Alaska Airlines and Horizon Air 2009 Annual Report Download - page 124

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following Management’s Discussion and
Analysis of Financial Condition and Results of
Operations (MD&A) is intended to help the
reader understand the Company, our operations
and our present business environment. MD&A is
provided as a supplement to – and should be
read in conjunction with – our consolidated
financial statements and the accompanying
notes. All statements in the following discussion
that are not statements of historical information
or descriptions of current accounting policy are
forward-looking statements. Please consider our
forward-looking statements in light of the risks
referred to in this report’s introductory cautionary
note and the risks mentioned in Part I, “Item 1A.
Risk Factors.” This overview summarizes the
MD&A, which includes the following sections:
•Year in Review—highlights from 2009
outlining some of the major events that
happened during the year and how they
affected our financial performance.
•Results of Operations—an in-depth analysis
of the results of operations of Alaska and
Horizon for the three years presented in our
consolidated financial statements. We
believe this analysis will help the reader
better understand our consolidated
statements of operations. Financial and
statistical data for Alaska and Horizon are
also included here. This section includes
forward-looking statements regarding our
view of 2010.
•Critical Accounting Estimates—a discussion
of our accounting estimates that involve
significant judgment and uncertainties.
•Liquidity and Capital Resources—an
analysis of cash flows, sources and uses of
cash, contractual obligations, commitments
and off-balance sheet arrangements, an
overview of financial position and the impact
of inflation and changing prices.
YEAR IN REVIEW
Our 2009 consolidated pretax income was
$202.9 million compared to a pretax loss of
$213.2 million in 2008. The $416.1 million
improvement in our pretax earnings was primarily
due to the $702.4 million decline in aircraft fuel
costs and other non-fuel operating costs,
partially offset by a $262.8 million decline in
operating revenues. The decline in fuel cost was
substantially driven by the 43% reduction in the
raw cost of fuel per gallon. The 7.2% decline in
operating revenues can be attributed to the
following:
• a 7.9% decline in passenger revenue
because of demand weakness stemming
from the economic recession; and
• a one-time benefit of $42.3 million recorded
in 2008 associated with a change in our
Mileage Plan terms.
These declines were offset by:
• our new $15 first bag service charge, which
went into effect on July 7, 2009. In 2009,
the fee generated $47.4 million of
incremental revenue.
• a $39.7 million improvement in Mileage
Plan commission revenues included in
“Other-net.”
See “Results of Operations” below for further
discussion of changes in revenues and operating
expenses for both Alaska and Horizon.
Accomplishments and Highlights
Accomplishments and highlights from 2009
include:
• Alaska and Horizon both improved their
operational performance again in 2009 as
measured by on-time arrivals and
completion rate as reported to the
Department of Transportation (DOT). At
Alaska, we led the ten largest carriers in
on-time performance for eight months of the
year. If Horizon were a DOT reporting entity,
they would have led reporting mainland US
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