Alaska Airlines and Horizon Air 2013 Annual Report Download - page 120

OPERATING REVENUES
Total operating revenues increased $499 million,
or 11%, during 2013 compared to the same
period in 2012. The changes are summarized in
the following table:
Year Ended December 31,
(in millions) 2013 2012 % Change
Passenger
Mainline ........ $3,490 $3,284 6
Regional ........ 777 746 4
Total passenger
revenue .......... $4,267 $4,030 6
Freight and mail ......... 113 111 2
Other—net ............. 584 516 13
Special mileage plan
revenue .............. 192 ——
Total operating revenues . . $5,156 $4,657 11
Passenger Revenue—Mainline
Mainline passenger revenue for 2013 increased
by 6% on a 7.9% increase in capacity and a 1.5%
decrease in PRASM compared to 2012. The
increase in capacity was driven by new routes
added in 2013 and larger aircraft. The decrease
in PRASM was driven by a 0.9% decrease in
ticket yield and a 0.5 point decrease in load
factor compared to the prior year. Increased
competition in the state of Alaska and along the
west coast put downward pressures on yield and
load factor.
Due to increased competitive capacity in our
markets we expect pressure on unit revenues,
while we expect total passenger revenue to
increase.
Passenger Revenue—Regional
Regional passenger revenue increased by $31
million, or 4%, compared to 2012 on a 0.4%
increase in capacity and 3.7% increase in
PRASM compared to 2012. The increase in
PRASM was due to a 1.4% increase in ticket
yield coupled with a 1.8 point increase in load
factor compared to the prior year. The increase
in regional revenues is due to better matching
the right aircraft with the right market to avoid
over-supply of capacity and maintaining yields
and load factors.
Freight and Mail
Freight and mail revenue increased $2 million, or
2%, primarily due to increased freight volumes.
Other—Net
Other—net revenue increased $68 million, or
13%, from 2012. This is primarily due to an
increase in our Mileage Plan revenues of $47
million or 22%, as a result of a higher rate per
mile sold to Bank of America Corporation (BAC)
under our new affinity card program and growth
in the Mileage Plan program. Additionally, bag
fees increased by 7.8%, and change fees
increased by 7.3%, due to increases in the
number of passengers. We expect increases in
other revenue will outpace increases in
passenger revenue on a percentage basis in
2014 as we continue to see the benefit from the
new affinity card agreement and the increase in
bag and change fees implemented in late 2013.
Special Mileage Plan Revenue
In the third quarter, we modified and extended
our co-branded credit card agreement with BAC.
In connection with this agreement and as a
result of applying related accounting standards,
we recorded a one-time, non-cash Special
mileage plan revenue item of $192 million
primarily related to our revaluation of the
deferred revenue liability related to miles
previously sold to BAC.
OPERATING EXPENSES
Total operating expenses increased $193
million, or 5%, compared to 2012, primarily
driven by wages and variable incentive pay. Fuel
expense remained flat due to decrease in fuel
cost per gallon offset by an increase in fuel
consumption. We believe it is useful to
summarize operating expenses as follows, which
is consistent with the way expenses are reported
internally and evaluated by management:
Year Ended December 31,
(in millions) 2013 2012
%
Change
Fuel expense ............. $1,467 $1,459 1
Non-fuel expenses ......... 2,851 2,666 7
Total Operating Expenses .... $4,318 $4,125 5
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