Alaska Airlines and Horizon Air 2014 Annual Report Download - page 107

profit margins and return on capital. If we are unable to reduce our costs over the long-term and achieve
sustained targeted return on invested capital, we will likely not be able to grow our business in the
future or weather industry downturns and therefore our financial results may suffer.
The airline industry may undergo further restructuring, consolidation, or the creation or modification
of alliances or joint ventures, any of which could have a material adverse effect on our business,
financial condition and results of operations.
We continue to face strong competition from other carriers due to restructuring, consolidation, and the
creation and modification of alliances and joint ventures. Since deregulation, both the U.S. and
international airline industries have experienced consolidation through a number of mergers and
acquisitions. Carriers may improve their competitive positions through airline alliances, slot swaps/
acquisitions, and/or joint ventures. Certain airline joint ventures further competition by allowing airlines
to coordinate routes, pool revenues and costs, and enjoy other mutual benefits, achieving many of the
benefits of consolidation.
We depend on a few key markets to be successful.
Our strategy is to focus on serving a few key markets, including Seattle, Los Angeles, Anchorage,
Portland, Hawaii and San Diego. A significant portion of our flights occur to and from our Seattle hub. In
2014, passengers to and from Seattle accounted for 61% of our total passengers.
We believe that concentrating our service offerings in this way allows us to maximize our investment in
personnel, aircraft, and ground facilities, as well as to gain greater advantage from sales and marketing
efforts in those regions. As a result, we remain highly dependent on our key markets. Our business
could be 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.
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 forgo 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.
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ŠForm 10-K