Alaska Airlines and Horizon Air 2009 Annual Report Download - page 116

harmed by any circumstances causing a
reduction in demand for air transportation in our
key markets. An increase in competition in our
key markets could also cause us to reduce fares
or take other competitive measures that could
harm our business, financial condition and
results of operations.
Our failure to successfully meet cost reduction
goals at both Alaska and Horizon could harm
our business.
We continue to strive toward aggressive cost-
reduction goals that are an important part of our
business strategy of offering the best value to
passengers through competitive fares while
achieving acceptable profit margins and return
on capital. However, with our capacity reductions
in 2009 and increased costs in areas such as
wages and benefits, we experienced a 10%
increase in non-fuel unit cost at Alaska and a 6%
increase at Horizon. If we are unable to reduce
our non-fuel unit costs over the long-term and
achieve targeted profitability, we will likely not be
able to grow our business in the future and
therefore our financial results may suffer.
We rely on third-party vendors for certain
critical activities.
We have historically relied on outside vendors for
a variety of services and functions critical to our
business, including airframe and engine
maintenance, ground handling, fueling, computer
reservation system hosting and software
maintenance. As part of our cost-reduction
efforts, our reliance on outside vendors has
increased and may continue to do so in the
future. In recent years, Alaska has subcontracted
its heavy aircraft maintenance, fleet service,
facilities maintenance, and ground handling
services at certain airports, including Seattle-
Tacoma International Airport, to outside vendors.
Our use of outside vendors increases our
exposure to several risks. In the event that one
or more vendors goes into bankruptcy, ceases
operation or fails to perform as promised,
replacement services may not be readily
available at competitive rates, or at all. Although
we believe that our vendor oversight and quality
control is among the best in the industry, if one
of our vendors fails to perform adequately we
may experience increased costs, delays,
maintenance issues, safety issues or negative
public perception of our airline. Vendor
bankruptcies, unionization, regulatory compliance
issues or significant changes in the competitive
marketplace among suppliers could adversely
affect vendor services or force Alaska to
renegotiate existing agreements on less
favorable terms. These events could result in
disruptions in Alaska’s operations or increases
in its cost structure.
We are dependent on a limited number of
suppliers for aircraft and parts.
Alaska is dependent on Boeing as its sole
supplier for aircraft and many of its aircraft parts.
Horizon is similarly dependent on Bombardier.
Additionally, each carrier is dependent on sole
suppliers for aircraft engines. As a result, we are
more vulnerable to any problems associated with
the supply of those aircraft and parts, including
design defects, mechanical problems,
contractual performance by the manufacturers,
or adverse perception by the public that would
result in customer avoidance or in actions by the
FAA resulting in an inability to operate our
aircraft.
INFORMATION TECHNOLOGY
We rely heavily on automated systems to
operate our business, and a failure of these
systems or by their operators could harm our
business.
We depend on automated systems to operate
our business, including our airline reservation
system, our telecommunication systems, our
website, our maintenance systems, our kiosk
check-in terminals, and other systems.
Substantially all of our tickets are issued to
passengers as electronic tickets and the majority
of our customers check in using our website or
our airport kiosks. We depend on our reservation
system to be able to issue, track and accept
these electronic tickets. In order for our
operations to work efficiently, our website,
reservation system, and check-in systems must
be able to accommodate a high volume of traffic,
maintain secure information, and deliver
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