Running head: AAG CORPORATE LEVEL STRATEGY 1

Alaska Air Group, Inc. Corporate Level Strategy

Student’s Name

Institution Name
AAG CORPORATE LEVEL STRATEGY 2

Company Background

Alaska Air Group, Inc. (AAG) is a holding company that controls Alaska Airlines.

Alaska Airlines is the tenth largest U.S.-based airline, and the carrier currently flies more than 12

million passengers annually, as well as 4 million more through its affiliates like Horizon Air.

Even though Alaska Airlines has been in operation since 1932, making it one of the oldest

airlines in the U.S., the carrier’s history with AAG began in 1985 (Alaska Airlines, 2019). At the

time, AAG was established as a holding company that controlled Alaska Airlines. Shortly

thereafter, as part of its broader corporate expansion initiative, AAG undertook several

partnerships and acquisitions of subsidiaries that included Horizon Air and Jet America, the later

of which merged with Alaska Airlines (Alaska Airlines, 2019).

As is often the case in the airline industry, AAG has undertaken extensive corporate-level

realignments over the past few decades. In the 1990s, low-cost carriers like Alaska Airlines

gained a significant competitive advantage across the world. At the time, Alaska Airlines

focused on enhancing its fleet utilization and improving its cost structure to serve the economic

interests of airline passengers (Caster & Scheraga, 2013). The clearest indicator of this strategy is

in the airline’s motto in the 1990s, which was “For the same price, you just get more.” The

strategy resonated well with consumers and drove Alaska Airline’s growth and profitability.

During the early 2000s, Alaska Airlines expanded its domestic services by introducing

new routes to major U.S. cities like Chicago, Miami, Boston, Dallas, Newark, Washington D.C.,

and Orlando (Alaska Airlines, 2019). AAG also began strategizing on how to expand into the

international market, albeit on a much smaller scale compared to similar airlines that undertake a

similar strategy. The company introduced new routes to Hawaii and Mexico in this regard. The

airline industry contended with significant pressure during the global economic downturn that
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began in the mid-2000s and lasted into the early 2010s. Beginning in 2005, the global airline

industry experienced very slow growth, particularly in 2007 and 2008 (Sobieralski, 2020). While

larger airlines that offered more prestigious services bore the brunt of the dire economic times,

smaller, low-cost carriers like Alaska Airlines also experienced substantial economic problems

during the period. It was not until 2013 that the industry began experiencing significant growth

again, which continued until the 2020 Covid-19 pandemic (Sobieralski, 2020).

The prevailing industry trends during the 2010s were technological innovation, eco-

friendlier operations, and customer orientation, all of which dictated Alaska Airlines’ operations

during the period. Some notable developments that AAG undertook during the 2010s included

providing mobile applications, phasing out paperwork and replacing it with computerized data

systems, expanding options for online payment, introducing biometric passenger identification,

and improving its bagging services (Caster & Scheraga, 2013). In 2017, Alaska Airlines

undertook a merger with Virgin America, with the resultant entity operating under the Alaska

Airlines brand. In the aftermath of the Covid-19 pandemic and the subsequent global economic

turmoil, low-cost airlines like Alaska Airlines will likely become the focus of international and

domestic travel again, just as the case was in the late 2000s.

Strengths

AAG has certain strengths that predispose the company to perform well in the current

conditions in the domestic U.S. and international airline markets.

a. Low Cost Services

Since the early 2010s, Alaska Airlines has prioritized competitive prices as one of its

customer acquisition and retention strategies. Following the 2008 Global Financial Crisis, many

airlines opted to introduce lower rates to incentivize more people to travel through their carriers.
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Large international airlines had a much harder task operating within acceptable margins while

still providing competitive rates that customers sought. However, domestic carriers like Alaska

Airlines had greater flexibility in finding a balance between fair prices and low operating costs.

