Ben Minicucci, CEO, Alaska Air Group, says in-house training will provide an important pipeline of pilot talent. Interview by Perry Flint.
Alaska Airlines has come through the past two years in better shape than most. What factors contributed to this outcome?
When you look at the history of Alaska Airlines and the way we’ve run our business, it was always run in a way that meant we could withstand external shocks.
When we went into the crisis, we had a strong balance sheet and were profitable. In the last almost 20 years, our pre-tax margins were leading the industry. So that financial strength and financial performance over the least two decades really helped us head into the crisis in a good position.
But, of course, it was the most devastating, catastrophic crisis we have seen.
When the Federal Government provided the industry with funds that was a huge help. We were the first airline to stop bleeding cash and the first to get to profitability. We will be profitable in the second quarter 2022 and for the whole year, despite all of the external headwinds, especially the cost of fuel being so high.
There is no doubt that our low-cost business model helped us but most importantly, the wrapper around that is our people and our culture of care. I am always amazed at how much our people love our company and are willing to step up in a crisis.
And we are celebrating our 90th anniversary this year—with celebrations in Anchorage, which is where it all began, and Seattle, and Los Angeles. One of the special things we did is we gifted our employees 90,000 miles. That allows them access to wherever Alaska flies but now that we’re part of oneworld, 90,000 miles will take them anywhere in the world.
So, the huge run-up in fuel prices hasn’t affected your outlook for this year?
We burn almost 1 billion gallons of fuel a year, so every 10-cent increase in the price of a gallon of fuel costs us an additional $100 million. Fuel is now about $3.80 a gallon, up 65% compared with Q2 2019 so you can see that it is a significant cost headwind.
Fortunately, the demand environment has been amazing. If you had asked me in January given the COVID headwinds, the high fuel, and the geopolitical environment around the world, I would have said it was going to be a tough year. But demand and yields have been high, and we have been able to offset the high cost of fuel. We also have an established hedging policy. About half our fuel use this year has been hedged, which will save us about $200 million. We use hedging as insurance.
The recovery in leisure travel has outpaced the recovery in business travel. Is that trend continuing in 2022?
Leisure travel is over 100% of 2019 levels; we’re seeing business travel recover to about 80% of 2019 levels with revenues over 90%. I think a lot of that is due to companies returning to offices and simply getting back to visiting customers. There is a thirst to get out there and make physical contact with suppliers and customers. Will we see the same sort of business trips as before? I’m not so sure that we will see someone make the one-day trip from the West to the East Coast just for a meeting, but I do think business is coming back strongly.
Alaska recently announced the launch of a pilot training academy. Does this signal a fundamental shift in pilot training and recruitment?
Airlines in the United States are taking control of pilot training. Everybody in the country is doing much the same as we are in starting pilot training in-house.
We have been talking about a pilot shortage for a decade in the United States. The crisis made the situation worse. Reducing cash burn was paramount during the pandemic and all airlines tried to stop bleeding cash as we had no idea how long the pandemic would last. That meant we saw lots of senior pilots taking early outs. We all lost a lot of pilots.
Then the crisis came to a speedy end and growth returned quickly. This created a dynamic for airlines to attract and train pilots. We saw the problem most clearly in our subsidiary, Horizon Air. At Alaska, we started hiring Horizon pilots and so did other airlines because that’s where you traditionally went to hire—to the regionals.
I think the regionals are down 20%–30% in capacity so we had to develop a pipeline for pilots. We took matters into our own hands and partnered with a school in Oregon.
Still, it’s hard to get a pilot license and it can cost up to $100,000. We wanted to provide financial assistance and especially attract those who are under-represented and couldn’t afford the cost. The school should produce about 200 students a year for Horizon. We’re really excited about it. It helps Horizon Air and then the pilots can progress to Alaska.
I think everyone will continue with their own pipeline until the situation stabilizes and we’re probably going to be talking about a pilot shortage for the next five years at least.
How important is it for airlines to achieve net zero carbon emissions by 2050 and what steps are Alaska Airlines taking to support this target?
This is a high priority for us. Sustainability is part of our brand and caring for the earth and our communities is the right thing to do. There is a climate issue, and we are in a business where we burn fuel for a living.
We’ve set two goals. Our long-term goal is to be net zero by 2040 and the short-term goal is to be the most fuel-efficient airline by 2025.
The long-term goal is not about crossing our fingers and hoping everything turns out. It’s a deliberate five-path goal. One was to create a culture of efficiency in the airline from single-engine taxiing to electrifying ground support equipment to using new technology, such as artificial intelligence (AI) to manage flights. We are using the Airspace Intelligence Flyways AI platform, and it has saved us millions of gallons of fuel already.
We are also renewing our fleet. Our A320s are being phased out for the 737 MAX. The new aircraft is definitely producing fuel efficiencies and we are pleased with that.
It is also important that we maximize sustainable aviation fuels (SAF). SAF will be 60%–70% of our 2040 solution. SAF doesn’t require any change in infrastructure and can be used in our aircraft and stored at fuel farms. Other options don’t have that ability, which makes SAF the best solution available to us. We are pushing reforms to get SAF production moving.
We are also exploring new technology, such as hydrogen or electric. We are investing in companies researching these novel technologies. One company is working to convert one of our planes to hydrogen.
The last point is credible carbon offsets. They must make a difference. We are also looking at offsets for passengers.
We will be working all those levers and doing that for the next 15 years will get us to our 2040 goal. We have a plan, and we are working on it.
What does being named the Air Transport World Airline of the Year mean to you?
We were blown away, especially given the backdrop of what has happened over the past couple of years. All the hard work being recognized was a huge honor. We couldn’t be more humbled by the award. It reinforces the phenomenal work our frontline staff do every day running operations and taking care of our guests. Running an airline is about taking care of each other, of our guests, the communities we serve, and the owners. It is about balance.
Alaska is known for being an innovative airline. What aspect of operations do you think is ripe for change ether through technology or a revamp of existing processes?
We are huge on innovation—our team is just wired that way. It is about using new technology to solve an existing problem. We invented Required Navigation Performance, for example, because we couldn’t get into Juneau (Alaska), the state’s capital, in bad weather.
We have an innovation hub in San Jose, California, and one of the areas being explored is check-in: how do we reinvent the check-in experience? People are anxious so long as they are landside, but that anxiety drops airside. So, we want to get people through check-in in under a minute. They need to be recognized, drop their bags and go. It would bring guest anxiety down, create less friction and offer higher throughput.
And we just announced that we are introducing electronic luggage tags later this year.
In general, it is about bringing AI and machine learning into business. Technology will enable us to be better and more efficient in every aspect of operations.