US Airways 2008 Annual Report Download - page 55

Table of Contents
Operating Expenses:
Percent
2008 2007 Change
(In millions)
Operating expenses:
Aircraft fuel and related taxes $ 3,618 $ 2,630 37.6
Loss (gain) on fuel hedging instruments, net:
Realized (140) (58) nm
Unrealized 496 (187) nm
Salaries and related costs 2,231 2,302 (3.1)
Aircraft rent 724 727 (0.4)
Aircraft maintenance 783 635 23.2
Other rent and landing fees 562 536 4.9
Selling expenses 439 453 (3.2)
Special items, net 76 99 (23.2)
Depreciation and amortization 224 198 13.1
Goodwill impairment 622 — nm
Other 1,243 1,227 1.5
Total mainline operating expenses 10,878 8,562 27.1
Express expenses:
Fuel 1,137 765 48.6
Other 2,002 1,962 2.0
Total Express operating expense 3,139 2,727 15.1
Total operating expenses $ 14,017 $ 11,289 24.2
Total operating expenses were $14.02 billion in 2008, an increase of $2.73 billion or 24.2% compared to 2007. Mainline operating
expenses were $10.88 billion in 2008, an increase of $2.32 billion or 27.1% from 2007. The 2008 period included a $622 million non-
cash charge to write off all of the goodwill created by the merger of US Airways Group and America West Holdings in September 2005.
The remaining period over period increase in mainline operating expenses was driven principally by increases in aircraft fuel costs
($988 million) and a net loss on fuel hedging instruments ($356 million) in 2008 compared to a net gain ($245 million) in 2007. The net
unrealized losses during 2008 were driven by the significant decline in the price of oil in the latter part of 2008.
The 2008 period also included $76 million of net special charges, consisting of $35 million of merger related transition expenses,
$18 million in non-cash charges related to the decline in fair value of certain spare parts associated with US Airways' Boeing 737 aircraft
fleet and as a result of US Airways' capacity reductions, $14 million in lease return costs and penalties related to certain Airbus aircraft
and $9 million in charges related to involuntary furloughs as well as terminations of non-union administrative and management staff.
This compares to net special charges of $99 million in the 2007 period due to merger related transition expenses.
Significant changes in the components of mainline operating expenses are as follows:
• Aircraft fuel and related taxes increased 37.6% due primarily to a 43.9% increase in the average price per gallon of fuel to a
record high $3.17 in 2008 from $2.20 in 2007, offset by a 4.4% decrease in gallons consumed.
• Loss (gain) on fuel hedging instruments, net fluctuated from a net gain of $245 million in 2007 to a net loss of $356 million in
2008. The net loss in the 2008 period is the result of net unrealized losses of $496 million on open fuel hedge transactions, offset
by $140 million of net realized gains on settled fuel hedge transactions. US Airways' fuel hedging program uses no premium
collars, which establish an upper and lower limit on heating oil futures prices, to provide protection from fuel price risks. US
Airways uses heating
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