Log in
updated 2:54 PM CDT, Jul 28, 2018

FlynnsHarp logo 042016

Virgin deal should end business community concerns about Delta designs on Alaska

"We're viewing this as a combination that will make Alaska stronger and better positioned to remain a successful, independent, Seattle-based company for decades to come."

by Joe Sprague, Senior Vice PresidentCommunications & External Relations

There's no way of knowing the extent to which the shadow of Delta Airlines hung over Alaska Air Group's decision last fall to connect with Virgin America about a possible takeover.

But regardless, a local business community troubled for months that it needed to figure out how to help Alaska Airlines ward off what was perceived as a takeover effort by Delta Airlines can stop worrying. Alaska saved itself.

That's the underlying fact about the announcement last week that Alaska has agreed to buy Virgin America for $2.6 billion cash, with assumed debt, leases and other costs bringing the total to about $4 billion. That's a figure viewed by some experts as too much -- a huge premium that Alaska had to pay on Virgin's market valuation to beat out JetBlue to land the deal.

But it depends on what a company like Alaska is buying. And in Alaska's case, it's a twofer, or maybe a threefer, as it dramatically expands its California presence and keeps Jet Blue from acquiring Virgin's lucrative California routes. But maybe most importantly, it pretty much ends the concern about a Delta takeover strategy.

Concern over any Delta designs on Alaska should pass, if for no other reason than that the Justice Department wouldn't be likely to allow one of the Big Four carriers to buy number five, which is where the Virgin deal, once approved, would place Alaska.

That Justice Department point was offered by Joseph Shocken, president of Seattle's Broadmark Capital, when I asked him his thoughts after the Virgin announcement, since Shocken was perhaps the most outspoken business advocate of a "support Alaska" strategy over the past 18 months.

It was Shocken, whose business activity at his successful boutique merchant bank has made him somewhat of an expert on how mergers and acquisitions play out, who first reached out to me about "the business community needs to take sides and do so visibly against Delta."

I was receptive to Shocken's argument, and did several columns commencing with one that said Delta had turned from partner, which had been its relationship with Alaska, to predator.

The reaction of others I met with in the business community, not just in Seattle but across the state, after the first column indicated to me that Shocken wasn't merely crying wolf, particularly after a member of Alaska's board had confided "we're really worried."

So was the Delta issue a consideration for Alaska in its decision to approach Virgin America last fall about a sale?

Asked about that, Joe Sprague, Senior Vice PresidentCommunications & External Relations, said "We're viewing this as a combination that will make Alaska stronger and better positioned to remain a successful, independent, Seattle-based company for decades to come."

The deal still needs to pass through regulatory approval and as part of its information pack Alaska Airlines issued a timeline with the deal set to close January 1, 2017, and full integration by the first quarter of 2018.

The merge is likely to attract the scrutiny of Justice Department officials already pursuing allegations that America's biggest airlines have colluded to keep airfares high.

And since the takeover will mean California no longer will have an airline based in the state, which served as home to a variety of carriers over the decades, there may well be an effort to convince regulators it's not good for consumers.

For those who like a chuckle with their politics, it would amusing if Alaska-Virgin provided California's dynamic female Democratic duo in the U.S, Senate reason to clash for the first time with their Washington Senate Democrat counterparts.

But antitrust experts suggest the takeover of Virgin by Alaska probably will be seen by those federal regulators as a union that will better equip Alaska to compete against larger rivals.

And if the concern of Shocken and others who have watched the shrinkage of the airline industry by takeovers play out were legitimate, Alaska was destined to lose a battle with Delta so the prospect of an erosion of discount fares was bound to be an outcome, whether because if Alaska's growth or its decline.

The final piece of the Delta puzzle that needs to play out is the possible restoration of a Delta-Alaska partnership arrangement. The effort to achieve that is certainly a possibility with the retirement of Richard Anderson from the CEO role, since he was the key protagonist in the obvious beat-down-Alaska strategy. But since Anderson remains as executive chairman of the Delta board, he may still influence a Delta move to restore relations with Alaska, returning to partner instead of predator.

But the fact is any thoughts about that are not even on Alaska's agenda right now. 

Continue reading
  2480 Hits
  0 Comments

Copyright

© Mike Flynn 2016

2480 Hits
0 Comments

Is Delta's focus on Alaska 'just business' or something that has long been unacceptable?

As the awareness grows of Delta Airlines' increasingly obvious designs on the business of Alaska Air, it's intriguing to see that while a majority in the business community are quickly becoming protective of what they view as their hometown airline, there are some who have said to me: "it's just business."

