Delta Airlines 2006 Annual Report Download - page 38

Operating Expense
Year Ended
December 31, Increase % Increase
(in millions) 2005 2004 (Decrease) (Decrease)
Operating Expense:
Salaries and related costs $ 5,058 $ 6,338 $ (1,280) (20)%
Aircraft fuel 4,271 2,924 1,347 46 %
Depreciation and amortization 1,273 1,244 29 2 %
Contracted services 1,096 999 97 10 %
Contract carrier arrangements 1,318 932 386 41 %
Landing fees and other rents 863 875 (12) (1)%
Aircraft maintenance materials and outside repairs 776 681 95 14 %
Aircraft rent 541 716 (175) (24)%
Passenger commissions and other selling expenses 948 939 9 1 %
Passenger service 345 349 (4) (1)%
Impairment of intangible assets — 1,875 (1,875) NM
Restructuring, asset writedowns, pension settlements and related items, net 888 (41) 929 NM
Other 815 712 103 14 %
Total operating expense $ 18,192 $ 18,543 $ (351) (2)%
Operating expense for 2005 was $18.2 billion, which includes an $888 million charge for restructuring, asset writedowns, pension settlements and
related items, net. Operating expense for 2004 totaled $18.5 billion, which includes a $1.9 billion impairment of intangible assets related to the write-off of
goodwill associated with ASA and Comair. For additional information about this charge, see Note 5 of the Notes to the Consolidated Financial Statements.
Operating capacity for 2005 increased 3% to 157 billion available seat miles, primarily due to operational efficiencies from the redesign of our Atlanta
hub from a banked to a continuous hub, which allowed us to increase system-wide capacity with no additional Mainline aircraft. Operating cost per available
seat mile decreased 5% to 11.60¢.
Salaries and related costs.The decrease in salaries and related costs includes a 17% decrease from salary rate reductions for our pilot and non-pilot
employees and a 7% decline due to lower headcount.
Aircraft fuel.Aircraft fuel expense increased $1.3 billion, or 46%, driven by higher fuel prices, which were slightly offset by a reduction in total gallons
consumed due to our sale of ASA to SkyWest on September 7, 2005. Our average fuel price per gallon increased 47% to $1.71 while total gallons consumed
decreased 1%. Fare increases implemented during 2005 in response to rising aircraft fuel prices offset only a small portion of those cost increases. During
2005, we had no significant hedges or contractual arrangements to reduce our fuel costs below market levels. Our fuel expense is shown net of fuel hedge
gains of $105 million in 2004.
Contract carrier arrangements.Contract carrier arrangements expense increased primarily due to (1) a change in how we account for ASA’s expenses as
a result of its sale to SkyWest and (2) new contract carrier agreements with Shuttle America and Freedom. These increases were partially offset by the
termination of our contract carrier arrangement with Flyi, Inc. in 2004.
Aircraft rent.The decrease in aircraft rent expense largely reflects a 21% decrease due to our lease restructuring in the December 2004 quarter, which
resulted in the reclassification of certain aircraft leases from operating to capital. As discussed below, this reclassification increased our interest expense. The
reduction in aircraft rent expense also reflects our rejection of the leases for 50 aircraft, the renegotiation of the leases for seven aircraft and the repossession
of 15 aircraft in connection with our Chapter 11 proceedings during 2005.
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