Alaska Airlines had improved its situation in the 1970s but found itself once again in a precarious financial position just as deregulation came into view. Considering its small size, financial weakness, lack of penetration into the lower 48 and turbulent history it is surprising that it was able to turn itself into one of the few winners of the post-deregulation era. The first step was cracking the Californian market.
Alaska had gotten a new chief executive in 1979 when Bruce Kennedy took over from Ron Cosgrave. Kennedy had only been thrust into the position of President and COO in 1978 and felt unprepared for that role, let alone becoming Chairman and CEO. The change was forced on Cosgrave by an attempt to acquire their Alaskan counterpart Wien Air Alaska.
At this point in 1978 Wien was actually a larger airline than Alaska, but it was in financial trouble due to a costly and contentious strike with its pilots over crewing the 737s it flew (the same old 2- or 3-man argument would be had at many airlines but Wien lost its version). Cosgrave was uncertain that it was a sensible time to try and attempt a merger, given the rumblings about deregulation, and in hindsight he would have been better off heeding his initial concerns.
Alaska duly attempted the takeover using its real estate holdings subsidiary ANPI, which somewhat ironically was better off financially than the airline was. However, CAB regulations stated that if an airline’s subsidiary acquired more than 9.9% of another airline’s stock the subsidiary's chairman could not also be chairman of the parent airline. Since Cosgrave was both he was forced to relinquish his position at the airline to Kennedy.
Unfortunately for ANPI there was competition for Wien from the Household Finance Corporation (HFC) who didn’t take lightly to Alaska’s interest. After ANPI acquired 35% of the Wien stock it was barred from acquiring anymore by an injunction from HFC. The CAB sided with HFC and Alaska, Cosgrave and others were fined a total of $300,000 for breaching the 9.9% rule. ANPI was forced to sell its stock at a loss to HFC who took over Wien (and subsequently ran it into the ground).
Although Cosgrave’s time at Alaska had saved it from extinction and built it into a profitable business the whole ANPI adventure had stripped it of most of the wealth it had built up during the 1970s. Most of the airline’s cash and $16 million of the $27 million of shareholder equity was gone. Alaska found itself back on hard times. At the end of 1979 its book value dropped from $6.40 a share to only $2.58. Worse, to cover costs it had to sell one of its aircraft and it only had eight to begin with!
Cosgrave’s approach for expansion in a deregulation era was to cautiously expand into the lower 48 and this was the approach Alaska continued to take under Kennedy, who grew into his new responsibilities and was helped by several Alaska veterans and new hires. Alaska’s first attempt to expand was unsuccessful. This was still prior to deregulation, just, and Alaska looked at serving what was called the Northern Tier joining Minneapolis to Seattle, via smaller stations along the way. This was Northwest’s territory and it wasn’t happy about Alaska’s attempt at making inroads but in the end, what killed it was the CAB’s announcement that it would give route authority to Alaska but at the same time as anyone else who was interested. Four other airlines showed interest and Alaska opted out fearing it would be crushed in the melee.
Alaska’s alternative was California, which was favoured by Raymond J. Vecci, an ex-United and IATA man, who Cosgrave had made Assistant VP of Planning and Regulatory Affairs. San Francisco was the ultimate target. But the first route south was shorter, Seattle to Portland in May 1979. Service to San Francisco started in June 1979 but only after a manic, but ultimately successful, attempt to find a gate to operate out of from SFO. They were eventually able to get a foot in the door using one of Canadian Pacific’s gates in the international terminal.
Alaska’s entry onto the San Fran route was successful and much of the reason for that went to a unique marketing campaign. Alaska started what it called ‘Gold Coast Service’. Every passenger who flew on the service in the first month got a free 5-gram pure gold ingot! The idea was to remind them of the airline’s history from the Gold Rush country and to create a media frenzy. The cost of each ingot was about the same as the price of a coach fare on the route but the impact was huge. Firstly, the ingots decreased the chance of a fare war and secondly the amount of free marketing Alaska gained was priceless.
Even so, Alaska had to be careful. United had been weakened by a mechanics’ strike at the time and Alaska did have to scale back its service from 4 flights a day to 2 with competition from United and Western increasing. Nonetheless, it was a start. Later in 1979 Alaska tagged an extension on to the SFO route taking it to Palm Springs. The airline was in California to stay.
Alaska Airlines at this point was still mainly an Alaskan airline and it didn’t get in over its head. After its first foray to California it concentrated on routes such as Anchorage to Nome and Kotzebue where it was up against only Wien and not United. The Alaska strategy worked and in 1981 the airline was able to post a profit of nearly $8 million – easily its highest ever.
The cautious expansion policy required more aircraft. In 1978 it had managed to acquire its first new plane for many years when its first of four 727-200s joined the fleet. Three new 737-290Cs were also acquired, but with cash limited it couldn’t buy all new jets and second-hand 727s also arrived. In addition, Alaska leased in extra aircraft to make up the capacity short-fall including six United Airlines Boeing 727-22s at various periods during the summers of 1980 and 1981.
By 1982 Alaska had branched out to serve Ontario and Burbank despite severe competition from incumbents such as PSA, AirCal, United and Western. While other airlines were bleeding red ink, Alaska continued to grow and was on the path towards its biggest aircraft order ever, at the same time adding more 727s and more routes. It is a major credit to the airline’s management that they were able to set the firm base from which the carrier has survived where almost everyone of its competitors has failed.
For the history of Alaska Airlines I highly recommend Robert J Serling's book 'Character and Characters: The Spirit of Alaska Airlines" available here:
I'm Richard Stretton: a fan of classic airliners and airlines who enjoys exploring their history through my collection of die-cast airliners. If you enjoy the site please donate whatever you can to help keep it running: