As 2017 ended, Alaska Air Group's management scrambled to impress Wall Street by curtailing costs.
Yet the focus on cost controls has left its own employees seriously disgruntled with management — and worried that the cost-cutting campaign will damage the company in the battle with Delta Air Lines over its hometown Seattle market.
Some disaffected Alaska Airlines pilots, still angry at management's handling of contract negotiations last fall, are deliberately slowing Alaska's airport traffic in minor but perceptible ways.
In December, flight attendants rose up against the latest small cost-shaving measure that had been planned for January — taking away the free Biscoff cookies on flights leaving after 10 a.m., a move that would supposedly save $3 million per year.
"Man, it's a race to the bottom," said one young flight attendant, who like other employees in this story asked not to be named for fear of retribution. "I feel that we are devaluing our own product."
Employees dubbed the plan Cookiegate, and the company quickly rescinded it after flight attendants complained it would alienate passengers. Management insisted, though, that cabin crew must still try to save money by handing out cookies only if a passenger asks for them, and then only one packet per person.
It was a trivial yet telling moment.
Alaska is in the midst of an ambitious expansion plan, adding new aircraft and new destinations while struggling with the expensive challenge of integrating Alaska Airlines with Virgin America. As it does so, it's pressing to cut costs to compete with Delta and other rivals.
Interviews with 10 Alaska employees, including pilots, flight attendants and maintenance staff, along with internal company documents obtained by The Seattle Times, reveal a high level of worry about the airline's direction — concern unlikely to be much eased by the $1,000 employee bonus announced Thursday evening as a result of the corporate tax windfall delivered by President Donald Trump.
Employees and analysts fear that Alaska could lose passenger loyalty by cutting its standards while Delta is raising its game. With discontent rife among pilots and cabin crew, Alaska's winning reputation for customer service is at risk.
Airline-industry consultant Bob Mann describes a Catch-22 dilemma for Alaska.
"They have to be reasonably low-cost to be low-fare," he said. "But if the service quality suffers, the customer who was for years loyal to Alaska will ask, 'How is this different from Delta?' "
Pressure on airline costs
Alaska management's bottom-line push is driven by both a growing price war with rival airlines and pressure on the share price if it fails to keep costs in check.
In December, Alaska told investors its fourth-quarter costs per seat per mile flown, excluding fuel and merger costs, would be up 5 percent from the previous year, while revenue per seat per mile flown is likely to decline about 4 percent.
Still, the newly enlarged air carrier has so far maintained profitability, posting net income of $266 million in the third quarter.
And after management assured Wall Street that it would rein in costs, airline financial analyst Helane Becker of Cowen Equity Research in December made Alaska her top stock pick for 2018.
But if Wall Street starts the year optimistic about a turnaround from last year's struggles, pilots and flight attendants are deeply dissatisfied, judging by a year-end internal survey.
Pilots at Alaska, now the nation's fifth-largest airline, are unhappy that their pay is lower than at the big three major airlines (American, Delta and United). Flight attendants say work rules have reduced their scheduling flexibility. All fear the uncertainty around Alaska's acquisition of Virgin America.
Alaska Airlines has topped the annual J.D. Power ranking for customer satisfaction among traditional North American air carriers for 10 consecutive years, a record based largely upon its reputation for warm customer service delivered by front-line employees.
With their current mood, said Jeffrey Peterson, Alaska Airlines representative for the Association of Flight Attendants (AFA) union, "I worry how morale will translate to customer-service scores."
Some passengers have already noticed declines in operational and service quality.
Bill Calder, a public-relations executive and Gold status frequent flyer with Alaska, tweeted in November:
"Really sad to see the dramatic decline in customer satisfaction … and the overall experience."
In an interview, he complained of canceled flights and frequent delays sitting in airplanes waiting to reach the gate in Seattle.
On a morning flight from Portland to Seattle on Friday, after boarding a flight that was already an hour late, he said he then spent about 90 minutes physically on the plane for a 30-minute flight, including sitting at the gate and waiting to disembark.
"I'm a longtime, dedicated Alaska customer. It's one of the great airlines," said Calder, "But in recent months, I've been frustrated with the service. It's deteriorated."
One veteran flight attendant at Alaska said she's lost much of the flexibility she once had in her schedule.
She said changes to work rules, related to trading trips with others and the flying time needed to gain vacation days, make it more difficult to juggle the responsibilities of looking after children or elderly parents.
"Most of us do this job for that flexibility," she said.
Peterson said management so far has been unwilling to meet the AFA union's position in continuing contract talks.
Even though the pilots' union settled its corresponding contract in October, winning a hefty pay raise, the pilots are even more disgruntled.
"Certainly, there's trouble right now," said a veteran Alaska Airlines captain, who saw his pay jump with the new contract by $35 per flight hour, to $251 per hour at the top of the pay scale.
With a maximum of 1,000 flight hours per year allowed under federal rules, that translates to a potential annual salary of a quarter-million dollars per year.
While he is himself sympathetic to management's perspective, agreeing that Alaska faces a serious competitive threat from Delta, he sees a troubling flare-up of discontent among his peers — which he says was fanned by the sharp criticism of management from the pilots' union during the contract talks.
"There's a lot of anger, despite such a big pay raise," the captain said. "An attitude of 'us-versus-them' has been spooled up all year."
In part, the anger is stoked by how management refused to negotiate with the pilots union and forced the talks into arbitration.
It's also because the arbitrator set the pilots' pay rate 5 to 6 percent lower than at the big three airlines, accepting management's argument that the smaller carrier needed that break to compete on cost.
