Alaska Airlines and Horizon Air 2007 Annual Report Download - page 138

During 2007, purchased capacity costs
exceeded passenger revenue—purchased
capacity by $21.4 million. However, the reported
results of purchased capacity flying do not reflect
the total contribution of these flights to our
mainline operation as many of the flights feed
traffic from smaller cities.
ALASKA EXPENSES
For the year, total operating expenses increased
$66.4 million compared to 2006 as a result of
new purchased capacity costs recorded under
the CPA with Horizon, offset by a decline in
mainline operating costs. The components of
Alaska’s operating expenses are summarized in
the following table:
Years Ended December 31
Operating
Expenses (in
millions) 2007 2006
%
Change
Mainline
operating
expenses . . . $2,552.3 $2,774.4 (8.0)
Purchased
capacity
costs ...... 302.8 14.3 NM
Total Operating
Expenses . . . $2,855.1 $2,788.7 2.4
NM = Not meaningful
Mainline Operating Expenses
Total mainline operating costs for 2007 declined
by $222.1 million or 8.0% compared to 2006.
The absence of the fleet transition costs and
restructuring charges in 2007, and lower aircraft
fuel expense resulting from mark-to-market gains
associated with the value of our fuel hedge
portfolio were the primary causes of the decline.
Along with our financial and statistical data on
page 34, we are presenting here our line-item
expenses on a per-ASM basis (in cents). We
believe this information is useful to investors
because it highlights areas in which costs have
increased or decreased either more or less than
capacity:
Years Ended
December 31, CASM Change
2007 2006 2005
2007 vs.
2006
2006 vs.
2005
Wages and
benefits ...... 3.11 3.19 3.24 (0.08) (0.05)
Variable incentive
pay.......... 0.06 0.12 0.07 (0.06) 0.05
Aircraft fuel,
including
hedging gains
and losses .... 3.04 3.25 2.13 (0.21) 1.12
Aircraft
maintenance . . 0.62 0.67 0.83 (0.05) (0.16)
Aircraft rent ..... 0.47 0.48 0.52 (0.01) (0.04)
Landing fees and
other rentals . . 0.70 0.68 0.70 0.02 (0.02)
Contracted
services ...... 0.51 0.51 0.47 — 0.04
Selling
expenses ..... 0.53 0.61 0.59 (0.08) 0.02
Depreciation and
amortization . . . 0.59 0.59 0.56 — 0.03
Food and
beverage
service ....... 0.19 0.21 0.22 (0.02) (0.01)
Other .......... 0.72 0.69 0.72 0.03 (0.03)
Fleet transition
costs ........ —0.81 — (0.81) 0.81
Restructuring
charges and
adjustments . . . —0.11 0.09 (0.11) 0.02
Total Mainline
Operating
Expenses per
ASM ......... 10.54 11.92 10.14 (1.37) 1.78
Additional line item information is provided
below.
Wages and Benefits
Wages and benefits were relatively flat in 2007,
primarily as a result of the following:
• a 3.8% increase in full-time equivalents.
The number of full-time equivalent
employees increased largely as a result
of our initiative to improve our on-time
performance and other operational goals;
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