Representative Gail Phillips
Speaker of the House
Alaska House of Representatives
State Capitol Rm 208
Juneau, AK 99801-1182

Dear Gail:

I write to you, as Speaker of the House, in response to the attached letter I've received from 12 of your colleagues in the House of Representatives. I do that because the letter is written on official House stationary rather that a particular member's. While I'm hopeful the views contained in that letter are solely those of the signatories, I'm not so sure because it states that " we are considering several proposals" which, if I'm reading between the lines correctly, appear to be directed at pressuring Alaska Airlines in some way.

Bottom line, I found the letter to be incredibly disturbing. Especially offensive is the accusation that Alaska Airlines doesn't care about the state of Alaska. The authors would have done well to conduct a little research before putting pen to paper. Because the fact is, the state of Alaska is the heart and soul of Alaska Airlines. We were born in The Great Land 65 years ago this May, and to this day our No. 1 competitive advantage stems from the can-do, Alaska spirit of our people. While the state may be at the northern end of our route system, it absolutely is the centerpiece of our operation.

Those words aren't rhetoric. They're backed by action. Our $10 million investment in Global Positioning Satellite technology, which we're pioneering in Juneau, is a prime example of our commitment to the state. So is the near-Herculean efforts our people have - and continue to - put into solving Juneau's Lemon Creek and Fox departure issues, Farther north, two brand new testaments to our commitment are under construction: an $8 million, state of the art cargo handling facility in Anchorage, and a brand new, $3 million terminal in Barrow. Those projects bring our total capital investment in the state since 1978 to $33 million.

Bricks and mortar, however, tell only part of the story. In just the last two years, we've contributed $1.2 million in cash and airplane tickets to higher education and a broad array of civic, charitable, and economic development organizations in Alaska. You may read where the Alaska State Council of the Arts recently awarded Alaska Airlines the 1997 Governor's Award for outstanding business leadership.

I'm also proud to note that much of the support we provide organizations in Alaska is co-ordinate by our four Community Advisory Boards. Made up of civic leaders from throughout the state, these boards are the only ones of their kind that we've created in our entire service area. Why? Because the state of Alaska is different - it's special to us, both spiritually and strategically. Our Community Advisory Boards help ensure that we've got our finger on the pulse of the state.

As for flight frequencies, we currently operate an average of 124 departures each day to, from or within the state of Alaska - that's 48 percent more than we offered as recently as 1991. In Juneau, we now operate an average of 11 departures daily, up 26 percent from the 1991 average. And two weeks ago we announced plans to add late-night flights from Juneau to Seattle, providing residents greater flexibility when planning their summer travel.

In regard to the prices we charge in Alaska, we approach every market as if we had a competitor. Please note the term if we had a competitor - the historical record will show that at one time or another we have had jet competition in most of those non-competitive markets. We don't today for a very simple reason: these markets are very thin, and therefore unable to generate enough business to keep more than one jet operator running profitably.

As for the claim that our prices are too high, gouging simply makes no sense - from either an economic standpoint, because it would depress demand, or from a public relations standpoint. Prices in this industry are dictated by the size of the market and the relative costs of providing the service. Pricing in Alaska is no different. In fact, we conducted a survey of fares in Lower 48 single-carrier, non-stop markets that are similar in size and distance to Alaska markets. I've attached the study for your perusal.

For your edification, please note that fares in the comparison are stated in one-way terms, and that only the lowest fare appear for each advance-purchase requirements. The "special fares" section includes the lowest of all short-term sales and flight-specific or weekend fares. The information in the study was recently updated and shows that the fares in the Alaska markets (including Juneau-Anchorage) were generally lower or, at least, on par with similarly sized single carrier markets around the continental U.S.

The results are even more telling when you consider the high cost of operating in Alaska. Also of note is that the carriers in these markets compete with alternative transportation options, such as connecting air service and the automobile, yet they still charge more that we do in comparable Alaska markets. In addition, if you look at our fares in Alaska over the last few years, you'll find that in most markets there have been only minimal cost-related increases since the days of the uneconomic pricing of MarkAir.

Moreover, in just the last seven months we've offered three fare specials - on top of our PFD program - that were specifically for Alaskans: 2 for 1 fares in the fall for intra-Alaska travel; low pre-holiday fares for travel between Southeast Alaska and the rest of our system; and a 30 percent off post-holiday special for travel between Alaska and the Lower 48. We plan to continue offering these types of periodic fare promotions.

Finally, I must address the comment that your 12 colleagues made about our new service to Yuzhno-Sakhalinsk. I find it amazing that anyone could possibly question our commitment to the air bridge between Alaska and the Russian Far East. Beginning with our 1988 Friendship Flight that united native peoples separated by the Cold War, our Russia service has been, and continues to be, driven by the citizens of Alaska. You should also know that the bilateral agreement between the U.S. and Russia mandates that all flights to or from the Russian Far East stop in Anchorage - a provision we worked hard to get included in the treaty, and one we've fought to retain in the face of efforts by the Russians to drop it.

Representative Cowdery et. al. asked that I provide them my perspective on their comments before they "proceed" with their various actions. In short, my perspective is this: I would hope that the open and honest communication that Alaska Airlines has traditionally had with the Alaska State Legislature can return to a dialogue that is more thoughtful than the one portrayed in the March 5 letter. Gail, please feel free to give me a call if you would like to further discuss these issues.

Sincerely,

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John Kelly