Alaska Airlines' Chief Riding Out the Turbulence

March 7, 2006
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.

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.

Alaska Airlines Chairman Bill Ayer spent an hour fielding questions about operational mishaps, flight delays, laid-off ramp workers and pay cuts for pilots.

Then, asked how he's enjoyed leading the Seattle-based airline since 2003, Ayer laughed. Hard.

"You know what? We've got a great team," he said during a one-on-one interview Monday, flashing the tired but relieved smile of a man who believes he's put a crisis behind him. "We are faced with a challenge, and I think everyone really has stepped up to the challenge."

Ayer has reason to be upbeat. Alaska earned $55 million in 2005, making it the second-most profitable U.S. airline behind Southwest.

Yet since Christmas, a rash of problems in the air and on the ground has put Alaska's operations, and Ayer's leadership, under a microscope.

In the interview, Ayer defended the company's decision last May to lay off 472 union workers and hire Menzies Aviation to handle its ground operations at Sea-Tac Airport. He acknowledged the timing of the switch was lousy, and that nine months later Menzies continues to have trouble hiring and retaining enough qualified people.

Ayer also said Alaska's investigation into last month's spate of five pressurization-system problems within 10 days has found no connections among the events, calling them a "coincidence."

He is not happy that Alaska finished last in on-time performance in 2005, and admitted it's been a "bumpy road" as Alaska has tried to make changes to remain profitable.

But he is optimistic that, for passengers and employees alike, the worst is over.

"It's been hard on everybody. It's been a lot of work," he said. "We're all looking forward to things settling down here a bit, and I think that's coming."

Trying times

Perched on the edge of an armchair in his large but simple office overlooking Angle Lake Park in Sea-Tac, Ayer is by turns stern, conciliatory and enthusiastic.

Tanned from a recent ski trip to Colorado, he exudes energy and, at 51, looks younger than his age.

Yet the challenges have been relentless during Ayer's time in Alaska's executive suites.

He was president when Flight 261 crashed off the coast of California in 2000; became CEO three months after the Sept. 11 attacks, and rose to chairman in May 2003, just before fuel prices began a two-year climb to crippling record highs.

Ayer has worked in the airline industry without interruption since 1978, when he finished his M.B.A. at the University of Washington. He has been in the Alaska Air Group family since 1982, when he joined the operations staff at Horizon Air. (Horizon Air and Alaska Airlines are subsidiaries of Alaska Air Group).

As he prepared to succeed John Kelly as chairman in May 2003, Ayer realized that Alaska had reached a critical inflection point.

"We looked at the landscape about three years ago now, and said the track we're on, the track the industry is on, is not a viable one," he said. "What we need to do is figure out how we change our business plan to be successful."

The answer was complicated.

If Alaska wanted to keep pace with the likes of Southwest and offer the lowest possible fares, its costs would have to be cut dramatically.

Yet Alaska's growth to that point, and the fierce loyalty of its frequent fliers, were largely due to its reputation for superior customer service.

"We know that our employees, our people, are the critical differentiator. They are the only long-term, sustainable competitive advantage we're ever going to have," Ayer said.

"The challenge that we have here, on the leadership side, is to make changes that will ensure our viability and long-term success, and do it in a way that keeps people engaged and maintains that [customer service] difference in the marketplace."

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.

Still, Ayer said Menzies executives are committed to making Seattle one of their smoothest operations, and he believes they are well on their way.

"It was unfortunate that we ended up with such a bumpy situation early on, but I have a lot of confidence that they've got their arms around it," he said. "I think it's going to work out just fine."


Ayer and Alaska faced a new host of safety questions last month, when the airline reported various problems with pressurization systems on five airplanes in 10 days.

Initial inquiries found no links among the incidents, and they occurred on at least three airplane models of varying age. Still, Alaska initiated a program to inspect pressurization systems on all of its 110 jets.

"We just think that's prudent, to ask the question," Ayer said. "So far nothing has turned up anything that is systemic or out of the ordinary."

Ayer understands well that late flights, lost luggage and operational missteps that scare passengers and damage planes are not good for business.

Fortunately for Alaska, none of it seems to have had a terribly detrimental impact on the carrier at least not yet.

Alaska posted a profit of $55 million last year excluding one-time charges, joining Southwest and AirTran as the only major U.S. airlines to end 2005 in the black.

Alaska carried 23.2 million passengers in 2005, up 4.5 percent from the previous year, and the trend is continuing. Alaska reported Friday that it carried 1.71 million passengers in February, up 5.6 percent from a year ago.

To be sure, one reason for Alaska's higher passenger counts is the health of the economy, which is much more vigorous than it was in 2004.

Ayer said customer loyalty, earned over many years as Seattle's "hometown" airline, has helped.

He and other members of the airline's executive team periodically call frequent fliers who write in with complaints.

"As I've done these calls over the months, I've found a lot of people that basically say, `That was a bad experience, and you guys should have done this, that or whatever.' But they come back and say, `But you know, I really want to see this work, because I like Alaska Airlines,' " Ayer said.

"There's a lot of good will that's been built up over a lot of years. ... We don't want to wear out our welcome with that. We've got to get back to our standards."

David Bowermaster: 206-464-2724 or [email protected]

William S. Ayer

Chairman, Chief Executive Officer and President, Alaska Airlines

Age: 51

Family: Lives in Bellevue with his wife, Pam, and daughter, Elizabeth.

Work history:

1995 present: Alaska Airlines. Joined the company as vice president of marketing and planning. Became president in 1997; chief operating officer in 1999; chief executive in January 2002; and chairman in May 2003.

1982 1995: Horizon Air. Held several marketing and operations positions, was senior vice president of operations.

1980 1982: Founder and president of Air Olympia, a small commuter airline.

1978 1980: Regional manager, Piper Aircraft company.

Board appointments: Puget Energy, The Museum of Flight, University of Washington Business School Advisory Board, Angel Flight America

Education: B.A. Economics, Stanford, 1976. M.B.A. University of Washington, 1978.

Source: Alaska Airlines

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