Alaska Airlines and Horizon Air 2014 Annual Report Download - page 126

Significant operating expense variances from 2013 are more fully described below.
Wages and Benefits
Wages and benefits increased during 2014 by $50 million, or 5%, compared to 2013. The primary
components of wages and benefits are shown in the following table:
Twelve Months Ended December 31,
(in millions) 2014 2013 % Change
Wages $ 862 $ 788 9
Medical and other benefits 150 145 3
Defined contribution plans 53 44 20
Pension - Defined benefit plans 950 (82)
Payroll taxes 62 59 5
Total wages and benefits $ 1,136 $ 1,086 5
Wages increased 9%, primarily due to annualization of new labor contracts that included higher rates, a
4.7% increase in full-time employee equivalents, and an $8 million signing bonus paid to Alaska’s flight
attendants in December 2014 when a new collective bargaining agreement was ratified. The increase in
FTEs is to support the growth in our business.
Defined contribution plans increased 20% due to an increase in the number of employees participating
in the plans and an increase in the employer contribution for non-union employees previously in the
pension plan.
Pension expense decreased 82%, compared to the same period in the prior year. The decline is due to
having a lower accumulated loss to amortize as a result of higher plan assets, a higher discount rate at
December 31, 2013 compared to December 31, 2012, and the freezing of plan benefits for our non-
union employees beginning January 1, 2014.
We expect wages and benefits to be higher in 2015 compared to 2014 on a 3% to 4% increase in FTEs
and higher pension expense of approximately $20 million.
Variable Incentive Pay
Variable incentive pay expense increased from $105 million in 2013 to $116 million in 2014. The
increase is due to actual results exceeding our targets for financial and operational performance more
so than in the prior year in addition to a higher wage base.
We expect variable incentive pay in 2015 to be lower due to changes to our incentive pay metrics to
reflect our improving performance. However, actual amounts could differ based on 2015 performance.
Aircraft Fuel
Aircraft fuel expense includes both raw fuel expense (as defined below) plus the effect of mark-to-
market adjustments to our fuel hedge portfolio included in our consolidated statement of operations as
the value of that portfolio increases and decreases. Our aircraft fuel expense is very volatile, even
between quarters, because it includes these gains or losses in the value of the underlying instrument
as crude oil prices and refining margins increase or decrease. Raw fuel expense is defined as the price
that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Raw fuel prices
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