Delta, Alaska turn up competition at Sea-Tac amid strategic partnership

High-flying alliance may be giving way to fierce rivalry

Staff writerNovember 24, 2013 

At first, it seemed like a match made in heaven.

Now that heavenly alliance of two of the nation’s leading legacy airlines, Alaska and Delta, crafted nine years ago as a symbiotic partnership, appears troubled as each airline fights for market share at Seattle-Tacoma International Airport.

The partners, SeaTac’s Alaska Airlines, a relatively small but consistently profitable legacy carrier with its major hub at Sea-Tac, and Delta Air Lines, the nation’s second-largest carrier based in Atlanta, are now in an undeclared war at Sea-Tac.

It wasn’t always that way because the initial logic of their partnership was compelling.

As the partnership first unfolded, Delta provided the flights from its big hubs in Atlanta, Minneapolis and Salt Lake City to feed Delta’s growing repertoire of overseas flights from Sea-Tac, and to connect Puget Sound residents to its wider network. Alaska flew Delta passengers to and from the Sea-Tac airline’s network of cities to connect with Delta’s flights.

There was little overlap between Alaska and Delta routes. Alaska didn’t fly to Asia or Europe from Sea-Tac or to any of Delta’s hub cities, and Delta didn’t connect any of Alaska’s core cities to Sea-Tac.

The two airlines labeled some of each other’s flights from Sea-Tac as their own in a code-sharing arrangement and their frequent fliers earned miles for flying the other airline’s flights.

Such a strategic alliance gave Alaska near-seamless access to Delta’s worldwide network, and Delta enjoyed a large presence in one of the country’s fastest-growing airline markets.

But in the course of recent years and particularly in recent months, that relationship is being transformed into a rivalry.

Alaska now connects Sea-Tac with Delta hub cities in Salt Lake City, Minneapolis and Atlanta. The local airline has fielded a whole new schedule of flights from Sea-Tac and the West Coast to Hawaii, a market in which Delta was a major player.

As Delta has crafted a larger schedule of international flights from Sea-Tac, the big carrier has invaded some of Alaska’s prime markets.

Delta has begun flying from Los Angeles, Anchorage and Las Vegas to Sea-Tac. And it has announced a new schedule of flights from San Francisco, San Diego and Portland to the Emerald City.

All of those routes are mainstays to Alaska’s business.

Alaska had enjoyed a nonstop monopoly for years on the San Diego-Seattle route. It is building San Diego as an “emphasis city.” Its sister airline, Horizon Air, operates 24 daily shuttle flights between Sea-Tac and Portland. Los Angeles is a major connection point for Alaska to Mexico, and Anchorage is the airline’s hub for flights to other Alaska cities.

PUBLIC FRIENDS, PRIVATE RIVALS

Outwardly, neither airline is speaking ill of the other, chalking up the increasing head-to-head competition as normal business behavior in an industry constantly scrapping for an advantage over its rivals.

At Delta’s inaugural of service from Sea-Tac to Tokyo’s Haneda Airport, the Atlanta airline spoke glowingly of its partnership with Alaska.

“The partnership between Delta and Alaska is a major factor in enabling Delta to operate international flights from Seattle. The new Haneda service, for example, will benefit from easy connections to 55 U.S. cities on Delta and Alaska’s domestic networks,” the airline said.

The two airlines can’t legally collude with each other about their route choices or additions to their route maps. But that doesn’t mean they aren’t concerned when their partner takes steps to steal business.

Wall Street likewise is paying close attention to the rivalry because it has the potential to put pressure on profits if it erupts into a full-blown fare war.

That fare war would be felt more strongly at Alaska where the new competitive flights are a larger share of the airline’s total business than at Delta which is many times Alaska’s size.

Alaska’s codeshare arrangements with Delta brought in $235 million in revenue last year according to Alaska. A Motley Fool analyst reported recently that it expects the new rivalry will put new pressure on Alaska, but won’t do significant damage to its bottom line.

“Delta will probably be content to let Alaska continue handling the majority of its domestic feed in Seattle. However, I expect Delta to continue adding nonstop routes to larger cities in competition with Alaska. Delta’s primary motivation is probably a desire to hedge its reliance on Alaska for supplying connecting traffic.

