MIAMI – Alaska Airlines held its annual Investor Day in New York on Wednesday, providing clarity and color on a variety of business matters. The event came just a week after Alaska confirmed its plans to retire the Virgin America brand in 2019, and unveiled a series of product related improvements and changes.

Accordingly, the Investor Day event was focused more on business topics, led by Alaska CEO Brad Tilden. Presentations also featured Chief Commercial Officer Andrew Harrison, VP of capacity planning John Kirby, VP of marketing Sangita Woerner, CFO Brandon Pedersen, and VP of Revenue & E-Commerce Shane Tackett. Here were our 6 biggest takeaways from Alaska’s investor day.

Alaska sees a massive opportunity in California


We mentioned this in our analysis of the decision to retire the Virgin America brand, but Alaska has a massive opportunity in California. Collectively, Alaska believes that the market opportunity (not necessarily market size) is three times that of the Pacific Northwest, and it cited an unusual source (the Crane Index – measuring building activity of large buildings) to make that claim.

The combined carrier from day one will be 2/3 as large in California as it is in Seattle and Portland combined, but there is room for more frequency on Alaska’s Q400s and regional jets for shorter haul flights as opposed to Virgin America’s larger A320s.

Alaska is offering an unusual degree of transparency and specificity in its merger integration plan


While most merged US carriers do tend to lay out a broad timeline for their merger integration, Alaska not only laid out specific milestones that it hoped to accomplish (single frequent flyer program, integrated call center, and single operating certificate (SOC)) but also walked through in more detail its process and approach to merger integration.

In doing so, it hoped to send a signal to Wall Street that it was taking a more execution-oriented approach to merger integration than some previous peer airlines (including most notably United – Continental as well as Southwest – AirTran to a lesser extent).

Corporate culture could be an important sticking point


Alaska completed the rollout of “initial values” in Q1 of 2017. This is simultaneously meaningful insofar as it signals that Alaska is willing to take elements from what by all accounts was a strong culture of Virgin America, and meaningless in that the true culture of the combined airline won’t be set for several years.

The SOC is planned for Q1 2018, with single labor agreements planned for mid-2018 and a single passenger service system planned for Q4 of that year. The interesting question is how Alaska will approach seniority for the combined workgroups like pilots and flight attendants.

This is the first merger in a while (since Southwest – Air Tran) where there’s a large gap in the ages of the two carriers (and even AirTran was 17 years old at the time of the merger). It will be tricky to balance the traditional expectations of seniority winning out above all else while managing to keep ex Virgin America employees happy.

Alaska sees more synergies


Alaska has actually raised its target for annual revenue synergies to $240 million and total synergies to $300 million, with the latter figure up $75 million from initial estimates. Alaska believes that the synergies will be driven by a variety of factors, leading off with the larger network. Now the synergies are about incremental revenue growth, and Alaska believes that it can win new passengers largely through loyalty and corporate contracts that it wasn’t winning before, particularly in the California cities. There is

Now the synergies are about incremental revenue growth, and Alaska believes that it can win new passengers largely through loyalty and corporate contracts that it wasn’t winning before, particularly in the California cities. There is

There is an also a schedule boost in many connecting markets (for example Newark – Seattle) by combining the networks that will generate incremental revenues. Some of these added synergies come from the growth markets in San Francisco on routes like Albuquerque and Raleigh-Durham in the recently announced expansion.

Cross-fleeting is a positive sign for the A320’s future at Alaska


Other sources of synergy include the ever common cross-fleeting, with 737-900ERs shifting to some longer, capacity-constrained California routes, and some A320s shifting to shorter Pacific Northwest flights. This does bring up the open question though as to whether Alaska will turn away from its new A320 fleet as some observers predicted.

This does bring up the open question though as to whether Alaska will turn away from its new A320 fleet as some observers predicted. Clearly, it sees a need for more ~150 seat aircraft in its fleet if it expects synergies to emanate from that.

Then, of course, there are the Alaska code-shares that get expanded with more flights through San Francisco and LA that can connect onto international partners, as well as expanded premium seating on Virgin America’s A319s and A320s, boosted cargo revenue, and loyalty (more on this below).

Alaska may be underrating the potential value of Elevate customers to incremental Mileage Plan profits


Virgin America by virtue of its brand oeuvre and location has access to some of the most sought after travelers on planet earth, namely affluent young professionals (with the logic being that if you can make these folks lifelong customers, good things will happen).

The challenge for Virgin was that its Elevate program just wasn’t all that rewarding for anything except domestic travel (where its network was limited). But with Alaska’s larger volume of international partners and domestic network, the combined carrier can more aggressively monetize Elevate and sign up new California customers.

This represents a massive opportunity that I believe is easily worth $200 million in incremental cash flows by itself over the next five years.

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