Airtran 2006 Annual Report Download - page 28

OPERATING EXPENSES :
Our operating expenses for the year ended December 31, 2005 increased $415.1 million (41.0 percent), or 9.8 percent on a cost per ASM basis. Our financial results
were significantly affected by changes in the price of fuel. During 2005, we experienced high aircraft fuel prices driven by sharp increases in the cost of crude oil
and disruptions to the Gulf Coast refineries as a result of hurricanes.
In general, our operating expenses are significantly affected by changes in our capacity, as measured by ASMs. The following table presents our unit costs, defined
as operating expenses per ASM, for the indicated periods:
Year ended Percent
December 31, Increase
2005 2004 (Decrease)
Aircraft fuel 3.01¢ 2.10¢ 43.3%
Salaries, wages and benefits 2.14 2.28 (6.1)
Aircraft rent 1.25 1.26 (0.8)
Maintenance, materials and repairs 0.66 0.58 13.8
Landing fees and other rents 0.53 0.52 1.9
Distribution 0.44 0.42 4.8
Marketing and advertising 0.24 0.23 4.3
Aircraft insurance and security services 0.15 0.19 (21.1)
Depreciation 0.13 0.12 8.3
Other operating 0.73 0.75 (2.7)
Total CASM 9.28¢ 8.45¢ 9.8%
Aircraft fuel increased 43.3 percent on a cost per ASM basis, primarily due to escalating fuel prices. Our fuel price per gallon, including all fees and taxes, increased
48.3 percent from $1.22 for the year ended December 31, 2004 to $1.81 for the year ended December 31, 2005. The level of our flight operations, as measured by
block hours flown, increased 23.3 percent while our fuel consumption per block hour increased slightly 0.6 percent to 667 gallons.
Salaries, wages and benefits decreased 6.1 percent on a cost per ASM basis, primarily due to gains in productivity driven by the increased number of aircraft and
higher daily utilization. We employed approximately 6,700 full-time equivalent employees, as of December 31, 2005, representing a 13.5 percent increase over the
comparative period in 2004.
Maintenance, materials and repairs increased 13.8 percent on a cost per ASM basis. On a cost per block hour basis, maintenance materials and repairs expense
increased 18.8 percent to $266 per block hour due to the expiration of warranties on the B717 aircraft and an increase in airframe checks. As the original
manufacturer warranties expire on our B717 and B737 aircraft, the maintenance, repair and overhaul of aircraft engines and a significant number of aircraft
systems become covered by maintenance agreements with FAA-approved contractors.
Aircraft insurance and security services decreased 21.1 percent on a cost per ASM basis. While the addition of 18 new Boeing aircraft to our fleet during the year
ended December 31, 2005 increased our total insured hull value and related insurance premiums, the decrease on a cost per ASM basis is primarily due to a
reduction in hull and liability insurance rates and security costs for our 2005 fleet coverage.
Depreciation increased 8.3 percent on a cost per ASM basis, primarily due to the addition of three owned B737 for the year ended December 31, 2005, as well as
the purchase of spare aircraft parts for the new B737 fleet. With the exception of these three B737s, all aircraft additions during the year were lease financed rather
than purchased.
NONOPERATING (INCOME) EXPENSE :
Other (income) expense, net decreased by $2.4 million (18.4 percent). Increases in rates earned on cash and higher investment balances increased interest income
by $6.5 million. Interest expense, including amortization of debt issuance costs, increased by $6.4 million primarily due to the issuance of new debt relating to new
aircraft financing during the year ended December 31, 2005. Capitalized interest represents the interest cost associated with financing deposits for future aircraft
deliveries. Capitalized interest increased $3.6 million due to an increase in outstanding deposits for future aircraft deliveries in 2005 compared to 2004.
Additionally, $1.3 million of other income is included in our 2004 results relating a break-up fee paid to us in connection with our unsuccessful bid for certain
leased gates and other assets of another airline at Chicago’s Midway airport.
INCOME TAX EXPENSE :
Our effective income tax rate was 38.0 percent and 39.4 percent for the years ended December 31, 2005 and 2004, respectively. Our tax expense for the year ended
December 31, 2005 includes a one-time benefit of $1.7 million resulting from an adjustment to our deferred tax liabilities for a decrease in our state effective rate.
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