TRANSPORTATION

The Way the Wind Blows

Airlines evolve to meet customer needs, changing economics

Turbulence in Alaska’s aviation industry has forced some course corrections in the last couple of years. In-state air carriers have gone through a lot of changes to meet the needs of passengers, cope with supply chain issues, and adapt to the COVID-19 pandemic.

“The pandemic really changed the dynamics of aviation, especially on the 135 side,” says Dan Knesek, vice president of operations for Grant Aviation. Part 135 of Federal Aviation Regulations applies to helicopters, air ambulances, and commuter planes that carry fewer than ten passengers on at least five round trips per week. Part 121 covers larger scheduled airlines, while private general aviation pilots are under Part 91.

Knesek explains, “When Ravn filed bankruptcy [in April 2020], they were operating a 121 and a 135 program, and all of a sudden, smaller carriers in the 135 world had to band together to make sure that the citizens of Alaska who had previously been served by Ravn had other options.” The result was a regional division among four remaining carriers:

Northern Pacific Airways

Grant for Southwest Alaska, Bering Air in Northwest, and Wright Air Service in the northeastern Interior. Ryan Air also picked up the slack for cargo deliveries out of Bethel and Aniak.

“We’ve all evolved and carry strength within our regions,” says Grant Aviation President and CEO Robert Kelley. “It is better for the state and its communities to not have one large carrier over a majority of the state that has a significant portion of market share. If they fail, it creates a massive hole in the system.”

The energy to grow and the resilience to stay airborne remains evident in the COVID-19 era, with expanded airline partnerships, restructured routes, and value-added services to encourage more people to fly.

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Northern Pacific Airways Friendly Merger

Grant Aviation is securing its market share, not by expanding statewide but by consolidating in its region. Grant acquired Tanana Air Service and Shannon’s Air Taxi at the end of 2021.

“Tanana, Shannon’s, and Grant all want what’s best for Bristol Bay communities, and this agreement helps us do just that,” Kelley says. “The combined companies are now able to provide better service to the region.”

According to Knesek, part of the reason for Grant’s decision to merge with Tanana and Shannon’s Air Taxi was to meet the needs of customers affected by Ravn's 2020 bankruptcy.

As part of the transaction, Grant absorbed the two companies’ assets, and all of Tanana’s employees were invited to become Grant Aviation employees, including the owners. “About 90 percent joined us, though a few took positions with other companies,” says Kelley.

There are numerous advantages to the merger, according to Knesek. “One of the things that the merger will allow is better fleet utilization and better scheduling, especially during fishing season,” he says. “We will have more aircraft availability for charter work in the King Salmon and Dillingham markets because our partnership will enable us to be less duplicative in service.”

Grant is in the process of adding those business assets to its FAA operations certificate, which should be completed prior to fishing season. “In the meantime, we have been able to move assets into the market through our other operations to make sure that Bristol Bay communities are well served until these assets are added,” says Knesek.

All of Tanana and Shannon’s customers are eligible to join Grant

Ravn Alaska

Aviation’s Quyana Rewards program, which allows passengers to earn free travel with no expiration dates by accumulating paid flight segments.

In addition to passengers, these regional airlines also carry mail, which is an important component of life in western Alaska.

“It is the supply chain, and people depend on it for prescriptions, groceries, and supplies,” Knesek says. “A tremendous amount of volume goes through the bypass mail system in Alaska, and 135 carriers are the ones who deliver the last mile of that supply chain.”

While most regional carriers have upgraded their equipment to better serve customers, many are frustrated that the state’s infrastructure has not kept up.

“One of the ways in which Part 135 aircraft has evolved is that many of us have made huge investments on safety equipment in our aircrafts, including new avionics and autopilots,” says Kelley. “We’re spending millions on upgraded equipment but cannot utilize it to its full potential because we don’t have the support of the federal government, including the FAA, DOT, and the National Weather Service.”

“Alaska lacks a lot in the form of aviation infrastructure; what you see in the Lower 48, you do not see up here,” adds Knesek. “For example, a number of carriers have the equipment to fly IFR [instrument flight rules] but can’t because there is not a weather reporting station that allows you to use it.

“While it seems that the funding has been made available to put the system in, there are not the funds necessary to maintain and operate it,” he explains.

Unalaska Express

The challenges of the Alaska aviation market are not discouraging a new player from entering. Aleutian Airways is launching nonstop service between Anchorage and Unalaska/Dutch Harbor using Saab 2000 aircraft. The project is a joint venture between longtime investor Wexford Capital, Juneau-based Alaska Seaplanes, and McKinley Alaska Private Investment.

According to an August 2021 press release, this service is in answer to customer request. “As loyalty programs go, they are traditionally pretty similar… We asked ourselves how we could improve on this and realized that if we issued actual cryptocurrency, people could trade it on cryptocurrency exchanges to use anywhere.”

