Alaska Airlines and Horizon Air 2014 Annual Report Download - page 88

PART I
ITEM 1. OUR BUSINESS
Alaska Air Group (“Air Group”) operates Alaska Airlines (“Alaska”) and Horizon Air (“Horizon”), which
together with its partner regional airlines serve more than 100 cities through an expansive network in
Alaska, the Lower 48, Hawaii, Canada and Mexico. During 2014, we carried 29 million passengers
while earning record full-year adjusted earnings of $571 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. It is important to us that we achieve our objective as
a socially responsible company that values not just our performance, but also our people, our
community, and our environment.
While aircraft and technology enable us to provide air transportation, we recognize this is fundamentally
a people business. Our employees maintain and strengthen our relationships with our customers, and
our success depends on our employees working together to successfully execute on our strategy. In
2014, Alaska Airlines ranked “Highest in Customer Satisfaction among Traditional Network Carriers” by
J.D. Power for the seventh year in a row. Alaska Airlines also held the No. 1 spot in the Wall Street
Journal’s “Middle Seat” scorecard for U.S. airlines for two years in a row. We have been the leader in
the industry for on-time performance among major airlines for the past five years. For achieving safety,
customer service, operational and financial goals, we rewarded our employees with a record $116
million in incentive pay.
In support of the communities that we serve, we strive to be an industry leader in environmental and
community stewardship. In 2014, Air Group improved fuel efficiency by 2.1% from the prior year. Air
Group donated $9.5 million to approximately 1,200 charitable organizations and our employees
volunteered more than 21,000 hours of community service. We pledged $1.5 million in grants to
support job training for workers at Seattle-Tacoma airport, voluntarily increased wages to $12 per hour
for certain vendors in Seattle, sponsored $2.5 million for Seattle’s bike-share program, and pledged
$2.5 million to Seattle’s Museum of Flight to guide students toward a future in science, technology,
engineering, and math. For all of the efforts that we have made in our communities, Seattle Business
Magazine awarded Alaska Air Group with the 2014 Community Impact Award.
We earned record financial results in 2014, marking our eleventh consecutive annual profit on an
adjusted basis. We achieved an after-tax return on invested capital of 18.6%, more than double our
weighted average cost of capital. Strong earnings improved our cash flow and strengthened our balance
sheet resulting in a debt-to-capital ratio of 31%, which compares favorably with other high-quality
industrial transport companies. Due to our strong financial health, we are now one of only two U.S.
airlines with investment grade credit ratings. With the cash generated by the continued success we
have had in the past decade, we were able to invest in our business for profitable growth and to
enhance the customer experience. All of our 737-800/900/900ER aircraft now feature innovative
Recaro seats with power at every seat, and in December 2014, we debuted our Wi-Fi enabled in-flight
entertainment system and our branded in-flight experience, Alaska Beyond™. In addition, we have
invested in our core market, Seattle, by adding six new non-stop destinations and increasing capacity by
4% in 2014. For 2015, we are committed to increasing capacity in Seattle by 10%.
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