A longtime first officer at Alaska said the airline's pilots probably fly more varied and difficult routes than their counterparts at other airlines, including to the Aleutian island chain and the Arctic.
Given that, and Alaska's profitability, why can't its pilots be paid top rate, he asked.
During the October pilot-union negotiations that merged the contracts at Alaska and Virgin, many pilots wore a union lanyard with the slogan: "This merger won't fly without the pilots onboard."
Even though the arbitrator's ruling formally ended the contract dispute months ago, some pilots were still wearing the lanyards in December to telegraph their disgruntlement. That spurred a management memo of disapproval just before Christmas.
More troubling for the company: Some pilots are expressing their displeasure by deliberately slowing down their planes' ground procedures — spending a few minutes longer than necessary at a choke point between the departure gates and the taxiway at Sea-Tac airport, thereby blocking airplane traffic behind them, or taxiing more slowly to the runway.
"They are intentionally dragging their feet," said the veteran captain.
Alaska Air spokeswoman Bobbie Egan categorically denied this is happening.
"There is no slow down," Egan said. "We carefully track taxi times every hour of every day. There is no evidence of pilot slowdowns."
The first officer said the work slowdown is real but subtle. It adds a matter of minutes to the total flight time — not creating substantial delays for passengers, yet making the system appreciably less efficient than it could be.
"There are people slowing the process down," he said. "If management is not aware, I'd say they are deeply out of touch."
The goal in buying Virgin
Alaska's management, led by Chief Executive Brad Tilden, acquired San Francisco-based Virgin America in late 2016aiming to expand and link together a dominant West Coast network.
The move was in part to stave off a rival offer for Virgin from JetBlue that would have created a dangerous competitive challenge.
In the year since, the intricacies of merging the fleets, employees and computer systems of the two disparate airlines have consumed management's attention.
With about 23,000 employees, Alaska Air Group is today 64 percent bigger than it was just three years ago. Last year, it launched 44 new routes as well as adding Virgin's California routes.
The company expects to have single computer systems for most functions early this year and a single reservations system for the two airlines by April.
"The merger is going well," said Tilden in a year-end message to employees.
Yet perhaps distracted by that massive integration job, management addressed one major crisis in 2017 far too late.
Low pay levels at regional subsidiary Horizon Air — which feeds Alaska Airlines flights from smaller airports — created a severe pilot shortage that resulted in hundreds of canceled flights.
Horizon was forced to sharply cut its fall flight schedule, and needs to recruit about 400 more pilots by the end of 2018 to resume its previous level of service.
Greg Unterseher, representing Horizon pilots for Teamsters Local 1226, doubts the airline can meet that target.
"We see no ability to get these pilots. I don't know where they are going to come from," Unterseher said.
Industry consultant Mann concurred.
"There just aren't enough first-officer candidates coming out of the pipeline," Mann said.
Management, nevertheless, expresses confidence in its hiring and training plan.
In a year-end message specifically to Horizon employees after the resignation of Horizon Chief Executive Dave Campbell, Tilden attempted to allay employee fears.
"Horizon is a part of our future, a critical part of our presence in our key cities," wrote Tilden.
As Alaska wrestles with these problems, it must also address the competitive threat from Delta, the world's second-largest airline.
A December article on Alaska's internal employee website noted that Delta now has 59 routes out of Sea-Tac that overlap with Alaska's — up from just three in 2013 — with announced plans to increase seats in Seattle by nearly 20 percent in early 2018.
"They've achieved critical mass in Seattle," said John Kirby, Alaska's vice president of capacity planning. "They're bigger now in Seattle than we are in Portland."
Chris Berry, Alaska vice president of finance, emphasized that in this "battle for Seattle," as he put it, "As our costs go up, the cost advantage we have over Delta is narrowing."
Meanwhile, Delta is pressing Alaska by improving what it offers. For example, Delta's Seattle-New York route, for years a second-rate service, has now been upgraded to a true transcontinental-class service.
In April, the airline will launch its premier Delta One class on the route, offering "flatbed seats, elevated amenities and a refined dining experience."
Mann said Delta believes "they can out-Alaska Alaska in the Seattle market."
Alaska employees voiced their concerns in employee comments on the Alaska internal website story about the competition with Delta.
"Our goals to be bottom-line-oriented are helping Delta take the lead," wrote one flight attendant.
An employee survey released internally in December showed favorable views of the company down 13 percent overall compared to the previous year.
Employees at Horizon were 53 percent favorable, at Virgin 56 percent favorable and at Alaska Airlines 76 percent favorable. That last score was down 10 percent from 2016.
Acknowledging the low survey scores, Alaska Air spokesman Bryan Zidar said they reflect that mergers are difficult and change is never easy.
Critical statements on the internal website are indicative of the airline's open communication culture, he said.
CEO Tilden offered cautious optimism in his end-of-year message to Alaska employees.
"I've been with Alaska for nearly 27 years, and in virtually all of those years, we've been fighting for our future," he said. "The next few quarters might be tough, but I have no doubt that we will come out on top."
He said 2018 will bring the final integration of Virgin's systems with Alaska's, plus plans for updated aircraft interiors, onboard satellite Wi-Fi, new uniforms, updated airport terminals in Alaska, and flights out of Paine Field in Everett.
But citing the troubles at Horizon and the difficult contract talks with the pilots, he also acknowledged the growing unease among many employees.
"It never feels right when the people part of our business is not running smoothly," Tilden wrote.