When I did my first column on this issue in December, suggesting that the once beneficial relationship Delta and Alaska had was turning predatory, a number of proponents of the free-market system found themselves agonizing a bit before most sided with my viewpoint.  

John Fluke, an outspoken proponent of the notion of free markets and competition, was sophisticated enough to quickly distinguish between the concept of competing to win, necessary to the success of our economic system, and competition with the goal of driving out competitors.

Fluke, and others like him I have talked to over the weeks of seeking to test viewpoints and plumb attitudes, noted that the key to the acceptability of a competitive approach is the question: "Does it benefit the customers?"

Strategies aimed at driving out competitors have been unacceptable since the dawn of the last century when that great advocate of competition, President Theodore Roosevelt, took the Sherman Anti-trust Act as a bludgeon against corporations that sought to win by gobbling up or driving out competitors.

I decided to do a bit of research on that law that became Teddy Roosevelt's tool in busting trusts and learned that the law declared illegal "all combinations in restraint of trade."

As one explanation put it: "The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself."

So is it in the spirit of competition that Delta would seek to extends its service to, for example, Alaska cities that offer one airline marginal income and offer two airlines only red ink?

Maybe, on the issue of Delta seeking to convince the University of Washington to take Delta's money in exchange for becoming Delta's travel partner. But that's a possible development that hopefully UW's regents would deem counterproductive for the university in the longer-term goal of building allegiances rather than divisiveness.

It has occurred to me that the quest by this community's leadership in seeking to determine whether the possible eventual demise of Alaska through takeover or acquisition would be good or bad for the community would be served by asking those who have been there.

Thus the idea I have been talking up is for a group of business and community leaders to set a meeting with their peers in Minneapolis-St. Paul, which once had its own hometown airline, Northwest, which was absorbed by Delta.

In fact, a city-to-city visit of Seattle-area leaders with their peers in Minneapolis-St.Paul could explore more issues than just air service, since the two regions have long shared economic roots and similarities.

It was almost exactly seven years ago, April 15, 2008, that Delta and Northwest merged to form the largest airline in the world. Has the merged airline that resulted benefitted the Twin Cities? Has it resulted in little change (other than the loss of jobs that Northwest represented to the region)? Or significant?

Might be worth finding out, guided by a recollection of philosopher-poet George Santayana's oft-recalled (and oft-misquoted): "Those who cannot remember the past are condemned to repeat it."

Continue reading
  1295 Hits
  0 Comments
1295 Hits
0 Comments

Delta Airlines' Dog-Gone Disaster and CEO's 'PR tailspin' on Mid-east airlines merit sharing

 

It's coming to be known as Delta's Dog-Gone Disaster. It's the tale of the plight of the distraught family whose dog was lost on a Delta Airlines flight out of Los Angeles last fall, and the more than 200,000-plus supporters who have petitioned Delta via the website
change.org to take responsibility in some manner.

 

It's a story that suggests Delta CEO Dick Anderson may need to spend more time keeping his eye on his own company rather than eyeing someone else's airline, as in his acknowledged coveting of Seattle's hometown airline, Alaska.

Apparently it's not a unique case of doggie disasters at the world's second largest airline, an airline that may have grown too large for the CEO to be personally bothered by such things as worrying about a lost family member of customers (since a family member is how a pet is viewed by most owners). One blogger has even referred to Delta as "The Bermuda Triangle of Dog Travel."

Not flying on Delta would be a logical response for pet owners as a statement for the airline to step up, take responsibility, and figure out how to improve its pet-care performance. And every dog lover should insist on an apology, and not from some underling but from CEO Anderson himself.

I checked on change.org, which I hadn't been aware of, to ensure the site is legitimate and here's what I learned:
Created in 2007 by a then-32 year old NYU law school dropout named Ben Rattray, change.orghas become one of the largest sites on the web for anyone seeking to pressure politicians, corporations or others with what the web company describes as "a public shame campaign." It's a certified B Corporation with a stated mission to "empower people everywhere to create the change they want to see." 

  

Rattray says that "with cynicism about government at an all-time high," he can keep growing by keeping the stories personal. The petitions that catch fire on

Change.org are almost always tied to human drama, and so it is with Frank Romano and his family, whose dog, Ty, disappeared on the Delta flight from Los Angeles to Tampa, where the family was moving. 

 

Here is a bit of the story of Ty's disappearance, from the

change.org website, as written by the family. 

 

"Ty had been checked by our vet and transported in an airline approved-crate. Delta confirmed everything was in order prior to assuming responsibility for Ty. When we said our goodbyes to Ty, his tail wagging, we never imagined it would be for the last time.

