Clint Ostler

Market Development
June 2013
Air Group Launched 20 New Markets Between
2000 and 2005
Anchorage
Seattle
Chicago
Sun Valley
Medford
Boston
Boise
Sacramento
Santa Barbara
Newark
Palm Springs
Denver
Washington DCA
Tucson
Los Angeles
Long Beach
Dallas
Orlando
Loreto
Guadalajara
Mexico City
Followed by an Additional 54 New Markets Between
2006 and 2012
Barrow
Anchorage
Prudhoe Bay
Fairbanks
Adak
Bellingham
Missoula
Seattle
Minneapolis
Billings
Portland
Bozeman
Chicago
Boston
Santa Rosa Sacramento Reno
San Jose
Monterey
Fresno
Santa Barbara
Los Angeles
Lihue
Philadelphia
Las Vegas
Kansas City
St. Louis
Mammoth
Washington DCA
Atlanta
Palm Springs
Austin
San Diego
Houston
Honolulu
Orlando
San Antonio
Maui
Ft. Lauderdale
La Paz
Kona
Los Cabos
Puerto Vallarta
Guadalajara
The Alaska Airlines Network is
Concentrated on the West Coast
Network Composition – YE 2012 ASMs
Alaska
16%
31%
7%
20%
19%
7%
Arizona/Nevada
Hawaii
Mexico
Mid/Transcon
West Coast
Key Hubs/Focus Cities:
Seattle
Portland
San Jose, CA
Los Angeles
San Diego
4
Alaska Airlines Fleet focused on Three
Platforms
Boeing 737
CRJ-700
Q-400
Alaska
Active Aircraft
124
Total Seats
72 (737-400C) – 181 (737-900ER)
Typical Range
>1000nm
Mission Profile
High demand, long distance, Alaska
SkyWest
Active Aircraft
5
Total Seats
70
Typical Range
500 - 1000nm
Mission Profile
Too long for Q-400, too thin for 737
Horizon
Active Aircraft
48
Total Seats
76
Typical Range
<600nm
Mission Profile
Intra-PacificNW, Mountain, CA
5
CR7 Regional Overview
New CR7 Opportunities Limited by Mission, Fleet Size
CR7 Opportunities
Seattle
Pac NW
Portland
Q-400
CR7
737
Fresno
Santa Barbara
Long Beach
•
Q400 lower fuel burn more
advantageous on shorter stage
length markets
•
CR7 faster cruise speed benefits
longer stage length markets
Burbank
Ontario
6
27 firm orders between now and 2015
9
8
76
2
2012
2013
2014
• Alaska Airlines has 27 firm orders for
737-900ER aircraft with 181 seats
between now and 2015
• Firm orders for 37 737-Max8 and 737Max9 starting in 2018
2015
7
737 Max Orders to Begin in 2018
737 Order Adds Increased Flexibility and New Growth Opportunities
737-8 Max
20
737-9 Max
17
737-900ER
13
50 Firm Orders
• Mix of growth & replacement aircraft
• Increased efficiency & range allows for
new markets that cannot currently be
served economically
• Still several years before first delivery
8
Growth at Alaska Air Group must generate
a 10% ROIC
Alaska Air Group Return on Invested Capital (ROIC)
11.7%
10.7%
ROIC Target – 10%
6.1%
‘06 to ‘12 ASM Growth
+18%
‘06 to ‘12 Market Changes
6.0%
3.5%
2007
2008
2009
2010
2011
9
Air Service Development
Considerations
Red Flags
 Air service has always been here, you won’t go away.
 Why should we do your advertising?
 We know the market is there, if you bring the service it will be
used
 The business community will totally support your service; we
have dozens of support letters
 The Chamber and CVB are onboard and will do everything to
assist you in your Marketing efforts
It isn’t our air service, it is your air service
A Successful Market Launch Starts Locally
Business
Community
Tourism/Chamber
Plan
FIRST:
• Establish a common, integrated strategy
–
Airport
Leverage air service as an asset to your community: if you have it, own it.
THEN:
• Approach airline with a Marketing Plan and Support Package
–
Don’t wait to develop something after service has been announced
No History
Large and
Contested
Market Demand
Keep in Mind: Market Demand Dictates Level of
Risk and Required Investment
Basic
Incentives
Level of Support
Revenue
Guarantee
High Risk/Limited Demand:
Revenue Guarantee
Mammoth Lakes/Yosemite, CA
• Desired service to Los Angeles: No air demand
–
Annual skier visits – exceeds Vail and Whistler (implied demand)
• 100% cost + Margin required – essentially a Capacity Purchase Agreement
with the Resort
• Marketing support
–
–
All external marketing the responsibility of
the Resort
Airline support includes: internal marketing
at no charge including: e-mail, web
presence, promotional offers, and inflight
magazine editorial, integration in current
campaigns
• Airline also supports with travel
certificates for promotions,
sweepstakes, etc
Low Risk/High Demand:
Co-Operative Agreement
Mexico
• Alaska is the largest carrier from the U.S. West Coast to Mexico
• With such a large investment in resources, Alaska expects partnership
investment from Local/State agencies to promote service
–
–
–
–
Minimum investment required from co-operative partners
Pooled funds then applied to build a Marketing/Media Plan for target markets
Alaska controls creative direction and billing
Airline will supplement financial co-operation with travel certificates to support
sweepstakes, events, or other experiential opportunities that promote the
destination in the Gateway cities
Cost of Media is a Driving Factor in co-operative investment
Airport Incentive Programs:
Make them Easy!
Reimbursement Program – Airline does the Media
Planning/Execution and Airport reimburses
1. Airline maintains creative control to ensure message cohesiveness
(while incorporating Airport required design elements, i.e. logos)
2. Airport approves final creative and media plan
3. At conclusion of campaign, airline provides proof of performance and
invoices airport
Thank you!