Since then, Alaska Airlines has galvanized its status as a provider of fairly priced but good

quality services (Caster & Scheraga, 2013). Oftentimes, airlines that opt for the low cost strategy

tend to experience diminished quality of services in their efforts to provide cheaper services for

their clients. Domestic airlines that generally operate shorter flights over shorter distances are

more often the ones that successfully implement the low cost strategy (Barnes, 2020). Domestic

airline customers need to fly for shorter periods, which makes them more willing to compromise

on lower quality services in exchange for lower ticket prices. Alaska Airlines fulfils a balance

between affordable flights and decent quality services, which makes it a good compromise for

many customers in the U.S.

b. Domestic Operations

Although the airline industry has endured major difficulties in 2020, domestic carriers

have enjoyed much better prospects compared to international carriers. During the Covid-19

pandemic, many countries closed off their borders to international travel, including restricting

flights from regions that had high infection rates. Earlier in the year, the U.S. imposed travel

restrictions to and from China and Europe, as well as other regions of the world. Other countries

that have high-volume air traffic implemented similar travel restrictions, some of which are still

in place to date. The significance of these restrictions is that they forced many international

carriers to ground their fleets and wait for the pandemic to subside (IATA, 2020). While many

countries also imposed restrictions on domestic air travel, such restrictions were generally less

prohibitive compared to mandates on international travel. As such, most domestic airlines around
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the world have been able to sustain their operations over the past year, albeit with substantially

reduced capacity.

Alaska Airlines enjoys a significant advantage in this regard because the company has

focused on streamlining its domestic operations over the past decade. In the early 2010s, Alaska

Airlines expanded its domestic operations to serve new routes across major U.S. cities. These

routes will likely have the most traffic in the near future as the U.S. begins to ease travel

restrictions and transition towards normalcy. Combined with its affordable ticket rates and

decent quality services, Alaska Airlines’ domestic operations are a major strength that could help

the company to maintain a competitive edge over its competitors.

c. Strategic Partnerships

Another key strength in Alaska Airlines’ operations is the carrier’s strategic partnerships

with other airlines. While AAG has not undertaken many mergers and acquisitions since the

1980s compared to its rivals, the company’s partnerships have been largely successful. Most

notably, AAG’s merger with Virgin America in 2017 proceeded very quickly by industry

standards, and the group succeeded in achieving 95 percent of the merger-related milestones

ahead of schedule (Summers, 2019). Such strategic partnerships are crucial in the airline

industry, particularly during dire economic times such as the current environment. Mergers help

airline companies to combine their resources and operate more efficiently. Acquisitions enable

airlines to make inroads into consumer markets and to establish a presence in desirable niches

promptly without accruing significant marketing costs.

The merger between AAG and Virgin America allowed the group to galvanize its market

share in the domestic airline industry, which has proved to be crucial with regard to the market

developments over the past year. AAG is currently in a strong position to take advantage of its
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larger fleet of domestic carriers to serve the U.S. market. Experts expect the domestic and

international airline markets to grow over the next year as the U.S. economy strengthens rapidly

following the pandemic (IATA, 2020). AAG is also well positioned to establish more

partnerships in the international market with favorable terms. Many international airlines are

currently struggling in the ongoing global economic crisis. In these circumstances, AAG can

leverage its expertise in undertaking successful corporate partnerships to coalesce with other

players in the international airline industry in preparation for better growth prospects in the

future.

d. Adaptability

Besides its success in undertaking strategic partnerships, another key strength of AAG is

the company’s resilience and adaptability. As mentioned earlier, Alaska Airlines has been in

operations for almost a century. The airline has endured favorable and dire industry

developments, and the organization has stayed relevant throughout its period of operations.

Alaska Airlines’ adaptability makes the company a strong industry contender during periods of

uncertainty.

Corporate Strategy – Internal Development

Given AAG’s business history, and considering the prevailing market conditions, a

corporate strategy of internal development is more favorable for Alaska Airlines. In the past,

AAG has implemented a mixed strategy that involved internal development and strategic

alliances. The strategic alliances included the merger with Virgin America in 2017, the

acquisition of Horizon Airlines, and the merger with Jet Air. The strategy of strategic alliances

has provided AAG with certain advantages, but it may not work as well for the company in the

future compared to internal development. Through strategic alliances, airline companies can
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increase their market share, utilize their resources more efficiently, increase their economies of

scale, and venture into new markets without investing a lot of money in marketing efforts

(Albers & Rundshagen, 2020). In the current environment of the global airline industry, it may

seem expedient for AAG to seek strategic partnerships with other companies, mainly for the

purpose of streamlining operations and improving efficiency, lowering operating costs, and

possibly venturing into new markets. However, these strategies tend to be risky in uncertain

market environments such as the prevailing conditions of the airline industry. For this reason,

AAG has a stronger chance of success at corporate level if it focuses on internal development.

