Frontier Airlines 2010 Annual Report Download - page 47

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, 2010, the majority of our aircraft fuel for the fixed-fee operations is supplied directly by our code-share
partners, and thus we do not record expense or the related revenue for those gallons of fuel. Beginning in May 2009 and June 2009, we did
not record fuel expense and the related revenue for the American and Delta operations, respectively. We also did not pay for or record fuel
expense and the related revenue for Continental or US Airways operations. All fuel costs including into-plane fees and taxes are expensed as
incurred for our branded operations. Aircraft fuel also includes the realized and unrealized mark-to-market adjustments on fuel derivatives.
Landing Fees and Airport Rents
This expense consists of an estimate of fees charged by airports for each aircraft landing and airport rental fees for ticket counter,
gate and common space. Under our fixed-fee agreements, we are reimbursed for the actual costs of landing fees. Landing fees and airport
rents are expensed as incurred for the branded operations.
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 deferred credits received from the aircraft
manufacturer for parts and training. The credits are deferred and 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 the majority 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. All other maintenance is expensed as
incurred under the direct expense method of accounting.
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 intangible assets with definite
lives.
Promotion and Sales
This expense is incurred on our branded operation only and consists of advertising costs, passenger reservation and booking fees,
credit card processing fees and commissions.