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.
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 Journals "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.
Alaska Air Group is a Delaware corporation incorporated in 1985 and the holding
company of Alaska Airlines and Horizon Air. Although Alaska and Horizon both
operate as airlines, their business plans, competition, and economic risks differ
substantially. Alaska Airlines is an Alaska corporation that was organized in
1932 and incorporated in 1937. Horizon Air Industries is a Washington corporation
that first began service and was incorporated in 1981. Horizon was acquired
by Air Group in 1986. Alaska operates a fleet of passenger jets (mainline) and
contracts with Horizon, SkyWest Airlines, Inc. (SkyWest) and Peninsula Airways,
Inc. (PenAir) for regional capacity such that Alaska receives all passenger
revenue from those flights. Horizon operates a fleet of turboprop aircraft and
sells all of its capacity to Alaska pursuant to a capacity purchase arrangement.
The majority of our revenues are generated by transporting passengers, but in
recent years we have focused on growing our ancillary revenues.
We offer extensive north/south service within the western U.S., Canada and
Mexico, and passenger and dedicated cargo services to and within the state of
Alaska. We also provide long-haul east/west service to Hawaii and 24 cities
in the mid-continental and eastern U.S., primarily from Seattle, where we have
our largest concentration of departures; although we do offer long-haul departures
from other cities as well.
Our regional operations consist of flights operated by Horizon, SkyWest and
PenAir. In 2014, our regional operations carried approximately 8.3 million revenue
passengers, primarily in the states of Washington, Oregon, Idaho and California.
Horizon is the largest regional airline in the Pacific Northwest and carries
about 90% of Air Groups regional revenue passengers.
The airline industry is highly competitive, subject to various uncertainties,
and has historically been characterized by low profit margins. Uncertainties
include general economic conditions, volatile fuel prices, industry instability,
new competition, a largely unionized work force, the need to finance large capital
expenditures and the related availability of capital, government regulation,
and potential aircraft incidents. Airlines have high fixed costs, primarily
for wages, aircraft fuel, aircraft ownership, and facilities rents. Because
expenses of a flight do not vary significantly based on the number of passengers
carried, a relatively small change in the number of passengers or in pricing
has a disproportionate effect on an airline’s operating and financial
results. In other words, a minor shortfall in expected revenue levels could
cause a disproportionately negative impact on our operating and financial results.
Passenger demand and ticket prices are, to a large measure, influenced by the
general state of the economy, current global economic and political events,
and total available airline seat capacity.
The airline industry reported record revenues and profits as the global economy
continued to recover and oil prices were stable for most of the year, with a
significant decline in the fourth quarter. As the industry strengthens, airlines
are now making significant investments in airports, in new planes, and in new
services to differentiate their customer service offering. Thus, the level of
competition is expected to increase.