"Prior to takeoff, a Delta employee approached Frank and took him aside to tell him that Delta couldn't find Ty. Our son was confused and horrified listening to Delta's story.

 

One minute Delta had the dog, and the next he was gone. They claimed there were no witnesses. Eventually Delta would state Ty had 'compromised the kennel on his own.'  

 

"When we got the crate back there were no bite marks, scratches, or other damage inside that would corroborate Delta's story. All we found was a crack on the outside of the kennel that wasn't there when Delta checked Ty into their custody.  

   

"After Delta lost a member of our family all we asked for was help searching for Ty. Delta denied our requests in helping provide resources for the search effort. Instead, we had to rely on many kind-hearted volunteers who spent weeks searching, putting up posters, and talking to people in the area," the family wrote.

More than 211,000 people, and counting, have signed the petition for the Romano family's plea: "Please join us in calling on Delta to release their official report, apologize to our family, and put in place a plan to prevent future pets from being lost. Please sign and share our petition today."

 

Others who do blogs and have pets, are tuning in to Delta's doggie dilemma, including by friend Al Davis, a widely respected turnaround expert, who does a blog on various business issues.

He is planning a blog offering Delta some advice on customer service and corporate culture, something the onetime Intel general manager knows a thing or two about, on which Delta apparently could use some guidance.

Meanwhile, I can find nothing to indicate that Anderson has offered the distraught family any sort of apology himself. But that reluctance apparently would fit with Anderson's pattern.

And since a key reason for this column is to give readers a sense of the kind of leader the guy is who would like to turn his airline into Seattle's "hometown airline," and a bit about the character of the airline he guides, another, perhaps more dramatic, example of Anderson's unwillingness to take responsibility is the recent gaffe related the Middle East.

That example of his apparent "I don't personally apologize" approach came after his recent statements, what CNN described as a "clumsy comment" that was more like a mix of ignorance and arrogance, in which he seemed to link Gulf-based air carriers with the 9/11 terrorist attack. The apology for what CNN described as a Delta "PR tailspin," came not from Anderson himself but from "a Delta spokesperson."

Akbar Al Baker, CEO of Qatar airlines, offered perhaps the most appropriate put down for Anderson over the comments he made, which were in connection with his effort to kill the Ex-Im Bank that is so important to Boeing. For those not familiar with it, the Export-Import Bank is the official export credit agency of the United States with the mission of ensuring that U.S. Companies have access to the financing they need to turn export opportunities into sales, as in sales to Middle East airlines.

Al Baker said on CNN that the Delta chief "should be ashamed to bring up the issue of terrorism to try to cover his inefficiency in running an airline. Mr. Anderson should be doing his job improving and competing with us instead of just crying wolf for his shortcomings in the way his airline is run."

Continue reading
  1209 Hits
  0 Comments
1209 Hits
0 Comments

Concern among Seattle business people that Delta turning from Alaska partner to predator

There's a growing concern among Seattle-area business leaders that they are seeing a once mutually beneficial partner relationship between Alaska Airlines and Delta Air Lines changing to one in which Delta seems to be moving from partner to predator.  

There is an obvious agreement within the business leadership that losing Alaska would be a significant blow to the economies of Seattle and the state. And that is leading many toward a conviction that the business community can't merely stand on the sidelines to watch to see what the outcome is of a battle between the world's second largest airline and hometown Alaska.  

Thus if those expressing such concerns are accurate, then Seattle will need to shed its "Seattle Nice" image for a time to forcefully take a position in support of Alaska.

"The business community must take sides in this and do so forcefully and visibly and an important part of its message is that Delta is actually not good for Seattle," suggests Joseph Schocken, president of Broadmark Capital, a successful Seattle boutique merchant bank that focuses on emerging companies.  

"Delta is anti-Boeing, and thus anti-Seattle, with both its dollars and its political clout," Schocken said. "With its dollars, it buys Airbus planes rather than Boeing's and with its political clout it opposes the Ex-Im bank that is important to Boeing's success," he added.

As I talked with various people in the business community, there was an expression of the need to have a pro-Alaska effort, even a forceful one, but not an Anti-Delta one, lest that generate sympathy for the Atlanta-based airline since it is a very successful airline that employs a large number of people and successfully serves parts of the region's air-carrier needs.

Yet as each got into the competitive aspects of the issue, comments frequently turned from support of Alaska to negative on Delta.

As business people discuss this Alaska-Delta struggle, there is a logical defense of free-markets competition but a dark view of competitors who turn predators. And I detected growing sense that predator is what Delta's competition with Alaska has devolved into.

