Horizon Air going to an All CPA business model.

SurferLucas

Southern Gentleman
Horizon adopting all-CPA business model
Aug. 13, 2010

CPA vs. brand

Horizon has long operated under a hybrid business model.

Currently, about 45 percent of Horizon's capacity is operated under a CPA agreement with Alaska. This is the type of arrangement most other regional carriers have with their major airline partners. Alaska keeps the ticket revenue and in turn covers our operating costs (including fuel) and pays us a profit margin.

Routes like Seattle-Yakima and Portland-Redmond qualify as CPA routes primarily because of the high percentage of Alaska connecting traffic they carry. Other CPA routes are those flown in conjunction with, or in place of, Alaska. These include our Portland-Bay Area and Seattle-Reno service, to cite just two examples, where Horizon equipment is better sized to maintain frequency at a lower cost for Alaska, allowing it to deploy its equipment elsewhere.

The other 55 percent of our current capacity is categorized as brand flying. Examples of these routes include Seattle-Boise and Santa Rosa-Los Angeles, which still flow considerable connecting traffic to Alaska but are primarily local markets. Unlike CPA routes, where our profit is guaranteed, brand profits (or losses) are dependent on how well these routes perform financially, which depends on our operating costs and how many people we carry and at what average ticket price.

Starting Jan. 1, Horizon Air will change to an all-CPA (capacity purchase agreement) business model, gaining a stable and predictable revenue source insulated from marketplace risks. Our simpler operating model will focus on providing safe, reliable, cost-effective capacity to Alaska Airlines at a market-based price.

"I've been sharing with everyone these past weeks that it's been clear for a while that Horizon's business model no longer worked, as is evident from the financial results," President Glenn Johnson says. "We needed to find a way to move financial performance into the 'win' column alongside all of our other successes, such as safety, reliability and customer satisfaction. I'm now convinced shifting to an all-CPA model will do that and help us achieve our 10 percent ROIC [return on invested capital] target. And it will let us focus on what we are best at – operating a safe and reliable airline while providing top-notch customer service in the air and on the ground."

Horizon will remain an airline separate from Alaska and operate under a separate operating certificate, so Alaska will still be obligated by regulations to clearly disclose to customers that Horizon is the operating carrier for flights designated with the AS code. But from an internal financial viewpoint, the flying will be accounted for differently, aligning with how other regional airlines are compensated by their major airline partners. Alaska will determine where, when, and how much Horizon will fly, and buy all the needed capacity under the CPA. Horizon will no longer be financially at risk for filling seats to raise revenue; our focus will be on providing our service as cost effectively as possible.

"This is the road to growth for Horizon, where we all ultimately want to be," Johnson says. "Once we have brought our cost structure in line with market and are clearly on a path toward our ROIC goal, we'll be better positioned to make the case for obtaining more aircraft in order to do more CPA flying for Alaska and potentially other airlines."

Related changes

The shift to an all-CPA model will also help remove complexity and duplication between Horizon and Alaska.

A few years ago, Alaska and Horizon combined their Planning and Revenue Management departments into a single shared services group at Alaska to oversee route planning, scheduling, pricing and yield management for both airlines.

Now, Alaska is assuming all remaining marketing, advertising and planning functions, as well as new and existing route analysis and sales for Horizon. This will ensure decisions in these critical areas maximize the return for AAG as a whole.

All affected employees at Horizon were notified yesterday and are being offered positions at Alaska.

What would a new external brand feel like?

Horizon has already operated as a CPA carrier with a different external brand – and very successfully. When Horizon flew as Frontier JetExpress from 2003 to 2007, our Denver-based aircraft sported a variation of Frontier's logo and livery, but it was still clear that Horizon was providing the service. Boarding passengers saw a large decal with "Proudly Operated by Horizon Air" next to the entry door. If Horizon's external brand were to be switched for Alaska's as per the industry norm, the approach would likely be much the same.

