Delta Airlines 2014 Annual Report Download - page 35

Fuel Purchase Cost. Fuel purchase cost is based on the market price for jet fuel at airport locations.
Airline Segment Fuel Hedge Impact and MTM Adjustments. During the year ended December 31, 2014 , our airline segment fuel hedge loss of
$2.3
billion resulted from unfavorable MTM adjustments. These MTM adjustments are based on market prices as of the end of the reporting period for
contracts settling in future periods. Such market prices are not necessarily indicative of the actual future value of the underlying hedge in the contract
settlement period. The MTM adjustments are reflected in the table above to calculate an effective fuel cost for the period.
Refinery Segment Impact. The refinery results include the impact on fuel expense of self-supply from the production of the refinery and from
refined products exchanged with certain counterparties. To the extent that we account for exchanges of refined products as nonmonetary transactions,
we include the results of those transactions within fuel expense. For additional information regarding the refinery segment impact, see "Refinery
Segment" below.
We adjust fuel expense for the items noted above to arrive at a more meaningful measure of fuel cost. Our average price per gallon, adjusted (a
non-GAAP financial measure) was $2.87 for the year ended December 31, 2014 .
Salaries and Related Costs . The increase in salaries and related costs is primarily due to investments in our employees and an increase in pilot and
flight attendant block hours, partially offset by lower pension expense. In 2014, we contributed $917 million to our defined benefit pension plans,
including $250 million above the minimum funding requirements.
Regional Carrier Expense. The reduction in regional carrier expense is primarily due to lower fuel expense from both a decrease in the cost of fuel
per gallon and a 4% decrease in capacity and fewer required maintenance events. During 2014, we removed thirty-five 50-seat regional aircraft from
our fleet as part of our strategy to restructure our domestic fleet.
Aircraft Maintenance Materials and Outside Repairs. Aircraft maintenance materials and outside repairs consists of costs associated with
maintenance of aircraft used in our operations and costs associated with maintenance sales to third parties by our MRO services business. The
reduction in aircraft maintenance materials and outside repairs is due primarily to lower engine maintenance volume and a contract settlement charge
in 2013, partially offset by a higher volume of cost of sales from our MRO business.
Depreciation and Amortization. Depreciation and amortization expense increased year-over-year primarily due to investments in new B-737-
900ER and CRJ-900 aircraft, the purchase of aircraft off-lease and aircraft modifications that upgraded aircraft interiors and enhanced our product
offering.
Contracted Services. Contracted services expense increased year-over-year due primarily to costs associated with the 3% increase in capacity.
Passenger Commissions and Other Selling Expenses. Passenger commissions and other selling expenses increased on higher passenger revenue.
Profit Sharing. The increase in profit sharing is driven by an increase in full year pre-tax income, excluding profit sharing and special items,
compared to the prior year. Our broad-based employee profit sharing program provides that, for each year in which we have an annual pre-tax profit,
as defined by the terms of the program, we will pay a specified portion of that profit to employees. In determining the amount of profit sharing, the
program defines profit as pre-tax profit excluding profit sharing and special items, such as MTM adjustments and restructuring and other items. Our
profit sharing program pays 10% to employees for the first $2.5 billion of annual profit and 20% of annual profit above $2.5 billion.
Aircraft Rent. Aircraft rent increased year-over-year due primarily to the addition of leased B-717-200 and B-737-900ER aircraft delivered during
the year, partially offset by the retirement of certain B-747-400 aircraft.
Other. Other operating expense increased primarily due to costs associated with sales of non-jet fuel products to third parties by our oil refinery.
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