Alaska Airlines' Chief Riding Out the Turbulence

Bill Ayer has weathered a reorganization, safety worries and economic challenges, but he feels the worst has passed and customer loyalty will keep his company on top.

In June 2003, Ayer unveiled "Vision 2010," which sought to trim Alaska's expenses by $300 million per year by 2010 without cutting employees.

Post-9/11 strategy

Alaska had expanded after 9/11, rather than rushing to cut workers and drop flights, as most U.S. airlines had done.

Alaska was able to do that because it had a stronger balance sheet than most of its peers. The carrier added flights from Seattle-Tacoma International Airport to New York, Boston, Miami and other East Coast destinations as stumbling heavyweights such as United pulled back.

Yet Alaska was not immune from the industry's hardships. Passenger counts at all airlines dropped sharply in 2002, and airfares plummeted as carriers fought to attract any traveler who took to the skies.

Consequently, Alaska posted a net loss of $118 million for the year, and cost cuts were in order.

But within a year of launching his incremental Vision 2010 plan, with fuel prices surging higher, it was clear that faster, more drastic actions were needed.

"We lost $200 million over four years. And I said, I guess we better step this up, we better look at every opportunity what is controllable about our cost structure?"

One of the most controllable costs, in any company, is labor.

Alaska laid off 900 mechanics, managers and aircraft cleaners in the summer and fall of 2004.

Then last May, a mediator imposed pay cuts averaging 26 percent on Alaska pilots, and the airline laid off 472 ramp workers at Sea-Tac after negotiations on a new union contract hit an impasse.

Alaska hired Menzies Aviation, which handles ground operations for dozens of airlines at 90 airports around the world, to take over its ramp work in Seattle.

Problems began almost immediately. Luggage took ages to reach baggage carousels, and bags were lost. Flight delays became commonplace, and Alaska's on-time performance slipped to worst among 19 major U.S. airlines.

"As I look back at the decisions that we've made, I would say that they have largely been the right decisions. Certainly the direction has been right," Ayer said.

"The timing of a couple things, we might have done differently. This change with Menzies happening in May, as we led into the summer with all of the traffic. ... Earlier would have been better."

Safety scrutinized

Alaska's recent mishaps the sort that occur regularly at various airlines likely would have drawn less notice had it not been for its earlier history with the crash of Flight 261 in January 2000, in which 88 died.

Investigators concluded that disaster was caused by improper lubrication of the jackscrew that controlled the MD-80's horizontal stabilizer. The Federal Aviation Administration audited Alaska's maintenance programs after the crash and fined the carrier $988,500 for numerous violations.

The safety of Alaska's operations since has been monitored closely by passengers and regulators alike.

Against this backdrop, the airline's Dec. 26 depressurization accident triggered many alarms.

While servicing an Alaska MD-80 on the ground at Sea-Tac, a Menzies worker bumped the plane with a baggage loader and damaged the plane's fuselage.

The worker did not report the damage, and the plane departed for Burbank, Calif., on schedule.

But as the plane climbed to 26,000 feet, a 1-foot-by-6-inch hole erupted in the side of the plane, causing it to depressurize. Pilots put the plane into a steep dive followed by an emergency return to Sea-Tac.

Days later, another Menzies worker damaged an Alaska jet when he accidentally put a tug into gear and pulled the plane into a passenger jetway.

Alaska and Menzies assembled task forces to study ground operations at Sea-Tac, and each added supervisors to ensure that ramp workers were trained properly and followed procedures.

Workers were urgently reminded to report any and all damage to airplanes, and safety procedures were reinforced, Ayer said.

Staffing remains a concern.

"They haven't been able to get fully staffed the whole time they've been operating for us," Ayer said.

Menzies officials acknowledged last month that 50 percent of its staff has turned over since it took over Alaska's Seattle ground operations.

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