Alaska Airlines and Horizon Air 2007 Annual Report Download - page 170

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alaska Air Group, Inc.
December 31, 2007
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The consolidated financial statements include
the accounts of Alaska Air Group, Inc. (Air Group
or the Company) and its subsidiaries, Alaska
Airlines, Inc. (Alaska) and Horizon Air Industries,
Inc. (Horizon), through which the Company
conducts substantially all of its operations. All
significant intercompany balances and
transactions have been eliminated. These
financial statements have been prepared in
conformity with accounting principles generally
accepted in the United States of America and
their preparation requires the use of
management’s estimates. Actual results may
differ from these estimates.
Nature of Operations
Both Alaska and Horizon operate as airlines.
However, their business plans, competition, and
economic risks differ substantially. Alaska is a
major airline and principally serves destinations
in the state of Alaska and provides north/south
service between cities in the western U.S.,
Canada and Mexico. Alaska also provides east/
west service to eight cities, primarily from
Seattle and to a lesser extent, from Portland. In
2007, Alaska also initiated service to Hawaii
from Seattle and Anchorage. It operates an all-jet
fleet and its average passenger trip in 2007 was
1,051 miles. Horizon is a regional airline serving
primarily the Pacific Northwest, northern
California, and western Canada. Horizon serves
its own native markets and provides certain
contract flying for Alaska. Horizon operates both
jet and turboprop aircraft, and its average
passenger trip in 2007 was 386 miles.
West Coast passenger traffic accounted for 46%
of Alaska’s 2007 revenue passenger miles,
passenger traffic within Alaska and between
Alaska and the U.S. mainland accounted for
21%, the Mexico markets accounted for 11%, the
Canada markets accounted for 4%, and other
markets accounted for 18%. Based on
passenger enplanements, Alaska’s leading
airports are Seattle, Los Angeles, Anchorage,
and Portland. Based on 2007 revenues, its
leading nonstop routes are Anchorage-Seattle,
Los Angeles-Seattle, and San Diego-Seattle.
Approximately 92% of Horizon’s network revenue
passenger miles (excluding flying as Frontier
JetExpress) were flown domestically, primarily in
the states of Washington, Oregon, Idaho, and
California. The Canada markets accounted for
8% of revenue passenger miles in 2007. Based
on passenger enplanements, Horizon’s leading
airports are Seattle, Portland, Boise, and
Spokane. Based on revenues in 2007, its
leading nonstop routes are Portland-Seattle,
Spokane-Seattle, and Ontario-Portland.
On January 1, 2004, Horizon began operating
regional jet service branded as Frontier JetExpress
under a 12-year agreement with Frontier Airlines.
Horizon operated nine regional jet aircraft under
the Frontier JetExpress brand in 2005 and 2006.
In the third quarter of 2006, Horizon announced
that it would discontinue the Frontier JetExpress
program beginning in the first quarter of 2007,
and had fully exited from the program by the end
of November 2007. Flying under this agreement
represented 13% of Horizon’s capacity and 5% of
passenger revenues in 2007 and 23% of capacity
and 8% of passenger revenues in 2006. These
aircraft have been redeployed throughout the Air
Group network.
The Company’s operations and financial results
are subject to various uncertainties, such as
industry instability, which has lead to bankruptcy
filings by some of the major carriers, general
economic conditions, intense competition,
volatile fuel prices, a largely unionized work
force, the need to finance large capital
expenditures, government regulation, and
potential aircraft incidents.
Approximately 84% and 48% of Alaska and
Horizon employees, respectively, are covered by
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