One who best summed up the competition issue was John Fluke, whose family's business leadership, investment focus and philanthropic involvements are widely known and respected, who said: "The notion of free markets and competition are absolutely necessary to the success of our economic system and the effort to gain advantage over competitors, ethically pursued, benefits customers."

But Fluke suggested that the current competitive activities amount to Delta "abusing" the definition of competition, saying "its tactics with everything from current pricing to their philanthropic outreach with nonprofits here are likely to last only as long as it takes to drive Alaska into submission."

"If that happens, then airline tickets will eventually cost more, route structures will become less accommodating and Delta's support of important philanthropic causes will be lower and that would be abusing the real meaning of competition," he added.

Woody Howse, whose Cable & Howse Ventures basically launched the venture-capital industry in this region, exemplified the enthusiasm of Alaska supporters when he said "Alaska Airlines is one of the most community minded, customer serving and socially contributing corporations in our region."

But his comments also quickly turned against Alaska's challenger, noting his view that "Today Alaska Air is being attacked vigorously by the Carpet Bagger Delta Airlines, coming to town with Airbus (not Boeing) airplanes and viciously attacking the Alaska Air routes with competing schedules.  Our Northwest Community must band together and support the company that has so supported us through the good as well as difficult times."

    

"With Delta's current actions and apparent ulterior motive in Alaska's hometown hub, engaging in a process intended to squeeze Alaska Airlines with the objective of acquiring, we customers need to be very alert to the probable outcome if Delta is successful," Howse added.

Mike Kunath, principal and founder of Kunath, Karren, Rinne & Atkin LLC, a successful Seattle investment advisory firm, summed it up succinctly as: "Alaska has been a true supporter of the region. Delta never will be."

Herb Bridge, longtime Seattle civic leader and philanthropist as well as chairman and CEO of Ben Bridge Jeweler for several decades before guiding the company into acquisition by Warren Buffet, notes that corporate acquisitions themselves are not evil.

"It is possible for an important local company to be acquired in a way that allows it to retain local control and oversight, as happened with our acquisition by warren Buffet," Bridge said. "But when the acquisition is pursued in a predatory rather than a friendly manner, not only the shareholders of the pursued company but the community it serves are losers. There is nothing beneficial about Delta's pursuit of Alaska."

Alaska CEO Brad Tilden, retired CEO Bill Ayer and board members are reluctant to get into any Delta-bashing conversation, preferring to focus on Alaska positives.

Ayer, who as Alaska chairman and CEO for a decade before retiring in early 2012 guided the carrier through some of the industry's most tumultuous times, told me "The question of whether Alaska could remain independent has been raised for decades."   

"Our response was that a locally based, independent airline was better for customers, the community, employees, and investors. While there were no guarantees of remaining independent, all we could control was our own performance, and our chances were much better if we did a great job for each of those stakeholders," he said.

 

And as Tilden puts it, "The transformation over the last decade has been all about cost. We're trying to balance low fares and lots of service to the destinations (passengers) want, with a strong and successful company that can grow and buy new airplanes and has the capital to add new services."

 

The financial results are impressive as the parent company for Alaska Airlines and its regional sister carrier Horizon Air made a record $508 million profit in 2013, and the stock continued a steep ascent to five times its value from just five years ago.

 

What needs to happen is for Delta CEO Richard Anderson to be convinced by those who know him well, and that includes some in Seattle, that he is risking a serious downside in creating the potential for an in-your-face attitude among Seattle business people on behalf of Alaska.

For as Schocken summed it up: "There needs to be a real corporate campaign to encourage flying Alaska, discouraging flying Delta and make it unpleasant, hurting Delta's bottomline so Anderson decides that not only isn't it going to be as he thought, but shareholders and board members are getting unhappy.'"

     

Evidence that neither Fluke, Howse nor any of those who echo similar sentiments about Delta targeting Alaska are out of line is Delta's own home page where it headlines "Exclusively for Seattle, 2x miles all year long."  

But Delta's sharpest critics could suggest with a smile that what happens when you click on that link on Delta's home page might prophetically point to where Delta would be for Seattle if they were to push Alaska into a merger. The click leads to a page that says "the requested page could not be found."

Continue reading
  1486 Hits
  0 Comments
1486 Hits
0 Comments

52°F

Seattle

Mostly Cloudy

Humidity: 63%

Wind: 14 mph

  • 24 Mar 2016 52°F 42°F
  • 25 Mar 2016 54°F 40°F
Banner 468 x 60 px