"No matter what's painted on our aircraft, we would remain Horizon Air – the same airline with the same culture that we've cultivated and treasured for nearly three decades," President Glenn Johnson says. "You may wear different clothes, but that doesn't change who you are – you're still the same person. Similarly, if Horizon ends up 'wearing' a different livery, it will remain the same special airline it is now and continue to be recognized for all the things that set it apart, including our heart-based, caring service and high reliability."

What's not changing

The all-CPA change is not expected to have any effect on staffing at hub stations Horizon and Alaska share.

"What drives hub staffing is cost competitiveness and productivity," Johnson said in his July 23 Q&A on onyourhorizon.com. "We’ve already consolidated the check-in function at Sea-Tac and PDX. We chose not to consolidate additional functions in the past, because it was more cost effective to have Horizon-staffed gates and ramp at Sea-Tac and PDX. As long as that holds true, there's no reason why it would change."

Another thing that isn't changing – at this time – is Horizon's own marketing identity (or "external brand").

"When we announced the second quarter financial results, I shared with employees that the possibility of replacing Horizon's external brand – that is, logo, livery, uniforms, etc. – was also being considered," Johnson says. “The Alaska brand is better known in most markets, and the industry standard is for CPA carriers to assume the identity of their major airline partner. So, it's still under consideration, but nothing has been decided yet.”

Horizon will also be maintaining its own highly popular Ala Cart planeside baggage service, complimentary inflight beer and wine, and hard liquor and snacks for purchase.

"Something else that isn't changing is the sense of ownership and pride we feel about the high quality of the product we provide," Johnson says. "Even though we won't be marketing the seats themselves, the people in those seats will be there because of the way we at Horizon take special care of them."
 
I think Alaska Air Group would make a crap load more money if they'd run Horizon in SE Alaska instead of the 737, but I don't know the specifics.
 
More furloughs?

They've actually cancelled furloughs for the rest of the year...seems we have a good bit of attrition and people looking to get out.

Personally I think this is door opening to someone (SkyWest/Republic) being able to fly 100 seaters under "Alaska Connection".

Horizon has a very senior group of workers and they rightly won't give into "concessions". The Error Group has mandated a 10% profit margin, and poor little Horizon's 5% just can't cut it...even if this is the worst recession in 70 something years.

Sadly, Horizon's 30 years of being a true regional airline are coming to an end. Atleast I was able to be part of the "true" Horizon Air.
 
Well I was apart of it as well but I feel that the airline died before our time when Milt sold it to AAG.
 
Well I was apart of it as well but I feel that the airline died before our time when Milt sold it to AAG.

I just don't want Horizon to loose the "Horizon Identity". Atleast with Horizon, we had our own colors, our own uniforms, our own gate agents/rampers/MX/reservations/marketing...we had the last true regional airline.

Now it seems that the management had decided that if they can't break us as a group...that they'll take all we've worked hard for and flush it down the toilet.

I'm getting sick and tired of the AAG managers 'poor-mouthing' us and saying we're not doing our part...I know of many years post 9/11 that Horizon kept the AAG going.

AAG made $84 Million in Q2 of this year...of that, Horizon made $8.2 Million. That is an 8.4% increase over Q2 of 2009 and a 5.1% ROIC (Return on Invested Capital) for the period of 7/09-6/10.

It's important to note that AAG made $97.1 Million dollars for Q1 and Q2..the MOST PROFIT THAT AAG HAS EVER GENERATED BY MIDYEAR.
 
More lies and propaganda from our "leaders" (I use that term loosely) at QX:

From Gene Hahn, Director of Operations:

No more furloughs/downgrades planned in 2010:

Hello again, and greetings from Toronto. Glenn and I and others are here visiting our favorite airplane manufacturer, but I had some other news that I wanted to pass along.

With the recent uptick in attrition, and some takers of the voluntary furlough program, we are now not planning any additional furloughs or downgrades for the remainder of the year.

With the fleet numbers still uncertain, we can't commit just yet to anything next year, but at least we've been able to mitigate further impact to the pilot group for now.

We'll have a revised training plan out soon.

