Alaska Airlines and Horizon Air 2009 Annual Report Download - page 113

Our business, financial condition, and results of
operations are substantially exposed to the
volatility of jet fuel prices. Increases in jet fuel
costs would harm our business.
Fuel costs constitute a significant portion of our
total operating expenses, accounting for 21%
and 36% of total operating expenses for the
years ended December 31, 2009 and 2008,
respectively. Significant increases in average fuel
costs during the past several years have
negatively affected our results of operations.
Future increases in the price of jet fuel will harm
our financial condition and results of operations,
unless we are able to increase fares or add
additional ancillary fees to attempt to recover
increasing fuel costs.
Our indebtedness and other fixed obligations
could increase the volatility of earnings and
otherwise restrict our activities and potentially
lead to liquidity constraints.
We have, and will continue to have for the
foreseeable future, a significant amount of debt.
Due to our high fixed costs, including aircraft
lease commitments and debt service, a
decrease in revenues results in a
disproportionately greater decrease in earnings.
Our outstanding long-term debt and other fixed
obligations could have important consequences.
For example, they could:
• limit our ability to obtain additional financing
to fund our future capital expenditures,
acquisitions, working capital or other
purposes;
• require us to dedicate a material portion of
our operating cash flow to fund lease
payments and interest payments on
indebtedness, thereby reducing funds
available for other purposes; and
• limit our ability to withstand competitive
pressures and reduce our flexibility in
responding to changing business and
economic conditions, including reacting to
the current economic slowdown.
Although we have historically been able to
generate sufficient cash flow from our operations
to pay our debt and other fixed obligations as
they become due, we cannot ensure we will be
able to do so in the future. If we fail to do so, our
business could be harmed.
Alaska is required to comply with specific
financial covenants in certain agreements. We
cannot be certain that Alaska will be able to
comply with these covenants or provisions or
that these requirements will not limit our ability
to finance our future operations or capital needs.
See “Liquidity and Capital Resources” on page
44 for more detailed information about our
obligations and commitments.
Our continuing obligation to fund our traditional
defined-benefit pension plans could negatively
affect our ability to compete in the
marketplace.
Our defined-benefit pension plan assets are
subject to market risk. If market returns are poor
in the future, as they were in 2008, any future
obligation to make additional cash contributions
in accordance with the Pension Protection Act of
2006 could increase and harm our liquidity. Poor
market returns also lead to higher pension
expense in our statement of operations. The
calculation of pension expense is dependent on
many assumptions that are more fully described
in “Critical Accounting Estimates” on page 42
and Note 8 to our consolidated financial
statements.
Increases in insurance costs or reductions in
insurance coverage would harm our business,
financial condition and results of operations.
Aviation insurers could increase their premiums
in the event of additional terrorist attacks,
hijackings, airline accidents or other events
adversely affecting the airline industry.
Furthermore, the full hull and liability war risk
insurance provided by the government is
currently mandated through August 31, 2010.
Although the government may again extend the
deadline for providing such coverage, we cannot
be certain that any extension will occur, or if it
does, for how long the extension will last. It is
expected that, should the government stop
providing such coverage to the airline industry,
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ŠForm 10-K