Comment for Commission Meeting, October 4, 2011
an Mm Yaskhni
Good afternoon Comm1ssroner\and thank you very much for the opportunlty to, ,
.
address the Commission regarding the Port of Seattle's proposal for its 2012 operating
budget. My name is Karen Gruen, and I am the Managing Director of Corporate Real
Estate for Alaska Airlines and Horizon Air. Today I will comment on the budget from
the perspective of Alaska and Horizon, two air carriers owned by Alaska Air Group.
Together Alaska and Horizon enplane approximately half of the total Seattle
enplanements at SeaTac.
I begin by stating that we very much value our relationship with the Port of
Seattle leadership and staff, and we appreciate the Port's openness and transparency in
its dealings with us, including the transparency and communications regarding its
operating budget. The leadership of the Port is to be praised for their continued focus
on working with their customers, the airlines, to run an excellent airport and to
constantly look toward improvements and enhancements that are mutually benecial
for the Port, the airlines, and passengers.

I am here today, joined by other airlines, to continue working together on the

very important topic of the 2012 operating budget. As we work through our issues with
the 2012 budget, we wish to continue our track record of nding solutions that mutually
benet all stakeholders.

As an airport customer, we observe that the budget currently proposed is 17%
greater than the 2011 proposed budget and 29% greater than the 2010 actual budget
results. Behind that increase is a myriad of additions to spending, specically to full
time equivalent positions. Our concern is that each spending increase or each increase
to FI'Fs, individually, may appear justied, but taken together they are alarming in that
they are disconnected from the scal realities facing us all.
"The new normal" is lower costs and higher value to the end user, and we
are all
responsible to deliver on that proposition. The Port's 2012 budget must t within
today's reality of the "new normal".
Our current state at Alaska Air Group is a good news story. We are very proud of
our business success, which has taken place in the face of much adversity in terms of
industry turmoil, economic uncertainty, and signicant competitive threats. We are
ever mindful that to maintain protability, we cannot take our attention away from cost
containment. In our industry, it is critical that we, and our partners such as the Port of
Seattle, understand that passengers want low fares, and to deliver on low fares, costs
must be low. We simply cannot bear increases to our airport costs in Seattle in the 29,
17, or even 10% range.

As you know, the airport model is a cost recovery model. Thus, if we work
together with the Port to ensure that costs are tightly managed, airport costs can remain
competitive. Working together on cost control does no harm to the Port or to its focus
on its strategic plan  in fact, controlling costs on the airport side will benet the long-
term strategy ofthe Port while it benets airport customers.

In the slides there is mention of past decreases to the budget. To the Port's
credit, these were cuts that were responsive to a marketplace that required tight
constraint on spending and careful management of resources. We remain in that
environment today. Companies in every industry, let alone companies operating within
mature industries such as the airline business, are holding steady with their plans and
being circumspect with their spending. They are not increasing their budgets by 29%,
17%, or even 10%. This airport needs to reect the ecosystem in which it exists.

The cuts of years past were painful, as cuts always are. We are here today in part
to prevent future cuts, for if airport expenditures grow to the extent proposed, if stafng
grows by the number of FI'Es proposed, that is most surely what will be called for by a
scally responsible airport such as SeaTac. Please do not authorize FI'E growth now
that will only serve to Visit upon us a fresh round of pain in the future.

We too at Alaska Air Group are preparing our 2012 budgets, and submitting them
for approval.  We know how hard it is to take on signicant workloads and business
initiatives but to struggle with limited resources, whether dollars
or staff. We are well
aware of the phenomenon of doing more with fewer resources, including fewer FI'Es.
But it is far easier to do so than to reduce headcount by layoffs. It is far easier to
exercise restraint now, than in the future telling some portion of
your workforce that to
be a well-run organization with controlled costs, some must lose jobs. We have learned
this the hard way.  Our management headcount has been reduced repeatedly over the
last several years, including this year, 2011.

Rather than building in FI'Es that introduce costs and structural inexibility to
the airport's business, we urge the Port to consider some other
measures.

Our experience has led us to nd what we can do with process improvements
through our LEAN/Six Sigma group. We offer this experience as one example for the
Port to consider as an alternative to FI'E increases, perhaps in the maintenance
area.
We understand that additional maintenance is called for, but we believe the right
answer to fullling the need is to examine what might be done with existing resource.
Similarly, for some of the proposed FI'Es, we encourage the Port to consider
other solutions. While we do not intend to say that every Fl'E increase is unreasonable,
we implore the Port to look hard at whether 4 FI'Es are needed for 'path-nding' at the
airport. We believe signage would do just as effective of a job at a far lesser expense and

without the signicant risk of future, painful cuts due to an unsustainable level of
stafng.
We also question whether stafng increases should be all at once, versus an
incremental approach that considers the current state of the business environment.

There are sources of discretionary spending that should be re-examined,
particularly when they are not supported by the airline customer and when they layer in
cost, overhead and complexity without enhancing the passenger experience.  An
example of a program that should be examined for cost containment opportunities is the
airport common use program. If it is redundant of other programs, it could present an
opportunity for us all.
We note that 48% of corporate costs are in the rate base for the airport. This too
might provide an opportlmity for better budget control. Thus, we also ask that the Port
consider the corporate overhead allocation formula, so that the airport allocation is fair
and closely aligned with use of corporate resources.

Together, we have made great strides in working on a successful model for
airport operations. We thank you for the partnership that has created the model, and
we wish to continue the success. Please stay the course and do not let our progress to
date be undermined by a bloated 2012 budget. The Port has a talented and capable
airport team, and ifwe keep the focus on efcient use of resource and contained cost, we
will continue to reap the benets of a sustainable, competitive and thriving business
environment.

In its materials today, the Port indicates that it has developed a contingency plan
in case of an economic downturn. We urge the Port to start with this plan. Private
businesses, including the Port's airline customers, are still very much in a conservative,
'wait and see' mode. Private businesses across the US are not increasing their spending,
much less increasing spending in the range currently contemplated. We ask that the
Port consider the economic times and the needs of its customers, and that it use today as
the day to start on what it considers its contingency plan.

Thank you very much for the opportunity to speak and have a good day.