Alaska Airlines and Horizon Air 2013 Annual Report Download - page 90

PART I
ITEM 1. OUR BUSINESS
Alaska Air Group operates Alaska Airlines and
Horizon Air, which together with its partner
regional airlines, serve nearly 100 cities through
an expansive network in Alaska, the Lower 48,
Hawaii, Canada and Mexico. During 2013, we
carried 27 million passengers while earning
record full-year adjusted earnings of $383 million.
Our objective is to be one of the most respected
U.S. airlines by our customers, employees, and
shareholders. We believe our success depends
on our ability to provide safe air transportation,
develop relationships with customers by
providing exceptional customer service and low
fares, and maintain a competitive cost structure
to compete effectively. Over the past decade, we
have worked to transform our company to
achieve these objectives. In 2013, Alaska
Airlines ranked “Highest in Customer
Satisfaction among Traditional Network Carriers”
by J.D. Power and Associates for the sixth year in
a row. We have been the leader in the industry
for on-time performance among major airlines for
the past four years. In 2013, we reported our
tenth consecutive annual profit on an adjusted
basis, and achieved an after-tax return on
invested capital of 13.6%, surpassing our 10%
goal for the fourth year in a row. Strong earnings
improved our cash flow and strengthened our
balance sheet resulting in (i) lower debt-to-capital
ratio of 35%, (ii) cash and marketable securities
balance of $1.3 billion, and (iii) fully-funded
defined-benefit pension plans. This minimizes
our financial risk and led Standard and Poor's to
upgrade our credit rating to “BB+” in 2013. In
addition, over the past decade, we have
diversified our network to better respond to the
seasonality in our business and provide more
destinations for our customers. Since 2007, we
have added 102 new routes to our network. As
we look to the future, we will build on the
success of the past few years by executing our
strategic plan—the Five Focus Areas:
Safety and Compliance
We have an unwavering commitment to run a
safe and compliant operation, and we will not
compromise this commitment in the pursuit of
other initiatives. Alaska and Horizon, in
coordination with the FAA, began implementing a
Safety Management System (SMS) to better
identify and manage risk. Both airlines achieved
Level 2 certification in 2013, and are currently
moving forward to Level 3 certification. Our goal is
to reach Level 4 certification for a fully-
implemented and FAA-approved SMS by 2015.
During the current year, 100% of our Alaska aircraft
technicians completed the requirements for the
FAA's “Diamond Certificate of Excellence” award
for the 12th consecutive year and our Horizon
aircraft technicians completed the requirements for
the 12th time in the last 14 years.
People Focus
While aircraft and technology enable us to provide
air transportation, we recognize this is
fundamentally a people business and our success
depends on our employees. Strengthening our
“small company feel” will allow our employees to
execute as a unified team on the frontlines and
behind the scenes. Air Group employees have
attended our Flight Path program, a one-day
workshop to share the future vision for our
company. In addition, all employees participate in
the Performance-Based Pay (PBP) and Operational
Performance Rewards (OPR) programs, which
encourage employees to work together to achieve
metrics related to safety, profitability, on-time
performance, low costs and customer satisfaction.
Over the last five years, our incentive programs
have paid out over $430 million. This is consistent
with one of our guiding principles that we want to
pay our people well with a goal of reaching the
industry’s best productivity over time. To that end,
we signed three long-term agreements with various
labor groups during the year and reached tentative
five-year agreements with the Alaska flight
attendants in December 2013 and with the
clerical, office, and passenger service employees in
February 2014. Additionally, we have voluntarily
contributed $620 million to our pensions over the
past five years, making us the only airline that has
fully-funded defined-benefit pension plans.
4