Alaska Airlines and Horizon Air 2007 Annual Report Download - page 146

Aircraft Maintenance
Aircraft maintenance expense increased $18.1
million, or 24.5%, primarily as a result of a
higher number of engine events, including
scheduled events on our CRJ-700 engines. We
expect maintenance expense in 2008 to be
approximately $15 million lower than in 2007,
primarily because of fewer CRJ-700 engine
events. However, actual results could differ
materially if the maintenance schedule is
modified or we are forced to perform unforeseen
maintenance activities.
Aircraft Rent
Aircraft rent declined by $3.7 million, or 5.3%,
primarily as a result of the reduction in the
number of leased Q200 aircraft in our operating
fleet. These leased aircraft were replaced with
new, owned Q400s during the year.
Depreciation and Amortization
Depreciation and amortization increased $15.4
million, or 83.2%, as a result of the 13 new
Q400s that were delivered in 2007. We own all
of these new aircraft. Additionally, we recorded
higher depreciation expense on Q200 rotable
and repairable parts since we now intend to
phase out those aircraft by the end of 2009. We
anticipate that depreciation and amortization
expense will continue to increase in 2008 as we
take more Q400 deliveries throughout the year.
Fleet Transition Costs
Fleet transition costs associated with the
sublease of Q200 aircraft were $14.1 million in
2007 as a result of the 11 Q200 aircraft that
were delivered to a third party. We expect total
fleet transition costs to be approximately $8
million during 2008 as five additional Q200s
leave the fleet and we record losses arising from
the subleases.
Operating Costs per Available Seat Mile
(CASM)
As discussed above, operating costs per ASM
(CASM) is an important metric in the industry and
we use it to gauge the effectiveness of our cost-
reduction efforts. Like Alaska’s, Horizon’s efforts
to reduce unit costs over the long term focus not
only on controlling the actual dollars we spend,
but also on increasing available seat miles
without adding a commensurate amount of cost.
We intend to increase capacity in the future
primarily through larger-gauge aircraft as we
replace our Q200 aircraft with larger Q400
aircraft. However, we expect a reduction of
capacity in 2008 as noted previously, which puts
upward pressure on our unit costs.
Our operating costs per ASM are summarized
below:
Years Ended December 31
2007 2006
%
Change
Total operating expenses per
ASM (CASM) ............ 18.07¢ 17.40¢ 3.9
CASM includes the following
components:
Fuel costs per ASM ....... 3.49¢ 3.21¢ 8.8
Fleet transition costs per
ASM ................. 0.35¢ —NM
NM = Not meaningful
We currently forecast our costs per ASM
excluding fuel and the fleet transition costs for
the first quarter and full year of 2008 to be up
about 1% and flat, respectively, compared to
2007.
CONSOLIDATED NONOPERATING INCOME
(EXPENSE)
Net nonoperating expense was $10.4 million in
2007 compared to $0.5 million in 2006. Interest
income declined by $0.4 million compared to
2006, primarily as a result of a lower average
cash and marketable securities balance, partially
offset by higher average portfolio returns.
Interest expense increased $10.0 million
because of new debt arrangements in 2006 and
2007 and increases in the average interest rate
on our variable-rate debt. This increase was
offset by the conversion to equity of our $150
million senior convertible notes in April 2006,
which eliminated further interest expense on
those notes. Other-net increased $2.6 million,
and includes a $3.75 million expense associated
with our investment in Row 44 given their early
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