Alaska Airlines and Horizon Air 2007 Annual Report Download - page 106

number of passengers, Alaska’s leading airports
are Seattle, Los Angeles, Anchorage and
Portland. Based on 2007 revenues, the leading
nonstop routes are Seattle-Anchorage,
Seattle-Los Angeles, and Seattle-San Diego. At
December 31, 2007, Alaska’s operating fleet
consisted of 115 jet aircraft, compared to 114
aircraft as of December 31, 2006.
Alaska’s passenger traffic by market is
presented below:
2007 2006
West Coast .............. 46% 45%
Within Alaska and between
Alaska and the U.S.
mainland .............. 21% 20%
Mexico .................. 11% 11%
Canada ................. 4% 4%
Other, including
transcontinental and
Hawaii ................ 18% 20%
Total .................... 100% 100%
HORIZON
Horizon Air Industries, a Washington corporation
that first began service and was incorporated in
1981, and was acquired by Air Group in 1986. It
is the largest regional airline in the Pacific
Northwest, and serves a number of cities in six
states and six cities in Canada under the Horizon
brand. In 2008, Horizon began service to Loreto,
Mexico, from Los Angeles and will serve its
seventh city in Canada when it begins service to
Prince George, British Columbia, in May 2008. In
addition to operating under its own brand,
Horizon operated regional jet service as Frontier
JetExpress through the end of November 2007
under an agreement with Frontier Airlines.
Horizon terminated this agreement with Frontier
at that time and has redeployed the nine
CRJ-700s back into the Air Group route structure.
In 2007, Horizon carried 7.6 million revenue
passengers. Approximately 92% of Horizon’s
revenue passenger miles in 2007 were flown
domestically, primarily in the states of
Washington, Oregon and Idaho, compared to
91% in 2006. The Canada markets accounted
for 8% of revenue passenger miles in 2007,
compared to 9% in 2006. Based on passenger
enplanements, Horizon’s leading airports are
Seattle, Portland, Boise, and Spokane. Based on
revenues in 2007, the leading nonstop routes
are Portland-Seattle, Spokane-Seattle, and
Ontario-Portland. At December 31, 2007,
Horizon’s operating fleet consisted of 21 jets
and 49 turboprop aircraft. Except for those
flights that were operated as Frontier JetExpress,
Horizon flights are listed under the Alaska
Airlines designator code in airline reservation
systems.
Alaska and Horizon integrate their flight
schedules to provide convenient, competitive
connections between most points served by their
systems. In 2007 and 2006, approximately 22%
and 24%, respectively, of Horizon’s passengers
connected to flights operated by Alaska.
INDUSTRY CONDITIONS
Our industry is highly competitive and is
characterized by low profit margins and high fixed
costs, primarily for wages, aircraft fuel, aircraft
ownership costs and facilities rents. Because
expenses of a flight do not vary significantly with
the number of passengers carried, a relatively
small change in the number of passengers or in
pricing has a disproportionate effect on an
airline’s operating and financial results. In other
words, a minor shortfall in expected revenue
levels could cause a disproportionately negative
impact on our results of operations. Passenger
demand and ticket prices are, to a large
measure, influenced by the general state of the
economy in some parts of the United States,
current events and available capacity.
In 2007, the airline industry posted its second
year of net profits since 2000. However, with the
dramatic increase in fuel prices and a softening
economy, industry profits were lower than
originally predicted by industry experts and
analysts. In 2005 and 2006, load factors and
unit revenues climbed higher in the wake of
strong demand and a healthy economy. That
strong demand and a reduction in total capacity
in some regions, as other major carriers shifted
capacity to international routes, allowed
domestic carriers to raise ticket prices. However,
there was some softening in demand for air
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