Frontier Airlines 2008 Annual Report Download - page 45

Revenue
Under our fixed-fee arrangements with our Partners, we receive fixed-fees, as well as reimbursement of specified costs on a
gross basis with additional possible incentives from our Partners for superior performance. For the years ended December 31, 2008,
2007 and 2006 all of our regional airline services revenue was earned under our fixed-fee arrangements. The number of aircraft we
operate and aircraft utilization are the most significant drivers of our revenue, as opposed to the number of passengers we carry or the
fare the passengers pay.
Operating Expenses
A brief description of the items included in our operating expenses line items follows.
Wages and Benefits
This expense includes not only wages and salaries, but also expenses associated with various employee benefit plans,
employee incentives, stock compensation, and payroll taxes. These expenses will fluctuate based primarily on our level of operations
changes in wage rates for contract and non-contract employees and changes in costs of our benefit plans.
Aircraft Fuel
As of December 31, 2008, approximately 70% of our aircraft fuel is supplied directly by our code-share partners, and thus we
do not record expense or the related revenue for those gallons of fuel. United started directly supplying fuel for certain locations in
January 2007. All fuel related to the Continental, Frontier, Midwest, Mokulele and US Airways operations is directly supplied as
well. We pass through all fuel costs relating to our American and Delta operations, realizing both the expense and the revenue.
Landing Fees
This expense consists of fees charged by airports for each aircraft landing. Under our current fixed-fee agreements, we are
reimbursed for the actual costs of landing fees.
Aircraft and Engine Rent
This expense consists of the costs of leasing aircraft and spare engines. The leased aircraft and spare engines are operated
under long-term operating leases with third parties. Aircraft rent is reduced by the amortization of integration funding credits received
from the aircraft manufacturer for parts and training. The credits are amortized on a straight-line basis over the term of the respective
lease of the aircraft.
Maintenance and Repair
Maintenance and repair expenses include all parts, materials, tooling and spares required to maintain our aircraft. We have
entered into long-term maintenance "power-by-the-hour" service contracts with third-party maintenance providers under which we are
charged fixed rates for each flight hour accumulated by all of our engines and some of the major airframe components. The effect of
such contracts is to reduce the volatility of aircraft maintenance expense over the term of the contract.
Insurance and Taxes
This expense includes the costs of passenger liability insurance, aircraft hull insurance, war risk insurance and all other
insurance policies, other than employee welfare insurance. Additionally, this expense includes personal and real property taxes,
including aircraft property taxes. Under our current fixed-fee agreements, we are reimbursed for the actual costs of passenger liability
insurance, war risk insurance, aircraft hull insurance and property taxes, subject to certain restrictions. Under our US Airways and
United fixed-fee agreements, we are reimbursed for the actual costs of such items other than aircraft hull insurance, which is
reimbursed at agreed upon rates.
Depreciation and Amortization
This expense includes the depreciation of all fixed assets, including aircraft, and the amortization of the commuter slots that
we own. Goodwill and intangibles with an indefinite life are required to be evaluated for impairment on an annual basis. If we
determine the goodwill and intangibles are impaired, we are required to write-off the amount of goodwill and intangibles that are
impaired. As of December 31, 2008 and 2007, goodwill and intangibles totaled $61.6 million and $62.0 million respectively, net of
amortization.
Other
This expense includes the costs of crew training, crew travel, airport, passenger and ground handling related expenses, all
other lease expenses, professional fees, impairment loss and accrued aircraft return costs, gains and losses on disposal of assets and all
other administrative, facilities and operational overhead expenses not included in other line items above.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