Alaska Airlines and Horizon Air 2007 Annual Report Download - page 144

Horizon brand flying includes routes in the
Horizon system not covered by the Alaska CPA.
Horizon has the inventory and revenue risk in
these markets. Passenger revenue from Horizon
brand flying increased $32.2 million, or 9.0%, on
a 19.6% increase in brand capacity offset by an
8.8% decline in unit revenues. The decline in unit
revenues was due to a 2.4-point reduction in
load factor, along with a 5.9% decline in yields,
resulting from increased competition in many of
these brand markets and from intentional pricing
actions taken in certain markets to fill the
additional capacity.
Revenue from the CPA with Alaska totaled
$283.4 million during 2007. Under the CPA, the
fee paid by Alaska is based on Horizon’s actual
operating costs plus a specified margin. Under
the prior revenue-sharing arrangement, Alaska
made a payment to Horizon equal to Horizon’s
loss in those markets, if any, and a quarterly
bonus that was based on Alaska’s overall
operating margin. Alternatively, Horizon made a
payment to Alaska if those markets were
profitable.
Revenue from the Frontier JetExpress flying
declined 34.3% from $52.5 million in 2006 to
$34.5 million in 2007 on a 38.1% decline in
ASMs. The ASM decline is consistent with the
wind-down of the JetExpress arrangement that
occurred throughout 2007.
HORIZON EXPENSES
Total operating expenses increased $87.1 million, or 13.8%, as compared to 2006. Along with our
financial and statistical data on page 35, we are presenting here our line item expenses on a per-ASM
basis (in cents):
Years Ended
December 31, CASM Change
2007 2006 2005
2007 vs.
2006
2006 vs.
2005
Wages and benefits .................................... 5.06 5.21 5.11 (0.15) 0.10
Variable incentive pay .................................. 0.18 0.25 0.14 (0.07) 0.11
Aircraft fuel, including hedging gains and losses .............. 3.49 3.21 2.14 0.28 1.07
Aircraft maintenance ................................... 2.31 2.03 1.27 0.28 0.76
Aircraft rent .......................................... 1.65 1.91 2.07 (0.26) (0.16)
Landing fees and other rentals ........................... 1.43 1.29 1.40 0.14 (0.11)
Contracted services .................................... 0.68 0.74 0.70 (0.06) 0.04
Selling expenses ...................................... 0.79 0.87 0.86 (0.08) 0.01
Depreciation and amortization ............................ 0.85 0.51 0.49 0.34 0.02
Food and beverage service ............................... 0.07 0.08 0.07 (0.01) 0.01
Other ............................................... 1.21 1.30 1.24 (0.09) 0.06
Fleet transition costs ................................... 0.35 — — 0.35 —
Total Operating Expenses per ASM ........................ 18.07 17.40 15.49 0.67 1.91
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