London and Paris and six in Asia --  Beijing, Hong Kong, Seoul, Shanghai and Tokyo, as well as Osaka.

During the Delta earnings call on Tuesday, President Ed Bastian said the carrier is restructuring its Pacific operation. "We're working to reduce the reliance on our Tokyo and Narita hubs and better utilize the gateways that we have in the U.S. compete in the major Asian markets," he said.

Questioned by Keay, Delta Executive Vice President Glen Hauenstein said that at the moment between 10% and 20% of Delta traffic in Seattle connects. "I expect that we will see increased connectivity as we continue to add the international feed that we have loaded in the advanced schedules for the summer," Hauenstein said.

On the Alaska call, Harrison said Delta passengers on Alaska flights account for about $230 million in annual revenue but that the carriers "are operating way upside where the strict contractual terms are.

"The nature of the contract is changing," Harrison said. "You're going to see and continue to see a reduction in the amount of traffic that Delta is putting on our metal, and that's not surprising to us."

Consultant Mann said Delta is trying to replicate the buildup predecessor Northwest once undertook in Seattle. "It wasn't particularly successful and it was rolled back," he said. "Delta is trying again with a combined network." Alaska, he said, could use a deal with American to "show Delta it has alternatives and blunt Delta's effort."

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

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