Frontier Airlines 2005 Annual Report Download - page 39

Increases in our labor costs, which constitute a substantial portion of our total operating costs, will directly impact our
earnings.
Labor costs constitute a significant percentage of our total operating costs, and we have experienced pressure to increase
wages and benefits for our employees. Under our code-share agreements, our reimbursement rates contemplate labor costs that
increase on a set schedule generally tied to an increase in the consumer price index or the actual increase in the contract. We are
entirely responsible for our labor costs, and we may not be entitled to receive increased payments for our flights if our labor costs
increase above the assumed costs included in the reimbursement rates. As a result, a significant increase in our labor costs above the
levels assumed in our reimbursement rates could result in a material reduction in our earnings. We have collective bargaining
agreements with our pilots, customer service employees, flight attendants and dispatchers. Our customer service agents, pilots,
dispatchers and flight attendant agreements are amendable in December 2005, October 2007, February 2007 and September 2009,
respectively. We cannot assure you that future agreements with our employees' unions will be on terms in line with our expectations
or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs and reduce both
our income and our competitiveness for future business opportunities.
Our business could be harmed if we lose the services of our key personnel.
Our business depends upon the efforts of our chief executive officer, Bryan Bedford, and our other key management and
operating personnel. American can terminate its code-share agreement if we replace Mr. Bedford without its consent, which cannot be
unreasonably withheld. We may have difficulty replacing management or other key personnel who leave and, therefore, the loss of the
services of any of these individuals could harm our business. We maintain a "key man" life insurance policy in the amount of
$10 million for Mr. Bedford, but this amount may not adequately compensate us in the event we lose his services.
We may experience difficulty finding, training and retaining employees.
Our business is labor intensive. We intend to hire a large number of pilots, flight attendants, maintenance technicians and
other personnel associated with our expansion plans.
The airline industry has from time to time experienced a shortage of qualified personnel, specifically pilots and maintenance
technicians. In addition, as is common with most of our competitors, we have, from time to time, faced considerable turnover of our
employees. Although our employee turnover has decreased significantly since September 11, 2001, our pilots, flight attendants and
maintenance technicians sometimes leave to work for larger airlines, which generally offer higher salaries and more extensive benefit
programs than regional airlines are financially able to offer. Should the turnover of employees, particularly pilots and maintenance
technicians, sharply increase, the result will be significantly higher training costs than otherwise would be necessary. We cannot
assure you that we will be able to recruit, train and retain the qualified employees that we need to carry out our expansion plans or to
replace departing employees. If we are unable to hire and retain qualified employees at a reasonable cost, we may be unable to
complete our expansion plans, which could materially adversely affect our financial condition, results of operations and the price of
our common stock.
We are at risk of losses stemming from an accident involving any of our aircraft.
While we have never had a crash over our 32 year history, it is possible that one or more of our aircraft may crash or be
involved in an accident in the future, causing death or injury to individual air travelers and our employees and destroying the aircraft
and the property of third parties.
In addition, if one of our aircraft were to crash or be involved in an accident we would be exposed to significant tort liability.
Such liability could include liability arising from the claims of passengers or their estates seeking to recover damages for death or
injury. There can be no assurance that the insurance we carry to cover such damages will be adequate. Accidents could also result in
unforeseen mechanical and maintenance costs. In addition, any accident involving an aircraft that we operate could create a public
perception that our aircraft are not safe, which could result in air travelers being reluctant to fly on our aircraft and a decrease in
revenues. Such a decrease could materially adversely affect our financial condition, results of operations and the price of our common
stock.
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Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, February 27, 2006 Powered by Morningstar® Document Research℠