Strategic Plan Project

Rob Moehnke, Lindsey Szueber, Diana Golovin

Mission “Creating an airline people love” - continuous process

“Each day, we are guided by our core values of Safety,

Professionalism, Caring, Resourcefulness, Integrity and Alaska

Spirit at work and in our communities. Alaska Airlines also

fosters a diverse and inclusive culture and is an Equal

Opportunity Employer.”

Vision- pg. 5 &6 of 2016 FIN Statement

● “Keep climbing”

● Be Safe and On time

● Focus on People

● Build a deep emotional connection for our brand

● Defend and grow our customer base

● Win with low costs and low fares

Strategic Partnerships Horizon Air

● 45 cities ; frequent flier program

Virgin America

● 1,200 daily flights (total); frequent flier program

Other partnerships

● World travel comfort

● 900+ destinations worldwide

● Receive miles (flights, rental cars, hotels, shopping, etc.)

Management Team ● Safety & commitment to passengers (hire)

● Empowerment for correct action & great service

● Kindness / Feel-good hospitality

● Benefits to employees

● Community involvement

How service works 1) Selection

2) Registration

3) Payment

4) Check-in

● Kiosk

● Mobile phone

● Online

5) Checked Baggage

6) Inflight Experience

7) Baggage claim

Need for Change ● #8 in U.S. (passenger count)

● Annual increase of 5% (Industry)

● Annual increase of 9% (Alaska)

● Growing faster than competition

● Small market share

5 Forces Analysis Buyers Suppliers Competitors Substitutes Barriers to

entry

Powerful &

Price Sensitive

Business vs.

leisure flyers

Future- less on

price, more on

service

Powerful &

specialized

Boeing

Knowledgeable

staff

High switching

costs (little

substitution)

Short distance,

low price

(Southwest

Airlines)- leader

in domestic

flights

Long distance,

high price

(Delta)- similar

flight patterns;

Seattle 61%

Passengers-

Bullet trains,

cars, buses

Freight- boats,

trucks, vans,

drones

Low = high

threat

Globalization &

leasing (low

startup costs)

Small businesses

SWOT Analysis Strengths

1) Mileage plan program

● Free membership & discounted prices

● Miles earned for each $ spent, 1 mile:1 Alaskan mile

● 3 miles every $ spent on Alaska purchases

2) Customer Service

● Low fare with great flexibility

● Clean & comfortable

● Listens to what is said

● Rewards received

● Innovation & technology

Weaknesses

1) Small relative to competitors

● Missing large source of customers from East

Coast

● No hub on East Coast

2) Size of Planes

● Disallows large number of international flights

● Need for bigger aircraft (large capital

expenditures & maintenance costs)

Opportunities

1) International flights

● 100 million annual flights

● Gain market share & increase revenue

2) Create hub on East Coast

● Start offering flights along the East Coast

● Currently must cross entire country

● Implement strengths

Threats

● Weather (Seasonality)

● Fuel costs

● Pricing initiatives by competitors

● Fluctuations in the economy

● Increase in competition at Alaska’s primary

airports

● Decrease in passenger volume & increase in

variable costs

What does this mean? ● 5 Forces suggest unattractive industry

● SWOT Analysis suggests potential

● Strategic Plan does not include international flights

● For American-based companies international flight is low (vs. domestic)

● Capital Expenditures are too high

● External & Internal analysis point to creation of hub on East Coast

Strategy Hub: geographical location in which operations are based

Stores aircraft, hosts management, crew and maintenance workers

Current hubs: SEA, PDX, SFO, LAX, ANC and SAN (Cities Served)

Benefit: Increase in market demand (centralized business process, increased efficiency

and broader area of service)

Passengers:

● Unknown needs

● Current Alaska customers who fly to East Coast will be invaluable

● Existing & new customers fly to East

Year 1- 10 Airplanes Location Airport Acronym

Atlanta, GA Hartsfield–Jackson

Atlanta International

Airport

ATL

Chicago, IL O'Hare International

Airport

ORD

Detroit, MI Detroit Metropolitan

Airport

DTW

Hebron, KY Cincinnati/Northern

Kentucky International

Airport

CVG

Boston, MA Logan International

Airport

BOS

Year 2 - 20 Airplanes

Q1 Q2 Q3 Q4

· JFK to Dallas-Fort

Worth International Airport

(DFW)- Dallas, TX

· JFK to Los Angeles

International Airport

(LAX)-Los Angeles, CA

· JFK to Denver

International Airport (DEN)-

Denver, CO

· JFK to Charlotte

Douglas International

Airport (CLT)- Charlotte,

NC

· JFK to Philadelphia

International Airport (PHL)

Philadelphia, PA

· JFK to Miami

International Airport (MIA)-

Miami, FL

· JFK to Minneapolis- St.

