Alaska Airlines and Horizon Air 2009 Annual Report Download - page 138

HORIZON EXPENSES
Total operating expenses decreased $161.1
million, or 20.8%, as compared to 2008. The
sharp decline in fuel costs was the primary driver
of the overall decrease. Significant period-over-
period changes in the components of operating
expenses are as follows.
Wages and Benefits
Wages and benefits declined $8.9 million, or
4.6%, compared to 2008. The primary
components of wages and benefits are shown in
the following table:
Years Ended December 31
(in millions) 2009 2008
%
Change
Wages ................... $132.3 $142.2 (7.0)
Medical benefits ........... 20.6 19.5 5.6
Other benefits and payroll
taxes .................. 32.3 32.4 (0.3)
Total wages and benefits .... $185.2 $194.1 (4.6)
Wages declined 7% primarily as a result of a
10.6% decline in the number of full-time
equivalent employees, partially offset by slightly
higher wages per employee. The increase in
average wages per employee is due to a higher
average employee seniority level as recent
furloughs have involved less senior employees.
We expect wages and benefits will be lower in
2010 than in 2009, due to fewer FTEs as we see
the full-year impact of 2009 furloughs and
transitions of employees to Alaska as part of the
shared services effort. We also have a number of
productivity enhancement goals for 2010.
Variable Incentive Pay
Variable incentive pay expense increased to
$14.4 million during 2009 from $5.6 million in
2008, of which $8.6 million and $1 million was
related to PBP in 2009 and 2008,
respectively. Variable pay increased for the same
performance reasons cited in the Alaska
discussion and the addition of Horizon’s flight
attendants and non-represented employees into
Air Group’s PBP plan.
If we achieve targets set by the board and
assuming no change in the participating
employee groups, PBP expense in 2010 will be
approximately $5 million and aggregate incentive
pay for all plans will be approximately $10
million, compared to $14.4 million in 2009.
Aircraft Fuel
Aircraft fuel declined $126.9 million, or 53.8%,
compared to the same period in 2008. The
elements of the change are illustrated in the
following table:
Years Ended December 31
(in millions, except
per-gallon amounts) 2009 2008
%
Change
Fuel gallons consumed ...... 60.1 66.9 (10.2)
Raw price per gallon ........ $ 1.90 $ 3.36 (43.5)
Total raw fuel expense ...... $113.9 $225.0 (49.4)
Net impact on fuel expense
from (gains) and losses
arising from fuel-hedging
activities ............... (4.8) 11.0 NM
Aircraft fuel expense ........ $109.1 $236.0 (53.8)
NM = Not meaningful
The 10.2% reduction in gallons consumed is
primarily a function of the capacity reductions in
2009 compared to the prior year.
The raw fuel price per gallon declined by 43.5%
as a result of the drop in crude oil prices and
refining margins.
Our economic fuel expense is calculated as
follows:
Years Ended December 31
(in millions, except
per-gallon amounts) 2009 2008
%
Change
Raw fuel expense .......... $113.9 $225.0 (49.4)
Plus or minus: net of cash
received from settled
hedges and premium
expense recognized ....... 10.3 (20.9) NM
Economic fuel expense ...... $124.2 $204.1 (39.1)
Fuel gallons consumed ...... 60.1 66.9 (10.2)
Economic fuel cost per
gallon .................. $ 2.07 $ 3.05 (32.1)
NM = Not meaningful
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