Alaska Airlines and Horizon Air 2009 Annual Report Download - page 145

HORIZON EXPENSES
Total operating expenses increased $55.7
million, or 7.7%, as compared to 2007.
Significant period-over-period changes in the
components of operating expenses are
described below.
Wages and Benefits
Wages and benefits decreased $7.2 million, or
3.6%, primarily as a result of a 5.1% decrease in
FTEs.
Aircraft Fuel
Aircraft fuel expense increased $97.2 million, or
70.0%, compared to 2007. The elements of the
change are illustrated in the following table:
Years Ended December 31
(in millions, except
per-gallon amounts) 2008 2007
%
Change
Fuel gallons consumed .... 66.9 64.8 3.2
Raw price per gallon ...... $ 3.36 $ 2.41 39.4
Total raw fuel expense .... $225.0 $156.2 44.0
Impact on fuel expense
from (gains) and losses
arising from fuel- hedging
activities ............. 11.0 (17.4) NM
Aircraft fuel expense ..... $236.0 $138.8 70.0
NM = Not meaningful
The 3.2% increase in consumption was driven by
the elimination of Frontier JetExpress flying in
2007. As those aircraft were redeployed into the
Horizon fleet, Horizon began purchasing the fuel,
whereas under the JetExpress arrangement, fuel
was purchased by Frontier. Offsetting these
increases in fuel consumption was the decline in
system capacity, which led to lower fuel
consumption. Additionally, we have had improved
fuel efficiency of our fleet resulting from new
Q400 aircraft deliveries as they replaced
outgoing Q200 aircraft.
The raw fuel price per gallon increased by 39.4%
as a result of higher West Coast jet fuel prices
driven by higher average crude oil costs and
refinery margins.
As at Alaska, we recorded significant
mark-to-market losses in 2008 reflecting a steep
decline in the value of our fuel hedge portfolio as
fuel prices declined sharply throughout the year.
During 2007, we recorded mark-to-market gains
reflecting an increase in the value of our fuel
hedge portfolio between December 31, 2006
and December 31, 2007.
Our economic fuel expense is calculated as
follows:
Years Ended December 31
(in millions, except
per- gallon amounts) 2008 2007
%
Change
Raw fuel expense ........ $225.0 $156.2 44.0
Less: cash received from
settled hedges, net of
premium expense
recognized ............ (20.9) (8.5) NM
Economic fuel expense .... $204.1 $147.7 38.2
Fuel gallons consumed .... 66.9 64.8 3.2
Economic fuel cost per
gallon ................ $ 3.05 $ 2.28 33.8
NM = Not meaningful
The total net cash benefit from hedges that
settled during 2008, excluding hedges that were
terminated early, increased by $12.4 million to
$20.9 million compared to 2007. This increase
was primarily due to the record-high crude oil
prices during the year.
Like Alaska, as part of the effort to restructure
our fuel-hedge portfolio, we terminated a number
of contracts originally scheduled to settle in
2009 and 2010 and replaced them with new
positions with lower average strike prices. As a
result, we realized losses of approximately $8.5
million representing the difference between the
original premiums paid for those contracts when
purchased and the amount of cash received from
the counterparty on termination of the contracts.
Aircraft Maintenance
Aircraft maintenance expense decreased $33.8
million, or 36.7%, primarily as a result of fewer
maintenance events and cost savings from
process improvements.
Aircraft Rent
Aircraft rent decreased $8.7 million, or 13.3%,
from 2007 due to the lease termination of a
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ŠForm 10-K