Alaska Airlines and Horizon Air 2007 Annual Report Download - page 148

As purchased capacity activity was not significant
in 2006 and 2005, the ensuing discussion will
be focused on mainline operations only.
ALASKA MAINLINE REVENUES
Mainline operating revenues increased $276.9
million, or 11.5%, during 2006 primarily as a
result of a 6.8% increase in operating revenue
per available seat mile (RASM) and a 4.4%
increase in capacity. The increase in mainline
RASM was driven almost entirely by a 6.7%
increase in ticket yields resulting largely from
higher ticket prices. The increase in capacity is
primarily the result of having a larger aircraft fleet
and a longer average stage length in 2006.
Load factor increased slightly by 0.7 percentage
points to 76.6% during 2006.
Freight and mail revenues increased $3.1
million, or 3.4%, compared to 2005 primarily
resulting from higher mail and freight yields and
fuel surcharges that we added to our freight
services beginning in the third quarter of 2005,
offset by lower freight volumes. Revenues from
our cargo operations were lower than expected
for 2006 due to the delay in the delivery of our
modified 737-400 cargo aircraft. Three of the
four were originally scheduled for delivery in
2006, but none was actually delivered until
2007. These delays kept the cargo operations
from increasing capacity and thereby the volume
of cargo shipped.
Other-net revenues increased only slightly by
$3.7 million, or 2.9%. Mileage Plan revenues
were slightly lower than in 2006, primarily as a
result of lower commissions recognized for sold
miles. As yields increased in 2006, the rate at
which we defer the revenue related to sold miles
increased, resulting in a smaller percentage of
cash receipts recorded as commission revenue
during the period. The decline in commission
revenue associated with sold miles was partially
offset by higher net revenues from award
redemption on our partner airlines.
ALASKA AIRLINES MAINLINE EXPENSES
Total mainline operating expenses increased
$513.1 million, or 22.7%, as compared to 2005.
This increase is largely due to fleet transition
costs in 2006, a significant increase in aircraft
fuel (including hedging gains and losses as we
adjust the value of our hedges that will benefit
future periods), and increases in wages and
benefits, variable incentive pay, contracted
services, selling expenses, depreciation and
amortization, and restructuring charges, offset by
a decline in aircraft maintenance and aircraft
rent. Additional line item information is provided
below.
Wages and Benefits
Wages and benefits increased by $21.2 million,
or 2.9%, during 2006 compared to 2005
primarily as a result of the following:
• a $2.7 million signing bonus and an
increase in wages resulting from the new
four-year contract with our flight
attendants that was ratified during the
second quarter of 2006;
• a $1.9 million signing bonus and an
increase in wages resulting from the new
four-year contract with our clerical, office
and passenger service employees and
our ramp service and stores agents that
was ratified during the third quarter of
2006;
• market-based pay adjustments for our
non-union personnel in the spring of
2006 and an increase in stock-based
compensation expense following the
adoption of SFAS 123R;
• an increase in mechanics wages
resulting from the contract ratified in the
fourth quarter of 2005; and
• increased postretirement medical and
pension costs.
The increase from the prior year was partially
offset by the following:
• the reduction in pilot wages resulting
from the pilot contract that took effect in
May 2005; and
• the subcontracting of our ramp services
operation in Seattle in the second
quarter of 2005.
48