Alaska Airlines and Horizon Air 2013 Annual Report Download - page 106

Economic uncertainty or another recession
would likely impact demand for our product and
could harm our financial condition and results
of operations.
The airline industry, which is subject to relatively
high fixed costs and highly variable and
unpredictable demand, is particularly sensitive to
changes in economic conditions. We are also
highly dependent on U.S. consumer confidence
and the health of the U.S. economy. Unfavorable
U.S. economic conditions have historically driven
changes in travel patterns and have resulted in
reduced spending for both leisure and business
travel. For some consumers, leisure travel is a
discretionary expense, and shorthaul travelers, in
particular, have the option to replace air travel
with surface travel. Businesses are able to
forego air travel by using communication
alternatives such as videoconferencing and the
Internet or may be more likely to purchase less
expensive tickets to reduce costs, which can
result in a decrease in average revenue per seat.
Unfavorable economic conditions also hamper
the ability of airlines to raise fares to counteract
increased fuel, labor, and other costs.
Unfavorable or even uncertain economic
conditions could negatively affect our financial
condition and results of operations.
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 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.
We rely on partner airlines for codeshare and
frequent flyer marketing arrangements.
Alaska and Horizon are parties to marketing
agreements with a number of domestic and
international air carriers, or “partners,” including,
but not limited to, American Airlines and Delta Air
Lines. These agreements provide that certain
flight segments operated by us are held out as
partner “codeshare” flights and that certain
partner flights are held out for sale as Alaska
codeshare flights. In addition, the agreements
generally provide that members of Alaska’s
Mileage Plan program can earn miles on or
redeem miles for partner flights and vice versa.
We receive revenue from flights sold under
codeshare and from interline arrangements. In
addition, we believe that the frequent flyer
arrangements are an important part of our
Mileage Plan program. The loss of a significant
partner through bankruptcy, consolidation, or
otherwise, could have a negative effect on our
revenues or the attractiveness of our Mileage
Plan, which we believe is a source of competitive
advantage.
There is ongoing speculation that further airline
consolidations or reorganizations could occur in
the future. We routinely engage in analysis and
discussions regarding our own strategic position,
including alliances, codeshare arrangements,
interline arrangements, frequent flyer program
enhancements, and may have future discussions
with other airlines regarding similar activities. If
other airlines participate in consolidations or
reorganizations, those airlines may significantly
improve their cost structures or revenue
generation capabilities, thereby potentially
making them stronger competitors of ours and
potentially impairing our ability to realize
expected benefits from our own strategic
relationships.
INFORMATION TECHNOLOGY
We rely heavily on automated systems to
operate our business, and a failure to invest in
new technology, or a disruption of our current
systems or 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 check-in
kiosks, and other systems. Substantially all of
our tickets are issued to passengers as
20