The President’s Pen is a weekly blog written by Jonathan Smith, New Vision’s President and CEO about local economic development projects and initiatives. It also covers economic trends, workforce issues, business climate policies, and manufacturing news.
We were very fortunate to have Glenn Johnson speak to our New Vision annual meeting earlier this week. Johnson has spent most of his career at Alaska Airlines and currently serves as President of their subsidiary, Horizon Airlines. He offered interesting insights into the challenges of running an airline in today's tough economy. Speaking to issues facing Horizon Airlines, Johnson said that when he returned to Horizon as President about 18 months ago, the carrier was absorbing about one third of the capital of Alaska Airlines, generating 10 percent of the larger company's revenue and contributing nothing towards profit.
This was clearly an unsustainable situation so Glenn initiated a business transformation plan that addressed a number of key challenges:
As a result of these changes Horizon air is not profitable. Now that the changes at Horizon are having their desired impact, the company is now focusing on an initiative they are calling “Hassle Free Customer Experience” where Alaska and Horizon are going to review all aspects of what they do in an effort to reduce the stress of air travel. Simply put, Alaska and Horizon want to be the easiest airlines in the world to do business with. Johnson indicated there are great opportunities to improve customer service, particularly in terms of technology, like texting information to your smart phone, printing your own baggage tags at home (like you print your boarding pass now) and speeding up the TSA process.
Glenn shifted gears to discuss the aviation industry and indicated the last ten years has been extremely challenging. He relayed a great quote from Warren Buffet about the airline industry:
“The worst sort of business is one that grows rapidly, requires significant capital and then earns little or no money. Think airlines. If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down!”
In addition to being capital intensive, airlines are extremely competitive, labor intensive, highly regulated and very highly taxed - more than cigarettes and liquor. On top of this airlines are extremely sensitive to the price of oil, which has quadrupled in the past decade (that’s an increase of close to 1 BILLION dollars per year for Alaska).
As a result of these challenges, 100 domestic airlines have declared bankruptcy or stopped flying in the last 35 years . Alaska was the 28th largest airline in 1978 - now they are the seventh largest primarily because companies in the 8th through 27th position either failed or were acquired. American Airlines is the latest to go bankrupt, leaving Alaska as the only “legacy” airline to not file Chapter 11.
Lessons and Principles Learned
Johnson shared eight key lessons from operating through a challenging decade:
He also shared four simple principles which I think are outstanding for everyone:
Yakima Air Service
During our question and answer session Johnson responded to a key question about air service to and from Yakima. Someone in the audience asked when we might get a fourth flight to Seattle back. Johnson responded that the three flights from Yakima are currently running about 75 percent full. When we can increase our load factor towards 80-85 percent, the company is in a better position to consider adding flights. Johnson reminded everyone that with current occupancy levels out of Yakima, Horizon stilll has 75 unsold seats every day.
All in all it was another great annual meeting for our organization, primarily because Johnson did such a great job telling the story of Horizon and the airline industry.