Rob McKinney, CEO, Ravn Alaska

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“One of the ways in which Part 135 aircraft has evolved is that many of us have made huge investments on safety equipment in our aircrafts, including new avionics and autopilots… We’re spending millions on upgraded equipment but cannot utilize it to its full potential because we don’t have the support of the federal government, including the FAA, DOT, and the National Weather Service.”

Robert Kelley, President/CEO, Grant Aviation

“We have listened closely to input from the Unalaska community and business leaders, and we’re building Aleutian Airways in response to their needs,” says Kent Craford, co-owner of the joint venture.

Craford, who is the co-owner and president of Alaska Seaplanes, a Juneau-based commuter airline, will be marketing the flights under the Aleutian Airways brand. Sterling Airways, a Part 121 carrier in Florida and portfolio company of Wexford Capital, will operate the flights.

“With a combination of experience, equipment, and financial wherewithal, Aleutian Airways will be well positioned to be the premier airline of Southwest Alaska,” says Wayne Heller, president and CEO of Sterling Airways, adding that the aircraft will be flown by former PenAir Saab 2000 pilots who have signed on to join the Aleutian team.

Touch and Go

expanded to Lower 48 routes in 2016. A year later, PenAir filed for bankruptcy, and its flights were taken over by Ravn Alaska in 2019. Ravn itself folded not long after, due to pandemic-related travel restrictions. Assets of Ravn’s Part 135 operations were auctioned off, and the Part 121 airline (including PenAir) was sold to FLOAT Shuttle, a California company with one airplane.

FLOAT’s founder Rob McKinney, now Ravn Alaska’s CEO, was able to resume flights in November 2020, and that’s just a start.

Northern Pacific unveiled black and silver livery for its growing fleet of secound hand 757's.

Northern Pacific Airways

Northern Pacific Airways

“Right now, we are working on building the Ravn fleet,” McKinney says. “We currently have eleven planes, and we’re looking at bringing on a fifty-seat Dash 8-300 later this summer.”

While the company did trim back one route to Dillingham, McKinney says the rest of its routes are in full service, and they are also working on bringing the Ravn Connect brand back for Part 135 service.

“It won’t be all over the state, but we are looking at bringing back smaller aircraft with better frequency to more destinations,” he says, adding that the first two aircraft in this program will probably begin flying in late summer.

Ravn has also introduced FlyCoin, a completely different type of loyalty rewards program. “As loyalty programs go, they are traditionally pretty similar— you get one point or one mile for some undefined unit,” McKinney says. “Those miles expire, they have blackout dates, and the biggest limitation is that there are very few things people can do with them other than buy future travel.

“We asked ourselves how we could improve on this and realized that if we issued actual cryptocurrency, people could trade it on cryptocurrency exchanges to use anywhere,” he adds.

Ravn is currently in talks with Ted Stevens Anchorage International Airport to discuss if merchants at the airport would be able to accept FlyCoin. “That way, if people wanted to buy a sandwich or a massage in the terminal, they could use FlyCoin, which makes it a valueadded proposition,” says McKinney.

Ravn also partners with the Alaska Airlines mileage program to provide traditional miles, so the option is available for passengers to use either.

“While it may seem difficult and scary at first, we will show passengers how to earn it, where it can be used, and how to spend and trade it,” says McKinney, adding that the airlines will also create virtual FlyCoin wallets for passengers. “We’re excited to get it into as many hands as possible to encourage quick adoption.”

While customers can earn FlyCoin now, they will not be able to redeem it for a few more months until the airline works out all of the details to make it usable on cryptocurrency exchanges. FlyCoin is not currently listed on any exchange.

Over the Top

FlyCoin will also be available on Ravn’s baby sister, Northern Pacific Airways, the international carrier that McKinney hopes to start carrying passengers this year.

Northern Pacific recently took delivery of a Boeing 757, the first of a fleet that will fly between Asia and the Lower 48 using Ted Stevens Anchorage International Airport as a hub.

“We are uniquely located, as transpacific flights go over the top of Anchorage anyway, so we want to encourage passengers to land here instead of in San Francisco, et cetera, where it is easier to clear customs and immigration and there are fewer crowds,” says McKinney. “We also believe that we can offer these flights at lower cost, making us the more affordable solution.”

McKinney hopes to encourage passengers to stay in the state for a few days rather than 90-minute layovers. For that, customs and immigration would have to re-establish a permanent presence at ANC’s North Terminal, which has been mostly idle except for seasonal flights. However, the stateowned airport is launching a $6 million renovation to update its ‘90s-vintage décor, thanks to financing from airlines including Northern Pacific.

Northern Pacific is in the process of adding a new airplane to its fleet roughly every six weeks. In addition to the former American Airlines planes bought from a desert storage yard, the company is in talks with Icelandair to add three more aircraft in the near future. McKinney’s goal is to have Northern Pacific up and running in fourth quarter 2022, pending government approval. "In business, you're either moving forward or you're moving backward," McKinney says. "You can't really tread water."

And in the airline business, as in aerodynamics itself, moving forward is the only way to stay aloft.