One key benefit that AAG may derive from internal development is enhancing the

company’s long-term competitiveness. During the early 2010s when AAG was exploring new

strategies to reinvigorate its operations, the company pinpointed several strategies that were

oriented towards internal development. These included focusing on technological development,

improving customer service, and offering competitive pricing options for its clients. These

strategies worked well and helped the company to establish its current identity as a low cost

carrier that offers decent quality services. Internal development enhances innovation and

increases the competitive prospects of a company in the long term. On the contrary, companies

that focus on acquisitions and mergers tend to be less innovative because they rely on external

sources of innovation to sustain their operations. Such companies may be more vulnerable to

disruptive market forces, as opposed to being the drivers of market disruptions themselves

(Gössling, et al., 2020). In effect, this means that focusing on strategic alliances is a more

dangerous strategy in uncertain market conditions, where disruptions tend to be most impactful.

Internal development also helps companies to establish and maintain a more definite

identity, which is useful for marketing and branding. Strategic alliances often bring in other
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entities that may dilute the original identity of a company. As the partners negotiate over a

unified corporate strategy to drive a merged or acquired entity, the resultant compromises may

lead some companies to shelve certain priorities while focusing on the more unifying corporate

approaches. On the contrary, internal development allows companies to adopt a more purist

approach to corporate strategy, which ultimately gives the organizations a stronger identity and

corporate focus.

Even so, internal development has certain disadvantages with which AAG must contend

or mitigate. The first problem is that by focusing exclusively on internal development, a

company may neglect viable opportunities for market diversification. A good example to

consider is in the case of AAG’s merger with Virgin America. Prior to the merger, both

companies served the U.S. domestic airline market. However, while Alaska Airlines focused

more on longer haul flights in the U.S. and its neighboring countries, the majority of Alaska

Airlines’ routes were shorter distance regional flights. In effect, AAG and Virgin America were

operating in different niches within the subset of the American airline industry. By merging with

Virgin America, AAG made inroads into the market niche in which Virgin America previously

operated. If AAG had focused on internal development, the company may not have had similar

success in venturing into the longer haul flights segment of the domestic airline industry without

making significant marketing investments.

However, one could still argue that it is more worthwhile for AAG to invest in marketing

rather than investing in partnerships. In reference to the merger, AAG could still have opted for

the alternative strategy of expanding its operations to include longer haul flights without having

to collaborate with Virgin America for the same purpose. The problem is that this strategy,

which is oriented toward internal development, would also have presented its own unique risks
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and uncertainties. The safer option was AAG to utilize Virgin America’s established knowhow

in serving long haul customers as a starting point for growing in the market niche. This shows

how in certain cases, strategic alliances may be more viable than internal development.

However, considering that the current airline industry environment is highly uncertain, it

is more worthwhile for AAG to focus its efforts on internal development rather than taking on

riskier corporate partnerships. AAG should concentrate on the policies and services that worked

best in the early 2010s, and replicate them in the context of the environment of the airline

industry in 2020. This strategy of internal development involves more investments in research

and development to implement new technologies, refine operations and make them more

efficient, strengthen the company’s brand identity, and focus on the needs of customers, which

may have changed recently.

References

Alaska Airlines. (2019). Alaska Airlines history by decade. Retrieved October 25, 2020, from

AAG Group: https://www.alaskaair.com/content/about-us/history/history-by-decade

Barnes, V. (2020, October 12). Alaska Airlines adding five destinations on 2021 following the

phase-out of Airbus aircraft. Aviation News Network.

IATA. (2020, July). Air Passenger Market Analysis. Montreal: International Air Transport

Association.

Summers, B. (2019, Jan 24). Alaska Airlines Works Fast to Erase Memories of Virgin America.

Skift.

Albers, S., & Rundshagen, V. (2020). European airlines′ strategic responses to the COVID-19

pandemic (January-May, 2020). Journal of air transport management, 87, 101863.

Caster, P., & Scheraga, C. (2013, March). An analysis of a strategic transformation plan: the case

of Alaska airlines. In Journal of the Transportation Research Forum (Vol. 52, No. 1).

Gössling, S., Scott, D., & Hall, C. M. (2020). Pandemics, tourism and global change: a rapid

assessment of COVID-19. Journal of Sustainable Tourism, 1-20.

Sobieralski, J. B. (2020). COVID-19 and airline employment: Insights from historical

uncertainty shocks to the industry. Transportation Research Interdisciplinary

Perspectives, 100123.