Alaska Airlines and Horizon Air 2007 Annual Report Download - page 150

The increase for Alaska was approximately $1.5
million. A large portion of this rate increase and
retroactive charge was reversed and returned in
2007.
Contracted Services
Contracted services increased $12.6 million, or
12.0%, primarily resulting from the
subcontracting of the Company’s Seattle ramp
operations in May 2005. Additionally, a $4.7
million navigation fee refund was received in
2005, which reduced our 2005 expenses.
Selling Expenses
Selling expenses increased $8.9 million, or
6.7%, primarily as a result of an increase in
revenue-related expenses such as credit card
and codeshare commissions in connection with
the rise in revenues over the prior period and an
increase in incentive payments to Horizon for
certain flying under the former revenue-sharing
arrangement.
Depreciation and Amortization
Depreciation and amortization increased $12.4
million, or 9.9%, compared to 2005. This
increase is primarily due to the delivery of two
new owned B737-800 aircraft in 2005 and ten
new, owned B737-800 aircraft in 2006, the
purchase of five MD-80 aircraft from lessors
during the third quarter of 2006, and the
acceleration of depreciation on our owned MD-80
fleet to reduce the carrying value to estimated
realizable value as they come out of the fleet,
offset by the lower depreciable base on the
MD-80 fleet following the impairment charge
taken in the first quarter of 2006.
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. Our mainline operating costs
per mainline ASM are summarized below:
Years Ended December 31
2006 2005 % Change
Total mainline operating
expenses per ASM (CASM) . . . 11.92¢ 10.14¢ 17.6
CASM includes the following
components:
Fuel costs per ASM ......... 3.25¢ 2.13¢ 52.6
Fleet transition costs per
ASM ................... 0.81¢ —NM
Restructuring charges per
ASM ................... 0.11¢ 0.09¢ NM
Navigation fee refund per
ASM ................... —(0.02)¢
NM = Not meaningful
HORIZON AIR
Horizon reported pretax income of $11.7 million
during 2006 compared to income before income
taxes and accounting change of $26.4 million in
2005. The $14.7 million decrease is primarily
due to a 19.9% increase in operating costs,
driven primarily by increased fuel and
maintenance costs, offset by a 15.7% increase
in operating revenues.
HORIZON AIR REVENUES
Operating revenues increased $87.6 million, or
15.7%, in 2006 compared to 2005. This increase
reflects an 8.4% increase in per unit revenues
(RASM) and a 6.8% increase in capacity.
Horizon’s passenger revenues are summarized in
the table below:
Revenues
(in millions)
and % of ASMs
Year Ended December 31
2006 2005
Revenues % ASMs Revenues % ASMs
Passenger revenue
from Horizon
“brand” flying . . $359.1 48 $270.2 44
Passenger
revenue—Alaska
revenue share
markets ....... 221.5 29 223.4 33
Revenue from CPA
with Frontier
JetExpress ..... 52.5 23 50.4 23
Total Passenger
Revenue and %
of ASMs ...... $633.1 100 $544.0 100
50