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Home / Washington Business - May/June 2006 / Q&A with William S. Ayer, Alaska Air Group: Bright Future Visible in Washington's Skies |
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Q&A with William S. Ayer, Alaska Air Group: Bright Future Visible in Washington's Skies |
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Written On: May/June 2006 |
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William S. Ayer is chairman, president and chief executive officer of Alaska Air Group and Alaska Airlines. He joined Alaska Airlines in 1995 as vice president of marketing and planning, before being appointed chief executive officer in 2002 and chairman in 2003. He is a member of the board of directors of Puget Sound Energy, the Museum of Flight and Angel Flight America. Ayer also serves on the University of Washington Business School Advisory Board. He holds a degree in economics from Stanford University, a master's degree in business administration from the University of Washington, and a commercial pilot's certificate.
Q: Since Sept. 11, 2001, how has the air travel industry been impacted?
A: The post-9/11 era brought a downturn across the entire airline industry. At the same time demand and prices dropped, fuel prices began to surge. What followed was nothing short of tumultuous, leading to a series of bankruptcies across the industry. Today, the number of passengers traveling by air has bounced back to above pre-9/11 levels, but average domestic air fares are still lower than they were in 2001. With fuel prices today hovering around $70 a barrel, the cost of fuel is one of our industry's biggest ongoing challenges.
Q: What did you do to respond to the changes in the airline industry?
A: Three years ago, we launched the Alaska 2010 Plan. It's a roadmap to transform Alaska Airlines into one of the best airlines in America. First, we had to achieve a competitive cost structure. We focused initially on the cost-saving changes that would not directly impact our employees. We sold more tickets online, hedged more fuel, and reduced supplier expenses.
During the past two years, we've reduced and reorganized our management ranks, contracted out some maintenance and fleet service functions, restructured pilot wages, and hired an outside vendor to handle ground services in Seattle. Those decisions were difficult to make, but we needed to ensure our long-term viability and ability to continue offering good jobs and secure retirements to the greatest number of our employees.
Q: How have those changes impacted your company today?
A: There's no doubt the changes are paying off. The choices we've made have allowed us to improve our financial picture. Back in 2001, we recorded a net adjusted loss of $88.3 million. Earnings have improved consistently every year since. In 2005, we recorded an adjusted net profit of $55 million, making us one of only two major domestic carriers in 2005 to post a significant profit.
Q: By 2008, Alaska Airlines will be an all-737 carrier. How will that impact the company?
A: Alaska Airlines' move to an all-Boeing 737 fleet by the end of 2008 is one of the most important decisions we've made. It is a major milestone in our mission to be an undisputed leader in the industry. We're speeding the retirement of our non-737 aircraft — 26 MD-80s — and we're accelerating our acquisition of new, fuel-efficient Boeing 737-800s. A common fleet will save us about $115 million a year through reduced fuel, maintenance, fleet scheduling and training costs. It will also improve fleet reliability and further enhance our passengers' onboard experience. By the end of 2008, we'll be flying one of the newest fleets in the industry.
Q: Can Alaska Airlines compete against no-frills, low-cost carriers like Southwest and Jet Blue?
A: Low-cost carriers have had tremendous impacts on the industry. They offer the basics and have brought downward price pressure to the entire industry. One thing I always keep in mind is that there are two sides to the equation: price and product. People still choose airlines because of the value they receive both in terms of price and product. Alaska Airlines provides low prices. But, what really differentiates our product is our people. The friendly, caring service offered by Alaska Airlines is what sets us apart. We also offer a great route system and have an award-winning frequent flier program, complimentary hot meals on longer flights, pre-reserved seats and customized amenities. When you look at all of these extras and our reputation for going the extra mile for our passengers, there's no question in my mind that there's a difference between Alaska Airlines and low-cost carriers when it comes to customer value.
Q: How can airline carriers cope with the rising cost of fuel?
A: The skyrocketing cost of fuel during the past few years has been the biggest financial challenge facing the industry. For Alaska and Horizon alone, a penny increase in the price of a gallon of fuel costs us about $4 million a year. There are two main strategies an airline can use to reduce the negative impacts of rising fuel prices: making its operation more fuel efficient and buying today's fuel at yesterday's prices through hedging. We're doing both. We're investing heavily in fuel-efficient Boeing 737-800s, installing fuel-efficient winglets on existing aircraft, and expanding our use of technologies that make flight paths more efficient. On the hedging side, we've saved a lot of money recently through the hedging strategy we put in place years ago.
Q: In recent years, Alaska Airlines began offering direct flights to Miami; Washington, D.C.; Orlando and Boston. Have these routes been successful and will there be other additions?
A: Our passengers love them. They complement our existing West Coast route system, providing more destination options from our Seattle, Anchorage and Los Angeles hubs. Last year, Alaska airlines added service to Dallas, as well as Mexico City and Loreto in Mexico. Horizon added Reno. This year, we plan to grow by about 6 percent at both airlines. It;s safe to say you can expect to see more destinations announced in the future as we continue to expand our network.
Q: Both Alaska and Horizon focus on tourism — Horizon with flights to places like Sun Valley and Alaska with its Alaska Cruise and Mexico connections. Do you see a growth in the tourism market?
A: We do. We've seen strong growth in the leisure and tourism markets during the past several years and expect it to continue. With more Americans reaching retirement, there are more consumers in the market for leisure travel. And, since 9/11, we've seen more Americans vacationing closer to home in destinations we serve like Alaska and Mexico.
Q: In past years, Alaska Airlines moved maintenance facilities and call centers out of Washington. What can we do to attract new Alaska Airlines jobs to our state?
A: We've made some tough decisions during recent years impacting our people, as some services have been outsourced or moved to other states. We're making the tough decisions today to ensure we will survive and thrive in the long run.
Q: What is Alaska Air Group's economic impact in Washington?
A: Alaska Airlines and Horizon Air combined contribute nearly 7,000 jobs, operate 320 daily departures, serve eight cities, have 1.2 million frequent fliers and serve 7.7 million passengers annually — all within the state of Washington. With the recent fleet announcement, we're also set to purchase up to 100 new Washington-built aircraft from Boeing. In the coming months and years, we're looking forward to continuing to reshape our airlines to better serve our passengers and communities and to thrive in the new airline industry environment. In the end, this should further contribute to Washington's economic picture.
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