“Delta’s expanded service in Seattle could put a dent — albeit a small one — in Alaska’s impressive profit margin. Alaska Airlines has recently seen its unit revenue come under pressure due to significant increases in competitors’ capacity on some routes. With Delta entering into direct competition with Alaska on three high-traffic routes, that unit revenue pressure is more likely to increase than to abate.”

Alaska CEO Brad Tilden addressed those analyst concerns in the airline’s third-quarter earnings call.

“We know that many of you are wondering about Delta’s capacity additions in several of our markets, including Seattle-Los Angeles, Seattle-Las Vegas, and Seattle-San Francisco. United has also added capacity to the Seattle-San Francisco market by adding frequency and up-gauging their service to mainline jets. There’s really not a lot we can say about this except that we’re focused on the situation and we’re confident in our ability to deal with it as we’ve dealt with new competition in the past.”

STAKING OUT SEA-TAC TERRITORY, INTERNATIONAL FLIGHTS

Both airlines are gearing up for the competition, although neither show any outward sign of abandoning their partnership.

At opposite ends of Sea-Tac Airport, both airlines are staking out territory.

At the airport’s north end, Alaska is preparing for a major remodeling of the North Satellite terminal to serve as the axis of its operations at Sea-Tac, its largest hub airport.

At the airport’s south end, Delta has already spent some $14 million to remodel its club and its gates at the South Satellite Terminal. And the Port of Seattle is planning an expansion of its customs and immigration facilities at the airport’s southern end in part to accommodate the increasing number of international flights connecting Sea-Tac nonstop with Asia and Europe. Delta is a major driver of that international expansion.

The airline is transforming Sea-Tac into its West Coast hub for international flights to Asia and Europe.

Delta already flies from Sea-Tac to both Tokyo airports, Narita and Haneda, to Shanghai and Beijing. It plans to expand its Asian route structure to include Seoul and Hong Kong next spring. In Europe, Delta connects Sea-Tac with Amsterdam and Paris. It will begin flying to London next year.

Alaska and its sister airline, Horizon, which flies regional routes for Alaska, maintain close to a 50 percent market share at Sea-Tac. Delta has become the airport’s second-busiest airline, more than tripling its market share to more than 14 percent in September.

Much of that market share appears to be coming at the expense of other Sea-Tac carriers, not Alaska, but the new wave of flights that Delta has announced won’t begin until next spring.

Some of that might already be happening, United last week canceled its Sea-Tac-Tokyo flight beginning in mid-January. That cancellation came in the face of strong competition from Japanese airline ANA, but also from Delta, which added a flight from Sea-Tac to Tokyo’s Haneda airport in addition to the flight to Tokyo’s Narita Airport, where United had flown since 1983.

THE FIGHT FOR FREQUENT FLIERS

Both sides have announced new frequent-flier enhancements in specific markets. Delta has revealed a new deal with American Express for Seattle-area customers only that could yield them up to 100,000 frequent-flier miles.

Alaska is offering double miles between on many of the Delta-competitive routes for frequent fliers who register on the airline’s website. The Sea-Tac-based carrier also offered a “buy two, get one free” offer to California residents who flew Alaska from San Diego this fall to select destinations.

Delta has named a high-level executive, Mike Medeiros, who once led Delta’s operations at New York’s JFK Airport, to a new position: vice president, Seattle.

Delta also is raising its public profile in the Puget Sound area, crafting a sponsorship deal with the Seahawks and Sounders at Century Link Field and sponsoring civic projects in the area.

Ten days ago, the airline treated its elite frequent fliers to a private reception with Canadian crooner Michael Buble at KeyArena followed by free seats in a select section of the venue for Buble’s concert.

So far, neither airline has cut prices radically to win or maintain their market share in the newly competitive markets. “Most executives don’t want to play hardball these days, they want to price for profitability,” Jim Corridore, an airline analyst at Standard & Poors, told USA Today.

John Gillie: 253-597-8663

John.gillie@thenewstribune.com

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