In an industry racked with scandals and financial challenges, Alaska Airlines has grown steadily and successfully for 85 years. As part of ULI’s tradition of inviting a chief executive officer from outside the real estate industry to each Spring Meeting, Alaska Airlines CEO Bradley Tilden took part in a “fireside chat,” speaking with Bill Ferguson, chairman and CEO of real estate executive recruiting firm Ferguson Partners.
Until just a few years ago, the U.S. airline industry had negative retained earnings, and almost every airline that operated during the era of regulation has filed for bankruptcy. That could have been the fate of Alaska Airlines, but the company wanted to control its own destiny. In 2005, it was restructured with a focus on keeping costs down. It aims to be not only the lowest-cost airline, but also the easiest to fly.
Alaska Airlines even survived the worst-case scenario: the crash of Flight 261 in 2000, which killed all 88 passengers and crew. After a disaster or even just a mistake, noted Tilden, “you apologize completely and quickly and commit yourself to be as good as you can be going forward.”
The Seattle-based operator has not only survived, but thrived. “While the rest of the industry grows at more or less the rate of GDP [gross domestic product], we have grown much faster over the last 20 years,” Tilden said. “It’s hard to believe we started 85 years ago flying three-seat planes out of Anchorage.”
As the airline industry has consolidated—just four airlines control 85 percent of U.S. domestic flights—Alaska Airlines, the fifth largest, has accelerated its growth by acquiring other airlines. In 1986–1987, Alaska Airlines bought out Horizon Air and Jet America. Then last year, it took a leap of faith by acquiring an even larger entity. “We fly all over, but if we are honest with ourselves, we have loyalty mostly in just the Pacific Northwest,” Tilden said. “To earn loyalty and expand operations in California, we decided to buy Virgin America.” The $2.6 billion merger closed last December and will be completed by 2019.
“It was a lot of money. In the fall of 2015, we had been the only bidder for months, and if we had bid higher, we might have closed the acquisition for less. But then JetBlue came in.” Now, about a year after the merger was announced, “our employees are jazzed,” he said. “It’s an enormous amount of work: now we have Airbus planes, 22 airports where we have to merge operations, different union agreements, computer systems, ticket stock, and more.”
Tilden and his team took an analytical approach to the challenge of merging two well-known brands. In the May issue of the Alaska Airlines in-flight magazine, he described how the company surveyed 6,000 flyers across the United States, learning and categorizing what customers want and need from their airline. The company then studied the extent to which both Alaska Airlines and Virgin America meet those needs and the areas in which each airline has a core competency. One result is that “the Eskimo stays”: the merged entity will operate under the Alaska Airlines name, retaining its smiling Eskimo logo.
How do Tilden and his team deal with the uncertainties of operating an ever-growing airline? “My predecessor, Bill Ayer, helped us learn to focus on what you can control,” Tilden said. “The fluctuations of our stock price are almost entirely due to factors we cannot control—from a travel ban to bird flu to some other company’s earnings report. Over the long term, none of that matters. Our success is based on our offering low fares and having satisfied customers. I train myself to focus on keeping us safe, on time, having great customer service and relations with our employees.”
Asked how his background prepared him for his leadership role, Tilden began by saying that he loves flying. He obtained his pilot’s license at age 18; later, he started work as an accountant with Price Waterhouse, now PwC. “I thought I would be an accountant forever, but when an airline called, I jumped at it.
“I came up through the finance track,” he continued, “but my job has not changed that much. We help people understand what the company needs to do to keep us successful. We have 20,000 employees, a board, analysts, and others who all need to work together.
“When an airline fails, it’s usually not some exotic financial factor. Rather, it’s usually an alignment issue: people don’t share the same goals and are not on the same page. We spend millions of dollars on technical training, but we don’t always share operational strategy. Getting everyone aligned, especially in a unionized environment, is difficult to achieve.”
Tilden described an Alaska Airlines initiative called Flight Path, designed to bring employees into strategic alignment. Management met with 80 groups, each made up of 150 employees representing a cross-section of jobs. “We found that 80 percent of the employees we surveyed thought that the company has an outstanding future, but only about 55 percent were personally motivated to achieve that future. We were able to go back to them and say: ‘Here’s where we are and where we want to go. Will you help us?’
“This is a highly competitive business with a thin margin for error,” Tilden said. “Most airlines fail or get acquired. If we need to fire people, it must be done.”
Tilden has a good idea of which types of employees are best suited to the corporate culture and goals.
“We’ve found that many of our best employees are people who are ambitious for the company and not just themselves,” he said. “These are often individuals who grew up with humble backgrounds and worked hard to get where they are. We have never gone wrong with them.” This focus seems to be working: from its three-seater planes buzzing around Anchorage in the 1930s, Alaska Airlines now has a market capitalization topping $10 billion and plans to continue growing organically.
Leslie Braunstein is principal of LHB Communications Inc., a public relations firm located in the Washington, D.C., metropolitan area.