_________________________________________________________________

Our Own Stockholm Syndrome ―It has been found that four situations or conditions are present that serve as a foundation for the development of Stockholm Syndrome. These four situations can be found in hostage, severe abuse, and abusive relationships:

- The presence of a perceived threat to one’s physical or psychological survival and the belief that the abuser would carry out the threat.
- The presence of a perceived small kindness from the abuser to the victim
- Isolation from perspectives other than those of the abuser
- The perceived inability to escape the situation‖

Armed with that information, let’s look at the announcement on Gene’s Corner dated 8/13.
- No more furloughs/downgrades planned in 2010 (The original threat of job, position or pay loss was removed)
- Hello again, and greetings from Toronto. Glenn and I and others are here visiting our favorite airplane manufacturer, but I had some other news that I wanted to pass along. (I hope they are not insinuating that we are getting more airplanes. It is more likely a result of ―Horizon is taking its partnership with Bombardier up to a whole new level‖ to improve Q400 reliability as noted in the July 2010 Leading Edge.)
- With the recent uptick in attrition, and some takers of the voluntary furlough program, we are now not planning any additional furloughs or downgrades for the remainder of the year. (Here is the perceived small kindness, ie good news, that is actually the removal of the original threat.)
With the fleet numbers still uncertain, we can't commit just yet to anything next year, but at least we've been able to mitigate further impact to the pilot group for now. (The threat is off…..for now. Wait, who mitigated further impact to the pilot group? The pilot group removed the threat through attrition and VFRL, not the company! Guess who is trying to take credit for someone else’s perceived small kindness?!)



Understanding this syndrome is the first step in recovering from it. Don’t confuse threat removal with good news. Determine who actually solved the problem and give them the credit. Don’t let yourself be isolated from other perspectives. Check information from sources other than your employer. Lastly, and most importantly, you can escape the situation. The age 65 rule is losing impact, the 1500/ATP rule will be taking effect and the airline industry is starting to move ahead again. Dust off those resumes and cover letters folks. Stay smart and stay informed!
 
SurferLucas. I'm with you. I've only worked the ramp but in the 5 years I've been with the company I've watched it decline fast. Used to be a great place to work. Now I can't wait to find something else to pay the bills. The people are great. The management are the worst, most reprehensible human beings I've ever met.
 
They give out great luggage tags though!
photo.JPG
 
Just announced today the whole SOC is moving to SEA. This is all happening after they spent 4 millon on a full renovation this winter at the expense of furloughed pilots. I guess now that heavy MX is being farmed out there is no use for the hanger facility in PDX.

Cheers!
 
Just announced today the whole SOC is moving to SEA. This is all happening after they spent 4 millon on a full renovation this winter at the expense of furloughed pilots. I guess now that heavy MX is being farmed out there is no use for the hanger facility in PDX.

Cheers!

Are you kidding? (I couldn't find anything on "OYH", but not that I'm doubting you at all).

I knew Alaska was going to start using rooms at the the Ops Center, but now they're shutting it all down and moving to SEA?

Seems that Horizon will look totally different if/when I get a recall :(
 
It wont be up tell this afternoon. They need to inform the PM shifts first. It sucks for the many people that have been with QX 25 plus years that are now being forced to relocate (or retire). For what reason I have no idea.
 
It wont be up tell this afternoon. They need to inform the PM shifts first. It sucks for the many people that have been with QX 25 plus years that are now being forced to relocate (or retire). For what reason I have no idea.

Sounds like the Horizon way...screw over those who make sacrifices for the company.

I got a pretty nasty call from an ACP (A.T) one day because I didn't call in during the 6-8 time for reserve. I had already talked to CS earlier at 3pm when I was getting off a 4 day (day 5 was reserve).

He was wanting me to come in for "a talk" about Horizon's reserve rules...I polietly told him that I had spent almost 2 years out of 3 on reserve at Horizon and I was very familiar with them.

This is after many times of "helping" out by picking up junior manned stuff (pre-furloughs mind you) and even flying a trip that I hadn't been notified of.

Atleast with G.S up in SEA, he knows the pilots and those that help the company out and he will go to bat for you.
 
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