Alaska Airlines and Horizon Air 2009 Annual Report Download - page 133

Aircraft Maintenance
Aircraft maintenance increased by $19.3 million,
or 12.8%, compared to the prior year primarily
because of a higher average cost of airframe
maintenance events and a new power-by-the-hour
(PBH) maintenance agreement on our B737-700
and B737-900 aircraft engines, partially offset by
the benefits of our fleet transition, as we have
replaced all of our aging MD-80s with newer
B737-800s, and lower PBH costs associated
with our 747-400 aircraft engines that resulted
from a decline in flight hours.
We expect aircraft maintenance to be relatively
flat in 2010.
Contracted Services
Contracted services declined by $11.3 million, or
8.7%, compared to 2008 as a result of the
reduction in the number of flights operated
throughout our system to ports where vendors
are used and a reduction in project contract
labor.
We expect contracted services to increase in
2010 as we provide a full year of service to
some of our new destinations requiring vendor
support.
Selling Expenses
Selling expenses declined by $11.3 million, or
9.7%, compared to 2008 as a result of lower
revenue-related expenses such as credit card
costs, travel agency commissions and ticket
distribution costs that resulted from the decline
in passenger traffic. Mileage Plan expenses were
also lower because the estimated incremental
cost of providing free travel was lower because
of the decline in fuel costs. These declines were
partially offset by higher advertising costs.
We expect selling expenses will be slightly higher
in 2010 as compared to 2009, primarily due to
higher revenue-related expenses.
Depreciation and Amortization
Depreciation and amortization increased $12.6
million, or 7.6%, compared to 2008. This is
primarily due to the ten B737-800 aircraft
delivered in 2009, partially offset by the sale-
leaseback of six B737-800 aircraft in the first
quarter of 2009.
We expect depreciation and amortization to be
higher in 2010 due to the full-year impact of
aircraft that were delivered in 2009 and are
expected to be delivered in 2010.
Other Operating Expenses
Other operating expenses declined $9.1 million,
or 5.3%, compared to the prior year. The decline
is primarily driven by a reduction in outside
professional services costs and flight crew-
related costs such as hotels and per-diems.
New Pilot Contract Transition Costs
As mentioned previously, we recorded $35.8
million in connection with the new four-year
contract ratified by Alaska’s pilots in the second
quarter.
Restructuring Charges and Fleet Transition
Costs
In the third quarter of 2008, we announced work
force reductions among union and non-union
employees. The affected non-union employees
were terminated in the third quarter, resulting in
a $1.6 million severance charge. For union
personnel, we recorded an $11.3 million charge
in 2008.
During 2008, we retired four MD-80 aircraft that
were under long-term lease arrangements and
placed them in temporary storage at an aircraft
storage facility. The $47.5 million charge in
2008 represented the remaining discounted
lease payments under the lease contracts and
our estimate of maintenance costs that will be
incurred in the future to meet the minimum
return conditions under the lease requirements.
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ŠForm 10-K