Paul International Airport

(MSP)- Minneapolis, MN

· JFK to Detroit Metro

Airport (DTW)- Detroit, MI

· Dulles International

Airport (IAD)- Dulles, VA

· Ronald Reagan

Washington National Airport

(DCA)- Arlington, VA

· Tampa International

Airport (TPA)- Tampa, FL

· Raleigh Durham

International Airport (RDU)-

Morrisville, NC

· General Mitchell

International Airport (MKE)-

Milwaukee, WI

· Charleston Air Force

Base International Airport

(CHS)- Charleston, NC

· Nashville International

Airport (BNA)- Nashville,

TN

· Jacksonville

International Airport (JAX)-

Jacksonville, FL

· Pittsburgh International

Airport (PIT)- Pittsburgh, PA

· St. Louis Lambert

International Airport (STL)-

St. Louis, MO

· Kansas City

International (MCI)- Kansas

City, MO

· Louis Armstrong New

Orleans International Airport

(MSY)- Kenner, LA

Year 3 - 15 airplanes Q1 Q2 Q3 Q4 Major Five Airports

· JFK to

Dallas-Fort Worth

International

Airport (DFW)

· JFK to Los

Angeles

International

Airport (LAX)

· JFK to Denver

International

Airport (DEN)

· JFK to

Charlotte Douglas

International

Airport (CLT)

· JFK to

Philadelphia

International

Airport (PHL)

· JFK to Miami

International Airport

(MIA)

· JFK to

Minneapolis- St. Paul

International Airport

(MSP)

· JFK to Detroit

Metro Airport

(DTW)

· Dulles

International Airport

(IAD)

· Ronald Reagan

Washington

National Airport

(DCA)

· Tampa

International

Airport (TPA)

· Raleigh

Durham

International

Airport (RDU)

· General

Mitchell

International

Airport (MKE)

· Charleston Air

Force Base

International

Airport (CHS)

· Nashville

International

Airport (BNA)

· Jacksonville

International Airport

(JAX)

· Pittsburgh

International Airport

(PIT)

· St. Louis Lambert

International Airport

(STL)

· Kansas City

International (MCI)

· Louis Armstrong

New Orleans

International Airport

(MSY)

· Hartsfield–Jackson

Atlanta International

Airport(ATL)

· O'Hare International

Airport (ORD)

· Detroit Metropolitan

Airport(DTW)

· Cincinnati/Northern

Kentucky International

Airport (CVG)

· Logan International

Airport (BOS)

2 Times per day. Morning

and red eye.

Marketing Geographic Expansion

Taking away customers vs. creating new

No specific demographics

Targeting those who can afford travel & those who travel often (mainly for

business)

Focusing on efficiency & customer service (for business travelers)

Revenue Streams in 2016 - pg. 39 Type of Revenue Total (in millions) % of Operating Revenue

Mainline Passengers $4,098 69.1%

Regional Passengers $908 15.3%

Other-net $817 13.8%

Freight and mail $108 1.8%

Use of Proceeds in 2016 (Top 5 Expenses)

Type of Expense Total

(in millions)

% of Operating

Expenses

Wages & Benefits $1,382 30.2%

Fuel Expense $831 18.1%

Other (property, taxes, personnel

costs for flight crews, fines &

penalties, IT, facilities-related

projects)

$365 8.0%

Depreciation & Amortization $363 7.9%

Landing fees & Other rentals $320 7.0%

● 159 M$ on

incentives

● 13 M$ on

donations

● 884 M$ on

PPE

● 270 M$ on

maintenance

● 114 M$ on

aircraft rental

● 126 M$ on

food &

beverage

Financial Plan Year 1 (.5%) Year 2 (1%) Year 3 (1.5%)

Total Operating Revenue $314,206,620.88 $418,459,024.95 $524,792,585.98

(Total Operating Expenses)($45,771,111.69) ($121,915,538.99) ($114,671,390.45)

=Total Operating Income =$268,435,509 =$296,543,486 =$410,121,196

Non-operating Expenses ($24,000,000) ($24,000,000) ($24,000,000)

=Income Before Income Tax =$244,435,509 =$272,543,486 =$386,121,196

Income Tax Expense ($64,400,000) ($64,400,000) ($64,400,000)

Capital Expenditures ($80,000,000) ($160,000,000) ($120,000,000)

=Net Income =$100,035,509.19 =$48,143,485.95 =$201,721,195.54

Action Plan1) Invest into airplanes (based on annual schedule)

2) Hire/ transfer staff (1,800 employees for 45 airplanes)

3) Deal with current vendors to extend deals/ capacity

4) Create detailed flight schedule for each destination

(sharing gates with Virgin America)

5) Create morning & red eye flights in Year 3

6) Create a lounge at the JFK airport

Conclusion ● Positive expenditure of time and money

● Creates economies of scale by pooling demand

● Rely heavily on strengths (customer service) to thrive

● Use Virgin America’s hub to migrate (high efficiency, low costs)

● Expected: Increase in sales every year

● Growing faster than rest of market