Alaska & Delta Battle In Seattle: Who Will Win?

Alaska Airlines has announced plans to turn Seattle into a global gateway, by launching long haul flights from the airport, using jets that were acquired through the takeover of Hawaiian. This has major implications for the competitive landscape in the Pacific Northwest, given that Delta has a long haul hub in Seattle as well. How will this play out?

Alaska & Delta have an interesting history

Before we talk about what’s going on right now, let’s take a trip down memory lane. Up until 2017, Alaska and Delta had a partnership. Going back a bit over a decade, it was a close and mutually beneficial partnership, with a codeshare agreement, reciprocal upgrades, and more.

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However, things got interesting in 2012, when Delta announced it would greatly increase service in Seattle. At first, the growth still seemed mutually beneficial — Delta was primarily wanting to launch long haul flights from Seattle, and the idea was that Alaska would provide much of the feed for those flights. Okay, at that point it was still kind of mutually beneficial.

But then as time continued, Delta kind of just threw Alaska under the bus, as the airline added more and more domestic connectivity in Seattle, competing directly with Alaska. Between 2014 and 2017 we saw the two airlines greatly scale back their partnership, before ultimately discontinuing it.

Of course Delta had to do what was in its best interest, though the whole thing definitely felt like a bit of a backstabbing, since Alaska helped enable that growth, and once Delta was big enough in Seattle, it no longer acted in good faith.

In fairness, despite the direction Delta took, Alaska ultimately is still doing very well, and probably had the last laugh. The airline has great margins, despite the competition from Delta. For that matter, Alaska has more than double of Delta’s market share in Seattle (52.6% vs. 24.3%), and serves roughly double as many destinations.

Alaska CEO says airline is ready to take on Delta

Alaska Air Group CEO Ben Minicucci appeared on The Air Show Podcast (which is worth listening to, by the way), and was asked about whether he thinks the airline is going to be able to successfully compete against Delta in long haul markets in Seattle, and if there’s room for two global airlines there.

Here’s how Minicucci responded:

“Our view is that Seattle is our hometown. It’s our hub. This is the nexus of Seattle, and we will never give up Seattle to anybody, which is why we’ve grown Seattle market share as much as we did, and never gave an inch. We’re here to stay, and now with international flying, we believe that we can be extremely successful here, because we have the domestic strength, we have the loyalty, we have people who love the hometown airline, our executives live here, we’re part of the community, we invest in the community. Alaska is everywhere in this community. So I think people want to see us win.”

There was then a follow-up question about Alaska taking on the most profitable airline in the country, and winning on a global basis. In his response, Minicucci pointed out how Alaska had the best pre-tax margin of any US airline for 13 of the past 15 years. He also pointed out how Alaska isn’t scared of competition, and he believes Alaska has created a resilient business model with a great focus on costs.

Can Alaska make Delta retreat in Seattle?

Realistically speaking, there are three ways this could play out — Alaska and Delta could both succeed, Alaska could succeed and Delta could retreat, or Delta could succeed and Alaska could retreat.

How do I see this playing out? I think the truth will be somewhere between the first and second scenario, and definitely not the third scenario.

I would never, ever bet against Alaska, especially in Seattle:

• Alaska is an incredibly well run company; just look at how successful the company has been in recent years, unlike its domestic rivals outside of the “big three,” which have struggled with profitability
• Even as Delta has grown in Seattle, Alaska hasn’t given up any market share, and has continued to grow substantially, seemingly unfazed by Delta’s presence
• The Seattle community is loyal to Alaska, and that’s reflected in Alaska’s revenue from its loyalty program; people there want to fly Alaska, and have an Alaska credit card, which nowadays is how airlines earn a lot of their profits
• Alaska has a better cost structure than the “big three” carriers, so it has a considerably cost advantage

Of course let me also acknowledge that Delta is the most profitable airline in the US (in absolute terms), and has done a lot of things well. However, as it relates to Seattle:

• We know that Delta finds the most success in its fortress hubs, like Atlanta, Detroit, Minneapolis, and Salt Lake City; the airline doesn’t do so well in markets where it has to compete directly against other major players, like Los Angeles
• A big part of Delta’s network strategy, and part of the reason Delta is so heavily focused on fortress hubs, is because that’s the easiest way to make a lot of money from credit cards, in markets like Atlanta and New York
• While Seattle is where Alaska makes a lot of its money, we know that Delta’s domestic yields in Seattle are poor, with a vast majority of the routes being in the bottom half of route performance in terms of revenue per available seat mile

What’s my prediction here? I think Alaska will succeed with its long haul expansion from Seattle. The airline succeeds with just about everything it tries out of Seattle, the airline has great margins and a good cost structure, and the airline has a loyal customer base. Even when not operating as part of a joint venture, the airline at least has lots of partnerships.

Furthermore, Alaska has the largest hub on the West Coast, so the amount of traffic that these flights can get will be massive, and the Seattle hub also has advantageous geography across the Pacific.

Meanwhile if I had to guess, I think Delta will maintain a decent presence in Seattle, but I don’t think we’re going to see considerable growth from the airline in Seattle anymore. For one, the airport is largely capacity constrained, so there’s not actually that much growth that can happen right now.

The reason I don’t think Delta is going to massively retreat is because most of its long haul service from Seattle is to joint venture hubs anyway, so it’s not like that’s terribly risky flying, even with competition. Delta feeds into KLM’s network in Amsterdam, Air France’s network in Paris, Korean Air’s network in Seoul Incheon, and Tokyo, Shanghai, and Taipei, are just huge markets independently (though Delta’s load factor on the Taipei route has been absolutely abysmal).

If Delta had some huge plans for Seattle, you’d think that would have been announced already, but clearly that hasn’t been a focus. That’s not surprising, given the extent to which Delta’s long haul routes are about serving joint venture hubs.

The reason I think Delta won’t retreat completely in Seattle is because it doesn’t have another strong West Coast hub. It’s not like United with San Francisco. The closest hub that Delta could shift capacity to would be Salt Lake City.

I just don’t see much upside for Delta in Seattle anymore. It’s not a hub that Delta can build a moat around, where the airline can charge whatever fares it wants. Delta isn’t going to get everyone in Seattle to pick up an Amex cards. Domestic yields are bad, so aside from some routes to joint venture hubs, where can Delta really go from there?

Bottom line

Alaska and Delta have long been competing in Seattle. Delta has been able to build up a long haul presence there without competition from Alaska, given Alaska’s historical fleet. However, with Alaska having taken over Hawaiian, the airline will now launch long haul flights out of Seattle with wide body aircraft.

This is going to make for some very interesting competition. I feel strongly that Alaska will succeed with this expansion. While I don’t think Delta will fully retreat from the airport, I do think we won’t see much more growth from the airline in the Pacific Northwest.

How do you see the latest battle between Alaska and Delta playing out?