Market Overview

Alaska Airlines' Air Cargo Unit Grows With The Airline

Alaska Airlines' Air Cargo Unit Grows With The Airline

For Jason Berry, Managing Director of Alaska Air Cargo (NYSE: ALK) (a division of Alaska Airlines), it's that time of year when things get a little fishy. The opening of the Copper River salmon fishing season was last week, and early Friday morning, Alaska Air Cargo brought 18,000 pounds of the prized delicacy to Seattle-Tacoma International Airport (affectionately known as Sea-Tac) in Seattle, Washington, for distribution to hungry chefs and consumers in the Pacific Northwest and the rest of the lower 48 states. Across all flights Friday nearly 50,000 pounds of salmon were carried south.

While this is a single commodity trafficked seasonally on a single lane, Berry knows that Alaska Air Cargo must be diversified to succeed outside of its namesake state, and building that awareness and perception is key.

"Alaska [Airlines] is not just Alaska," Berry shares one morning this spring from the airline's home city of Seattle. "Our legacy is Alaska and something we're proud of. We're called Alaska and we're so much more than that. Look at our network and where we fly. The route map speaks for itself."

He's right about that map. It was only in 2001 that Alaska Airlines added its first transcontinental flight to Washington, D.C. In 2008, the company undertook its largest ramp-up ever, moving into Hawaii, which is now served with 30 Alaska Airlines flights per day. In 2016, Alaska Airlines acquired Virgin America and beginning in June 2018, the belly space was available to cargo to sell and fill. That addition meant that cargo was the fastest growing revenue segment for the airline in the first quarter of 2019, up 17.9 percent over the same period in 2018.

The combined might of Alaska Airlines and Virgin Air now means that Alaska Air Cargo has access to 1,300 flights per day, all domestic, reaching from one end of the country to the other, including the Hawaiian Islands. Alaska Airlines is also moving beyond its previous single-hub of Seattle. The airline is now utilizing flights and operations in Seattle, Portland, San Francisco, Los Angeles and San Diego for transcontinental operations.

But the story of Alaska Airlines cannot be told without looking at what the airline means to the state and to Alaskans themselves. In an era where the majority of the population is accustomed to easily moving between cities, for some remote communities in Alaska, it's air or nothing. For Berry, there's a reverence and responsibility attached to the name on the plane. "It's what makes us unique. The only way to get to some of these communities is by air. We've enhanced the living and life of these villages and feel we have a duty to support these communities from our hubs that our goal is to take care of everyone in the state."

Alaska sells to two audiences – shippers in Alaska and forwarders in the continental states. In Alaska, Regional Sales Manager Shannon Stevens will have a day of sales calls that could include school districts that are receiving produce from California and native corporations that are getting building supplies, food and prescriptions – all things that cannot be brought in to many locations across Alaska in a timely fashion or in the necessary quantities by truck or even barge. "From construction companies to Vietnamese restaurants, Shannon calls on them all," he quipped.

Key to what has contributed to Alaska Air Cargo's success has been the acquisition and deployment of three 737-700BDSF freighters. Alaska Airlines previously operated combination aircraft, but these three freighters, each with a capacity of roughly 40,000 pounds, allow for greater lift north and south. Of course, timing in air cargo is everything, and based on when the aircraft were delivered and put in service, all three came up on their heavy maintenance checks at times that were less than ideal. "We needed to find the time to take the aircraft in for heavy maintenance." Each aircraft is taken out of service for a month and it's not just the $1 million or so price tag for the service, but the lost opportunity cost and revenue. The maintenance takes place in Oklahoma City, Oklahoma, where the maintenance partner and Alaska's own team work together. One of the freighters, tail number 625AS, was due back in time for the opening of salmon season and while it didn't make it, Alaska had the capacity to get the fish southwards.

Looking ahead to 2019, Berry forecasts both headwinds and tailwinds – appropriate for an airline operating a robust schedule of transcontinental flights crisscrossing the country. He and his "elite unit of special forces" (as his recently retired boss called the 500-person cargo team who develop, lead, sell and service cargo for the 87-year-old airline), feel good about where they're going. They know that while the freighter maintenance is causing some early-year pains, they are looking at new technology deployments and a new cargo website which, coupled with their mix of high-value, time-sensitive cargo and continued growth, will hopefully allow them to outpace the industry by a modest amount.

Image sourced from Pixabay


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